UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31 2020, 2022
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☐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, NV89118 | ||
(Address of principal executive offices) | ||
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(Registrant’s telephone number) |
Securities registered under 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☑
Indicate by checkmark whether the registrant (1) has 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 registrant 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. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s second fiscal quarter. $21,069,348.quarter $84,647,451.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 21,970,63824,411,098 common shares as of March 26, 2021. 15, 2023.
GALAXY GAMING, INC.
ANNUALANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20202022
TABLE OF CONTENTS
PART I | ||||
Item 1. | 4 | |||
Item 1A. |
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Item 1B. |
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Item 2. |
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Item 3. |
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Item 4. |
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PART II | ||||
Item 5. | Market for Registrant’s Common Equity and Related Stockholder Matters |
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Item |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. | Financial Statements and Supplementary Financial Information |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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PART III | ||||
Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters | 39 | ||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 39 | ||
Item 14. | 39 | |||
PART IV | ||||
Item 15. |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that do not relate to historical or current facts but are “forward-looking” statements. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to future events or trends, our future prospects and proposed new products, services, developments or business strategies, among other things. These statements can generally (although not always) be identified by their use of terms and phrases such as anticipate, appear, believe, could, would, estimate, expect, indicate, intent, may, plan, predict, project, pursue, will continue and other similar terms and phrases, as well as the use of the future tense.
Actual results could differ materially from those expressed or implied in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent known and unknown risks and uncertainties. You should not assume at any point in the future that the forward-looking statements in this report are still valid. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect future events or circumstances.
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PART I
BUSINESS
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, 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 and 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 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.
We have two operating segments which are combined into one reporting segment. In our GG Core operating segment, we license our products to gaming establishments in the physical world (casinos, racinos, cruise ships, etc.) and to providers of gaming devices such as electronic table games (“ETG’s). In our GG Digital operating segment, we license our products to gaming establishments in the virtual world (online casinos and other gaming-related websites).
Proprietary Table Games. Casinos use Proprietary Table Games together with or in lieu of other games in the public domain (e.g. Blackjack, Craps, Roulette, etc.) because of their popularity with players and to increase profitability. Typically, Proprietary Table Games are grouped into two product types referred to as “Side Bets” and “Premium Games.” Side Bets are proprietary features and wagering options typically added to public domain games such as poker, baccarat, pai gow poker, craps and blackjack table games. Examples of our Side Bets include 21+3,3®, Lucky LadiesLadies® and Bonus CrapsCraps™. Premium Games are unique stand-alone games with their own set of rules and strategies. Examples of our Premium Games include Heads Up Hold ’em,’em®, High Card Flush,Flush®, Cajun StudStud® and Three Card PokerPoker®. Generally, Premium Games generate higher revenue per table placement than the Side Bet games. At December 31, 2020, our games were being played on 5,073 tables in 586 physical casinos in the markets listed above.
Enhanced Table Systems. Enhanced Table Systems are electronic enhancements used on casino table games to add to player appeal and to enhance game security. An example in this category is our Bonus Jackpot System (“BJS”), an advanced electronic system installed on gaming tables designed to collect data by detecting player wagers and other game activities. This information is processed and used to improve casino operations by evaluating game play, to improve dealer efficiency and to reward players through the offering of jackpots and other bonusing mechanisms. Typically, the BJS system includes an electronic video display, known as TableVision, which shows game information designed to generate player interest and to promote various aspects of the game. The BJS system can also be used to network numerous gaming tables together into a common system either within a casino or through the interconnection of multiple casinos, which we refer to as our Inter-Casino Link System.Beginning in 2022, we fundamentally redesigned our Enhanced Table Systems. Our new systems utilize off-the-shelf computer hardware and are developed using widely supported programming languages so as to be easily reviewable by the gaming laboratories that certify these types of products for use in casinos. In 2023, we expect to launch our Galaxy Operating System (“gOS”), a platform product to which we can add new functionality as periodic releases without the need to replace the fundamental hardware or software supporting the platform.
iGaming. On August 21, 2020, we completed the acquisition of 100% of the member interests in Progressive Games Partners, LLC (“PGP”). PGP holds the exclusive worldwide rights to a number of games titles (including ours) for relicensing to operators of online gaming systems principally in Europe, the United Kingdom, and, more recently, the United States.worldwide. Prior to the acquisition, PGP had been the exclusive distributor of our games to the online gaming sector; by making the acquisition of PGP, we effectively eliminated the distributor fee that PGP charged us, and we now also receive the revenue PGP earns on the content of other licensors (to whom we pay a royalty fee). At December 31, 2020, PGP had contracts to license 14 games from 8 licensors, as well as our own content, and had contracts with 16 online operators for the use of that content. In many cases, these online operators provide “white label” gaming infrastructure for many separate online casino brands with the result that the content that PGP licenses can appear on hundreds of online gaming sites. PGP’s contracts with online operators prohibit those operators from deploying the content in markets where it is not legal to do so.
Product Strategy. In the physical casino market, we have a “three-dimensional” growth strategy. First, we seek to increase the number of casinos we serve with our games. Second, within a casino, we seek to increase the number of tables on which we have placements. Our current product placements are heavily concentrated around blackjack, and we have developed side bets and other game content to address other table game categories such as baccarat, roulette and craps. Finally, by adding our enhanced systems to tables that already have our content, we can increase the billable units per table. For example, on a blackjack table that has one of our side bets we can add a second side bet and a progressive jackpot for each side bet thereby increasing the billable units for that table from one to four. As of
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December 31, 2022, we served 513 casinos worldwide, had content on 5,083 tables in those casinos and had a total of 7,737 billable units in those casinos.
Our strategy in iGaming is similar in that we seek to have our content on as many online tables as possible. However, the structure of the iGaming business is different in that many of our customers are iGaming platform providers that offer a turnkey online gaming solution to online operators who deploy those online offerings directly to the gaming player. To a lesser extent, we license our content to online operators who have their own platform and serve gaming customers directly. The online analog to a casino is called a “skin” where a skin is a separately branded and marketed URL. Online operators often offer multiple skins targeting different markets and using different themes. Our strategy is 1) to have our content on as many skins as possible and 2) to have as many of our games as possible on each skin. As of December 31, 2022, we had content on over 1,600 skins worldwide and approximately four to six game placements on each of those skins. Finally, we expect that additional states in the U.S. will legalize online gaming, allowing our online clients to offer games to a significantly bigger audience.
Recurring Revenue and Gross Profit
A majority of our clients contract with us to use our products and services on a month-to-month basis with typically a 30–45 day termination notice requirement. We invoice our clients monthly, either in advance for unlimited use or in arrears for actual use, depending on the product or contract terms. Such recurring revenues accounted for substantially all of our total revenues in 20202022 and 2019.2021. Our license revenues have few direct costs thereby generating high gross profit margins. We do not report “gross profit” in our statements of operations included in this report. Instead, gross profit would be comparable to “revenues” minus “cost of ancillary products and assembled components,” both of which are presented in our statements of operations. For the game content that we license in from third parties, we pay royalties to game owners whose content we re-license to casino operators. In our physical casino business, those royalties are included in operating expenses. In our iGaming business, those royalties are deducted from gross revenues and we present revenue net of the royalties.
For more information about our revenues, operating income and assets, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Financial Information” included in this report.
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STRATEGY
Our long-term business strategy focuses on increasing our value to casino clients by offering them enhanced services and support, and by producing innovative products and game play methodologies that their players enjoy. We believe that by increasing the value of our products and services to clients, we can continue to build our recurring revenues in both existing and new markets. To achieve this objective, we employ the following strategies:
Expand our portfolio of services, products and technologies;
Increase our per unit revenues by leveraging our Enhanced Table Systems;
Expand the number of markets we serve;
Grow our iGaming content and partner base.
Expand our portfolio of services, products and technologies. Our strategy is to be an important vendor to casino operators by offering a complete and comprehensive portfolio of services, games, products, systems, technologies and methodologies for casino table games. We continuously develop and/or seek to acquire new proprietary table games to complement our existing offerings and to extend our penetration of proprietary table games on the casino floor. We believe we have a significant opportunity to replicate the success we have had with blackjack side bets by developing content for the other significant public domain casino games of baccarat, roulette and craps.
Increase our revenue per unit by leveraging our Enhanced Table Systems. Our Enhanced Table Systems are placed on tables where we already have our side bet or premium game content deployed. By adding our Enhanced Table Systems, we significantly increase the revenue we earn from that table. Gaming operators deploy the Enhanced Table Systems because they generally increase the win for the casino by an amount that significantly exceeds the cost to license the system from us. Our product strategy includes making Electronic Table Systems that support a multitude of side bets and premium games across several casino game segments (e.g., blackjack, craps, roulette, baccarat, etc.).
Expand the number of markets we serve. There are In the past, there were table games markets in North America that we docould not serve or in which we cannotcould not offer our full suite of products and services. In general, this iswas because we arewere not licensed to serve casinos in that market or the license we have limits the products and services we can provide. Consequently, we are seeking to increase the number of jurisdictions in which we are licensed and to upgrade those licenses that limit our product and service offering. We believe that the redemption transaction we undertook in 2019 (discussed below in the “Significant 2019 Business Developments” section) will helphas helped us with our licensing activities in existing and new markets, and will continue to help us, including table games markets outside of the United States. In the current year, we have received new or expanded licenses in 13 jurisdictions in North America, and 3 new iGaming jurisdictions.
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Grow our iGaming content and partner base. We have licensed our content to the iGaming segment for several years through our distributor, PGP. In 2020, we acquired PGP in order to improve our financial results from the iGaming segment by eliminating the distribution fee to PGP and by adding the revenue that PGP earns from licensing the content owned by itself and others. The COVID pandemic has resulted in a significant increase in jurisdictions considering legalizing iGaming, in many cases in concert with legalizing sports wagering. We intend to increase our revenues from iGaming in several ways. First, we expect that our existing licensees will see growth in their current markets while adding new markets in the U.S. and elsewhere. Second, we intend to add new licensees in the iGaming segment. And finally, we intend to add to the number of games that we license to both existing and new licensees.
COMPETITION
Promote the use of our game content in adjacent gaming markets. We have game content that is well-known and popular in physical casinos and online casinos. One example is the Electronic Table Games (“ETG”) market, which offers table game content on touch-screen video devices. As casinos face rising labor costs, table games can become unprofitable at low bet minimums, and we believe casinos may seek to expand the use of ETGs to address this shortfall. Another example is lotteries (both ticket lotteries and iLotteries), where our well-known game content may attract patrons to lotteries as another way to enjoy it. There may be regulatory restrictions on the use of casino gaming content in certain lottery markets, but the addressable market is large even excluding these markets.
COMPETITION
We compete with several companies that develop and provide proprietary table games, electronic gaming platforms, game enhancements and related services. We believe that the principal competitive factors in our market include products and services that appeal to casinos and players, jurisdictional approvals and a well-developed sales and distribution network.
We believe that our success will depend upon our ability to remain competitive in our field. Competition can be based on price, brand recognition, player appeal and the strength of underlying intellectual property and superior customer service. Larger competitors may have longer operating histories, greater brand recognition, more firmly established supply relationships, superior capital resources, distribution and product inventory than we do. Smaller competitors may be more able to participate in developing and marketing table games, compared to other gaming products, because of the lower cost and complexity associated with the development of these products and a generally less stringent regulatory environment. We compete with others in efforts to obtain or create innovative products, obtain financing, acquire other gaming companies, and license and distribute products. We compete on these bases, as well as on the strength of our sales, service and distribution channels.
Our competitors include, but are not limited to, Scientific Games Corporation;Light & Wonder, Inc.; International Game Technology; Play AGS, Inc.; TCS/John Huxley; and Masque Publishing. Most of these competitors are larger than we are, have more financial resources than we do, and have more business segments than we do. In addition, we expect additional competitors to emerge in the future. There can be no assurances that we will be able to compete effectively in the future and failure to compete successfully in the market could have a material adverse effect on our business.
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SUPPLIERS
We own outright the content for most of our Side Bets and Premium Games and therefore do not depend on suppliers for the majority of our revenueswe license games from these games. However, there are some games that we have licensed from others andothers; to whom we pay royalty fees when we license those games to others (including in the online gaming sector).We. We generally have multi-year licensing agreements for this content. With respect to our Enhanced Table Systems, we obtain most of the parts for our products from third partythird-party suppliers, including both off-the-shelf items as well as components manufactured to our specifications. We also assemble a small number of parts in-house that are used both for product assembly and for servicing existing products. We generally perform warehousing, quality control, final assembly and shipping functions from our facilities in Las Vegas, Nevada, although small inventories are maintained, and repairs are performed by our field service employees.
In our iGaming business, we license some of our game content from other providers for re-licensing to online operators along with the content we own outright. We believepay royalties to the owners of the content that our sources of supply for components and raw materials are adequate and that alternative sources of materials are available.we license from them.
RESEARCH AND DEVELOPMENT
We seek to develop and maintain a robust pipeline of new products and services to bring to market. We employ a staff of hardware and software engineers, graphic artists and game developers at our corporate offices to support, improve and upgrade our products and to develop and explore other potential table game products, technologies, methodologies and services. We also will use outside services for research and development from time to time.
INTELLECTUAL PROPERTY
Our products and the intellectual property associated with them are typically protected by patents, trademarks, copyrights and non-compete agreements. However, there can be no assurance that the steps we have taken to protect our intellectual property will be sufficient. Further, in the United States certain court rulings may make it difficult to enforce patents around the math relating to casino
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games, which makes us more dependent on copyrights and trademarks for protection. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as the laws of the United States, which could increase the likelihood of infringement. Furthermore, other companies could develop similar or superior products without violating our intellectual property rights. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive, and distract the attention of management, and there can be no assurance that we would prevail.
We have been subject to litigation claiming that we have infringed the rights of others and/or that certain of our patents and other intellectual property are invalid or unenforceable. We have also brought actions against others to protect our rights.
GOVERNMENT REGULATION
We are subject to regulation by governmental authorities in most jurisdictions in which we offer our products. The development and distribution of casino games, gaming equipment, systems technology and related services, as well as the operation of casinos, are all subject to regulation by a variety of federal, state, international, tribal, and local agencies with the majority of oversight provided by individual state gaming control boards. While the regulatory requirements vary by jurisdiction, most require:
Findings of suitability for the Company, individual officers, directors, key employees and major shareholders;
Documentation of qualification, including evidence of financial stability;
Specific product approvals for games and gaming equipment; and
Licenses, registrations and/or permits.
Gaming regulatory requirements vary from jurisdiction to jurisdiction, and obtaining licenses, registrations, findings of suitability for our officers, directors, and principal stockholders and other required approvals with respect to us, our personnel and our products are time consuming and expensive. Generally, gaming regulatory authorities have broad discretionary powers and may deny applications for or revoke approvals on any basis they deem reasonable. We have approvals that enable us to conduct our business in numerous jurisdictions, subject in each case to the conditions of the particular approvals. These conditions may include limitations as to the type of game or product we may sell or lease, as well as limitations on the type of facility, such as riverboats, and the territory within which we may operate, such as tribal nations. Gaming laws and regulations serve to protect the public interest and ensure gambling related activity is conducted honestly, competitively and free of corruption. Regulatory oversight additionally ensures that the local authorities receive the appropriate amount of gaming tax revenues. As such, our financial systems and reporting functions must demonstrate high levels of detail and integrity.
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We also have authorizations with certain Native American tribes throughout the United States that have compacts with the states in which their tribal dominions are located or operate or propose to operate casinos. These tribes generally require suppliers of gaming and gaming-related equipment to obtain authorizations. Gaming on Native American lands within the United States is governed by the Federal Indian Gaming Regulatory Act of 1988 (“IGRA”) and specific tribal ordinances and regulations. Class III gaming (table games and slot machines, for example), as defined under IGRA, also requires a Tribal-State Compact, which is a written agreement between a specific tribe and the respective state. This compact authorizes the type of Class III gaming activity and the standards, procedures and controls under which the Class III gaming activity must be conducted. The National Indian Gaming Commission (“NIGC”) has oversight authority over gaming on Native American lands and generally monitors tribal gaming, including the establishment and enforcement of required minimum internal control standards. Each tribe is sovereign and must have a tribal gaming commission or office established to regulate tribal gaming activity to ensure compliance with IGRA, NIGC, and its Tribal-State Compact. We have complied with each of the numerous vendor licensing, specific product approvals and shipping notification requirements imposed by Tribal-State Compacts and enforced by tribal and/or state gaming agencies under IGRA in the Native American lands in which we do business.
The nature of the industry and our worldwide operations make the license application process very time consuming and require extensive resources. We engage legal resources familiar with local customs in certain jurisdictions to assist in keeping us compliant with applicable regulations worldwide. Through this process, we seek to assure both regulators and investors that all our operations maintain the highest levels of integrity and avoid any appearance of impropriety.
We have obtained or applied for all required government licenses, permits, registrations, findings of suitability and approvals necessary to develop and distribute gaming products in all jurisdictions where we directly operate. Although many regulations at each level are similar or overlapping, we must satisfy all conditions individually for each jurisdiction. Additionally, in certain jurisdictions we license our products through distributors authorized to do business in those jurisdictions.
In addition to what may be required of our officers, board members, key employees and substantial interest holders, any of our stakeholders, including but not limited to investors, may be subject to regulatory requests and suitability findings. Failure to comply with regulatory requirements or obtaining a finding of unsuitability by a regulatory body could result in a substantial or total loss of investment.
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In the future, we intend to seek the necessary registrations, licenses, approvals, and findings of suitability for us, our products, and our personnel in other jurisdictions throughout the world. However, we may be unable to obtain such necessary items, or if such items are obtained, may be revoked, suspended, or conditioned. In addition, we may be unable to obtain on a timely basis, or to obtain at all, the necessary approvals of our future products as they are developed, even in those jurisdictions in which we already have existing products licensed or approved. If the necessary registrations are not sought after or the required approvals not received, we may be prohibited from selling our products in that jurisdiction or may be required to sell our products through other licensed entities at a reduced profit.
EMPLOYEES
We have 30As of December 31, 2022, we had 42 full-time employees, including executive officers, management personnel, accounting personnel, office staff, sales staff, service technicians and research and development personnel. As needed, we also employ part-time and temporary employees and pay for the services of independent contractors.
Significant 2020RECENT Business Developments
Share Redemption.On May 6, 2019, we redeemed all 23,271,667 shares (approximately 57.3% of the then-outstanding stock) of our common stock held by Triangulum Partners, LLC (“Triangulum”), an entity controlled by Robert B. Saucier (“Saucier”), Galaxy Gaming's founder, and, prior to the redemption, the holder of a majority of our outstanding common stock. Our Articles of Incorporation (the “Articles”) provide that if certain events occur in relation to a stockholder that is required to undergo a gaming suitability review or similar investigative process, we have the option to purchase all or any part of such stockholder’sstockholder's shares at a price per share that is equal to the average closing share price over the thirty calendar days preceding the purchase. The average closing share price over the thirty calendar days preceding the redemption was $1.68 per share.
The consideration owed to Triangulum for the redemption iswas $39,096,401 (the “Redemption Consideration Obligation”). Litigation between the Company and Triangulum related to the redemption and other matters was settled pursuant to a settlement agreement by a payment from the Company to Triangulum of the Redemption Consideration Obligation on November 15, 2021. See Note 109 to our audited consolidated financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
There is ongoing litigation between the Company and Triangulum related to the redemption and other matters. See Note 11 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
Membership Interest Purchase Agreement. On February 25, 2020, Galaxy Gaming entered into a Membership Interest Purchase Agreement, dated February 25, 2020 (the “Purchase Agreement”), between the Company and the membership interest holders of PGP.
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On August 21, 2020, the Company entered into a First Amendment to the Purchase Agreement between the Company and the membership interest holders of PGP. The First Amendment, among other things, fixed the cash portion of the purchase price at $6.425 million and established that the stock portion would be satisfied through the issuance of 3,141,361 shares of the Company’s common stock with a value of $1.27 per share on the date of the acquisition.
On August 21, 2020, the Company completed the acquisition of 100% of the member interests in PGP. The entirety of the purchase price ($10,414,528) has been allocated to customer relationships and is included in Other intangible assets, net, on the Company’s balance sheet. See Note 7 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details. The Company also acquired certain receivables and payables in the net amount of $581,885, which was to be remitted to the sellers of PGP as the receivables and payables were settled. As of December 31, 2020, the remaining balance owed to the sellers was $36,663.
COVID-19. On March 11, 2020, the World Health Organization declared a pandemic related to the COVID-19 outbreak, which led to a global health emergency. The public-health impact of the outbreak continues to remain largely unknown and still evolving. The related health crisis could continue to adversely affect the global economy, resulting in continued economic downturn that could impact demand for our products.
