Galaxy Gaming, Inc.
For the period ended Dec 31, 2024. Filed Mar 24, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 24, 2025
GLXZStored price and day change unavailable
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-25.
0000950170-24-035514
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-24.
0000950170-25-043370
Item 7. 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 37 previous paragraphs and 40 current paragraphs.
11 unchanged; 5 reworded; 24 added; 21 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 2 previous and 2 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 (24)
Current report
Agreement and Plan of Merger with Evolution
Current report
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 approval by at least a majority of the voting power of the outstanding shares of the Company’s common stock of the Merger Agreement and the transactions contemplated thereby, including the Merger, 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. The Merger is expected to be completed in mid-2025, 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.
Current report
Revenue
Current report
Recurring core revenue increased $4,301,373, or 25.7% for the twelve months ended December 31, 2024, as compared to the same period in the prior year. This growth was primarily driven by favorable revenue from our EZ Baccarat distribution arrangement, which began in September 2023, along with the continued success of our side bets and progressive products. Royalties netted against gross core revenue increased $2,147,266 for the twelve months ended December 31, 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 was $3,502,053, representing a 3.4% percent decrease for the twelve months ended December 31, 2024, as compared to the same period in the prior year. Gross digital revenues of $14,283,982, increased $2,905,064, or 25.5% for the twelve months ended December 31, 2024, as compared to the same period in the prior year. This favorable growth reflects the ongoing expansion of digital content into new markets and the continued success of our competitive branded products, particularly the well-known 21+3. Net of royalties, digital revenues increased to $1,917,579, representing growth of 22.7% for the twelve months ended December 31, 2024, as compared to the same period in the prior year.
Current report
Cost and Expenses
Current report
Cost of ancillary products and assembled component expense increased $246,505, or 19.5% for the twelve months ended December 31, 2024, as compared to the same period in the prior year. This increase is primarily driven by product mix, with a larger proportion of lower-margin items sold. Additionally, there was a secondary impact from higher component costs related to the perpetual license sales of our progressive gaming systems.
Current report
Selling, general and administrative expenses increased $4,008,829, or 25.6% for the twelve months ended December 31, 2024, as compared to the same period in the prior year. This change was due to expenses associated with special projects of $3,489,955, notably 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 repair and maintenance costs of leased machines, and increased information technology costs. Without the costs associated with the acquisition by Evolution and excluding the related transaction fees of $3,489,955, selling, general, and administrative expenses increased $518,874, or 3% for the twelve months ended December 31, 2024, as compared to the same period in the prior year.
Current report
Research and development expenses for the twelve months ended December 31, 2024, were $1,057,183 compared to $823,189 for the comparable prior-year period, representing an increase of $233,994, or 28.4%. This increase was driven by higher payroll costs due to increased headcount, employee bonuses, and the ongoing development of internal software placed in service.
Current report
Depreciation and amortization increased $589,046, or 25.9% for the twelve months ended December 31, 2024, 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.
Current report
Stock-based compensation expenses decreased 10.0% for the twelve months ended December 31, 2024, as compared to the same period in the prior year. The decrease was primarily due to changes in the level and composition of stock-based compensation paid to members of our Board of Directors in 2024, which included a reduction in the number of board members for part of the year. Additionally, lower stock-based compensation for employees and consultants contributed to the decline.
Current report
Interest expense remained relatively flat at $9,066,203 for the twelve months ended December 31, 2024, as compared to interest expense of $9,063,112 for the comparable prior-year period. Interest income increased 27.8% compared to the prior year period, benefitting from higher cash balances and interest rate fluctuations.
Current report
Income tax provision was $57,647 for the twelve months ended December 31, 2024, compared to income tax provision of $79,228 for the comparable prior-year period. The decrease in expense is primarily driven by the increase in loss before provision for income taxes.
Current report
Primarily as a result of the factors described above, we had a net loss of $2,627,110 for the twelve months ended December 31, 2024, as compared to a net loss of approximately $1,807,586 for 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 non-cash charge related to the write off of certain fixed assets.
Current report
(6) Represents foreign exchange losses and gains associated with the fluctuations of foreign currency rates.
Current report
Our total current liabilities as of December 31, 2024, increased to $6,602,744 from $4,875,967 as of December 31, 2023, primarily due to an increase in accounts payable related to professional fees in connection with the acquisition by Evolution.
