Galaxy Gaming : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Published: 2026-05-11 06:05:10 ET GLXZ

Published on 05/11/2026 at 06:05 am EDT

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources as of and for the three months ended March 31, 2026 and 2025. 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 2025 Form 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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Quarterly Report") contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995, as do other materials or oral statements we release to the public. Forward-looking statements are neither historical facts nor assurances of future performance, but instead are based only on our current beliefs, expectations, and assumptions regarding the future of our business, plans and strategies, projections, anticipated events and trends, the economy, and other future conditions, as of the date on which this report is filed. Forward-looking statements often, but do not always, contain words such as "may," "will," "should," "could," "might," "expect," "intend," "target," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only predictions. We have based these forward-looking statements on our current expectations, assumptions and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the ability to complete the Merger on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary gaming regulatory approvals and satisfaction of other closing conditions to consummate the proposed Merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; risks that the proposed Merger disrupts the Company's current plans and operations or diverts the attention of the Company's management or employees from ongoing business operations; the risk that certain restrictions during the pendency of the Merger may impact the Company's ability to pursue certain business opportunities or strategic transactions; the risk of potential difficulties with the Company's ability to retain and hire key personnel and maintain relationships with customers and other third parties as a result of the proposed Merger, including during the pendency of the Merger; the risk that the proposed Merger may involve unexpected costs and/or unknown or inestimable liabilities; the risk that the Company's business may suffer as a result of uncertainty surrounding the proposed Merger; the risk that stockholder litigation in connection with the proposed Merger may affect the timing or occurrence of the proposed Merger or result in significant costs of defense, indemnification and liability; effects relating to the announcement of the proposed Merger or any further announcements or the consummation of the proposed Merger on the market price of the Company's common stock or the Company's operating results; the ability of Galaxy Gaming to enter and maintain strategic alliances, product placements or installations in land based casinos or grow its iGaming business, garner new market share, secure licenses in new jurisdictions or maintain existing licenses, successfully develop or acquire and sell proprietary products, comply with regulations, including changes in gaming related and non-gaming related statutes and regulations that affect the revenues of our customers in land-based casino and, online casino markets, have its games approved by relevant jurisdictions, unfavorable economic conditions in the US and worldwide; changes in international trade policies and the impact of tariffs imposed by U.S. and foreign governments; the negative effects if any of currency conversions or changes in the valuation of digital currency that may impact iGaming revenues; our level of indebtedness; restrictions and covenants in our loan agreement; dependence on major customers; protection of intellectual property and our ability to license the intellectual property rights of third parties; failure to maintain the integrity of our information technology systems, including without limitation, cyber-attacks or other failures in our telecommunications or information technology systems, or those of our collaborators, third-party logistics providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption of our business; labor strikes, materials shortages, government shutdowns, pandemics, acts of God and other matters out of our reasonable control; and other factors. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

OVERVIEW

We develop, acquire, assemble and market technology and entertainment-based products and services for the gaming industry for placement on casino floors, card rooms 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, and other ancillary equipment. In addition, we license intellectual property to legal internet gaming operators. Our products and services are offered in various highly regulated markets and certain non-regulated (where such is not illegal) 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.

Agreement and Plan of Merger with Evolution

On July 18, 2024, we entered into the Merger Agreement providing for the Company's acquisition by Evolution Malta Holding Limited in a cash transaction. The Merger is subject to the satisfaction or waiver of certain closing conditions, including stockholder approval of the Merger Agreement and the receipt of certain gaming regulatory approvals. At the special meeting of the Company's stockholders held on November 12, 2024, stockholders voted to approve the Merger. Under the terms of the Merger Agreement, the outside date for completion of the Merger was automatically extended from July 18, 2025 to October 18, 2025 and then subsequently automatically extended to January 18, 2026, in each case, due to the condition with respect to the receipt of gaming regulatory approvals not being satisfied as of such outside dates. On November 24, 2025, pursuant to an amendment to the Merger Agreement, the outside date for completion of the Merger was extended from January 18, 2026 to July 17, 2026. The Company and Evolution continue to be actively

engaged with gaming regulators to secure the remaining regulatory approvals to satisfy the gaming approval closing condition. However, no assurance can be given that the required regulatory approvals will be obtained and, even if all such approvals are obtained, no assurance can be given to the timing of the regulatory approvals. We expect the Merger to be completed by the Amended Outside Date of July 17, 2026 subject to satisfaction or waiver of the closing conditions. Upon completion of the Merger, the Company will become a privately held company and shares of Company's common stock will no longer be listed on any public market.

