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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31,
2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
000-30653
Galaxy Gaming, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada
20-8143439
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
6480 Cameron Street Ste. 305
–
Las Vegas
,
NV
89118
(Address of principal executive offices)
(
702
)
939-3254
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
Trading symbol
Name of exchange on which registered
Common stock
GLXZ
OTCQB marketplace
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate by check mark whether the issuer has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
25,253,515
common shares as of May 5, 2025.
GALAXY GAMING, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2025
Accounts receivable, net of allowance of $
164,966
and $
154,729
, respectively
5,333,147
4,719,717
Income tax receivable
96,211
96,212
Prepaid expenses
951,876
1,237,948
Total current assets
11,686,870
24,171,920
Property and equipment, net
146,567
69,916
Operating lease right-of-use assets
469,234
533,163
Assets deployed at client locations, net
3,118,850
3,334,266
Goodwill
1,091,000
1,091,000
Other intangible assets, net
11,086,093
11,443,753
Other assets
218,180
366,713
Total assets
$
27,816,794
$
41,010,731
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable
$
2,492,667
$
2,646,153
Accrued expenses
2,368,650
2,828,290
Current portion of operating lease liabilities
287,317
286,019
Current portion of long-term debt
2,402,698
842,282
Total current liabilities
7,551,332
6,602,744
Long-term operating lease liabilities
225,918
297,714
Long-term debt and liabilities, net
41,607,128
54,120,183
Deferred tax liabilities, net
62,986
44,429
Total liabilities
49,447,364
61,065,070
Commitments and Contingencies (See Note 6)
Stockholders’ deficit
Preferred stock,
10,000,000
shares authorized; $
0.001
par value;
0
shares issued and outstanding
—
—
Common stock,
65,000,000
shares authorized; $
0.001
par value;
25,253,515
and
25,115,299
shares issued and outstanding, respectively
25,253
25,115
Additional paid-in capital
20,241,486
19,948,363
Accumulated deficit
(
41,772,518
)
(
39,751,236
)
Accumulated other comprehensive loss
(
124,791
)
(
276,581
)
Total stockholders’ deficit
(
21,630,570
)
(
20,054,339
)
Total liabilities and stockholders’ deficit
$
27,816,794
$
41,010,731
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
GALAXY GAMING, INC.
CONDENSED CONSOLIDATED STATEM
ENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
Three Months Ended
March 31, 2025
March 31, 2024
Revenue:
Licensing fees
$
7,784,933
$
8,001,066
Total revenue
7,784,933
8,001,066
Costs and expenses:
Cost of ancillary products and assembled components
188,002
406,380
Selling, general and administrative
4,312,781
4,204,828
Research and development
362,776
251,886
Depreciation and amortization
779,817
686,193
Stock-based compensation
166,261
141,242
Total costs and expenses
5,809,637
5,690,529
Income from operations
1,975,296
2,310,537
Other income (expense):
Interest income
22,878
201,866
Interest expense
(
1,003,350
)
(
2,289,347
)
Foreign currency exchange (loss) gain
(
10,100
)
12,177
Loss on extinguishment of debt
(
2,969,585
)
-
Total other expense, net
(
3,960,157
)
(
2,075,304
)
(Loss) income before provision for income taxes
(
1,984,861
)
235,233
Provision for income taxes
(
36,421
)
(
26,325
)
Net (loss) income
(
2,021,282
)
208,908
Foreign currency translation adjustment
151,790
(
30,394
)
Comprehensive (loss) income
$
(
1,869,492
)
$
178,514
Net (loss) income per share:
Basic
$
(
0.08
)
$
0.01
Diluted
$
(
0.08
)
$
0.01
Weighted-average shares outstanding:
Basic
25,912,327
24,857,480
Diluted
25,912,327
24,884,672
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
GALAXY GAMING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES I
N STOCKHOLDERS’ DEFICIT
(Unaudited)
Common Stock
Additional Paid-in
Accumulated
Accumulated Other Comprehensive
Total Stockholders'
Shares
Amount
Capital
Deficit
Loss
Deficit
Beginning balance, December 31, 2024
25,115,299
$
25,115
$
19,948,363
$
(
39,751,236
)
$
(
276,581
)
$
(
20,054,339
)
Net loss
—
—
—
(
2,021,282
)
—
(
2,021,282
)
Foreign currency translation gain
—
—
—
—
151,790
151,790
Stock options exercised
100,000
100
126,900
—
—
127,000
Stock-based compensation
38,216
38
166,223
—
—
166,261
Balance, March 31, 2025
25,253,515
$
25,253
$
20,241,486
$
(
41,772,518
)
$
(
124,791
)
$
(
21,630,570
)
Common Stock
Additional Paid-in
Accumulated
Accumulated Other Comprehensive
Total Stockholders'
Shares
Amount
Capital
Deficit
Loss
Deficit
Beginning balance, December 31, 2023
24,845,439
$
24,846
$
18,972,901
$
(
37,124,126
)
$
(
117,042
)
$
(
18,243,421
)
Net income
—
—
—
208,908
—
208,908
Foreign currency translation loss
—
—
—
—
(
30,394
)
(
30,394
)
Stock options exercised
20,000
20
24,180
—
—
24,200
Stock-based compensation
45,243
45
141,197
—
—
141,242
Balance, March 31, 2024
24,910,682
$
24,911
$
19,138,278
$
(
36,915,218
)
$
(
147,436
)
$
(
17,899,465
)
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
GALAXY GAMING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
Three Months Ended
March 31, 2025
March 31, 2024
Cash flows from operating activities:
Net (loss) income
$
(
2,021,282
)
$
208,908
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
779,817
686,193
