Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 34,524,758 common shares as May 14,August 9, 2010.

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continu e,” “will likely result,” and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

We are engaged in the business of developing proprietary casino table gamesgames. We receive fees in the form of recurring revenues for our content and electronically enhanced table game products.  We license and/or lease our productsservices we provide to land-based, riverboat and cruise ship casinos in the United States and internationally.  Currently, we have an installed base of our products on over 1,750 gaming tables.  Casinos use our productscontent and services to enhance their gaming floor operations and improve their profitability, productivity and security, as well as offer popular cutting-edge gaming entertainment content and technology to their players.  We group our products into two business categories we callOur revenues are primarily derived from “Proprietary Table Games” and.  We have also developed  an advanced table game platforms known as the “Bonus Jackpot System.”   The Bonus J ackpot System serves  as a vehicle to deploy additional Proprietary Table Games and provide us with added revenue streams via performance payments. We are also seeking to increase our revenues through interconnected systems related to gaming operations which we refer to as the Inter Casino Jackpot network.

We develop and deliver proprietary titles that enhance our casino clients’ table game operations.  Our Games in this category are grouped into two product types which include ”Premium Games” as well as proprietary features added to public domain games such as poker, baccarat, pai gow poker and blackjack table games, also known as “Side Bets”.  Casinos use our proprietary table games in lieu of those games in the public domain (e.g. Blackjack, Craps, Roulette, etc.) because of their popularity with players and the increased profitability for casinos.

 

We developed our Bonus Jackpot System to compete with our competitors’ progressive jackpot systems.  Early in its design, we decided to not simply emulate the standard progressive jackpot system, but instead we decided to design, engineer and manufacture a system to further enhance the table game player’s experience beyond their current experiences and likewise further improve the casino’s profit from table games.  We have committed a significant portion of our revenues to the research and development of this system.  We have planned the development of our Bonus Jackpot System for at least the next several years and have labeled each major release after the name of a known galaxy.  Our first version, known as the “Milky Way Series” was first installed into a casino in March, 2009.   Early in 2010, we developed our “Andromeda Series” and have completed what we refer to as Andromeda Stage I and Andromeda Stage II.  Both Andromeda Series have been submitted to various gaming regulators for approval.  The Bonus Jackpot System allows us to place additional Proprietary Table Games and thereby increase our recurring revenues through performance payments.   As such our strategy when deploying the Bonus Jackpot System is to seek reimbursement of our costs to build the system.

We are proud of the products that we develop and market and believe we can have continued growth and expansion. To that end, we have devised and are implementing the following ongoing strategic plan:

Despite the current economy, or maybe because of it, our products are in their highest demand.   Our products generate additional profit for our clients yet require an insignificant capital expenditure.  Accordingly, we have demonstrated a 24%18% increase in recurring revenues compared to the same quarter last year.  We expect continued growth in our recurring revenues through the development and/or acquisition of new products and game content.  In February 2010 the Company announced the release of a new casino table game called Triple Attack Blackjack(TM).  The game is a variation of the standard game of blackjack, but offers the player new strategic options, while still conforming to basic blackjack fundamentals.

We intend to increase our recurring revenues and market share not only in North America, but throughout all available international markets.  Expanding our distribution network requires that we first seek and obtain registration or licensing in most additional gaming jurisdictions.  In regulated gaming jurisdictions, this is not always a simple task.  Accordingly, our plan is to selectively choose jurisdictional expansion opportunities whereby we believe we can obtain the greatest results compared against the cost and duration of the regulatory approval process.

Competitor’s games such as Caribbean Stud and Let it Ride benefitted from electronic enhancements.  Previously, only our Bonus Blackjack game utilized electronics.  We set out to overcome this disadvantage and initiated the development of our Bonus Jackpot System in 2008.  In March 2009, we installed the first Bonus Jackpot System into a casino.  Since then we have installed over 130 more.  We receive a fee from casinos based upon the amount of wagers placed by their players via the Bonus Jackpot System.  Since its first installation, the Bonus Jackpot System has now recorded over 10,000,000 wagers.

We expect each of these products to generate additional revenuerecurring revenues for us in 2010 and beyond.

