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, 2016March 31, 2017
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 |
|
|
|
6767 Spencer Street, Las Vegas, NV 89119 | ||
(Address of principal executive offices) | ||
| ||
(702) 939-3254 | ||
(Issuer’s telephone number) |
(Former name, former address and former fiscal year, if changed since last report)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
|
|
|
| |||
Non-accelerated filer |
| ☐ |
| Smaller |
| ☒ |
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: 39,315,59139,365,591 common shares as of November 14, 2016.
May 15, 2017.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERTHREE MONTHS ENDED SEPTEMBER 30, 2016MARCH 31, 2017
TABLE OF CONTENTS
|
| Page |
| PART I – FINANCIAL INFORMATION
|
|
Item 1: |
| |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3: |
| |
Item |
| |
|
PART II – OTHER INFORMATION
|
|
Item 1: |
| |
Item 5: |
| |
Item 6: |
|
PART I - FINANCIAL INFORMATION
Our financial statements included in this Form 10-Q are as follows:
GALAXY GAMING, INC.
ASSETS |
| September 30, 2016 |
|
| December 31, 2015 |
|
| March 31, 2017 |
|
| December 31, 2016 |
| ||||
Current assets: |
|
| (Unaudited) |
|
|
|
|
|
| (unaudited) |
|
|
|
|
| |
Cash and cash equivalents |
| $ | 1,823,657 |
|
| $ | 570,623 |
|
| $ | 2,920,154 |
|
| $ | 2,304,761 |
|
Restricted cash |
|
| 87,850 |
|
|
| 97,859 |
|
|
| 115,513 |
|
|
| 84,577 |
|
Accounts receivable, net of allowance for bad debts of $27,190 and $30,944 |
|
| 1,937,343 |
|
|
| 1,828,669 |
| ||||||||
Inventory |
|
| 484,442 |
|
|
| 411,700 |
| ||||||||
Deferred tax asset |
|
| — |
|
|
| 43,017 |
| ||||||||
Accounts receivable, net of allowance for bad debts of $31,125 |
|
| 1,996,542 |
|
|
| 2,137,245 |
| ||||||||
Inventory, net |
|
| 465,990 |
|
|
| 427,105 |
| ||||||||
Prepaid expense and other |
|
| 99,905 |
|
|
| 108,827 |
|
|
| 161,082 |
|
|
| 194,747 |
|
Total current assets |
|
| 4,433,197 |
|
|
| 3,060,695 |
|
|
| 5,659,281 |
|
|
| 5,148,435 |
|
Property and equipment, net |
|
| 244,896 |
|
|
| 298,877 |
|
|
| 327,600 |
|
|
| 356,253 |
|
Products leased and held for lease, net |
|
| 204,467 |
|
|
| 134,485 |
|
|
| 215,794 |
|
|
| 212,131 |
|
Goodwill and other intangible assets, net |
|
| 13,235,698 |
|
|
| 14,352,636 |
|
|
| 12,559,573 |
|
|
| 12,846,019 |
|
Deferred tax assets, net |
|
| — |
|
|
| 82,562 |
|
|
| 367,057 |
|
|
| 367,057 |
|
Other assets, net |
|
| 299,918 |
|
|
| 41,793 |
|
|
| 23,000 |
|
|
| 82,050 |
|
Total assets |
| $ | 18,418,176 |
|
| $ | 17,971,048 |
|
| $ | 19,152,305 |
|
| $ | 19,011,945 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 563,445 |
|
| $ | 1,421,848 |
|
| $ | 394,009 |
|
| $ | 461,913 |
|
Accrued expenses |
|
| 976,834 |
|
|
| 823,964 |
|
|
| 1,209,057 |
|
|
| 1,109,428 |
|
Income taxes payable |
|
| 1,106,600 |
|
|
| 170,331 |
|
|
| 864,405 |
|
|
| 786,430 |
|
Deferred revenue |
|
| 870,628 |
|
|
| 717,690 |
|
|
| 954,923 |
|
|
| 1,014,731 |
|
Jackpot liabilities |
|
| 91,602 |
|
|
| 106,671 |
|
|
| 125,002 |
|
|
| 90,960 |
|
Deferred tax liabilities |
|
| 75,358 |
|
|
| — |
| ||||||||
Deferred rent, current portion |
|
| 12,753 |
|
|
| 6,197 |
|
|
| 17,124 |
|
|
| 14,938 |
|
Current portion of long-term debt and capital lease obligations |
|
| 909,009 |
|
|
| 4,707,316 |
|
|
| 1,219,022 |
|
|
| 1,230,285 |
|
Total current liabilities |
|
| 4,606,229 |
|
|
| 7,954,017 |
|
|
| 4,783,542 |
|
|
| 4,708,685 |
|
Deferred rent, net |
|
| 42,532 |
|
|
| 52,643 |
|
|
| 32,877 |
|
|
| 37,704 |
|
Capital lease obligations, net |
|
| 54,898 |
|
|
| 78,008 |
|
|
| 38,944 |
|
|
| 46,978 |
|
Warrant liability |
|
| 806,698 |
|
|
| — |
| ||||||||
Common stock warrant liability |
|
| 990,116 |
|
|
| 923,616 |
| ||||||||
Long-term debt, net |
|
| 9,028,235 |
|
|
| 7,436,171 |
|
|
| 8,433,911 |
|
|
| 8,669,151 |
|
Total liabilities |
|
| 14,538,592 |
|
|
| 15,520,839 |
|
|
| 14,279,390 |
|
|
| 14,386,134 |
|
Commitments and Contingencies (See Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, 10,000,000 shares authorized; $.001 par value; 0 shares issued and outstanding, respectively |
|
| — |
|
|
| — |
| ||||||||
Common stock, 65,000,000 shares authorized; $.001 par value; 39,315,591 and 39,215,591 shares issued and outstanding, respectively |
|
| 39,316 |
|
|
| 39,216 |
| ||||||||
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; 39,365,591 and 39,315,591 shares issued and outstanding, respectively |
|
| 39,366 |
|
|
| 39,316 |
| ||||||||
Additional paid-in capital |
|
| 3,054,847 |
|
|
| 2,963,841 |
|
|
| 3,194,260 |
|
|
| 3,109,473 |
|
Accumulated earnings (deficit) |
|
| 785,421 |
|
|
| (792,446 | ) | ||||||||
Accumulated other comprehensive income |
|
| — |
|
|
| 239,598 |
| ||||||||
Accumulated earnings |
|
| 1,639,289 |
|
|
| 1,477,022 |
| ||||||||
Total stockholders’ equity |
|
| 3,879,584 |
|
|
| 2,450,209 |
|
|
| 4,872,915 |
|
|
| 4,625,811 |
|
Total liabilities and stockholders’ equity |
| $ | 18,418,176 |
|
| $ | 17,971,048 |
|
| $ | 19,152,305 |
|
| $ | 19,011,945 |
|
The accompanying notes are an integral part of the financial statements.
GALAXY GAMING, INC.
CONDENSED STATEMENTS OF OPERATIONSINCOME
(Unaudited)
|
| FOR THE THREE MONTHS ENDED September 30, |
|
| FOR THE NINE MONTHS ENDED September 30, |
|
|
| Three Months Ended |
| |||||||||||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
|
| March 31, 2017 |
|
| March 31, 2016 |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (restated) |
| |
Product leases and royalties |
| $ | 3,190,823 |
|
| $ | 2,747,774 |
|
| $ | 9,229,815 |
|
| $ | 8,003,469 |
|
|
| $ | 3,473,841 |
|
| $ | 2,981,820 |
|
Product sales and service |
|
| 1,146 |
|
|
| 7,074 |
|
|
| 10,425 |
|
|
| 18,073 |
|
|
|
| 1,455 |
|
|
| 2,279 |
|
Total revenue |
|
| 3,191,969 |
|
|
| 2,754,848 |
|
|
| 9,240,240 |
|
|
| 8,021,542 |
|
|
|
| 3,475,296 |
|
|
| 2,984,099 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ancillary products and assembled components |
|
| 26,763 |
|
|
| 22,890 |
|
|
| 78,075 |
|
|
| 70,168 |
|
|
|
| 20,882 |
|
|
| 21,640 |
|
Selling, general and administrative |
|
| 1,576,480 |
|
|
| 1,736,024 |
|
|
| 4,850,785 |
|
|
| 4,995,984 |
|
|
|
| 2,086,169 |
|
|
| 1,633,335 |
|
Research and development |
|
| 89,513 |
|
|
| 101,822 |
|
|
| 270,734 |
|
|
| 371,251 |
|
|
|
| 138,047 |
|
|
| 79,342 |
|
Depreciation and amortization |
|
| 419,540 |
|
|
| 416,918 |
|
|
| 1,252,860 |
|
|
| 1,251,614 |
|
|
|
| 436,085 |
|
|
| 415,974 |
|
Share-based compensation |
|
| 41,075 |
|
|
| 17,909 |
|
|
| 91,006 |
|
|
| 72,850 |
|
|
|
| 49,837 |
|
|
| 20,471 |
|
Total costs and expenses |
|
| 2,153,371 |
|
|
| 2,295,563 |
|
|
| 6,543,460 |
|
|
| 6,761,867 |
|
|
|
| 2,731,020 |
|
|
| 2,170,762 |
|
Income from operations |
|
| 1,038,598 |
|
|
| 459,285 |
|
|
| 2,696,780 |
|
|
| 1,259,675 |
|
|
|
| 744,276 |
|
|
| 813,337 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement income |
|
| 697,214 |
|
|
| — |
|
|
| 697,214 |
|
|
| — |
|
| ||||||||
Interest expense |
|
| (227,632 | ) |
|
| (248,604 | ) |
|
| (741,045 | ) |
|
| (799,407 | ) |
|
|
| (445,332 | ) |
|
| (258,195 | ) |
Loss on extinguishment of debt |
|
| (87,578 | ) |
|
| — |
|
|
| (87,578 | ) |
|
| — |
|
| ||||||||
Foreign currency exchange gains |
|
| 7,797 |
|
|
| 112,562 |
| |||||||||||||||||
Change in estimated fair value of warrant liability |
|
| 2,933 |
|
|
| — |
|
|
| 2,933 |
|
|
| — |
|
|
|
| (66,500 | ) |
|
| — |
|
Interest income |
|
| 56 |
|
|
| 2,084 |
|
|
| 202 |
|
|
| 13,288 |
|
|
|
| — |
|
|
| 56 |
|
Total other expense |
|
| 384,993 |
|
|
| (246,520 | ) |
|
| (128,274 | ) |
|
| (786,119 | ) |
|
|
| (504,035 | ) |
|
| (145,577 | ) |
Income before provision for income taxes |
|
| 1,423,591 |
|
|
| 212,765 |
|
|
| 2,568,506 |
|
|
| 473,556 |
|
|
|
| 240,241 |
|
|
| 667,760 |
|
Provision for income taxes |
|
| (602,619 | ) |
|
| (93,059 | ) |
|
| (990,639 | ) |
|
| (219,418 | ) |
|
|
| (77,974 | ) |
|
| (239,925 | ) |
Net income |
| $ | 820,972 |
|
| $ | 119,706 |
|
| $ | 1,577,867 |
|
| $ | 254,138 |
|
|
| $ | 162,267 |
|
| $ | 427,835 |
|
Net income per share, basic and diluted |
| $ | 0.02 |
|
| $ | 0.00 |
|
| $ | 0.04 |
|
| $ | 0.01 |
|
|
| $ | 0.00 |
|
| $ | 0.01 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 39,315,591 |
|
|
| 39,040,775 |
|
|
| 39,372,944 |
|
|
| 39,040,775 |
|
|
|
| 39,305,591 |
|
|
| 39,351,147 |
|
Diluted |
|
| 39,465,676 |
|
|
| 39,079,102 |
|
|
| 39,559,494 |
|
|
| 39,079,102 |
|
|
|
| 40,817,678 |
|
|
| 39,455,591 |
|
The accompanying notes are an integral part of the financial statements.