Amortization of right-of-use assets
63,929
65,449
Amortization of debt issuance costs and debt discount
53,988
380,900
Bad debt expense (recovery)
22,609
(
53,094
)
Gain on disposal of property & equipment
(
62
)
—
Deferred income tax
18,557
(
4,809
)
Stock-based compensation
166,261
141,242
Loss on extinguishment of debt
2,969,585
—
Changes in operating assets and liabilities:
Accounts receivable
(
634,146
)
221,881
Income tax receivable
17,864
(
31,639
)
Prepaid expenses and other current assets
286,072
227,221
Other assets
148,533
19,051
Accounts payable
(
155,031
)
25,105
Accrued expenses
(
477,504
)
(
284,139
)
Revenue contract liability
—
(
166,507
)
Operating lease liabilities
(
70,498
)
(
69,133
)
Net cash provided by operating activities
1,168,692
1,366,629
Cash flows from investing activities:
Investment in internally developed software
(
194,827
)
(
169,523
)
Acquisition of property and equipment
(
93,683
)
—
Acquisition of assets deployed at client locations
(
143,370
)
(
484,385
)
Transfer of title of assets deployed at client locations to perpetual license customer
148,550
302,574
Net cash used in investing activities
(
283,330
)
(
351,334
)
Cash flows from financing activities:
Proceeds from BMO Credit Agreement
45,000,000
—
Principal payments on long-term debt (Fortress)
(
57,576,929
)
(
243,961
)
Principal payments on long-term debt (BMO)
(
562,500
)
—
Principal payments on long-term debt (Insurance)
(
89,584
)
—
Payments of debt issuance costs
(
608,967
)
—
Fees associated with debt transactions — prior debt
(
138,233
)
—
Proceeds from stock option exercises
127,000
24,200
Net cash used in financing activities
(
13,849,213
)
(
219,761
)
Effect of exchange rate changes on cash
151,444
254
Net (decrease) increase in cash and cash equivalents
(
12,812,407
)
795,788
Cash and cash equivalents – beginning of period
18,118,043
16,691,514
Cash and cash equivalents – end of period
$
5,305,636
$
17,487,302
Supplemental cash flow information:
Cash paid for interest
$
939,583
$
2,012,964
Supplemental schedule of non-cash activities:
Insurance acquired under note payable
$
152,698
$
—
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
GALAXY GAMING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANC
IAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
Unless the context indicates otherwise, references to “Galaxy Gaming, Inc.,” “we,” “us,” “our,” or the “Company,” refer to Galaxy Gaming, Inc., a Nevada corporation (“Galaxy Gaming”).
We are an established global gaming company specializing in the design, development, acquisition, assembly, marketing and licensing of proprietary casino table games, side bets, and associated technology, platforms and systems for the casino and iGaming industries. Casinos use our proprietary products and services to enhance their gaming operations and improve their profitability and productivity, as well as to offer popular cutting-edge gaming entertainment content and technology to their players. We market our products and services to online and land-based casinos worldwide with products currently present in North America, the Caribbean, Central America, the United Kingdom, Europe, Africa, and to cruise ships exploring the world's oceans. We license our products and services for use in regulated land-based gaming markets. We also license our content and distribute content from other companies to iGaming operators in gaming markets throughout the world where iGaming is not illegal.
On
July 18, 2024
, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evolution Malta Holding Limited, a company registered in Malta (“Parent”), and Galaga Merger Sub, Inc., a Nevada corporation and direct wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, and subject to the terms and conditions thereof, Merger Sub would merge with and into the Company (the “Merger”), with the Company surviving the Merger as 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, other than any Company common stock (i) owned by Company stockholders who are entitled to demand and have properly and validly demanded their appraisal rights under Nevada law or (ii) owned by Parent, Merger Sub, the Company or by any of their respective subsidiaries, will be converted automatically into the right to receive
$
3.20
per share in cash, without interest and subject to any applicable withholding taxes.
Consummation of 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 the second half of 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.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments (including all those of a recurring nature and those necessary in order for the financial statements to not be misleading) and all disclosures to present fairly our financial position and the results of our operations and cash flows for the periods presented.
The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes as of and for the year ended December 31, 2024 included in our 2024 Form 10-K ("2024 10-K").
Use of estimates and assumptions.
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.
8
Consolidation.
The financial statements are presented on a consolidated basis and include the results of the Company and its wholly owned subsidiaries, Progressive Games Partner, LLC ("PGP") and Galaxy Gaming-01 LLC ("GG-01"). All intercompany transactions and balances have been eliminated in consolidation.