On March 17, 2020, the Company announced that it suspended billing to customers who had closed their doors due to the COVID-19 outbreak. As a result, we did not earn revenue for the use of our games by our physical casino customers during the time that they were closed. In general, the online gaming customers who license our games through our distributor remained and continue to remain in operation in spite of the COVID-19 crisis. We earned revenue from them during the crisis and expect to continue to do so, but potentially at levels that may be lower than we previously received.
As of the date of this filing, many land-based casinos have begun to re-open with significantly reduced occupancy and other limitations. As they reopen, it will take additional time for their operations to return to pre-crisis levels. Given the uncertainties around casino re-openings, we instituted a phased billing approach for our clients through fiscal year 2020, which resulted in us realizing substantially less revenue than we might otherwise expect. In addition, because of COVID-19-related financial pressures on our physical casino customers, there can be no assurance that our accounts receivable will be paid timely for revenues earned prior to the shutdowns. Finally, the Company was notified by some of the land-based casinos that they would be extending their payment terms.
We also rely on third-party suppliers and manufacturers in China, many of whom were shut down or severely cut back production during the shutdown. Although this has not had a material effect on our supply chain, any future disruption of our suppliers and their contract manufacturers may impact our sales and operating results going forward.
Because of the uncertainties of COVID-19, the Company drew on its Revolving Loan in the amount of $1,000,000 on March 12, 2020. Also, on April 17, 2020, the Company obtained an unsecured loan of $835,300 through Zions Bancorporation, N.A. dba Nevada State Bank under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program Flexibility Act (the “Flexibility Act”). On July 16, 2020, the Company filed an application and supporting documentation for forgiveness in full of the PPP Loan. On November 21, 2020, the Company received notification the PPP Loan had been forgiven in full. Pursuant to the CARES Act, the Federal Reserve created the Main Street Priority Loan Program (“MSPLP”) to provide financing for small and medium-sized businesses. On October 26, 2020, the Company borrowed $4 million from Zions Bancorporation N.A., dba Nevada State Bank under this program. See Note 10 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
As of the date of this filing, the Company believes that it has adequate liquidity to meet its short-term obligations. If the effects of the COVID-19 crisis endure or there is another period of casino closures, we may be required to reassess our obligations, including our ability to pay employee compensation and benefits.
The COVID-19 crisis may change the behavior of gaming patrons. Most of our clients operate places of public accommodation, and their patrons may reduce visitation and play as a precaution. Further, governmental authorities may continue to impose reduced hours of operation or limit the capacity of such places of public accommodation. A long-term reduction in play could have a material adverse impact on our results of operations. Depending on the length and severity of any such adverse impact, we may fail to comply with our obligations, including covenants in our credit agreement, and we may need to reassess the carrying value of our assets.
Credit Agreement Amendments. See Note 10 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details of amendments made to the Company’s credit agreement.
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ITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
A smaller reporting company is not required to provide the information required by this Item.
We do not own any real property used in the operation of our current business. We maintain our corporate office at 6480 Cameron Street, Suite 305, Las Vegas, Nevada, where we currently occupy approximately 14,000 square feet of combined office and warehouse space. We also maintain a small warehouse and service facility in Kent, Washington and a small office in Richland, Washington. See Note 98 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
We have been named in and have brought lawsuits in the normal course of business. See Note 1110 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
ITEM 4. MINE SAFETY DISCLOSURES
A smaller reporting company is not required to provide the information required by this Item.
8
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTCQB marketplace (“OTCQB”) under the ticker symbol GLXZ.
The following table sets forth the range of high and low closing sale prices for our common stock for each of the periods indicated as reported by the OTCQB.
|
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||||||||
| High ($) |
|
| Low ($) |
|
| High ($) |
|
| Low ($) |
| Quarter Ended |
|
| High ($) |
|
| Low ($) |
|
| High ($) |
| Low ($) |
| |||||||||||
March 31, |
|
| 1.95 |
|
|
| 0.70 |
|
|
| 2.15 |
|
|
| 1.39 |
|
|
| 4.63 |
|
|
| 3.53 |
|
|
| 3.02 |
| 1.72 |
| |||||
June 30, |
|
| 1.36 |
|
|
| 0.73 |
|
|
| 1.84 |
|
|
| 1.57 |
|
|
| 5.39 |
|
|
| 3.20 |
|
|
| 3.70 |
| 2.70 |
| |||||
September 30, |
|
| 1.36 |
|
|
| 1.08 |
|
|
| 1.99 |
|
|
| 1.49 |
|
|
| 3.90 |
|
|
| 2.35 |
|
|
| 4.64 |
| 3.68 |
| |||||
December 31, |
|
| 1.95 |
|
|
| 0.95 |
|
|
| 2.24 |
|
|
| 1.58 |
|
|
| 2.75 |
|
|
| 2.15 |
|
|
| 4.45 |
| 3.67 |
|
The Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty buying or selling our securities.
HOLDERS OF OUR COMMON STOCK
As of March 26, 2021,15, 2023, we had 21,970,63824,411,098 shares of our common stock issued and outstanding and 3541 shareholders of record.
DIVIDEND POLICY
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
We would not be able to pay our debts as they become due in the usual course of business; or
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future. We areEven though we repaid in full the borrowings we made in 2020 from the MSPLP, we were prohibited from paying dividends while our MSPLP is outstanding andor making share repurchases for one year thereafter.after the repayment. In addition, the Fortress Credit Agreement imposes significant restrictions on our ability to pay dividends. See Note 10.9 to our audited consolidated financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
9
TRANSFER AGENT
Our stock transfer agent and registrar is PhiladelphiaPacific Stock Transfer Inc.Company. located at 2320 Haverford Street, Ardmore, PA 19003.6725 Via Austi Parkway, Suite 300, Las Vegas, Nevada, 89119. Their telephone number is (484) 416-3124.
ITEM 6. SELECTED FINANCIAL DATA(540) 216-0187.
A smaller reporting company is not required to provide the information required by this Item.
1110
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources as of and for the years ended December 31, 20202022 and 2019.2021. This discussion should be read together with our audited consolidated financial statements and related notes included in Item 8. Financial Statements and Supplementary Financial Information. Some of the information contained in this discussion includes forward-looking statements that involve risks and uncertainties; therefore our “Special Note Regarding Forward-Looking Statements” should be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, such forward-looking statements.
OVERVIEW
We develop, acquire, assemble and market technology and entertainment-based products and services for the gaming industry for placement on the casino floorfloors and on legal internet gaming sites. Our products and services primarily relate to licensed casino operators’ table games activities and focus on either increasing their profitability, productivity and security or expanding their gaming entertainment offerings in the form of proprietary table games, electronically enhanced table game platforms, fully-automated electronic tables and other ancillary equipment. In addition, we license intellectual property to legal internet gaming operators. Our products and services are offered in highly regulated markets throughout the world. Our products are assembled at our headquarters in Las Vegas, Nevada, as well as outsourced for certain sub-assemblies in the United States.
Results of operations for the years ended December 31, 20202022 and 20192021. For the year ended December 31, 2020,2022, we generated gross revenues of $10,230,316$23,442,306 compared to $21,300,996$19,984,378 in 2019,2021, representing a decreasean increase of $11,070,680,$3,457,928, or 52.0%17.3%. Revenues in our GG Core operating segment increased 13.6%, from $13,556,436 to $15,399,059. This decreaseincrease was primarilydirectly attributable to the COVID-19 crisis, as manyre-opening of a significant portion of our land-based casino customers remained closed throughin the end of 2020, and those that were open had reduced capacity or realized reduced visitation which, in turn, resulted in us realizing no revenue from those that were closed and reduced revenue from those that were open. We continued to realize revenue from licensing our game contentUK after the restrictions due to the COVID-19 crisis were lifted. Net revenues in our GG Digital operating segment increased 25.1% from $6,427,943 to $8,043,247. Our online gaming market throughrevenues increased due to our online customers’ growth in their traditional markets and their entry into new markets. U.S. revenue in both operating segments in 2022 were adversely impacted by movement of the end of 2020. Withexchange rates into U.S. Dollars for the PGP acquisitionEuro and the British Pound beginning in the thirdsecond quarter we began to recognize revenue from licensing the newly-acquired game content of others to the online gaming market.2022.
Selling, general and administrative expenses were $8,964,930$12,548,033 in 20202022 compared to $13,295,475$10,646,524 in 2019,2021, representing a decreasean increase of $4,330,545,$1,901,509 or 32.6%17.9%. This decreaseThe increase was primarily due to a decreasedriven by increases in compensation-related expenses directly related to the COVID-19 crisis (reductionsalaries and wages, higher professional services fees in workforce, removal of bonuseslegal, consulting, and accounting, and higher travel costs, offset by lower commissions and distributor fees). Lower legal fees contributed to the decrease as well. Prior year legal expenses included expenses associated with our strategic review, the Triangulum Lawsuit and the related contested proxy campaign. Current year legal expenses were comprised mainly of expenses related to the Triangulum Lawsuit. Also, the decrease in expenses related to travel and entertainment, royalty expenses and advertising and marketing were directly related to the COVID-19 crisis. In 2020, the Company incurred $652,198 in expenses associated with the Triangulum Lawsuit and $20,058 of severancebonus expense. Excluding these costs, selling, general and administrative expenses as a percentage of gross revenue was 81.1% in 2020, compared to 53.8% in 2019.
Research and development expenses were $487,679$584,513 in 20202022 compared to $821,127$520,449 in 2019,2021, representing an increase of $64,064, or 12.3%. This increase was primarily due to increased headcount.
Share-based compensation expenses were $1,278,068 in 2022 compared to $1,532,455 in 2021, representing a decrease of $333,448,$254,387, or 40.6%16.6%. This decrease was primarily due to lower payrolla reduction in the component of fees paid in shares to members of our Board of Directors and related expenses asto a resultreduction in the amortization of the departure of the former Chief Technology Officer in July 2019. Also, consulting expenses decreased dueshare-based compensation to the Company no longer using certain third-party researchofficers, employees and development firms.consultants.
Share-based compensation expenses were $737,991 in 2020 compared to $927,696 in 2019, representing a decrease of $189,705, or 20.4%. This decrease was mainly due to fewer restricted shares issued and at a lower stock price than the comparable prior-year period.
As a result of the changes described above, lossincome from operations was $2,255,010$6,071,802 in 20202022 compared to income from operations$4,345,126 in 2021, an increase of $4,072,676 in 2019, a decrease of $6,327,686,$1,726,676, or 155.4%39.7%.
Total interest expense was $683,357increased $5,905,838 to $7,411,224 in 20202022 compared to $679,201$1,505,386 in 2019, an increase of $4,156, or 0.6%. The increase was mainly attributable to lower interest on our Term Loan due to lower balances, offset by interest expense on our Revolving Loan (which was undrawn in 2019).
Share redemption consideration was $781,928 in 2020 compared to $510,775 in 2019, an increase of $271,153, or 53.1%.2021. The increase was attributable to significantly higher rates of interest on our borrowings. See Note 9 to our audited consolidated financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
Share redemption consideration was $0 in 2022 compared to $682,469 in 2021. The reduction is due to the payment in full of the Triangulum Redemption Consideration Obligation, whichin November 2021. See Note 9 to our audited consolidated financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” for further details.
The income tax expense was outstanding for only a portion of the prior-year period.
On November 21, 2020, the Company received notification the PPP Loan had been forgiven$208,887 in full, including the original loan amount of $835,300 plus $4,943 in accrued interest.
The benefit for income taxes was ($605,936) in 20202022 based on an effective rate of 17.42 percent(12.85)% compared to the provisionbenefit of $10,018$48,637 in 20192021 based on an effective rate of 0.3 percent.2.25%. The 17.42 percent(12.85)% effective tax rate for 20202022 differed from the statutory federal income
12
tax rate of 21.0 percent21% and was primarily attributable to (i) 2020 and 2021 tax impact of Employee Retention Credit applied for by the incomeCompany in Q4 2022 and recorded in 2022; (ii) increased tax benefit from the exercise of approximately $1.2 million as a result ofstock options; (iii) the net operating loss carryback provisions ofincreased foreign rate differential; (iii) increased foreign tax credit carryover not utilized in 2021 and carried over to future periods; and (iv) the CARES Act and (ii) the income tax provision of approximately $560,000 as a result ofCompany maintaining a valuation allowance placed against the Company's certainits deferred tax assets.
11
Adjusted EBITDA. Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”).Adjusted EBITDA includes adjustments to net income (loss) income to exclude interest, income taxes, depreciation, amortization, share based compensation, gain on extinguishment of debt, foreign currency exchange loss, (gain), change in estimated fair value of interest rate swap liability and severance and other expenses related to litigation.litigation. Adjusted EBITDA is not a measure of performance defined in accordance with generally accepted accounting principles in the United States of AmericaU.S. Generally Accepted Accounting Principles (“U.S. GAAP”). However, Adjusted EBITDA is used by management to evaluate our operating performance. Management believes that disclosure of the Adjusted EBITDA metric offers investors, regulators and other stakeholders a view of our operations in the same manner management evaluates our performance. When combined with U.S. GAAP results, management believes Adjusted EBITDA provides a comprehensive understanding of our financial results. Adjusted EBITDA should not be considered as an alternative to net income or (loss) to net cash provided by operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating our performance. A reconciliation of U.S. GAAP net income to Adjusted EBITDA is as follows:
|
| Years ended December 31, |
|
| Years ended December 31, |
| |||||||||||
Adjusted EBITDA Reconciliation: |
| 2020 |
|
| 2019 |
|
|
| 2022 |
|
| 2021 |
| ||||
Net (loss) income |
| $ | (2,208,887 | ) |
| $ | 2,943,376 |
|
| $ | (1,773,189 | ) |
| $ | 2,111,812 |
| |
Interest expense |
|
| 683,357 |
|
|
| 679,201 |
|
|
| 7,411,224 |
|
|
| 1,505,386 |
| |
Share redemption consideration |
|
| 781,928 |
|
|
| 510,775 |
|
|
| — |
|
|
| 682,469 |
| |
Interest income |
|
| (25,702 | ) |
|
| (68,634 | ) |
|
| (71,223 | ) |
|
| (2,048 | ) | |
Depreciation and amortization |
|
| 2,222,042 |
|
|
| 1,953,560 |
|
|
| 2,761,359 |
|
|
| 2,858,991 |
| |
Share-based compensation |
|
| 737,991 |
|
|
| 927,696 |
|
|
| 1,278,068 |
|
|
| 1,532,455 |
| |
Foreign currency exchange loss (gain) |
|
| 34,961 |
|
|
| (46,375 | ) |
|
| 290,394 |
|
|
| 64,879 |
| |
Change in estimated fair value of interest rate swap liability |
|
| (74,487 | ) |
|
| 44,315 |
| |||||||||
(Benefit) provision for income taxes |
|
| (605,937 | ) |
|
| 10,018 |
| |||||||||
Paycheck Protection Program Loan forgiveness |
|
| (840,243 | ) |
|
| — |
| |||||||||
Rebranding expense |
|
| — |
|
|
| 147,490 |
| |||||||||
Change in fair value of interest |
|
| — |
|
|
| (66,009 | ) | |||||||||
Provision (benefit) for income taxes |
|
| 208,887 |
|
|
| 48,637 |
| |||||||||
Other non-recurring income |
|
| 5,709 |
|
|
| — |
| |||||||||
Severance expense |
|
| 20,058 |
|
|
| 227,312 |
|
|
| 28,477 |
|
|
| 12,596 |
| |
Special project expense(1) |
|
| 652,198 |
|
|
| 1,470,563 |
| |||||||||
Special project expense (benefit) - Triangulum |
|
| (86,959 | ) |
|
| 487,712 |
| |||||||||
Special project expense - Other |
|
| 481,737 |
|
|
| (503,050 | ) | |||||||||
Adjusted EBITDA |
| $ | 1,377,279 |
|
| $ | 8,799,297 |
|
| $ | 10,534,484 |
|
| $ | 8,733,830 |
|
|
|
Liquidity and capital resources.We have generally been able to fund our continuing operations, our investments, and the obligations under our existing borrowings through cash flow from operations. However,In 2020, as a result of the COVID-19 crisis, resultedwe were required to raise funds from financing sources in negative cash provided byorder to maintain operations. In addition to our normal operations, we may make acquisitions of products, technologies or entire businesses. Our ability to access capital for the year ended December 31, 2020. But basedoperations or for acquisitions will depend on our forecast of a gradual recoveryconditions in the casino gaming industry from the lows of Q2 2020, combined with the $3.92 million in cash we received from the MSPLP, we believe we have adequate liquidity to meet our short-term obligations. However, if COVID-19 continues to force casino closures or if the recovery from the closures is slower than we anticipate, the issuance of debt or equity financing arrangements may be required to fund future expenditures or other cash requirements. There can be no assurance that we will be successful in raising additional funding, if necessary,capital markets and even if we are successful, it may not be on advantageous terms to us. If we are not able to secure additional funding, the implementationinvestors’ perceptions of our business plan could be negatively affected. In addition, weprospects and such conditions and perceptions may incur higher capital expenditures in the future to expand our operations. We may from time to time acquire products and businesses complementary to our business. We may also incur significant expenses when applying for new licenses or in complying with current jurisdictional requirements. As a public entity, we may issue shares of our common stock and preferred stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. To the extent that we seek to acquire other businesses in exchange for our common stock, fluctuations in our stock price could have a material adverse effect on our ability to complete acquisitions.not always favor us.
As of December 31, 2020,2022, we had total current assets of $11,562,833$24,194,187 and total assets of $30,574,594.$42,010,516. This compares to $13,208,837$23,119,874 and $22,987,053,$40,452,705, respectively, as of December 31, 2019.2021. The decreaseincrease in total current assets as of December 31, 20202022 was primarily due to the Company closing on the Purchase Agreementan increase in August 2020, resulting incash and prepaids, offset by a decrease in our cash balance.receivables. The increase in total assets as of December 31, 20202022 was primarily due to the increase in current assets and an increase in our Intangibles balanceintangible assets which was largely offset by amortization of $10.4 million, as a result of acquiring customer agreements in connection with the closing on the Purchase Agreement.pre-existing intangible assets.
Our total current liabilities as of December 31, 20202022 increased to $4,201,095 $6,032,441from $4,157,841,$4,401,071 as of December 31, 2021, primarily due the Company drawing down on its $1,000,000 Revolving Loan on March 12, 2020.to an increase in payables and accrued expenses, partly offset by a reduction in bonuses payable.
Despite the COVID-19 crisis, our
Our business was profitablecash-flow positive in Q1 2020. However,2022. Based on our business was not profitable for the remaindercurrent forecast of 2020. We dooperations, we believe we will have sufficient working capitalliquidity to fund our operations and to meet the obligations under our short-term and long-term obligationsfinancing arrangements as they become due. Further, we do not currently believe thatcome due over at least the recent temporary casino closures in the both the United Kingdom and United States will result in an impairment of our assets or a default under our loan agreements.next 12 months.
We continue to file applications for new or enhanced licenses in several jurisdictions, which may result in significant future legal and regulatory expenses. A significant increase in such expenses may require us to postpone growth initiatives or investments in personnel, inventory and research and development of our products. It is our intention to continue such initiatives and investments. However, to the extent we are not able to achieve our growth objectives or raise additional capital, we will need to evaluate the reduction of operating expenses.
Operating activities
Our operating activities used $1,586,247provided $6,391,040 in cash for the year ended December 31, 2020,2022, compared to cash provided of $4,890,595$6,471,480 in the prior year. Cash provided consisted of $(1,773,189) in net loss adjusted for $5,637,684 in non-cash expense addbacks, primarily composed of the change in depreciation and amortization expenses, amortization of debt issuance costs, share-based compensation, foreign currency exchange loss and amortization of right-of-use assets, offset by a $2,526,545 decrease from changes in assets and liabilities related to operating activities. The change in assets and liabilities related to operating activities, primarily reflects a $1,077,564
12
increase in accounts receivable and a $1,134,653 decrease in accounts payable and accrued expenses, offset by $348,163 increase in prepaids and $230,265 decrease in operating lease liabilities.
Investing activities
Net cash used in investing activities was $3,417,337 for the year ended December 31, 2019. The decrease in operating cash flow was primarily due to the net loss for the period as a result of the COVID-19 crisis.
Investing activities used cash of $6,456,714 for the year December 31, 2020, compared to $163,3512022, and $701,638 for the year ended December 31, 2019. This was due to closing2021, which resulted primarily from the $2,000,000 purchase and retirement of the Purchaseobligation to make contingent payments to a third party out of revenue we receive in licensing our Bonus Craps™ game. The remainder of the 2022 figure and the majority of the 2021 figure is the result of the acquisition of software.
Financing activities
Net cash used in financing activities for the year ended December 31, 2022, was $745,633. The principal financing activities were the mandatory repayment of $600,000 on the Fortress Credit Agreement in August 2020.and payment of $658,550 on insurance notes payable, largely offset by the proceeds from stock option exercises.
