Galaxy Gaming Inc
For the period ended Jun 30, 2024. Filed Aug 12, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 12, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-13.
0000950170-24-057992
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-12.
0000950170-24-094921
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 32 previous paragraphs and 55 current paragraphs.
12 unchanged; 12 reworded; 27 added; 8 removed; 0 previous and 4 current paragraphs rearranged.
Tables are not compared: 2 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (27)
Current report
Recent Developments
Current report
On July 18, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evolution Malta Holding Limited (“Parent”), and Galaga Merger Sub, Inc., a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which the Company will become a wholly owned subsidiary of Parent. Upon the closing of the Merger, each share of common stock, par value $0.001 per share of the Company issued and outstanding immediately prior to the effective time of the Merger, except for shares (a) owned by Company stockholders who are entitled to demand and have properly and validly demanded their appraisal rights under Nevada law, and (b) held by the Parent, Merger Sub, the Company or by any of their respective subsidiaries, will automatically be cancelled and converted into the right to receive $3.20 in cash.
Current report
Completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including but not limited to the approval of the Merger by the Company's stockholders, and receipt of certain gaming regulatory approvals.
Current report
The Company may terminate the Merger Agreement in certain limited circumstances, including to accept a Superior Proposal (as defined in the Merger Agreement). Parent may terminate the Merger Agreement in certain limited circumstances, including if the Board changes its recommendation that the Company’s stockholders vote to approve the Merger Agreement. In addition, either Parent or the Company may terminate the Merger Agreement if (i) the Merger has not been successfully completed by July 18, 2025 (subject to extension through October 18, 2025 in the event that certain conditions with respect to the receipt of certain gaming regulatory approvals remain unsatisfied as of such date, and through January 18, 2026 in the event that such conditions remain unsatisfied as of such subsequent date); (ii) a governmental authority of competent jurisdiction (excluding gaming regulators, other than with respect to certain gaming regulatory approvals) has issued a final and non-appealable governmental order prohibiting the Merger, (iii) the stockholders of the Company fail to approve the Merger Agreement and (iv) the other party materially breaches its representations, warranties or covenants in the Merger Agreement, subject in certain cases, to the right of the breaching party to cure the breach.
Current report
Upon a termination of the Merger Agreement under specified circumstances, including due to a change in the Board’s recommendation that the Company’s stockholders vote to approve the Merger Agreement, the entry by the Company into a definitive agreement with respect to a Superior Proposal, or certain other triggering events set forth in the Merger Agreement, the Company may be required to pay Parent a termination fee. In addition, upon a termination of the Merger Agreement under specified circumstances, including in the event of termination resulting from the failure to obtain certain gaming regulatory approvals, Parent may be required to pay the Company a termination fee.
Current report
The Merger is expected to be completed in mid-2025. Following the closing of the Merger, shares of the Company’s common stock will no longer be quoted on the OTCQB and the Company will become a privately held company.
Current report
Revenue
Current report
Recurring core revenue increased $1,487,184, or 39% for the three months ended June 30, 2024, as compared to the same period in the prior year. This change was driven primarily by favorable revenue from our EZ Baccarat distribution arrangement which commenced in September 2023 and the continued success of our side bets and progressive products. Royalties netted against gross core revenue increased $788,259 for the three months ended June 30, 2024, as compared to the same period in the prior year. This increase was attributable to royalties paid on our EZ Baccarat revenues. Perpetual license sales of our progressive gaming systems to customers of $1,497,300 were down 4% percent for the three months ended June 30, 2024, as compared to the same period in the prior year. Gross digital revenues of $3,528,465, were up $733,029, or 26% for the three months ended June 30, 2024, as compared to the same period in the prior year. This favorable increase reflects the ongoing expansion of our digital content into new markets and the continued success of offering competitive products with brand recognition, most notable 21+3. Net of royalties, digital revenues grew to $2,541,960, up 16% for the three months ended June 30, 2024, as compared to the same period in the prior year.
Current report
Costs and Expenses
Current report
Cost of ancillary products and assembled component expense increased $99,106, or 20% for the three months ended June 30, 2024, 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 to customers.
Current report
Depreciation and amortization increased $206,863, or 42% for the three months ended June 30, 2024, as compared to the same period in the prior year. This increase was driven by certain intangible assets that began to amortize in July 2023.
Current report
Interest expense was up 2% for the three months ended June 30, 2024, as compared to the same period in the prior year. The increase was due to higher interest rates on our variable debt. Interest income was up 50% compared to the prior year period, benefitting from higher cash balances and higher interest rates.
Current report
Income tax provision was $28,293 for the three months ended June 30, 2024, compared to income tax provision of $16,677 for the comparable prior-year period. The increase in expense is primarily driven by the increased amount of permanent differences mainly attributable to the legal expenses incurred related to the acquisition by Evolution in the current period and offset by decreased income before provision for income taxes.