Cash and cash equivalents.
Cash and cash equivalents consist primarily of deposits held at major banks and highly liquid investments with original maturities of three months or less. With the exception of funds held outside the U.S., these deposits are in insured banking institutions, which are insured up to $
250,000
per account. To date, we have not experienced uninsured losses.
Accounts receivable and allowance for credit losses.
Accounts receivable are stated at face value net of allowance for credit losses. Management estimates the allowance for expected credit losses balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in the current environmental economic conditions and reasonable and supportable forecast. The allowance for expected credit losses on financial instruments is measured on a collective (pool) basis when similar risk characteristics exist. Accounts receivable are non-interest bearing. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received.
For the three months ended March 31, 2025
, there was
no
material activity in allowance for credit losses.
Goodwill.
The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed, is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit.
Other intangible assets, net.
The following intangible assets have finite lives and are being amortized using the straight-line method over their estimated economic lives as follows:
Patents
4
-
20
years
Customer relationships
9
-
22
years
Trademarks
20
-
30
years
Intellectual property
12
years
Non-compete agreements
9
years
Software
3
years
Software relates primarily to assets where costs are capitalizable during the application development phase. External and internal labor-related costs associated with product development are included in software. The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.
No
impairment was recorded for the
three months ended March 31, 2025. See Note 4
.
Fair value of financial instruments.
Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,
Fair Value Measurement
(“ASC 820”). ASC 820 defines fair value, provides guidance for measuring fair value, requires certain disclosures and discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:
•
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
9
The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. The estimated fair value of our long-term debt approximates its carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk (level 2). The Company currently has no financial instruments measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties.
Leases
. The Company classifies leases at inception as operating leases or finance leases in accordance with ASC 842, "Leases." We account for lease components (such as rent payments) separately from non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). Operating and finance leases with terms greater than 12 months are recorded on the condensed consolidated balance sheets as right-of-use assets with corresponding lease liabilities. Lease liabilities are amortized over the lease term using the effective interest method, while lease assets are depreciated over the shorter of the asset's useful life or the lease term. The discount rate used to determine present value is typically the incremental borrowing rate at lease commencement, unless the implicit rate in the lease is readily determinable. Subsequent changes in lease terms or payments are adjusted accordingly.
Revenue recognition.
We account for our revenue in accordance with ASC Topic 606,
Revenue from Contracts with Customers
("ASC 606"). See Note 3
.
Foreign currency translation.
The functional currency for PGP is the Euro. Gains and losses from settlement of transactions involving foreign currency amounts are included in other income or expense in the Condensed Consolidated Statements of Operations. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in accumulated other comprehensive loss in the Condensed Consolidated Statements of Changes in Stockholders’ Deficit.
Basic and diluted earnings (loss) per share.
Basic earnings (loss) per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the employee stock purchase plan, and unvested restricted stock units (“RSUs”).
Segment information.
Operating segments are defined as components of our enterprise for which separate financial information is regularly reviewed by the Chief Operating Decision Maker ("CODM"), CEO, Matthew Reback, to assess performance and make operational decisions. Currently, we have two revenue streams—land-based gaming and online gaming—that are aggregated into a single reporting segment based on their similar economic characteristics, products, and distribution methods.
The CODM evaluates performance and allocates resources based on consolidated net income (loss), which is the primary performance metric for the reporting segment. Additionally, the CODM reviews reporting segment revenue in conjunction with consolidated revenues, expenses, and net income (loss) to assess performance. The accounting policies of the reporting segment are consistent with those described in the summary of significant accounting policies.
Other significant accounting policies.
Our significant accounting policies are described in our 2024
10-K. There have been no material changes to those policies.
Recently issued accounting pronouncements.
Accounting Standard Update 2023-09, "Improvements to Income Tax Disclosures" ("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures.
Accounting Standard Update 2024-03, "Disaggregation of Income Statement Expenses" ("ASU 2024-03"). In November 2024, the FASB issued ASU 2024-03, which requires public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. In January 2025, the FASB issued ASU 2025-01, which clarifies the initial effective date for entities that do not have an annual reporting period that ends on December 31. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures.
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.
10
NOTE 3. REVENUE RECOGNITION
Revenue recognition.
We generate revenue primarily from the licensing of our intellectual property and the intellectual property that we license from third parties. We recognize revenue under recurring fee license contracts monthly as we satisfy our performance obligation, which consists of granting the customer the right to use our intellectual property. Amounts billed are determined based on flat rates or usage rates stipulated in the customer contract.
From time to time, we may sell the perpetual right to use our intellectual property for our progressive gaming systems, that is separate from the licensing of our game content and from time to time, sell the units used to deliver the progressive gaming systems. Control transfers and we recognize revenue at a point in time when the gaming system is available for use by a customer, which is no earlier than the shipment of the products to the customer or an intermediary for the customer.
From time to time, the Company licenses intellectual property from third-party owners and re-licenses that intellectual property to its casino clients. In these arrangements, the Company usually agrees to pay the owner of the intellectual property a royalty based on the revenues the Company receives from licensing the intellectual property to its casino clients. Depending on the relationship between Galaxy and the licensor, those royalties are either deducted from gross revenue to arrive at net revenue or are included in operating expenses.