CashNet cash provided by financing activities for the year ended December 31, 20202021, was $4,389,234, which resulted$4,362,293, consisting primarily of the cash proceeds from the $1,000,000 draw on ourFortress Credit Agreement and the proceeds from stock option exercise, which was offset by the pay-off of the Nevada State Bank (“NSB”) Term Loan, the Revolving Loan, on March 12, 2020, $835,300 from the PPP Loan and $3,920,000 from the MSPLP (net of debt issuance costs), offset by an increase in principal payments on our long-term debt. This compares to $1,363,047 cash used in financing activities forand the comparable prior period.Triangulum promissory note.
Critical Accounting Policies.Our consolidated financial statements have been prepared in accordance with U.S. GAAP. We consider the following accounting policies to be the most important to understanding and evaluating our financial results:
Revenue recognition. We account for our revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. 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.
Goodwill and other intangible assets. Goodwill and other intangible assets are assessed for impairment at least annually or at other times during the year if events or circumstances indicate that it is more likely than notmore-likely-than-not that the fair value of a reporting asset is below the carrying amount. If found to be impaired, the carrying amounts will be reduced, and an impairment loss will be recognized.
Long-term liabilities. The Company issued a promissory note in the face amount of $39,096,401 to Triangulum on May 6, 2019 in connection with the share redemption disclosed in Note 1. The promissory note has not been given accounting effect in the Company’s financial statements. The Company has instead recorded a long-term obligation payable to Triangulum, based on the redemption value specified in our Articles of Incorporation. The obligation is classified as long-term because we do not expect that a final agreement with respect to the litigation will be reached between the parties in the next twelve months.
Off balance sheet arrangements. As of December 31, 2020, there were no off-balance sheet arrangements.
Recently issued accounting pronouncements. We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors Galaxy Gaming, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our We conducted our Our Critical Audit
/s/ Moss Adams LLP San Diego, California March 30, We have served as the Company’s auditor since |
17
1815
GALAXY GAMING, INC.
DECEMBER 31, 20202022 AND 20192021
ASSETS |
| 2020 |
|
| 2019 |
|
| December 31, |
|
| December 31, |
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 5,993,388 |
|
| $ | 9,686,698 |
|
| $ | 18,237,513 |
|
| $ | 16,058,714 |
|
Accounts receivable, net of allowance of $145,000 and $77,433, respectively |
|
| 2,493,254 |
|
|
| 1,834,488 |
| ||||||||
Inventory, net |
|
| 668,525 |
|
|
| 665,654 |
| ||||||||
Accounts receivable, net of allowance of $183,242 and $348,695, respectively |
|
| 3,449,753 |
|
|
| 4,377,165 |
| ||||||||
Income tax receivable |
|
| 1,229,795 |
|
|
| 260,347 |
|
|
| 515,259 |
|
|
| 1,536,682 |
|
Prepaid expenses |
|
| 1,167,068 |
|
|
| 757,826 |
|
|
| 1,402,824 |
|
|
| 1,125,777 |
|
Other current assets |
|
| 10,803 |
|
|
| 3,824 |
|
|
| 588,838 |
|
|
| 21,536 |
|
Total current assets |
|
| 11,562,833 |
|
|
| 13,208,837 |
|
|
| 24,194,187 |
|
|
| 23,119,874 |
|
Property and equipment, net |
|
| 116,724 |
|
|
| 144,909 |
|
|
| 143,438 |
|
|
| 98,594 |
|
Operating lease right-of-use assets |
|
| 1,367,821 |
|
|
| 306,859 |
|
|
| 1,002,749 |
|
|
| 1,167,903 |
|
Assets deployed at client locations, net |
|
| 232,156 |
|
|
| 405,522 |
|
|
| 1,399,708 |
|
|
| 1,130,983 |
|
Goodwill |
|
| 1,091,000 |
|
|
| 1,091,000 |
|
|
| 1,091,000 |
|
|
| 1,091,000 |
|
Other intangible assets, net |
|
| 16,086,896 |
|
|
| 7,430,643 |
|
|
| 13,906,111 |
|
|
| 13,677,264 |
|
Deferred tax assets, net |
|
| — |
|
|
| 399,283 |
| ||||||||
Other assets, net |
|
| 117,164 |
|
|
| — |
| ||||||||
Other assets |
|
| 273,323 |
|
|
| 167,087 |
| ||||||||
Total assets |
| $ | 30,574,594 |
|
| $ | 22,987,053 |
|
| $ | 42,010,516 |
|
| $ | 40,452,705 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 467,792 |
|
| $ | 766,305 |
|
| $ | 1,129,869 |
|
| $ | 374,323 |
|
Accrued expenses |
|
| 1,286,333 |
|
|
| 1,450,879 |
|
|
| 3,697,504 |
|
|
| 2,666,073 |
|
Revenue contract liability |
|
| 29,167 |
|
|
| 29,167 |
|
|
| 16,667 |
|
|
| 37,500 |
|
Current portion of operating lease liabilities |
|
| 248,317 |
|
|
| 222,806 |
| ||||||||
Current portion of long-term debt |
|
| 2,222,392 |
|
|
| 1,634,527 |
|
|
| 940,084 |
|
|
| 1,100,369 |
|
Current portion of operating lease liabilities |
|
| 195,411 |
|
|
| 276,963 |
| ||||||||
Total current liabilities |
|
| 4,201,095 |
|
|
| 4,157,841 |
|
|
| 6,032,441 |
|
|
| 4,401,071 |
|
Long-term operating lease liabilities |
|
| 1,215,680 |
|
|
| 30,325 |
|
|
| 830,289 |
|
|
| 1,019,029 |
|
Long-term liabilities, net |
|
| 49,691,184 |
|
|
| 46,291,014 |
| ||||||||
Interest rate swap liability |
|
| 66,009 |
|
|
| 140,495 |
| ||||||||
Long-term debt and liabilities, net |
|
| 52,960,772 |
|
|
| 52,143,810 |
| ||||||||
Deferred tax liabilities, net |
|
| 197,591 |
|
|
| — |
|
|
| 72,401 |
|
|
| 175,218 |
|
Total liabilities |
|
| 55,371,559 |
|
|
| 50,619,675 |
|
|
| 59,895,903 |
|
|
| 57,739,128 |
|
Commitments and Contingencies (See Note 11) |
|
|
|
|
|
|
|
| ||||||||
Commitments and Contingencies (See Note 10) |
|
|
|
|
|
| ||||||||||
Stockholders’ deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Preferred stock, 10,000,000 shares authorized, $0.001 par value; 0 shares issued and outstanding, respectively |
|
| — |
|
|
| — |
| ||||||||
Common stock, 65,000,000 shares authorized; $0.001 par value; 21,970,638 and 18,017,944 shares issued and outstanding, respectively |
|
| 21,971 |
|
|
| 18,018 |
| ||||||||
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; 24,411,098 and 23,523,969 shares issued and outstanding, respectively |
|
| 24,411 |
|
|
| 23,524 |
| ||||||||
Additional paid-in capital |
|
| 10,798,536 |
|
|
| 5,795,636 |
|
|
| 17,575,396 |
|
|
| 16,380,597 |
|
Accumulated deficit |
|
| (35,655,163 | ) |
|
| (33,446,276 | ) |
|
| (35,316,540 | ) |
|
| (33,543,351 | ) |
Accumulated other comprehensive income |
|
| 37,691 |
|
|
| — |
| ||||||||
Accumulated other comprehensive loss |
|
| (168,654 | ) |
|
| (147,193 | ) | ||||||||
Total stockholders’ deficit |
|
| (24,796,965 | ) |
|
| (27,632,622 | ) |
|
| (17,885,387 | ) |
|
| (17,286,423 | ) |
Total liabilities and stockholders’ deficit |
| $ | 30,574,594 |
|
| $ | 22,987,053 |
|
| $ | 42,010,516 |
|
| $ | 40,452,705 |
|
The accompanying notes are an integral part of the consolidated financial statements.
1916
GALAXY GAMING, INC.
CONSOLIDATED STATEMENTSSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 20202022 AND 20192021
|
| Year Ended |
| |||||||||||||
|
| 2020 |
|
| 2019 |
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Licensing fees |
| $ | 10,230,316 |
|
| $ | 21,300,996 |
|
| $ | 23,442,306 |
|
| $ | 19,984,378 |
|
Total revenue |
| $ | 10,230,316 |
|
| $ | 21,300,996 |
|
|
| 23,442,306 |
|
|
| 19,984,378 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cost of ancillary products and assembled components |
|
| 72,684 |
|
|
| 230,462 |
|
|
| 198,531 |
|
|
| 80,833 |
|
Selling, general and administrative |
|
| 8,964,930 |
|
|
| 13,295,475 |
|
|
| 12,548,033 |
|
|
| 10,646,524 |
|
Research and development |
|
| 487,679 |
|
|
| 821,127 |
|
|
| 584,513 |
|
|
| 520,449 |
|
Depreciation and amortization |
|
| 2,222,042 |
|
|
| 1,953,560 |
|
|
| 2,761,359 |
|
|
| 2,858,991 |
|
Share-based compensation |
|
| 737,991 |
|
|
| 927,696 |
|
|
| 1,278,068 |
|
|
| 1,532,455 |
|
Total costs and expenses |
|
| 12,485,326 |
|
|
| 17,228,320 |
|
|
| 17,370,504 |
|
|
| 15,639,252 |
|
(Loss) income from operations |
|
| (2,255,010 | ) |
|
| 4,072,676 |
| ||||||||
Income from operations |
|
| 6,071,802 |
|
|
| 4,345,126 |
| ||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| 25,702 |
|
|
| 68,634 |
|
|
| 71,223 |
|
|
| 2,048 |
|
Interest expense |
|
| (683,357 | ) |
|
| (679,201 | ) |
|
| (7,411,224 | ) |
|
| (1,505,386 | ) |
Share redemption consideration |
|
| (781,928 | ) |
|
| (510,775 | ) |
|
| — |
|
|
| (682,469 | ) |
Foreign currency exchange (loss) gain |
|
| (34,961 | ) |
|
| 46,375 |
| ||||||||
Change in estimated fair value of interest rate swap liability |
|
| 74,487 |
|
|
| (44,315 | ) | ||||||||
Paycheck Protection Program Loan forgiveness |
|
| 840,243 |
|
|
| — |
| ||||||||
Total other expense |
|
| (559,814 | ) |
|
| (1,119,282 | ) | ||||||||
(Loss) income before benefit (provision) for income taxes |
|
| (2,814,824 | ) |
|
| 2,953,394 |
| ||||||||
Benefit (provision) for income taxes |
|
| 605,937 |
|
|
| (10,018 | ) | ||||||||
Foreign currency exchange loss |
|
| (290,394 | ) |
|
| (64,879 | ) | ||||||||
Change in fair value of interest rate swap liability |
|
| — |
|
|
| 66,009 |
| ||||||||
Other non-recurring (loss) income |
|
| (5,709 | ) |
|
| — |
| ||||||||
Total other expense, net |
|
| (7,636,104 | ) |
|
| (2,184,677 | ) | ||||||||
(Loss) income before provision for income taxes |
|
| (1,564,302 | ) |
|
| 2,160,449 |
| ||||||||
Provision for income taxes |
|
| (208,887 | ) |
|
| (48,637 | ) | ||||||||
Net (loss) income |
|
| (2,208,887 | ) |
|
| 2,943,376 |
|
|
| (1,773,189 | ) |
|
| 2,111,812 |
|
Foreign currency translation adjustment |
|
| 37,691 |
|
|
| — |
|
|
| (21,461 | ) |
|
| (184,884 | ) |
Comprehensive (loss) income |
| $ | (2,171,196 | ) |
| $ | 2,943,376 |
|
| $ | (1,794,650 | ) |
| $ | 1,926,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | (0.12 | ) |
| $ | 0.12 |
|
| $ | (0.07 | ) |
| $ | 0.10 |
|
Diluted |
| $ | (0.12 | ) |
| $ | 0.11 |
|
| $ | (0.07 | ) |
| $ | 0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 18,282,262 |
|
|
| 25,521,232 |
|
|
| 24,770,765 |
|
|
| 20,328,110 |
|
Diluted |
|
| 18,282,262 |
|
|
| 27,144,397 |
|
|
| 24,770,765 |
|
|
| 21,840,609 |
|
The accompanying notes are an integral part of the consolidated financial statements.
17
GALAXY GAMING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
YEARS ENDED DECEMBER 31, 20202022 AND 20192021
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated Earnings |
|
| Accumulated Other |
|
| Total Shareholders' |
| |||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Deficit) |
|
| Comprehensive Income |
|
| Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Beginning balance, January 1, 2019 |
|
| 39,921,591 |
|
| $ | 39,922 |
|
| $ | 4,733,701 |
|
| $ | 2,683,478 |
|
| $ | — |
|
| $ | 7,457,101 |
| ||||||||||||||||||||||||
Common stock redemption |
|
| (23,271,667 | ) |
|
| (23,271 | ) |
|
| — |
|
|
| (39,073,130 | ) |
|
| — |
|
|
| (39,096,401 | ) | ||||||||||||||||||||||||
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
| Accumulated Other Comprehensive |
|
| Total Stockholders' |
| ||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Deficit |
| ||||||||||||||||||||||||||||||
Beginning balance, January 1, 2021 |
|
| 21,970,638 |
|
| $ | 21,971 |
|
| $ | 10,798,536 |
|
| $ | (35,655,163 | ) |
| $ | 37,691 |
|
| $ | (24,796,965 | ) | ||||||||||||||||||||||||
Warrants issued in connection with Fortress credit agreement |
|
| — |
|
|
| — |
|
|
| 3,149,002 |
|
|
| — |
|
|
| — |
|
|
| 3,149,002 |
| ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,943,376 |
|
|
| — |
|
|
| 2,943,376 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,111,812 |
|
|
| — |
|
|
| 2,111,812 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (184,884 | ) |
|
| (184,884 | ) | ||||||||||||||||||||||||
Stock options exercised |
|
| 656,220 |
|
|
| 655 |
|
|
| 134,951 |
|
|
| — |
|
|
| — |
|
|
| 135,606 |
|
|
| 1,094,998 |
|
|
| 1,095 |
|
|
| 901,062 |
|
|
| — |
|
|
| — |
|
|
| 902,157 |
|
Share-based compensation |
|
| 711,800 |
|
|
| 712 |
|
|
| 926,984 |
|
|
| — |
|
|
| — |
|
|
| 927,696 |
|
|
| 458,333 |
|
|
| 458 |
|
|
| 1,531,997 |
|
|
| — |
|
|
| — |
|
|
| 1,532,455 |
|
Balance, December 31, 2019 |
|
| 18,017,944 |
|
|
| 18,018 |
|
|
| 5,795,636 |
|
|
| (33,446,276 | ) |
| $ | — |
|
|
| (27,632,622 | ) | ||||||||||||||||||||||||
Shares issued in connection with PGP asset acquisition |
|
| 3,141,361 |
|
|
| 3,141 |
|
|
| 3,986,387 |
|
|
| — |
|
|
| — |
|
|
| 3,989,528 |
| ||||||||||||||||||||||||
Balance, December 31, 2021 |
|
| 23,523,969 |
|
| $ | 23,524 |
|
| $ | 16,380,597 |
|
| $ | (33,543,351 | ) |
| $ | (147,193 | ) |
| $ | (17,286,423 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,208,887 | ) |
|
| — |
|
|
| (2,208,887 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,773,189 | ) |
|
| — |
|
|
| (1,773,189 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37,691 |
|
|
| 37,691 |
| ||||||||||||||||||||||||
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,461 | ) |
|
| (21,461 | ) | ||||||||||||||||||||||||
Surrender of options |
|
| (365,751 | ) |
|
| (366 | ) |
|
| (1,279,767 | ) |
|
| — |
|
|
| — |
|
|
| (1,280,133 | ) | ||||||||||||||||||||||||
Stock options exercised |
|
| 558,000 |
|
|
| 559 |
|
|
| 278,775 |
|
|
| — |
|
|
| — |
|
|
| 279,334 |
|
|
| 1,098,831 |
|
|
| 1,099 |
|
|
| 1,196,652 |
|
|
| — |
|
|
| — |
|
|
| 1,197,751 |
|
Share-based compensation |
|
| 253,333 |
|
|
| 253 |
|
|
| 737,738 |
|
|
| — |
|
|
| — |
|
|
| 737,991 |
|
|
| 154,049 |
|
|
| 154 |
|
|
| 1,277,914 |
|
|
| — |
|
|
| — |
|
|
| 1,278,068 |
|
Balance, December 31, 2020 |
|
| 21,970,638 |
|
| $ | 21,971 |
|
| $ | 10,798,536 |
|
| $ | (35,655,163 | ) |
| $ | 37,691 |
|
| $ | (24,796,965 | ) | ||||||||||||||||||||||||
Balance, December 31, 2022 |
|
| 24,411,098 |
|
| $ | 24,411 |
|
| $ | 17,575,396 |
|
| $ | (35,316,540 | ) |
| $ | (168,654 | ) |
| $ | (17,885,387 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
18
GALAXY GAMING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED December 31, 20202022 AND 20192021
|
| Year Ended |
| |||||||||||||
|
| 2020 |
|
| 2019 |
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net (loss) income |
| $ | (2,208,887 | ) |
| $ | 2,943,376 |
|
| $ | (1,773,189 | ) |
| $ | 2,111,812 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization of intangible assets |
|
| 2,222,042 |
|
|
| 1,939,274 |
| ||||||||
Non-cash lease expense |
|
| 329,040 |
|
|
| 267,474 |
| ||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
| |||||||||||
Depreciation and amortization |
|
| 2,761,359 |
|
|
| 2,858,991 |
| ||||||||
Amortization of right-of-use assets |
|
| 232,190 |
|
|
| 228,522 |
| ||||||||
Amortization of debt issuance costs and debt discount |
|
| 38,195 |
|
|
| 38,272 |
|
|
| 1,476,545 |
|
|
| 369,093 |
|
Bad debt expense |
|
| 226,691 |
|
|
| 111,938 |
| ||||||||
Change in estimated fair value of interest rate swap liability |
|
| (74,487 | ) |
|
| 44,315 |
| ||||||||
Gain on forgiveness of Paycheck Protection Program Loan |
|
| (835,300 | ) |
|
| — |
| ||||||||
Deferred income tax benefit |
|
| 596,874 |
|
|
| (64,801 | ) | ||||||||
Bad debt expense (recovery) |
|
| (121,222 | ) |
|
| 358,160 |
| ||||||||
Loss on disposal of property and equipment |
|
| 113,561 |
|
|
| 40,109 |
| ||||||||
Change in fair value of interest rate swap liability |
|
| — |
|
|
| (66,009 | ) | ||||||||
Deferred income tax |
|
| (102,817 | ) |
|
| 24,326 |
| ||||||||
Share-based compensation |
|
| 737,991 |
|
|
| 927,696 |
|
|
| 1,278,068 |
|
|
| 1,532,455 |
|
Unrealized foreign exchange loss (gain) |
|
| 46,885 |
|
|
| (10,938 | ) | ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (236,890 | ) |
|
| (495,167 | ) |
|
| 1,077,564 |
|
|
| (2,367,258 | ) |
Inventory |
|
| (51,709 | ) |
|
| (343,724 | ) | ||||||||
Income tax receivable/payable |
|
| (893,930 | ) |
|
| (260,347 | ) | ||||||||
Prepaid expense and other current assets |
|
| 259,616 |
|
|
| (15,272 | ) | ||||||||
Income tax receivable |
|
| 1,019,825 |
|
|
| (306,887 | ) | ||||||||
Prepaid expenses and other current assets |
|
| (348,163 | ) |
|
| 680,663 |
| ||||||||
Other assets |
|
| (106,236 | ) |
|
| (49,923 | ) | ||||||||
Accounts payable |
|
| (1,081,836 | ) |
|
| 84,369 |
|
|
| 755,808 |
|
|
| (91,242 | ) |
Accrued expenses |
|
| (257,179 | ) |
|
| 73,218 |
|
|
| 378,845 |
|
|
| 1,338,195 |
|
Revenue contract liability |
|
| — |
|
|
| (10,723 | ) |
|
| (20,833 | ) |
|
| 8,333 |
|
Operating lease liabilities |
|
| (403,363 | ) |
|
| (266,784 | ) |
|
| (230,265 | ) |
|
| (197,860 | ) |
Other current liabilities |
|
| — |
|
|
| (71,581 | ) | ||||||||
Net cash (used in) provided by operating activities |
|
| (1,586,247 | ) |
|
| 4,890,595 |
| ||||||||
Net cash provided by operating activities |
|
| 6,391,040 |
|
|
| 6,471,480 |
| ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Investment in intangible assets |
|
| — |
|
|
| (57,400 | ) | ||||||||
Acquisition of PGP assets |
|
| (6,393,920 | ) |
|
| — |
| ||||||||
Investment in internally developed software |
|
| (685,022 | ) |
|
| (198,667 | ) | ||||||||
Investment in purchase of intellectual property |
|
| (2,000,000 | ) |
|
| — |
| ||||||||
Proceeds from sale of property and equipment |
|
| — |
|
|
| 25,000 |
| ||||||||
Acquisition of property and equipment |
|
| (62,794 | ) |
|
| (105,951 | ) |
|
| (117,013 | ) |
|
| (60,067 | ) |
Acquisition of assemblies in process assets |
|
| (615,302 | ) |
|
| (467,904 | ) | ||||||||
Net cash used in investing activities |
|
| (6,456,714 | ) |
|
| (163,351 | ) |
|
| (3,417,337 | ) |
|
| (701,638 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Proceeds from draw on revolving loan |
|
| 1,000,000 |
|
|
| — |
| ||||||||
Proceeds from Paycheck Protection Program |
|
| 835,300 |
|
|
| — |
| ||||||||
Proceeds from Mainstreet Priority Loan Program |
|
| 3,920,000 |
|
|
| — |
| ||||||||
Payments of debt issuance costs |
|
| (59,583 | ) |
|
| (3,138,521 | ) | ||||||||
Proceeds from stock option exercises |
|
| 279,334 |
|
|
| 199,733 |
|
|
| 572,500 |
|
|
| 902,157 |
|
Payments of debt issuance costs |
|
| — |
|
|
| (34,058 | ) | ||||||||
Principal payments on finance lease obligations |
|
| — |
|
|
| (14,198 | ) | ||||||||
Principal payments on long-term debt |
|
| (1,645,400 | ) |
|
| (1,514,524 | ) |
|
| (1,258,550 | ) |
|
| (13,104,942 | ) |
Net cash provided by (used in) financing activities |
|
| 4,389,234 |
|
|
| (1,363,047 | ) | ||||||||
Proceeds from Fortress Credit Agreement, net |
|
| — |
|
|
| 58,800,000 |
| ||||||||
Settlement of Redemption Consideration Obligation |
|
| — |
|
|
| (39,096,401 | ) | ||||||||
Net cash used in financing activities |
|
| (745,633 | ) |
|
| 4,362,293 |
| ||||||||
Effect of exchange rate changes on cash |
|
| (39,583 | ) |
|
| 10,938 |
|
|
| (49,271 | ) |
|
| (66,809 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (3,693,310 | ) |
|
| 3,375,135 |
| ||||||||
Net increase in cash and cash equivalents |
|
| 2,178,799 |
|
|
| 10,065,326 |
| ||||||||
Cash and cash equivalents – beginning of period |
|
| 9,686,698 |
|
|
| 6,311,563 |
|
|
| 16,058,714 |
|
|
| 5,993,388 |
|
Cash and cash equivalents – end of period |
| $ | 5,993,388 |
|
| $ | 9,686,698 |
|
| $ | 18,237,513 |
|
| $ | 16,058,714 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash paid for interest |
| $ | 612,840 |
|
| $ | 684,139 |
|
| $ | 6,051,676 |
|
| $ | 940,097 |
|
Cash paid for income taxes |
| $ | 75,786 |
|
| $ | 453,297 |
|
| $ | 76,663 |
|
| $ | 319,967 |
|
Supplemental schedule of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Common stock redemption in exchange for Redemption Consideration Obligation |
| $ | — |
|
| $ | 39,096,401 |
| ||||||||
Shares issued in connection with PGP asset acquisition |
| $ | 3,989,528 |
|
| $ | — |
| ||||||||
Gain on forgiveness of Paycheck Protection Program Loan |
| $ | 835,300 |
|
| $ | — |
| ||||||||
Fortress warrants issued |
| $ | — |
|
| $ | 3,149,002 |
| ||||||||
Insurance acquired under note payable |
| $ | 678,108 |
|
| $ | 197,455 |
|
| $ | 498,265 |
|
| $ | 653,521 |
|
Net option settlement and tax withholding through additional paid-in capital |
| $ | 1,280,133 |
|
| $ | — |
| ||||||||
Right-of-use assets obtained in exchange for lease liabilities |
| $ | 1,390,002 |
|
| $ | 574,333 |
|
| $ | 71,901 |
|
| $ | 28,604 |
|
Inventory transferred to assets deployed at client locations |
| $ | 48,838 |
|
| $ | 209,884 |
|
The accompanying notes are an integral part of the consolidated financial statements.
