UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-30653
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.) |
|
|
|
| ||
(Address of principal executive offices) | ||
| ||
(702) 939-3254 | ||
(Issuer’s telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol |
| Name of exchange on which registered |
Common stock |
| GLXZ |
| OTCQB marketplace |
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the issuer has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
|
|
|
| |||
Non-accelerated filer |
| ☒ |
| Smaller reporting company |
| ☒ |
|
|
|
|
|
|
|
Emerging growth company |
| ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,582,63822,354,804 common shares as of November 12, 2020.9, 2021.
GALAXY GAMING, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 20202021
TABLE OF CONTENTS
| PART I
|
|
Item 1: | 3 | |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3: |
| |
Item 4: |
| |
|
PART II
|
|
Item 1: |
| |
Item 2: | 27 | |
Item 6: | 27 |
2PART I
Our financial statements included in this Form 10-Q are as follows:
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS |
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| |||||
Current assets: |
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 2,668,906 |
|
| $ | 9,686,698 |
|
| $ | 7,401,870 |
|
| $ | 5,993,388 |
| |
Accounts receivable, net of allowance of $129,587 and $77,433, respectively |
|
| 2,183,744 |
|
|
| 3,099,586 |
| |||||||||
Inventory, net |
|
| 761,345 |
|
|
| 665,654 |
| |||||||||
Accounts receivable, net of allowance of $244,810 and $145,000, respectively |
|
| 4,767,656 |
|
|
| 2,493,254 |
| |||||||||
Inventory |
|
| 748,237 |
|
|
| 668,525 |
| |||||||||
Income tax receivable |
|
| 350,244 |
|
|
| 260,347 |
|
|
| 1,540,950 |
|
|
| 1,229,795 |
| |
Prepaid expense and other current assets |
|
| 704,557 |
|
|
| 761,650 |
| |||||||||
Prepaid expenses |
|
| 631,772 |
|
|
| 1,167,068 |
| |||||||||
Other current assets |
|
| 148,535 |
|
|
| 10,803 |
| |||||||||
Total current assets |
|
| 6,668,796 |
|
|
| 14,473,935 |
|
|
| 15,239,020 |
|
|
| 11,562,833 |
| |
Property and equipment, net |
|
| 116,152 |
|
|
| 144,909 |
|
|
| 117,005 |
|
|
| 116,724 |
| |
Operating lease right-of-use assets |
|
| 1,482,534 |
|
|
| 306,859 |
|
|
| 1,225,692 |
|
|
| 1,367,821 |
| |
Assets deployed at client locations, net |
|
| 258,856 |
|
|
| 405,522 |
|
|
| 301,206 |
|
|
| 232,156 |
| |
Goodwill |
|
| 1,091,000 |
|
|
| 1,091,000 |
|
|
| 1,091,000 |
|
|
| 1,091,000 |
| |
Other intangible assets, net |
|
| 16,610,045 |
|
|
| 7,430,643 |
|
|
| 14,180,964 |
|
|
| 16,086,896 |
| |
Deferred tax assets, net |
|
| 892,090 |
|
|
| 399,283 |
| |||||||||
Other assets, net |
|
| 27,305 |
|
|
| — |
| |||||||||
Other assets |
|
| 229,793 |
|
|
| 117,164 |
| |||||||||
Total assets |
| $ | 27,146,778 |
|
| $ | 24,252,151 |
|
| $ | 32,384,680 |
|
| $ | 30,574,594 |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
| |||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
| |||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts payable |
| $ | 2,099,180 |
|
| $ | 766,305 |
|
| $ | 405,789 |
|
| $ | 467,792 |
| |
Accrued expenses |
|
| 844,146 |
|
|
| 1,450,879 |
|
|
| 2,501,084 |
|
|
| 1,333,032 |
| |
Revenue contract liability |
|
| 587,094 |
|
|
| 1,294,265 |
|
|
| 43,750 |
|
|
| 29,167 |
| |
Current portion of long-term debt |
|
| 2,530,149 |
|
|
| 1,634,527 |
|
|
| 2,607,913 |
|
|
| 2,222,392 |
| |
Current portion of operating lease liabilities |
|
| 197,067 |
|
|
| 276,963 |
|
|
| 222,968 |
|
|
| 195,411 |
| |
Total current liabilities |
|
| 6,257,636 |
|
|
| 5,422,939 |
|
|
| 5,781,504 |
|
|
| 4,247,794 |
| |
Long-term operating lease liabilities |
|
| 1,266,215 |
|
|
| 30,325 |
|
|
| 1,075,560 |
|
|
| 1,215,680 |
| |
Long-term liabilities, net |
|
| 45,991,154 |
|
|
| 46,291,014 |
|
|
| 47,607,272 |
|
|
| 49,691,184 |
| |
Interest rate swap liability |
|
| 118,846 |
|
|
| 140,495 |
|
|
| — |
|
|
| 66,009 |
| |
Deferred tax liabilities, net |
|
| 150,892 |
|
|
| 150,892 |
| |||||||||
Total liabilities |
|
| 53,633,851 |
|
|
| 51,884,773 |
|
|
| 54,615,228 |
|
|
| 55,371,559 |
| |
Commitments and Contingencies (See Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stockholders’ equity (deficit) |
|
|
|
|
|
|
|
| |||||||||
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; 21,582,638 and 18,017,944 shares issued and outstanding, respectively |
|
| 21,582 |
|
|
| 18,018 |
| |||||||||
Common stock, 65,000,000 shares authorized; $0.001 par value; 22,299,804 and 21,970,638 shares issued and outstanding, respectively |
|
| 22,300 |
|
|
| 21,971 |
| |||||||||
Additional paid-in capital |
|
| 10,344,181 |
|
|
| 5,795,636 |
|
|
| 11,990,912 |
|
|
| 10,798,536 |
| |
Accumulated deficit |
|
| (36,833,752 | ) |
|
| (33,446,276 | ) |
|
| (34,141,735 | ) |
|
| (35,655,163 | ) | |
Accumulated other comprehensive loss |
|
| (19,084 | ) |
|
| — |
| |||||||||
Accumulated other comprehensive (loss) income |
|
| (102,025 | ) |
|
| 37,691 |
| |||||||||
Total stockholders’ deficit |
|
| (26,487,073 | ) |
|
| (27,632,622 | ) |
|
| (22,230,548 | ) |
|
| (24,796,965 | ) | |
Total liabilities and stockholders’ deficit |
| $ | 27,146,778 |
|
| $ | 24,252,151 |
|
| $ | 32,384,680 |
|
| $ | 30,574,594 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product leases, royalties and other |
| $ | 1,797,833 |
|
| $ | 5,371,646 |
|
| $ | 6,956,122 |
|
| $ | 16,117,583 |
| ||||||||||||||||
Licensing fees |
| $ | 5,281,788 |
|
| $ | 1,797,833 |
|
| $ | 14,314,127 |
|
| $ | 6,956,122 |
| ||||||||||||||||
Total revenue |
| $ | 1,797,833 |
|
| $ | 5,371,646 |
|
|
| 6,956,122 |
|
| $ | 16,117,583 |
|
| $ | 5,281,788 |
|
| $ | 1,797,833 |
|
| $ | 14,314,127 |
|
| $ | 6,956,122 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ancillary products and assembled components |
|
| 11,142 |
|
|
| 37,674 |
|
|
| 40,855 |
|
|
| 167,009 |
|
|
| 26,310 |
|
|
| 11,142 |
|
|
| 60,212 |
|
|
| 40,855 |
|
Selling, general and administrative |
|
| 1,833,723 |
|
|
| 3,645,319 |
|
|
| 7,264,410 |
|
|
| 10,126,029 |
|
|
| 2,740,328 |
|
|
| 1,833,723 |
|
|
| 7,984,035 |
|
|
| 7,264,410 |
|
Research and development |
|
| 97,081 |
|
|
| 208,253 |
|
|
| 391,333 |
|
|
| 685,693 |
|
|
| 156,768 |
|
|
| 97,081 |
|
|
| 405,327 |
|
|
| 391,333 |
|
Depreciation and amortization |
|
| 575,637 |
|
|
| 476,112 |
|
|
| 1,499,927 |
|
|
| 1,439,220 |
|
|
| 722,475 |
|
|
| 575,637 |
|
|
| 2,160,217 |
|
|
| 1,499,927 |
|
Share-based compensation |
|
| 178,553 |
|
|
| 242,016 |
|
|
| 512,818 |
|
|
| 678,199 |
|
|
| 449,564 |
|
|
| 178,553 |
|
|
| 1,207,649 |
|
|
| 512,818 |
|
Total costs and expenses |
|
| 2,696,136 |
|
|
| 4,609,374 |
|
|
| 9,709,343 |
|
|
| 13,096,150 |
|
|
| 4,095,445 |
|
|
| 2,696,136 |
|
|
| 11,817,440 |
|
|
| 9,709,343 |
|
(Loss) income from operations |
|
| (898,303 | ) |
|
| 762,272 |
|
|
| (2,753,221 | ) |
|
| 3,021,433 |
| ||||||||||||||||
Income (loss) from operations |
|
| 1,186,343 |
|
|
| (898,303 | ) |
|
| 2,496,687 |
|
|
| (2,753,221 | ) | ||||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1,412 |
|
|
| 25,326 |
|
|
| 25,313 |
|
|
| 45,891 |
|
|
| 392 |
|
|
| 1,412 |
|
|
| 1,163 |
|
|
| 25,313 |
|
Interest expense |
|
| (162,082 | ) |
|
| (165,706 | ) |
|
| (506,922 | ) |
|
| (503,262 | ) |
|
| (129,422 | ) |
|
| (162,082 | ) |
|
| (450,474 | ) |
|
| (506,922 | ) |
Share redemption consideration |
|
| (195,482 | ) |
|
| (195,482 | ) |
|
| (586,446 | ) |
|
| (315,293 | ) |
|
| (195,482 | ) |
|
| (195,482 | ) |
|
| (586,446 | ) |
|
| (586,446 | ) |
Foreign currency exchange gain (loss) |
|
| 20,014 |
|
|
| (69,470 | ) |
|
| (95,976 | ) |
|
| (57,299 | ) | ||||||||||||||||
Change in estimated fair value of interest rate swap liability |
|
| 55,330 |
|
|
| 13,162 |
|
|
| 21,650 |
|
|
| (78,440 | ) | ||||||||||||||||
Foreign currency exchange (loss) gain |
|
| (33,781 | ) |
|
| 20,014 |
|
|
| (31,511 | ) |
|
| (95,976 | ) | ||||||||||||||||
Change in fair value of interest rate swap liability |
|
| — |
|
|
| 55,330 |
|
|
| 66,009 |
|
|
| 21,650 |
| ||||||||||||||||
Other non-recurring income |
|
| 15,320 |
|
|
| — |
|
|
| 15,320 |
|
|
| — |
|
|
| 25,000 |
|
|
| 15,320 |
|
|
| 25,000 |
|
|
| 15,320 |
|
Total other expense |
|
| (265,488 | ) |
|
| (392,170 | ) |
|
| (1,127,061 | ) |
|
| (908,403 | ) | ||||||||||||||||
(Loss) income before benefit (provision) for income taxes |
|
| (1,163,791 | ) |
|
| 370,102 |
|
|
| (3,880,282 | ) |
|
| 2,113,030 |
| ||||||||||||||||
Total other expense, net |
|
| (333,293 | ) |
|
| (265,488 | ) |
|
| (976,259 | ) |
|
| (1,127,061 | ) | ||||||||||||||||
Income (loss) before benefit (provision) for income taxes |
|
| 853,050 |
|
|
| (1,163,791 | ) |
|
| 1,520,428 |
|
|
| (3,880,282 | ) | ||||||||||||||||
Benefit (provision) for income taxes |
|
| (133,708 | ) |
|
| 210,132 |
|
|
| 492,807 |
|
|
| (17,189 | ) |
|
| 21,186 |
|
|
| (133,708 | ) |
|
| (7,000 | ) |
|
| 492,807 |
|
Net (loss) income |
| $ | (1,297,499 | ) |
| $ | 580,234 |
|
| $ | (3,387,475 | ) |
| $ | 2,095,841 |
| ||||||||||||||||
Net income (loss) |
|
| 874,236 |
|
|
| (1,297,499 | ) |
|
| 1,513,428 |
|
|
| (3,387,475 | ) | ||||||||||||||||
Foreign currency translation adjustment |
|
| (81,716 | ) |
|
| — |
|
|
| (139,716 | ) |
|
| — |
| ||||||||||||||||
Comprehensive income (loss) |
| $ | 792,520 |
|
| $ | (1,297,499 | ) |
| $ | 1,373,712 |
|
| $ | (3,387,475 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.07 | ) |
| $ | 0.03 |
|
| $ | (0.18 | ) |
| $ | 0.07 |
|
| $ | 0.04 |
|
| $ | (0.07 | ) |
| $ | 0.07 |
|
| $ | (0.18 | ) |
Diluted |
| $ | (0.06 | ) |
| $ | 0.03 |
|
| $ | (0.17 | ) |
| $ | 0.07 |
|
| $ | 0.04 |
|
| $ | (0.07 | ) |
| $ | 0.07 |
|
| $ | (0.18 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 19,745,525 |
|
|
| 17,774,022 |
|
|
| 18,675,769 |
|
|
| 28,083,665 |
|
|
| 20,410,950 |
|
|
| 19,745,525 |
|
|
| 20,315,730 |
|
|
| 18,675,769 |
|
Diluted |
|
| 20,475,085 |
|
|
| 19,102,709 |
|
|
| 19,483,464 |
|
|
| 29,672,645 |
|
|
| 22,364,694 |
|
|
| 19,745,525 |
|
|
| 22,080,338 |
|
|
| 18,675,769 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)DEFICIT
(Unaudited)
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated Earnings |
|
| Accumulated Other |
|
| Total Shareholders' |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Deficit) |
|
| Comprehensive Income |
|
| Deficit |
| ||||||
Beginning balance, December 31, 2019 |
|
| 18,017,944 |
|
| $ | 18,018 |
|
| $ | 5,795,636 |
|
| $ | (33,446,276 | ) |
| $ | — |
|
| $ | (27,632,622 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 116,605 |
|
|
| — |
|
|
| 116,605 |
|
Stock options exercised |
|
| 25,000 |
|
|
| 25 |
|
|
| 7,475 |
|
|
| — |
|
|
| — |
|
|
| 7,500 |
|
Share-based compensation |
|
| 63,333 |
|
|
| 63 |
|
|
| 157,533 |
|
|
| — |
|
|
| — |
|
|
| 157,596 |
|
Balance, March 31, 2020 |
|
| 18,106,277 |
|
| $ | 18,106 |
|
| $ | 5,960,644 |
|
| $ | (33,329,671 | ) |
| $ | — |
|
| $ | (27,350,921 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,206,582 | ) |
|
| — |
|
|
| (2,206,582 | ) |
Stock options exercised |
|
| 150,000 |
|
|
| 150 |
|
|
| 30,113 |
|
|
| — |
|
|
| — |
|
|
| 30,263 |
|
Share-based compensation |
|
| 80,000 |
|
|
| 80 |
|
|
| 176,589 |
|
|
| — |
|
|
| — |
|
|
| 176,669 |
|
Balance, June 30, 2020 |
|
| 18,336,277 |
|
| $ | 18,336 |
|
| $ | 6,167,346 |
|
| $ | (35,536,253 | ) |
| $ | — |
|
| $ | (29,350,571 | ) |
Shares issued in connection with PGP asset acquisition |
|
| 3,141,361 |
|
|
| 3,141 |
|
| $ | 3,986,387 |
|
|
| — |
|
|
| — |
|
|