Current report
Primarily as a result of the factors described above, we had net income of $242,697 for the three months ended June 30, 2024, as compared to net income of approximately $356,769 for the same period in the prior year. Normalized for the impact of the acquisition by Evolution and excluding the related transactions fees of $675,044 from selling, general, and administrative expenses, net income increased $560,972, or 157% for the three months ended June 30, 2024, as compared to the same period in the prior year.
Current report
Revenue
Current report
Recurring core revenue increased $2,982,282, or 39% for the six months ended June 30, 2024, as compared to the same period in the prior year. This change was driven primarily by favorable revenue from our EZ Baccarat distribution arrangement which commenced in September 2023 and the continued success of our side bets and progressive products. Royalties netted against gross core revenue increased $1,594,539 for the six months ended June 30, 2024, as compared to the same period in the prior year. This increase was attributable to royalties paid on our EZ Baccarat revenues. Perpetual license sales of our progressive gaming systems to customers of $2,302,493 were down 18% percent for the six months ended June 30, 2024, as compared to the same period in the prior year. We expect perpetual license sales of our progressive gaming systems to customers to decline in the second half of 2024 as compared to the first half of 2024. Gross digital revenues of $6,984,418 were up $1,151,875, or 20% for the six months ended June 30, 2024, as compared to the same period in the prior year. This favorable increase reflects the ongoing expansion of our digital content into new markets and the continued success of offering competitive products with brand recognition, most notable 21+3. Net of royalties, digital revenues grew to $5,145,385, up 16% for the six months ended June 30, 2024, as compared to the same period in the prior year
Current report
Costs and Expenses
Current report
Cost of ancillary products and assembled component expense increased $153,476, or 18% for the six months ended June 30, 2024, 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 to customers.
Current report
Selling, general and administrative expenses increased $1,199,726, or 16% for the six months ended June 30, 2024, as compared to the same period in the prior year. This change was due to expenses associated with special projects of $675,044, most notable legal expenses incurred related to the acquisition by Evolution and to a lesser extent, driven by higher internal labor and related expenses (base salary, commissions, payroll-related taxes, bonus accrual and travel), increased information technology costs, and those royalties that are not netted against revenues. Normalized for the impact of the acquisition by Evolution and excluding the related transaction fees of $675,044, selling, general, and administrative expenses increased $524,682, or 7% for six months ended June 30, 2024, as compared to the same period in the prior year.
Current report
Depreciation and amortization increased $316,714, or 30% for the six months ended June 30, 2024, as compared to the same period in the prior year. This increase was driven by certain intangible assets that began to amortize in July 2023.
Current report
Interest expense was up $124,618, or 3% for the six months ended June 30, 2024, as compared to the same period in the prior year. The increase was due to higher interest rates on our variable debt. Interest income was up $186,628, or 83% compared to the prior year period, benefitting from higher cash balances and higher interest rates.
Current report
Primarily as a result of the factors described above, we had net income of $451,605 for the six months ended June 30, 2024, as compared to net income of approximately $467,463 for the same period in the prior year. Normalized for the impact of the acquisition by Evolution and excluding the related transactions fees of $675,044 from selling, general, and administrative expenses, net income increased $659,186, or 141% for the six months ended June 30, 2024, as compared to the same period in the prior year.
Current report
(1) Represents the non-cash expense associated with the value of equity awards granted to employees, directors and consultants by the Company.
Current report
(2) Represents costs associated with the severance of employees
Current report
(4) 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.
Current report
(5) Represents foreign exchange losses and gains associated with the fluctuations of foreign currency rates.
Current report
Our operating activities provided cash of $3,873,347 for the six months ended June 30, 2024, compared to $2,494,400 provided for the comparable prior period. This change is attributable to a favorable variance of $1,222,127 in use of assets and liabilities that relate to operations. Additionally, depreciation and amortization increased $316,714 related to increased capitalization of intangible assets and offset by a $154,204 decline in stock-based compensation from the vesting of stock options.
Removed paragraphs (8)
Previous report
For the three months ended March 31, 2024, we generated net revenues of $8,001,066 compared to $7,422,534 for the comparable prior-year period, representing an increase of $578,532, or 7.8%. Net revenues for the three months ended March 31, 2024, and 2023 consist of $9,659,874 and $8,208,986 in gross billings respectively, net of $1,658,808 and $786,452 in license royalty payments for the three months ended March 31, 2024, and 2023, respectively. Net revenues in our GG Core operating segment increased 4.4% from $5,171,880 to $5,397,641. This increase was attributable primarily to an increase in recurring license revenue from our EZ Baccarat distribution arrangement, offset by 1) decreased sales of perpetual licenses and 2) an increase in royalties on our EZ Baccarat revenues which are netted against such revenue. Net revenues in our GG Digital operating segment increased 15.7% from $2,250,654 to $2,603,425. Our online gaming revenues for the three months ended March 31, 2024, and 2023 consist of $3,455,953 and $3,037,106 in gross billings, respectively, offset by $852,528and $786,452, respectively.