GALAXY GAMING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 20202022 AND 20192021
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, 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 and 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 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.
Share Redemption. On May 6, 2019, we redeemed all 23,271,667 shares of our common stock held by Triangulum Partners, LLC (“Triangulum”), an entity controlled by Robert B. Saucier, Galaxy Gaming's founder,Credit Agreement Amendments and prior to the redemption, the holder of a majority of our outstanding common stock. Our Articles of Incorporation (the “Articles”) provide that if certain events occur in relation to a stockholder that is required to undergo a gaming suitability review or similar investigative process, we have the option to purchase all or any part of such stockholder’s shares at a price per share that is equal to the average closing share price over the thirty calendar days preceding the purchase. The average closing share price over the thirty calendar days preceding the redemption was $1.68 per share.
The consideration owed to Triangulum for the redemption is $39,096,401 (the “Redemption Consideration Obligation”). Fortress Credit Agreement. See Note 10.
There is ongoing litigation between the Company and Triangulum related to the redemption and other matters. See Note 11.
Membership Interest Purchase Agreement. On February 25, 2020, Galaxy Gaming entered into a Membership Interest Purchase Agreement, dated February 25, 2020 (the “Purchase Agreement”), between the Company and the membership interest holders of Progressive Games Partners, LLC (“PGP”).
On August 21, 2020, the Company entered into a First Amendment to the Purchase Agreement between the Company and the membership interest holders of PGP. The First Amendment, among other things, fixed the cash portion of the purchase price at $6.425 million and established that the stock portion would be satisfied through the issuance of 3,141,361 shares of the Company’s common stock with a value of $1.27 per share on the date of the acquisition. The shares issued are being held in escrow with Philadelphia Stock Transfer, Inc., the Company’s stock transfer agent. The shares will be released to the sellers in August 2022.
On August 21, 2020, the Company completed the acquisition of 100% of the member interests in PGP. The entirety of the purchase price ($10,414,528) has been allocated to customer relationships and is included in Other intangible assets, net, on the Company’s balance sheet. See Note 7. The Company also acquired certain receivables and payables in the net amount of $581,885, which was to be remitted to the sellers of PGP as the receivables and payables were settled. As of December 31, 2020, the remaining balance owed to the sellers was $76,053.
Management has determined that, for accounting purposes, the PGP transaction does not meet the definition of a business combination and, therefore, has been accounted for as an asset acquisition.
COVID-19. On March 11, 2020, the World Health Organization declared a pandemic related to the COVID-19 outbreak, which led to a global health emergency. The public-health impact of the outbreak continues to remain largely unknown and still evolving. The related health crisis could continue to adversely affect the global economy, resulting in continued economic downturn that could impact demand for our products.
On March 17, 2020, the Company announced that it suspended billing to customers who had closed their doors due to the COVID-19 outbreak. As a result, we did not earn revenue for the use of our games by our physical casino customers during the time that they were closed. In general, the online gaming customers who license our games through our distributor remained and continue to remain in operation in spite of the COVID-19 crisis. We earned revenue from them during the crisis and expect to continue to do so, but potentially at levels that may be lower than we previously received.
Given the uncertainties around casino re-openings, we instituted a phased billing approach for our clients through fiscal year 2020, which resulted in us realizing substantially less revenue than we might otherwise expect. In addition, because of COVID-19-related
23
financial pressures on our physical casino customers, there can be no assurance that our accounts receivable will be paid timely for revenues earned prior to the shutdowns. Finally, the Company was notified by some of the land-based casinos that they would be extending their payment terms.
We also rely on third-party suppliers and manufacturers in China, many of whom were shut down or severely cut back production during some portion of 2020. Although this has not had a material effect on our supply chain, any future disruption of our suppliers and their contract manufacturers may impact our sales and operating results going forward.
Because of the uncertainties of COVID-19, the Company drew on its Revolving Loan in the amount of $1,000,000 on March 12, 2020. Also, on April 17, 2020, the Company obtained the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program Flexibility Act (the “Flexibility Act”). On July 16, 2020, the Company filed an application and supporting documentation for forgiveness in full of the PPP Loan. On November 21, 2020, the Company received notification the PPP Loan had been forgiven in full, including $4,943 in accrued interest. Pursuant to the CARES Act, the Federal Reserve created the Main Street Priority Loan Program (“MSPLP”) to provide financing for small and medium-sized businesses. On October 26, 2020, the Company borrowed $4 million from Zions Bancorporation N.A., dba Nevada State Bank under this program. See Note 10.
Credit Agreement Amendments. See Note 109 for discussion of amendments made to the Company’s credit agreement.agreement and the entry into the Fortress Credit Agreement.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The accompanying consolidated 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 Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying consolidated 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.presented.
Basis of accounting.The consolidated 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 subsidiary, PGP. All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications. Certain accounts and financial statement captions in the prior periodsperiod have been reclassified to conform to the current period financial statement presentations.presentations and had no effect on net income (loss).
Cash and cash equivalents. We consider cash on hand and cash in banks as cash. We consider certificates of deposit and other short-term securities with maturities of three months or less when purchased as cash equivalents. Our cash inand cash equivalents consist of bank balancesdeposits. These deposits are deposited in insured banking institutions, which are insured up to $250,000$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 monthly 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.
Inventory. Inventory consists of ancillary products such as signs, layouts and bases for the various games and electronic devices and components to support all our electronic enhancements used on casino table games (“Enhanced Table Systems”), and we maintain inventory levels based on historical and industry trends. We regularly assess inventory quantities for excess and obsolescence primarily based on forecasted product demand. Inventory is valued at the lower of net realizable value or cost, which is determined by the average cost method.
Assets deployed at client locations, net. Our Enhanced Table Systems are assembled by us and accounted for as inventoryassemblies in process until deployed at our casino clients’ premises (Note 6)5). Assemblies in process are maintained at the Company and externally at third-party warehouses. Once deployed and placed into service at client locations, the assets are transferred from inventoryassemblies in process and reported as assets deployed at client locations. These assets are stated at cost, net of accumulated depreciation. Depreciation on assets deployed at client locations is calculated using the straight-line method over a three-year period.period and commences at date transferred to client location.
24
Property and equipment, net. Property and equipment are being depreciated over their estimated useful lives (three(three to five years)years) using the straight-line method of depreciation (Note 5)4). Property and equipment are analyzed for potential impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds their fair value.
Goodwill. Goodwill (Note 7)6) 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 notmore-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. The Company performed a qualitative evaluation of goodwill impairment on December 31, 2020 and determined it was necessary to also perform a quantitative assessment to determine the existence and extent of impairment. The quantitative analysis concluded that the fair value of the Company’s reporting unit exceeded its carrying value. As a result, no impairment was recorded for the year ended December 31, 2020.
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 | 20 - 30 years | |
|
| |
| 9 years | |
Software | 3 years |
Other intangible assets (Note 7)6) 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. At December 31, 2020, the Company evaluated whether certain long-lived asset groups were recoverable by comparing the carrying value of those asset groups to their expected undiscounted future cash flows and determined that such asset groups were recoverable. As a result, noNo impairment was recorded for the yearyears ended December 31, 2020.2022, or 2021.
Interest rates swap agreement. The Company has entered into an interest rate swap agreementSoftware relates primarily to reduceassets where costs are capitalizable during the impact of changesapplication development phase. Labor-related costs associated with product development are included in interest rates on its floating rate long-term debt. The interest rate swap agreement matures May 1, 2021. The interest rate swap has not been designated a hedging instrument and is adjusted to fair value through earnings in the Company’s statements of operations.software.
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. As of December 31, 2020, the interest rate swap agreement was the onlyThe Company currently has no financial instrumentinstruments measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties, which are classified as level 2 inputs.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 consolidated balance sheetsheets as right-of-use assets with corresponding right-of-uselease 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 9)8).
Revenue recognition. We account for our revenue in accordance with Accounting Standards CodificationASC Topic 606, Revenue from Contracts with Customers("ASC 606"). See Note 3.
Costs of ancillary products and assembled components. Ancillary products include pay tables (display of payouts), bases, layouts, signage and other items as they relate to support of specific proprietary games in connection with the licensing of our games. Assembled components represent the cost of the equipment, devices and incorporated software used to support our Enhanced Table Systems.
25
Research and development. We incur research and development (“R&D”) costs to develop our new and next-generation products. Our products reach commercial feasibility shortly before the products are released, and therefore R&D costs are expensed as incurred. Employee related costs associated with product development are included in R&D costs.
Foreign currency translation.The functional currency for PGP is its local currency, the Euro. Gains and losses resulting from the remeasurementsettlement of transactions involving foreign currency amounts to the functional currency 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(loss) in the consolidated statements of changes in stockholders’ deficitdeficit.
Income taxes. We are subject to income taxes in both the United States and in certain non-U.S. jurisdictions. We account for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry-forwards. These temporary differences will result in deductible or taxable amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets may not be realized. Adjustments to the valuation allowance increase or decrease our income tax provision or benefit. To the extent we believe that recovery is more likely than not, we establish a valuation allowance against these deferred tax assets. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. As of December 31, 2020, we did record a full valuation allowance against certain deferred assets. We did not record a valuation allowance as of December 31, 2019.
In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, our tax returns are subject to audit by various tax authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates. We recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on an evaluation of the technical merits of the position, which requires a significant degree of judgment (Note 13).
Net income (loss) 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, using the treasury stock method. At December 31, 2020, 769,345 dilutive shares were excluded from the diluted net loss per share calculation.year.
Segmented Information.21
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 operate our business as onehave two operating segmentsegments (land-based gaming and online gaming) which generates revenue from the licensing of intellectual property.are aggregated into one reporting segment.
Share-based compensation. We recognize compensation expense for all restricted stock and stock option awards made to employees, directors and independent contractors. The fair value of restricted stock is measured using the grant date trading price of our stock.The fair value of stock option awards (Note 13)12) is estimated at the grant date using the Black-Scholes option-pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. We have elected to recognize compensation expense for all options with graded vesting on a straight-line basis over the vesting period of the entire option. The determination of fair value using the Black-Scholes pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors. We estimate volatility based on historical volatility of our common stock, and estimate the expected term based on several criteria, including the vesting period of the grant and the term of the award. We estimate employee stock option exercise behavior based on actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options.
Recently adopted accounting standards. Fair Value Measurement. In August 2018,
Government subsidies. On March 27, 2020, the Financial Accounting Standards Board (“FASB”U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes, which among other things, provides employer payroll tax credits for qualified wages and options to defer payroll tax payments for a limited period. Based on our evaluation of the CARES Act, in certain circumstances, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments in the future. The Company records government subsidies as offsets to the Disclosure Requirementsrelated operating expenses. During the year ended December 31, 2022, qualified payroll credits reduced general and administrative expenses by $574,979 on our condensed consolidated statements of operations. The Company recorded the payroll tax credit as a receivable in other current assets on the consolidated balance sheets as of December 31, 2022.
Income taxes. We are subject to income taxes in both the United States and in certain non-U.S. jurisdictions. We account for Fair Value Measurement. ASU 2018-13 addressesincome taxes in accordance with ASC 740, Income Taxes (“ASC 740”), using the required disclosures around fair value measurement, removes certain disclosure requirements relatedasset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. These temporary differences will result in deductible or taxable amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more-likely-than-not that some or all of the deferred tax assets may not be realized. Adjustments to the fair value hierarchy, modifies existing disclosure requirements relatedvaluation allowance increase or decrease our income tax provision or benefit. To the extent we believe that recovery is more likely than not, we establish a valuation allowance against these deferred tax assets. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. As of December 31, 2022, and 2021, we recorded a full valuation allowance against certain deferred assets.
In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, our tax returns are subject to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosingaudit by various tax authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates. We recognize the changes in unrealized gains and losses fortax benefit from an uncertain tax position if it is more-likely-than-not that the period included in other comprehensive income for recurring Level 3 fair value measurements held attax position will be sustained on examination by the endtaxing authorities, based on an evaluation of the reporting period andtechnical merits of the range and weighted averageposition, which requires a significant degree of significant unobservable inputs usedjudgment (Note 11).
26
to develop Level 3 fair value measurements. We have adopted the new standard effective January 1, 2020, which did not have a material effect on our financial statements or related disclosures.
New accounting standards not yet adopted. Financial Instruments – Credit Losses. In February 2020, the FASB issued ASUAccounting Standards Update ("ASU") No. 2020-02, Financial Instruments – Credit Losses (Topic 326). ASU 2020-02 provides updated guidance on howhow 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 after December 15, 2022. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements or related disclosures.
Simplifying the Accounting for Income Taxes. Reference Rate Reform.In December 2019,March 2020, the FASB issued ASU 2019-12, SimplifyingNo. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the AccountingEffects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments were effective upon issuance and provide optional expedients and exceptions for Income Taxes. ASU 2019-12 includes several provisions aimed at reducingapplying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. We have completed our evaluation of significant contracts. Contracts reviewed will be modified to apply a new reference rate, primarily the complexity of accounting for income taxes, withSecured Overnight Financing Rate ("SOFR") where applicable. As a result, the goal of increased consistency for the application of ASC 740. The simplifications cover certain aspects of intraperiod tax allocations, interim provisionsguidance has not had, and accounting for ownership changes of foreign entities as well as modificationsis not expected to the calculation of income taxes in jurisdictions that have both income and non-income based measures. ASU 2019-12 also includes guidance on when a step-up in goodwill is the result of a separate transaction rather than part of a business combination and guidance for preparing separate company financials. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We do not believe the adoption of this guidance will have, a material impact on our consolidated financial statements or related disclosures.statements.
22
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
revenue. The following table disaggregates our revenue by geographic location for the years ended December 31, 20202022, and 2019:
2021:
|
| 2020 |
|
| 2019 |
| ||
North America and Caribbean |
| $ | 5,757,143 |
|
| $ | 15,387,519 |
|
Europe, Middle East and Africa |
|
| 4,473,173 |
|
|
| 5,913,477 |
|
Total revenue |
| $ | 10,230,316 |
|
| $ | 21,300,996 |
|
|
| Twelve Months |
| |||||
|
| 2022 |
|
| 2021 |
| ||
The Americas |
| $ | 13,307,804 |
|
| $ | 10,024,537 |
|
Europe, Middle East and Africa |
|
| 10,134,502 |
|
|
| 9,959,841 |
|
Total revenue |
| $ | 23,442,306 |
|
| $ | 19,984,378 |
|
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.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 $502,860$1,107,544 and $352,899$771,293 for the years ended December 31, 20202022, and 20192021 and are included in the accounts receivable balance in the accompanying balance sheets.
NOTE 4. INVENTORY
Inventory consistedRoyalty agreements. From time to time, the Company licenses intellectual property from third-party owners and re-licenses that intellectual property to its casino clients. In these arrangements, the Company usually agrees to pay the owner of the following as ofintellectual property a royalty based on the revenues the Company receives from licensing the intellectual property to its casino clients. For the years ended December 31, 20202022, and 2019:2021, license royalty payments of $2,424,276 and $1,670,210, respectively, are recorded net in revenue.
|
| 2020 |
|
| 2019 |
| ||
Raw materials and component parts |
| $ | 300,244 |
|
| $ | 322,349 |
|
Finished goods |
|
| 368,281 |
|
|
| 343,305 |
|
Inventory, net |
| $ | 668,525 |
|
| $ | 665,654 |
|
NOTE 5.4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 20202022, and 2019:2021:
|
| December 31, |
|
| December 31, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| |||||
Furniture and fixtures |
| $ | 312,639 |
|
| $ | 312,639 |
|
| $ | 404,702 |
|
| $ | 312,639 |
|
Automotive vehicles |
|
| 215,127 |
|
|
| 215,127 |
|
|
| 171,671 |
|
|
| 171,671 |
|
Office and computer equipment |
|
| 332,544 |
|
|
| 302,296 |
|
|
| 382,804 |
|
|
| 389,628 |
|
Leasehold improvements |
|
| 32,547 |
|
|
| 6,843 |
|
|
| 35,531 |
|
|
| 35,531 |
|
Property and equipment, gross |
|
| 892,857 |
|
|
| 836,905 |
|
|
| 994,708 |
|
|
| 909,469 |
|
Less: accumulated depreciation |
|
| (776,133 | ) |
|
| (691,996 | ) |
|
| (851,270 | ) |
|
| (810,875 | ) |
Property and equipment, net |
| $ | 116,724 |
|
| $ | 144,909 |
|
| $ | 143,438 |
|
| $ | 98,594 |
|
For the yearyears ended December 31, 20202022 and 2019,2021, depreciation expense related to property and equipment was $90,979$53,914 and $146,341,$78,199, respectively.