Disaggregation of revenue.
The following table disaggregates our revenue by geographic location for the
three months ended March 31, 2025, and 2024. All of the royalty expense that is charged to a contra-revenue in our online gaming revenue stream has been allocated to the Europe, Middle East and Africa region in both periods presented.
Three Months
Ended March 31,
2025
2024
The Americas
$
4,503,042
$
4,717,284
Europe, Middle East and Africa
3,281,891
3,283,782
Total revenue
$
7,784,933
$
8,001,066
Contract liabilities.
Amounts billed and cash received in advance of performance obligations fulfilled are recorded as contract liabilities and recognized as revenue when performance obligations are fulfilled.
On May 10, 2023, the Company and a customer entered into an amended and restated agreement (the "Agreement"). The Agreement amends and restates a previous agreement between the Company and the customer, dated June 2, 2015, for the provision of licenses for certain table game content and related intellectual property which the Company, succeeded to as successor in interest by merger with PGP.
The Agreement guarantees a minimum payment from the customer of €
6,000,000
(converted to approximately $
6,496,020
as of March 31, 2025) per each year ended March 31, 2024, 2025, 2026, and 2027 of the Agreement. The amount is to be billed and paid based on minimum monthly payments of €
500,000
(converted to approximately
$
541,335
as of March 31, 2025). Any usage amount lower than the minimum monthly payment is deferred until the end of the contract year when the revenue is considered earned and can be recognized. For the three months ended March 31, 2025, the Company did not recognize any deferred revenue as monthly usage amounts came in higher than the minimum monthly payments.
Contract assets.
The Company’s contract assets consist solely of unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables are included in the balance of accounts receivable, net of allowance on the balance sheet and totaled $
1,573,999
, $
1,454,066
and $
1,110,378
as of
March 31, 2025, December 31, 2024 and March 31, 2024, respectively.
Intellectual property agreements.
From time to time, the Company purchases or licenses intellectual property from third-parties and the Company, in turn, utilizes that intellectual property in certain games licensed to clients. In these purchase agreements, the Company may agree to pay the seller of the intellectual property a fee if and when the Company receives revenue from games containing the intellectual property.
On
June 8, 2023, the Company entered into a license and distribution agreement with a licensor, pursuant to which the Company licenses and has rights to distribute a game. The agreement contains definitions, representations and warranties, and terms that are customary in licensing agreements. The agreement is for a set term that may be extended on an annual basis at the end of the term. Customers under the distribution agreement generate revenue from the licensing of intellectual property. The agreement sets forth royalties to be paid to the licensor during the term and includes intellectual property licensing. The licensor has discretion in establishing the price for certain
11
game
content to be re-licensed by the Company. The royalties due for this portion of the game content will be netted against revenue in our Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.
NOTE
4. OTHER INTANGIBLE ASSETS
Other intangible assets, net consisted of the following:
March 31,
December 31,
2025
2024
Patents
$
13,508,203
$
13,507,338
Customer relationships
14,040,856
14,040,856
Trademarks
2,880,967
2,880,967
Intellectual property
2,000,000
2,000,000
Non-compete agreements
660,000
660,000
Software
2,332,674
2,137,847
Other intangible assets, gross
35,422,700
35,227,008
Less: accumulated amortization
(
24,336,607
)
(
23,783,255
)
Other intangible assets, net
$
11,086,093
$
11,443,753
For the three months ended March 31, 2025 and 2024, amortization expense related to other intangible assets was $
552,487
and $
485,330
, respectively.
NOTE
5. LONG-TERM DEBT AND LIABILITIES
Long-term debt and liabilities consisted of the following at:
March 31,
December 31,
2025
2024
BMO credit agreement
$
44,437,500
$
-
Fortress credit agreement
-
57,576,929
Insurance notes payable
152,698
242,282
Long-term debt and liabilities, gross
44,590,198
57,819,211
Less: Unamortized debt issuance costs
(
580,372
)
(
2,856,746
)
Long-term debt and liabilities, net of debt issuance costs
44,009,826
54,962,465
Less: Current portion of long-term debt
(
2,402,698
)
(
842,282
)
Long-term debt and liabilities, net
$
41,607,128
$
54,120,183
BMO Credit Agreement.
On January 6, 2025, the Company entered into a credit agreement with BMO Bank N.A. ("BMO"), a national banking association (the "Credit Agreement"). The Credit Agreement provides for senior secured financing in the aggregate amount of up to
$
47,000,000
, consisting of a
$
2,000,000
senior secured revolving credit facility and a
$
45,000,000
senior secured term loan.
The new Credit Agreement replaces the Fortress Credit Agreement, which included a term loan with a maturity date of
November 13, 2026
. On January 6, 2025, the Company 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.