| 3,989,528 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,297,499 | ) |
|
| — |
|
|
| (1,297,499 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,084 | ) |
|
| (19,084 | ) |
Stock options exercised |
|
| 50,000 |
|
|
| 50 |
|
|
| 11,950 |
|
|
| — |
|
|
| — |
|
|
| 12,000 |
|
Share-based compensation |
|
| 55,000 |
|
|
| 55 |
|
|
| 178,498 |
|
|
| — |
|
|
| — |
|
|
| 178,553 |
|
Balance, September 30, 2020 |
|
| 21,582,638 |
|
| $ | 21,582 |
|
| $ | 10,344,181 |
|
| $ | (36,833,752 | ) |
| $ | (19,084 | ) |
| $ | (26,487,073 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Other Comprehensive |
|
| Total Stockholders' |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Deficit |
| ||||||
Beginning balance, December 31, 2020 |
|
| 21,970,638 |
|
| $ | 21,971 |
|
| $ | 10,798,536 |
|
| $ | (35,655,163 | ) |
| $ | 37,691 |
|
| $ | (24,796,965 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88,737 |
|
|
| — |
|
|
| 88,737 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (79,207 | ) |
|
| (79,207 | ) |
Stock options exercised |
|
| 50,000 |
|
|
| 50 |
|
|
| 10,949 |
|
|
| — |
|
|
| — |
|
|
| 10,999 |
|
Share-based compensation |
|
| 55,000 |
|
|
| 55 |
|
|
| 316,585 |
|
|
| — |
|
|
| — |
|
|
| 316,640 |
|
Balance, March 31, 2021 |
|
| 22,075,638 |
|
|
| 22,076 |
|
|
| 11,126,070 |
|
|
| (35,566,426 | ) |
|
| (41,516 | ) |
|
| (24,459,796 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 550,455 |
|
|
| — |
|
|
| 550,455 |
|
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,207 |
|
|
| 21,207 |
|
Stock options exercised |
|
| 50,000 |
|
|
| 50 |
|
|
| 15,451 |
|
|
| — |
|
|
| — |
|
|
| 15,501 |
|
Share-based compensation |
|
| 55,000 |
|
|
| 55 |
|
|
| 441,389 |
|
|
| — |
|
|
| — |
|
|
| 441,444 |
|
Balance, June 30, 2021 |
|
| 22,180,638 |
|
| $ | 22,181 |
|
| $ | 11,582,910 |
|
| $ | (35,015,971 | ) |
| $ | (20,309 | ) |
| $ | (23,431,189 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 874,236 |
|
|
| — |
|
|
| 874,236 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81,716 | ) |
|
| (81,716 | ) |
Stock options exercised |
|
| 119,166 |
|
|
| 119 |
|
|
| 62,697 |
|
|
| — |
|
|
| — |
|
|
| 62,816 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 345,305 |
|
|
| — |
|
|
| — |
|
|
| 345,305 |
|
Balance, September 30, 2021 |
|
| 22,299,804 |
|
| $ | 22,300 |
|
| $ | 11,990,912 |
|
| $ | (34,141,735 | ) |
| $ | (102,025 | ) |
| $ | (22,230,548 | ) |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated Earnings |
|
| Accumulated Other |
|
| Total Shareholders' |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Deficit) |
|
| Comprehensive Income |
|
| Equity (Deficit) |
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Other Comprehensive |
|
| Total Stockholders' |
| |||||||||||||||
Beginning balance, December 31, 2018 |
|
| 39,921,591 |
|
| $ | 39,922 |
|
| $ | 4,733,701 |
|
| $ | 2,683,478 |
|
| $ | — |
|
| $ | 7,457,101 |
| ||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Deficit |
| ||||||||||||||||||||||||||||||
Beginning balance, December 31, 2019 |
|
| 18,017,944 |
|
| $ | 18,018 |
|
| $ | 5,795,636 |
|
| $ | (33,446,276 | ) |
| $ | — |
|
| $ | (27,632,622 | ) | ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 460,664 |
|
|
| — |
|
|
| 460,664 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 116,605 |
|
|
| — |
|
|
| 116,605 |
|
Stock options exercised |
|
| 98,332 |
|
|
| 98 |
|
|
| 36,134 |
|
|
| — |
|
|
| — |
|
|
| 36,232 |
|
|
| 25,000 |
|
|
| 25 |
|
|
| 7,475 |
|
|
| — |
|
|
| — |
|
|
| 7,500 |
|
Share-based compensation |
|
| 470,200 |
|
|
| 470 |
|
|
| 223,134 |
|
|
| — |
|
|
| — |
|
|
| 223,604 |
|
|
| 63,333 |
|
|
| 63 |
|
|
| 157,533 |
|
|
| — |
|
|
| — |
|
|
| 157,596 |
|
Balance, March 31, 2019 |
|
| 40,490,123 |
|
| $ | 40,490 |
|
| $ | 4,992,969 |
|
| $ | 3,144,142 |
|
| $ | — |
|
| $ | 8,177,601 |
| ||||||||||||||||||||||||
Common stock redemption |
|
| (23,271,667 | ) |
|
| (23,271 | ) |
|
| — |
|
|
| (39,073,130 | ) |
|
| — |
|
|
| (39,096,401 | ) | ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,054,943 |
|
|
| — |
|
|
| 1,054,943 |
| ||||||||||||||||||||||||
Balance, March 31, 2020 |
|
| 18,106,277 |
|
| $ | 18,106 |
|
| $ | 5,960,644 |
|
| $ | (33,329,671 | ) |
| $ | — |
|
| $ | (27,350,921 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,206,582 | ) |
|
| — |
|
|
| (2,206,582 | ) | ||||||||||||||||||||||||
Stock options exercised |
|
| 457,888 |
|
|
| 458 |
|
|
| 59,917 |
|
|
| — |
|
|
| — |
|
|
| 60,375 |
|
|
| 150,000 |
|
|
| 150 |
|
|
| 30,113 |
|
|
| — |
|
|
| — |
|
|
| 30,263 |
|
Share-based compensation |
|
| 76,400 |
|
|
| 76 |
|
|
| 212,502 |
|
|
| — |
|
|
| — |
|
|
| 212,578 |
|
|
| 80,000 |
|
|
| 80 |
|
|
| 176,589 |
|
|
| — |
|
|
| — |
|
|
| 176,669 |
|
Balance, June 30, 2019 |
|
| 17,752,744 |
|
| $ | 17,753 |
|
| $ | 5,265,388 |
|
| $ | (34,874,045 | ) |
| $ | — |
|
| $ | (29,590,904 | ) | ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 580,234 |
|
|
| — |
|
|
| 580,234 |
| ||||||||||||||||||||||||
Balance, June 30, 2020 |
|
| 18,336,277 |
|
| $ | 18,336 |
|
| $ | 6,167,346 |
|
| $ | (35,536,253 | ) |
| $ | — |
|
| $ | (29,350,571 | ) | ||||||||||||||||||||||||
Shares issued in connection with PGP asset acquisition |
|
| 3,141,361 |
|
|
| 3,141 |
|
|
| 3,986,387 |
|
|
| — |
|
|
| — |
|
|
| 3,989,528 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,297,499 | ) |
|
| — |
|
|
| (1,297,499 | ) | ||||||||||||||||||||||||
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,084 | ) |
|
| (19,084 | ) | ||||||||||||||||||||||||
Stock options exercised |
|
| 75,000 |
|
|
| 75 |
|
|
| 29,175 |
|
|
| — |
|
|
| — |
|
|
| 29,250 |
|
|
| 50,000 |
|
|
| 50 |
|
|
| 11,950 |
|
|
| — |
|
|
| — |
|
|
| 12,000 |
|
Share-based compensation |
|
| 82,600 |
|
|
| 82 |
|
|
| 241,934 |
|
|
| — |
|
|
| — |
|
|
| 242,016 |
|
|
| 55,000 |
|
|
| 55 |
|
|
| 178,498 |
|
|
| — |
|
|
| — |
|
|
| 178,553 |
|
Balance, September 30, 2019 |
|
| 17,910,344 |
|
| $ | 17,910 |
|
| $ | 5,536,497 |
|
| $ | (34,293,811 | ) |
| $ | — |
|
| $ | (28,739,404 | ) | ||||||||||||||||||||||||
Balance, September 30, 2020 |
|
| 21,582,638 |
|
| $ | 21,582 |
|
| $ | 10,344,181 |
|
| $ | (36,833,752 | ) |
| $ | (19,084 | ) |
| $ | (26,487,073 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (3,387,475 | ) |
| $ | 2,095,841 |
|
| $ | 1,513,428 |
|
| $ | (3,387,475 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets |
|
| 1,499,927 |
|
|
| 1,424,934 |
| ||||||||
Non-cash lease expense |
|
| 207,378 |
|
|
| 203,205 |
| ||||||||
Depreciation and amortization |
|
| 2,160,217 |
|
|
| 1,499,927 |
| ||||||||
Amortization of right-of-use assets |
|
| 170,733 |
|
|
| 207,378 |
| ||||||||
Amortization of debt issuance costs and debt discount |
|
| 26,935 |
|
|
| 25,584 |
|
|
| 47,939 |
|
|
| 26,935 |
|
Bad debt expense |
|
| 166,002 |
|
|
| 101,938 |
|
|
| 233,160 |
|
|
| 166,002 |
|
Change in estimated fair value of interest rate swap liability |
|
| (21,650 | ) |
|
| 78,440 |
| ||||||||
Gain on sale of property and equipment |
|
| (25,000 | ) |
|
| — |
| ||||||||
Change in fair value of interest rate swap liability |
|
| (66,009 | ) |
|
| (21,650 | ) | ||||||||
Deferred income tax benefit |
|
| (492,807 | ) |
|
| (4,194 | ) |
|
| — |
|
|
| (492,807 | ) |
Share-based compensation |
|
| 512,818 |
|
|
| 678,199 |
|
|
| 1,207,649 |
|
|
| 512,818 |
|
Unrealized foreign exchange loss |
|
| 84,757 |
|
|
| 33,291 |
|
|
| 33,166 |
|
|
| 84,757 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 1,333,515 |
|
|
| (477,319 | ) |
|
| (2,615,929 | ) |
|
| 1,333,515 |
|
Inventory |
|
| (123,359 | ) |
|
| (315,155 | ) |
|
| (293,360 | ) |
|
| (123,359 | ) |
Income tax receivable/payable |
|
| (14,379 | ) |
|
| (414,817 | ) |
|
| (311,155 | ) |
|
| (14,379 | ) |
Prepaid expenses and other current assets |
|
| 54,953 |
|
|
| (40,086 | ) |
|
| 394,457 |
|
|
| 54,953 |
|
Other assets |
|
| (112,629 | ) |
|
| — |
| ||||||||
Accounts payable |
|
| 552,166 |
|
|
| 332,566 |
|
|
| (59,173 | ) |
|
| 552,166 |
|
Accrued expenses |
|
| (698,380 | ) |
|
| (14,826 | ) |
|
| 1,069,409 |
|
|
| (698,380 | ) |
Revenue contract liability |
|
| (707,171 | ) |
|
| (143,812 | ) |
|
| 14,583 |
|
|
| (707,171 | ) |
Operating lease liabilities |
|
| (254,363 | ) |
|
| (197,875 | ) |
|
| (141,167 | ) |
|
| (254,363 | ) |
Other current liabilities |
|
| — |
|
|
| (71,581 | ) | ||||||||
Net cash (used in) provided by operating activities |
|
| (1,261,133 | ) |
|
| 3,294,333 |
| ||||||||
Net cash provided by (used in) operating activities |
|
| 3,220,319 |
|
|
| (1,261,133 | ) | ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in intangible assets |
|
| — |
|
|
| (27,400 | ) |
|
| (49,900 | ) |
|
| — |
|
Proceeds from sale of property and equipment |
|
| 25,000 |
|
|
| — |
| ||||||||
Acquisition of PGP assets, net of cash acquired |
|
| (6,266,335 | ) |
|
| — |
|
|
| — |
|
|
| (6,266,335 | ) |
Acquisition of property and equipment |
|
| (38,712 | ) |
|
| (32,495 | ) |
|
| (60,069 | ) |
|
| (38,712 | ) |
Net cash used in investing activities |
|
| (6,305,047 | ) |
|
| (59,895 | ) |
|
| (84,969 | ) |
|
| (6,305,047 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from draw on revolving loan |
|
| 1,000,000 |
|
|
| — |
|
|
| — |
|
|
| 1,000,000 |
|
Proceeds from Paycheck Protection Program |
|
| 835,300 |
|
|
| — |
|
|
| — |
|
|
| 835,300 |
|
Payments of debt issuance costs |
|
| (46,117 | ) |
|
| — |
| ||||||||
Proceeds from stock option exercises |
|
| 49,750 |
|
|
| 189,981 |
|
|
| 89,315 |
|
|
| 49,750 |
|
Payments of debt issuance costs |
|
| — |
|
|
| (5,736 | ) | ||||||||
Principal payments on finance lease obligations |
|
| — |
|
|
| (14,198 | ) | ||||||||
Principal payments on long-term debt |
|
| (1,264,322 | ) |
|
| (1,105,461 | ) |
|
| (1,697,380 | ) |
|
| (1,264,322 | ) |
Net cash provided by (used in) financing activities |
|
| 620,728 |
|
|
| (935,414 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (1,654,182 | ) |
|
| 620,728 |
| ||||||||
Effect of exchange rate changes on cash |
|
| (72,340 | ) |
|
| (33,291 | ) |
|
| (72,686 | ) |
|
| (72,340 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (7,017,792 | ) |
|
| 2,265,733 |
| ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| 1,408,482 |
|
|
| (7,017,792 | ) | ||||||||
Cash and cash equivalents – beginning of period |
|
| 9,686,698 |
|
|
| 6,311,563 |
|
|
| 5,993,388 |
|
|
| 9,686,698 |
|
Cash and cash equivalents – end of period |
| $ | 2,668,906 |
|
| $ | 8,577,296 |
|
| $ | 7,401,870 |
|
| $ | 2,668,906 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 462,959 |
|
| $ | 502,764 |
|
| $ | 300,026 |
|
| $ | 462,959 |
|
Cash paid for income taxes |
| $ | 77,465 |
|
| $ | 436,200 |
|
| $ | 338,447 |
|
| $ | 77,465 |
|
Supplemental schedule of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock redemption in exchange for share redemption consideration obligation |
| $ | — |
|
| $ | 39,096,401 |
| ||||||||
Shares issued in connection with PGP asset acquisition |
| $ | 3,989,528 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,989,528 |
|
Right-of-use assets obtained in exchange for lease liabilities |
| $ | 1,383,052 |
|
| $ | 305,163 |
|
| $ | 28,604 |
|
| $ | 1,383,052 |
|
Inventory transferred to assets deployed at client locations |
| $ | 27,668 |
|
| $ | 157,202 |
|
| $ | 213,648 |
|
| $ | 27,668 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS AND RECENT DEVELOPMENTS
