UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2022


☐	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.)

~~6767 Spencer~~6480 Cameron Street Ste. 305 – Las Vegas, NV ~~89119~~89118
(Address of principal executive offices)

~~(702)~~ (702) 939-3254
(Issuer’s telephone number)

~~(Former name, former address and former fiscal year, if changed since last report)~~Securities registered pursuant to Section 12(b) of the Act:


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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an 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: ~~39,565,591~~23,779,599 common shares as of ~~November 8, 2017.~~May 10, 2022.

GALAXY GAMING, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2022

TABLE OF CONTENTS


	PART I	~~Page~~
Item 1:	~~PART I – FINANCIAL INFORMATION~~ Financial Statements (unaudited)	3
Item 1:2:	~~Financial Statements (unaudited)~~	3
~~Item 2:~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1815
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	2118
Item 4:	Controls and Procedures	2118
	PART II ~~– OTHER INFORMATION~~
Item 1:	Legal Proceedings	2319
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	2319
Item 6:	Exhibits	2320

PART I ~~- FINANCIAL INFORMATION~~

ITEM 1. FINANCIAL STATEMENTS

Our financial statements included in this Form 10-Q are as follows:


Condensed Consolidated Balance Sheets as of ~~September 30, 2017 (unaudited)~~March 31, 2022 and December 31, ~~2016~~2021 (unaudited)	4
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016 (unaudited and restated)~~2021 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2022 and 2021 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016 (unaudited and restated)~~2021 (unaudited)	67
Notes to Condensed Consolidated Financial Statements ~~(unaudited and restated)~~(unaudited)	78

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

ASSETS

2017

2016

Current assets:

(Unaudited)

Cash and cash equivalents

$
3,161,666

$
2,304,761

Restricted cash

93,270

84,577

Accounts receivable, net of allowance for bad debts of $38,015 and $31,125, respectively

2,396,087

2,137,245

Inventory, net

525,543

427,105

Prepaid expense and other

307,157

194,747

Total current assets

6,483,723

5,148,435

Property and equipment, net

293,488

356,253

Products leased and held for lease, net

300,168

212,131

Goodwill and other intangible assets, net

11,825,005

12,846,019

Deferred tax assets, net

367,057

367,057

Other assets, net

23,000

82,050

Total assets

$
19,292,441

$
19,011,945

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
329,193

$
461,913

Accrued expenses

1,722,039

1,109,428

Income taxes payable

662,159

786,430

Deferred revenue

1,050,416

1,014,731

Deferred rent, current portion

21,494

14,938

Current portion of long-term debt and capital lease obligations

1,121,289

1,230,285

Other current liabilities

119,960

90,960

Total current liabilities

5,026,550

4,708,685

Deferred rent, net

21,037

37,704

Capital lease obligations, net

22,589

46,978

Common stock warrant liability

1,333,333

923,616

Long-term debt, net

7,620,230

8,669,151

Total liabilities

14,023,739

14,386,134

Commitments and Contingencies (See Note 10)

Stockholders’ equity

Preferred stock, 10,000,000 shares authorized, $0.001 par value;
0 shares issued and outstanding, respectively

—

—

Common stock, 65,000,000 shares authorized; $0.001 par value;
39,565,591 and 39,315,591 shares issued and outstanding, respectively

39,566

39,316

Additional paid-in capital

3,697,536

3,109,473

Accumulated earnings

1,531,600

1,477,022

Total stockholders’ equity

5,268,702

4,625,811

Total liabilities and stockholders’ equity

$
19,292,441

$
19,011,945

(Unaudited)


ASSETS	March 31, 2022			December 31, 2021
Current assets:
Cash and cash equivalents	$	17,242,102		$	16,058,714
Accounts receivable, net of allowance of $332,864 and $348,695, respectively		4,332,696			4,377,165
Inventory		752,699			770,248
Income tax receivable		765,160			1,536,682
Prepaid expenses		949,634			1,125,777
Other current assets		162,690			21,536
Total current assets		24,204,981			23,890,122
Property and equipment, net		91,518			98,594
Operating lease right-of-use assets		1,110,721			1,167,903
Assets deployed at client locations, net		432,322			360,735
Goodwill		1,091,000			1,091,000
Other intangible assets, net		13,082,297			13,677,264
Other assets		139,217			167,087
Total assets	$	40,152,056		$	40,452,705
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	488,235		$	374,323
Accrued expenses		1,904,179			2,666,073
Revenue contract liability		106,250			37,500
Current portion of operating lease liabilities		223,842			222,806
Current portion of long-term debt		934,433			1,100,369
Total current liabilities		3,656,939			4,401,071
Long-term operating lease liabilities		961,905			1,019,029
Long-term debt and liabilities, net		52,363,551			52,143,810
Deferred tax liabilities, net		6,537			175,218
Total liabilities		56,988,932			57,739,128
Commitments and Contingencies (See Note 8)
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; 23,762,933 and 23,523,969 shares issued and outstanding, respectively		23,763			23,524
Additional paid-in capital		16,885,816			16,380,597
Accumulated deficit		(33,557,313	)		(33,543,351	)
Accumulated other comprehensive loss		(189,142	)		(147,193	)
Total stockholders’ deficit		(16,836,876	)		(17,286,423	)
Total liabilities and stockholders’ deficit	$	40,152,056		$	40,452,705

The accompanying notes are an integral part of the condensed consolidated financial statements.

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2022			March 31, 2021
Revenue:				(Restated)						(Restated)
Product leases and royalties	$	3,830,351		$	3,190,823		$	10,955,055		$	9,229,815
Product sales and service		69			1,146			9,469			10,425
Licensing fees													$	5,918,599		$	4,282,901
Total revenue		3,830,420			3,191,969			10,964,524			9,240,240		$	5,918,599		$	4,282,901
Costs and expenses:
Cost of ancillary products and assembled components		50,369			26,763			133,517			78,075			52,590			14,304
Selling, general and administrative		2,362,601			1,553,556			6,808,659			4,819,373			3,043,359			2,711,052
Research and development		139,185			89,513			403,618			270,734			199,070			118,701
Depreciation and amortization		440,130			419,540			1,323,772			1,252,860			724,462			717,254
Share-based compensation		384,925			41,075			553,313			91,006			310,002			316,640
Total costs and expenses		3,377,210			2,130,447			9,222,879			6,512,048			4,329,483			3,877,951
Income from operations		453,210			1,061,522			1,741,645			2,728,192			1,589,116			404,950
Other income (expense):
Settlement income		—			697,214			—			697,214
Interest income														2,233			382
Interest expense		(432,466	)		(227,632	)		(1,316,045	)		(741,045	)		(1,687,022	)		(180,910	)
Loss on extinguishment of debt		—			(515,037	)		—			(515,037	)
Foreign currency exchange gains (losses)		59,624			(5,926	)		125,576			354,301
Change in estimated fair value of warrant liability		(86,308	)		2,933			(409,717	)		2,933
Interest income		—			56			—			202
Total other expense		(459,150	)		(48,392	)		(1,600,186	)		(201,432	)
(Loss) income before provision for income taxes		(5,940	)		1,013,130			141,459			2,526,760
Provision for income taxes		(21,990	)		(351,412	)		(86,881	)		(873,768	)
Share redemption consideration														—			(195,482	)
Foreign currency exchange loss														(60,263	)		(8,975	)
Change in fair value of interest rate swap liability														—			49,822
Total other expense, net														(1,745,052	)		(335,163	)
(Loss) income before benefit for income taxes														(155,936	)		69,787
Benefit for income taxes														141,974			18,950
Net (loss) income	$	(27,930	)	$	661,718		$	54,578		$	1,652,992			(13,962	)		88,737
Net (loss) income per share, basic and diluted	$	(0.00	)	$	0.02		$	0.00		$	0.04
Foreign currency translation adjustment														(41,949	)		(79,207	)
Comprehensive (loss) income													$	(55,911	)	$	9,530

Net (loss) income per share:
Basic													$	0.00		$	0.00
Diluted													$	0.00		$	0.00

Weighted-average shares outstanding:
Basic		39,432,982			39,315,591			39,368,521			39,372,944			24,405,278			18,838,221
Diluted		39,432,982			39,465,676			41,216,750			39,559,494			24,405,278			20,173,443

The accompanying notes are an integral part of the condensed consolidated financial statements.

