SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following is a discussion and analysis of our financial condition, results
of operations and liquidity and capital resources as of and for the three months
ended March 31, 2022 and 2021. This discussion should be read together with our
audited consolidated financial statements and related notes included in Item 8
Financial Statements and Supplementary Financial Information included in our
2021 10-K. Some of the information contained in this discussion includes
forward-looking statements that involve risks and uncertainties; therefore our
"Special Note Regarding Forward-Looking Statements" should be reviewed for a
discussion of important factors that could cause actual results to differ
materially from the results described in, or implied by, such forward-looking
statements.
OVERVIEW
We develop, acquire, assemble and market technology and entertainment-based
products and services for the gaming industry for placement on casino floors and
on legal internet gaming sites. Our products and services primarily relate to
licensed casino operators' table games activities and focus on either increasing
their profitability and productivity or expanding their gaming entertainment
offerings in the form of proprietary table games, electronically enhanced table
game platforms, fully-automated electronic tables and other ancillary equipment.
In addition, we license intellectual property to legal internet gaming
operators. Our products and services are offered in highly regulated markets
throughout the world. Our products are assembled at our headquarters in Las
Vegas, Nevada, as well as outsourced for certain sub-assemblies in the United
States.
Results of operations for the three months ended March 31, 2022 and 2021. For
the three months ended March 31, 2022, we generated revenues of $5,918,599
compared to $4,282,901 for the comparable prior-year period, representing an
increase of $1,635,698, or 38.2%. This increase was attributable to the
continued recovery of our land-based customers from the effects of the COVID-19
crisis, particularly in the United Kingdom. Also, our online gaming revenues
increased due to increased revenue earned by our iGaming clients, reflecting
continued growth in their non-US markets and significantly increased revenue in
existing or newly-opened US markets.
Selling, general and administrative expenses for the three months ended March
31, 2022 were $3,043,359 compared to $2,711,052 for the comparable prior-year
period, representing an increase of $332,307, or 12.3%. This increase was due to
higher internal labor and related expenses (base salary, payroll-related taxes,
bonus accrual and travel). These increases were offset by a decrease in legal
fees related to the Triangulum lawsuit.
Research and development expenses for the three months ended March 31, 2022 were
$199,070, compared to $118,701 for the comparable prior-year period,
representing an increase of $80,369, or 67.7%. This increase was primarily due
to higher internal labor and related expenses (base salary, payroll-related
taxes, commissions and bonus accrual).
Share-based compensation expenses for the three months ended March 31, 2022 were
$310,002, as compared to $316,640 for the comparable prior-year period,
representing a decrease of $6,638, or 2.1%. The decrease was due primarily to a
change in the level and the composition of fees paid to members of our Board of
Directors in 2022.
As a result of the changes described above, income from operations increased
$1,184,166 or 292.4% to $1,589,116 for the three months ended March 31, 2022,
compared to income from operations of $404,950 for the comparable prior-year
period.
Total interest expense increased $1,506,112, or 832.5%, to $1,687,022 for the
three months ended March 31, 2022, compared to $180,910 for the comparable
prior-year period. The increase was attributable to 1) a larger balance of debt
outstanding in the current period as compared to the prior year, and 2) higher
rates of interest on the current borrowings.
Share redemption consideration was $0 in the three months ended March 31,2022,
compared to $195,482 in the comparable prior-year period. The reduction is due
to the payment in full of the Triangulum Redemption Consideration Obligation in
November 2021.
Income tax benefit was ($141,974) for the three months ended March 31, 2022,
compared to income tax benefit of ($18,950) for the comparable prior-year
period. The increase in benefit is primarily the result of increased favorable
discrete items related to excess tax benefits from stock-based compensation.
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Adjusted EBITDA. Adjusted EBITDA includes adjustments to net income to exclude
interest, income taxes, depreciation, amortization, share-based compensation,
foreign currency exchange loss (gain), change in fair value of interest rate
swap liability and severance and other expenses related to litigation. Adjusted
EBITDA is not a measure of performance defined in accordance with 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 to Adjusted EBITDA is as follows:
Three Months Ended March 31,
Adjusted EBITDA Reconciliation: 2022 2021
Net (loss) income $ (13,962 ) $ 88,737
Interest expense 1,687,022 180,910
Share redemption consideration - 195,482
Interest income (2,233 ) (382 )
Depreciation and amortization 724,462 717,254
Share-based compensation 310,002 316,640
Foreign currency exchange loss/(gain) 60,263 8,975
Change in fair value of interest
rate swap liability - (49,822 )
(Benefit) provision for income taxes (141,974 ) (18,950 )
Severance expense 21,727 3,750
Special project expense 28,124 249,436
Adjusted EBITDA $ 2,673,431 $ 1,692,030
Liquidity and capital resources. We have generally been able to fund our
continuing operations, our investments, and the interest expense and principal
amortization under our existing borrowings through cash flow from operations. We
may require additional capital to undertake acquisitions or to repay in full our
indebtedness. Our ability to access capital for these activities will depend on
conditions in the capital markets and investors' perceptions of our business
prospects and such conditions and perceptions may not always favor us.
As of March 31, 2022, we had total current assets of $24,204,981 and total
assets of $40,152,056. This compares to $23,890,122 and $40,452,705,
respectively, as of December 31, 2021. The increase in total current assets at
March 31, 2022 was due primarily to higher revenues in the 2022 period. The
decrease in total assets was primarily due to amortization of other intangibles.
Our total current liabilities as of March 31, 2022 decreased to $3,656,939 from
$4,401,071 as of December 31, 2021, primarily due to the payment of accrued
bonuses in March 2022.
Our business was profitable and cash-flow positive from operations in Q1 2022.
Based on our current forecast of operations, we believe we will have sufficient
liquidity to fund our operations and to meet the obligations under our financing
arrangements as they come due.
We continue to file applications for new or enhanced licenses in several
jurisdictions, which may result in significant future legal and regulatory
expenses. A significant increase in such expenses may require us to postpone
growth initiatives or investments in personnel, inventory and research and
development of our products. It is our intention to continue such initiatives
and investments. However, to the extent we are not able to achieve our growth
objectives or raise additional capital, we will need to evaluate the reduction
of operating expenses.
Our operating activities provided cash of $1,426,499 for the three months ended
March 31, 2022, compared to $767,829 for the comparable prior period. The
increase in operating cash flow was primarily due to higher income from
operations, partially offset by higher interest expense.
Investing activities used cash of ($65,747) for the three months ended March 31,
2022, compared to cash used of ($81,792) for the comparable prior period. This
decrease was primarily due to the acquisition of certain software tools in the
2021 period which did not recur in the 2022 period.
Cash used in financing activities during the three months ended March 31, 2022
was ($120,480). This compares to ($557,639) cash used by financing activities
for the comparable prior period. The decreased was due to lower amortization of
principal on our borrowings in the 2022 period and to higher proceeds from stock
option exercises.
Critical accounting policies. Our significant accounting policies are described
in our 2021 10-K. There have been no material changes to those policies.
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Off-balance sheet arrangements. As of March 31, 2022, 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.
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