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 acquisitionlicensing 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 floor 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 British Isles,United Kingdom, Europe and Africa andas well as 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, 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”Consideration Obligation”). 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,August 21, 2020, Galaxy Gaming entered into a Membership Interest Purchase Agreement, dated February 25, 2020 (the “Purchase Agreement”), between the Company andcompleted the membership interest holdersacquisition of 100% of the member interests in Progressive Games Partners LLC (“PGP”).
On August 21, 2020, The entirety of the Company entered into a First Amendment purchase price ($10,414,528) and transaction-related costs ($127,586) were allocated to customer relationships and are included in Other intangible assets, net, on the Purchase Agreement between the Company and the membership interest holders of PGP.Company’s condensed consolidated balance sheets. The First Amendment, among other things, fixed the cash portion of the purchase price at $6.425 millionwas $6,425,000, and established that the stock portion would bebalance of the purchase price was 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 entiretyshares issued are being held in escrow pending the performance of the purchase price ($10,414,528) has been allocatedassets acquired during the twelve months following the acquisition. See Note 7 to customer relationships and isour audited financial statements included in Other intangible assets, net,Item 8 “Financial Statements and Supplementary Financial Information” of our Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on the Company’s balance sheet. See Note 7.March 31, 2021 (the “2020 10-K”) for further details. The Company also acquired certain receivables and payables in the net working capitalamount of $581,885, (including cash of $158,665), all of which is payablewas to be remitted to the sellers of PGP.PGP as the receivables and payables were settled. In May 2021, the balance owed to the sellers of PGP was settled in full.
Management has determined that, for accounting purposes, the PGP transaction doesdid not meet the definition of a business combination and, therefore, has beenwas 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-healthpublic 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 will resultresulted in us realizing substantially less revenue than we might otherwise expect. In addition, becausebecause of COVID-19-related financial pressures on our physical casino customers, there can be no assurance that our accounts receivable we will be paid timely (or at all) for revenues earned prior to the shutdowns. Finally, the Company was notified by some of our casino clients have notified vendors (including us)the land-based casinos that they will lengthenwould be extending their payment termsterms.
The phased billing approach for a period of time after reopening as they attemptour physical casino customers instituted in 2020 is no longer in effect. Physical casino customers who are now open are being billed at pre-COVID billing levels. Similar to preserve their own liquidity.2020, our online gaming customers continue to generate revenue in 2021.
8
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.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 an unsecured loan of $835,300 through Zions Bancorporation, N.A. dba Nevada State Bank under the Paycheck Protection Program (the “PPP Loan”) pursuantPursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program Flexibility Act (the “Flexibility Act”). Pursuant to the CARES Act,, the Federal Reserve created the Main Street LendingPriority Loan Program (“MSPLP”) to provide financing for small and medium-sized businesses. On October 26, 2020, the Company borrowed $4 million$4,000,000 from Zions Bancorporation N.A., dba Nevada State Bank under the Main Street Lending Program (the “Main Street Loan”). The Main Street Loan bears interest at a rate of three-month US dollar LIBOR plus 300 basis points (initially 3.215%), and interest payments during the first year are deferred and added to the loan balance. The Main Street Loan may be prepaid at any time and matures on the fifth anniversary of the date it was funded, with 15% of principal amortizing in each of the third and fourth years the loan is outstanding.this program. See Note 10.
As of the date of this filing, the Company believes that it has adequate liquidity to meet its short-term obligations. If the effectsDisruptions of the COVID-19 crisis endure or there is a second period of casino closures (Note 16), 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 onA significant portion of the lengthCompany’s land-based customers have reopened at limited capacity after the restrictions due to the COVID-19 crisis were lifted. However, some customers have been required to close again due to local regulations and severityconditions, and some customers will remain closed through the remainder 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.2021.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The accompanying condensed 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”)SEC. In the opinion of management, the accompanying unaudited interim condensed 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.As permitted by the rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.
These unaudited interim condensed financial statements should be read in conjunction with the financial statements and the related notes thereto included in our Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 30, 2020 (the “2019 10-K”).10-K.
The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
Basis of accounting.The financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP. Revenues are recognized as income when earned and expenses are recognized when they are incurred. We do not have significant categories of cost of revenues. Expenses such as wages, consulting expenses, legal, regulatory and professional fees and rent are recorded when the expense is incurred.
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 includingand include the results of the Company and its wholly owned subsidiary, PGP. All intercompany transactions and balances have been eliminated in consolidation.
Impairment considerations. We considered whether the impact of the current COVID-19 pandemic on operations and financial results is an indicator that impairment may exist related to the Company’s inventory (Note 4), property and equipment (Note 5), assets deployed at client locations (Note 6) and intangible assets (Note 7). As a result of its impairment assessments, management has determined that its assets are not currently impaired. We considered the following:
Inventory. We considered whether additional write-offs or reserves were necessary to our inventory balance as a result of the impact of COVID-19. The vast majority of our Inventory is not sold to customers but, rather, is used to support new installations and repairs of our electronic table game systems which we account for as Assets Deployed at Client Locations. Based on our assessment, we
9
determined additional write-offs and reserves were not required. We are in the process of developing a new generation of electronic table game systems and, once that new generation of system is available for customer installation, we will review inventory to determine how much of existing Inventory can be used in the next generation of systems. To the extent that there is Inventory that 1) cannot be used in the new generation of systems and 2) is in excess of what we might expect to need for repair of older generation systems that we expect to remain in the field, we may incur an impairment charge with respect to Inventory that is obsolete.
Long-lived assets. Our long-lived assets include property and equipment, assets deployed at client locations, and intangible assets. We assessed whether there was an indication of impairment of each asset group due to COVID-19 noting that based on the current contracts, including the lengthened payment terms noted above, the carrying value of our long-lived asset groups were recoverable.
Goodwill. We performed a qualitative assessment and determined that it was not more likely than not that the carrying value of the reporting unit was impaired. As part of our qualitative assessment, we considered our previous forecasts and assumptions based on our current projections, which are subject to various risks and uncertainties, including projected revenue, projected operating income, terminal growth rates, and the cost of capital.
Reclassifications. Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statement presentations.
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 in bank balances are deposited in insured banking institutions, which are insured up to $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 inventory until deployed at our casino clients’ premises (Note 6). Once deployed and placed into service at client locations, the assets are transferred from inventory 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.
Property and equipment, net. Property and equipment are being depreciated over their estimated useful lives (three to five years) using the straight-line method of depreciation (Note 5). 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.
9
Goodwill. Goodwill (Note 7) 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-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.
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 | 30 years | |
Non-compete agreements | 9 years | |
Internally-developed software | 3 years |
Other intangible assets (Note 7) 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. NaN impairment was recorded for the three months ended September 30, 2021.
Interest rates swap agreement. In May 2018, the Company entered into an interest rate swap agreement to reduce the impact of changes in interest rates on its floating rate long-term debt. 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. The interest rate swap agreement matured on May 1, 2021.
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. The Company currently has no financial instruments measured at estimated fair value on a recurring basis based on valuation reports provided by 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 condensed consolidated balance sheets as right-of-use assets with corresponding lease 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).
Revenue recognition. We account for our revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. 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.
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 the Euro. Gains and losses from settlement of transactions involving foreign currency amounts 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) in the consolidated statements of changes in stockholders’ deficit.
Net income 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.
10
Segmented 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 have 2 operating segments (land-based gaming and online gaming) which are aggregated into 1 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) 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.
Other significant accounting policies.See Note 2 in Item 8.8 “Financial Statements and Supplementary Financial Information” included in our 20192020 10-K.