Borrowings under the Credit Agreement bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (1) at a floating rate equal to the base rate (the “Base Rate”) determined by reference to the greatest of: (a) the prime commercial rate announced or otherwise established by BMO, (b) the federal funds rate plus one half of
1
%
, and (c) the one-month Term Secured Overnight Financing Rate ("SOFR") (as defined in the Credit Agreement) plus
1.00
%
; or (2) at a fixed rate based on Term SOFR with an interest period of one, three or six months (at the Company’s election). The applicable margin for borrowings is determined by reference to a pricing grid based on the Company’s then current Total Funded Debt to EBITDA Ratio (as defined in the Credit Agreement). The applicable margin for Base Rate loans ranges from
2.0
% to
2.5
%
per annum. The applicable margin for SOFR loans ranges from
3.0
% to
3.5
%
per annum. The Company pays interest on a
monthly basis
and has elected the one-month SOFR plus
1.00
%
. The Company will pay (i) a commitment fee equal to the applicable margin on the average daily undrawn amount under the new revolving credit facility, and (ii) a one-time closing fee based on the total commitments under the new term loan and new revolving credit facility.
12
The new term loan and new revolving credit facility will mature on the earlier of (i)
January 6, 2030, or (ii) January 6, 2028 if the merger with Evolution Malta Holding Limited is not completed by December 31, 2025
.
The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The Credit Agreement includes financial covenants requiring the Company to maintain a maximum Total Funded Debt to EBITDA Ratio, a minimum Fixed Charge Coverage Ratio, minimum EBITDA, and maximum Capital Expenditures (each as defined in the Credit Agreement).
The Company’s obligations under the Credit Agreement are guaranteed by the Company’s domestic subsidiaries, and secured by a first-priority security interest in substantially all of the tangible and intangible personal property of the Company and each subsidiary.
Fortress Credit Agreement.
On November 15, 2021, the Company entered into a senior secured term loan agreement with Fortress Credit Corp. (“Fortress Credit Agreement”) in the amount of
$
60,000,000
. As described above, this loan was repaid in full on January 6, 2025, and the Fortress Credit Agreement was terminated.
Prior to its termination on January 6, 2025
, t
he Fortress Credit Agreement bore interest at a rate equal to, at the Company’s option, either (a) London Interbank Offered Rate ("LIBOR") (or a successor rate, determined in accordance with the Fortress Credit Agreement) plus
7.75
%
, subject to a reduction to
7.50
%
upon the achievement of a net leverage target or (b) a base rate determined by reference to the greatest of (i) the federal funds rate plus
0.50
%
, (ii) the prime rate as determined by reference to The Wall Street Journal’s “Prime Rate” and (iii) the one-month adjusted LIBOR rate plus
1.00
%
, plus
6.75
%
, subject to a reduction to
6.50
%
upon the achievement of a net leverage target.
In response to ASU No. 2020-04,
Reference Rate Reform (Topic 848)
and effective May 30, 2023, the Benchmark Replacement replaced LIBOR under the Fortress Credit Agreement. The Benchmark Replacement is (a) the sum of: (i) Term Secured Overnight Financing Rate ("SOFR") and (ii)
0.11448
%
for an Available Tenor of one-month's duration,
0.26161
%
for an Available Tenor of three-months duration, and
0.42826
%
for an Available Tenor of six months duration, or (b) the sum of: (i) Daily Simple SOFR and (ii) the spread adjustment selected or recommended by the Relevant Governmental Body for the replacement of the tenor of USD LIBOR with a SOFR-based rate having approximately the same length as the interest payment period.
The Fortress Credit Agreement had a final maturity of
November 13, 2026
. The obligations under the Fortress Credit Agreement were guaranteed by the Company’s subsidiaries and were secured by substantially all of the assets of the Company and its subsidiaries. The Fortress Credit agreement required, among other things, principal payments of
$
150,000
per quarter and included an annual sweep of
50
%
of excess cash flow commencing in 2023 based on results for the prior fiscal year. The Fortress Credit Agreement contained affirmative and negative financial covenants (as defined in the Fortress Credit Agreement) and other restrictions customary for borrowings of this nature. The Fortress Credit Agreement had no prepayment penalty after November 15, 2023.
In connection with entering into the Fortress Credit Agreement, the Company also issued warrants to purchase a total of up to
778,320
shares of the Company’s common stock to certain affiliates of Fortress at a price per share of
$
0.01
(the “Warrants”). The Warrants are exercisable at any time, subject to certain restrictions. For purposes of calculating earnings (loss) per share, the Warrants are considered outstanding.
As of
March 31, 2025, future maturities of our long-term obligations are as follows:
Total
Years ended December 31,
2025
$
1,840,198
2026
2,250,000
2027
3,375,000
2028
3,375,000
2029
4,500,000
Thereafter
29,250,000
Long-term liabilities, gross
$
44,590,198
13
NOTE
6. COMMITMENTS AND CONTINGENCIES
Concentration of risk.
We are exposed to risks associated with clients who represent a significant portion of total revenues.
For the
three months ended March 31, 2025 and 2024, respectively, we had the following client concentrations:
Location
Three Months Ended March 31, 2025
Revenue
Three Months Ended March 31, 2024
Revenue
Accounts
Receivable
March 31, 2025
Accounts
Receivable
December 31, 2024
Client A
Europe
20.1
%
23.2
%
$
1,250,306
$
1,186,528
Legal proceedings.