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

Nine Months Ended

September 30, 2017

September 30, 2016

Cash flows from operating activities:

(restated)

Net income

$
54,578

$
1,652,992

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1,323,772

1,252,860

Amortization of debt issuance costs and debt discount

218,910

136,710

Bad debt expense

6,000

—

Loss on extinguishment of debt

—

515,037

Change in estimated fair value of warrant liability

409,717

(2,933
)
Share-based compensation

553,313

91,006

Unrealized foreign exchange (gains) losses on cash and cash equivalents

(92,243
)

31,886

Changes in operating assets and liabilities:

Restricted cash

(8,693
)

10,009

Accounts receivable

(264,842
)

(108,674
)
Inventory

(271,149
)

(181,319
)
Prepaid expenses and other current assets

(112,410
)

8,922

Accounts payable

(132,720
)

(858,404
)
Income tax payable

(124,271
)

822,482

Accrued expenses

612,611

152,871

Deferred revenue

35,685

152,938

Other current liabilities

29,000

(15,069
)
Deferred rent

(10,111
)

(3,555
)
Net cash provided by operating activities

2,227,147

3,657,759

Cash flows from investing activities:

Investment in intangible assets

(43,917
)

—

Acquisition of property and equipment

(52,352
)

(43,345
)
Net cash used in investing activities

(96,269
)

(43,345
)
Cash flows from financing activities:

Proceeds from stock option exercises

35,000

—

Debt issuance costs

(17,091
)

—

Proceeds received from long-term debt

—

932,126

Principal payments on capital lease obligations

(23,087
)

(51,698
)
Principal payments on long-term debt

(1,361,038
)

(3,209,922
)
Net cash used in financing activities

(1,366,216
)

(2,329,494
)
Effect of exchange rate changes on cash

92,243

(31,886
)
Net increase in cash and cash equivalents

856,905

1,253,034

Cash and cash equivalents – beginning of period

2,304,761

570,623

Cash and cash equivalents – end of period

$
3,161,666

$
1,823,657

Supplemental cash flow information:

Cash paid for interest

$
1,099,738

$
753,250

Inventory transferred to assets held for lease

$
172,711

$
108,577

Cash paid for income taxes

$
150,000

$
35,000

Supplemental non-cash financing activities information:

Issuance of warrants in conjunction with term loan

$
—

$
809,631

Points paid on term loan

$
—

$
262,500


										Accumulated
	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders'
	Shares		Amount		Capital		Deficit			Income (Loss)			Deficit
Beginning balance, December 31, 2021		23,523,969	$	23,524	$	16,380,597	$	(33,543,351	)	$	(147,193	)	$	(17,286,423	)
Net loss		—		—		—		(13,962	)		—			(13,962	)
Foreign currency translation loss		—		—		—		—			(41,949	)		(41,949	)
Stock options exercised		219,999		220		195,236		—			—			195,456
Share-based compensation		18,965		19		309,983		—			—			310,002
Balance, March 31, 2022		23,762,933	$	23,763	$	16,885,816	$	(33,557,313	)	$	(189,142	)	$	(16,836,876	)


										Accumulated
	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders'
	Shares		Amount		Capital		Deficit			Income (Loss)			Deficit
Beginning balance, December 31, 2020		21,970,638	$	21,971	$	10,798,536	$	(35,655,163	)	$	37,691		$	(24,796,965	)
Net income		—		—		—		88,737			—			88,737
Foreign currency translation loss		—		—		—		—			(79,207	)		(79,207	)
Stock options exercised		50,000		50		10,949		—			—			10,999
Share-based compensation		55,000		55		316,585		—			—			316,640
Balance, March 31, 2021		22,075,638	$	22,076	$	11,126,070	$	(35,566,426	)	$	(41,516	)	$	(24,459,796	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	March 31, 2022			March 31, 2021
Cash flows from operating activities:
Net (loss) income	$	(13,962	)	$	88,737
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		724,462			717,254
Amortization of right-of-use assets		57,182			56,472
Amortization of debt issuance costs and debt discount		369,741			12,243
Bad debt (recovery) expense		(15,831	)		76,160
Change in fair value of interest rate swap liability		—			(49,822	)
Deferred income tax		(168,681	)		-
Share-based compensation		310,002			316,640
Foreign currency exchange loss (gain)		60,263			(3,573	)
Changes in operating assets and liabilities:
Accounts receivable		14,836			(1,139,395	)
Inventory		(110,710	)		(70,010	)
Income tax receivable/payable		793,522			(42,816	)
Prepaid expenses and other current assets		34,989			138,788
Other assets		27,870			(144,072	)
Accounts payable		114,236			(66,044	)
Accrued expenses		(784,082	)		834,001
Revenue contract liability		68,750			77,083
Operating lease liabilities		(56,088	)		(33,817	)
Net cash provided by operating activities		1,426,499			767,829
Cash flows from investing activities:
Investment in intangible assets		(59,616	)		(49,900	)
Acquisition of property and equipment		(6,131	)		(31,892	)
Net cash used in investing activities		(65,747	)		(81,792	)
Cash flows from financing activities:
Proceeds from stock option exercises		195,456			10,999
Principal payments on long-term debt		(315,936	)		(568,638	)
Net cash used in financing activities		(120,480	)		(557,639	)
Effect of exchange rate changes on cash		(56,884	)		(40,366	)
Net increase in cash and cash equivalents		1,183,388			88,032
Cash and cash equivalents – beginning of period		16,058,714			5,993,388
Cash and cash equivalents – end of period	$	17,242,102		$	6,081,420
Supplemental cash flow information:
Cash paid for interest	$	1,358,531		$	112,487
Cash paid for income taxes	$	—		$	500
Supplemental schedule of non-cash activities:
Debt modification fee payable	$	—		$	50,185
Inventory transferred to assets deployed at client locations	$	128,259		$	29,849

The accompanying notes are an integral part of the condensed consolidated financial statements.

GALAXY GAMING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS ~~AND RESTATEMENT~~

Unless the context indicates otherwise, references to “Galaxy Gaming, Inc.,” “we,” “us,” “our,” or the “Company,” refer to Galaxy Gaming, Inc., a ~~publicly reporting~~ Nevada corporation (“Galaxy Gaming”).

~~Nature of operations.~~ We are an established global gaming company specializing in the design, development, ~~manufacturing,~~acquisition, assembly, marketing and ~~acquisition~~licensing of proprietary casino table games and associated technology, platforms and systems for the casino gaming industry. ~~We are a leading supplier of gaming entertainment products worldwide and provide a diverse offering of quality~~Casinos use our proprietary products and services ~~at competitive prices designed~~ 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 casinos worldwide and to land-based casino gaming companies in North America, the ~~player experience.~~Caribbean, Central America, the United Kingdom, Europe and Africa as well as to cruise ship companies. We license our products and services for use solely in legalized gaming markets. We also license our content and distribute content from other companies to iGaming operators throughout the world.

~~Restatement.~~ ~~The financial statements as~~Disruptions due to the COVID-19 crisis continue to impact our results of ~~and for the three and nine months ended September 30, 2016 have been restated to correct the following errors noted during the preparation~~operations. Most of the ~~financial statements for~~Company’s land-based customers have resumed normal operations. However, some of our customers rely on international travelers from countries that are still enforcing COVID-19 lockdowns or are affected by the ~~year ended December 31, 2016: (i)~~ ~~the amortization~~war in Ukraine.