Recently adopted accounting standards
Fair Value Measurement. standards. Simplifying the Accounting for Income Taxes. In August 2018,December 2019, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards UpdateStandard (“ASU”) Update No. 2018-13, Fair Value Measurement2019-12, Income Taxes (Topic 820)740): Disclosure Framework – Changes toSimplifying the Disclosure RequirementsAccounting for Fair Value Measurement. ASU 2018-13 addressesIncome Taxes (ASU 2019-12), which simplifies the required disclosures around fair value measurement, removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and lossesaccounting for income taxes. This guidance is effective for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the endfirst quarter of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.2021 on a prospective basis. We have adopted the new standard effective January 1, 2020, which did2021, and its adoption does not have a material effectimpact on our consolidated financial statements or related disclosures.statements.
New accounting standards not yet adopted
adopted.Financial Instruments – Credit Losses. In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments – Credit Losses (Topic 326). ASU 2020-02 provides updated guidance on how an entity should measure credit losses on financial instruments and delayed the effective date of Topic 326 for certain 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 condensed consolidated financial statements or related disclosures.
NOTE 3. REVENUE RECOGNITION
Revenue recognition. We generate revenue primarily from the licensing of our intellectual property. We also, occasionally, receive a one-time sale of certain products and/or reimbursement of our equipment.
License fees. We derive product lease and royaltyrecognize revenue from negotiatedunder recurring fee license agreements and the performance of our products. We account for these agreements as month-to-month contracts and recognize revenue each monthmonthly as we satisfy our performance obligations. In addition, revenue associated with performance-based agreements is recognized duringobligation, which consists of granting the month thatcustomer the right to use our intellectual property. Amounts billed are determined based on flat rates or usage ofrates stipulated in the product or intellectual property occurs.customer contract.
Product sales. Occasionally, we sell certain incidental products or receive reimbursement of our equipment after the commencement of the new license agreement. Revenue from such sales is recognized as a separate performance obligation when we ship the items.
10
The following table disaggregates our revenue by geographic location for the following periods:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
North America and Caribbean |
| $ | 971,147 |
|
| $ | 3,891,875 |
|
| $ | 4,262,408 |
|
| $ | 11,644,353 |
|
| $ | 2,476,619 |
|
| $ | 971,147 |
|
| $ | 7,394,096 |
|
| $ | 4,262,408 |
|
Europe, Middle East and Africa |
|
| 826,686 |
|
|
| 1,479,771 |
|
|
| 2,693,714 |
|
|
| 4,473,230 |
|
|
| 2,805,169 |
|
|
| 826,686 |
|
|
| 6,920,031 |
|
|
| 2,693,714 |
|
Total revenue |
| $ | 1,797,833 |
|
| $ | 5,371,646 |
|
| $ | 6,956,122 |
|
| $ | 16,117,583 |
|
| $ | 5,281,788 |
|
| $ | 1,797,833 |
|
| $ | 14,314,127 |
|
| $ | 6,956,122 |
|
RevenueContract liabilities. Amounts billed and cash received in advance of performance obligations fulfilled are recorded as contract liability liabilities and recognized as performance obligations are fulfilled.
For a portionContract Assets. The Company’s contract assets consist solely of our business, we invoice our clients monthlyunbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables totaled $942,159 and $502,860 for unlimited use of our intellectual property licenses and recognize a revenue contract liability that represents such advanced billing to our clients for unsatisfied performance. We reduce the revenue contract liability and recognize revenue when we transfer those goods or services and, therefore, satisfy our performance obligation.
The table below summarizes changes in the revenue contract liability during the nine monthsperiods ended September 30, 2020:
Beginning balance – January 1, 2020 |
| $ | 1,294,265 |
|
Increase (advanced billings) |
|
| 7,199,100 |
|
Decrease (revenue recognition) |
|
| (7,906,271 | ) |
Ending balance – September 30, 2020 |
| $ | 587,094 |
|
Revenue recognized during the three 2021and nine months ended September 30,December 31, 2020, that wasand are included in the beginningaccounts receivable balance of revenue contract liability was $6,250 and $1,292,182, respectively.in the accompanying condensed consolidated balance sheets.
NOTE 4. INVENTORY
Inventory net consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Raw materials and component parts |
| $ | 379,711 |
|
| $ | 359,349 |
|
| $ | 397,008 |
|
| $ | 300,244 |
|
Finished goods |
|
| 428,103 |
|
|
| 343,305 |
|
|
| 351,229 |
|
|
| 368,281 |
|
Inventory, gross |
|
| 807,814 |
|
|
| 702,654 |
| ||||||||
Less: inventory reserve |
|
| (46,469 | ) |
|
| (37,000 | ) | ||||||||
Inventory, net |
| $ | 761,345 |
|
| $ | 665,654 |
|
| $ | 748,237 |
|
| $ | 668,525 |
|
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment, net, consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Furniture and fixtures |
| $ | 312,640 |
|
| $ | 312,639 |
|
| $ | 312,639 |
|
| $ | 312,639 |
|
Automotive vehicles |
|
| 215,127 |
|
|
| 215,127 |
|
|
| 171,672 |
|
|
| 215,127 |
|
Office and computer equipment |
|
| 329,296 |
|
|
| 302,296 |
|
|
| 389,628 |
|
|
| 332,544 |
|
Leasehold improvements |
|
| 18,554 |
|
|
| 6,843 |
|
|
| 35,531 |
|
|
| 32,547 |
|
Property and equipment, gross |
|
| 875,617 |
|
|
| 836,905 |
|
|
| 909,470 |
|
|
| 892,857 |
|
Less: accumulated depreciation |
|
| (759,465 | ) |
|
| (691,996 | ) |
|
| (792,465 | ) |
|
| (776,133 | ) |
Property and equipment, net |
| $ | 116,152 |
|
| $ | 144,909 |
|
| $ | 117,005 |
|
| $ | 116,724 |
|
For the three months ended September 30, 20202021 and 2019,2020, depreciation expense related to property and equipment was $22,153$17,570 and $26,467,$22,153, respectively. For the nine months ended September 30, 20202021 and 2019,2020, depreciation expense related to property and equipment was $59,788 and $67,469, and $80,445, respectively.
11
NOTE 6. ASSETS DEPLOYED AT CLIENT LOCATIONS
Assets deployed at client locations, net, consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Enhanced table systems |
| $ | 908,295 |
|
| $ | 993,127 |
|
| $ | 1,056,869 |
|
| $ | 890,560 |
|
Less: accumulated depreciation |
|
| (649,439 | ) |
|
| (587,605 | ) |
|
| (755,663 | ) |
|
| (658,404 | ) |
Assets deployed at client locations, net |
| $ | 258,856 |
|
| $ | 405,522 |
|
| $ | 301,206 |
|
| $ | 232,156 |
|
For the three months ended September 30, 20202021 and 2019,2020, depreciation expense related to assets deployed at client locations was $51,778$51,575 and $70,145,$51,778, respectively. For the nine months ended September 30, 20202021 and 2019,2020, depreciation expense related to assetsassets deployed at client locations was $144,598 and $174,334, and $209,729, respectively.
12
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill. A goodwill balance of $1,091,000 was created as a result of a transaction completed in October 2011 with Prime Table Games, LLC (“PTG”).
Other intangible assets, net. Other intangible assets, net consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Patents |
| $ | 13,507,997 |
|
| $ | 13,485,000 |
|
| $ | 13,507,997 |
|
| $ | 13,507,997 |
|
Customer relationships |
|
| 13,814,528 |
|
|
| 3,400,000 |
|
|
| 13,942,115 |
|
|
| 13,942,115 |
|
Trademarks |
|
| 2,880,967 |
|
|
| 2,880,967 |
|
|
| 2,880,967 |
|
|
| 2,880,967 |
|
Non-compete agreements |
|
| 660,000 |
|
|
| 660,000 |
|
|
| 660,000 |
|
|
| 660,000 |
|
Internally-developed software |
|
| 183,416 |
|
|
| 183,415 |
| ||||||||
Software |
|
| 233,314 |
|
|
| 183,415 |
| ||||||||
Other intangible assets, gross |
|
| 31,046,908 |
|
|
| 20,609,382 |
|
|
| 31,224,393 |
|
|
| 31,174,494 |
|
Less: accumulated amortization |
|
| (14,436,863 | ) |
|
| (13,178,739 | ) |
|
| (17,043,429 | ) |
|
| (15,087,598 | ) |
Other intangible assets, net |
| $ | 16,610,045 |
|
| $ | 7,430,643 |
|
| $ | 14,180,964 |
|
| $ | 16,086,896 |
|
For the three months ended September 30, 20202021 and 2019,2020, amortization expense related to other intangiblesintangible assets was $653,330 and $501,706, and $379,499, respectively. respectively. For the nine months ended September 30, 20202021 and 2019,2020, amortization expense related to the other intangible assets was $1,955,832 and $1,258,124, and $1,134,760, respectively.
The increase in customer relationships was result of acquiring customer contracts/agreements valued at $10.4 million in connection with the closing on the Purchase Agreement in August 2020.
Estimated future amortization expense is as follows:
Twelve Months Ending September 30, |
| Total |
|
| Total |
| ||
2021 |
| $ | 2,582,511 |
| ||||
2022 |
|
| 2,570,659 |
|
| $ | 2,601,469 |
|
2023 |
|
| 1,417,510 |
|
|
| 1,448,320 |
|
2024 |
|
| 1,414,600 |
|
|
| 1,437,093 |
|
2025 |
|
| 1,410,100 |
|
|
| 1,424,276 |
|
2026 |
|
| 1,424,276 |
| ||||
Thereafter |
|
| 7,214,665 |
|
|
| 5,845,530 |
|
Total amortization |
| $ | 16,610,045 |
|
| $ | 14,180,964 |
|
NOTE 8. ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Share redemption consideration |
| $ | 315,294 |
|
| $ | 510,776 |
| ||||||||
Commissions and royalties |
|
| 869,068 |
|
|
| 398,096 |
| ||||||||
Payroll and related |
| $ | 249,902 |
|
| $ | 747,458 |
|
|
| 931,393 |
|
|
| 173,487 |
|
Interest |
|
| 26,924 |
|
|
| 9,895 |
|
|
| 144,727 |
|
|
| 95,879 |
|
Share redemption consideration |
|
| 315,293 |
|
|
| 510,776 |
| ||||||||
Commissions and royalties |
|
| 148,098 |
|
|
| 78,528 |
| ||||||||
Income tax payable |
|
| — |
|
|
| 64,832 |
|
|
| 3,003 |
|
|
| 42,218 |
|
Other |
|
| 103,929 |
|
|
| 39,390 |
|
|
| 237,599 |
|
|
| 112,576 |
|
Total accrued expenses |
| $ | 844,146 |
|
| $ | 1,450,879 |
|
| $ | 2,501,084 |
|
| $ | 1,333,032 |
|
NOTE 9. LEASES
Lessee
We have operating leases for our corporate office, two2 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 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.
13
On September 21, 2021, we executed a third amendment to one of our satellite facilities to amend the lease expiration date from December 31, 2021 to December 31, 2023, with monthly base rents of $1,025 from January 1, 2022 to December 31, 2023. As a result of the amendment, we recorded a $23,293 increase to operating lease right-of-use assets and operating lease liabilities.
As of September 30, 2020,2021, our leases have remaining lease terms ranging from three months to 7563 months.
Supplemental balance sheet information related to leases is as follows:
|
| As of September 30, 2020 |
| As of September 30, 2021 | ||||||||
|
| Amount |
|
| Classification |
| Amount |
|
| Classification | ||
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use lease assets |
| $ | 1,482,534 |
|
|
|
| $ | 1,225,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease current liabilities |
| $ | 197,067 |
|
| Current portion of operating lease liabilities |
| $ | 222,968 |
|
| Current portion of operating lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease long-term liabilities |
|
| 1,266,215 |
|
| Long-term operating lease liabilities |
|
| 1,075,560 |
|
| Long-term operating lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating lease liabilities |
| $ | 1,463,282 |
|
|
|
| $ | 1,298,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| 5.9 years |
|
|
|
| 5.1 years |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.3 | % |
|
|
|
| 4.2 | % |
|
|
The components of lease expense are as follows:
|
| Three Months Ended September 30, 2020 |
| Three Months Ended September 30, 2021 | ||||||||
|
| Amount |
|
| Classification |
| Amount |
|
| Classification | ||
Operating lease cost |
| $ | 71,716 |
|
| Selling, general and administrative expense |
| $ | 70,755 |
|
| Selling, general and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2021 | ||||||||
|
| Amount |
|
| Classification |
| Amount |
|
| Classification | ||
Operating lease cost |
| $ | 215,142 |
|
| Selling, general and administrative expense |
| $ | 211,366 |
|
| Selling, general and administrative expense |
Supplemental cash flow information related to leases is as follows:
|
| Nine Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2021 | ||||||||
|
| Amount |
|
| Classification |
| Amount |
|
| Classification | ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 215,142 |
|
| Net income |
| $ | 183,301 |
|
| Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | 1,383,052 |
|
| Supplemental cash flow information |
| $ | 28,604 |
|
| Supplemental cash flow information |
As of September 30, 2020,2021, future maturities of our operating lease liabilities are as follows:
Twelve Months Ending September 30, |
| Amount |
|
| Amount |
| ||
2021 |
| $ | 197,067 |
| ||||
2022 |
|
| 208,249 |
|
| $ | 222,968 |
|
2023 |
|
| 215,373 |
|
|
| 229,705 |
|
2024 |
|
| 234,917 |
|
|
| 238,179 |
|
2025 |
|
| 255,707 |
|
|
| 255,707 |
|
2026 |
|
| 277,812 |
| ||||
Thereafter |
|
| 351,969 |
|
|
| 74,157 |
|
Total lease liabilities |
| $ | 1,463,282 |
|
| $ | 1,298,528 |
|
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 are paying pursuant to our current lease.