GALAXY GAMING, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
| FOR THE THREE MONTHS ENDED September 30, |
|
| FOR THE NINE MONTHS ENDED September 30, |
| ||||||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Net income |
| $ | 820,972 |
|
| $ | 119,706 |
|
| $ | 1,577,867 |
|
| $ | 254,138 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
|
| — |
|
|
| 120,193 |
|
|
| — |
|
|
| 89,401 |
|
Total comprehensive income |
| $ | 820,972 |
|
| $ | 239,899 |
|
| $ | 1,577,867 |
|
| $ | 343,539 |
|
The accompanying notes are an integral part of the financial statements.
GALAXY GAMING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| FOR THE NINE MONTHS ENDED September 30, |
|
| Three Months Ended |
| ||||||||||
|
| 2016 |
|
| 2015 |
|
| March 31, 2017 |
|
| March 31, 2016 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| (restated) |
| |
Net income |
| $ | 1,577,867 |
|
| $ | 254,138 |
|
| $ | 162,267 |
|
| $ | 427,835 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 1,252,860 |
|
|
| 1,251,614 |
|
|
| 436,085 |
|
|
| 415,974 |
|
Amortization of debt issuance costs and debt discount |
|
| 136,710 |
|
|
| 156,474 |
|
|
| 73,729 |
|
|
| 52,158 |
|
Provision for bad debt expense |
|
| — |
|
|
| 40,000 |
| ||||||||
Inventory reserve |
|
| — |
|
|
| 47,069 |
| ||||||||
Loss on extinguishment of debt |
|
| 87,578 |
|
|
| — |
| ||||||||
Change in estimated fair value of warrant liability |
|
| (2,933 | ) |
|
| — |
|
|
| 66,500 |
|
|
| — |
|
Deferred income tax provision |
|
| 54,370 |
|
|
| 219,418 |
| ||||||||
Share-based compensation |
|
| 91,006 |
|
|
| 72,850 |
|
|
| 49,837 |
|
|
| 20,471 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in restricted cash |
|
| 10,009 |
|
|
| 9,392 |
| ||||||||
Increase in accounts receivable |
|
| (107,969 | ) |
|
| (197,139 | ) | ||||||||
Decrease in other current assets |
|
| 43,017 |
|
|
| 62,314 |
| ||||||||
(Increase) decrease in restricted cash |
|
| (30,936 | ) |
|
| 51,044 |
| ||||||||
Decrease in accounts receivable |
|
| 140,704 |
|
|
| 78,239 |
| ||||||||
Increase in inventory |
|
| (181,319 | ) |
|
| (125,820 | ) |
|
| (63,017 | ) |
|
| (54,958 | ) |
Decrease (increase) in prepaid expenses and other current assets |
|
| 6,608 |
|
|
| (65,538 | ) | ||||||||
(Decrease) increase in accounts payable |
|
| (858,954 | ) |
|
| 495,891 |
| ||||||||
Decrease in prepaid expenses and other current assets |
|
| 33,665 |
|
|
| 52,651 |
| ||||||||
Decrease in accounts payable |
|
| (67,905 | ) |
|
| (111,239 | ) | ||||||||
Increase in income tax payable |
|
| 936,269 |
|
|
| — |
|
|
| 74,816 |
|
|
| 222,903 |
|
Increase in accrued expenses |
|
| 141,841 |
|
|
| 23,037 |
|
|
| 99,629 |
|
|
| 56,054 |
|
Increase in deferred revenue |
|
| 152,938 |
|
|
| 65,227 |
| ||||||||
Decrease in jackpot liabilities |
|
| (15,069 | ) |
|
| (6,296 | ) | ||||||||
(Decrease) increase in deferred revenue |
|
| (59,808 | ) |
|
| 96,293 |
| ||||||||
Increase (decrease) in jackpot liabilities |
|
| 34,042 |
|
|
| (22,470 | ) | ||||||||
Decrease in deferred rent |
|
| (3,555 | ) |
|
| (957 | ) |
|
| (2,641 | ) |
|
| (457 | ) |
Net cash provided by operating activities |
|
| 3,321,274 |
|
|
| 2,301,674 |
|
|
| 946,967 |
|
|
| 1,284,498 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of intangible assets |
|
| (27,470 | ) |
|
| — |
| ||||||||
Acquisition of property and equipment |
|
| (43,345 | ) |
|
| (44,980 | ) |
|
| (13,997 | ) |
|
| (11,314 | ) |
Net cash used in investing activities |
|
| (41,467 | ) |
|
| (11,314 | ) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from long-term debt |
|
| 932,126 |
|
|
| — |
| ||||||||
Proceeds from stock option exercises |
|
| 35,000 |
|
|
| — |
| ||||||||
Debt issuance costs |
|
| (17,091 | ) |
|
| — |
| ||||||||
Principal payments on capital lease obligations |
|
| (51,698 | ) |
|
| (49,186 | ) |
|
| (7,611 | ) |
|
| (17,441 | ) |
Principal payments on long-term debt |
|
| (2,873,437 | ) |
|
| (2,662,699 | ) |
|
| (303,563 | ) |
|
| (746,419 | ) |
Net cash used in financing activities |
|
| (1,993,009 | ) |
|
| (2,711,885 | ) |
|
| (293,266 | ) |
|
| (763,860 | ) |
Effect of exchange rate changes on cash |
|
| (31,886 | ) |
|
| (1,962 | ) |
|
| 3,159 |
|
|
| (1,962 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 1,253,034 |
|
|
| (457,153 | ) | ||||||||
Net increase in cash and cash equivalents |
|
| 615,393 |
|
|
| 507,362 |
| ||||||||
Cash and cash equivalents – beginning of period |
|
| 570,623 |
|
|
| 560,184 |
|
|
| 2,304,761 |
|
|
| 570,623 |
|
Cash and cash equivalents – end of period |
| $ | 1,823,657 |
|
| $ | 103,031 |
|
| $ | 2,920,154 |
|
| $ | 1,077,985 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 753,250 |
|
| $ | 800,830 |
|
| $ | 445,352 |
|
| $ | 185,718 |
|
Inventory transferred to leased assets |
| $ | 108,577 |
|
| $ | 39,896 |
| ||||||||
Inventory transferred to assets held for lease |
| $ | 24,132 |
|
| $ | 10,273 |
| ||||||||
Cash paid for income taxes |
| $ | 35,000 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,000 |
|
Supplemental non-cash financing activities information: |
|
|
|
|
|
|
|
| ||||||||
Effect of exchange rate on long-term debt payable in foreign currency |
| $ | 336,485 |
|
| $ | 119,414 |
| ||||||||
Issuance of warrants in conjunction with term loan |
| $ | 809,631 |
|
| $ | — |
| ||||||||
Points paid on term loan |
| $ | 262,500 |
|
| $ | — |
|
The accompanying notes are an integral part of the financial statements.
GALAXY GAMING, INC.
(Unaudited)
NOTE 1. DESCRIPTIONNATURE OF BUSINESSOPERATIONS AND RESTATEMENT
Unless the context indicates otherwise, references to “Galaxy Gaming, Inc.,” “we,” “us,” “our,” or the “Company,” refer to Galaxy Gaming, Inc., a publicly reporting Nevada corporation. “GGLLC” refers to corporation (“Galaxy Gaming, LLC, a Nevada limited liability company that was a predecessorGaming”).
Nature of the Company’s business, but is not directly associated with Galaxy Gaming, Inc.
operations.We are an established global gaming company specializing in the design, development, manufacturing, marketing and acquisition of proprietary casino table games and associated technology, platforms and systems for the casino gaming industry. We are a leading supplier of gaming entertainment products worldwide and provide a diverse offering of quality products and services at competitive prices designed to enhance the player experience.
Casinos useRestatement. The financial statements as of and for the three months ended March 31, 2016 have been restated to correct the following errors noted during the preparation of the financial statements for the year ended December 31, 2016: (i) the amortization of original issue discount related to notes payable to Prime Table Games LLC and Prime Table Games UK (the “PTG Notes”) was not previously deducted from taxable income in our proprietary productsfederal tax returns from 2011 through 2015 or to enhance their gaming floor operationsderive the income tax provision for the three months ended March 31, 2016, which resulted in an understatement of deferred tax assets and improve their profitability, productivityan overstatement of the income tax provision in those periods; and security,(ii) foreign currency exchange gains and losses related to the PTG Notes were incorrectly reported as wellother comprehensive income instead of earnings (i.e., non-operating income). The restatements to reflect the correction of both errors are referred to herein collectively as offer popular cutting-edge gaming entertainment content and technology to their players. We market our products to land-based, riverboat and cruise ship and internet gaming companies. the "Restatement."