NOTE 6. 5. Assets deployed at client locations
Assets deployed at client locations, net consisted of the following at December 31, 20202022, and 2019:2021:
|
| December 31, |
|
| December 31, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| |||||
Enhanced table systems |
| $ | 890,560 |
|
| $ | 993,127 |
|
| $ | 1,414,048 |
|
| $ | 1,139,827 |
|
Assemblies in process |
|
| 893,489 |
|
|
| 770,248 |
| ||||||||
Less: accumulated depreciation |
|
| (658,404 | ) |
|
| (587,605 | ) |
|
| (907,829 | ) |
|
| (779,092 | ) |
Assets deployed at client location, net |
| $ | 232,156 |
|
| $ | 405,522 |
|
| $ | 1,399,708 |
|
| $ | 1,130,983 |
|
23
For the yearyears ended December 31, 20202022 and 2019,2021, depreciation expense related to assetsassets deployed at client locations was $222,204 $251,270 and $275,924,$197,493, respectively.
NOTE 7.6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill. A goodwill balance of $1,091,000$1,091,000 was created as a result of an asset acquisitiona transaction completed in October 2011 fromwith Prime Table Games, LLC.LLC (“PTG”).
Other intangible assets, net. Other intangible assets, net consisted of the following at December 31, 20202022 and 2019:2021:
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Patents |
| $ | 13,507,997 |
|
| $ | 13,485,000 |
|
| $ | 13,507,997 |
|
| $ | 13,507,997 |
|
Customer relationships |
|
| 13,942,115 |
|
|
| 3,400,000 |
|
|
| 14,040,856 |
|
|
| 14,040,856 |
|
Trademarks |
|
| 2,880,967 |
|
|
| 2,880,967 |
|
|
| 2,880,967 |
|
|
| 2,880,967 |
|
Intellectual property |
|
| 2,000,000 |
|
|
| — |
| ||||||||
Non-compete agreements |
|
| 660,000 |
|
|
| 660,000 |
|
|
| 660,000 |
|
|
| 660,000 |
|
Internally-developed software |
|
| 183,415 |
|
|
| 183,415 |
| ||||||||
Software |
|
| 968,362 |
|
|
| 283,340 |
| ||||||||
Other intangible assets, gross |
|
| 31,174,494 |
|
|
| 20,609,382 |
|
|
| 34,058,182 |
|
|
| 31,373,160 |
|
Less: accumulated amortization |
|
| (15,087,598 | ) |
|
| (13,178,739 | ) |
|
| (20,152,071 | ) |
|
| (17,695,896 | ) |
Other intangible assets, net |
| $ | 16,086,896 |
|
| $ | 7,430,643 |
|
| $ | 13,906,111 |
|
| $ | 13,677,264 |
|
For the years ended December 31, 20202022 and 2019,2021, amortization expense related to the finite-lived intangible assets was $1,908,858$2,456,175 and $1,517,009$2,608,299 respectively.
In November 2011, the Company acquired certain intellectual property in exchange for contingent consideration to be paid in the future based on licensing by Galaxy Gaming of games utilizing the intellectual property. Effective September 30, 2022, the Company paid the seller of the contract assets $2,000,000 and terminated any obligation to pay contingent consideration after September 30, 2022. The increase in customer relationshipsactual payment of $2,000,000 was the result of acquiring customer contracts/agreements valued at $10.4 million in connection with the closingmade on the Purchase Agreement in August 2020.October 4, 2022.
28
Estimated future amortization expense is as follows:
Years Ended December 31, |
| Total |
| |
2023 |
| $ | 1,841,923 |
|
2024 |
|
| 1,802,471 |
|
2025 |
|
| 1,795,313 |
|
2026 |
|
| 1,651,554 |
|
2027 |
|
| 1,603,634 |
|
Thereafter |
|
| 5,211,216 |
|
Total |
| $ | 13,906,111 |
|
Year Ended December 31, |
| Total |
| |
2021 |
| $ | 2,594,767 |
|
2022 |
|
| 2,296,563 |
|
2023 |
|
| 1,430,276 |
|
2024 |
|
| 1,427,276 |
|
2025 |
|
| 1,424,276 |
|
Thereafter |
|
| 6,913,738 |
|
Total amortization |
| $ | 16,086,896 |
|
NOTE 8.7. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 20202022 and 2019:2021:
|
| December 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Commissions and royalties |
| $ | 1,869,704 |
|
| $ | 1,165,744 |
|
Payroll and related |
|
| 1,703,703 |
|
|
| 1,156,291 |
|
Interest |
|
| 100,398 |
|
|
| 233,333 |
|
Other |
|
| 23,699 |
|
|
| 110,705 |
|
Total accrued expenses |
| $ | 3,697,504 |
|
| $ | 2,666,073 |
|
|
| 2020 |
|
| 2019 |
| ||
Share redemption consideration |
| $ | 510,776 |
|
| $ | 510,776 |
|
Commissions and royalties |
|
| 398,096 |
|
|
| 78,528 |
|
Payroll and related |
|
| 173,487 |
|
|
| 747,458 |
|
Income tax payable |
|
| 95,879 |
|
|
| 64,832 |
|
Interest |
|
| 42,218 |
|
|
| 9,895 |
|
Other |
|
| 65,877 |
|
|
| 39,390 |
|
Total accrued expenses |
| $ | 1,286,333 |
|
| $ | 1,450,879 |
|
NOTE 8. LEASES
NOTE 9. LEASES
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
24
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.
As of December 31, 2020,2022, our leases have remaining lease terms ranging from 312 months to 7251 months. Some of these leases contain options that allow us to extend or terminate the lease agreement.
As of December 31, 2022, no renewal option periods were included in any estimated minimum lease terms as the options were not deemed reasonably certain to be exercised.
Supplemental balance sheet information related to leases is as follows:
|
| As of December 31, 2022 | ||||
|
| Amount |
|
| Classification | |
Operating leases: |
|
|
|
|
| |
Operating lease right-of-use lease assets |
| $ | 1,002,749 |
|
|
|
|
|
|
|
|
| |
Operating lease current liabilities |
| $ | 248,317 |
|
| Current portion of operating lease liabilities |
|
|
|
|
|
| |
Operating lease long-term liabilities |
|
| 830,289 |
|
| Long-term operating lease liabilities |
|
|
|
|
|
| |
Total operating lease liabilities |
| $ | 1,078,606 |
|
|
|
|
|
|
|
|
| |
Weighted-average remaining lease term: |
|
|
|
|
| |
Operating leases |
|
| 3.94 |
|
|
|
|
|
|
|
|
| |
Weighted-average discount rate: |
|
|
|
|
| |
Operating leases |
|
| 4.4 | % |
|
|
|
| As of December 31, 2020 | ||||
| Amount |
|
| Classification | ||
Operating leases: |
|
|
|
|
|
|
Operating lease right-of-use lease assets |
| $ | 1,367,821 |
|
|
|
|
|
|
|
|
|
|
Operating lease current liabilities |
| $ | 195,411 |
|
| Current portion of operating lease liabilities |
|
|
|
|
|
|
|
Operating lease long-term liabilities |
|
| 1,215,680 |
|
| Long-term operating lease liabilities |
|
|
|
|
|
|
|
Total operating lease liabilities |
| $ | 1,411,091 |
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term: |
|
|
|
|
|
|
Operating leases |
| 5.9 years |
|
|
| |
|
|
|
|
|
|
|
Weighted-average discount rate: |
|
|
|
|
|
|
Operating leases |
|
| 4.2 | % |
|
|
The components of lease expense are as follows:
|
| Year Ended December 31, 2022 | ||||
|
| Amount |
|
| Classification | |
Operating lease cost |
| $ | 286,296 |
|
| Selling, general and administrative expense |
|
| Year Ended December 31, 2020 | ||||
|
| Amount |
|
| Classification | |
Operating lease cost |
| $ | 350,052 |
|
| Selling, general and administrative expense |
Supplemental cash flow information related to leases is as follows:
|
| Year Ended December 31, 2020 | ||||||||||
|
| Amount |
|
| Classification |
| Year Ended December 31, 2022 | |||||
Cash paid for amounts included in the measure of lease liabilities: |
|
|
|
|
|
| ||||||
|
| Amount |
|
| Classification | |||||||
Cash paid for amounts included in the |
|
|
| |||||||||
Operating cash flows from operating leases |
| $ | 287,582 |
|
| Net income |
| $ | 281,303 |
|
| Net income |
|
|
|
|
|
|
|
|
|
| |||
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
| |||
Operating leases |
| $ | 1,390,002 |
|
| Supplemental cash flow information |
| $ | 71,901 |
|
| Supplemental cash flow information |
25
As of December 31, 2020,2022, future maturities of our operating lease liabilities are as follows:
|
| Amount |
| |
2023 |
| $ | 290,877 |
|
2024 |
|
| 288,892 |
|
2025 |
|
| 294,507 |
|
2026 |
|
| 302,011 |
|
2027 |
|
| 2,985 |
|
Total minimum lease payments |
|
| 1,179,272 |
|
Less: imputed interest |
|
| (100,666 | ) |
Total operating lease liability |
|
| 1,078,606 |
|
Less: current portion |
|
| (248,317 | ) |
Long-term portion |
| $ | 830,289 |
|
Year Ended December 31, |
| Amount |
| |
| $ | 195,411 |
| |
2022 |
|
| 208,656 |
|
2023 |
|
| 222,248 |
|
2024 |
|
| 240,034 |
|
2025 |
|
| 261,148 |
|
Thereafter |
|
| 283,594 |
|
Total lease liabilities |
| $ | 1,411,091 |
|
On July 3, 2020, we entered into a new 75-month lease for our corporate headquarters in Las Vegas. Pursuant to the new lease, we now occupy approximately 14,000 square feet of office and warehouse space. The lease commenced on October 1, 2020, with rent abated through the remainder of 2020. Early occupancy was granted on September 15, 2020. Therefore, the right-of-use asset and corresponding liability were recorded on this date. Beginning in January 2021, we will commence paying rent and common area charges in an amount that is approximately equal to what we were paying pursuant to our previous lease.
NOTE 10.9. LONG-TERM DEBT AND LIABILITIES
Long-term debt and liabilities consisted of the following at December 31, 20202022 and 2019:2021:
|
| 2020 |
|
| 2019 |
| ||
Nevada State Bank credit agreement |
| $ | 8,413,184 |
|
| $ | 8,699,900 |
|
Main Street Priority Loan |
|
| 4,000,000 |
|
|
| — |
|
Redemption Consideration Obligation |
|
| 39,096,401 |
|
|
| 39,096,401 |
|
Vehicle notes payable |
|
| 22,614 |
|
|
| 44,490 |
|
Insurance notes payable |
|
| 519,194 |
|
|
| 177,894 |
|
Long-term debt, gross |
|
| 52,051,393 |
|
|
| 48,018,685 |
|
Less: Unamortized debt issuance costs |
|
| (137,817 | ) |
|
| (93,144 | ) |
Long-term liabilities, net of debt issuance costs |
|
| 51,913,576 |
|
|
| 47,925,541 |
|
Less: Current portion |
|
| (2,222,392 | ) |
|
| (1,634,527 | ) |
Long-term debt, net |
| $ | 49,691,184 |
|
| $ | 46,291,014 |
|
|
| December 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Fortress credit agreement |
| $ | 59,400,000 |
|
| $ | 60,000,000 |
|
Insurance notes payable |
|
| 340,084 |
|
|
| 500,369 |
|
Long-term debt and liabilities, gross |
|
| 59,740,084 |
|
|
| 60,500,369 |
|
Less: Unamortized debt issuance costs |
|
| (5,839,228 | ) |
|
| (7,256,190 | ) |
Long-term debt and liabilities, net of debt issuance costs |
|
| 53,900,856 |
|
|
| 53,244,179 |
|
Less: Current portion of long-term debt |
|
| (940,084 | ) |
|
| (1,100,369 | ) |
Long-term debt and liabilities, net |
| $ | 52,960,772 |
|
| $ | 52,143,810 |
|
Share Redemption Consideration Obligation. On May 6, 2019, we issued a promissory note inFor most of 2021, our long-term liabilities consisted of term and revolving notes owed to Nevada State Bank, borrowings under the face amount of $39,096,401Main Street Priority Loan Program, and redemption consideration owed to Triangulum Partners LLC. All of those liabilities were paid in connection withfull from the share redemption disclosed in Note 1. In the litigation that followed the share redemption (Note 11), Triangulum is disputing, among other things, the validityproceeds of the note and has not accepted its terms. Because Triangulum disputes the promissory note issued byFortress Credit Agreement on November 15, 2021.
Fortress Credit Agreement. On November 15, 2021, the Company and its terms, the promissory note has not been given accounting effect in the Company’s financial statements. The Company has instead recordedentered into a long-term obligation payable to Triangulum, based on the redemption value specified in our Articles of Incorporation. The obligation is classified as long-term because we do not expect that a finalsenior secured term loan agreement with respect to the litigation will be reached between the parties in the next twelve months. We may repay the Redemption Consideration Obligation at any time but no later than May 6, 2029; however, there can be no assurance that Triangulum will accept such payments. Additional share redemption consideration is being accrued at 2% on the Redemption Consideration Obligation, and we paid the first annual payment on May 5, 2020,Fortress Credit Corp. (“Fortress Credit Agreement”) in the amount of $781,928, which was accepted by Triangulum.$60.0 million. The Redemption Consideration Obligation is unsecuredproceeds of the loan were used to (i) pay approximately $39.5 million to Triangulum as full payment of the settlement amount due under the previously filed settlement agreement between Galaxy Gaming and is subordinatedTriangulum, as set forth above; (ii) repay approximately $11.1 million due and owing to our existingNSB under the MSPLP and future indebtedness.
30
Nevada State Bank (“NSB”) Credit Agreement. The Company is party to aunder the Amended and Restated Credit Agreement, withdated as of May 13, 2021, made between Galaxy Gaming and Zions Bancorporation, N.A. dba Nevada State Bank, (as amended,a Nevada state banking corporation, and (iii) approximately $4.1 million was used to pay fees and expenses. The remaining approximately $5.3 million was added to the “Credit Agreement”), which was last amendedCompany’s cash on November 16, 2020. hand and used for corporate and operating purposes.
The Fortress Credit Agreement provides forbears interest at a Term Loanrate equal to, at the Company’s option, either (a) LIBOR (or a successor rate, determined in accordance with the initial amountFortress Credit Agreement) plus 7.75%, subject to a reduction to 7.50% upon the achievement of $11,000,000a net leverage target or (b) a base rate determined by reference to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by reference to The Wall Street Journal’s “Prime Rate” and (iii) the one-month adjusted LIBOR rate plus 1.00%, plus 6.75%, subject to a Revolving Loan inreduction to 6.50% upon the amountachievement of $1,000,000. On March 12, 2020,a net leverage target. The Fortress Credit Agreement has a final maturity of November 13, 2026. The obligations under the Fortress Credit Agreement are guaranteed by the Company’s subsidiaries and are secured by substantially all of the assets of the Company drew down $1,000,000 on the Revolving Loan componentand its subsidiaries. The Fortress Credit agreement requires, among other things, principal payments of the Credit Agreement. At December 31, 2020, the principal amount outstanding under the Term Loan component$150,000 per quarter and includes an annual sweep of the Credit Agreement was $7,265,300, bringing the total amount outstanding under the Credit Agreement at December 31, 2020, to $8,265,300.
Under the Credit Agreement, outstanding balances accrue interest50% of excess cash flow commencing in April 2023 based on one-month U.S. dollar London interbank offered rate (“LIBOR”) plus an Applicable Margin of 3.50% or 4.00%, depending on our Total Leverage Ratio (as defined in the amendedresults for fiscal 2022. The Fortress Credit Agreement). Effective December 31, 2021, LIBOR will no longer serve as a reference rate for bank loans, among other investment classes. The Fourth Amendment to the Credit Agreement stipulates that an alternative reference rate will be selected and used in lieu of LIBOR.
The Credit Agreement, as amended, contains affirmative and negative financial covenants (as defined in the Fortress Credit Agreement) and other restrictions customary for borrowings of this nature. In particular, we areThe Company was required to make Maintenance Capital Expenditures (as defined in the Credit Agreement) in any fiscal yearmaintain a Total Net Leverage Ratio of no more than 5% of8.00x for the total revenues realized in the prior fiscal year. Atquarter ended December 31, 2020, we were2022. The Company was in compliance with this covenant. In addition, we are required to maintain (i) a minimum trailing-four-quarters Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.25x; (ii) a maximumits Total Leverage Ratio (as defined in the Credit Agreement) of 7.25x (with semi-annual step-downs of 0.25x every six months, commencing June 30, 2020 through December 31, 2022 (the current required Total Leverage Ratio is 6.75x) and (iii) a maximum Senior Leverage Ratio (as defined in the Credit Agreement) of 2.00x. We were not in compliance with the Fixed Charge Coverage Ratio, Total Leverage Ratio and SeniorNet Leverage Ratio as of December 31, 2020. In the Forbearance and Fifth Amendment to the2022. Also, The Fortress Credit Agreement dated August 14, 2020, (the “Fifth Amendment”), NSB agreed to forbear from exercising any rights or remedies as a result of a default under one or more of these covenants through April 1, 2021. The Fifth Amendment also imposed a new Minimum EBITDA covenant pursuant to which the Company must demonstrate trailing-four-quarter EBITDA of $2.4 million for each of the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 and $3.0 million thereafter. On November 16, 2020, the Company entered into a Seventh Amendment to the Credit Agreement with Zions Bancorporation N.A., dba Nevada State Bank (the “Seventh Amendment”). The Seventh Amendment changed the trailing-four-quarter Minimum EBITDA covenant from $3.0 million to $2.4 million for each fiscal quarter ending September 30, 2020 and thereafter. The Company was not in compliance with the Minimum EBITDA covenant (as revised in the Seventh Amendment) as of December 31, 2020. As further described in Note 13 “Subsequent Events”, on March 29, 2021, the Company and NSB entered in an Amended and Restated Credit Agreement (the “A&R Agreement”). Among other things, the A&R Agreement extended the forbearance under the Fifth Agreement to the Minimum EBITDA covenant as measured on December 31. 2020. On October 26, 2020, the Company and NSB entered into the Sixth Amendment to Credit Agreement dated August 14, 2018 (the “Sixth Amendment”) in connection with the Company’s borrowing under the MSPLP. The Sixth Amendment added a Minimum Liquidity covenant requiringrequires that the Company have cashnot allow balances in bank accounts that are not covered by an account control agreement to exceed $1,000,000 at any month-end. The bank accounts held by PGP in the Isle of Man are not covered by account control agreements and cash equivalentsthe balances in those accounts exceeded $1,000,000 at the end of noNovember and December 2021 and January and February 2022. In March 2022, the balances in those accounts were reduced to less than $1.5 million at quarter ends$1,000,000. The Company informed Fortress of the covenant breach, and a Consent and Waiver Agreement (the "Consent and Waiver Agreement”) was executed among the Company, Fortress, as Agent (the "Agent”), and the Lenders party to the Fortress
26
Credit Agreement on March 16, 2022. As of March 31, 2022 and through and including June 30, 2021, and $2.5 million thereafter. TheDecember 31, 2022, the Company was in compliance with the Minimum Liquidity covenant as of December 31, 2020.covenants under the Fortress Credit Agreement, and maintained bank account balances within the $1,000,000 threshold.
Paycheck Protection Program Borrowings. On April 17, 2020,In connection with entering into the Fortress Credit Agreement, the Company obtained an unsecured loanalso issued warrants to purchase a total of $835,300 through Zions Bancorporation, N.A. dba Nevada State Bank under the PPP Loan pursuantup to the CARES Act and the Flexibility Act. The Paycheck Protection Program is administered by the United States Small Business Administration. In accordance with the requirements778,320 shares of the CARES Act, the Company used proceeds from the PPP Loan primarily for payroll costs.
Under the termsCompany’s common stock to certain affiliates of the CARES and Flexibility Acts, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the Paycheck Protection Program. On July 16, 2020, the Company filed an application and supporting documentation for forgiveness in full of the PPP Loan. On November 21, 2020, the Company received notification the PPP Loan had been forgiven in full, including $4,943 in accrued interest.
Mainstreet Priority Loan Borrowings (“MSPLP”). On October 26, 2020, the Company obtained an unsecured loan of $4,000,000 through Zions Bancorporation, N.A. dba Nevada State Bank under section 13(3) of the Federal Reserve Act.
The MSPLP bears interestFortress at a rateprice per share of three-month U.S. dollar LIBOR plus 300 basis points (initially 3.215%$0.01 (the “Warrants”), and interest payments during the first year will deferred and added to the loan balance.. The MSPLP has a five-year final maturity, with 15% of principal amortizing in each of years three and four. The MSPLP, plus accrued and unpaid interest, may be prepaidWarrants are exercisable at any time, at par. While the MSPLP is outstanding, and for one year after it is repaid in full, the Company may not 1) repurchase stock, pay dividends or make other distributions, or 2) pay compensationsubject to executive officers that exceeds the total compensation they received in 2019. The entire outstanding principal balance of the MSPLP, together with all accrued and unpaid interest, is due and payable in full on October 26, 2025. The terms of the MSPLP provide for customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, breaches of representations and covenants, and the occurrence of certain events. The MSPLP is secured by arestrictions.