Results of operations for the three months ended March 31, 2026 and 2025.

Our net revenue consists of the following components:

Three Months Ended March 31,

2026

2025

$ Change

% Change

Revenue:

Core Revenues:

Recurring License Revenue

$

5,424,810

$

5,253,261

$

171,549

3.3

%

Perpetual License Sales of Progressive Gaming Systems

96,367

505,120

(408,753

)

-80.9

%

Gross Revenue

5,521,177

5,758,381

(237,204

)

-4.1

%

Royalties Netted against Gross Revenue

(743,596

)

(742,148

)

(1,448

)

0.2

%

Total Core Revenue

$

4,777,581

$

5,016,233

$

(238,652

)

-4.8

%

Digital Revenues:

Recurring License Revenue

4,202,684

$

3,835,585

$

367,099

9.6

%

Gross Revenue

4,202,684

3,835,585

367,099

9.6

%

Royalties Netted against Gross Revenue

(1,317,704

)

(1,066,885

)

(250,819

)

23.5

%

Total Digital Revenue

$

2,884,980

$

2,768,700

$

116,280

4.2

%

Consolidated Revenues:

Recurring License Revenue

$

9,627,494

$

9,088,846

$

538,648

5.9

%

Perpetual License Sales of Progressive Gaming Systems

96,367

505,120

(408,753

)

-80.9

%

Gross Revenue

9,723,861

9,593,966

129,895

1.4

%

Royalties Netted against Gross Revenue

(2,061,300

)

(1,809,033

)

(252,267

)

13.9

%

Revenue

$

7,662,561

$

7,784,933

$

(122,372

)

-1.6

%

Costs and expenses

Cost of ancillary products and assembled components

$

67,188

$

188,002

$

(120,814

)

-64.3

%

Selling, general and administrative

4,346,852

4,312,781

34,071

0.8

%

Research and development

152,058

362,776

(210,718

)

-58.1

%

Depreciation and amortization

869,951

779,817

90,134

11.6

%

Stock-based compensation

52,847

166,261

(113,414

)

-68.2

%

Total costs and expenses

5,488,896

5,809,637

(320,741

)

-5.5

%

Income from operations

2,173,665

1,975,296

198,369

10.0

%

Other income (expense):

Interest income

379

22,878

(22,499

)

-98.3

%

Interest expense

(776,489

)

(1,003,350

)

226,861

-22.6

%

Foreign currency exchange gain (loss)

633

(10,100

)

10,733

-106.3

%

Loss on extinguishment of debt

-

(2,969,585

)

2,969,585

100

%

Total other expense, net

(775,477

)

(3,960,157

)

3,184,680

-80.4

%

Income (loss) before provision for income taxes

$

1,398,188

$

(1,984,861

)

$

3,383,049

-170.4

%

Provision for income taxes

(30,632

)

(36,421

)

5,789

-15.9

%

Net income (loss)

$

1,367,556

$

(2,021,282

)

$

3,388,838

-167.7

%

Revenue

Recurring core revenue increased $171,549, or 3.3% for the three months ended March 31, 2026, as compared to the same period in the prior year. The increase was primarily driven by higher licensing revenue across the United States, Europe, Middle East and Africa, partially driven by placements of our new GOS progressive gaming system. Royalties netted against gross core revenue were relatively flat, increasing $1,448, or 0.2% for the three months ended March 31, 2026, as compared to the same period in the prior year. Perpetual license sales of our progressive gaming systems was $96,367, representing a 80.9% decrease for the three months ended March 31, 2026, as compared to the same period in the prior year. This decline was primarily driven by the timing of customer purchases. Gross digital revenues of $4,202,684, increased $367,099, or 9.6% for the three months ended March 31, 2026, as compared to the same period in the prior year. This favorable growth reflects the positive impact of foreign currency exchange and, to a lesser extent, the ongoing expansion of our digital content into new markets and the continued success of our competitive, branded product offerings. Net of

royalties, digital revenues increased by $116,280, representing growth of 4.2% for the three months ended March 31, 2026, as compared to the same period in the prior year.