The game conceptstable below sets forth the amounts as originally reported for the categories presented in the statement of income that were affected by the Restatement, the effect of the Restatement and the intellectual property associated with these games are typically protectedrestated amounts for the three months ended March 31, 2016:
|
| As originally reported |
|
| Impact of restatement |
|
| As restated |
| |||
Selling, general and administrative |
| $ | 1,652,304 |
|
| $ | (18,969 | ) |
| $ | 1,633,335 |
|
Provision for income taxes |
|
| (156,863 | ) |
|
| (83,062 | ) |
|
| (239,925 | ) |
Foreign currency exchange gains |
|
| — |
|
|
| 112,562 |
|
|
| 112,562 |
|
Net income |
|
| 379,367 |
|
|
| 48,468 |
|
|
| 427,835 |
|
The table below sets forth the amounts as originally reported for the categories presented in the statement of cash flow that were affected by patents, trademarks and/or copyrights. We market our products primarily via our internal sales force to casinos throughout North America, the Caribbean,Restatement, the British Isles, Europe,effect of the Restatement and Africa and to cruise ships and internet gaming sites worldwide.the restated amounts for the three months ended March 31, 2016:
|
| As originally reported |
|
| Impact of restatement |
|
| As restated |
| |||
Net income |
|
| 379,367 |
|
|
| 48,468 |
|
|
| 427,835 |
|
Deferred income tax provision |
|
| 156,863 |
|
|
| (156,863 | ) |
|
| — |
|
Decrease in accounts receivable |
|
| 76,900 |
|
|
| 1,339 |
|
|
| 78,239 |
|
Decrease in accounts payable |
|
| (111,065 | ) |
|
| (174 | ) |
|
| (111,239 | ) |
Increase in income taxes payable |
|
| 134,792 |
|
|
| 88,111 |
|
|
| 222,903 |
|
Increase in accrued expenses |
|
| 56,598 |
|
|
| (544 | ) |
|
| 56,054 |
|
Net cash provided by operating activities |
|
| 1,304,161 |
|
|
| (19,663 | ) |
|
| 1,284,498 |
|
Principal payments on notes payable |
|
| (766,082 | ) |
|
| 19,663 |
|
|
| (746,419 | ) |
Net cash used in financing activities |
|
| (783,523 | ) |
|
| 19,663 |
|
|
| (763,860 | ) |
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
This summary of our significant accounting policies is presented to assist in understanding our financial statements. The financial statements and notes are representations of our management team, who are responsible for their integrity and objectivity.
Basis of presentation. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”),SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”)GAAP have been condensed or omitted pursuant to those rules and regulations. 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.
In the opinion of management, the accompanying unaudited interim financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’sour financial position and the results of its operations and cash flows for the periods presented. These unaudited interim condensed financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’sour Form 10-K for the fiscal year ended December 31, 2015,2016, filed with the SEC on March 30, 2016.April 14, 2017 (the “2016 10-K”).
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 as a vast majority of our incomerevenue is recurring with high margins. Expenses such as wages, consulting expenses, legal, regulatory and professional fees and rent are recorded when the expense is incurred.
CashSignificant Accounting Policies. See Note 2 in Item 8. “Financial Statements and cash equivalents. We consider cash on hand, cash in banks, certificates of deposit, and other short-term securities with maturities of three months or less when purchased, as cash and cash equivalents. Our bank accounts are deposited in insured institutions. The funds are insured up to $250,000 per account. To date, we have not experienced uninsured losses.
Restricted cash. We are required by gaming regulation to maintain sufficient reserves in restricted accounts to be used for the purpose of funding payments to winners of our jackpots offered. Compliance with restricted cash requirements for jackpot funding is reported to gaming authorities in various jurisdictions.
Inventory. Inventory consists of ancillary products such as signs, layouts, and bases for the various games and electronic devices and components. Inventory value (Note 3) is determined by the average cost method and management maintains inventory levels based on historical and industry trends. We regularly assess inventory quantities for excess and obsolescence primarily based on forecasted product demand.
Products leased and held for lease. We develop products intended primarily to be leased by casinos, which are stated at cost, net of depreciation (Note 5). Depreciation on leased products is calculated using the straight-line method over a three-year period
Property and equipment. Property and equipment (Note 4) are being depreciated over their estimated useful lives of 3 to 5 years, using the straight-line method.
Goodwill. Goodwill was created as a result of an acquisition in October 2011 (discussed in more detail in Note 9). Goodwill is assessed for impairment at least annually and if found to be impaired, its carrying amount will be reduced and an impairment loss will be recognized.
Other intangible assets. Our finite-lived intangible assets (Note 6) are being amortized using the straight-line method over the following estimated economic lives:
|
| |
|
| |
|
| |
|
|
Intangible assets are analyzed for potential impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Impairment of long-lived assets. We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Leases. We recognize rent expense for operating leases (Note 10) on a straight-line basis (including the effect of reduced or free rent and rent escalations) over the applicable lease term. The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is recorded as deferred rent. The landlord of our corporate headquarters financed leasehold improvements in the amount of $150,000. These improvements have been recorded as a capital lease and amortized over the life of the lease.
Revenue recognition. Revenue is primarily derived from the licensing of our products and intellectual property. Consistent with our strategy, revenue is generated from negotiated month-to-month recurring licensing fees or the performance of our products, or both. We also, occasionally, receive a one-time sale of certain products and/or reimbursement of our manufactured equipment.
Substantially all of our revenue is recognized when it is earned. Depending upon the product and negotiated terms, our clients may be invoiced monthly in advance, monthly in arrears or quarterly in arrears for the licensing of our products. If billed in advance, the advance billings are recorded as deferred revenue until earned. If billed in arrears, we recognize the corresponding preceding period’s revenue upon invoicing at the subsequent date. Generally, we begin earning revenue with the installation or “go live” date of the associated productSupplementary Data” included in our clients’ establishment. The monthly recurring invoices are based on executed agreements with each client.
Additionally, clients may be invoiced for product sales at the time of shipment or delivery of the product. Revenue from the sale of our associated products is recognized when the following criteria are met:
|
|
|
|
|
|
|
|
We do not segregate the portion of revenue between manufactured equipment and any software or electronic devices needed to use the equipment when the system is provided, nor do we market the software separately from the equipment.
Costs of ancillary products and assembled components. Ancillary products include paytables (display of payouts), bases, layouts, signage and other items as they relate to support 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 the Bonus Jackpot System and SpectrumVision.
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. For non-US functional accounts, assets and liabilities are translated at exchange rates in effect at the balance sheet date, and income and expense accounts at the average exchange rates for the year. Resulting currency translation adjustments are recorded as a separate component of shareholders’ equity. We record foreign currency transactions at the exchange rate prevailing at the date of the transaction with resultant gains and losses being included in results of operations. Realized foreign currency transaction gains and losses have not been significant for any period presented.
Income taxes. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. We recognize the tax benefit from an uncertain tax position if we believe it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Judgment is required in determining the provision for incomes taxes and related accruals, deferred tax assets and liabilities. Additionally, our tax returns for tax years 2013 and thereafter remain open for examination by various tax authorities.
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 warrants, if applicable, during the year, using the treasury stock method.
Share-based compensation. We recognize compensation expense for all share-based awards made to employees, directors and independent contractors. The fair value of share based awards (Note 11) 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.
Share based compensation is recognized only for those awards that are ultimately expected to vest, and we have applied or estimated forfeiture rate to unvested awards for purposes of calculating compensation costs. These estimates will be revised in future periods if actual forfeitures differ from the estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.
Warrant accounting. We account for common stock warrants pursuant to the applicable guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, on the understanding that in compliance with applicable securities laws, registered warrants require the issuance of unregistered securities upon exercise. We classify warrants on the balance sheet as a long-term liability, which is revalued at each balance sheet date subsequent to the initial issuance. Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment, including estimating stock price volatility and expected warrant life. We develop our estimates based on historical data. A small change in the estimates used may have a relatively large change in the estimated valuation. We use the Black-Scholes pricing model to value the registered warrants. Changes in the fair market value of the warrants are reflected in the statement of operations as “Change in the fair value of warrant liability.” No warrants have been exercised as of September 30, 2016.2016 10-K.
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.
Reclassifications. Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statement presentations.
Recently adopted accounting standards
Inventory. In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at the lower of cost or net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling process in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier adoption permitted. ASU 2015-11 was adopted effective January 1, 2017 using the required prospective adoption approach, which did not have a material effect on our financial condition, results of operations or cash flows.
Stock-based compensation. In March 2016, the FASB issued No. ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. ASU 2016-09 was adopted effective January 1, 2017 using the prospective adoption approach, which did not have a material impact on our financial condition, results of operations or cash flows.
New accounting standards not yet adopted
Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which is a comprehensive new revenue recognition standard that will supersede virtually all existing revenue guidance, including industry-specific guidance. Under the new standard,
revenue will be recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the company expectswe expect to be entitled in exchange for those goods and services. The standard creates a five-step model that will generally require companies to use more judgment and make more estimates than under current guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer.
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year to now be effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. Early adoption of the standard is permitted but not before the original effective date of December 15, 2016. The ASU may be adopted using a full retrospective approach or reporting the cumulative effect as of the date of adoption. We are currently evaluating the impact of adopting this guidance.
Inventory. In July 2015,guidance; however, we expect to adopt using the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at the lower of cost and net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling process in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier adoption permitted. The prospective adoption of the ASU is required and we are currently evaluating the impact of adopting this guidance.