Current report
Our operating activities provided cash of $4,098,634 for the year ended December 31, 2024, compared to cash provided of $2,729,477 for the year ended December 31, 2023. This change is attributable to a favorable variance of $1,726,976 in use of assets and liabilities that relate to operations. Additionally, depreciation and amortization increased $589,046 related to increased capitalization of intangible assets and offset by a $102,304 decline in stock-based compensation from the vesting of stock options and a $70,862 decrease in reserve for credit losses.
Current report
Investing activities used cash of $1,622,604 for the year ended December 31, 2024, and $2,955,681 for the year ended December 31, 2023. This decrease in cash used was primarily due to the increase in the transfer of title of assets deployed at client locations to perpetual license customers in conjunction with a decrease in cash used for the acquisition of assets deployed.
Current report
Cash used in financing activities for the year ended December 31, 2024, was $886,126. This compares to $1,367,304 cash used by financing activities for the twelve months ended December 31, 2023. The decrease in cash used was primarily 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 9), in the 2024 period.
Current report
Credit Facility. In November 2021, we entered into a $60,000,000 senior secured term loan agreement. Subsequent to December 31, 2024, we entered into a new credit agreement 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 previous term loan agreement, which was terminated.
Current report
Off-balance sheet arrangements. As of December 31, 2024, there were no off-balance sheet arrangements.
Removed paragraphs (21)
Previous report
For the year ended December 31, 2023, we generated net revenues of $27,789,084 compared to net revenues of $23,442,306 in 2022, representing an increase of $4,346,778, or 18.5%. Net revenues for the year ended December 31, 2023 and 2022 represent $31,728,503 and $25,865,368 in gross billings respectively, net of $3,942,788 and $2,424,276 in license royalty payments in 2023 and 2022. Net revenues in our GG Core operating segment increased 25.7%, from $15,399,059 to $19,356,289. This increase was attributable to revenue from the sale of perpetual licenses to customers of $3,651,989 in 2023, compared to $275,308 in 2022, or $3,376,681 year over year. Other increases were attributed to revenues from a new distribution agreement. Net revenues in our GG Digital operating segment increased 4.8% from $8,043,247 to $8,432,795. Our online gaming revenues increased due to our online customers experiencing growth in their traditional markets and their entry into new markets.
Previous report
Cost of ancillary products and assembled components were $1,263,271 in 2023, compared to $198,531 in 2022, representing an increase of $1,064,740, or 536.3%. The increase was driven by the transfer of products underlying the sale of perpetual licenses.
Previous report
Selling, general and administrative expenses were $15,676,628 in 2023, compared to $12,548,033 in 2022, representing an increase of $3,128,595, or 24.9%. The increase was driven by higher salaries, wages, and severance costs.
Previous report
Research and development expenses were $823,189, in 2023 compared to $584,513 in 2022, representing an increase of $238,676, or 40.8%. This increase was primarily due to higher salaries and wages from increased headcount for employees developing GOS.
Previous report
Share-based compensation expenses were $1,021,953 in 2023 compared to $1,278,068 in 2022, representing a decrease of $256,115, or 20.0%. This decrease was due to lower amortization expense on options fully vested, offset by increased amortization expense for options granted to new hires.
Previous report
As a result of the changes described above, income from operations was $6,729,582 in 2023, compared to $6,071,802 in 2022, an increase of $657,780, or 10.8%.
Previous report
Total interest expense increased $1,651,888 to $9,063,112 in 2023, compared to $7,411,224 in 2022. The increase was attributable to significantly higher rates of interest on our borrowings. Total interest income increased $540,048 to $611,271 in 2023, compared to $71,223 in 2022. The increase was attributable to higher interest earned on multiple operating accounts.
Previous report
The income tax expense was $79,228 in 2023 based on an effective rate of (5.51)% compared to the benefit of $208,887 in 2022 based on an effective rate of 12.85%. The (5.51)% effective tax rate for 2023 differed from the statutory federal income tax rate of 21% and was primarily attributable to (i) the foreign tax credit carryover not utilized in 2022 and carried over to future periods; (ii) the Company maintaining a valuation allowance against its deferred tax assets; and (iii) other true ups on credits, Net Operating Losses, and other deferred tax items.