We rely on third-party suppliers and manufacturers in China. Many of ~~original issue discount related to~~ ~~notes payable to Prime~~ Table Games LLC and Prime Table Games UK (the “PTG Notes”) was not previously deducted from taxable income in our federal tax returns from 2011 through 2015 or to derive the income tax provision for the three and nine months ended September 30, 2016, which resulted in an understatement of deferred tax assets and an overstatement of the income tax provision in those periods; and (ii) foreign currency exchange gains and losses related to the PTG Notes were incorrectly reported as other comprehensive income instead of earnings (~~i.e., non-operating income).~~ ~~The restatements to reflect the correction of both errors are referred to herein collectively as the "Restatement."~~

~~The table below sets forth the amounts as originally reported for the categories presented in the condensed statements of operations that~~these suppliers were affected by ~~the Restatement, the effect of the Restatement~~COVID-19 and the ~~restated amounts for the three~~worldwide supply chain disruptions that ensued and, ~~nine months ended September 30, 2016:~~

Three Months Ended
September 30, 2016

Nine Months Ended
September 30, 2016

Statements of Income

As originally
reported

Impact of
restatement

As restated

As originally
reported

Impact of
restatement

As restated

Selling, general and
   administrative

$
1,576,480

$
(22,924
)

$
1,553,556

$
4,850,785

$
(31,412
)

$
4,819,373

Provision for income taxes

(602,619
)

251,207

(351,412
)

(990,639
)

116,871

(873,768
)
Foreign currency exchange
   (losses) gains

—

(5,926
)

(5,926
)

—

354,301

354,301

Loss on extinguishment of
   debt

(87,578
)

(427,459
)

(515,037
)

(87,578
)

(427,459
)

(515,037
)
Net income

820,972

(159,254
)

661,718

1,577,867

75,125

1,652,992

~~The table below sets forth the amounts as originally reported for the categories presented~~ in ~~the condensed statements of cash flows that were affected by the Restatement, the effect of the Restatement and the restated amounts for the nine months ended September 30, 2016:~~

Statement of Cash Flow

As originally
reported

Impact of
restatement

As restated

  Net income

$
1,577,867

$
75,125

$
1,652,992

  Loss on extinguishment of debt

87,578

427,459

515,037

  Deferred income tax provision

54,370

(54,370
)

—

  Unrealized foreign exchange losses on cash and cash equivalents

—

31,886

31,886

  Increase in accounts receivable

(107,969
)

(705
)

(108,674
)
  Decrease in other current assets

43,017

(43,017
)

—

  Decrease in prepaid expenses and other current assets

6,608

2,314

8,922

  Decrease in accounts payable

(858,954
)

550

(858,404
)
  Increase in income taxes payable

936,269

(113,787
)

822,482

  Increase in accrued expenses

141,841

11,030

152,871

  Net cash provided by operating activities

3,321,274

336,485

3,657,759

  Principal payments on notes payable

(2,873,437
)

(336,485
)

(3,209,922
)
  Net cash used in financing activities

(1,993,009
)

(336,485
)

(2,329,494
)

~~NOTE 2. SIGNIFICANT BUSINESS DEVEVELOPMENTS~~

~~Resignation of Chairman, Chief Executive Officer (“CEO”) and President.~~ On July 24, 2017, Robert B. Saucier resigned from his positions as Chairman of the Board, CEO and President in order to aid us in our expanded regulatory jurisdictional ambitions. Concurrently with Mr. Saucier’s resignation, the Board of Directors (the “Board”) appointed Mr. Saucier to serve as Executive Vice President of Business Development and Chief Product Officer. In these new positions, he receives an annual salary of $225,000 and is eligible to receive performance-based bonuses and incentives, as well as employee benefits and other perquisites. Mr. Saucier’s resignation was not the result of any disagreements with the Company, and he remains a member of the Board.

~~Appointment of new President and CEO.~~ ~~Effective~~July 24, 2017, the Board appointed Todd P. Cravens to serve as President and CEO. Mr. Cravens was previously serving as our Vice President of Business Development, a position he had held since January 1, 2017.

Mr. Cravens’ employment agreement related to his position as Vice President of Business Development was terminated and superseded with a new employment agreement to reflect his new positions and responsibilities.

Pursuant to the new employment agreement (the “Cravens Employment Agreement”), Mr. Cravens receives an annual base salary of $230,000, is eligible for bonuses if and as approved by the Compensation Committee of the Board and was granted options to purchase our common stock. See Note 14 for further detail on the options granted. The term of the Cravens Employment Agreement is through July 26, 2020. Mr. Cravens is entitled to certain severance payments in the event his employment with us is terminated by us without cause following a change of control, or following termination of the Cravens Employment Agreement by Mr. Cravens.

~~Appointment of new Director.~~ On July 26, 2017, the Board appointed Mark A. Lipparelli as a member of the Board to fill a newly-created board seat and elected Mr. Lipparelli to serve as Chairman of the Board. On August 31, 2017, we ~~entered into a Board of Directors Services Agreement (the “Lipparelli~~ ~~Agreement”), pursuant to which Mr. Lipparelli receives monthly compensation of $7,500 and all customary and usual fringe benefits generally available to non-employee directors of the Board, and was~~ ~~granted shares of restricted common stock of the Company~~. ~~See Note 12 for further detail on the restricted common stock granted.~~

~~Voting and dispositive control transfer agreements.~~ On September 22, 2017, the Nevada Gaming Commission (the “NGC”) granted us licensure as a manufacturer and distributor of gaming products, which approval triggered the effectiveness of five Voting and Dispositive Control Transfer Agreements (the “VDCTA Agreements”). The VDCTA Agreements collectively served to transfer voting and dispositive control of certain shares owned of record by Triangulum Partners, LLC, a New Mexico limited liability company (“Triangulum”) to named recipients (each a “Recipient” and collectively, the “Recipients”).

We and the Recipients (named below) previously entered into the VDCTA Agreements on August 18, 2017. However, the VDCTA Agreements did not become effective until September 22, 2017, concurrently with the NGC granting us a license as a manufacturer and distributor of gaming products in accordance with the stated terms of the VDCTA Agreements. The term of the VDCTA Agreements is while Mr. Saucier’s application for licensure with the NGC is pending.

The VDCTA Agreements were made and entered into by and among Triangulum, a limited liability company of which the managing member is Mr. Saucier, and each of the Recipients. Prior to the VDCTA Agreements, Triangulum owned and controlled shares equal to approximately 60.12%many cases, are continuing. These disruptions of our ~~total issued~~suppliers and ~~outstanding common stock.~~

~~The Recipients of the voting~~their contract manufacturers may impact our sales and ~~dispositive control of the shares under the VDCTA Agreements are as follows:~~operating results going forward.

~~Name~~	~~Number of shares~~	Percentage of total outstanding*
~~Mark Lipparelli~~	~~1,269,161 shares~~		~~3.22%~~
~~Bryan Waters~~	~~1,269,161 shares~~		~~3.22%~~
~~Norm DesRosiers~~	~~1,269,161 shares~~		~~3.22%~~
~~William Zender~~	~~1,269,161 shares~~		~~3.22%~~
~~John Connelly~~	~~1,269,161 shares~~		~~3.22%~~
~~Total~~	~~6,345,805 shares~~		~~16.12%~~

* The percentages listed in the table are based on 39,365,591 total outstanding shares and do not include other shares held by such Recipients.

Messrs. Lipparelli, Waters, DesRosiers and Zender are members of our Board. During the term of the VDCTA Agreements, Triangulum granted an irrevocable proxy to each of the Recipients to vote the shares of our common stock covered by the VDCTA Agreements, and conveyed to each Recipient the right to “Transfer” the shares, defined as a “sale, transfer, tender, assignment, encumbrance, gift, pledge, hedge, swap, or other disposition, directly or indirectly” of the shares or any right or interest therein.

