Galaxy Gaming, Inc.

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 and nine months ended September 30, 2025 and 2024. 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 2024 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 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.

Previous wording

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 announc…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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 announc…

Excerpt shortened here; the source contains the full paragraph.

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 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.

Current wording

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.

Previous wording

Consummation of the Merger is subject to the satisfaction or waiver of certain closing conditions, including 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. 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 wording

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.

Previous wording

Recurring core revenue totaled $5,186,967 for the three months ended September 30, 2025, representing a modest year-over-year decline of 0.3%. This slight decrease was primarily attributable to the impact of recent casino closures, with a smaller contribution from reduced revenue tied to licensed third-party intellectual property. These declines were partially offset by revenue generated from placements of our new GOS progressive gaming system, which launched earlier this year. Royalties netted against gross core revenue decreased $42,341 for the three months ended September 30, 2025, as compared to the same period in the prior year. This decrease was attributable to lower royalties paid to third-parties for licensed intellectual property. Perpetual license sales of our progressive gaming systems to customers of $68,714 were down 90.3% percent for the three months ended September 30, 2025, 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 $3,947,334, increased $434,140, or 12.4% for the three months ended September 30, 2025, as compared to the same period in the prior year. This favorable increase reflects the ongoing expansion of our digital content onto new customer sites and the continued success of offering competitive products with brand recognition. Net of royalties, digital revenues grew to $2,805,343, up 11.5% for the three months ended September 30, 2025, as compared to the same period in the prior year.

Current wording

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.

Previous wording

Cost of ancillary products and assembled component expense decreased $101,726, or 29.7% for the three months ended September 30, 2025, 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.

Current wording

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.

Previous wording

Selling, general and administrative expenses decreased $2,239,162, or 35.8% for the three months ended September 30, 2025, as compared to the same period in the prior year. This decrease was primarily driven by a $1,934,107 reduction in costs associated with special projects, most notably legal expenses incurred related to the acquisition by Evolution. Normalized for the impact of special projects and excluding the related fees of $310,778 and $2,244,885 for the three months ended September 30, 2025 and September 30, 2024, respectively, selling, general, and administrative expenses decreased $305,055 for the three months ended September 30, 2025, as compared to the same period in the prior year. The decrease was primarily driven by lower legal, accounting, and consulting expenses unrelated to special projects.

Current wording

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.

Previous wording

Depreciation and amortization increased $282,898, or 13.5% for the nine months ended September 30, 2025, as compared to the same period in the prior year. This increase was primarily driven by amortization expense for certain intangible assets placed in service and to a lesser extent, depreciation expense associated with incremental placements of assets deployed at client locations.

Current wording

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.

Previous wording

Interest expense decreased $1,421,138, or 62.0% for the three months ended September 30, 2025, as compared to the same period in the prior year. The decrease was due to reduced interest rates and a reduced principal balance as a result of the refinancing of our debt in January 2025. Interest income decreased $202,699, or 97.7% compared to the prior year period, primarily due to lower cash balances.

Current wording

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.

Previous wording

The Company recognized a loss on extinguishment of debt of $2,969,585 for the nine months ended September 30, 2025 related to the refinancing of our debt from Fortress to BMO.

Current wording

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.

Previous wording

Primarily as a result of the factors described above, we had net income of $1,039,139 for the three months ended September 30, 2025, as compared to net loss of approximately $2,197,914 for the same period in the prior year.

Current wording

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.

Previous wording

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted EBITDA includes adjustments to U.S. GAAP net (loss) income 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) income to Adjusted EBITDA is as follows:

Current wording

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:

Previous wording

(5) Represents a non-cash charge related to the write off of certain fixed assets.

Current wording

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

Previous wording

As of September 30, 2025, we had total current assets of $10,124,100 and total assets of $26,402,539. As of December 31, 2024, we had total current assets of $24,171,920 and total assets of $41,010,731. The decrease in current assets as of September 30, 2025 compared to December 31, 2024 was primarily due to the decreased cash and cash equivalents driven by cash used in the refinancing of our debt. The decrease in total assets as of September 30, 2025 compared to December 31, 2024 was primarily due to the decrease of current assets noted above.

Current wording

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.

Previous wording

Our total current liabilities as of September 30, 2025 compared to December 31, 2024 increased to $7,923,720 from $6,602,744. This increase was primarily due to an increase in the current portion of our long term debt as a result of the refinancing of our debt from Fortress to BMO.

Current wording

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.

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, assemblies in process and research and development of our products. It is our intention to continue such initiatives and investments.

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 and research and development of our products. It is our intention to continue such initiatives and investments.

Previous wording

Our operating activities provided cash of $5,469,738 for the nine months ended September 30, 2025, compared to $3,027,456 provided for the comparable prior year period. This change is mainly attributable to a smaller net loss in the current period versus the prior period and a variance of $1,492,478 in use of assets and liabilities that relate to operations. Additionally, the Company recognized a loss on extinguishment of debt of $2,969,585 due to the refinancing of the Fortress loan to BMO, depreciation and amortization increased $282,898 primarily driven by amortization related to intangible assets placed in service and to a lesser extent, depreciation related to assets deployed at client locations, $98,717 decline in stock-based compensation and an increase in bad debt of $62,013.

Current wording

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.

Previous wording

Investing activities used cash of $2,214,355 for the nine months ended September 30, 2025, compared to cash used of $1,181,403 for the nine months ended September 30, 2024. This increase in cash used was primarily due to the decrease in the transfer of title of assets deployed at client locations to perpetual license customers, along with higher spending on assemblies in process, increased investment in internally developed software, and additional acquisitions of property and equipment.

Current wording

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.

Previous wording

Cash used in financing activities during the nine months ended September 30, 2025, was $18,224,567. This compares to $648,038 cash used by financing activities for the nine months ended September 30, 2024. The increase in cash used was due to the refinancing of our debt from Fortress to BMO and additional principal payments of $3,125,000 made on the debt in the current year.

Current wording

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.

Previous wording

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.

Current wording

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.