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) Includes $440,000 in severance expense relating to the termination of Todd Cravens, who was the President and Chief Executive Officer ("CEO"). Remainder relates to severance expense for two employees.
Previous report
(5) Represents payment made to the Company on a policy claim relating to the Triangulum Litigation in 2021.
Previous report
(6) Represents legal fees paid in relation to miscellaneous shareholder matters.
Previous report
Our total current liabilities as of December 31, 2023 decreased to $4,875,967 from $6,032,441 as of December 31, 2022, primarily due to the payment of accrued royalties.
Previous report
Operating activities
Previous report
Our operating activities provided $2,729,477 in cash for the year ended December 31, 2023, compared to cash provided of $6,391,040 for the year ended December 31, 2022. Cash provided consisted of $1,807,586 in net loss adjusted for $5,077,750 in non-cash expense addbacks, primarily composed of the change in depreciation and amortization expenses, amortization of debt issuance costs, share-based compensation, foreign currency exchange loss and amortization of right-of-use assets, offset by a $540,687 decrease from changes in assets and liabilities related to operating activities. The change in assets and liabilities related to operating activities primarily reflects a $758,536 increase in accounts receivable, a $1,902,174 decrease in accounts payable and accrued expenses, and a $250,488 decrease in operating lease liabilities; offset by a $1,108,132 decrease in income tax receivable, and $1,159,849 decrease in prepaids and other current assets.
Previous report
Investing activities
Previous report
Net cash used in investing activities was $2,955,681 for the year ended December 31, 2023, and $3,417,337 for the year ended December 31, 2022. The majority of the 2023 figure is the result of the acquisition of software and assets deployed at client locations. The majority of the 2022 figure is the result of the $2,000,000 purchase and retirement of the obligation to make contingent payments to a third party out of revenue we receive in licensing our Bonus Craps™ game, and acquisition of software.
Previous report
Financing activities
Previous report
Net cash used in financing activities for the year ended December 31, 2023, was $1,367,304. The principal financing activities were the mandatory repayment and excess cash flow sweeps on the Fortress Credit Agreement of $1,223,071, and payment of $463,964 on insurance notes payable, largely offset by the proceeds from stock option exercises.
Previous report
Net cash used in financing activities for the year ended December 31, 2022, was $745,633. The principal financing activities were the mandatory repayment of $600,000 on the Fortress Credit Agreement and payment of $658,550 on insurance notes payable, largely offset by the proceeds from stock option exercises.
Reworded paragraphs (5)
Previous wording
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, productivity and security 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.
Current wording
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 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.
Previous wording
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). Adjusted EBITDA includes adjustments to net income (loss) to exclude interest, income taxes, depreciation, amortization, share based compensation, foreign currency exchange loss, 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. Generally Accepted Accounting Principles (“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 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 GAAP net income to Adjusted EBITDA is as follows:
Current wording
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). Adjusted EBITDA includes adjustments to net loss to exclude interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency exchange (gain), and severance and other expenses related to litigation. 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 income to Adjusted EBITDA is as follows:
Previous wording
(4) Represents recruitment fee of $100,000 for new CEO hire and $28,106 in moving expenses incurred by 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
Our cash and cash equivalents balances were $16,691,514 and $18,237,513 at December 31, 2023 and 2022, respectively. As of December 31, 2023, we had total current assets of $22,156,035 and total assets of $40,475,800. This compares to $24,194,187 and $42,010,516, respectively, as of December 31, 2022. The decrease in total current assets as of December 31, 2023 was primarily due to a decrease in cash and prepaid expenses, offset by an increase in trade receivables. The net decrease in total assets as of December 31, 2023 was due to the decrease in current assets; decrease in right-of-use assets and intangibles due to amortization; and an increase in assets deployed at client locations to fulfill demand for the Company's new GOS operating system.
Current wording
As of December 31, 2024, we had total current assets of $24,171,920 and total assets of $41,010,731. As of December 31, 2023, we had total current assets of $22,156,035 and total assets of $40,475,800. The increase in current assets as of December 31, 2024, compared to December 31, 2023, was due to the increased cash and cash equivalents driven by cash provided by operating activities and increased accounts receivable. The increase in total assets as of December 31, 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 2024.
Previous wording
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.
Current wording
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.