In the ordinary course of conducting our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff or defendant, that are complex in nature and have outcomes that are difficult to predict. See "Litigation Related to the Merger" in Item 1 of Part II of this Quarterly Report.
An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given period and, accordingly,
no
provision for loss has been reflected in the accompanying financial statements related to those matters.
Beginning on September 11, 2024, seven purported stockholders of Galaxy have sent demands to the Company and two of which included draft complaints. On October 18, 2024,
two
purported stockholders filed complaints, relating to the Merger Agreement disclosures, captioned Finger v. Galaxy Gaming, Inc., et al., Index No. 655536/2024 (N.Y. Sup. Ct.) and Coffman v. Galaxy Gaming, Inc., et al., Index No. 655530/2024 (N.Y. Sup. Ct.). The demand letters and complaints allege that the definitive proxy statement on Schedule 14A filed by the Company on September 26, 2024 is materially incomplete and misleading because it omitted certain information related to the Merger (as defined herein), including but not limited to information about the Company’s financial projections and analyses performed by Galaxy’s financial advisor, Macquarie Capital (USA) Inc. While we believe that the disclosures set forth in the proxy statement comply fully with all applicable law and deny the allegations in the demand letters and the complaints, in order to moot plaintiffs’ disclosure claims, avoid nuisance and possible expense and business delays, and provide additional information to our stockholders, on November 1, 2024, we determined to voluntarily supplement certain disclosures in the proxy statement related to the purported stockholders’ claims.
Intellectual property agreements.
From time to time, the Company purchases intellectual property from third-parties and the Company, in turn, utilizes that intellectual property in certain games licensed to clients. In these purchase agreements, the Company may agree to pay the seller of the intellectual property a fee, if and when, the Company receives revenue from games containing the intellectual property.
NOTE
7. SEGMENT
We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision maker ("CODM"), CEO, Matthew Reback, to evaluate performance and make operating decisions. We currently have two revenue streams (land-based gaming and online gaming), which are aggregated into
one
reporting segment. The land-based revenue stream derives its revenues from casinos using our proprietary products to enhance their gaming operations. The online gaming ("iGaming") revenue stream derives its revenues from the licensing and distribution of our content to iGaming operators. The Company has intra-entity sales between subsidiaries. The accounting policies of each revenue stream are the same as those described in the summary of significant accounting policies.
The CODM assesses performance of the revenue streams and allocates resources based on consolidated net income (loss), which is the primary performance metric. Net income (loss) is used to monitor budget versus actual results and assess the performance of the business. The measure of segment assets is reported on the Condensed Consolidated Balance Sheet as total assets, which are not allocated to individual revenue streams for performance evaluation by the CODM.
The following table discloses significant segment expenses. The Company determined the following significant expenses: cost of ancillary products and assembled components, selling, general and administrative, compensation and related expenses, research and development, depreciation and amortization, and stock-based compensation. The CODM reviews these significant expenses as provided in the monthly reporting package.
14
A summary of segment expense activity is as follows:
For the Quarter Ended March 31,
2025
2024
Revenue:
Total Core Revenue
$
5,016,233
$
5,397,641
Total Digital Revenue
2,768,700
2,603,425
Consolidated Revenue
$
7,784,933
$
8,001,066
Cost and expenses
Cost of ancillary products and assembled components
$
188,002
$
406,380
Selling, general and administrative
2,362,376
2,402,133
Compensation and related expenses
2,246,063
2,010,822
Research and development
67,118
43,759
Depreciation and amortization
779,817
686,193
Stock-based compensation
166,261
141,242
Total costs and expenses
$
5,809,637
$
5,690,529
Net (loss) income
$
(
2,021,282
)
$
208,908
NOTE
8. INCOME TAXES
Our forecasted annual effective tax rate (“AETR”) at March 31, 2025
was
5.5
%, as compared to
11.2
% at March 31, 2024. This decrease was primarily driven by the increased amount of permanent differences mainly attributable to the legal expenses incurred related to the acquisition by Evolution and the loss on extinguishment of debt related to the refinancing of our debt from Fortress to BMO.
For the three months ended March 31, 2025 and 2024
, our effective tax rate (“ETR”) was
(
1.8
)
% and
11.2
%, respectively. The decrease in the ETR for the three months ended March 31, 2025 is mainly attributable to the loss on extinguishment of debt as compared to the three months ended March 31, 2024
.
NOTE
9. SUBSEQUENT EVENTS
None
15
ITEM 2. 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, 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.
16
SPECIAL NOTE REGARDING FO
RWARD-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 (as defined herein) 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 (as defined herein); 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, 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.