We have identified an opportunity to offer gambling promotions and the financing of gambling promotions to our casino clients which in turn they would offer to their customers.  Our planned Inter-Casino Jackpot Network, formerly known as the Manufacturer’s Gambling Promotion, is designed to assist casino operators with the ability to offer increased incentives and promotions, including but not limited to substantial life-altering cash jackpots, which in turn, can potentially attract additional customers to their establishment.  Competition among casinos is intense and although many casino operators can (and do) provide numerous promotions, most are either financially restrained from offering larger, more lucrative prizes and promotions or concerned about the effect the award of a large prize can have on the casinoR 17;s bottom line for the reporting period.

We intend to collect a fee from the casino based upon their player’s participation in the gambling promotion.  The purpose of these gambling promotions is to stimulate play thereby increasing the profitability for the casino and for us.  We expect the offering of our gambling promotion plan will commence and add revenues for us in 2010.

Although we seek to take advantage of the current high demand of our products and in the process, rapidly expand our recurring revenues, our goal is to achievemaintain profitability and closely guard our cash flow.  Our plan is to monitor and adjust our expenses accordingly in order to meet these important objectives..objectives.

Fundamentally, we will focus first and foremost on our company’s financial performance both in terms of revenue growth, profitability and cash flow.  While our successful performance is essential, we launched, in 2009, an Investor Relations / Public Relations campaign to build the Galaxy Gaming brand in the financial community.  Furthermore, we maintain frequent and informative communication with our stakeholders.

We primarily derive our revenue from the sale and licenselicensing of our products and intellectual property.  Consistent with our strategy, we currently definegenerate revenue from negotiated recurring licensing fees for our revenue sources into three categories, which includes (1)table game content and the performance of our electronic table game platform. We also receive a one-time sale or reimbursement of our manufactured equipment; (2) a negotiated recurring licensing fee for our table game content; and (3) a recurring licensing fee associated with the performance of our electronic table game platform.equipment.  When we license a table game without electronic enhancements, we generally sell the associated products and negotiate a month-to-month license fee for the game content.  When we license a table game with electronic enhancements, such as our Bonus Jackpot System, we generally sell the associated products, negotiate a month-to-month license fee for the game content, and collec tcollect an additional recurring fee associated with the performance of our system such as a fee per each wager placedplaced.

 

Additional funding may be necessary to facilitate our current aggressive growth plans and acquisition strategy, as well as the investments in our infrastructure.  If we determine that additional funding is required and we are unsuccessful in raising capital, we will still pursue acquisitions and growth, however, our acquisition opportunities could be limited and our growth strategy could be negatively impacted.

We do not have plans to purchase significant physical plant or equipment during the next twelve months.  As we continue to grow and expand our business, we will evaluate the necessary increases to our employee base over the course of the next year.

For the three months ended March 31,June 30, 2010 our continuing operations generated gross revenues of $754,027,$735,569, an increase of 24%9% from gross revenues of $608,709$674,490 for the three months ended March 31,June 30, 2009.  ThisThe increase in revenue was driven by eachincreases in our recurring revenue from table game content and fees associated with the performance of our product categories; Proprietary Table Games and Bonus Jackpot Systems.  Our costelectronic game platform offset by a decline in sale or reimbursement of goods sold for the quarter was $48,092 compared to $23,833our manufactured equipment.   The decrease in the prior quarter.  Much of this increase is related toour installations of our Bonus Jackpot System.  This product was implementedSystem resulted in a decrease of cost of goods sold from $64,440 in the firstprior quarter of 2009 with limited installations.  Our Operating Expensesto $10,768 for the current quarter.  Selling, general and administrative expenses for the quarter were $783,151,$613,176, an increase of 25%3% over the firstsecond quarter 2009 operatingselling, general and administrative expenses of $626,062.  The$597,557.   ;The increase was primarily due to increased payroll in research and dev elopment, sales and finance, and outside services offset by a decrease in legal fees.fees and rent.  Research and development expenses for the quarter were $66,873, an increase of 65% over the second quarter 2009 research and development expenses of $40,482.  The increase was primarily due to increased payroll as the result of adding personnel to the department. Other expenses decreased from $26,555$26,988 in 2009 to $22,292$23,994 in 2010 due to decreased interest expense.