31
security interest in the assets of the Company, which security interest is pari passu with the security interest granted under the Credit Agreement.
As of December 31, 2020,2022, future maturities of our long-term obligations are as follows:
|
| Total |
| |
Years ended December 31, |
|
|
| |
2023 |
| $ | 940,084 |
|
2024 |
|
| 600,000 |
|
2025 |
|
| 600,000 |
|
2026 |
|
| 57,600,000 |
|
2027 |
|
| — |
|
Thereafter |
|
| — |
|
Long-term liabilities, gross |
| $ | 59,740,084 |
|
December 31, |
| Total |
| |
2021 |
| $ | 2,222,392 |
|
2022 |
|
| 2,637,700 |
|
2023 |
|
| 4,694,900 |
|
2024 |
|
| 600,000 |
|
2025 |
|
| 2,800,000 |
|
Thereafter |
|
| 39,096,401 |
|
Total long-term debt, gross |
| $ | 52,051,393 |
|
NOTE 11.10. COMMITMENTS AND CONTINGENCIES
Concentration of risk.We are exposed to risks associated with clients who represent a significant portion of total revenues.
For the years ended December 31, 20202022 and 2019,2021, respectively, we had the following client revenue concentrations:
|
| Location |
| 2020 Revenue |
|
| 2019 Revenue |
|
| Accounts Receivable December 31, 2020 |
|
| Accounts Receivable December 31, 2019 |
| ||
Client A |
| Europe |
| 21.5% |
|
| 6.1% |
|
| $ | 348,781 |
|
| $ | 101,402 |
|
|
| Location |
| 2022 Revenue |
|
| 2021 Revenue |
|
| Accounts |
|
| Accounts |
| ||||
Client A |
| Europe |
|
| 27.6 | % |
|
| 26.1 | % |
| $ | 552,493 |
|
| $ | — |
|
Client B |
| North America |
|
| 8.5 | % |
|
| 9.6 | % |
| $ | 414,234 |
|
| $ | 138,338 |
|
Legal proceedings.In the ordinary course of conducting our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff or defendant, that are complex in nature and have outcomes that are difficult to predict.
As discussed in Note 1, we redeemed the shares of our common stock held by Triangulum, an entity controlled by Robert B. Saucier, the Company’s founder, and, prior to the redemption, the holder of a majority of our outstanding common stock.
On May 6, 2019, the Company redeemed the shares of our common stock held by Triangulum. Also on May 6, 2019, the Company filed a lawsuit seeking: (i) a declaratory judgment that it acted lawfully and in full compliance with the Articles when it redeemed the Triangulum shares and (ii) certain remedies for breach of fiduciary duty and breach of contract by Triangulum and its Managing Member, Mr. Saucier (the “Triangulum Lawsuit”). The suit alleges that the redemption and the other relief sought by the Company are appropriate and in accordance with the Articles.
The defendants to the Triangulum Lawsuit responded to the complaint, and Triangulum filed counterclaims. Triangulum also filed a Motion seeking a mandatory injunction requiring the Company to either reissue shares to Triangulum or reissue shares to be held in a constructive trust for Triangulum (the “Injunction Motion”). On July 11, 2019, the Nevada district court denied Triangulum’s Injunction Motion, finding, among other things, that the business judgment rule applies to the Board’s redemption decisions and the decisions were in the Company’s best interests. On September 6, 2019, Triangulum appealed the denial of the Injunction Motion to the Nevada Supreme Court. The Company submitted its brief in opposition, and Triangulum filed its reply brief. Recently, on January 13, 2021, the Nevada Supreme Court heard oral argument on Triangulum’s appeal. On March 26, 2021, the Nevada Supreme Court affirmed the ruling of the District Court denying Triangulum’s Injunction Motion, the effect of which is to preclude the re-issuance of any shares of Galaxy stock to Triangulum.
On October 18, 2019, Saucier filed counterclaims against the Company and its Chairman of the Board, Mark Lipparelli, including a breach of contract claim alleging that the Company was obligated to pay Saucier his year-end bonus despite his resignation. The Company and Chairman Lipparelli filed an answer to the counterclaims.
Subsequent to its original counterclaims, Triangulum filed amended counterclaims, which the Company and its Directors moved to dismiss on a number of legal grounds (the “Motion to Dismiss”). The Court denied the Motion to Dismiss. The Company and its Directors filed a writ petition challenging the ruling, which the Nevada Supreme Court denied on January 23, 2020.
On May 6, 2020, Saucier made a demand of the Company under our Bylaws and an Indemnification Agreement between Saucier and the Company, for indemnity and advancement of funds seeking repayment of his attorneys’ fees and expenses he allegedly incurred in connection with the Company’s claims against him in the Triangulum Lawsuit. An independent counsel, selected per the terms of the Indemnification Agreement, concluded that Saucier was entitled to a small amount of indemnity funds related to the time he was employed by the Company, but denied an entitlement to indemnification thereafter.
On May 19, 2020, Saucier commenced a separate action in Nevada district court by filing a complaint he verified as true, seeking advancement of indemnification fees to which he claims an entitlement under the Bylaws and an Indemnification Agreement (the “Advancement Lawsuit”). The Company filed its opposition on June 4, 2020. Saucier’s Motion was denied in a hearing that occurred
32
on June 24, 2020. Saucier filed a notice of his appeal of the Nevada district court’s decision in the Advancement Lawsuit to the Nevada Supreme Court on August 10, 2020. Saucier subsequently moved for attorneys' fees related to the filing of the Advancement Lawsuit, which the Nevada district court granted, and the Company filed a notice of appeal to the Nevada Supreme Court. When Saucier filed a supplemental motion for attorneys’ fees, the Nevada district court denied his motion, finding the fees incurred to be unreasonable, among other things. Saucier also appealed this ruling of the Nevada district court.
On July 22, 2020, in the Triangulum Lawsuit, the Company and its Directors filed a special motion to dismiss most of Triangulum and Saucier’s counterclaims under Nevada anti-SLAPP statute (Strategic Lawsuit Against Public Participation) because Triangulum and Saucier seek to impose liability on the Company and its Directors based upon their privileged communications with regulators. The Nevada district court denied the motion, and the Company and its Directors appealed the order to the Nevada Supreme Court. Discovery in the Triangulum Lawsuit is stayed pending the outcome of this appeal.
The appeals to the Nevada Supreme Court by both Saucier and the Company in the Triangulum Lawsuit and the Advancement Lawsuit were referred to the Nevada Supreme Court’s mandatory Settlement Program. A consolidated settlement conference occurred on November 16, 2020, with no resolution of any of the issues on appeal or the lawsuit. The Nevada Supreme Court subsequently issued briefing schedules on the three appeals.
On November 24, 2020, Triangulum filed a Motion for Partial Summary Judgment in the Triangulum Lawsuit in the Nevada district court, seeking a ruling that the Company violated Nevada law and its Articles by issuing a promissory note as consideration for the redeemed shares and that the redemption was ineffective as a matter of law (the “Triangulum MPSJ”). The Company opposed Triangulum’s MPSJ and filed its own Countermotion for Summary Judgment (the “CMSJ”), seeking a ruling that as a matter of law the business judgement rule applies and prohibits any judicial review of the Board’s decisions related to the redemption. During the January 20, 2021 hearing on both motions, the Nevada district court denied Triangulum’s MPSJ, finding that Nevada statutes allow for the payment of redemption consideration in the form of a promissory note and that the Company’s decisions to redeem and to issue a promissory note as consideration for the redemption are subject to the business judgment rule. The court further found again that the redeemed shares have been actually cancelled and cannot be placed in a constructive trust. The formal Order has not been filed by the Judge as of February 18, 2021. The Company expects Triangulum to appeal this ruling. The court also denied the Company’s CMSJ, without prejudice for the Company to refile after further discovery.
On December 18, 2020 Saucier filed a separate lawsuit in Nevada district court (which was served on January 21, 2021), alleging breach of contract related to his demand for indemnity from the Company (the “Indemnity Lawsuit”). Similar to the Company’s position in the Advancement Lawsuit discussed above, the Company denies that he is entitled to indemnity and moved to dismiss the action on February 16, 2021. The Company filed a Motion to Reassign the case to the Judge presiding over the Triangulum Lawsuit and the Advancement Lawsuit. On February 18, 2021, the Company’s Motion to Reassign was granted. A hearing on the Company’s Motion to Dismiss the Indemnity Lawsuit is currently set for March 23, 2021.
As mentioned above, discovery in the Triangulum Lawsuit has been stayed as a result of the Company’s appeal of the Anti-SLAPP motion decision to the Nevada Supreme Court. As such, the previously set April 2021 trial date cannot proceed until the discovery stay is lifted and after additional discovery proceeds.
In September 2018, we were served with a complaint by TableMax Corporation (“TMAX”) regarding the TMAX Agreement. We filed an answer denying the allegations and filed a partial motion for summary judgment seeking dismissal of the plaintiff’s claims. The suit was dismissed, subject to the right of the plaintiff to file an amended complaint on or before March 20, 2019. The plaintiff did not file an amended complaint within the time period set by the Judge. After that time, the Company considered the matter closed. TMAX filed a Motion for Leave to Amend their Complaint, which was granted by the Judge on May 11, 2020. On May 26, 2020 TMAX filed an Amended Complaint against the Company and other Co-Defendants. The Company will respond to the Amended Complaint denying the allegations as necessary, in a timely fashion.
An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given period and, accordingly, no provision for loss has been reflected in the accompanying financial statements related to these matters.
33
Intellectual property agreements. From time to time, the Company purchases intellectual property from third-parties and the Company, in turn, utilizes that intellectual property in certain games licensed to clients. In these purchase agreements, the Company may agree to pay the seller of the intellectual property a fee, if and when, the Company receives revenue from games containing the intellectual property.
27
NOTE 12.11. INCOME TAXES
The components of the provision consist of the following for the years ended December 31, 20202022 and 2019:2021:
|
| 2022 |
|
| 2021 |
| ||
U.S.(loss) |
| $ | (6,839,931 | ) |
| $ | (770,771 | ) |
Non-U.S. income |
|
| 5,275,629 |
|
|
| 2,931,220 |
|
Income (loss) before income taxes |
| $ | (1,564,302 | ) |
| $ | 2,160,449 |
|
|
|
|
|
|
|
| ||
|
| 2022 |
|
| 2021 |
| ||
Current: |
|
|
|
|
|
| ||
Federal |
| $ | 240,809 |
|
| $ | (62,074 | ) |
State |
|
| (7,570 | ) |
|
| 11,500 |
|
Foreign |
|
| 78,465 |
|
|
| 74,885 |
|
Total current |
|
| 311,704 |
|
|
| 24,311 |
|
Deferred: |
|
|
|
|
|
| ||
Federal |
|
| (90,774 | ) |
|
| (97,965 | ) |
State |
|
| (12,043 | ) |
|
| 122,291 |
|
Total deferred |
|
| (102,817 | ) |
|
| 24,326 |
|
Provision for income taxes |
| $ | 208,887 |
|
| $ | 48,637 |
|
|
| 2020 |
|
| 2019 |
| ||
U.S. income (loss) income |
| $ | (3,477,895 | ) |
| $ | 2,953,394 |
|
Non-U.S. income |
|
| 663,071 |
|
|
| — |
|
(Loss) income before income taxes |
| $ | (2,814,824 | ) |
| $ | 2,953,394 |
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||
Current: |
|
|
|
|
|
|
|
|
Federal |
| $ | (1,204,556 | ) |
| $ | 55,269 |
|
State |
|
| 1,745 |
|
|
| 19,550 |
|
Total current |
|
| (1,202,811 | ) |
|
| 74,819 |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
| 674,138 |
|
|
| (67,299 | ) |
State |
|
| (77,264 | ) |
|
| 2,498 |
|
Total deferred |
|
| 596,874 |
|
|
| (64,801 | ) |
Provision for income taxes |
| $ | (605,937 | ) |
| $ | 10,018 |
|
The income tax provision differs from that computed at the federal statutory corporate income tax rate as follows for the years ended December 31, 20202022 and 2019:2021:
|
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Tax provision computed at the federal statutory rate |
| $ | (591,113 | ) |
| $ | 620,210 |
|
| $ | (341,315 | ) |
| $ | 453,694 |
|
Foreign rate differential |
|
| (139,246 | ) |
|
| — |
|
|
| (121,061 | ) |
|
| (540,670 | ) |
State income tax, net of federal benefit |
|
| (55,558 | ) |
|
| 18,823 |
|
|
| (48,062 | ) |
|
| 22,226 |
|
Permanent items |
|
| 52,818 |
|
|
| (287,480 | ) | ||||||||
162(m) compensation limit |
|
| 208,884 |
|
|
| 228,069 |
| ||||||||
Share based compensation |
|
| (282,956 | ) |
|
| (615,062 | ) | ||||||||
Subpart F income |
|
| 224,285 |
|
|
| 717,218 |
| ||||||||
Other permanent items |
|
| — |
|
|
| 1,138 |
| ||||||||
Credits |
|
| (24,801 | ) |
|
| (168,299 | ) |
|
| (78,465 | ) |
|
| (94,223 | ) |
Impact of CARES Act |
|
| (466,642 | ) |
|
| — |
|
|
| (76,443 | ) |
|
| (71,168 | ) |
True ups and rounding |
|
| 10,153 |
|
|
| (149,935 | ) | ||||||||
Change in federal statutory rate, net of benefit |
|
| 1,364 |
|
|
| 5,823 |
| ||||||||
State tax true ups |
|
| — |
|
|
| (79,997 | ) | ||||||||
Other rate changes, net of benefit |
|
| 6,019 |
|
|
| (15,698 | ) | ||||||||
Uncertain tax positions |
|
| 46,699 |
|
|
| (29,124 | ) |
|
| (17,723 | ) |
|
| 1,933 |
|
Valuation allowance |
|
| 560,389 |
|
|
| — |
| ||||||||
Change in valuation allowance |
|
| 735,724 |
|
|
| 41,177 |
| ||||||||
Provision for income taxes |
| $ | (605,937 | ) |
| $ | 10,018 |
|
| $ | 208,887 |
|
| $ | 48,637 |
|
3428
The tax effects of significant temporary differences representing net deferred tax assets and liabilities consisted of the following at December 31, 20202022 and 2019:2021:
|
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Right-of-use asset |
| $ | 320,787 |
|
| $ | 65,458 |
|
| $ | 228,408 |
|
| $ | 268,137 |
|
Net operating loss |
|
| 440,756 |
|
|
| 88,879 |
| ||||||||
Share based compensation |
|
| 313,910 |
|
|
| 349,018 |
|
|
| 291,019 |
|
|
| 228,574 |
|
Intangible assets |
|
| 182,511 |
|
|
| 158,426 |
|
|
| 258,321 |
|
|
| 176,457 |
|
Tax credits |
|
| 175,341 |
|
|
| — |
| ||||||||
Capitalized R&D Cost |
|
| 119,936 |
|
|
| — |
| ||||||||
Accruals and reserves |
|
| 67,259 |
|
|
| 68,501 |
|
|
| 83,411 |
|
|
| 127,332 |
|
Debt issuance costs |
|
| 110,339 |
|
|
| 50,246 |
| ||||||||
Other |
|
| 86,231 |
|
|
| — |
|
|
| 54,465 |
|
|
| 7,232 |
|
Total deferred tax assets |
|
| 970,698 |
|
|
| 641,403 |
|
|
| 1,761,996 |
|
|
| 946,857 |
|
hh |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||||||
Total valuation allowance |
|
| (560,389 | ) |
|
| — |
|
|
| (1,337,290 | ) |
|
| (601,566 | ) |
hh |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||||||
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Right-of-use liability |
|
| (316,481 | ) |
|
| (65,555 | ) |
|
| (245,686 | ) |
|
| (285,111 | ) |
Prepaid assets |
|
| (207,005 | ) |
|
| (99,636 | ) |
|
| (135,535 | ) |
|
| (171,411 | ) |
Basis difference in fixed assets |
|
| (37,715 | ) |
|
| (76,929 | ) |
|
| (113,061 | ) |
|
| (62,968 | ) |
Other |
|
| (46,699 | ) |
|
| — |
|
|
| (2,825 | ) |
|
| (1,019 | ) |
Total deferred tax liabilities |
|
| (607,900 | ) |
|
| (242,120 | ) |
|
| (497,107 | ) |
|
| (520,509 | ) |
Net deferred tax (liabilities)/assets |
| $ | (197,591 | ) |
| $ | 399,283 |
| ||||||||
Net deferred tax liabilities |
| $ | (72,401 | ) |
| $ | (175,218 | ) |
On August 21, 2020,March 28, 2022, the Company completedredomiciled PGP from Isle of Man to Nevada with the acquisitionCompany remaining as its sole member. The change in place of 100%organization is categorized as a tax-free reorganization. Following this action, PGP’s earnings will be included in the US taxable income of the member interests in PGP. Company. Further, the Company has recorded a deferred tax asset equal to the tax basis of deferred attributes of PGP at statutory rates.
As of December 31, 2020,2022, the Company has evaluated its deferred tax attributes related to the acquisition of within the foreign jurisdiction of Isle of Manrecognized federal and recorded a tax-effected deferred tax asset of $0 as of December 31, 2020. The Company has assessed the foreign subsidiary income and taken the position that the income is subject to the provisions of Subpart F. Additional analysis is needed to determine if all or some part of this foreign income is eligible to be categorized as global intangible low-taxed income.
Pursuant to the CARES Act, the Company carried back net operating losses incurred in 2020 in the amount of approximately $3.5 million to tax years ended December 31, 2015 through December 31, 2019. The net operating loss carryback resulted in prior years' foreign tax credits and general business credits being released to subsequent years within the carryback period, with no credits carried forward as of December 31, 2020.
In addition, as of December 31, 2020, the Company recognized state net operating loss carryforwards of $1.1 million.$1.4 million and $2.2 million, respectively. The majority of the state carryforward amounts will begin to expire in 2040, while some state net operating losses have an indefinite carryforward period. The federal carryforward does not expire and subject to utilization in future periods up to 80% of federal taxable income.
In accordance with USU.S. GAAP, the need to establish a valuation allowance against deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses; forecasts of future profitability; the duration of statutory carryforward periods; experience with tax attributes expiring unused; and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.
A significant piece of objective negative evidence evaluated was the three-year cumulative loss position the company is in as of the period ended December 31, 2022. Such objective negative evidence limits the ability to consider other more subjective evidence such as projections of future income. The amount of the deferred tax asset considered realizable could be adjusted in future periods if the objective negative evidence of a cumulative loss is no longer present, and more weight is given to subjective evidence such as future income and growth.
Upon assessing all of the relevant evidence, the Company determined it has not met the more-likely-than-not threshold to support the realization of all or part of its deferred tax assets. The Company has recorded a valuation allowance against certain of its deferreds in the amount of $560,389.$(1,337,290). The current-year change resulted in additional tax expense of $560,389,$735,724, which impacted the Company’s effective tax rate by (16.11%(45.27)%.
The aggregate changes in the balance of gross unrecognized tax benefits (included as part of deferred tax liabilities, net in the accompanying financial statements), which excludes interest and penalties, are as follows as of and for the years ended December 31, 20202022 and 2019:2021:
|
| 2020 |
|
| 2019 |
| ||
Beginning balance |
| $ | — |
|
| $ | 29,124 |
|
Increases related to tax positions taken during the prior year |
|
| 45,207 |
|
|
| — |
|
Increases related to tax positions taken during the current year |
|
| 1,492 |
|
|
| 4,565 |
|
Other adjustments |
|
| — |
|
|
| (33,689 | ) |
Ending balance |
| $ | 46,699 |
|
| $ | — |
|
29
|
| 2022 |
|
| 2021 |
| ||
Beginning balance |
| $ | 48,632 |
|
| $ | 46,699 |
|
Decreases (increases) related to tax positions taken during the prior year |
|
| (17,723 | ) |
|
| 1,933 |
|
Ending balance |
| $ | 30,909 |
|
| $ | 48,632 |
|
35
Our total liability for unrecognized gross tax benefits was $46,699$30,909 as of December 31, 2020,2022, which, if ultimately recognized, would impact the annual estimated effective tax rate in future periods. We are subject to examination by the Internal Revenue Service for fiscal years 20172019 and thereafter. For states within the U.S. in which we conduct significant business, we generally remain subject to examination for fiscal years 20172019 and thereafter, unless extended for longer periods under state laws. We have no accrual for interest or penalties related to uncertain tax positions at December 31, 20202022 and 2019,2021, and did notnot recognize interest or penalties in the statements of operations during the years ended December 31, 20202022 and 2019,2021, as such amounts would be immaterial, if any.