Deferred Taxes. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which eliminates the requirement to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, all deferred tax assets and liabilities will be required to be presented as non-current. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments in this guidance may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented with earlier application permitted for financial statements that have not been issued. This ASU is not expected to have a material impact on our financial statements.modified retrospective approach.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases being recognized on our Balance Sheets.balance sheets. The guidance requires lessees and lessors to recognize and
measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with earlier adoption permitted. We are currently evaluating the impact of adopting this guidance.
Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires amounts generally described as restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. Upon the adoption of ASU 2016-08, restricted cash will be included within beginning and ending cash and cash equivalents amounts on our consolidated statements of cash flows.
NOTE 3. INVENTORY
Inventory consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
|
| 2017 |
|
| 2016 |
| ||||
Raw materials and component parts |
| $ | 320,868 |
|
| $ | 231,709 |
|
| $ | 209,051 |
|
| $ | 171,478 |
|
Finished goods |
|
| 168,151 |
|
|
| 170,528 |
|
|
| 143,346 |
|
|
| 128,956 |
|
Work-in-process |
|
| 25,423 |
|
|
| 39,463 |
|
|
| 138,593 |
|
|
| 151,671 |
|
|
|
| 514,442 |
|
|
| 441,700 |
| ||||||||
Inventory, gross |
|
| 490,990 |
|
|
| 452,105 |
| ||||||||
Less: inventory reserve |
|
| (30,000 | ) |
|
| (30,000 | ) |
|
| (25,000 | ) |
|
| (25,000 | ) |
|
| $ | 484,442 |
|
| $ | 411,700 |
| ||||||||
Inventory, net |
| $ | 465,990 |
|
| $ | 427,105 |
|
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment, substantially all of which collateralizes long-term obligations (Notes 8 and 9),net consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
|
| 2017 |
|
| 2016 |
| ||||
Furniture and fixtures |
| $ | 238,273 |
|
| $ | 211,411 |
|
| $ | 269,470 |
|
| $ | 269,471 |
|
Automotive vehicles |
|
| 202,144 |
|
|
| 202,143 |
| ||||||||
Leasehold improvements |
|
| 156,843 |
|
|
| 156,843 |
|
|
| 156,843 |
|
|
| 156,843 |
|
Automotive vehicles |
|
| 94,087 |
|
|
| 94,087 |
| ||||||||
Computer equipment |
|
| 96,956 |
|
|
| 89,203 |
|
|
| 107,462 |
|
|
| 105,114 |
|
Office equipment |
|
| 37,871 |
|
|
| 29,140 |
|
|
| 49,520 |
|
|
| 37,871 |
|
|
|
| 624,030 |
|
|
| 580,684 |
| ||||||||
Property and equipment, gross |
|
| 785,439 |
|
|
| 771,442 |
| ||||||||
Less: accumulated depreciation |
|
| (379,134 | ) |
|
| (281,807 | ) |
|
| (457,839 | ) |
|
| (415,189 | ) |
|
| $ | 244,896 |
|
| $ | 298,877 |
| ||||||||
Property and equipment, net |
| $ | 327,600 |
|
| $ | 356,253 |
|
As of September 30,For the three months ended March 31, 2017 and 2016, depreciation expense related to property and equipment includes $243,970 of assets acquired under capital leases (Note 8). $42,650 and $32,180, respectively, is included in depreciation and amortization expense.
Accumulated depreciation of assets under capital leasesleasehold improvements totaled $148,500$89,896 and $82,183 as of September 30, 2016.March 31, 2017 and December 31, 2016, respectively.
NOTE 5. PRODUCTS LEASED AND HELD FOR LEASE
Products leased and held for lease consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
|
| 2017 |
|
| 2016 |
| ||||
Enhanced table systems |
| $ | 397,261 |
|
| $ | 288,683 |
|
| $ | 397,960 |
|
| $ | 424,364 |
|
Less: accumulated depreciation |
|
| (192,794 | ) |
|
| (154,198 | ) |
|
| (182,166 | ) |
|
| (212,233 | ) |
|
| $ | 204,467 |
|
| $ | 134,485 |
| ||||||||
Products leased and held for lease, net |
| $ | 215,794 |
|
| $ | 212,131 |
|
For the three months ended March 31, 2017 and 2016, depreciation expense related to products leased and held for lease of $20,469 and $11,483, respectively, is included in depreciation and amortization expense.
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and finite-lived intangible assets consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
|
| 2017 |
|
| 2016 |
| ||||
Goodwill |
| $ | 1,091,000 |
|
| $ | 1,091,000 |
| ||||||||
Patents |
| $ | 1,091,000 |
|
| $ | 1,091,000 |
| ||||||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
| 13,615,967 |
|
|
| 13,615,967 |
|
|
| 13,615,967 |
|
|
| 13,615,967 |
|
Customer relationships |
|
| 3,400,000 |
|
|
| 3,400,000 |
|
|
| 3,400,000 |
|
|
| 3,400,000 |
|
Trademarks |
|
| 2,740,000 |
|
|
| 2,740,000 |
|
|
| 2,740,000 |
|
|
| 2,740,000 |
|
Non-compete agreements |
|
| 660,000 |
|
|
| 660,000 |
|
|
| 660,000 |
|
|
| 660,000 |
|
Licensing agreements |
|
| 35,000 |
|
|
| 35,000 |
| ||||||||
|
|
| 20,450,967 |
|
|
| 20,450,967 |
| ||||||||
Software |
|
| 86,520 |
|
|
| — |
| ||||||||
Other intangible assets, gross |
|
| 20,502,487 |
|
|
| 20,415,967 |
| ||||||||
Less: accumulated amortization |
|
| (8,306,269 | ) |
|
| (7,189,331 | ) |
|
| (9,033,914 | ) |
|
| (8,660,948 | ) |
|
|
| 12,144,698 |
|
|
| 13,261,636 |
| ||||||||
|
| $ | 13,235,698 |
|
| $ | 14,352,636 |
| ||||||||
Other intangible assets, net |
|
| 11,468,573 |
|
|
| 11,755,019 |
| ||||||||
Goodwill and other intangible assets, net |
| $ | 12,559,573 |
|
| $ | 12,846,019 |
|
NOTE 7. ACCRUED EXPENSES
Accrued expenses, consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
| ||
Royalties |
| $ | 33,157 |
|
| $ | 259,193 |
|
TableMAX reimbursement |
|
| 392,358 |
|
|
| 136,785 |
|
Salaries and payroll taxes |
|
| 275,015 |
|
|
| 95,115 |
|
Trade show expenses |
|
| 85,275 |
|
|
| 78,549 |
|
Vacation |
|
| 85,834 |
|
|
| 62,546 |
|
Professional fees |
|
| 69,286 |
|
|
| 154,888 |
|
Commissions |
|
| 33,282 |
|
|
| 22,056 |
|
Accrued interest |
|
| 2,627 |
|
|
| 14,832 |
|
|
| $ | 976,834 |
|
| $ | 823,964 |
|
|
| 2017 |
|
| 2016 |
| ||
TableMAX license fee |
| $ | 549,312 |
|
| $ | 470,512 |
|
Payroll and related |
|
| 307,690 |
|
|
| 405,553 |
|
Professional fees |
|
| 185,015 |
|
|
| 59,567 |
|
Commissions and royalties |
|
| 108,171 |
|
|
| 54,551 |
|
Accrued interest |
|
| 2,622 |
|
|
| 2,602 |
|
Other |
|
| 56,247 |
|
|
| 116,643 |
|
Total accrued expenses |
| $ | 1,209,057 |
|
| $ | 1,109,428 |
|
TableMAX license fee.Under the terms of a five-year licensing agreement (the “ TMAX Agreement”) with TableMAX Corporation (“TMAX”) a provider of electronic table games and platforms headquartered in Las Vegas, Nevada, we previously had exclusive worldwide rights (excluding one international territory and two U.S. states) to the TMAX electronic gaming platform and certain related game titles. Pursuant to the terms of the TMAX Agreement, the licensee fee payable to TMAX is dependent upon our generating profitable operating results specifically from the use of TMAX products. To the extent there are net profits (as defined in the TMAX Agreement), a percentage of such net profits is payable to TMAX depending on the number of TMAX product installations. The TMAX Agreement expired during 2016, and we are currently negotiating the licensing fee (if any) that is payable to TMAX.