The net lossNet income from continuing operations for the three months ended March 31,June 30, 2010 was $99,508,$20,758, compared to a loss from continuing operations of $67,741$54,977 for the three months ended March 31,June 30, 2009.  Earnings before interest, taxes, depreciation and amortization (EBITDA) was a loss

For the six months ended June 30, 2010 our continuing operations generated gross revenues of $71,462$1,489,596, an increase of 16% from gross revenues of $1,283,199 for the threesix months ended March 31,June 30, 2009.  The increase in revenue was driven by increases in our recurring revenue from table game content and fees associated with the performance of our electronic game platform offset by a decline in sale or reimbursement of our manufactured equipment.   The decrease in our installations of our Bonus Jackpot System resulted in a decrease of cost of goods sold from $88,252 in the prior six months to $58,860 for the year.  Selling, general and administrative expenses for the six months were $1,308,420, an increase of 11% over the prior year selling, general and administrative expenses of $1,182,589.  The inc rease was primarily due to increased payroll in sales and finance, marketing and outside services offset by a decrease in legal fees.  Research and development expenses for the six months were $154,780, an increase of 90% over the prior year research and development expenses of $81,538.  The increase was due to increased payroll as the result of adding personnel to the department. Other expenses decreased from $53,512 in 2009 to $46,286 in 2010 due to decreased interest expense.

Net loss from continuing operations for the six months ended June 30, 2010 was $78,750, compared to a loss from continuing operations of $50,406$122,692 for the threesix months ended March 31,June 30, 2009.

As of March 31,June 30, 2010, we had total current assets of $819,451$1,208,953 and total assets in the amount of $1,543,944.$2,117,676. Our total current liabilities as of March 31,June 30, 2010 were $931,175.  $966,747.  Our working capital increased from a deficit of $22,942 at December 31, 2009 to $242,206 at June 30, 2010.  The increase in working capital was due to an increase in cash and inventory and a reduction in accounts payable.

Galaxy’s operating activities used $138,573$184,700 in cash for the threesix months ended March 31,June 30, 2010 compared to $20,643 in$190,607 of cash generatedused for the threesix months ended March 31,June 30, 2009.  The primary components of our negative operating cash flow for the threesix months ended March 31,June 30, 2010 were our net loss of $99,508,$78,750, increases in accounts receivable of $10,890, inventory of $22,975$41,873 and a decrease in accounts payable of $35,490$101,375 offset by non cash charges consisting of depreciation and amortization expenses, $5,753;$17,210; provision for bad debts, $9,000;$18,000; and share based compensation, $4,000.$8,000.

Cash flows used ingenerated by investing activities for the threesix months ended March 31,June 30, 2010 were $14,379,$5,116, consisting of $6,509 in acquisition of property and equipment, increases in other assets of $20,825$14,481 offset by $12,955$26,106 in payments received on a note receivable.  Cash usedgenerated by financing activities during the threesix months ended March 31,June 30, 2010 were $55,976$349,647 consisting of $54,937proceeds from the sale of common stock; in the amount of $500,000, payments received on stock subscription receivable totaling $9,330 offset by $121,124 in payments on notes payable-related party $5,705and $38,559 in payments on notes payable offset by $4,666 in payments received on stock subscription receivable.payable.

Despite this funding there is no assurance that we will be successful in raising additional funding, if necessary.  If we are not able to secure additional funding, the implementation of our business plan could be impaired.  There can be no assurance that such additional financing will be available to us on acceptable terms or at all.  In addition, we 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.  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 busines ses in exchange for our common stock, fluctuations in our stock price could have a material adverse effect on our ability to complete acquisitions.

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis.  The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  Currently, we do not believe that we have any accounting policies that fit this definition.

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.

A smaller reporting company is not required to provide the information required by this Item.

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 September 30, 2009.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our former Interim Chief Financial Officer, Robert Saucier.  Based upon that evaluation, our Chief Executive Officer and former Interim Chief Financial Officer concluded that, as of September 30, 2009, our disclosure controls and procedures are effective.  There have been no changes in our internal controls over financial reporting during the quarter ended March 31,June 30, 2010.

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'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 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.

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 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 Compan y 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.

(See Note 9 of Item 1 Financial Statements regarding current litigation)

A smaller reporting company is not required to provide the information required by this Item.

On April 1, 2010 the Company sold a total of 1,428,572 shares of common stock and 714,286 warrants for total cash proceeds of $500,000.  The offering and sale of the shares was exempt from registration under Rule 506 of Regulation D.  The shares were offered exclusively to accredited and/or sophisticated investors and there was no general solicitation or advertising.

None

 

No matters have been submitted to our security holders for a vote, through the solicitation of proxies or otherwise, during the quarterly period ended March 31,June 30, 2010.

None

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.