NOTE 3.2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying condensed 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 ~~Securities and Exchange Commission (“SEC”)~~.SEC. In the opinion of management, the accompanying unaudited interim condensed financial statements contain all necessary adjustments (including all those of a recurring nature and those necessary in order for the financial statements to be not ~~misleading have been reflected herein.~~ ~~As permitted by~~misleading) and all disclosures to present fairly our financial position and the ~~rules~~results of our operations and ~~regulations of~~cash flows for the ~~SEC, certain information~~periods presented.

These unaudited interim condensed financial statements should be read in conjunction with the financial statements and ~~footnote disclosures normally~~the related notes thereto included in ~~financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.~~ our 2021 10-K.

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.

In the opinion of management, the accompanying unaudited interim condensed financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly our financial position and the results of its operations and cash flows for the periods presented. These unaudited interim condensed financial statements should be read in conjunction with the financial statements and the related notes thereto included in our Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 14, 2017 (the “2016 10-K”).

Basis of accounting. The financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP. Revenues are recognized when earned and expenses are recognized when they are incurred. We do not have significant cost of revenue, as most of our revenue is derived from the licensing of intellectual properties. As a result, we do not separately present cost of revenue and gross profit in our statements of operations.

~~Significant Accounting Policies.~~ S~~ee Note 2 in Item 8. “Financial Statements and Supplementary Data” included in our 2016 10-K.~~

Use of estimates and assumptions. We are required to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, contract terms, observance of known trends in our ~~company~~Company and the industry as a whole, and information available from other outside sources. Our estimates affect reported amounts for assets, liabilities, revenues, expenses and related disclosures. Actual results may differ from initial estimates.

Consolidation. The financial statements are presented on a consolidated basis and include the results of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents. Ourcash and cash equivalents consist of bank deposits. These deposits are in insured banking institutions, which are insured up to $250,000 per account. To date, we have not experienced uninsured losses, and we believe the risk of future loss is negligible.

Accounts receivable and allowance for doubtful accounts. Accounts receivable are stated at face value less an allowance for doubtful accounts. Accounts receivable are non-interest bearing. The Company reviews the accounts receivable on a quarterly basis to determine if any receivables will potentially be uncollectible. The allowance for doubtful accounts is estimated based on specific customer reviews, historical collection trends and current economic and business conditions.

Goodwill. Goodwill (Note 5) is assessed for impairment at least annually or at other times during the year if events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting asset is below the carrying amount. If found to be impaired, the carrying amount will be reduced, and an impairment loss will be recognized.

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
Client relationships		9 - 22 years
Trademarks		30 years
Non-compete agreements		9 years
Internally-developed software		3 years

~~Reclassifications.~~ ~~Certain~~Other intangible assets (Note 5) are analyzed for potential impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds the fair value, which is the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the intangible assets. NaN impairment was recorded for the three months ended March 31, 2022.

Fair value of financial instruments. We estimate fair value for financial assets and liabilities in accordance with Financial 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 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

•

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.

The estimated fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts 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. The Company currently has no financial ~~statement captions~~instruments measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties.

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 expense is recognized on a straight-line basis using the discount rate implicit in each lease or our incremental borrowing rate at lease commencement date (Note 6).

Revenue recognition. We account for our revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. 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 ~~prior periods~~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 income or (loss) in the consolidated statements of changes in stockholders’ deficit.

Net income per share. Basic net income per share is calculated by dividing net income by the weighted-average number of common shares issued and outstanding during the year. Diluted net income per share is similar to basic, except that the weighted-average number of shares outstanding is increased by the potentially dilutive effect of outstanding stock options and restricted stock, if applicable, during the year.

Segment Information. We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We currently have 2 operating segments (land-based gaming and online gaming) which are aggregated into 1 reporting segment.

Other significant accounting policies.Our significant accounting policies are described in our 2021 10-K. There have been ~~reclassified~~no material changes to ~~conform to the current period financial statement presentations.~~those policies.

~~Recently adopted~~New accounting standards

~~Inventory.~~ not yet adopted.Financial Instruments – Credit Losses. In ~~July 2015,~~February 2020, the FASB issued ASU No. ~~2015-11,~~ ~~Inventory: Simplifying the Measurement of Inventory.~~ ~~Inventory is now required to be measured at the lower of cost or net realizable value, while the concept of market value will be eliminated. The~~2020-02, Financial Instruments – Credit Losses (Topic 326). ASU ~~defines net realizable value as the estimated selling process in the ordinary course of business, less reasonably predictable costs of completion, disposal~~2020-02 provides updated guidance on how an entity should measure credit losses on financial instruments and ~~transportation. We adopted ASU 2015-11 effective January 1, 2017 using the required prospective adoption approach, which did not have~~ ~~a material effect on our financial condition, results of operations or cash flows.~~

~~Stock-based compensation.~~ ~~In March 2016, the FASB issued No. ASU 2016-09,~~ ~~Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting.~~ ASU 2016-09 addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. We adopted ASU 2016-09 effective January 1, 2017 using the prospective adoption approach, which did not have a material impact on our ~~financial condition, results of operations or cash flows~~.

~~New accounting standards not yet adopted~~

~~Revenue Recognition.~~ ~~In May 2014, the FASB issued ASU No. 2014-09 (Topic 606),~~ ~~Revenue from Contracts with Customers~~, which is a comprehensive new revenue recognition standard that will supersede virtually all existing revenue guidance, including industry-specific guidance. Under the new standard, revenue will be recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. The standard creates a five-step model that will generally require companies to use more judgment and make more estimates than under current guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer.

~~In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers~~delayed the effective date of ~~ASU 2014-09 by one year to now be effective~~Topic 326 for smaller reporting companies until fiscal years ~~and interim reporting periods within those years,~~ beginning

after December 15, ~~2017.~~2022. Early adoption ~~of the standard~~ is permitted but not before the original effective date of December 15, 2016. The ASU may be adopted using a full retrospective approach or a modified retrospective approach (reporting the cumulative effect as of the date of adoption.

permitted. We continue to assess the anticipated impact of adopting ASC 606 on our financial statements. The primary impacts of the adoption of ASC 606 are expected to be the following: (a) we will recognize an asset that represents the incremental costs of obtaining and fulfilling the contracts in existence at December 31, 2017 under the caption of prepaid expense and other assets. Such costs will be amortized on a straight-line basis over the expected term of the underlying contracts; and (b) revenues generated by our European distributors (which sublicense our intellectual properties to gaming establishments in Europe in accordance with license agreements entered into between us and such distributors) will be presented as gross revenue under the caption “product leases and royalties” and fees earned by such distributors will be presented as selling, general and administrative expenses. Currently, revenues generated by our European distributors are presented net of fees earned under the caption “product leases and royalties.”

~~ASC 606 will significantly increase revenue disclosure requirements. We currently~~ do not ~~anticipate significant changes to our business processes and systems to support~~believe the adoption of ASC 606 and are currently assessing the impact on our internal controls. We will continue to monitor and assess the impact of any changes to ASC 606 and interpretations as they become available.

~~Leases.~~ ~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842).~~ The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases being recognized on our balance sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with earlier adoption permitted. We are currently evaluating the impact of adopting this guidance.

~~Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~. This ASU requires amounts generally described as restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. Upon the adoption of ASU 2016-08, restricted cash will be included within beginning and ending cash and cash equivalents amounts on our statements of cash flows, which we do not expect will have a material impact on our condensed consolidated financial ~~statements.~~ statements or related disclosures.