NOTE 10. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Nevada State Bank credit agreement |
| $ | 8,629,800 |
|
| $ | 8,699,900 |
|
| $ | 7,251,800 |
|
| $ | 8,413,184 |
|
Paycheck Protection Program borrowing |
|
| 835,300 |
|
|
| — |
| ||||||||
Share redemption consideration obligation |
|
| 39,096,401 |
|
|
| 39,096,401 |
| ||||||||
Main Street Priority Loan |
|
| 4,000,000 |
|
|
| 4,000,000 |
| ||||||||
Redemption Consideration Obligation |
|
| 39,096,401 |
|
|
| 39,096,401 |
| ||||||||
Vehicle notes payable |
|
| 28,162 |
|
|
| 44,490 |
|
|
| 5,813 |
|
|
| 22,614 |
|
Insurance notes payable |
|
| — |
|
|
| 177,894 |
|
|
| — |
|
|
| 519,194 |
|
Long-term liabilities, gross |
|
| 48,589,663 |
|
|
| 48,018,685 |
|
|
| 50,354,014 |
|
|
| 52,051,393 |
|
Less: Unamortized debt issuance costs |
|
| (68,360 | ) |
|
| (93,144 | ) |
|
| (138,829 | ) |
|
| (137,817 | ) |
Long-term liabilities, net of debt issuance costs |
|
| 48,521,303 |
|
|
| 47,925,541 |
|
|
| 50,215,185 |
|
|
| 51,913,576 |
|
Less: Current portion |
|
| (2,530,149 | ) |
|
| (1,634,527 | ) |
|
| (2,607,913 | ) |
|
| (2,222,392 | ) |
Long-term liabilities, net |
| $ | 45,991,154 |
|
| $ | 46,291,014 |
|
| $ | 47,607,272 |
|
| $ | 49,691,184 |
|
Nevada State Bank (“NSB”) Credit Agreement. The Company is party to a Credit Agreement with Zions Bancorporation, N.A. dba Nevada State Bank (as amended, the “Credit Agreement”), which was last amended on October 26, 2020. The Credit Agreement provided for a Term Loan in the initial amount of $11,000,000 and a Revolving Loan in the amount of $1,000,000. On March 12, 2020, the Company drew down $1,000,000 on the Revolving Loan component of the Credit Agreement. At September 30, 2020, the principal amount outstanding under the Term Loan component of the Credit Agreement was $7,629,800, bringing the total amount outstanding under the Credit Agreement at September 30, 2020, to $8,629,800.
Under the Credit Agreement, outstanding balances accrue interest based on one-month US 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 amended Credit
14
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 and other restrictions customary for borrowings of this nature. In particular, 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 maximum 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 7.00x) 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 Senior Leverage Ratio as of September 30, 2020. Furthermore, because the impact of the COVID-19 crisis on our trailing-four-quarters Adjusted EBITDA into 2021, we think it is likely that we will not be in compliance with one or more of the Fixed Charge Coverage Ratio, Total Leverage Ratio and Senior Leverage Ratio through the first quarter of 2021. In view of that, the Company and NSB entered into a Forbearance and Fifth Amendment to Credit Agreement dated August 14, 2020 (the “Fifth Amendment”). In the Fifth Amendment, NSB agreed to forbear from exercising any of its rights or remedies that result from the aforementioned covenant breaches during the aforementioned period. The Fifth Amendment also imposes a new Minimum EBITDA covenant pursuant to which the Company must demonstrate trailing-four-quarter EBITDA of $2.4 million for the each of the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 and $3.0 million thereafter. The Company was in compliance with the Minimum EBITDA covenant as of September 30, 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 Main Street Loan Program (see Note 16 Subsequent Events). The Sixth Amendment added a Minimum Liquidity covenant requiring that the Company 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 thereafter. The Company was in compliance with the Minimum Liquidity covenant as of September 30, 2020. 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 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.
Paycheck Protection Program Borrowings. 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 pursuant 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 requirements of the CARES Act, the Company used proceeds from the PPP Loan primarily for payroll costs. Under the terms 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. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent and utility costs.
On July 16, 2020, the Company filed an application and supporting documentation for forgiveness in full of the PPP Loan. The review of the Company’s forgiveness application could take as long as five months, and there is no assurance that the PPP Loan will be forgiven in full or in any amount. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the pending application for forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our adherence to the forgiveness criteria.
Share Redemption Consideration Obligation. On May 6, 2019, we issued a promissory note in the face amount of $39,096,401 to Triangulum in connection with the share redemption disclosed in Note 1. In the litigation that followed the share redemption (Note 11), Triangulum is disputing, among other things, the validity of the note and has not accepted its terms. Since no agreement on terms exists betweenBecause Triangulum disputes the promissory note issued by the Company and Triangulum,its terms, 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. 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 obligation, and weRedemption Consideration Obligation. We paid the first and second annual paymentpayments in the amounts of $781,928 on May 5, 2020 in the amount of $781,928, which wasand May 6, 2021. Both payments were accepted by Triangulum. The share redemption consideration obligationRedemption Consideration Obligation is unsecured and is subordinated to our existing and future indebtedness. On October 7, 2021, Galaxy announced that it had entered into a Settlement Agreement with Triangulum and Robert Saucier. The Settlement Agreement is contingent upon payment to Triangulum in the amount of $39,096,401, plus accrued and unpaid interest at a rate of 2% per annum from May 6, 2021, until the date of payment. Upon payment, the Share Redemption Consideration Obligation will be extinguished.
Nevada State Bank (“NSB”) Credit Agreement. The Company is party to a Credit Agreement with Zions Bancorporation, N.A. dba Nevada State Bank (as amended, the “Credit Agreement”). The Credit Agreement provides for a Term Loan in the initial amount of $11,000,000 and a Revolving Loan in the amount of $1,000,000. On March 12, 2020, the Company drew down $1,000,000 on the Revolving Loan component of the Credit Agreement. At September 30, 2021, the principal amount outstanding under the Term Loan component of the Credit Agreement was $6,251,800, bringing the total amount outstanding under the Credit Agreement at September 30, 2021, to $7,251,800.
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.
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 Agreement stipulates that a substitute index rate will be selected and used in lieu of LIBOR.
15
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 Fixed Charge Coverage ratio, Senior Leverage ratio, Total Leverage ratio and Minimum Liquidity covenants as of June 30, 2021. However, the Company was not in compliance with its Minimum EBITDA covenant as of June 30, 2021. On May 13, 2021, the Company and NSB entered into a Forbearance to the A&R Credit Agreement, in which NSB agreed to forbear from exercising any of its rights or remedies that would result from the potential breaches of the Minimum EBITDA and Total Leverage ratio covenant for the quarters ending June 30, 2021 and September 30, 2021. The Company was in compliance with its Fixed Charge Coverage ratio, Senior Leverage ratio, Minimum EBITDA and Minimum Liquidity covenants as of September 30, 2021. However, the Company was not in compliance with its Total Leverage ratio as of September 30, 2021. On May 13, 2021, the Company and NSB entered into a Forbearance to the A&R Credit Agreement, in which NSB agreed to forbear from exercising any of its rights or remedies that would result from the potential breaches of the Minimum EBITDA and Total Leverage ratio covenant for the quarters ending June 30, 2021 and September 30, 2021.
The obligations under the A&R Credit Agreement are secured by substantially all of the assets of the Company. The Company’s wholly owned subsidiary, PGP, is also a guarantor of the A&R Credit Agreement and related agreements.
Main Street Priority Loan Borrowings. 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 interest at a rate of three-month U.S. dollar LIBOR plus 300 basis points (initially 3.215%), 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 prepaid 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 compensation 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 a 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 September 30, 2020,2021, future maturities of our long-term liabilities are as follows:
Twelve Months Ending September 30, |
| Total |
|
| Total |
| ||
2021 |
| $ | 2,530,307 |
| ||||
2022 |
|
| 1,616,655 |
|
| $ | 2,607,913 |
|
2023 |
|
| 4,511,000 |
|
|
| 4,649,700 |
|
2024 |
|
| — |
|
|
| 600,000 |
|
2025 |
|
| 835,300 |
|
|
| 600,000 |
|
2026 |
|
| 2,800,000 |
| ||||
Thereafter |
|
| 39,096,401 |
|
|
| 39,096,401 |
|
Long-term liabilities, gross |
| $ | 48,589,663 |
|
| $ | 50,354,014 |
|
NOTE 11. COMMITMENTS AND CONTINGENCIES
Concentration of risk.We are exposed to risks associated with clients who represent a significant portion of total revenues. We do not believe the loss of any single customer would materially impact our operating results, as our licenses are within well-established markets. For the nine months ended September 30, 20202021 and 2019,2020, respectively, we had the following client revenue concentration:concentrations:
|
| Location |
| 2020 Revenue |
|
| 2019 Revenue |
|
| Accounts Receivable September 30, 2020 |
|
| Accounts Receivable December 31, 2019 |
| ||||
Client A |
| Europe |
|
| 17.0 | % |
|
| 6.2 | % |
| $ | 308,794 |
|
| $ | 101,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Location |
| Nine Months Ended September 30, 2021 Revenue (a) |
|
| Nine Months Ended September 30, 2020 Revenue |
|
| Accounts Receivable September 30, 2021 |
|
| Accounts Receivable December 31, 2020 |
| ||||
Client A |
| Europe |
|
| 27.1 | % |
|
| 17.0 | % |
| $ | 433,864 |
|
| $ | 348,781 |
|
Client B |
| North America |
|
| 10.3 | % |
|
| 8.6 | % |
| $ | 444,961 |
|
| $ | 400,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Concentrations are exaggerated in the nine months ended September 30, 2021, since Clients A and B were not affected by the closures of casinos in the U.K. that affected the business overall. |
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, Galaxy Gaming'sthe Company’s founder, and, prior to the redemption, the holder of a majority of our outstanding common stock.
On May 6, 2019, wethe Company redeemed the shares of our common stock held by Triangulum. Also on May 6, 2019, the Company filed a lawsuit seekingseeking: (i) a declaratory judgment that weit acted lawfully and in full compliance with the Articles when weit 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 usthe Company are appropriate and in accordance with the Articles.
The defendants to that lawsuitthe Triangulum Lawsuit responded to the complaint, and Triangulum filed counterclaims. Triangulum also filed a Motion seeking a mandatory injunction requiring the redeemedCompany to either reissue shares to Triangulum or reissue shares to be held in a constructive trust.trust for Triangulum (the “Injunction Motion”). On July 11, 2019, the CourtNevada district court denied Triangulum’s Motion.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. WeThe Company submitted ourits brief in opposition, and Triangulum filed its reply briefbrief. On January 13, 2021, the Nevada Supreme Court heard oral argument on June 17, 2020. Separately,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 wethe Company and its Directors moved to dismiss on a number of legal grounds.grounds (the “Motion to Dismiss”). The Court denied the motion. 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 October 18, 2019, Saucier also filed counterclaims, including a claim of breach of contract alleging Galaxy Gaming was obligated to pay Saucier his year-end bonuses, despite his resignation. We filed an answer disputing these claims.
As a result of the effects of Coronavirus, the Court issued a revised Scheduling Order extending time frames for discovery and setting a new trial date in April of 2021.
On May 6, 2020, Saucier made a demand of the Company under our Bylaws and an IndemnityIndemnification Agreement between Saucier and the Company, for indemnity and advancement of funds seeking repayment of his lawyer’sattorneys’ 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.Agreement (the “Advancement Lawsuit”). The Company filed its opposition on June 4, 2020. Saucier’s Motion was denied in a hearing that occurred 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.