NOTE 8. CAPITAL LEASE OBLIGATIONS
Capital lease obligations consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
|
| 2017 |
|
| 2016 |
| ||||
Capital lease obligation – leasehold improvements |
| $ | 85,506 |
|
| $ | 107,365 |
|
| $ | 70,396 |
|
| $ | 78,008 |
|
Capital lease obligation – office furniture |
|
| — |
|
|
| 29,839 |
| ||||||||
|
|
| 85,506 |
|
|
| 137,204 |
| ||||||||
Less: Current portion |
|
| (30,608 | ) |
|
| (59,196 | ) |
|
| (31,452 | ) |
|
| (31,030 | ) |
|
| $ | 54,898 |
|
| $ | 78,008 |
| ||||||||
Total capital lease obligations - long-term |
| $ | 38,944 |
|
| $ | 46,978 |
|
Future annual payments for capital leases obligations are as follows for the years ending September 30:March 31:
|
| Total |
| |||||
2017 |
| $ | 34,545 |
| ||||
March 31, |
| Total |
| |||||
2018 |
|
| 34,545 |
|
| $ | 31,452 |
|
2019 |
|
| 23,030 |
|
|
| 33,226 |
|
2020 |
|
| — |
|
|
| 5,718 |
|
Total minimum lease payments |
| $ | 92,120 |
|
| $ | 70,396 |
|
Less: amount representing interest |
|
| (6,614 | ) | ||||
|
| $ | 85,506 |
|
NOTE 9. LONG-TERM DEBT
Long-term debt consisted of the following at:at March 31, 2017 and December 31, 2016:
|
| September 30, 2016 |
|
| December 31, 2015 |
|
| 2017 |
|
| 2016 |
| ||||
Term loan |
| $ | 10,500,000 |
|
| $ | — |
|
| $ | 10,237,500 |
|
| $ | 10,500,000 |
|
Note payable, unrelated party |
|
| — |
|
|
| 11,577,858 |
| ||||||||
Notes payable, related party |
|
| 527,102 |
|
|
| 1,079,083 |
|
|
| 490,838 |
|
|
| 509,135 |
|
Equipment notes payable |
|
| 58,402 |
|
|
| 70,664 |
|
|
| 152,955 |
|
|
| 162,274 |
|
|
|
| 11,085,504 |
|
|
| 12,727,605 |
| ||||||||
Insurance notes payable |
|
| 22,616 |
|
|
| 36,063 |
| ||||||||
Notes payable -gross |
|
| 10,903,909 |
|
|
| 11,207,472 |
| ||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt issuance costs |
|
| (369,236 | ) |
|
| — |
|
|
| (578,660 | ) |
|
| (595,462 | ) |
Warrants issued |
|
| (809,632 | ) |
|
| — |
|
|
| (703,768 | ) |
|
| (743,604 | ) |
Debt discount |
|
| — |
|
|
| (643,314 | ) | ||||||||
|
|
| 9,906,636 |
|
|
| 12,084,291 |
| ||||||||
Notes payable - net |
|
| 9,621,481 |
|
|
| 9,868,406 |
| ||||||||
Less: Current portion |
|
| (878,401 | ) |
|
| (4,648,120 | ) |
|
| (1,187,570 | ) |
|
| (1,199,255 | ) |
|
| $ | 9,028,235 |
|
| $ | 7,436,171 |
| ||||||||
Long-term debt, net |
| $ | 8,433,911 |
|
| $ | 8,669,151 |
|
Term loan credit facility.loan. In August 2016, we entered into a term loan agreement (the “Term Loan Agreement”) for an aggregate principal amount of $10,500,000 (the "Term Loan"). Proceeds of the Term Loan were primarily used to prepay in full the outstanding notes payable to unrelated parties. The remainder of the proceeds from the Term Loan will bewas used for general corporate purposes and working capital needs. The Term Loan is secured by a senior lien on the Company'ssubstantially all of our assets. In conjunction with the Term Loan, we also entered into a warrant agreement (the “Warrant Agreement”), pursuant to which we issued the lenders a six-year warrant to purchase 1,965,780 shares of the Company’sour common stock (the “Warrants”) (Note 13).
Under the Term Loan, the Company iswe are subject to quarterly financial covenants that, among other things, limit our annual capital expenditures (as defined in the Term Loan agreement)Agreement), and require us to maintain a specified leverage ratio and minimum EBITDA amounts, each of which are defined in the Term Loan agreement. We are not aware of any noncompliancewere in compliance with the financial covenants of the Term Loan Agreement.Agreement as of March 31, 2017.
During the initial twelve-month period of the Term Loan, the outstanding principal will accrue interest at the rate of 14.0% per annum. Thereafter, the outstanding principal will accrue interest at the lesser of 14.0% per annum or 12.5% per annum for any quarterly period in which the Company achieveswe achieve a specified leverage ratio.
The Term Loan requiresrequired quarterly interest-only payments through December 31, 2016, after which the Company iswe are required to make quarterly principal payments of $262,500 plus accrued interest. The remaining principal and any unpaid interest will be payable in full on August 29, 2021. Voluntary prepayments of the Term Loan, in full or in part, are permitted after the first anniversary of the Term Loan, subject to certain premiums. The Term Loan also requires certain mandatory prepayments in the amount of 100% of the proceeds from certain asset dispositions (other than in the ordinary course of business) and certain other extraordinary events, and 25% of the proceeds from the sale and issuance of capital stock. Substantially all of our assets are pledged as collateral for the Term Loan.
Note payable, unrelated party. In connection with an asset acquisition in October 2011, we executed a promissory note payable for $12.2 million, and another promissory note payable for £6.4 million GBP ($10.0 million USD). The notes were recorded netforegoing summary of a debt discount of $1,530,000. The effective interest rate of the notes was 6% and 7% during 2015 and 2016, respectively. These notes were repaid in full in connection with the Term Loan agreement executedAgreement and the Warrant Agreement is qualified in August 2016. Concurrentlyits entirety by reference to the respective agreements, which are found as Exhibits 99.1 and 99.2, respectively, to our Form 8-K filed with the repayment of the note obligation payable in GBP, $239,598 of previously unrecognized gainsSEC on foreign exchange translations related to the GBP note payable were reclassified out of accumulated other comprehensive income and factored into the calculation of loss on debt extinguishment.August 29, 2016.
Notes payable, related party. In connection with an asset purchase agreement executed in December 2007, we executed a note payable due to an entity owned and controlled by our Chief Executive Officer (“CEO”). This note requires annual principal and interest payments of $109,908, at a fixed interest rate of 7.3% through December 2018, at which time there is a balloon payment due of $354,480.
In October 2015, our CEO loaned the Company $500,000 for working capital purposes, in exchange for a promissory note. In April 2016, pursuant to the terms of the agreement, we paid the CEO $535,000 in full satisfaction of the balance due, relieving us of any further payments or obligations under this arrangement.
As of September 30, 2016,March 31, 2017, maturities of our long-term debt obligations are as follows:
Twelve months ending September 30, |
| Total |
| |||||
2017 |
| $ | 878,401 |
| ||||
Maturities as of March 31, |
| Total |
| |||||
2018 |
|
| 1,147,294 |
|
| $ | 1,187,570 |
|
2019 |
|
| 1,442,486 |
|
|
| 1,503,811 |
|
2020 |
|
| 1,054,823 |
|
|
| 1,086,007 |
|
2021 |
|
| 6,562,500 |
|
|
| 1,072,138 |
|
2022 |
|
| 6,054,383 |
| ||||
Total notes payable |
|
| 11,085,504 |
|
|
| 10,903,909 |
|
Less: |
|
|
|
|
|
|
|
|
Unamortized debt issuance costs |
|
| (369,236 | ) |
|
| (578,660 | ) |
Warrants issued |
|
| (809,632 | ) |
|
| (703,768 | ) |
Notes payable, net |
| $ | 9,906,636 |
|
| $ | 9,621,481 |
|
NOTE 10. COMMITMENTS AND CONTINGENCIES
Concentration of risk. We are exposed to risks associated with clients who represent a significant portion of total revenues. For the ninethree months ended September 30,March 31, 2017 and 2016, and 2015, respectively, we had the following client revenue concentrations:concentration:
|
| Location |
| 2016 Revenue |
|
| 2015 Revenue |
| ||
Client A |
| North America |
|
| 13.6% |
|
|
| 14.8% |
|
Client B |
| North America |
|
| 6.9% |
|
|
| 5.5% |
|
Client C |
| North America |
|
| 6.2% |
|
|
| 6.8% |
|
Client D |
| North America |
|
| 5.7% |
|
|
| 3.5% |
|
Client E |
| United Kingdom |
|
| 5.3% |
|
|
| 6.7% |
|
|
| Location |
| 2017 Revenue |
|
| 2016 Revenue |
| ||
Client A |
| North America |
|
| 14.6% |
|
|
| 14.2% |
|
We are also exposed to risks associated with the expiration of our patents. DomesticIn 2015, domestic and international patents for two of our products expired, in June 2015. The patentswhich accounted for approximately $4,299,637$1,421,231 or 47%41% of our revenue for the ninethree months ended September 30, 2016March 31, 2017. However, we assumed an agreement between the previous owner of these patents and $4,283,055 or 53%a competitor of revenue forours that prohibits any similar product offerings based on these expired patents until March 2023. As a result, we do not expect the nine months ended September 30, 2015.expiration of these patents to have a significant adverse impact on our financial statements.
Operating lease. In February 2014, we entered into a lease (the “Spencer Lease”) for a new corporate office with an unrelated third party. The 5-yearfive-year Spencer Lease is for a building approximately 24,000 square feet, in size,which is comprised of approximately 16,000 square feet of office space and 8,000 square feet of warehouse space. The property is located in Las Vegas, Nevada.
The initial term of the Spencer Lease commenced on April 1, 2014. We paidwere obligated to pay approximately $153,000 in annual base rent in the first year, which increasesand the annual base rent is scheduled to increase by approximately 4% each year. We are also obligated to pay real estate taxes and other building operating costs. Subject to certain conditions, we have certain rights under the Spencer Lease, including rights of first offer to purchase the premises if the landlord elects to sell. We also have an option to extend the term of the Spencer Lease for two consecutive terms of three years each, at the then current fair market value rental rate determined in accordance with the terms of the Spencer Lease.
In connection with the commencement of the Spencer Lease, the landlord agreed to finance tenant improvements (“TI Allowance”) of $150,000. The base rent is increased by an amount sufficient to fully amortize the TI Allowance through the initial Spencer Lease term upon equal monthly payments of principal and interest, with interest imputed on the outstanding principal balance at the rate of 5.5% per annum. The TI Allowance has been classified as a capital lease on the balance sheet.
Total rent expense was $165,856$70,570 and $171,840$72,154 for the ninethree months ended September 30,March 31, 2017 and 2016, and 2015, respectively.
FutureThere are currently no operating lease commitments that extend beyond April 1, 2020. As of March 31, 2017, the amounts shown in the accompanying table reflect our estimates of annual future minimum lease payments are as follows:obligations:
Twelve Months Ending September 30, |
| Annual Obligation |
| |||||
2017 |
| $ | 229,236 |
| ||||
Twelve Months Ending March 31, |
| Annual Obligation |
| |||||
2018 |
|
| 237,972 |
|
| $ | 228,000 |
|
2019 |
|
| 184,794 |
|
|
| 236,736 |
|
2020 |
|
| 1,401 |
|
|
| 59,730 |
|
2021 |
|
| — |
| ||||
|
| $ | 653,403 |
| ||||
Total obligations |
| $ | 524,466 |
|
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. In accordance with U.S. GAAP,ASC Topic 450, 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 applicable law, statutestatue or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12 in Item 8. “Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the year ended December 31, 2015. Except as discussed in the following paragraph, there are no material updates to matters previously reported on Form 10-K for the year ended December 31, 2015.2016 10-K.