NOTE 3. REVENUE RECOGNITION

~~Goodwill Impairment.~~ ~~In January 2017,~~Revenue recognition. We generate revenue primarily from the ~~FASB issued ASU No. 2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying~~licensing of our intellectual property. We recognize revenue under recurring fee license contracts monthly as we satisfy our performance obligation, which consists of granting the ~~Test for Goodwill Impairment,~~ ~~which simplifies~~customer the ~~current two-step goodwill impairment test~~right to use our intellectual property. Amounts billed are determined based on flat rates or usage rates stipulated in the customer contract.

Disaggregation of revenue

The following table disaggregates our revenue by eliminating Step 2 of the test. This guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment chargegeographic location for the ~~amount by~~following periods:


	Three Months Ended March 31,
	2022		2021
North America and Caribbean	$	2,291,913	$	2,451,896
Europe, Middle East and Africa		3,626,686		1,831,005
Total revenue	$	5,918,599	$	4,282,901

Contract liabilities. Amounts billed and cash received in advance of performance obligations fulfilled are recorded as contract liabilities and recognized as performance obligations are fulfilled.

Contract Assets. The Company’s contract assets consist solely of unbilled receivables which are recorded when the ~~carrying amount exceeds~~Company recognizes revenue in advance of billings. Unbilled receivables totaled $996,258 and $771,293 for the ~~reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after~~periods ended March 31, 2022and December ~~15, 2019~~31, 2021, respectively, and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are ~~currently evaluating~~included in the ~~impact of adopting this guidance.~~accounts receivable balance in the accompanying condensed consolidated balance sheets.

NOTE 4. INVENTORY

Inventory ~~net~~ consisted of the following ~~at September 30, 2017 and December 31, 2016:~~ at:


	March 31,		December 31,
	2022		2021
Raw materials and component parts	$	340,180	$	413,320
Finished goods		412,519		356,928
Inventory, net	$	752,699	$	770,248

2017

2016

Raw materials and component parts

$
270,863

$
171,478

Finished goods

96,834

128,956

Work-in-process

182,846

151,671

Inventory, gross

550,543

452,105

Less: inventory reserve

(25,000
)

(25,000
)
Inventory, net

$
525,543

$
427,105

~~NOTE 5. PROPERTY AND EQUIPMENT~~

~~Property and equipment, net consisted of the following at September 30, 2017 and December 31, 2016:~~

2017

2016

Furniture and fixtures

$
280,694

$
269,471

Automotive vehicles

215,127

202,143

Leasehold improvements

156,843

156,843

Computer equipment

117,645

105,114

Office equipment

53,483

37,871

Property and equipment, gross

823,792

771,442

Less: accumulated depreciation

(530,304
)

(415,189
)
Property and equipment, net

$
293,488

$
356,253

For the nine months ended September 30, 2017 and 2016, depreciation expense related to property and equipment of $115,117 and $97,326, respectively, is included in depreciation and amortization expense.

~~Accumulated depreciation of leasehold improvements totaled $105,322 and $82,183 as of September 30, 2017 and December 31, 2016, respectively.~~

~~NOTE 6. PRODUCTS LEASED AND HELD FOR LEASE~~

~~Products leased and held for lease, net consisted of the following at September 30, 2017 and December 31, 2016:~~

2017

2016

Enhanced table systems

$
546,539

$
424,364

Less: accumulated depreciation

(246,371
)

(212,233
)
Products leased and held for lease, net

$
300,168

$
212,131

For the nine months ended September 30, 2017 and 2016, depreciation expense related to products leased and held for lease of $84,674 and $38,595, respectively, is included in depreciation and amortization expense.

NOTE 7.5. GOODWILL AND OTHER INTANGIBLE ASSETS

~~Goodwill and finite-lived~~Goodwill. A goodwill balance of $1,091,000 was created as a result of a transaction completed in October 2011 with Prime Table Games, LLC (“PTG”).

Other intangible assets, net. Other intangible assets, net consisted of the following at:


	March 31,			December 31,
	2022			2021
Patents	$	13,507,997		$	13,507,997
Customer relationships		14,040,856			14,040,856
Trademarks		2,880,967			2,880,967
Non-compete agreements		660,000			660,000
Software		342,956			283,340
Other intangible assets, gross		31,432,776			31,373,160
Less: accumulated amortization		(18,350,479	)		(17,695,896	)
Other intangible assets, net	$	13,082,297		$	13,677,264

For the three months ended March 31, 2022 and 2021, amortization expense related to other intangible assets was $653,330 and $649,171, respectively.

NOTE 6. LEASES

Lessee

We have operating leases for our corporate office, 2 satellite facilities in the state of Washington and for certain equipment. We account for lease components (such as rent payments) separately from the non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). The discount rate represents the interest rate implicit in each lease or our incremental borrowing rate at lease commencement date.

On September ~~30, 2017 and~~ 21, 2021, we executed a third amendment to one of our satellite facilities to amend the lease expiration date from December 31, ~~2016:~~2021 to December 31, 2023, with monthly base rents of $1,025 from January 1, 2022 to December 31, 2023. As a result of the amendment, we recorded a $23,293 increase to operating lease right-of-use assets and operating lease liabilities.

As of March 31, 2022, our leases have remaining lease terms ranging from three months to 57 months.

2017

2016

Goodwill

$
1,091,000

$
1,091,000

Finite-lived intangible assets:

Patents

13,615,967

13,615,967

Customer relationships

3,400,000

3,400,000

Trademarks

2,740,000

2,740,000

Non-compete agreements

660,000

660,000

Internally-developed software

102,968

—

     Other intangible assets, gross

20,518,935

20,415,967

Less: accumulated amortization

(9,784,930
)

(8,660,948
)
     Other intangible assets, net

10,734,005

11,755,019

     Goodwill and other intangible assets, net

$
11,825,005

$
12,846,019

~~Included in amortization expense was $1,123,980 and $1,116,938~~Supplemental balance sheet information related to ~~the above intangible assets for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Estimated amortization expense to be recorded for the twelve months ending September 30, 2018 through 2022 and thereafter~~leases is as follows:


	As of March 31, 2022
	Amount			Classification
Operating leases:
Operating lease right-of-use lease assets	$	1,110,721

Operating lease current liabilities	$	223,842		Current portion of operating lease liabilities

Operating lease long-term liabilities		961,905		Long-term operating lease liabilities

Total operating lease liabilities	$	1,185,747

Weighted-average remaining lease term:
Operating leases	4.7 years

Weighted-average discount rate:
Operating leases		4.2	%

September 30,

Total

2018

$
1,498,873

2019

1,498,873

2020

1,481,712

2021

1,391,218

2022

1,390,676

Thereafter

3,472,653

Total amortization

$
10,734,005

The components of lease expense are as follows:

Supplemental cash flow information related to leases is as follows:


	Three Months Ended March 31, 2022
	Amount		Classification
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	68,840	Net income

Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	—	Supplemental cash flow information

As of March 31, 2022, future maturities of our operating lease liabilities are as follows:


Twelve Months Ending March 31,	Amount
2023	$	223,842
2024		235,551
2025		245,204
2026		266,645
2027		214,505
Thereafter		—
Total lease liabilities	$	1,185,747

NOTE ~~8. ACCRUED EXPENSES~~7. LONG-TERM LIABILITIES

~~Accrued expenses~~Long-term liabilities consisted of the following at:


	March 31,			December 31,
	2022			2021
Fortress credit agreement	$	59,850,000		$	60,000,000
Insurance notes payable		334,433			500,369
Long-term liabilities, gross		60,184,433			60,500,369
Less: Unamortized debt issuance costs		(6,886,449	)		(7,256,190	)
Long-term liabilities, net of debt issuance costs		53,297,984			53,244,179
Less: Current portion		(934,433	)		(1,100,369	)
Long-term liabilities, net	$	52,363,551		$	52,143,810

For most of 2021, our long-term liabilities consisted of term and revolving notes owed to Nevada State Bank, borrowings under the Main Street Priority Loan Program, and redemption consideration owed to Triangulum Partners LLC. All of those liabilities were paid in full from the proceeds of the Fortress Credit Agreement.