On July 22, 2020 Galaxy Saucier subsequently moved for attorneys' fees related to the filing of the Advancement Lawsuit, which the Nevada district court granted, and its Directors,the Company filed an Anti-SLAPP motion seeking to dismiss certain claims made against Galaxy and its Directors. The Anti-SLAPP motion was denied by the court. Galaxy has appealed the deniala notice of that motionappeal to the Nevada Supreme Court. The appeal will stay most aspects of the litigation,denial of Advancement to Saucier is fully briefed by the parties and the parties await a hearing date from the Nevada Supreme Court. Galaxy’s appeal of the first request of the grant of lawyer’s fees in litigating the Advancement action, is fully briefed by the parties. The parties await a hearing date on both matters from the Nevada Supreme Court. Saucier filed a separate supplemental motion for attorneys’ fees, which was denied by the Nevada district court, finding the fees incurred to be unreasonable, among other things. Saucier also appealed this ruling of the Nevada district court. Briefing on this third related matter began June 6, 2021.
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 appeal is currently being briefed by the appeal.parties.
16
The appeals to the Nevada Supreme Court by both Saucier and by Galaxy, have also beenthe Company in the Triangulum Lawsuit and the Advancement Lawsuit were referred to the Nevada Supreme Court’s mandatory Settlement Program where they are pending.Program. A mandatoryconsolidated settlement conference is scheduled foroccurred on November 16, 2020. 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.
We remainOn November 24, 2020, Triangulum filed a Motion for Partial Summary Judgment in the discovery phase of 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 court also denied the Company’s CMSJ, without prejudice for the Company to refile after further discovery. On April 23, 2021, Triangulum appealed the District court’s denial of its MPSJ. Galaxy also appealed the denial of its CMSJ. Briefing on the appeals will begin in September 2021.
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. On February 16, 2021, the Company filed a Motion to Dismiss the Indemnity Lawsuit. The Company’s Motion to Dismiss was denied on April 19, 2021. The Company filed its Answer to the Indemnity Lawsuit.
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.
On October 7, 2021, the Company announced that it had entered into a Settlement Agreement with discovery setTriangulum and Robert Saucier. The Settlement Agreement is contingent upon payment to close onTriangulum in the amount of $39,096,401, plus accrued and unpaid interest at a rate of two percent (2%) from May 6, 2021 until the date of payment. In connection with the Settlement Agreement, the parties submitted joint stipulations to stay all matters in the litigation, including appeals. The courts entered orders effectively staying the matters until the matters have been dismissed or until January 7, 2022, at which time the parties will file case status reports. The Company is in discussions with parties to raise the capital needed to pay the settlement amount by December 31, 2020.2021. If the Company does not make the payment by December 31, 2021, the Settlement Agreement will expire unless extended by the consent of all parties.
In September 2018, we were served with a complaint by TableMax Corporation (“TMAX”) regarding the TMAX Agreement.an Operation and License Agreement executed between TMax and Galaxy in February 2011 (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 respondfiled a Motion To Enforce Settlement Or, In The Alternative, Motion To Dismiss And/Or For Summary Judgement and Request For Sanctions, on April 30, 2021. On June 22, 2021, the Company’s Motion to Dismiss was granted, with prejudice to the Amended Complaint denyingright of TMAX to file an amended complaint. The Company considers the allegations.matter closed.
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, no0 provision for loss has been reflected in the accompanying financial statements related to these matters.
Royalty Agreements. Certain of the Company’s licensing contracts include an initial one-time payment and future royalty payments dependent upon future sales.
18
NOTE 12. STOCKHOLDERS’ EQUITY (DEFICIT)
During the nine months ended September 30, 2020, we issued an aggregate of 173,333 restricted shares of our common stock valued at $187,186, to our board members in consideration of their service on the Board. These shares vested immediately on the grant date.
NOTE 13. INCOME TAXES
Our forecasted annual effective tax rate (“AETR”) at September 30, 20202021 was 12.0%10.4%, as compared to 16.5%12.0% at September 30, 2019.2020. This decrease was primarily due to the global intangible low-taxed income (“GILTI”)excess tax benefits from stock-based compensation, utilization of tax credits, foreign rate differential, Subpart F inclusion related to the PGP acquisition and othera change in valuation allowance as a result of changes in permanent book-to-tax differences forestimates of current-year ordinary income considered in determining the nine months ended September 30, 2020.forecasted AETR.
For the nine months ended September 30, 20202021 and 2019,2020, our effective tax rate (“ETR”) was 12.7%0.5% and 0.8%12.7%, respectively. The increasedecrease in the ETR for the nine months ended September 30, 20202021 is a result of favorable discrete items related to excess tax benefits from stock-based compensation that were greater than the previous comparable prior-year period that are not recurring in the current period.
NOTE 14. STOCK OPTIONS13. 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. As of September 30, 20202021, a total of 6,550,7507,550,750 shares of our common stock were authorized for issuance. As of September 30, 2020, 381,7012021, 933,701 shares remained available for issuance as new awards under the 2014 Plan.
Stock options.During the nine months ended September 30, 20202021 and 2019,2020, we issued 465,00090,000 and 320,000465,000 options to purchase our common stock, respectively, to members of our Board, executive officers, employees and independent contractors. The fair value of all stock options granted for the nine months ended September 30, 20202021 and 20192020 was determined to be $435,639$162,252 and $564,450,$435,639, respectively, using the Black-Scholes option pricing model with the following assumptions:
|
| Options Issued 2020 |
|
| Options Issued 2019 |
|
| Options Issued Nine Months Ended September 30, 2021 |
|
| Options Issued Nine Months Ended September 30, 2020 |
| ||||
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % | |
Expected volatility |
| 70.98% - 76.97% |
|
| 71.61% - 72.11% |
|
| 61.12% - 68.74% |
|
| 70.98% - 76.97% |
| ||||
Risk free interest rate |
| 0.27% - 1.39% |
|
| 1.37% - 2.51% |
| ||||||||||
Risk-free interest rate |
| 0.48% - 0.98% |
|
| 0.27% - 1.39% |
| ||||||||||
Expected life (years) |
|
| 5.00 |
|
|
| 5.00 |
|
|
| 5.00 |
|
|
| 5.00 |
|
On February 21, 2019, we amended the employment agreement between the Company and Todd Cravens, our President and Chief Executive Officer (“Mr. Cravens”). Among other things, this amendment grants Mr. Cravens an option to purchase 150,000 shares of our common stock at an exercise price of $1.90 per share, which vested on August 1, 2020.
On February 17, 2020, we entered into Amendment No. #2 to the employment agreement with Mr. Cravens. Among other things, Amendment No. #2 provides that Mr. Cravens receive a grant of 225,000 options at a strike price of $1.93 and vest as follows: 88,000 shares on July 26, 2021, 87,000 shares on July 26, 2022 and 50,000 shares on July 26, 2023.
17
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 |
|
| (225,000 | ) |
|
| 0.22 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (100,000 | ) |
|
| 1.57 |
|
|
| — |
|
|
| — |
|
Outstanding – September 30, 2020 |
|
| 3,315,000 |
|
| $ | 1.04 |
|
| $ | 144,450 |
|
|
| 2.49 |
|
Exercisable – September 30, 2020 |
|
| 2,245,000 |
|
| $ | 0.81 |
|
| $ | 614,750 |
|
|
| 1.81 |
|
|
| Common Stock Options |
|
| Weighted- Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted- Average Remaining Contractual Term (Years) |
| ||||
Outstanding – December 31, 2020 |
|
| 2,982,000 |
|
| $ | 1.08 |
|
| $ | 2,101,780 |
|
|
| 2.35 |
|
Issued |
|
| 90,000 |
|
|
| 3.38 |
|
|
| — |
|
|
| — |
|
Exercised |
|
| (219,166 | ) |
|
| 0.41 |
|
|
| (740,953 | ) |
|
| — |
|
Forfeited or expired |
|
| (42,000 | ) |
|
| 1.04 |
|
|
| — |
|
|
| — |
|
Outstanding – September 30, 2021 |
|
| 2,810,834 |
|
| $ | 1.20 |
|
| $ | 8,793,377 |
|
|
| 1.83 |
|
Exercisable – September 30, 2021 |
|
| 2,095,833 |
|
| $ | 1.00 |
|
| $ | 6,980,567 |
|
|
| 1.34 |
|
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) |
|
| 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 |
| ||||||||||||||||
Unvested – December 31, 2020 |
|
| 845,000 |
|
| $ | 1.55 |
|
| $ | 197,608 |
|
|
| 3.83 |
| ||||||||||||||||
Granted |
|
| 465,000 |
|
|
| 1.57 |
|
|
| — |
|
|
| — |
|
|
| 90,000 |
|
|
| 3.38 |
|
|
| — |
|
|
| — |
|
Vested |
|
| (348,333 | ) |
|
| 1.29 |
|
|
| — |
|
|
| — |
|
|
| (178,333 | ) |
|
| 1.59 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (100,000 | ) |
|
| 1.57 |
|
|
| — |
|
|
| — |
|
|
| (41,666 | ) |
|
| 1.04 |
|
|
| — |
|
|
| — |
|
Unvested – September 30, 2020 |
|
| 1,070,000 |
|
| $ | 1.52 |
|
| $ | (470,300 | ) |
|
| 3.92 |
| ||||||||||||||||
Unvested – September 30, 2021 |
|
| 715,001 |
|
| $ | 1.79 |
|
| $ | 1,812,810 |
|
|
| 3.27 |
|
As of September 30, 2020,2021, our unrecognized share-based compensation expense associated with the stock options issued was $708,698,$470,548, which will be amortized over a weighted-averageweighted-average period of 2.241.93 years.
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
We estimate fair value for financial assets and liabilities in accordance with 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 asRestricted Awards
During the market approach (comparable market prices)nine months ended September 30, 2021, the income approach (present value we issued an aggregate 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 value of cash equivalents, accounts receivable and accounts payable approximates their carrying amount due to their short-term nature. The estimated fair value110,000 restricted shares of our long-term debt and lease obligations approximatescommon stock valued at $360,250 to our Board members in consideration of their carrying value based uponservice on the Board. These shares vested immediately on the grant date. An additional 80,000 restricted shares of our expected borrowing rate for debt with similar remaining maturities and comparable risk.common stock valued at $181,600 were issued to an employee of the Company on February 17, 2021. These shares were granted in consideration of the individual’s service to the Company. These shares vest on November 11, 2021. As of September 30, 2020,2021, there were 2,291,133 restricted shares outstanding. Of the interest rate swap agreement wasthe only financial instrument measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties, which are classified as level 2 inputs.restricted shares outstanding, 235,000 restricted shares were unvested.
18
We evaluate subsequent events throughOn October 7, 2021, the date of issuance of the financial statements. There have been no subsequent eventsCompany announced that occurred during such period that would require adjustment to or disclosure in the financial statements as of and for the quarter ended September 30, 2020 except as disclosed in Note 1 and as follows:
As discussed in Note 1, on October 26, 2020, the Companyit had entered into a business loan agreementSettlement Agreement with Zions Bancorporation N.A., dba Nevada State Bank for a secured loanTriangulum and Robert Saucier. The Settlement Agreement is contingent upon payment to Triangulum in the amount of $4 million under Main Street Priority Loan Facility as established by the Board of Governors of the Federal Reserve System Section 13(3) of the Federal Reserve Act. Among other things, the Main Street Loan has a five-year maturity, bears$39,096,401, plus accrued and unpaid interest at a rate of three-month US dollar LIBOR plus 300 basis points and has deferred interest payments duringtwo percent (2%) from May 6, 2021 until the first yeardate of payment. In connection with the Settlement Agreement, the parties submitted joint stipulations to stay all matters in the litigation, including appeals. The courts entered orders effectively staying the matters until the matters have been dismissed or until January 7, 2022, at which time the parties will be added to the loan balance.file case status reports.
Also, on October 26, 2020, the Company entered into a Sixth Amendment to the Credit Agreement between Zions Bancorporation N.A., dba Nevada State Bank. The Sixth Amendment permits the Company to accept the Main Street Loan, establishes a minimum liquidity covenant through the term of the Credit Agreement and permits the security interest under the Main Street Loan to be pari passu with the Lender’s security interest under the Credit Agreement.
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 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.
Cases of COVID-19 infection have been rising in many of the markets we serve. As a result, there have been restrictions put in place on the opening hours of casinos in those markets. In the United Kingdom in particular, casinos have been forced to close for a period of at least one month beginning on November 5, 2020. Other jurisdictions in which we operate may also decide to order closures of casinos in an effort to reduce transmission of the virus.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources as of and for the three and nine months ended September 30, 20202021 and 2019.2020. This discussion should be read together with our audited consolidated financial statements and related notes included in Item 8.8 Financial Statements and Supplementary Data.Financial Information included in our 2020 10-K. 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 casino floors 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 automatedfully-automated electronic tables and other ancillary equipment. In addition, we license intellectual property to legal internet gaming sites.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 three months ended September 30, 20202021 and 2019.2020.For the three months ended September 30, 2020,2021, we generated totalgross revenues of $1,797,833$5,281,788 compared to $5,371,646$1,797,833 for the comparable prior-year period, representing a decreasean increase of $3,573,813,$3,483,955, or 66.5%193.8%. This decreaseincrease was directly attributable to the re-opening of a significant portion of our land-based customers after the restrictions due to the COVID-19 crisis as some ofwere lifted. Also, our land-based casino customers remained closed in the third quarter, 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 content to the online gaming market in the third quarter of 2020 and, withrevenues increased significantly due primarily to the acquisition of PGP in the third quarter, began to recognize revenue from licensing the newly-acquired game contentAugust of 2020 as well as to the online gaming market.opening of new markets in the U.S.