On July 11, 2016, we entered into a settlement agreement (the "Settlement Agreement") with Red Card Gaming, Inc. ("RCG"), and AGS, LLC ("AGS") for purposes of resolving all disputes between the parties. Pursuant to the Settlement Agreement, among other things, RCG, AGS and the Company agreed to a mutual release of all claims and counter-claims. RCG and AGS also agreed to terminate all of their rights and obligations related to the APA, and AGS agreed to pay us the sum of $350,000 and agreed to the injunctive terms of the Final Award. Furthermore, we agreed to dismiss the complaint they filed in November 2014 against In Bet Gaming, Inc. and In Bet, LLC (collectively "In Bet"), alleging that In Bet's In-Between side bet game infringed on one of our patents. AGS became involved in an Inter-Parties Review subsequent to November 2014, concerning the patent at issue because AGS had title and interest in the game In-Between. As a result of the Settlement Agreement, we recognized settlement income of $697,214, calculated as follows:
Settlement Income |
| Amount |
| |
Release of accrued royalties owed to AGS |
| $ | 347,214 |
|
Payment from AGS |
|
| 350,000 |
|
|
| $ | 697,214 |
|
NOTE 11. STOCKHOLDERS’ EQUITY
In April 2015, one of our Directors, was granted 75,000 shares of our restricted common stock as condition of his Board of Directors Director Service Agreement. The fair market value of the grant was $22,500, which was determined using our closing stock price as April 1, 2015, the date of the grant. The restricted stock grant vested immediately.
In November 2015, our CFO, was granted 150,000 shares of our restricted common stock as condition of his Employment Agreement. The fair market value of the grant was $30,000, which was determined using our closing stock price at November 14, 2015, the date of the grant. Beginning June 30, 2016, the restricted stock will vest at six-month intervals through December 31, 2018.
AsFebruary 2017, a condition of his 2015 employment agreement, our CFO can elect to use up to 50% of his annual bonus to purchase shares of the Company’s common stock at a 50% discount. The purchase price is determined by using the average closing price of the prior 10 business days discounted by 50%. On February 28, 2016, our CFO made the election to utilize $9,000 of his annual 2015 bonus to purchaseformer employee forfeited 100,000 shares of commonunvested restricted stock atand paid us $35,000 in connection with the market priceexercise of $0.18 (effective price of $0.09 after discount). The shares vested immediately.150,000 fully-vested stock options.
NOTE 12. INCOME TAXES
Our forecasted annual effective tax rate at September 30,March 31, 2017 was 35.0%, as compared to 35.4% at March 31, 2016. For the three months ended March 31, 2017 and 2016, is 40.8%, a 6.8% decrease from the 47.6%our effective tax rate recorded at September 30, 2015. After a discrete benefit of $65,078,was 31.4% and 35.5%, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2016 was 38.2%. The discrete tax benefit wasis primarily due to changesexcess stock compensation benefits in positions takenincome tax expense for uncertain tax positions.the three months ended March 31, 2017 resulting from the adoption of ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting.
NOTE 13. STOCK WARRANTS, OPTIONS AND GRANTS
Stock options. For each of the ninethree months ended September 30,March 31, 2017 and 2016, and 2015, we issued 427,500 and 412,500112,500 stock options respectively. Stock options issued to members of our Board of Directors were 225,000 and 200,000 for the nine months ended September 30, 2016 and 2015, respectively. Stock options issued to independent contractors were 112,500 for each of the nine month periods ended September 30, 2016 and 2015, respectively.contractors.
During the nine months ended September 30, 2016, we issued 90,000 stock options to two employees, with a vesting period of three years. The strike price was equal to the stock price at the date of the grant. During the nine months ended September 30, 2015, we issued 100,000 stock options to an employee, with a vesting period of three years. The strike price was equal to the stock price at the date of the grant.
Thefair value of all stock options granted for the ninethree months ended September 30,March 31, 2017 and 2016 and 2015 was determined to be $85,606$47,635 and $52,600,$16,348, respectively, using the Black-Scholes option pricing model with the following assumptions:
|
| Options Issued Nine Months Ended September 30, 2016 |
|
| Options Issued Nine Months Ended September 30, 2015 |
|
| Three months ended March 31, 2017 |
|
| Three months ended March 31, 2016 |
| ||||
Dividend yield |
|
| 0% |
|
|
| 0% |
|
|
| 0% |
|
|
| 0% |
|
Expected volatility |
| 89% - 90% |
|
| 84% - 85% |
|
|
| 85% |
|
|
| 89% |
| ||
Risk free interest rate |
| 1.01% - 1.22% |
|
| 1.37% - 1.63% |
|
|
| 1.93% |
|
|
| 1.21% |
| ||
Expected life (years) |
|
| 5.00 |
|
|
| 5.00 |
|
|
| 5.00 |
|
|
| 5.00 |
|
A summary of stock option activity is as follows:
|
| Common stock options |
|
| Weighted-average exercise price |
|
| Common stock options |
|
| Weighted-average exercise price |
|
| Aggregate intrinsic value |
|
| Weighted-average remaining contractual term (years) |
| |||||||
Outstanding – January 1, 2015 |
|
| 381,250 |
|
| $ | 0.36 |
| |||||||||||||||||
Outstanding – December 31, 2016 |
|
| 1,496,250 |
|
| $ | 0.32 |
|
| $ | 385,017 |
|
|
| 3.57 |
| |||||||||
Issued |
|
| 675,000 |
|
|
| 0.23 |
|
|
| 112,500 |
|
|
| 0.63 |
|
|
| — |
|
|
| — |
| |
Exercised |
|
| — |
|
|
| — |
|
|
| (150,000 | ) |
|
| 0.23 |
|
|
| — |
|
|
| — |
| |
Expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Outstanding – December 31, 2015 |
|
| 1,056,250 |
|
| $ | 0.28 |
| |||||||||||||||||
Issued |
|
| 427,500 |
|
|
| 0.33 |
| |||||||||||||||||
Exercised |
|
| — |
|
|
| — |
| |||||||||||||||||
Expired |
|
| — |
|
|
| — |
| |||||||||||||||||
Outstanding – September 30, 2016 |
|
| 1,483,750 |
|
| $ | 0.29 |
| |||||||||||||||||
Exercisable – September 30, 2016 |
|
| 1,143,750 |
|
| $ | 0.30 |
| |||||||||||||||||
Outstanding – March 31, 2017 |
|
| 1,458,750 |
|
| $ | 0.36 |
|
| $ | 400,329 |
|
|
| 3.65 |
| |||||||||
Exercisable – March 31, 2017 |
|
| 1,338,193 |
|
| $ | 0.36 |
|
| $ | 365,368 |
|
|
| 3.64 |
|
Share based compensation. The costA summary of allunvested stock options issued has been classifiedoption activity is as share based compensation for the nine months ended September 30, 2016 and 2015, respectively. Total share based compensation was $91,006 and $72,850 for the nine months ended September 30, 2016 and 2015, respectively.follows:
|
| Common stock options |
|
| Weighted-average exercise price |
|
| Aggregate intrinsic value |
|
| Weighted-average remaining contractual term (years) |
| ||||
Unvested – December 31, 2016 |
|
| 128,889 |
|
| $ | 0.34 |
|
| $ | 30,933 |
|
|
| 3.99 |
|
Granted |
|
| 112,500 |
|
|
| 0.63 |
|
|
| — |
|
|
| — |
|
Vested |
|
| (120,832 | ) |
|
| 0.61 |
|
|
| — |
|
|
| — |
|
Forfeited or expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unvested – March 31, 2017 |
|
| 120,557 |
|
|
| 0.34 |
|
| $ | 28,934 |
|
|
| 3.81 |
|
Warrants. On August 29, 2016, in connection with the Term Loan agreement, the Company entered into a Warrant Agreement, (the "Warrant Agreement") withwe issued the lenders pursuant to which the Company issued warrantsWarrants to purchase 1,965,780 shares of common stock at an initial exercise price of $0.30 per share (the "Warrants").share. The number of shares of common stock issuable upon exercise of the Warrants, and/or the exercise price of such shares, is subject to standard anti-dilution adjustments in the event of stock splits, reorganizations, stock dividends, and similar events. As of the date of the Warrant Agreement, the shares of common stock issuable upon a full exercise of the Warrants would represent 5.0% of the total issued and outstanding shares of the Company'sour common stock. The lenders were also granted the right, but not the obligation, to purchase up to 5.0% of the total number of new securities that the Companywe may, from time to time, sell and issue.
The Warrants expire on August 29, 2022, and may not be exercised prior to the earliest of (a) the fifth anniversary of the Term Loan Agreement, (b) the date on which the obligations described in the Term Loan Agreement are repaid in full, or (c) the date on which the Lender declares all or any portion of the outstanding amount of the Term Loan to be due and payable under the terms of the Term Loan Agreement (collectively, the "Trigger Date"). Exercise of the Warrants requires a sixty (60) day prior written notice, during which time the Companywe may exercise itsour Call Right described below.
The Warrant Agreement includes a call right (the "Call Right") whereby the Companywe can purchase the Warrants for a fixed sum of $1,333,333 upon providing the Warrant holders with a thirty (30) day prior written notice. Furthermore, the Warrant Agreement also includes a put right (the "Put Right") whereby the Lenders may require the Companyus to purchase from the Lenders all or any portion of the Warrants at a purchase price equal to the lesser of (a) the fair market value of the underlying shares of common stock as of the date of exercise of the Put Right, or (b) $1,333,333. The Put Right may not be exercised prior to the Trigger Date (as defined above), and the Put Right expires on August 29, 2022. The foregoing summary of the Term Loan Agreement and the Warrant Agreement is qualified in its entirety by reference to the respective agreements, which are found as Exhibits 99.1 and 99.2, respectively, to our Form 8-K filed with the SEC on August 29, 2016.
A summaryNOTE 14. 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 as the market approach (comparable market prices), the income approach (present value of warrant activity isfuture 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 follows:quoted prices (unadjusted) in active markets for identical assets or liabilities.