OVERVIEW
We develop, acquire, assemble and market technology and entertainment-based products and services for the gaming industry for placement on casino floors and on legal internet gaming sites. Our products and services primarily relate to licensed casino operators’ table games activities and focus on either increasing their profitability and productivity or expanding their gaming entertainment offerings in the form of proprietary table games, electronically enhanced table game platforms, fully-automated electronic tables and other ancillary equipment. In addition, we license intellectual property to legal internet gaming operators. Our products and services are offered in 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 an Agreement and Plan of Merger (the “Merger Agreement”) with Evolution Malta Holding Limited, a company registered in Malta (“Parent”), and Galaga Merger Sub, Inc., a Nevada corporation and direct wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, and subject to the terms and conditions thereof, Merger Sub would merge with and into the Company (the “Merger”), with the Company surviving the Merger as 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, other than any Company common stock (i) owned by Company stockholders who are entitled to demand and have properly and validly demanded their appraisal rights under Nevada law or (ii) owned by Parent, Merger Sub, the Company or by any of their respective subsidiaries, will be converted automatically into the right to receive $3.20 per share in cash, without interest and subject to any applicable withholding taxes.
17
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. The Merger is expected to be completed in the second half of 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.
18
Results of operations for the three months ended March 31, 2025 and 2024.
Our revenue consists of the following components:
Three Months Ended March 31,
2025
2024
$ Change
% Change
Revenue:
Core Revenues:
Recurring License Revenue
$
5,253,261
$
5,398,728
$
(145,467
)
-2.7
%
Perpetual License Sales of Progressive Gaming Systems
505,120
805,193
(300,073
)
-37.3
%
Gross Revenue
5,758,381
6,203,921
(445,540
)
-7.2
%
Royalties Netted against Gross Revenue
(742,148
)
(806,280
)
64,132
-8.0
%
Total Core Revenue
$
5,016,233
$
5,397,641
$
(381,408
)
-7.1
%
Digital Revenues:
Recurring License Revenue
$
3,835,585
$
3,455,953
$
379,632
11.0
%
Gross Revenue
3,835,585
3,455,953
379,632
11.0
%
Royalties Netted against Gross Revenue
(1,066,885
)
(852,528
)
(214,357
)
25.1
%
Total Digital Revenue
$
2,768,700
$
2,603,425
$
165,275
6.3
%
Consolidated Revenues:
Recurring License Revenue
$
9,088,846
$
8,854,681
$
234,165
2.6
%
Perpetual License Sales of Progressive Gaming Systems
505,120
805,193
(300,073
)
-37.3
%
Gross Revenue
9,593,966
9,659,874
(65,908
)
-0.7
%
Royalties Netted against Gross Revenue
(1,809,033
)
(1,658,808
)
(150,225
)
9.1
%
Revenue
$
7,784,933
$
8,001,066
$
(216,133
)
-2.7
%
Costs and expenses
Cost of ancillary products and assembled components
$
188,002
$
406,380
$
(218,378
)
-53.7
%
Selling, general and administrative
4,312,781
4,204,828
107,953
2.6
%
Research and development
362,776
251,886
110,890
44.0
%
Depreciation and amortization
779,817
686,193
93,624
13.6
%
Stock-based compensation
166,261
141,242
25,019
17.7
%
Total costs and expenses
5,809,637
5,690,529
119,108
2.1
%
Income from operations
1,975,296
2,310,537
(335,241
)
-14.5
%
Other income (expense):
Interest income
22,878
201,866
(178,988
)
-88.7
%
Interest expense
(1,003,350
)
(2,289,347
)
1,285,997
-56.2
%
Foreign currency exchange (loss) gain
(10,100
)
12,177
(22,277
)
-182.9
%
Loss on extinguishment of debt
(2,969,585
)
-
(2,969,585
)
100
%
Total other income (expense), net
(3,960,157
)
(2,075,304
)
(1,884,853
)
90.8
%
(Loss) income before provision for income taxes
$
(1,984,861
)
$
235,233
$
(2,220,094
)
-943.8
%
Provision for income taxes
(36,421
)
(26,325
)
(10,096
)
38.4
%
Net (loss) income
$
(2,021,282
)
$
208,908
$
(2,230,190
)
-1067.5
%
Revenue
Recurring core revenue decreased $145,467, or 2.7% for the three months ended March 31, 2025, as compared to the same period in the prior year. The decrease was primarily driven by the absence of a one-time payment of approximately $140,000 received in the prior year. Royalties netted against gross core revenue decreased $64,132 for the three months ended March 31, 2025, as compared to the same period in the prior year. This decrease was attributable to less royalties paid on our EZ Baccarat revenues. Perpetual license sales of our progressive gaming systems to customers of $505,120, were down 37.3% percent for the three months ended March 31, 2025, as compared to the same period in the prior year. Gross digital revenues of $3,835,585 were up $379,632, or 11.0% for the three months ended March 31, 2025, 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
19
21+3. Net of royalties, digital revenues grew to $2,768,700, up 6.3% for the three months ended March 31, 2025, as compared to the same period in the prior year.
Costs and Expenses
Cost of ancillary products and assembled component expense decreased $218,378, or 53.7% for the three months ended March 31, 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.
Selling, general and administrative expenses increased $107,953, or 2.6% for the three months ended March 31, 2025, as compared to the same period in the prior year. Without the costs associated with the acquisition by Evolution and excluding the related transaction fees of $208,273, selling, general, and administrative expenses decreased $100,320, or 2.4% for three months ended March 31, 2025, as compared to the same period in the prior year.