Selling, general and administrative expenses for the three months ended September 30, 20202021 were $1,833,723$2,740,328 compared to $3,645,319$1,833,723 for the comparable prior-year period, representing a decreasean increase of $1,811,596,$906,605, or 49.7%49.4%. This decreaseincrease was primarily due tohigher internal labor and related expenses (base salary, payroll-related taxes, bonus accrual and travel). Also, higher insurance payments related to the financed D&O policy contributed to the higher current period expenses. This increase was offset by a decrease in compensation-related expenses directlylegal fees related to the COVID-19 crisis (reduction in workforce, removal of bonuses and 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 overall general business. In Q3 2021, the related contested proxy campaign. Also, travel and entertainment-relatedCompany incurred $95,894 in legal expenses and professional and compliance-related expenses (consulting and regulatory) decreased dueassociated with the Triangulum Lawsuit as compared to $183,059 for the COVID-19 crisis.comparable prior-year period.
Research and development expenses for the three months ended September 30, 20202021 were $97,081,$156,768, compared to $208,253$97,081 for the comparable prior-year period, representing a decreasean increase of $111,172,$59,687, or 53.4%61.5%. This decreaseincrease was primarily due to a reduction in consultinghigher internal labor and related expenses related to a third-party research(base salary, payroll-related taxes, commissions and development firm no longer used by the Company and a decrease in compensation-related expenses.bonus accrual).
Share-based compensation expenses for the three months ended September 30, 20202021 were $178,553,$449,564, as compared to $242,016$178,553 for the comparable prior-year period, representing a decreasean increase of $63,463,$271,011, or 26.2%151.8%. This decreaseincrease was mainly due to fewerthe quarterly restricted shares granted to our Board members being issued and at a lowerhigher stock price than the comparable prior-year period. The increase was also due to increased amortization related to restricted shares being issued to two employees and a contractor of the Company in November 2020 and February 2021.
As a result of the changes described above, income from operations decreased $1,660,575increased $2,084,646 or 217.8%232.1% to a loss of $898,303$1,186,343 for the three months ended September 30, 2020,2021, compared to incomea loss of $762,272($898,303) for the comparable prior-year period.
Total interest expense decreased $3,624,$32,660, or 2.2%20.2%, to $162,082$129,422 for the three months ended September 30, 2020,2021, compared to $165,706$162,082 for the comparable prior-year period. The decrease iswas mainly attributable to lower balances outstanding under ourinterest expense on the Term Loan partially offset bydue to lower balances and lower interest rates.
Share redemption consideration was $195,482 in 2021 compared to $195,482 in 2020. The share redemption consideration is related to the amount drawn on our Revolving Loan.Triangulum Redemption Consideration Obligation.
Income tax provisionbenefit was $133,708($21,186) for the three months ended September 30, 2020,2021, compared to income tax benefitexpense of $210,132$133,708 for the comparable prior-year period. The increasedecrease in income tax expense wasis primarily attributable toa result of favorable discrete items incurred in the prior-year period not recurring in the current-year period.related to excess tax benefits from stock-based compensation.
Adjusted EBITDA (as defined below) was $35,703 for the three months ended September 30, 2020, compared to $2,217,299 for the comparable prior-year period, representing a decrease of $2,181,596, or 98.4%. This decrease was primarily attributable the significant decrease in revenue in the quarter not being fully offset by the decreased amount of expenses.
20
Results of operations for the nine months ended September 30, 20202021 and 2019.2020.For the nine months ended September 30, 2020,2021, we generated totalgross revenues of $6,956,122$14,314,127 compared to $16,117,583$6,956,122 for the comparable prior-year period, representing a decreasean increase of $9,161,461,$7,358,005, or 56.8%105.8%. This decreaseincrease was directly attributable to the re-opening of a significant portion of our land-based customers
21
after the restrictions due to the COVID-19 crisis as some ofwere lifted. Also, our land-based casino customers remained closed in the third quarter, 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 content to the online gaming market in the third quarter of 2020 and, withrevenues increased significantly due primarily to the acquisition of PGP in the third quarter, began to recognize revenue from licensing the newly-acquired game contentAugust of 2020 as well as to the online gaming market.opening of new markets in the U.S.
Selling, general and administrative expenses for the nine months ended September 30, 20202021 were $7,264,410$7,984,035 compared to $10,126,029$7,264,410 for the comparable prior-year period, representing a decreasean increase of $2,861,619,$719,625, or 28.3%9.9%. This decreaseincrease was primarily due to a decrease in compensation-related expenses directlyhigher insurance payments related to the COVID-19 crisis (reductionfinanced D&O policy and higher accounting and consulting fees. These increases were offset by a decrease in workforce, removal of bonuses and lower commissions and distributor fees). Lower legal fees contributedrelated to the decrease as well. Prior year legal expenses included expenses associated with our strategic review, the Triangulum Lawsuit and overall general business. For the related contested proxy campaign. Also, travel and entertainment-relatednine months ended September 30, 2021, the Company incurred $425,540 in legal expenses and consulting expenses decreased dueassociated with the Triangulum Lawsuit as compared to $836,415 for the COVID-19 crisis.nine months ended September 30, 2020.
Research and development expenses for the nine months ended September 30, 20202021 were $391,333,$405,327, compared to $685,693$391,333 for the comparable prior-year period, representing a decreasean increase of $294,360,$13,994, or 42.9%3.6%. This decreaseincrease was primarily due to a reduction in consultinghigher internal labor and related expenses related to a third-party research(base salary, payroll-related taxes and development firm no longer used by the Company and a decrease in compensation-related expenses.bonus expense).
Share-based compensation expenses for the nine months ended September 30, 20202021 were $512,818,$1,207,649, as compared to $678,199$512,818 for the comparable prior-year period, representing a decreasean increase of $165,381,$694,831, or 24.4%135.5%. This decreaseincrease was mainly due to fewerthe quarterly restricted shares granted to our Board members being issued and at a lowerhigher stock price than the comparable prior-year period. The increase was also due to increased amortization related to restricted shares being issued to two employees and a contractor of the Company in November 2020 and February 2021.
As a result of the changes described above, income from operations decreased $5,774,654increased $5,249,908 or 191.1%190.7% to $2,496,687 for the nine months ended September 30, 2021, compared to a loss of $2,753,221 for the three months ended September 30, 2020, compared to income of $3,021,433 for the comparable prior-year period.
Total interest expense increased $3,660,decreased $56,448, or 0.7%11.1%, to $506,922$450,474 for the nine months ended September 30, 2020,2021, compared to $503,262$506,922 for the comparable prior-year period. Interest onThe decrease was mainly attributable to lower balances of our Term Loan were offset by interest expense on our Revolvingthe Term Loan (which was undrawn in 2019).due to lower balances and lower interest rates.
Share redemption consideration increased $271,153, or 86.0%,was $586,446 in 2021 compared to $586,446 in 2020. The share redemption consideration is related to the Triangulum Redemption Consideration Obligation.
Income tax expense was $7,000 for the nine months ended September 30, 2020,2021, compared to $315,293income tax benefit of ($492,807) for the comparable prior-year period. The increase was attributable toin expense is primarily a result of improved business conditions in the Triangulum share redemption consideration obligation, which was outstanding for only a portion of the prior-year period.
Income tax benefit was $492,807 for the nine months ended September 30, 2020, compared to income tax provision of $17,189 for the comparable prior-year period. The decrease in income tax expense was primarily attributable to the reduced operations related tocurrent period following the COVID-19 pandemic in the nine-month period resulting in a pre-tax book loss, offset by the GILTI inclusionas well as favorable discrete items related to the PGP acquisition, which reduced the taxable loss in the nine-month period.
excess tax benefits from stock-based compensation.
Adjusted EBITDA (as defined below) was $115,997 for the nine months ended September 30, 2020, compared to $6,654,222 for the comparable prior-year period, representing a decrease of $6,538,225, or 98.3%. This decrease was primarily attributable to the net loss for the period as a result of the COVID-19 crisis. This decrease was primarily attributable the significant decrease in revenue in the period not being fully offset by the decreased amount of expenses.
21
Adjusted EBITDA.Adjusted EBITDA includes adjustments to net income to exclude interest, income taxes, depreciation, amortization, share basedshare-based compensation, loss on extinguishment of debt, foreign currency exchange gains, changesloss (gain), change in the estimated fair value of interest rate swap liability and severance and other non-recurring losses and non-cash charges.expenses related to litigation. Adjusted EBITDA is not a measure of performance defined in accordance with U.S. GAAP.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 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 from operations to Adjusted EBITDA is as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
Adjusted EBITDA Reconciliation: |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net (loss) income |
| $ | (1,297,499 | ) |
| $ | 580,234 |
|
| $ | (3,387,475 | ) |
| $ | 2,095,841 |
| ||||||||||||||||
Net income (loss) |
| $ | 874,236 |
|
| $ | (1,297,499 | ) |
| $ | 1,513,428 |
|
| $ | (3,387,475 | ) | ||||||||||||||||
Interest expense |
|
| 162,082 |
|
|
| 165,706 |
|
|
| 506,922 |
|
|
| 438,101 |
|
|
| 129,422 |
|
|
| 162,082 |
|
|
| 450,474 |
|
|
| 506,922 |
|
Share redemption consideration |
|
| 195,482 |
|
|
| 195,482 |
|
|
| 586,446 |
|
|
| 380,454 |
|
|
| 195,482 |
|
|
| 195,482 |
|
|
| 586,446 |
|
|
| 586,446 |
|
Interest income |
|
| (1,412 | ) |
|
| (25,326 | ) |
|
| (25,313 | ) |
|
| (45,891 | ) |
|
| (392 | ) |
|
| (1,412 | ) |
|
| (1,163 | ) |
|
| (25,313 | ) |
Depreciation and amortization |
|
| 575,637 |
|
|
| 476,112 |
|
|
| 1,499,927 |
|
|
| 1,439,220 |
|
|
| 722,475 |
|
|
| 575,637 |
|
|
| 2,160,217 |
|
|
| 1,499,927 |
|
Share-based compensation |
|
| 178,553 |
|
|
| 242,016 |
|
|
| 512,818 |
|
|
| 678,199 |
|
|
| 449,564 |
|
|
| 178,553 |
|
|
| 1,207,649 |
|
|
| 512,818 |
|
Foreign currency exchange (gain) loss |
|
| (20,014 | ) |
|
| 69,470 |
|
|
| 95,976 |
|
|
| 57,299 |
| ||||||||||||||||
Change in estimated fair value of interest rate swap liability |
|
| (55,330 | ) |
|
| (13,162 | ) |
|
| (21,650 | ) |
|
| 78,440 |
| ||||||||||||||||
Foreign currency exchange loss (gain) |
|
| 33,781 |
|
|
| (20,014 | ) |
|
| 31,511 |
|
|
| 95,976 |
| ||||||||||||||||
Change in fair value of interest rate swap liability |
|
| — |
|
|
| (55,330 | ) |
|
| (66,009 | ) |
|
| (21,650 | ) | ||||||||||||||||
(Benefit) provision for income taxes |
|
| 133,708 |
|
|
| (210,132 | ) |
|
| (492,807 | ) |
|
| 17,189 |
|
|
| (21,186 | ) |
|
| 133,708 |
|
|
| 7,000 |
|
|
| (492,807 | ) |
Rebranding expense |
|
| — |
|
|
| 82,650 |
|
|
| — |
|
|
| 95,150 |
| ||||||||||||||||
Other non-recurring income |
|
| (15,320 | ) |
|
| — |
|
|
| (15,320 | ) |
|
| — |
|
|
| (25,000 | ) |
|
| (15,320 | ) |
|
| (25,000 | ) |
|
| (15,320 | ) |
Severance expense |
|
| (3,243 | ) |
|
| 185,000 |
|
|
| 20,058 |
|
|
| 185,000 |
|
|
| 8,846 |
|
|
| (3,243 | ) |
|
| 12,596 |
|
|
| 20,058 |
|
Special project expense(1) |
|
| 183,059 |
|
|
| 469,249 |
|
|
| 836,415 |
|
|
| 1,235,220 |
| ||||||||||||||||
Special project expense(1) |
|
| 95,894 |
|
|
| 183,059 |
|
|
| 425,540 |
|
|
| 836,415 |
| ||||||||||||||||
Adjusted EBITDA |
| $ | 35,703 |
|
| $ | 2,217,299 |
|
| $ | 115,997 |
|
| $ | 6,654,222 |
|
| $ | 2,463,122 |
|
| $ | 35,703 |
|
| $ | 6,302,689 |
|
| $ | 115,997 |
|
(1) |
|
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, the COVID-19 crisis resultedIn 2020, as a result of COVID, we were required to raise funds from financing sources in negative cash provided byorder to maintain operations. In addition to our normal operations, during the nine months ended September 30, 2020, and we expect modestly negative cash flow frommay make acquisitions of products, technologies or entire businesses. Our ability to access capital for operations in Q4 of 2020. However, basedor for acquisitions will depend on our forecast of a gradual recoveryconditions in the casino gaming industry from the lows of Q2, combined with the $3.92 million in cash we received from the Main Street Loan Facility, 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 September 30, 2020,2021, we had total current assets of $6,668,796$15,239,020 and total assets of $27,146,778.$32,384,680. This compares to $14,473,935$11,562,833 and $24,252,151,$30,574,594, respectively, as of December 31, 2019.2020. The decreaseincrease in total current assets as of September 30, 2020 was primarily due to a decrease in our Accounts Receivable balance, resulting from the COVID-19 shutdown in Q1 of this year and temporary shutdowns throughout Q2 and Q3. Also, we closed on the Purchase Agreement in August 2020, resulting in a decrease in our Cash balance. The increase in total assets as of September 30, 20202021 was primarily due to an increase in our Intangiblesthe accounts receivable balance, of $10.4 million, as a result of acquiring customer agreementsresulting from higher billings and lower collections directly related to the COVID-19 crisis. The increase in connection with the closingtotal assets was offset by monthly amortization on the Purchase Agreement.Company’s long-term other intangible assets.