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 million.

The Fortress Credit Agreement bears interest at ~~September 30, 2017 and December 31, 2016:~~

2017

2016

TableMAX license fee

$
736,428

$
470,512

Payroll and related

664,140

405,553

Professional fees

152,962

59,567

Commissions and royalties

110,353

54,551

Other

58,156

119,245

Total accrued expenses

$
1,722,039

$
1,109,428

~~TableMAX license fee~~.~~Under~~a rate equal to, at the ~~terms~~Company’s option, either (a) 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 ~~five-year licensing agreement (the “TMAX Agreement”) with TableMAX Corporation (“TMAX”),~~net leverage target or (b) a ~~provider of electronic table games and platforms headquartered in Las Vegas, Nevada, we previously had exclusive worldwide rights (excluding one international territory and two U.S. states)~~base rate determined by reference to the ~~TMAX electronic gaming platform~~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 ~~certain related game titles. Pursuant~~(iii) the one-month adjusted LIBOR rate plus 1.00%, plus 6.75%, subject to a reduction to 6.50% upon the ~~terms~~achievement of a net leverage target. The Fortress Credit Agreement has a final maturity of November 13, 2026. The obligations under the Fortress Credit Agreement are guaranteed by the Company’s subsidiaries and are secured by substantially all of the ~~TMAX~~assets of the Company and its subsidiaries. The Fortress Credit agreement requires, among other things, principal payments of $150,000 per quarter and includes an annual sweep of 50% of excess cash flow beginning in 2023. The Fortress Credit Agreement ~~the licensee fee payable to TMAX is dependent upon our generating profitable operating results specifically from the use of TMAX products. To the extent there are net profits~~contains affirmative and negative financial covenants (as defined in the ~~TMAX~~Fortress Credit Agreement), and other restrictions customary for borrowings of this nature. The Company was required to maintain a ~~percentage~~Total Net Leverage Ratio of ~~such net profits is payable~~8.00x for the quarter ending March 31, 2022, and the Company was in compliance with that covenant. Also, the Fortress Credit Agreement requires that the Company not allow balances in bank accounts that are not covered by an account control agreement to ~~TMAX depending on~~exceed $1 million at any month-end. The bank accounts held by PGP in the ~~number~~Isle of ~~TMAX product installations.~~Man are not covered by account control agreements and the balances in those accounts exceeded $1 million at the end of November and December 2021 and January and February 2022. In March 2022, the balances in those accounts were reduced to less than $1 million. The ~~TMAX Agreement expired during 2016, and we are currently negotiating the licensing fee that is payable to TMAX.~~

~~NOTE 9. CAPITAL LEASE OBLIGATIONS~~

~~Capital lease obligations consisted~~Company informed Fortress of the ~~following at September 30, 2017~~covenant breach, and ~~December 31, 2016:~~a Consent and Waiver Agreement was executed among the Company, Fortress as Agent, and the Lenders party to the Fortress Credit Agreement on March 16, 2022.

2017

2016

Capital lease obligation – leasehold improvements

$
54,921

$
78,008

Less: Current portion

(32,332
)

(31,030
)
Total capital lease obligations – long-term

$
22,589

$
46,978

~~For~~In connection with entering into the ~~years ending September 30, future annual payments for capital leases obligations are as follows:~~

September 30,

Total

2018

$
32,332

2019

22,589

Total minimum lease payments

$
54,921

~~NOTE 10. LONG-TERM DEBT~~

~~Long-term debt consisted~~Fortress Credit Agreement, the Company also issued warrants to purchase a total of up to 778,320 shares of the ~~following~~Company’s common stock to certain affiliates of Fortress at ~~September 30, 2017 and December 31, 2016:~~

2017

2016

Term loan

$
9,712,500

$
10,500,000

Notes payable, related party

—

509,135

Equipment notes payable

133,935

162,274

Insurance notes payable

—

36,063

     Notes payable, gross

9,846,435

11,207,472

Less:

     Unamortized debt issuance costs

(513,151
)

(595,462
)
     Warrants issued

(624,097
)

(743,604
)
     Notes payable, net

8,709,187

9,868,406

Less: Current portion

(1,088,957
)

(1,199,255
)
     Long-term debt, net

$
7,620,230

$
8,669,151

~~Term loan.~~ ~~In August 2016, we entered into~~ a ~~term loan agreement (the “Term Loan Agreement”) for an aggregate principal amount~~price per share of $10,500,000 (the "Term Loan"). Proceeds of the Term Loan were primarily used to prepay in full the outstanding notes payable to unrelated parties. The remainder of the proceeds from the Term Loan was used for general corporate purposes and working capital needs. The Term Loan is secured by a senior lien on substantially all of our assets. In conjunction with the Term Loan, we also entered into a warrant agreement (the “Warrant Agreement”), pursuant to which we issued the lenders a six-year warrant to purchase 1,965,780 shares of our common stock$0.01 (the “Warrants”). ~~See Note 14.~~ The ~~estimated fair value of the~~ Warrants on the grant date was determined to be $809,632 using the Black-Scholes option pricing model, and was recorded as a reduction of the related debt. The estimated fair value of the Warrants on the grant date is being amortized ratably over the term of the Warrants to interest expense.

~~Under the Term Loan, we~~ are subject to quarterly financial covenants that, among other things, limit our annual capital expenditures (as defined in the Term Loan Agreement), and require us to maintain a specified leverage ratio and minimum EBITDA amounts, each of which are defined in the Term Loan agreement. We were in compliance with the financial covenants of the Term Loan Agreement as of September 30, 2017.

~~During the initial twelve-month period of the Term Loan, the outstanding principal will accrue interest~~exercisable at ~~the rate of 14.0% per annum. Thereafter, the outstanding principal will accrue interest at the lesser of 14.0% per annum or 12.5% per annum for~~ any ~~quarterly period in which we achieve a specified leverage ratio.~~

The Term Loan required quarterly interest-only payments through December 31, 2016, after which we are required to make quarterly principal payments of $262,500 plus accrued interest. The remaining principal and any unpaid interest will be payable in full on August 29, 2021. Voluntary prepayments of the Term Loan, in full or in part, are permitted after the first anniversary of the Term Loan,time, subject to certain premiums. The Term Loan also requires certain mandatory prepayments in the amount of 100% of the proceeds from certain asset dispositions (other than in the ordinary course of business) and certain other extraordinary events, and 25% of the proceeds from the sale and issuance of capital stock.restrictions.

The foregoing summary of the Term Loan Agreement and the Warrant Agreement is qualified in its entirety by reference to the respective agreements, which are found as Exhibits 99.1 and 99.2, respectively, to our Form 8-K filed with the SEC on August 29, 2016.

~~Notes payable, related party~~. In connection with an asset purchase agreement executed in December 2007, we executed a note payable to an entity owned and controlled by Mr. Saucier (the “Related Party Note Payable”). The Related Party Note Payable required annual principal and interest payments of $109,908, at a fixed interest rate of 7.3% through December 2018, at which time there was a balloon payment due of $354,480. On August 11, 2017, we repaid in full the then-outstanding principal balance along with accrued and unpaid interest (in the aggregate amount of $459,683) on the Related Party Note Payable. This payment constituted a Restricted Payment as defined in our Term Loan, and we received a waiver with respect to the payment from the administrative agent for the Term Loan.