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| Common stock warrants |
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| Weighted-average exercise price |
| ||
Outstanding – December 31, 2015 |
|
| — |
|
|
| — |
|
Issued |
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| 1,965,780 |
|
|
| 0.30 |
|
Exercised |
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| — |
|
|
| — |
|
Expired |
|
| — |
|
|
| — |
|
Outstanding – September 30, 2016 |
|
| 1,965,780 |
|
| $ | 0.30 |
|
Exercisable – September 30, 2016 |
|
| — |
|
| $ | — |
|
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, restricted cash, accounts receivable and accounts payable approximates the carrying amount of these financial instruments due to their short-term nature. The estimated fair value of our long-term debt and capital lease obligations approximates their carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk. As of March 31, 2017,the Warrants werethe only financial instrument measured at estimated fair value on a recurring basis.
NOTE 14.15. SUBSEQUENT EVENTSEVENT
On May 1, 2017, we entered into an employment agreement (the “Employment Agreement”) with Harry C. Hagerty, pursuant to which Mr. Hagerty will serve as our Chief Financial Officer. The term of the Employment Agreement is through April 30, 2020. Pursuant to the Employment Agreement, Mr. Hagerty shall receive a base salary of $120,000 per annum and be eligible for bonuses if and as approved by the Compensation Committee of our Board of Directors. In accordance with ASC 855-10, we have evaluated all eventsaddition, Mr. Hagerty will be granted stock options to purchase 400,000 shares of our Common Stock at an exercise price per share of $0.60, subject to vesting and transactions that occurred subsequent to September 30, 2016 through the date these financial statements were issued, and we did not identify any additional material subsequent events, the effects of which would require additional disclosure or adjustment to these financial statements.other conditions.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that do not relate to historical or current facts, but are “forward looking” statements. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to future events or trends, our future prospects and proposed new products, services, developments, or business strategies, among other things. These statements can generally (although not always) be identified by their use of terms and phrases such as anticipate, appear, believe, could, would, estimate, expect, indicate, intent, may, plan, predict, project, pursue, will, continue and other similar terms and phrases, as well as the use of the future tense.
Actual results could differ materially from those expressed or implied in our forward looking statements. Our future financial condition and results of operations, as well as any forward looking statements, are subject to change and to inherent known and unknown risks and uncertainties. You should not assume at any point in the future that the forward looking statements in this report are still valid. We do not intend, and undertake no obligation, to update our forward looking statements to reflect future events or circumstances.
OVERVIEW
We develop, acquire, manufacture and market technology and entertainment-based products and services for the gaming industry for placement on the casino floor. 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, or electronically enhanced table game platforms.platforms, fully-automated electronic tables and other ancillary equipment. Our products and services are offered in highly regulated markets throughout the world. Our products and services are assembled or manufactured at our headquarters and manufacturing facility in Las Vegas, Nevada, and areas well as outsourced for certain sub-assemblies in the United States.
Additional information regarding our products and product categories may be found in Note 1 “DescriptionItem 7. Management’s Discussion and Analysis of Business” in Item 1 “Financial Statements”Financial Condition and Results of Operations included in this Form 10-Qour 2016 10-K and on our web site, www.galaxygaming.com. Information found on the web site should not be considered part of this report.
Strategy. Our long-term business strategy is designed
As discussed in Note 1 to capitalize onour financial statements included in Item 1 of this report, financial statements for the opportunities we perceive within the gaming industry. We are an experienced developer and provider of proprietary table games and advanced electronic table game platforms. Throughout our history, wethree months ended March 31, 2016 have been focused on creating and expanding our base of recurring revenues that we earn on a monthly basis. Our plan isrestated to continue to increasecorrect certain errors noted during the recurring revenues we receive by employing the following strategies:
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Expand our inventory of products and technologies to attain a fully comprehensive portfolio. Historically, only one company in the table game industry, Scientific Games dba Bally Technologies dba Shuffle Master Gaming has had the ability to offer casinos nearly allpreparation of the table game products they require. Their unique abilityfinancial statements for the year ended December 31, 2016. The restatements to offer numerous products both in termsreflect the correction of game content and what they term as “utility” products (e.g. card shufflers, smart dealing shoes, baccarat displays, etc.), has stifled competition from other companies, including us, whothese errors are disadvantaged without a complete product line offering. Our strategy isreferred to be an alternative for casino operators by offering a complete and comprehensive portfolio of games, products, systems, technologies and methodologies for casino table games. If we achieve this objective, we intend to offer complete turn-key systems rather than compete solely as a purveyor of individual products only. We intend to continuously develop and/or seek to acquire new proprietary table games to complement our existing offerings and to extend our penetration of proprietary table games on the casino floor. We expect to accomplish this strategic shift through internal development of products as well as continued acquisitions from others.
We anticipate the continued acquisition and/or development of additional new proprietary table games and associated intellectual property, which when combined with our existing portfolio, will give us the complete inventory of proprietary games to offer casinos a complete solution, thereby increasing our competitiveness in the marketplace.
Increase our per unit price point by leveraging our Enhanced Table Systems. Our Enhanced Table Systems permit us the opportunity to significantly increase the amount of recurring revenue we receive from each table game placement. Accordingly, our goal is to concentrate on installing new game placement using one or more of our Enhanced Table Systems and to convert our existing Proprietary Table Game placements that currently do not incorporate our Enhanced Table Systems. We have modified most of our Premium Table Games and many of our Side Bets to benefit from the economics this new system affords us. In the future, we intend to be able to offer this platform for all games.
Sources of revenue. We derive recurring revenues from the licensing of our products and intellectual property. Consistent with our strategy, these revenues are generated from negotiated recurring licensing fee agreements, which typically are month-to-month in nature. We also receive revenues in the form of one-time sales of certain products and/or reimbursement of our manufactured equipment.
Financing. Additional funding may be necessary to facilitate our current aggressive growth plans and acquisition strategy, as wellherein collectively as the investments in"Restatement." For further information regarding the Restatement, see 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.
Expected changes in number of employees, plant and equipment. As we continue to grow, we anticipateCurrent Report on Form 8-K filed with the purchasing of inventory and equipment and possibly the leasing of additional space to accommodate research, development, manufacturing and assembly operations. We will also evaluate the necessary increases to our employee base over the course of the year.SEC on April 3, 2017.
Results of operations for the three months ended September 30, 2016.March 31, 2017. For the three months ended September 30, 2016,March 31, 2017, our continuing operations generated gross revenues of $3,191,969$3,475,296 compared to gross revenues of $2,754,848$2,984,099 for the previous year’s comparable quarter,prior-year period, representing an increase of $437,121,$491,197, or 15.9%16%. This increase was primarily attributable to an increase in our overall billable unit count and our continued focus on premium games,Premium Games such as High Card Flush, which command a higher price point thanper unit, and the improved performance of side bets.bet games such as 21+3 and Bonus Craps. Selling, general and administrative expenses for the quarterthree months ended September 30, 2016,March 31, 2017, were $1,576,480$2,086,169 compared to $1,736,024$1,633,335 for the previous year’s third quarter,three months ended March 31, 2016, representing a decreasean increase of $159,544,$452,834, or 9.2%28%. The significantSignificant year-over-year changes in selling, general and administrative expenses were comprisedconsisted of the following categories:
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| Three months ended September 30, |
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| Three months ended March 31, |
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| 2016 |
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| 2015 |
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| 2017 |
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| 2016 |
| ||||
Compensation |
| $ | 577,828 |
|
| $ | 428,342 |
|
| $ | 680,970 |
|
| $ | 415,729 |
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Legal and professional fees |
| $ | 152,821 |
|
| $ | 519,095 |
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Legal fees |
| $ | 39,143 |
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| $ | 196,302 |
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Employee compensation expenses increased as we are makinga result of our investments in personnel as the company growswe grow as well as increasedhigher sales commissions from greater sales throughout 2016.due to higher revenues in 2017. Legal and professional fees have decreased as ongoingdue to the completion of legal proceedings have subsided.in 2016.
Research and development expenses for the three months ended September 30, 2016March 31, 2017 were $89,513$138,047, compared to $101,822$79,342 for the previous year’s comparable period, representing a decrease of $12,309, or 12.1%. This decrease is primarily due to less costs surrounding the development of SpectrumVision.
Results of operations for the nine months ended September 30, 2016. For the nine months ended September 30, 2016, our continuing operations generated gross revenues of $9,240,240 compared to gross revenues of $8,021,542 for the previous year’s comparableprior-year period, representing an increase of $1,218,698$58,705, or 15.2%74%. This increase is primarily due to increased costs associated with testing our products.
Income from operations decreased $69,061, or 8%, to $744,276 for the three months ended March 31, 2017, compared to $813,337 for the comparable prior-year period. This decrease was primarily attributable to an increase in our overall billable unit count and our continued focus on premium games, which command a higher price point than side bets. Selling, general and administrative expenses for the nine months ended September 30, 2016, were $4,850,785 compared to $4,995,984 for the previous year’s period, representing a decrease of $145,199, or 2.9%. The year-over-year changes in selling, general and administrative was comprised of the following categories:expenses.
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| Nine months ended September 30, |
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| 2016 |
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| 2015 |
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Compensation |
| $ | 1,632,953 |
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| $ | 1,304,295 |
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Legal and professional fees |
| $ | 1,024,710 |
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| $ | 1,433,173 |
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Employee compensation expensesTotal interest expense increased as we are making investments in personnel as the company grows as well as increased commissions from greater sales throughout 2016. Legal and professional fees have decreased as ongoing legal proceedings have subsided.
Research and development expenses$187,137, or 72%, to $445,332 for the ninethree months ended September 30, 2016 were $270,734March 31, 2017, compared to $371,251, representing a decrease of $100,517, or 27.1%. This decrease$258,195 for the comparable prior-year period. The increase in interest expense is primarily due to less costs surrounding the developmentTerm Loan refinance transaction completed in August 2016.
The change in estimated fair value of SpectrumVision.warrants issued in connection with the Term Loan was $66,500 for the three months ended March 31, 2017, compared to zero for the comparable prior-year period. The estimated fair value is determined using the Black-Scholes pricing model.
Income tax provision decreased $161,951 or 68%, to $77,974 for the three months ended March 31, 2017, compared to $239,925 for the comparable prior-year period. This is attributable to the decrease in income before provision for income taxes.