22
Our total current liabilities as of September 30, 20202021 increased to $6,257,636$5,781,504 from $5,422,939$4,247,794 as of December 31, 2019,2020, primarily due to the Company accruing for 2021 employee bonuses and an increase in accrued royalties in our Accounts Payable balance andonline gaming business. Also, the Company drawing down on its $1,000,000 Revolving Loan on March 12, 2020. This increase was reclassed from long-term to short-term in April 2021. These increases were offset by decreasesa decrease in Accrued Expenses and our Revenue Contract Liability.the notes payable balance, as the final payment on the financed D&O insurance policy was made in September 2021.
Despite the continuing effects of the COVID-19 crisis, our business was profitable and cash-flow positive in Q1 2020. However,Q3 2021. Based on our business was not profitable in Q2 or Q3current forecast of 2020. We anticipate modestly negative cash from operations, in Q4 of 2020. Wewe believe we will have sufficient working capitalliquidity to fund our operations and to meet our short-term and long-termthe obligations as they become due. Further, we do not currently believe that the recent casino closures in the United Kingdom will result in an impairment of our assets or a default under our loan agreements.financing arrangements as the come due.
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.
Our operating activities used $1,261,133 inprovided cash of $3,220,319 for the nine months ended September 30, 2020,2021, compared to cash providedused of $3,294,333($1,261,133) for the comparable prior period. The decreaseincrease in operating cash flow was primarily due to thehigher net lossincome for the period as a result of the re-opening of a significant portion of our land-based customers after the restrictions due to the COVID-19 crisis. This decrease wascrisis were lifted. Also, higher depreciation and amortization and share-based compensation contributed to the higher operating cash flow. These increases were partially offset by changes in operating assets and liabilities such as Accounts Receivable, Accounts Payable, Accrued Expenses and Revenue Contract Liability, as a result of the COVID-19 crisis.Liability.
Investing activities used cash of $6,305,047($84,969) for the nine months ended September 30, 2020,2021, compared to $59,895cash used of ($6,305,047) for the comparable prior period. This decrease was primarily due to the acquisition of PGP in August 2020.
Cash used in financing activities during the nine months ended September 30, 2021 was ($1,654,182). This compares to $620,728 cash provided by financing activities for the comparable prior period. This was due to closing of the Purchase Agreement in August 2020.
Cash provided by financing activities during the nine months ended September 30, 2020 was $620,728, which resulted from thea $1,000,000 draw on our Revolving Loan onin March 12, 2020 and $835,300 from the PPPPaycheck Protection Program Loan offset byin April 2020, both being included in prior year numbers. Also, principal payments in the current year were higher than prior year due to an increase in the financed payments on long-term debt. This compares to $935,414 cash used in financing activities for the comparable prior period.Company’s D&O insurance policy.
Critical accounting policies.The discussion of ourOur consolidated financial condition and results of operations is based upon our financial statements which have been prepared in accordance with U.S. GAAP. CriticalWe consider the following accounting policies are those policies that, in management's view, areto 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 portrayalcustomer 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 not that the fair value of oura 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 condition and results of operations. See Note 2 in Item 8. “Financial Statements and Supplementary Financial Information” includedstatements. The Company has instead recorded a long-term obligation payable to Triangulum, based on the redemption value specified in our 2019 10-K for further detail on these critical accounting policies.Articles of Incorporation. The obligation is classified as long-term. The Company has the ability but is not required to refinance and settle the litigation.
23
Off-balance sheet arrangements.As of September 30, 2020,2021, 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.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS 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 SEC'sSecurities and Exchange Commission’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 September 30, 20202021, 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.
Limitations on the effectiveness of internal controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are
23
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
2425
PART II – OTHEROTHER INFORMATION
InWe have been named in and have brought lawsuits in the ordinarynormal course of conductingbusiness. See Note 11 above and to our business, we are, from time to time, involvedaudited financial statements included in various legal proceedings, administrative proceedings, regulatory government investigationsItem 8 “Financial Statements and other matters, including those in which we are a plaintiff, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, Contingencies, we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. 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. We assume no obligation to update the status of pending litigation, except as may be required by GAAP, applicable law, statute or regulation.
On May 6, 2019, we redeemed all 23,271,667 shares of our common stock held by Triangulum, an entity controlled by Robert B. Saucier, Galaxy Gaming's founder, and, prior to the redemption, the holder of a majority of our outstanding common stock. The redemption of Triangulum’s shares was given effect pursuant to the Articles, which expressly 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. As consideration for the redemption, we issued a promissory note payable to Triangulum in the face amount of $39,096,401, which due to the resulting litigation discussed below, has not been given accounting effect in the Company’s financial statements. The Company has instead recorded a long-term share redemption consideration obligation payable to Triangulum, based on the redemption value specifiedSupplementary Financial Information” in our Articles of Incorporation. See Note 10.
On May 6, 2019 we filed a lawsuit seeking (i) a declaratory judgment that we acted lawfully and in full compliance with the Articles when we 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 alleges that the redemption and the other relief sought by us are appropriate and in accordance with the Articles (Galaxy Gaming, Inc. v. Triangulum Partners, LLC, Robert B. Saucier,Clark County, Nevada district court (Case No. A-19-794293-B)). We are in the discovery phase of the Triangulum Lawsuit.
The defendants to that lawsuit responded to the complaint, and Triangulum filed counterclaims based on a theory of wrongful redemption by us. Triangulum also filed a Motion for Preliminary Injunction seeking the redeemed shares be held in a constructive trust. On July 11, 2019, the Court denied Triangulum’s Motion for Preliminary Injunction and all related relief. On September 6, 2019, Triangulum appealed the denial of the Motion for Preliminary Injunction to the Nevada Supreme Court. We submitted our brief in opposition, and Triangulum’s reply brief is due on June 17, 2020. Separately, Triangulum filed amended counterclaims, which we moved to dismiss on a number of legal grounds. The Court denied the motion, stating that the amended complaint was sufficiently plead. The Company filed a Petition for a Writ of Mandamus challenging the ruling, which the Supreme Court denied on January 23, 2020.
On October 18, 2019, Saucier also filed counterclaims centered similarly on a theory of wrongful redemption, and also claims that for breach of contract and quantum meruit, alleging Galaxy Gaming was obligated to pay Saucier his year-end bonuses, despite his resignation. We filed an answer disputing these claims.
As a result of the effects of Coronavirus on the Nevada District court, the Court issued a revised Scheduling Order extending time frames for discovery and setting a new trial date in February of 2021.
On May 6, 2020 Saucier made a demand of the Company under our Bylaws and an Indemnity Agreement between Saucier and the Company, for indemnity and advancement of funds seeking repayment of his lawyer’s fees and expenses he allegedly incurred in connection with the Company’s claims against him in the Triangulum Lawsuit. Saucier asserts that he is entitled to indemnity and advancement as a result of his tenure as an officer, director, and fiduciary of the Company, which he claims triggers his rights of indemnity and advancement. The Company rejected his demand. Pursuant to the Indemnity Agreement, an Independent Counsel was agreed to by the parties to hear the dispute. The Independent Counsel generally agreed with the Company but awarded Saucier a small amount of indemnity funds related to the time he was employed by the Company.
Also on May 19, 2020, Saucier commenced a separate action, filed a verified complaint seeking advancement and filed a pleading styled “Motion For Declaratory Judgement On Verified Complaint For Advancement” (Robert B. Saucier v. Galaxy Gaming, Inc. (Clark County, Nevada district court (Case No. A-20-81590-B)) (“the Motion For Declaratory Judgement”). The Company filed its opposition on June 4, 2020. Saucier’s Motion For Declaratory Judgement was denied in a hearing that occurred on June 24, 2020. Saucier appealed the denial to the Nevada Supreme Court on August 10, 2020.
On July 22, 2020 Galaxy and its Directors, filed an Anti-SLAPP motion seeking to dismiss certain claims made against Galaxy and its Directors. The Anti-SLAPP motion was denied by the court. Galaxy and its Directors have appealed the denial of that motion to the Nevada Supreme Court. The appeal will stay most aspects of the litigation, pending outcome of the appeal.
25
The appeals to the Nevada Supreme Court by Saucier and by Galaxy, have also been referred to the Supreme Court’s Settlement Program where they are pending. A mandatory settlement conference is scheduled for November 16, 2020.
We remain in the discovery phase of the Triangulum Lawsuit.
As has been previously reported by the Company, in September 2018, we were served with a complaint by TMAX regarding the TMAX Agreement. We filed an answer denying the allegations and counterclaiming for breach of contract, abuse of process and fraud in the inducement, among other counterclaims. We also filed a partial motion for summary judgment seeking dismissal of the plaintiff’s claims. Pursuant to a motion to dismiss brought by the co-defendant and former CEO of TMAX, 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. Despite not filing an Amended complaint within the allotted time, thereafter 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. In the Amended Complaint, TMAX asserted a claim against the Company for conversion of personal property. The Company will respond to the Amended Complaint denying the allegations.10-K.
26
ITEM 2. UNREGISTERED SALES OF EQUITYEQUITY SECURITIES AND USE OF PROCEEDS
On September 30, 2020, we issued an aggregate of 55,000February 17, 2021, 80,000 restricted shares of our common stock valued at $59,400$181,600 were issued to Messrs. Lipparelli, Isaacs, Waters, and Zender, Mr. Cravens. These shares were granted in consideration of theirthe individual’s service onto the Board during the three months ended September 30, 2020.Company. These shares vested immediatelyvest on the grant date. In each of the transactions listed above, theNovember 11, 2021. These securities were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) and rules and regulations promulgated thereunder. There were no restricted shares issued to the Board in consideration of their service on the Board for the three months ended September 30, 2021.
Our reliance upon Section 4(a)(2) of the Securities Act in granting the aforementioned options to purchase shares of our common stock was based in part upon the following factors: (a) each of the issuances of the securities was in connection with an isolated private transaction which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; and (d) the negotiations for the issuance of the securities took place directly between the offeree and us.
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Exhibit Number |
| Description |
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| File No. |
| Exhibit |
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| Filed Herewith |
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10.1 |
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| 8-K |
| 000-30653 |
| 10.1 |
| March 31, 2021 |
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10.2 |
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| 8-K |
| 000-30653 |
| 10.1 |
| May 17, 2021 |
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10.3 |
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| 8-K |
| 000-30653 |
| 10.1 |
| October 7, 2021 |
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31.1 |
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| X | |
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31.2 |
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| X | |
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32.1 |
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| X | |
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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 |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document |
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27
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.
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| Galaxy Gaming, Inc. | ||
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Date: |
| November | ||
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| By: |
| /s/ TODD P. CRAVENS |
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| Todd P. Cravens |
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| President and Chief Executive Officer (Principal Executive Officer) |
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| Galaxy Gaming, Inc. | ||
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Date: |
| November | ||
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| By: |
| /s/ HARRY C. HAGERTY |
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| Harry C. Hagerty |
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| Chief Financial Officer (Principal Accounting Officer) |
28