Previous report
As a result of the changes described above, income from operations increased $52,695 to $2,310,537 for the three months ended March 31, 2024, compared to income from operations of $2,257,842 for the comparable prior-year period.
Previous report
Total interest expense increased $85,712, or 3.9%, to $2,289,347 for the three months ended March 31, 2024, compared to $2,203,635 for the comparable prior-year period. The increase was attributable to higher rates of interest on the current borrowings.
Previous report
(1) Represents non-cash expenses for stock option and restricted stock vesting of directors, officers, employees and consultants.
Previous report
(2) Represents realized and unrealized gains and losses due to fluctuations in foreign currency rates.
Previous report
(3) Represents severance expense relating to a terminated employee.
Previous report
(5) Represents legal fees paid in relation to miscellaneous shareholder matters.
Previous report
Our operating activities provided cash of $1,366,629 for the three months ended March 31, 2024, compared to $652,218 used for the comparable prior period. The change to positive operating cash flow in the current period compared to negative operating cash flow in the prior period is mainly due to a decline in significant payments on accounts payable and an increase in collections of accounts receivable paired with the recovery of bad debt expense. In addition, stock-based compensation decreased due to the vesting of stock options and depreciation and amortization increased due to lower capitalization of intangible assets.
Reworded paragraphs (12)
Previous wording
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, 2024 and 2023. 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 2023 Form 10-K.
Current wording
The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources as of and for the three and six months ended June 30, 2024 and 2023. 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 2023 Form 10-K.
Previous wording
Some of the information contained in this Quarterly Report includes forward-looking statements In some cases, you can identify forward-looking statements by terms 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 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, and adapt to changes resulting from the COVID-19 or other pandemics including without limitation, government imposed shut downs, travel restrictions and supply chain interruptions, unfavorable economic conditions in the US and worldwide, 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, 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.
Current wording
Some of the information contained in this Quarterly Report includes forward-looking statements In some cases, you can identify forward-looking statements by terms 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, risks related to the proposed Merger, including that the Merger may not be consummated at all or in the anticipated timeframe; restrictions on our business during the pendency of the Merger that could affect our ability to pursue business opportunities or strategic transactions; uncertainties relating to the pendency of the Merger relating to our relationships with our employees and our customers, vendors and partners; that the Merger Agreement may be terminated in circumstances that require us to pay a termination fee; significant transaction costs; and the risk of litigation and/or regulatory actions related to the proposed Merger; 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, 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, 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…
Excerpt shortened here; the source contains the full paragraph.
Previous wording
Our net revenue consists of the following components:
Current wording
Our revenue consists of the following components:
Previous wording
Selling, general and administrative expenses for the three months ended March 31, 2024, were $4,204,828 compared to $3,784,657 for the comparable prior-year period, representing an increase of $420,170, or 11.1%. The increase was due to higher internal labor and related expenses (base salary, commissions, payroll-related taxes, bonus accrual and travel), and increased information technology costs, trade show costs, legal fees, and those royalties that are not netted against revenues.
Current wording
Selling, general and administrative expenses increased $779,555, or 21% for the three months ended June 30, 2024, as compared to the same period in the prior year. This change was due to expenses associated with special projects of $675,044, most notable legal expenses incurred related to the acquisition by Evolution and to a lesser extent, driven by higher internal labor and related expenses (base salary, commissions, payroll-related taxes, bonus accrual and travel), increased information technology costs and those royalties that are not netted against revenues. Normalized for the impact of the acquisition by Evolution and excluding the related transaction fees of $675,044, selling, general, and administrative expenses increased $104,511, or 3% for the three months ended June 30, 2024, as compared to the same period in the prior year.
Previous wording
Research and development expenses for the three months ended March 31, 2024, were $251,886 compared to $206,760 for the comparable prior-year period, representing an increase of $45,126, or 21.8%. The increase was due to higher payroll costs from higher headcount, employee bonuses, option exercises in the period, and higher consulting fees.
Current wording
Research and development expenses for the three months ended June 30, 2024, were $269,479 compared to $199,665 for the comparable prior-year period, representing an increase of $69,814, or 35%. The increase was due to higher payroll costs from higher headcount, employee bonuses, and higher consulting fees.