NOTE 13.12. SHARE-BASED COMPENSATION
Stock Options
On May 10, 2018, the Board ratified and confirmed the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan is a broad-based plan under which shares of our common stock are authorized for issuance for awards, including stock options, stock appreciation rights, restricted stock, and cash incentive awards to members of our Board, executive officers, employees and independent contractors.contractors. As of December 31, 2020,2022, a total of 6,550,7507,550,750 shares of our common stock were authorized for issuance. As of December 31, 2020, 171,7012022, 250,911 shares remained available for issuance as new awards under the 2014 Plan.
Stock Options
During the years ended December 31, 20202022 and 2019,2021, we issued 465,000740,000 and 520,00090,000 options to purchase our common stock, respectively, to executive officers, employees and independent contractors. The fair value of all stock options granted for the yearyears ended December 31, 20202022 and 20192021,was determined to be $435,639$1,497,473 and $958,850,$162,252, respectively, using the Black-Scholes option pricing model with the following assumptions:
| Options Issued 2020 |
|
| Options Issued 2019 |
|
| Options Issued For the Twelve Months Ended December 31, 2022 |
| Options Issued For the Twelve Months Ended December 31, 2021 | |||
Dividend yield |
| 0% |
|
| 0% |
|
| 0% |
| 0% | ||
Expected volatility |
| 70.98% - 76.97% |
|
| 70.88% - 72.11% |
|
| 59.25% - 60.70% |
| 61.12% - 68.74% | ||
Risk free interest rate |
| 0.27% - 1.39% |
|
| 1.37% - 2.51% |
| ||||||
Risk-free interest rate |
| 1.37% - 3.90% |
| .48% - .98% | ||||||||
Expected life (years) |
|
| 5.00 |
|
|
| 5.00 |
|
| 5.00 |
| 5.00 |
A summary of stock option activity is as follows:
|
| Common Stock Options |
|
| Weighted- Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted- Average Remaining Contractual Term (Years) |
| ||||
Outstanding – December 31, 2019 |
|
| 3,175,000 |
|
| $ | 0.92 |
|
| $ | 2,692,025 |
|
|
| 2.79 |
|
Issued |
|
| 465,000 |
|
| $ | 1.57 |
|
|
| — |
|
|
| — |
|
Exercised |
|
| (558,000 | ) |
| $ | 0.50 |
|
| $ | (487,976 | ) |
|
| — |
|
Forfeited |
|
| (100,000 | ) |
| $ | 1.57 |
|
|
| — |
|
|
| — |
|
Outstanding – December 31, 2020 |
|
| 2,982,000 |
|
| $ | 1.08 |
|
| $ | 2,101,780 |
|
|
| 2.35 |
|
Exercisable – December 31, 2020 |
|
| 2,137,000 |
|
| $ | 0.89 |
|
| $ | 1,904,172 |
|
|
| 1.77 |
|
|
| Common |
|
| Weighted- |
|
| Aggregate |
|
| Weighted- |
| ||||
Outstanding -- December 31, 2021 |
|
| 1,935,002 |
|
| $ | 1.33 |
|
| $ | 4,788,314 |
|
|
| 1.87 |
|
Issued |
|
| 740,000 |
|
| $ | 3.86 |
|
| $ | — |
|
|
| — |
|
Surrender of options |
|
| 365,751 |
|
| $ | 1.16 |
|
| $ | — |
|
|
| — |
|
Exercised |
|
| (1,098,831 | ) |
| $ | 1.11 |
|
| $ | (1,464,770 | ) |
|
| — |
|
Forfeited or expired |
|
| (322,041 | ) |
| $ | 1.16 |
|
| $ | — |
|
|
| — |
|
Outstanding -- December 31, 2022 |
|
| 1,619,881 |
|
| $ | 2.61 |
|
| $ | (267,418 | ) |
|
| 2.74 |
|
Exercisable -- December 31, 2022 |
|
| 684,882 |
|
| $ | 1.45 |
|
| $ | 677,901 |
|
|
| 1.19 |
|
30
A summary of unvested stock option activity is as follows:
| Common Stock Options |
|
| Weighted- Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted- Average Remaining Contractual Term (Years) |
| |||||||||||||||||||||
Unvested – December 31, 2019 |
|
| 1,053,333 |
|
| $ | 1.43 |
|
| $ | 357,734 |
|
|
| 3.92 |
| ||||||||||||||||
|
| Common |
|
| Weighted- |
|
| Aggregate |
|
| Weighted- |
| ||||||||||||||||||||
Unvested – December 31, 2021 |
|
| 477,001 |
|
| $ | 1.97 |
|
| $ | 873,958 |
|
|
| 3.45 |
| ||||||||||||||||
Granted |
|
| 465,000 |
|
| $ | 1.57 |
|
|
| — |
|
|
| — |
|
|
| 740,000 |
|
| $ | 3.86 |
|
| $ | — |
|
|
| 0.00 |
|
Vested |
|
| (573,333 | ) |
| $ | 1.34 |
|
|
| — |
|
|
| — |
|
|
| (262,001 | ) |
| $ | 1.86 |
|
| $ | — |
|
|
| 0.00 |
|
Forfeited |
|
| (100,000 | ) |
| $ | 1.57 |
|
|
| — |
|
|
| — |
|
|
| (20,001 | ) |
| $ | 1.41 |
|
| $ | — |
|
|
| 0.00 |
|
Unvested – December 31, 2020 |
|
| 845,000 |
|
| $ | 1.55 |
|
| $ | 197,608 |
|
|
| 3.83 |
| ||||||||||||||||
Unvested - December 31, 2022 |
|
| 934,999 |
|
| $ | 3.50 |
|
| $ | (990,043 | ) |
|
| 3.90 |
|
As of December 31, 2020,2022, our unrecognized share-based compensation expense associated with the stock options issued was $611,000957,375, which is expected to be amortized over a weighted-average period of 2.040.77 years.
36
Restricted Awards
During the year ended December 31, 2020,2022, we issued an aggregate of 228,333 restricted104,049 restricted shares of our common stock valued at $279,586332,990 to our board members in consideration of their service on the Board. These shares vested immediately on the grant date. An additional 130,000As of December 31, 2022, there were 2,583,515 restricted shares outstanding. As of our common stock valued at $175,045December 31, 2022 and 2021, unvested restricted shares were issued50,001 and 100,000 respectively. There were no forfeitures of restricted shares in 2022 or 2021.
Employment Agreement Amendment
On June 15, 2022, the Company entered into amendment number 3 (the "Amendment") to an employeethe employment agreement, dated July 27, 2017 (and previously amended by amendments number 1 and contractornumber 2), between the Company and Todd P. Cravens, the Company’s President and Chief Executive Officer. The Amendment (i) extends the term of the Company. Theseagreement from July 27, 2022, to July 26, 2024; (ii) provides for a potential equity incentive grant of stock for calendar year 2022 and calendar year 2023, with (x) a grant of 20,000 shares wereif the Company achieves 80% of its EBITDA Budget target (as defined by management and as adopted by the Board for the calendar year) for calendar year 2022, (y) a grant of 20,000 shares if the Company achieves 80% of its EBITDA Budget target (as adopted by the Board for the calendar year) for calendar year 2023, and (z) an additional grant under the following performance goals for each of calendar year 2022 and 2023: a) 100% of EBITDA Target – 20,000 shares, b) 110% of EBITDA Target – 30,000 shares, and c) 115% of EBITDA Target – 40,000 shares; and (iii) increases Mr. Cravens' annual compensation to $300,000 effective as of August 1, 2022.
All “shares” above will vest one year from the date of grant. Should Mr. Cravens leave the Company or be terminated with good cause prior the vesting date he will forfeit any and all rights to the shares. Pursuant to the Amendment, the Board maintains reasonable, good faith discretion to make adjustments to the Company's EBITDA performance relating to the Company’s management incentive program, where appropriate in each year, to account for factors contributing positively and negatively to the Company's actual recorded EBITDA performance that could be considered (by the Board) unrelated to or not driven by the Company's performance.
In addition, should there be a circumstance that may trigger a change of control, as defined in the Company's 2014 Equity Incentive Plan (as amended, the "2014 Equity Plan"), in either the 2022 or 2023 calendar years, if not already granted, in considerationthe 20,000 shares from each of the individuals’ service2022 and 2023 CEO executive Incentive from the 80% EBITDA target, will be granted immediately. The Board retains discretion to be exercised reasonably and in good faith to accelerate the grant of remaining shares under the 2022 and 2023 equity incentives set forth in the Amendment.
The balance of the employment agreement, as previously amended, remains in full force and effect.
Option Surrender
The Company's 2014 Equity Plan allows option holders to satisfy the exercise price of stock options, and the related tax withholding resulting from such exercise, by cash and by other means of "cashless" exercise, including: (a) by tendering, either actually or by attestation, shares of stock; (b) by irrevocably authorizing a third party to sell shares of stock (or a sufficient portion of the shares) acquired upon exercise of the option and to remit to the Company. TheseCompany a sufficient portion of the sale proceeds to pay the exercise price and any tax withholding resulting from such exercise; (c) with respect to options, payment through a net exercise such that, without the payment of any funds, the option holder may exercise the option and receive the net number of shares vestof stock equal in one year on November 12, 2021.value to (i) the number of shares of stock as to which the option is being exercised, multiplied by (ii) a fraction, the numerator of which is the fair market value less the exercise price, and the denominator of which is such fair market value (the number of net shares of stock to be
31
received shall be rounded down to the nearest whole number of shares of stock); (d) by personal, certified or cashiers’ check; (e) by other property deemed acceptable by the committee administering the 2014 Equity Plan; or (f) by any combination thereof.
On June 23, 2022, pursuant to the 2014 Equity Plan and a Stock Option Grant Notice and Stock Option Agreement dated July 27, 2017, Mr. Cravens exercised options and satisfied the exercise price and applicable tax withholding through a net settlement by surrendering to the Company options to purchase shares having a fair market value equal to the sum of the exercise price and the taxes. The exercise price and related tax withholding totaled $1,280,133 and was recorded as a reduction to additional paid-in capital and common stock.
NOTE 14.13. SUBSEQUENT EVENTS
We evaluate subsequent events through
On January 25, 2023, the dateBoard of issuanceDirectors of Galaxy Gaming, by unanimous written consent, voted to approve a reduction to its compensation arrangements with non-employee directors for the fiscal year 2023.
Targeted aggregate annual Board compensation for 2023 shall be at the revised levels below and shall continue to be paid 60% in cash and 40% in stock. Cash compensation will be paid monthly in arrears and stock compensation will be paid quarterly in arrears with the stock valued at the average daily closing price in the last month of the financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosurequarter.
The Board approved the annual Board compensation for 2023 as noted in the financial statements as of and for the quarter ended December 31, 2020 except as follows:table below:
On March 29, 2021, the Company entered into an amended and restated credit agreement with Zions Bancorporation, N.A. dba Nevada State Bank (“the A&R Credit Agreement”). The A&R Credit Agreement replaced the original credit agreement entered into by the Company with Zions Bancorporation, N.A. dba Nevada State Bank on April 24, 2018 and last modified on November 16, 2020. The A&R Credit Agreement provides for a Term Loan in the amount of $7,022,300 and a Revolving Loan in the amount of $1,000,000. If not paid earlier, amounts outstanding under the Revolving Loan mature on April 24, 2022, and amounts outstanding under the Term Loan mature on April 24, 2023. On March 12, 2020, the Company drew down $1,000,000 on the Revolving Loan component of the original credit agreement.
|
| Annual Compensation Target |
| |
Board Member |
| $ | 127,500 |
|
Audit Committee Chair |
| $ | 148,750 |
|
Board Chair |
| $ | 170,000 |
|
Under the A&R Credit Agreement, outstanding balances accrue interest based on one-month U.S. dollar London interbank offered rate (“LIBOR”) plus an applicable margin of 3.50% or 4.00%, depending on our Total Leverage Ratio (as defined in the A&R Credit Agreement). Effective December 31, 2021, LIBOR will no longer serve as a reference rate for bank loans, among other investment classes. The A&R Credit Amendment stipulates that a substitute index rate will be selected and used in lieu of LIBOR.
The A&R Credit Agreement contains affirmative and negative financial covenants (as defined in the A&R Credit Agreement) and other restrictions customary for borrowings of this nature. In particular, we are required to maintain (i) a quarterly minimum Fixed Charge Coverage ratio of 1.25x; (ii) a quarterly maximum Total Leverage ratio of 22.50x for the quarter ending March 31, 2021, 10.00x for quarter ending June 30, 2021, 6.50x for the quarter ending September 30, 2021 with semi-annual step-downs of 0.25x commencing December 31, 2021 and quarterly thereafter; (iii) a quarterly maximum Senior Leverage ratio of 5.25x for the quarter ending March 31, 2021, 2.50x for the quarter ending June 30, 2021 and 2.00x quarterly thereafter; (iv) a quarterly Minimum EBITDA covenant of $2.4 million for each of the quarters ending March 31, 2021, June 30, 2021 and September 30, 2021 and $8.0 million quarterly thereafter; (v) a quarterly Minimum Liquidity covenant requiring the Company to have cash and cash equivalents of no less than $1.5 million at quarter ends through and including June 30, 2021 and $2.5 million quarterly thereafter; and (vi) a yearly maximum Maintenance Capital Expenditure covenant of 5% of total revenues for the prior year. The Company was in compliance with its Maintenance Capital Expenditure and Minimum Liquidity covenants as of December 31, 2020. The Company was not in compliance with its Fixed Charge Coverage ratio, Total Leverage ratio, Senior Leverage ratio and Minimum EBITDA covenant as of December 31, 2020. The Amended and Restated Credit Agreement has waived these existing defaults as of December 31, 2020.32
The obligations under the A&R Credit Agreement are secured by substantially all of the assets of the Company and its subsidiaries.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLSCONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed submitted under the Exchange Act is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020,2022, our disclosure controls and procedures were effective.
No change in our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our Board and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control -– Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation under the criteria established in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.2022.
This annual report is not required and does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
33
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and executive officers.The following information sets forth the names of our directors and executive officers, their ages and their appointment date/years in position as of December 31, 2022.
Name | Age | Office(s) Held | Years in Position/Date of Appointment or Commencement | |||||
Todd P. Cravens | 50 | President and Chief Executive Officer | 5 years/July 24, 2017 | |||||
Harry C. Hagerty | 62 | Chief Financial Officer, Secretary and Treasurer | 5 years/May 1, 2017 | |||||
Mark A. Lipparelli | 57 | Chairman of the Board | 5 years/July 26, 2017 | |||||
Michael Gavin Isaacs | 58 | Director | 3 years/June 3, 2019 | |||||
Cheryl A. Kondra | 50 | Director | 1 year/December 2, 2021 | |||||
Meredith Brill | 47 | Director | July 13, 2022 | |||||
Bryan W. Waters | 60 | Director | 7 years/April 1, 2015 |
Todd Cravens was appointed as our President and Chief Executive Officer on July 24, 2017. Mr. Cravens previously served as our Vice President of Business Development, a position he had held between January 2017 and July 2017. Prior to joining Galaxy Gaming, Mr. Cravens served as the Chief Executive Officer of Americas for TCS/John Huxley (a leader in table games products for casinos around the world) from 2013 to 2016; as President of AGS Illinois LLP and Vice President and General Manager of the Illinois Operations of AGS (a leading designer and supplier of electronic gaming machines and other products and services for the gaming industry) from 2010 to 2011; as Director of New Business of Betson Enterprises (a global full-line distributor of amusement and vending equipment) from 2002 to 2010; Vice President of Operations of uWink from 1999 to 2001; and as the Vice President of Sales of Bulldog Amusements (specializing in sales and marketing functions for the coin operated amusement industry) from 1995 to 2000. In addition, Mr. Cravens has been the principal of Cravens Consulting, LLC (specializing in developing gaming markets) since 2011.
Harry C. Hagerty was appointed as our Chief Financial Officer, Secretary and Treasurer on May 1, 2017. Mr. Hagerty served as President and Chief Financial Officer of Sightline Payments LLC, a privately-held provider of payments solutions to the gaming industry, from November 2011 to August 2017. Mr. Hagerty served as a member of the Board of Directors of Trump Entertainment Resorts, Inc. from June 2008 to July 2010; as Chief Financial Officer of Global Cash Access Holdings, Inc., a publicly-traded provider of payments solutions to the gaming industry, from July 2004 to July 2007; and as Executive Vice President and Chief Financial Officer of Caesars Entertainment, Inc., an operator of casino resorts around the world, from March 2002 to May 2004. Prior to joining Caesars, Mr. Hagerty had a twenty-year career as an investment banker.
Mark A. Lipparellihas been a Director and our Chairman since July 2017. Mr.Lipparelli currently serves as the Managing Member and Chief Executive Officer of GVII, LLC, a Nevada gaming licensee that manages the Westgate Resort Las Vegas, (since November 2019); Managing Member of CAMS, LLC, a technology services company to the online gaming industry, (since September 2019); and Managing Member of SBOpco, LLC, a sportsbook company operating as SuperBook, (since January 2021). Additionally, Mr. Lipparelli serves as an advisor to a limited number of operating and investment entities through GVIII, LLC where he is the Managing Member. Mr. Lipparelli has served as a member of the Board of Directors of Golden Entertainment, Inc. since2015. Mr. Lipparelli also formerly represented State Senate District 6 in the Nevada Legislature, having been appointed to the post in December 2014, and served on a number of Senate committees. Mr. Lipparelli has also been an appointee to the Nevada Gaming Policy Committee. Between 2009 and 2012, Mr. Lipparelli served as a Board Member and Chairman of the Nevada Gaming Control Board. Between 2002 and 2007, Mr. Lipparelli served in various executive management positions at Bally Technologies, Inc., a gaming technology supply company listed on the NYSE, including as Executive Vice President of Operations. Prior to joining Bally, Mr. Lipparelli served as Executive Vice President and then President of Shuffle Master, Inc., a publicly traded gaming supply company, from 2001 to 2003; as Chief Financial Officer of Camco, Inc., a retail chain holding company, from 2000 to 2001; as Senior Vice President of Entertainment Systems for Bally Gaming, Inc. (a subsidiary of publicly traded Alliance Gaming Corporation), from 1998 to 2000; and various management positions including Vice President of Finance for publicly traded Casino Data Systems from 1993 to 1998. Mr. Lipparelli is a Board Trustee Emeritus of the University of Nevada Foundation, Board Member of the International Center for Responsible Gaming, member of the International Association of Gaming Advisors and a member of the International Masters of Gaming Law. Mr.Lipparelli holds a bachelor’s degree in finance and a master’s degree in economics from the University of Nevada, Reno.
Bryan W. Watershas been a Director since April 2015. Mr. Waters currently is CEO of Luminator Technology Group, a globally recognized leader in providing technology solutions that increase intelligence, safety and efficiency for public transit operators. Mr. Waters also oversees Magnolia Lane Partners, LLC, a company he founded in 2012, which is an advisory and asset management firm, and is active in advising several specialty finance entities. Mr. Waters previously served as CEO of Microf, LLC, a fin-tech platform and lease to own provider for the home improvement industry from June 2019 through September 2021. Mr. Waters served as President and Chief Operating Officer of Genesis Financial Solutions, the largest second look private label credit card issuer in the United States, from June 2016 to January 2018. Mr. Waters served as CEO of North America for Dollar Financial Group leading over 3000 employees
34
throughout 850 finance centers from June 2015 through June 2016. In September of 2013, Mr. Waters assumed the role of Chief Executive Officer of CBV and served in that role until its successful sale in June 2015. In 2012, Mr. Waters joined the Board of CBV Collection Services, LTD, a private equity and management owned company and one of the largest independent outsourcing, collection services and debt buying organizations in Canada. In 2010, Mr. Waters became Chief Executive Officer of B-Line, LLC, the largest purchaser and servicer of unsecured consumer bankruptcy claims in the country. At the time of its successful sale in late 2011, B-Line owned and serviced in excess of $300 million in assets. Mr. Waters joined Pacific National Bank in 2006 as President and Chief Executive Officer and was responsible for P & L growth of the privately held $2.3 billion 17 branch bank until its sale to U.S. Bank in October 2009. In 2001, Mr. Waters became Chief Financial Officer of Camco, Inc., a specialty finance lender. Shortly after his appointment, Mr. Waters also absorbed the roles of President and Chief Operating Officer until the successful sale of the company in December 2005 to Cash America International, Inc. a NYSE listed company. A graduate of University of California, Los Angeles, Mr. Waters started his career with Wells Fargo Bank in 1988 where he held numerous executive positions throughout his 12 years with the bank, including President of the Southern Nevada region.