Costs and Expenses

Cost of ancillary products and assembled component expense decreased $120,814, or 64.3% for the three months ended March 31, 2026, as compared to the same period in the prior year. The activity in cost of ancillary products and assembled components reflects the component costs associated with the perpetual license sales of our progressive gaming systems.

Selling, general and administrative expenses increased $34,071, or 0.8% for the three months ended March 31, 2026, as compared to the same period in the prior year. This increase was primarily driven by a change in the form of board compensation, as our directors elected during the three months ended March 31, 2026 to receive cash compensation in lieu of restricted shares of our common stock, whereas in the prior-year period director compensation consisted both of cash and equity-based components. Included in the results are costs associated with special projects, most notably expenses incurred related to the acquisition by Evolution. Normalized for the impact of special projects and excluding the related fees of $119,383 and $208,273 for the three months ended March 31, 2026 and March 31, 2025, respectively, selling, general, and administrative expenses increased $122,961 for the three months ended March 31, 2026, as compared to the same period in the prior year. The increase was primarily driven by higher distributor costs associated with increased placements of land-based products in foreign jurisdictions, as well as higher royalty fees related to licensed content and the timing of audit fees.

Research and development expenses decreased $210,718, or 58.1% for the three months ended March 31, 2026, as compared to the same period in the prior year. This decrease was primarily driven by lower payroll costs resulting from reduced headcount, as well as reduced outside services in the period.

Depreciation and amortization increased $90,134, or 11.6% for the three months ended March 31, 2026, as compared to the same period in the prior year. This increase was primarily driven by depreciation expense associated with incremental placements of assets deployed at client locations.

Stock-based compensation expenses decreased $113,414, or 68.2% for the three months ended March 31, 2026, as compared to the same period in the prior year. The decrease was primarily attributable to a change in the form of board compensation, as our directors elected during the first quarter of 2026 to receive cash compensation in lieu of restricted shares, representing $57,375 of the decrease, with the remaining balance attributable to employee-related stock-based compensation.

Interest expense decreased $226,861, or 22.6% for the three months ended March 31, 2026, as compared to the same period in the prior year. The decrease was primarily due to the reduced principal balance of outstanding debt and to a lesser extent a lower average interest rate, for the three months ended March 31, 2026, as compared to the same period in the prior year. Interest income decreased $22,499, or 98.3% compared to the prior year period, primarily due to a lower average cash balance for the three months ended March 31, 2026, as compared to the same period in the prior year.

The Company recognized a loss on extinguishment of debt of $2,969,585 for the three months ended March 31, 2025 related to the refinancing of our debt from Fortress to BMO, primarily driven by the write-off of unamortized debt issuance costs.

Income tax provision decreased to $30,632 for the three months ended March 31, 2026, compared to income tax provision of $36,421 for the comparable prior-year period. The decrease was primarily attributable to changes in pre-tax book income and the related mix of rate-impacting components, including permanent items and changes in valuation allowance considerations, as compared to the prior-year period.

Primarily as a result of the factors described above, we had net income of $1,367,556 for the three months ended March 31, 2026, as compared to a net loss of approximately $2,021,282 for the same period in the prior year.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted EBITDA includes adjustments to U.S. GAAP net loss to exclude interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency exchange loss (gain), and severance and other expenses related to litigation, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations, including loss on extinguishment of debt. 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 (loss) to net cash provided by operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating our performance. A reconciliation of U.S. GAAP net loss to Adjusted EBITDA is as follows:

Three Months Ended March 31,

Adjusted EBITDA Reconciliation:

2026

2025

Net income (loss)

$

1,367,556

$

(2,021,282

)

Interest expense

776,489

1,003,350

Interest income

(379

)

(22,878

)

Provision for income taxes

30,632

36,421

Depreciation and amortization

869,951

779,817

EBITDA

3,044,249

(224,572

)

Stock-based compensation (1)

52,847

166,261

Employee severance costs and other expenses (2)

36,000

10,491

Professional fees, acquisition costs and other (3)

119,383

208,273

Gain on disposal of assets (4)

-

(62

)

Foreign exchange loss (gain) (5)

(633

)

10,100

Loss on extinguishment of debt (6)

-

2,969,585

Adjusted EBITDA

$

3,251,846

$

3,140,076

(1) Represents the non-cash expense associated with the value of equity awards granted to employees, directors and consultants by the Company.