1312

As of ~~September 30, 2017,~~March 31, 2022, future maturities of our long-term ~~debt obligations~~liabilities are as follows:


Twelve Months Ending March 31,	Total
2023	$	934,433
2024		600,000
2025		600,000
2026		600,000
2027		57,450,000
Thereafter		—
Long-term liabilities, gross	$	60,184,433

September 30,

Total

2018

$
1,088,957

2019

1,090,223

2020

1,076,750

2021

6,584,849

2022

5,656

Total notes payable

9,846,435

Less:

Unamortized debt issuance costs

(513,151
)
Warrants issued

(624,097
)
Notes payable, net

$
8,709,187

NOTE ~~11.~~8. COMMITMENTS AND CONTINGENCIES

Concentration of risk.We are exposed to risks associated with ~~a client~~clients who represent a significant portion of total revenues. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively, we had the following client ~~revenue concentration:~~concentrations:


	Location	Three Months Ended March 31, 2022 Revenue			Three Months Ended March 31, 2021 Revenue			Accounts Receivable March 31, 2022		Accounts Receivable December 31, 2021
Client A	Europe		31.0	%		29.7	%	$	514,137	$	-
Client B	North America		8.5	%		11.2	%	$	472,798	$	138,338

Location

2017
Revenue

2016
Revenue

Client A

North America

13.6%

13.6%

We are also exposed to risks associated with the expiration of our patents. In 2015, domestic and international patents for two of our products expired, which accounted for approximately $5,370,094 or 49.0% of our revenue for the nine months ended September 30, 2017, as compared to $4,299,637 or 46.5% of our revenue for the nine months ended September 30, 2016. We continue to generate higher revenue from these products despite the expiration of the underlying patents and, accordingly, we do not expect the expiration of these patents to have a significant adverse impact on our future financial statements.

~~Operating lease.~~ In February 2014, we entered into a lease (the “Spencer Lease”) for a new corporate office with an unrelated third party. The five-year Spencer Lease is for an approximately 24,000 square foot space, which is comprised of approximately 16,000 square feet of office space and 8,000 square feet of warehouse space. The property is located in Las Vegas, Nevada.

The initial term of the Spencer Lease commenced on April 1, 2014 and expires on June 30, 2019. We were obligated to pay approximately $153,000 in annual base rent in the first year, and the annual base rent is scheduled to increase by approximately 4% each year. We are also obligated to pay real estate taxes and other building operating costs. Subject to certain conditions, we have certain rights under the Spencer Lease, including rights of first offer to purchase the premises if the landlord elects to sell. We also have an option to extend the term of the Spencer Lease for two consecutive terms of three years each, at the then current fair market value rental rate determined in accordance with the terms of the Spencer Lease.

In connection with the commencement of the Spencer Lease, the landlord agreed to finance tenant improvements (“TI Allowance”) of $150,000. The base rent is increased by an amount sufficient to fully amortize the TI Allowance through the initial Spencer Lease term upon equal monthly payments of principal and interest, with interest imputed on the outstanding principal balance at the rate of 5.5% per annum. The TI Allowance has been classified as a capital lease on the condensed balance sheet.

~~Total rent expense was $217,650 and $208,961 for the nine months ended September 30, 2017 and 2016, respectively.~~

There are currently no operating lease commitments that extend beyond April 1, 2020. As of September 30, 2017, the amounts shown in the accompanying table reflect our estimates of annual future minimum lease obligations:

September 30,

Annual obligation

2018

$
232,368

2019

179,190

Total obligations

$
411,558

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. ~~We record accruals for such contingencies~~There are no current or threatened legal proceedings.

Intellectual property agreements. From time to time, the ~~extent we conclude that it is probable that a liability will be incurred~~Company purchases intellectual property from third-parties and the ~~amount~~Company, in turn, utilizes that intellectual property in certain games sold to clients. In these purchase agreements, the Company may agree to pay the seller of the ~~related loss can be~~

reasonably estimated. Our assessment of each matter may change based on future unexpected events. 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~~fee, if and when, the ~~results of operations in any given period. We assume no obligation to update~~Company receives revenue from games containing the status of pending litigation, except as may be required by U.S. GAAP, applicable law, statue or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12 in Item 8. “Financial Statements and Supplementary Data” included in our 2016 10-K.intellectual property.

NOTE ~~12. STOCKHOLDERS’ EQUITY~~

~~In February 2017, a former employee forfeited 100,000 shares of unvested restricted stock and paid us $35,000 in connection with the exercise of 150,000 fully-vested stock options.~~

~~On August 31, 2017, in accordance with the~~ ~~Lipparelli~~ Agreement, the Board authorized the issuance of 800,000 restricted shares of our common stock, which shares vest as follows: (i) as to the first 200,000 shares, on August 31, 2017, (ii) as to the next 200,000 shares, on January 2, 2018, and (iii) as to the next 400,000 shares, on January 2, 2019.

~~NOTE 13.~~9. INCOME TAXES

Our forecasted annual effective tax rate (“AETR”) at ~~September 30, 2017~~March 31, 2022 was ~~56.6%~~6.66%, as compared to ~~34.2%~~12.92% at ~~September 30, 2016.~~ March 31, 2021. This decrease was primarily due to the reduced tax benefits from foreign rate differential, increased benefit for foreign derived intangible income and a change in valuation allowance as a result of changes in estimates of current-year ordinary income considered in determining the forecasted AETR.

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, our effective tax rate (“ETR”) was ~~51.4%~~143.35% and ~~34.3%~~(27.15)%, respectively. The increase in the ~~effective tax rate was primarily due to the permanent book-to-tax difference generated by changes in the estimated fair value of the warrant liability as of and~~ETR for the ~~nine~~three months ended ~~September 30, 2017.~~

~~NOTE 14. STOCK WARRANTS, OPTIONS AND GRANTS~~

~~Stock options.~~ During the nine months ended September 30, 2017 and 2016, we issued 1,390,000 and 427,500 options to purchase our common stock, respectively, to members of our Board, independent contractors, executive officers and employees.

On May 1, 2017, we entered into an employment agreement (the “Hagerty Employment Agreement”) with Harry C. Hagerty, pursuant to which Mr. Hagerty serves as our Secretary, Treasurer and Chief Financial Officer for a term that extends through April 30, 2020. Pursuant to the Hagerty Employment Agreement, Mr. Hagerty receives a base salary of $120,000 per annum and is eligible for bonuses if and as approved by the Compensation Committee of the Board. In addition, Mr. Hagerty has been granted options to purchase 400,000 shares of our Common Stock at an exercise price per share of $0.60, subject to vesting and other conditions.

On July 26, 2017, in connection with the Cravens Employment Agreement, Mr. Cravens was granted options to purchase up to 450,000 shares of our common stock, which vest as follows: (i) as to the first 150,000 shares of stock, on July 26, 2017, (ii) as to the next 150,000 shares of stock, on August 1, 2018, and (iii) as to the next 150,000 shares of stock, on August 1, 2019, all pursuant to the terms of a stock option grant agreement by and between us and Mr. Cravens. Provided that Mr. CravensMarch 31, 2022 is a ~~full-time employee on August 1, 2020, we agreed~~result of favorable discrete items related to grant to Mr. Cravens an option to purchase an additional 150,000 shares of our common stock with a strike price equal to the price per share of our common stock as reported on OTC Markets on August 1, 2020 (or the nearest trading date thereafter), which option will vest on August 1, 2020 (or the nearest trading date thereafter).