Michael Gavin Isaacshas been a Director since June 2019 and serves as our Compensation Committee Chairperson. Mr. Isaacs is also currently Chairman of the Board of Directors of Games Global, Ltd., a company operating in the iGaming area providing content to iGaming operators in regulated markets, and a gaming industry advisor to Jackpocket, an online lottery app, and PureSoftware, an India-based developer and talent source. Mr. Isaacs previously served as Vice Chairman of the Board of Scientific Games Corporation (“Scientific Games”), a global leader in lottery games and sports betting and technology, from August 2016 until December 2018, and prior to that was a member of the Board of Directors and President and Chief Executive Officer of Scientific Games from June 2014 until August 2016. During his tenure at Scientific Games, Mr. Isaacs oversaw a gaming and lottery entertainment powerhouse that operated under a portfolio of successful brands, including Bally, Barcrest, Global Draw, SG Lottery, Shuffle Master and WMS. Mr. Isaacs was instrumental in Scientific Games’ $5.1 billion acquisition of Bally Technologies in 2014 and in a two-year span helped grow annual revenues from $1.3 billion to $2.9 billion, reflecting a 100 percent increase in social revenue growth which positioned Scientific Games as the No. 2 ranked global social interactive business. Prior to 2014, Mr. Isaacs served as Chief Executive Officer of SHFL Entertainment, Inc. and served as Executive Vice President and Chief Operating Officer of Bally from 2006 through 2011. In 2012, Mr. Isaacs played a key role in Bally’s $1.3 billion acquisition of SHFL entertainment and was pivotal in merging four companies (Scientific Games, Bally, SHFL and WMS) into a single, innovation-driven organization focused on empowering customers by creating the world’s best gaming and lottery experiences. Prior to joining Bally, he held senior roles and key management positions at Aristocrat Leisure Limited (“Aristocrat”) for eight years, including General Manager, Legal and Compliance; General Manager, Marketing and Business Development; and Managing Director, Europe, before becoming Aristocrat’s Americas President in 2003. Mr. Isaacs is a former Non-Executive Director of Draftkings Inc. (NASDAQ:DKNG) from April 2020 to April 2021, and former Chairman of SBTech from January 2019 to April 2020. Mr. Isaacs previously served as a Trustee 5 and the President of the International Association of Gaming Advisors, and as Vice Chairman of the board of directors of the American Gaming Association. Mr. Isaacs has a Masters of Laws degree and an undergraduate degree in Accounting and Financial Systems. Mr. Isaacs brings to the Company experience on public boards of directors and a proven track record of success in leading company turnarounds and establishing companies on strong growth trajectories.
Cheryl Kondra has been a Director since December 2021 and was named the Audit Committee Chairperson as of March 2022. Since June 2020, Ms. Kondra has served as Vice President of Internal Audit at Tractor Supply Company (NASDAQ:TSCO), the largest rural lifestyle retailer in the United States. Prior to Tractor Supply Company, she had an extensive career in gaming, having served as the VP of Internal Audit for Genting Americas from 2019-2020. Prior to that she was VP of Internal Audit and Chief Compliance Officer at Pinnacle Entertainment from October 2014 to September 2018. Ms. Kondra was the Chief Audit Executive at Caesars Entertainment from October 2007 to August 2014 and held various other positions with Harrah’s and Caesars Entertainment since 1997 within the Internal Audit and Compliance functions. Ms. Kondra has a Master of Accountancy degree and an undergraduate degree in Accounting. Ms. Kondra is a Certified Internal Auditor.
Meredith Brill is a Director and was appointed to the Board effective July 13, 2022. Ms. Brill earned a Bachelor's Degree in Applied Science & Engineering in 1997 from the University of Toronto and a Law Degree from Osgoode Hall at York University in 2000. Ms. Brill is a Private Investor who focuses on evaluating special situation investments and unique business models. Prior to shifting to investing, she was an experienced Canadian Intellectual Property Lawyer and Registered Patent Agent with a Chemical Engineering background. Her legal career included all aspects of patent drafting and prosecution, intellectual property portfolio and management strategy, and competitive intelligence research.
Our bylaws authorize no fewer than one and no more than thirteen directors. We currently have five directors.
Family relationships. There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Director or officer involvement in certain legal proceedings. To the best of our knowledge, during the past ten years, none of the following occurred with respect to any of our present or former directors or executive officers: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic
35
violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Committees of the Board. We do not currently have a separate executive committee or stock plan committee of our Board of Directors.
Compensation Committee. At a meeting of the Board of Directors on July 8, 2014, the Board approved the creation of a Compensation Committee, and on October 13, 2014, adopted the Compensation Committee Charter (the “Charter”).
Pursuant to the Charter, the Compensation Committee is to be comprised of no fewer than two non-employee members of the Board, and the members shall be free from any relationships or conflicts of interest with respect to the Company that would impair the member’s ability to make independent judgments. The members of the Compensation Committee will be appointed by the Board and can be removed by the Board at any time, with or without cause.
The authority and duties of the Compensation Committee include but are not limited to: approving the corporate goals and objectives relating to compensation and bonus incentive structure of the Chief Executive Officer and other executive officers and key employees and any company-wide bonus plans; approving any material grants of equity compensation of more than 100,000 shares of our common stock; retaining and terminating any compensation consultant; and reviewing and assessing the adequacy of the Charter.
For the year ended December 31, 2022, the members of the Compensation Committee were Mr. Isaacs (Chairman), Mr. Waters and Mr. Zender. Mr. Zender resigned effective July 1, 2022.
Audit Committee. At a meeting of the Board of Directors on February 21, 2022, the Board approved the creation of an Audit Committee. Members of the Audit Committee are Cheryl Kondra (Chair), Mr. Isaacs and Mr. Waters.
The duties of the Audit Committee include but are not limited to: approving the selection of our independent accountants and meeting and interacting with the independent accountants to discuss issues related to financial reporting. In addition, the Audit Committee reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.
Nominating Committee. Our Board does not maintain a nominating committee. As a result, no written charter governs the director nomination process. The size of our Board, at this time, does not require a separate nominating committee. There were no changes during the year ended December 31, 2022, or as of the date of this report, to the process for recommending nominees to our Board.
When evaluating director nominees, our Board consider the following factors:
Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds. Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third-party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that our current nomination process is sufficient to identify directors who serve our best interests.
36
Code of Ethics. As of December 31, 2022, we had not adopted a separate Code of Ethics for our financial executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Company does have in place a code of conduct which is included in its employee handbook, amongst other polices. The code of conduct and all other policies within the employee handbook are to be followed by all employees.
Section 16(a) beneficial ownership reporting compliance. Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Officers, directors and greater than ten percent beneficial shareholders are required by this Item is incorporatedSEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by referenceus during or with respect to the applicable information in our Proxy Statement related to the 2021 Annual Meeting of Stockholders, which wasyear ended December 31, 2022, there were no reports that were not filed on January 4, 2021.a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by referenceCompensation discussion and analysis. Our current executive compensation plan consists of cash, stock and/or stock options compensation to the applicable informationexecutive officers, who are primarily responsible for the day-to-day management and continuing development of our business.
Summary compensation table. The table below summarizes all compensation awarded to or earned by each named executive officer for each of the last two completed fiscal years.
SUMMARY COMPENSATION TABLE | ||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Stock | Option | Non-equity | Non-qualified | All Other | Total | |||||||||
Todd P. Cravens (1) (2) | 2022 | $284,615 | $244,727 | — | $121,312 | — | — | $19,644 | $670,298 | |||||||||
Harry C. Hagerty (1) | 2022 | $200,000 | $197,983 | — | $404,375 | — | — | $20,788 | $823,146 |
Outstanding equity awards at fiscal year-end table. The following table summarizes all unexercised options, stock that has not vested, and equity incentive plan awards outstanding for each named executive officer as of the end of the last completed fiscal year.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
| |||||||||||||||||||||||||||||||
OPTION AWARDS |
| STOCK AWARDS |
| |||||||||||||||||||||||||||||
Name |
| Number of |
|
| Number of |
|
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
|
| Option Exercise Price |
| Option Expiration Date |
| Number of |
|
| Market Value of Shares or Units of Stock That Have Not Vested |
|
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
|
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| |||||||
Todd P. Cravens, CEO |
|
| 414,500 |
|
|
| 110,000 |
|
|
| — |
|
| $1.19-$3.91 |
| 10/12/23,2/17/25,1/3/27 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Harry C. Hagerty, CFO |
|
| — |
|
|
| 200,000 |
|
|
| — |
|
| $3.91 |
| 1/3/27 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
37
Compensation of directors table. The table below summarizes all compensation paid to each named director for the last completed fiscal year.
DIRECTOR COMPENSATION TABLE |
| |||||||||||||||||||||||||||
Name |
| Fees Earned or Paid in Cash |
|
| Stock Awards |
|
| Option Awards |
|
| Non-equity Incentive Plan Compensation |
|
| Non-qualified Deferred |
|
| All Other |
|
| Total |
| |||||||
Mark A. Lipparelli(1) |
| $ | 110,000 |
|
| $ | 81,206 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 191,206 |
|
Michael Gavin Isaacs(2) |
| $ | 82,500 |
|
| $ | 158,152 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 240,652 |
|
Cheryl A. Kondra(3) |
| $ | 96,250 |
|
| $ | 130,307 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 226,557 |
|
William A. Zender(4) |
| $ | 45,000 |
|
| $ | 15,964 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 60,964 |
|
Bryan W. Waters(5) |
| $ | 82,500 |
|
| $ | 60,902 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 143,402 |
|
Meredith Brill(6) |
| $ | 34,597 |
|
| $ | 27,959 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 62,556 |
|
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS
The information requiredfollowing table sets forth, as of March 15, 2023, the beneficial ownership of our common stock by this Item is incorporatedeach executive officer and director, by referenceeach person known by us to beneficially own more than 5% of our common stock and by the executive officers and directors as a group. Unless otherwise indicated, the named persons possess sole voting and investment power with respect to the applicable information in our Proxy Statement relatedshares listed (except to the 2021 Annual Meetingextent such authority is shared with spouses under applicable law). The percentages are based upon a total of Stockholders,25,085,598 shares as of March 15, 2023, consisting of 24,411,098 shares outstanding and 674,500 stock options and restricted stock, which was filed on January 4, 2021.are exercisable at March 15, 2023 or within 60 days.
Name of Beneficial Owner |
| Amount of |
|
| Percent of Class |
| ||
Mark A. Lipparelli, Director(1) |
|
| 1,943,648 |
|
|
| 7.96 | % |
Michael Gavin Isaacs, Director(2) |
|
| 269,919 |
|
|
| 1.11 | % |
Meredith Brill, Director(3) |
|
| 355,840 |
|
|
| 1.46 | % |
Bryan W. Waters, Director(4) |
|
| 550,648 |
|
|
| 2.26 | % |
Cheryl A. Kondra(5) |
|
| 100,557 |
|
|
| 0.41 | % |
Todd P. Cravens, President and Chief Executive Officer(6) |
|
| 1,020,220 |
|
|
| 4.18 | % |
Harry C. Hagerty, Chief Financial Officer(7) |
|
| 990,500 |
|
|
| 4.06 | % |
Total Directors, Executive Officers & Beneficial Owners > 5% |
|
| 5,231,332 |
|
|
| 21.44 | % |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction over the last two years or in any presently proposed transaction which, in either case, has or will materially affect us.
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K. Applying the definition of independence set forth in Rule 4200(a)(15) of The information required by this Item is incorporated by reference to the applicable information inNasdaq Stock Market, Inc., we have determined all of our Proxy Statement related to the 2021 Annual Meeting of Stockholders, which was filed on January 4, 2021.directors are independent directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information requiredBelow is the table of audit fees billed by this Item is incorporated by reference toour auditor in connection with the applicable information inaudit of our Proxy Statement related toannual financial statements for the 2021 Annual Meeting of Stockholders, which was filed on January 4, 2021.years ended December 31:
Fee Type |
| 2022 |
|
| 2021 |
| ||
Audit fees |
| $ | 319,225 |
|
| $ | 265,088 |
|
Audit-related fees |
|
| — |
|
|
| — |
|
Tax fees |
|
| 50,250 |
|
|
| — |
|
All other fees |
|
| — |
|
|
| — |
|
Total fees |
| $ | 369,475 |
|
| $ | 265,088 |
|
39
40
ITEM 15. EXHIBITS AND FINANCIALFINANCIAL STATEMENT SCHEDULES
4041
Exhibit Number |
| Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | |||||||
|
|
|
|
|
|
|
| |||||||
10.23 |
| 8-K/A | 000-30653 | 99.3 | August 30, 2016 |
| ||||||||
10.24 |
| 10-Q | 000-30653 | 99.1 | November 16, 2015 |
|
| 10-Q | 000-30653 | 99.1 | November 16, 2015 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.25 |
| Gary Vecchiarelli Indemnification Agreement dated November 14, 2015 | 10-Q | 000-30653 | 99.3 | November 16, 2015 |
|
| Gary Vecchiarelli Indemnification Agreement dated November 14, 2015 | 10-Q | 000-30653 | 99.3 | November 16, 2015 |
|
|
|
|
|
|
|
|
|
|
| |||||
10.26 |
| 10-K | 000-30653 | 10.5 | April 2, 2018 |
|
| 10-K | 000-30653 | 10.5 | April 2, 2018 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.27 |
| Board of Directors Service Agreement with Mark A. Lipparelli | 8-K | 000-30653 | 99.1 | September 7, 2017 |
|
| Board of Directors Service Agreement with Mark A. Lipparelli | 8-K | 000-30653 | 99.1 | September 7, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||||
10.28 |
| Form of Voting and Control Agreement (Triangulum Partners, LLC shares) | 8-K | 000-30653 | 99.1 | September 27, 2017 |
|
| Form of Voting and Control Agreement (Triangulum Partners, LLC shares) | 8-K | 000-30653 | 99.1 | September 27, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||||
10.29 |
| 8-K | 000-30653 | 10.1 | April 27, 2018 |
|
| 8-K | 000-30653 | 10.1 | April 27, 2018 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.30 |
| 8-K | 000-30653 | 10.1 | February 22, 2019 |
|
| 8-K | 000-30653 | 10.1 | February 22, 2019 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.31 |
| Amendment #2 to the Employment Agreement dated May 1, 2017, between the Company and Harry C. Hagerty | 8-K | 000-30653 | 10.2 | February 22, 2019 |
|
| Amendment #2 to the Employment Agreement dated May 1, 2017, between the Company and Harry C. Hagerty | 8-K | 000-30653 | 10.2 | February 22, 2019 |
|
|
|
|
|
|
|
|
|
|
| |||||
10.32 |
| 8-K | 000-30653 | 10.1 | April 24, 2019 |
|
| 8-K | 000-30653 | 10.1 | April 24, 2019 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.33 |
| 8-K | 000-30653 | 10.1 | May 6, 2019 |
|
| 8-K | 000-30653 | 10.1 | May 6, 2019 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.34 |
| Board of Director Service Agreement dated June 3, 2019 with Michael Gavin Isaacs | 8-K | 000-30653 | 10.1 | June 6, 2019 |
|
| Board of Director Service Agreement dated June 3, 2019, with Michael Gavin Isaacs | 8-K | 000-30653 | 10.1 | June 6, 2019 |
|
|
|
|
|
|
|
|
|
|
| |||||
10.35 |
| 8-K | 000-30653 | 10.1 | August 28, 2019 |
|
| 8-K | 000-30653 | 10.1 | August 28, 2019 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.36 |
| 8-K | 000-30653 | 10.1 | February 19, 2020 |
|
| 8-K | 000-30653 | 10.1 | February 19, 2020 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.37 |
| 8-K | 000-30653 | 10.3 | October 15, 2019 |
|
| 8-K | 000-30653 | 10.3 | October 15, 2019 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.38 |
| 8-K | 000-30653 | 10.2 | February 26, 2020 |
|
| 8-K | 000-30653 | 10.2 | February 26, 2020 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.39 |
| 8-K | 000-30653 |
| April 21, 2020 |
|
| 8-K | 000-30653 |
| April 21, 2020 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.40 |
| 8-K | 000-30653 | 10.1 | August 14, 2020 |
|
| 8-K | 000-30653 | 10.1 | August 14, 2020 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.41 |
| 8-K | 000-30653 | 10.1 | August 24, 2020 |
|
| 8-K | 000-30653 | 10.1 | August 24, 2020 |
| ||
|
|
|
|
|
|
|
|
|
| |||||
10.42 |
| 8-K | 000-30653 | 10.3 | November 4, 2020 |
| ||||||||
|
|
| ||||||||||||
10.43 |
| 8-K | 000-30653 | 10.2 | November 4, 2020 |
| ||||||||
|
|
| ||||||||||||
10.44 |
| 8-K | 000-30653 | 10.1 | November 17, 2020 |
| ||||||||
|
|
| ||||||||||||
10.45 |
| 8-K | 000-30653 | 10.1 | March 31, 2021 |
|
4142
Exhibit Number |
| Description | Form | File No. | Exhibit | Filing Date | Filed Herewith |
|
|
|
|
|
|
|
|
10.42 |
| 8-K | 000-30653 | 10.3 | November 4, 2020 |
| |
|
|
|
|
|
|
|
|
10.43 |
| 8-K | 000-30653 | 10.2 | November 4, 2020 |
| |
|
|
|
|
|
|
|
|
10.44 |
| 8-K | 000-30653 | 10.1 | November 17, 2020 |
| |
|
|
|
|
|
|
|
|
23.1
23.2
31.1 |
| Consent of Moss Adams LLP, Independent Registered Public Accounting Firm |
|
|
|
| X
X
X |
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
32.1 |
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
101 |
| Financials in XBRL format |
|
|
|
| X |
|
|
|
|
|
|
|
|
10.46 |
| 8-K | 000-30653 | 10.1 | May 17, 2021 |
| |
|
|
|
|
|
|
|
|
10.47 |
| 8-K | 000-30653 | 10.1 | October 7, 2021 |
| |
|
|
|
|
|
|
|
|
10.48 |
| Credit Agreement dated November 15, 2021, with Fortress Credit Corp. | 8-K | 000-30653 | 10.1 | November 17, 2021 |
|
|
|
|
|
|
|
|
|
10.49 |
| Board of Directors Service Agreement with Cheryl Kondra, Director | 8-K | 000-30653 | 10.1 | December 7, 2021 |
|
|
|
|
|
|
|
|
|
10.50 |
| Form of Indemnification Agreement for Cheryl Kondra, Director | 8-K | 000-30653 | 10.2 | December 7, 2021 |
|
|
|
|
|
|
|
|
|
10.51 |
| 10-Q | 000-30653 | 10.1 | March 22, 2022 |
| |
|
|
|
|
|
|
|
|
10.52 |
| Cooperation Agreement, dated April 20, 2022, by and between the Company and Tice Brown | 10-Q | 000-30653 | 10.1 | April 25, 2022 |
|
|
|
|
|
|
|
|
|
10.53 |
| Amendment #3 to the Employment Agreement between the Company and Todd Cravens | 10-Q | 000-30653 | 10.1 | June 21, 2022 |
|
|
|
|
|
|
|
|
|
10.54 |
| Board of Directors Service Agreement with Meredith Brill, Director | 10-Q | 000-30653 | 10.1 | July 15,2022 |
|
|
|
|
|
|
|
|
|
10.55 |
| First Amendment to Board of Directors Service Agreement with Meredith Brill, Director | 10-Q | 000-30653 | 10.1 | July 26, 2022 |
|
|
|
|
|
|
|
|
|
10.56 |
| 8-K | 000-30653 | 10.1 | January 27, 2023 |
| |
|
|
|
|
|
|
|
|
23.2 |
| Consent of Moss Adams LLP, Independent Registered Public Accounting Firm |
|
|
|
| X |
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
32.1 |
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
101.INS |
| Inline XBRL Instance Document – the instance does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document |
|
|
|
|
|
43
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GALAXY GAMING, INC.
Date: | March 30, | |||
By: | /s/ TODD P. CRAVENS | |||
Todd P. Cravens | ||||
President and Chief Executive Officer | ||||
(Principal Executive Officer) |
Date: | March 30, | |||
By: | /s/ HARRY C. HAGERTY | |||
Harry C. Hagerty | ||||
Chief Financial Officer | ||||
(Principal Financial Officer) |
42
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature | Title | Date | ||
/s/ TODD P. CRAVENS | President and Chief Executive Officer | March 30, | ||
Todd P. Cravens | (Principal Executive Officer) | |||
/s/ HARRY C. HAGERTY | Chief Financial Officer | March 30, | ||
Harry C. Hagerty | (Principal Financial Officer) | |||
/s/ MARK A. LIPPARELLI | Chairman of the Board of Directors | March 30, | ||
Mark A. Lipparelli /s/ MICHAEL GAVIN ISAACS | Director | March 30, | ||
Michael Gavin Isaacs | ||||
/s/ | Director | March 30, | ||
/s/ BRYAN W. WATERS | Director | March 30, | ||
Bryan W. Waters |
/s/ CHERYL A. KONDRA | Director | March 30, 2023 | ||
Cheryl A. Kondra |
4344