Research and development expenses were up $110,890, or 44.0% for the three months ended March 31, 2025, as compared to the same period in the prior year. This increase was driven by higher payroll costs due to increased headcount and the ongoing development of internal software placed in service.
Depreciation and amortization increased $93,624, or 13.6% for the three months ended March 31, 2025, 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 and to a lesser extent, an increase in amortization expense for certain intangible assets placed in service in the current quarter.
Stock-based compensation expenses increased $25,019, or 17.7% for the three months ended March 31, 2025, as compared to the same period in the prior year. The increase was due primarily to a higher stock-based compensation for officers, employees, and consultants.
Interest expense was down $1,285,997, or 56.2% for the three months ended March 31, 2025, as compared to the same period in the prior year. The decrease was due to reduced interest rates as a result of the recent refinancing of our debt. Interest income was down $178,988, or 88.7% compared to the prior year period, due to lower cash balances.
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.
Income tax provision increased to $36,421 for the three months ended March 31, 2025, compared to income tax provision of $26,325 for the comparable prior-year period. The increase was due to a higher adjusted pre-tax book income offset by discrete items including the loss on extinguishment of debt and stock compensation expense.
Primarily as a result of the factors described above and the refinancing of our debt, we had a net loss of $2,021,282 for the three months ended March 31, 2025, as compared to a net gain of approximately $208,908 for the same period in the prior year.
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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:
Three Months Ended March 31,
Adjusted EBITDA Reconciliation:
2025
2024
Net (loss) income
$
(2,021,282
)
$
208,908
Interest expense
1,003,350
2,289,347
Interest income
(22,878
)
(201,866
)
Provision for income taxes
36,421
26,325
Depreciation and amortization
779,817
686,193
EBITDA
(224,572
)
3,008,907
Stock-based compensation
(1)
166,261
141,242
Employee severance costs and other expenses
(2)
10,491
24,483
CEO transition expenses
(3)
—
8,200
Professional fees, acquisition costs and other
(4)
208,273
—
Gain on disposal of assets
(5)
(62
)
—
Foreign exchange loss (gain)
(6)
10,100
(12,177
)
Loss on extinguishment of debt
(7)
2,969,585
—
Adjusted EBITDA
$
3,140,076
$
3,170,655
(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 Company reimbursed moving expenses incurred by the new President and CEO, Matthew Reback.
(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.
(5) Represents a non-cash charge related to the write off of certain fixed assets.
(6) Represents foreign exchange losses and gains associated with the fluctuations of foreign currency rates.
(7) 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, 2025, we had total current assets of $11,686,870 and total assets of $27,816,794. 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 March 31, 2025 compared to December 31, 2024 was 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 March 31, 2025 compared to December 31, 2024 was primarily due to the decrease of current assets noted above.
Our total current liabilities as of March 31, 2025 compared to December 31, 2024 increased to $7,551,332 from $6,602,744. This was primarily due to the increase in the current portion of long-term debt as a result of the refinancing of our debt from Fortress 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, assemblies in process and research and development of our products. It is our intention to continue such initiatives and investments.
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Our operating activities provided cash of $1,168,692 for the three months ended March 31, 2025, compared to $1,366,629 provided for the comparable prior year period. This change is mainly attributable to the net loss in the current quarter and a variance of $826,550 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 $93,624 primarily driven by amortization related to intangible assets placed in service and to a lesser extent, depreciation related to assets deployed at client locations, stock-based compensation increased $25,019 from the vesting of stock options and bad debt increased $75,703.
Investing activities used cash of $283,330 for the three months ended March 31, 2025, compared to cash used of $351,334 for the three months ended March 31, 2024. This decrease in cash used was primarily due to the decrease in the transfer of title of assets deployed at client locations to perpetual license customers and decrease of cash used for the acquisition of assets deployed at client locations offset by an increase in acquisition of property and equipment.
Cash used in financing activities during the three months ended March 31, 2025, was $13,849,213. This compares to $219,761 cash used by financing activities for the three months ended March 31, 2024. The increase in cash used was due to the refinancing of our debt from Fortress to BMO.
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 senior secured term loan agreement, which was terminated.
Critical accounting policies and estimates.
Our significant accounting policies and estimates are described in our 2024 Form 10-K. There have been no material changes to those policies.
Off-balance sheet arrangements.
As of March 31, 2025, there were no off-balance sheet arrangements.
Recently issued accounting pronouncements.
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
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ITEM 3. QUANTITATIVE AND QUALITAT
IVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS
AND PROCEDURES
Disclosure controls and procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed submitted under the Exchange Act is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2025, our disclosure controls and procedures were effective.
Changes in internal control over financial reporting
No change in our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the effectiveness of control and procedures and internal controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
ITEM 5. OTHER INFORMATION
None
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PART II – OTHE
R INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
We have been named in and have brought lawsuits in the normal course of business. See Note 6 above and Note 10 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” in our 2024 10-K.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties set forth in our other filings with the SEC, including in our most recent Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUI
TY SECURITIES AND USE OF PROCEEDS
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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