(2) Represents costs associated with the severance of employees.

(3) Represents professional fees and transaction-related fees incurred related to acquisitions, mergers and professional fees incurred for other projects not considered part of the normal course of business.

(4) Represents gains and losses related to the write off of certain fixed assets.

(5) Represents foreign exchange losses and gains associated with the fluctuations of foreign currency rates.

(6) Represents the loss on the extinguishment of debt associated with the refinancing of our debt from Fortress to BMO.

Liquidity and capital resources. We have generally been able to fund our continuing operations, our investments, and the obligations under our existing borrowings through cash flow from operations. We may require additional capital to undertake acquisitions or to repay in full our indebtedness. Our ability to access capital for operations or for acquisitions 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, 2026, we had total current assets of $10,949,227 and total assets of $27,042,819. As of December 31, 2025, we had total current assets of $11,569,839 and total assets of $27,500,619. The decrease in current assets as of March 31, 2026 compared to December 31, 2025 was primarily driven by a decrease in our accounts receivable balance resulting from increased customer collection efforts. The decrease in total assets as of March 31, 2026 compared to December 31, 2025 was primarily due to the decrease of current assets noted above offset by an increase in cash and cash equivalents.

Our total current liabilities as of March 31, 2026 compared to December 31, 2025 decreased to $7,320,803 from $8,055,001. This was primarily due to a decrease in costs associated with special projects, most notably legal expenses incurred related to the acquisition by Evolution offset by an increase in the current portion of long-term debt for upcoming payments to BMO.

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 over at least the next 12 months.

We continue to file applications for new or enhanced licenses in several jurisdictions, which may result in significant future legal and regulatory expenses. A significant increase in such expenses may require us to postpone growth initiatives or investments in personnel and research and development of our products. It is our intention to continue such initiatives and investments.

Our operating activities provided cash of $2,544,086 for the three months ended March 31, 2026, compared to $1,168,692 for the comparable prior year period. This change is mainly attributable to net income for the three months ended March 31, 2026, as compared to a net loss in the prior-year period, as well as a $1,002,419 variance in operating assets and liabilities. Additionally, the prior-year period included a loss on extinguishment of debt of $2,969,585 related to the refinancing of the Fortress loan to BMO. Stock-based compensation decreased by $113,414 due to a change in the composition of board compensation, partially offset by increased depreciation associated with higher level of assets deployed at client locations.

Investing activities used cash of $1,030,320 for the three months ended March 31, 2026, compared to cash used of $283,330 for the three months ended March 31, 2025. This increase in cash used was primarily due to higher expenditures for assemblies in process and increased investment in internally developed software.

Cash used in financing activities during the three months ended March 31, 2026, was $882,868. This compares to $13,849,213 cash used by financing activities for the three months ended March 31, 2025. The decrease in cash used was primarily due to the refinancing of our debt from Fortress to BMO in the prior-year period.

Credit Facility. On January 6, 2025, we entered into a new credit agreement with BMO that provides for a $2,000,000 senior secured revolving credit facility and a $45,000,000 senior secured term loan. On January 6, 2025, we borrowed $45,000,000 under the new term loan and used this amount plus cash on hand to repay all amounts outstanding under the Fortress Credit Agreement, which was terminated. Pursuant to the terms of the Credit Agreement, the new term loan and new revolving credit facility will mature on January 6, 2028, as the merger with Evolution Malta Holding Limited was not completed by December 31, 2025.

As of March 31, 2026 and December 31, 2025, we had no outstanding borrowings under the revolving credit facility

Critical accounting policies and estimates. Our significant accounting policies and estimates are described in our 2025 Form 10-K. There have been no material changes to those policies.

Off-balance sheet arrangements. As of March 31, 2026, 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.

Disclaimer

Galaxy Gaming Inc. published this content on May 11, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 11, 2026 at 10:04 UTC.