Adjusted EBITDA. Adjusted EBITDA includes adjustment to net income to exclude interest, taxes, depreciation, amortization, share based compensation, loss on extinguishment of debt, foreign currency exchange gains, change in estimated fair value of warrant liability, and settlement income. Adjusted EBITDA is not a measure of performance defined in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). However, Adjusted EBITDA is used by management to evaluate our operating performance. Management believes that disclosure of the Adjusted EBITDA metric offers investors, regulators and other stakeholders a view of our operations in the same manner management evaluates our performance. When combined with U.S. GAAP results, management believes Adjusted EBITDA provides a comprehensive understanding of our financial results. Adjusted EBITDA should not be considered as an alternative to net income or 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:
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| Three months ended March 31, |
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Adjusted EBITDA Reconciliation: |
| 2017 |
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| 2016 |
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| (restated) |
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Net income |
| $ | 162,267 |
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| $ | 427,835 |
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Interest income |
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| — |
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| (56 | ) |
Interest expense |
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| 445,332 |
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| 258,195 |
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Income tax provision |
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| 77,974 |
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| 239,925 |
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Depreciation and amortization |
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| 436,085 |
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| 415,974 |
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Share based compensation expense |
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| 49,837 |
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| 20,471 |
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Foreign currency exchange gains |
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| (7,797 | ) |
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| (112,562 | ) |
Change in estimated fair value of warrant liability |
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| 66,500 |
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| — |
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Adjusted EBITDA |
| $ | 1,230,198 |
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| $ | 1,249,782 |
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Liquidity and capital resources.resources. As of September 30, 2016March 31, 2017 we had total current assets of $4,433,197$5,659,281 and total assets of $18,418,176.$19,152,305. This compares to $3,060,695$5,148,435 and $17,971,048,$19,011,945, respectively as of December 31, 2015.2016. The increase in current assets as of September 30, 2016March 31, 2017 was primarily impacted by an increase in cash and cash equivalents, as well as an increasepartially offset by a decrease in inventories.accounts receivable. Cash increased significantly due to reduced principal payments on the effects ofTerm Loan as compared to the August 2016 refinancing transaction.PTG Notes. Our total current liabilities as of September 30, 2016March 31, 2017 were $4,606,229$4,783,542 versus $7,954,017$4,708,685 as of December 31, 2015.2016. This decreaseincrease was primarily driven by the decreaseincrease in current portions of long-term debt, an effect ofaccrued expenses (including costs related to the August 2016 refinancing transaction.Restatement) and increase in income tax payable. Our business model continues to be highly profitable and we have several options to ensure we are able to meet our short-term and long-term obligations.
We have undertaken certain growth initiatives to expand our recurring revenue base. As such we have made investments in personnel inventory and research related to the development of our enhanced table systems. Additionally, we increased our sales and marketing budget and spent monies on regulatory efforts for the purpose of expanding our distribution network. We are also subject to several regulatory investigations and proceedings 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.
At September 30, 2016, other than the commitment from the major shareholder of TMAX to provide a line of credit specific to acquiring inventory for the TMAX system,March 31, 2017, we do not have any available third-party lines or letters of credit. Furthermore, we do not havecredit or any written or oral commitments from officers or shareholders to provide us with loans or advances to support our operations or fund potential acquisitions.
Our operating activities provided $946,967 in cash for the three months ended March 31, 2017, compared to $1,284,498 for the three months ended March 31, 2016. The primary components of ourdecrease in operating cash flow was primarily due to the decreases in net income, income taxes payable and deferred revenue, partially offset by increases in accrued expenses.
Additionally, investing activities used cash of $41,467 for the ninethree months ended September 30, 2016, were non-cash items of $2,555,860, net income of $1,577,867, increases in accounts receivable of $107,969, inventory of $181,319 and accrued expenses of $141,841 and decreases in restrictedMarch 31, 2017. The cash of $10,009 and accounts payables of $858,954 for a total operating activities impact of an increase of $3,321,274 in cash and cash equivalents.
Cash flows used infrom investing activities for the nine months ended September 30, 2016 were $43,345,are due to the acquisition of software and property and equipment. Cash used in financing activities during the ninethree months ended September 30, 2016March 31, 2017 was $1,993,009,$293,266, which was comprised ofprimarily due to principal payments towards long-term debt and capital leases, as well as principal received from long-term debt.leases.
We incur unrealized gains and losses related to foreign currency translation adjustments, which is recorded as other comprehensive income or loss. In prior periods, we generated other comprehensive income, net of tax, related to the unrealized translation adjustment on the note payable due Prime Table Games – UK, which was due in British Sterling currency. The remaining translation adjustments relate to insignificant amounts in accounts receivable, accounts payable and accrued expenses recorded in foreign currencies. For the period ended September 30, 2016, we reclassified $239,598 out of accumulated other comprehensive income as part of the recognition of the August 2016 refinance transaction. This amount offset the non-cash loss on extinguishment of debt. So as long as we have balance sheet items recorded in foreign currencies, we may be subject to fluctuations against the U.S. Dollar. Additionally, as transactions are settled, the foreign currency translations are realized and recorded as selling, general and administrative expenses on the statement of operations. Such realized translation adjustments are not material for the nine months ended September 30, 2016.
We intend to fund our continuing operations through increased sales. Additionallysales and cash flow. However, the issuance of debt or equity financing arrangements may be required to fund expenditures or other cash requirements. Despite this funding, there isThere can be no assurance that we will be successful in raising additional funding, if necessary.necessary, 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 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. 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.
Critical accounting policies. 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 portrayaldiscussion of a company’sour 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 weoperations is based upon our financial statements, which have anybeen prepared in accordance with U.S. GAAP. Critical accounting policies are those policies that, fit this definition.in management's view, are most important in the portrayal of our financial condition and results of operations. See Note 2of our financial statements included in Item 8. “Financial Statements and Supplementary Data” of our 2016 10-K for further detail on these critical accounting policies.
Off balance sheet arrangements. As of March 31, 2017, there were no off balance sheet arrangements.
Recently issued accounting pronouncements. We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
ITEM 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
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, 2016March 31, 2017 our disclosure controls and procedures were effective.
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.
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 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.
PART II – OTHER INFORMATION
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, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, 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 applicable law, statute or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12 in Item 8. “Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the year ended December 31, 2015.See Note 2 in Item 8. “Financial Statements and Supplementary Data” included in our 2016 10-K. There are no material updates to matters previously reported on Form 10-K for the year ended December 31, 2015, except:
As discussed in our previous filings, we were served in December 2014 with a complaint by Red Card Gaming, Inc. ("RCG"), and AGS, LLC ("AGS"), regarding an asset purchase agreement ("APA") executed between Galaxy and RCG in September 2012. The complaint filed in the United States District Court for the District of Nevada (the "District Court"), alleged fraud, breach of contract, and trademark infringement, among other allegations. We filed counterclaims against RCG and AGS alleging, among other things, fraud on the trademark office and in the marketplace, misappropriation of our trade secrets, breach of contract, infringement of our trademark and interference with customer relationships. We subsequently filed a demand for arbitration which was required pursuant to terms of the APA. The complaint in the District Court case was stayed pending outcome from the arbitration hearings and both proceedings are collectively referred to as the "Nevada Litigation."
In February 2016 we received notice the arbitration panel (the “Panel”) had issued an interim award (the “Interim Award”) which resulted in, among other things, our retention of all rights and privileges in the ownership of the product and trademark High Card Flush, and an injunction prohibiting AGS and RCG from selling the High Card Flush game and using the trademark. In March 2016, the Panel issued a recovery order (“Recovery Order”) and determined that Galaxy was due 70% of its reasonable attorney fees. Additional briefing on the matter, relating to questions about the nature and amount of attorneys’ fees incurred was requested and provided.10-K.
On May 16, 2016, the arbitration panel issued a final award (the "Final Award") incorporating the Interim Award and awarding us our attorneys' fees and costs.
On July 11, 2016, we entered into a settlement agreement (the "Settlement Agreement") with RCG and AGS for purposes of resolving the Nevada Litigation as well as the "In Bet Litigation" further referenced below. Pursuant to the Settlement Agreement, among other things, RCG, AGS and us agreed to a mutual release of all claims and counter-claims. RCG and AGS also agreed to terminate all of their rights and obligations related to the APA, and AGS agreed to pay us the sum of $350,000 and agreed to the injunctive terms of the Final Award. Furthermore, we agreed to dismiss the complaint we filed in November 2014 against In Bet Gaming, Inc. and In Bet, LLC (collectively "In Bet"), alleging that In Bet's In-Between side bet game infringed one of our patents. AGS became involved in an Inter-Partes Review subsequent to November 2014 concerning the patent at issue because AGS had title and interest in the game In-Between.
None.On May 1, 2017, in connection with his employment agreement, we granted Harry Hagerty an option to purchase up to 400,000 shares of our common stock, with an exercise price of $0.60 per share, which option vests as follows: (i) immediately as to the first 100,000 shares of stock, (ii) as to the next 300,000 shares of stock, 100,000 shares on each of the first, second and third anniversary of the effective date of Mr. Hagerty’s employment agreement. The option must be exercised within five years from the date of grant or 90 days from the date of Mr. Hagerty’s separation from us. The option was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) and rules and regulations promulgated thereunder. Our reliance upon Section 4(a)(2) of the Securities Act was based in part upon the following factors: (a) the issuance of the securities was in connection with an isolated private transaction which did not involve any public offering; (b) there was only a single offeree; (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.
Exhibit Number |
| Description of Exhibit |
10.1 31.1 |
| Employment agreement with Harry C. Hagerty, Chief Financial Officer, dated May 1, 2017 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002* |
101 |
| Financials in XBRL format |
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* In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Galaxy Gaming, Inc. | ||
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| By: |
| /s/ ROBERT B. SAUCIER |
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| Robert B. Saucier |
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| Chief Executive Officer (Principal Executive Officer) |
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| Galaxy Gaming, Inc. | ||
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Date: |
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| By: |
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| Chief Financial Officer (Principal Accounting Officer) |
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