Previous wording
Stock-based compensation expenses for the three months ended March 31, 2024, were $141,242, as compared to $244,923 for the comparable prior-year period, representing an decrease of $103,680, or 42.3%. 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 2024 and lower stock-based compensation for officers and consultants.
Current wording
Stock-based compensation expenses decreased 21% for the three months ended June 30, 2024, as compared to the same period in the prior year. 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 2024 and lower stock-based compensation for officers and consultants.
Previous wording
Income tax provision was $26,325 for the three months ended March 31, 2024, compared to income tax provision of $5,575 for the comparable prior-year period. The increase in expense is primarily the result of changes in the deferred tax balances and discrete excess benefits from stock-based compensation in the current period that did not occur in the prior period.
Current wording
Income tax provision was $54,618 for the six months ended June 30, 2024, compared to income tax provision of $22,252 for the comparable prior-year period. The increase in expense is primarily driven by the increased amount of permanent differences mainly attributable to the legal expenses incurred related to the acquisition by Evolution in the current period.
Previous wording
(4) Represents moving expenses incurred by the new CEO, Matt Reback, and reimbursed by the Company.
Current wording
(3) Represents Company reimbursed moving expenses incurred by the new President and CEO, Matthew Reback.
Previous wording
As of March 31, 2024, we had total current assets of $22,556,520 and total assets of $40,457,210. This compares to $22,156,035 and $40,475,800, respectively, as of December 31, 2023. The increase in current assets at March 31, 2024 was primarily due to the ramped up collection of receivables and a decrease in prepaid expenses for insurance, regulatory licenses, and deposits for trade shows. The decrease in total assets at March 31, 2024 was primarily due to the changes in receivables and amortization of leases and intangibles in the 2024 period.
Current wording
As of June 30, 2024, we had total current assets of $24,041,400 and total assets of $41,470,750. This compares to $22,156,035 and $40,475,800, respectively, as of December 31, 2023. The increase in current assets as of June 30, 2024 compared to December 31, 2023 was due to the increased cash and cash equivalents driven by cash provided from operating activities, most notably increased collections of receivables. These increases were offset by a decrease in prepaid expenses for insurance, IT expenses, and deposits for trade shows. The increase in total assets as of June 30, 2024 compared to December 31, 2023 was primarily due to the increase of current assets noted above and offset by a decrease in other intangible assets and operating lease right-of-use assets as a result of amortization in the 2024 period.
Previous wording
Our total current liabilities as of March 31, 2024, decreased to $4,359,975 from $4,875,967 as of December 31, 2023, primarily due to an increase in accrued royalties, offset by a decrease in accrued bonuses, recognition of deferred revenue, and payments against D&O insurance liabilities.
Current wording
Our total current liabilities as of June 30, 2024 compared to December 31, 2023 decreased to $4,837,667 from $4,875,967. This decrease was primarily due to a decrease in accrued royalties, and offset by increased accounts payable.
Previous wording
Investing activities used cash of $351,334 for the three months ended March 31, 2024, compared to cash used of $303,894 for the comparable prior period. This increase in cash used was primarily due to the investment in internally developed software, and acquisition of assets deployed at client locations in the 2024 period.
Current wording
Investing activities used cash of $676,315 for the six months ended June 30, 2024, compared to cash used of $773,559 for the six months ended June 30, 2023. This decrease in cash used was primarily due to the acquisition of assets deployed at client locations and investment in internally developed software in the 2024 period.
Previous wording
Cash used in financing activities during the three months ended March 31, 2024, was $219,761. This compares to $906,239 cash used by financing activities for the comparable prior period. The decrease in cash used was due to the absence of principal payments on our borrowings based on the "Excess Cash Flow" calculation as defined by the terms in the Fortress Credit Agreement (Note 6), in the 2024 period.
Current wording
Cash used in financing activities during the six months ended June 30, 2024, was $465,317. This compares to $1,204,584 cash used by financing activities for the six months ended June 30, 2023. The decrease in cash used was due to the absence of principal payments on our borrowings based on the "Excess Cash Flow" calculation as defined by the terms in the Fortress Credit Agreement (Note 6), in the 2024 period.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
Results of operations for the six months ended June 30, 2024 and 2023.
Current report — wording carried from elsewhere
Our revenue consists of the following components:
Current report — wording carried from elsewhere
Research and development expenses were up $114,940, or 28% for the six months ended June 30, 2024, as compared to the same period in the prior year. The increase was due to higher payroll costs from higher headcount, employee bonuses, option exercises in the period, and higher consulting fees.
Current report — wording carried from elsewhere
Stock-based compensation expenses decreased $154,204, or 31% for the six months ended June 30, 2024, as compared to the same period in the prior year. 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 2024 and lower stock-based compensation for officers and consultants.