~~The fair value of all stock options granted~~excess tax benefits from stock-based compensation that exceeded pre-tax book loss for the ~~nine months ended September 30, 2017 and 2016 was determined to be $652,895 and $96,137, respectively, using the Black-Scholes option pricing model with the following assumptions:~~

Nine months ended September 30, 2017

Nine months ended September 30, 2016

Dividend yield

0%

0%

Expected volatility

80% - 87%

89% - 90%

Risk free interest rate

1.73% - 1.94%

1.01% - 1.22%

Expected life (years)

5.00

5.00

~~A summary of stock option activity is as follows:~~

Common stock options

Weighted-
average
exercise price

Aggregate
intrinsic
value

Weighted-average
remaining contractual
term (years)

Outstanding – December 31, 2016

1,496,250

$
0.32

$
385,017

3.57

Issued

1,390,000

0.71

—

—

Exercised

(150,000
)

0.23

—

—

Expired

—

—

—

—

Outstanding – September 30, 2017

2,736,250

$
0.52

$
1,767,429

3.87

Exercisable – September 30, 2017

1,822,359

$
0.46

$
1,289,100

3.53

~~A summary of unvested stock option activity is as follows:~~

Common stock
options

Weighted-average
exercise price

Aggregate
intrinsic
value

Weighted-average
remaining contractual
term (years)

Unvested – December 31, 2016

128,889

$
0.34

$
30,933

3.99

Granted

1,390,000

0.71

—

—

Vested

(604,998
)

0.73

—

—

Forfeited or expired

—

—

—

—

Unvested – September 30, 2017

913,891

$
0.65

$
478,329

4.54

~~As of September 30, 2017, our unrecognized stock-based compensation expense associated with the stock options issued was $333,888, which will be amortized over a weighted-average of 1.96 years.~~

~~Warrants.~~ On August 29, 2016, in connection with the Term Loan Agreement, we issued the lenders the Warrants to purchase 1,965,780 shares of our common stock at an initial exercise price of $0.30 per share. The number of shares of common stock issuable upon exercise of the Warrants, and/or the exercise price of such shares, is subject to standard anti-dilution adjustments in the event of stock splits, reorganizations, stock dividends, and similar events. As of the date of the Warrant Agreement, the shares of common stock issuable upon a full exercise of the Warrants represented 5.0% of the total issued and outstanding shares of our common stock. The lenders were also granted the right, but not the obligation, to purchase up to 5.0% of the total number of new securities that we may, from time to time, sell and issue.

The Warrants expire on August 29, 2022, and may not be exercised prior to the earliest of (a) the fifth anniversary of the Term Loan Agreement, (b) the date on which the obligations described in the Term Loan Agreement are satisfied in full, or (c) the date on which the lenders declare all or any portion of the outstanding amount of the Term Loan to be due and payable under the terms of the Term Loan Agreement (collectively, the "Trigger Date"). Exercise of the Warrants requires a sixty (60) day prior written notice, during which time we may exercise our Call Right described below.

The Warrant Agreement includes a call right (the "Call Right") whereby we can purchase the Warrants for a fixed sum of $1,333,333 upon providing the Warrant holders with a thirty (30) day prior written notice. Furthermore, the Warrant Agreement also includes a put right (the "Put Right") whereby the lenders may require us to purchase from the lenders all or any portion of the Warrants at a purchase price equal to the lesser of (a) the fair market value of the underlying shares of common stock as of the date of exercise of the Put Right, or (b) $1,333,333. The Put Right may not be exercised prior to the Trigger Date (as defined above), and the Put Right expires on August 29, 2022. The foregoing summary of the Term Loan Agreement and the Warrant Agreement is qualified in its entirety by reference to the respective agreements, which are found as Exhibits 99.1 and 99.2, respectively, to our Form 8-K filed with the SEC on August 29, 2016.

~~NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

We estimate fair value for financial assets and liabilities in accordance with 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 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

~~Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.~~quarter.

~~Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.~~

The estimated fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates their carrying amount due to their short-term nature. The estimated fair value of our long-term debt and capital lease obligations approximates their carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk. As of ~~September 30, 2017,the Warrants werethe only financial instrument measured at estimated fair value on a recurring basis based on level 2 inputs.~~

NOTE ~~16.~~10. SUBSEQUENT EVENTS

On April 20, 2022, the Company entered into a Cooperation Agreement (the “Cooperation Agreement”) with Tice Brown (“Mr. Brown”).

~~We evaluated subsequent events through~~Pursuant to the terms of the Cooperation Agreement, Mr. Brown has agreed to (1) irrevocably withdraw his proposed nomination of himself to the Board of Directors of the Company (the “Board”) and his proposal requesting that the Board declassify the Board by electing each director on an annual basis, with respect to the 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”), (2) immediately cease all solicitation efforts in connection with the 2022 Annual Meeting and (3) cause all voting securities of the Company owned beneficially by Mr. Brown and for which he has the right to direct the vote, to be cast in favor of each of the Company’s proposals and for each of the Board’s nominees for director at the 2022 Annual Meeting.

In addition, the Company has agreed to form a hiring committee consisting of 2 current members of the Board and 1 independent stockholder who has owned shares of the Company’s common stock for more than two years (the “Hiring Committee”) for the purpose of identifying and unanimously recommending to the Board a qualified candidate (the “Independent Director”) to fill the vacancy created by Mr. William Zender, who intends to resign as a member of the Board. The Board has agreed to promptly cause the Independent Director, subject to the satisfaction of certain qualifications and requirements as set forth in the Cooperation Agreement, to be appointed to the Board for a term expiring at the 2024 Annual Meeting of Stockholders.

The Cooperation Agreement also provides for certain “standstill” provisions that restrict Mr. Brown and his affiliates from, among other things, engaging in any solicitation of proxies or written consents with respect to the voting securities of the Company or acquiring any securities of the Company that would result in Mr. Brown having beneficial ownership of more than 9.9% of the Company’s voting securities. The standstill provisions expire on the date ~~of issuance~~that is two years after the 2022 Annual Meeting, unless the Cooperation Agreement is earlier terminated in accordance with the terms thereof. The Cooperation Agreement also provides Mr. Brown with certain Board observer rights prior to the appointment of the Independent Director.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion and analysis of our financial ~~statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the financial statements~~condition, results of operations and liquidity and capital resources as of and for the three ~~and nine~~ months ended ~~September 30, 2017.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION~~ ~~AND ANALYSIS OF~~ ~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS~~

~~The following~~March 31, 2022 and 2021. This discussion ~~of the financial condition and results of operations of the Company~~ should be read ~~in conjunction~~together with ~~the condensed~~our audited consolidated financial statements and ~~the~~ related notes ~~thereto~~ included ~~elsewhere~~ in ~~this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning~~Item 8 Financial Statements and Supplementary Financial Information included in our 2021 10-K. Some of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Such forward-looking statements speak only as of the date of this report; we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report, as well as the disclosures made in the Galaxy Gaming, Inc. Annual Report on Form 10-K for the year ended December 31, 2016 filed on April 14, 2017 (the “2016 10-K”), and other filings we make with the Securities and Exchange Commission, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, operating results, financial condition and stock price.

~~Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements~~information contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance. We disclaim any obligation to updatediscussion includes forward-looking statements ~~contained~~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, ~~this Quarterly Report.~~or implied by, such forward-looking statements.

OVERVIEW

We develop, acquire, ~~manufacture~~assemble and market technology and entertainment-based products and services for the gaming industry for placement on ~~the~~ casino ~~floor.~~floors and on legal internet gaming sites. Our products and services primarily relate to licensed casino operators’ table games activities and focus on either increasing their profitability ~~productivity~~ and ~~security~~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 highly regulated markets throughout the world. Our products ~~and services~~ are ~~manufactured~~assembled at our headquarters ~~and manufacturing facility~~ in Las Vegas, Nevada, as well as outsourced for certain sub-assemblies in the United States.

Additional information regarding our products and product categories may be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2016 10-K and on our web site, www.galaxygaming.com. Information found on the web site should not be considered part of this report.

As discussed in Note 1 to our condensed financial statements included in Item 1 of this report, financial statements for the three and nine months ended September 30, 2016 have been restated to correct certain errors noted during the preparation of the financial statements for the year ended ~~December 31, 2016~~. The restatements to reflect the correction of these errors are referred to herein collectively as the "Restatement." For further information regarding the Restatement, see our Current Report on Form 8-K filed with the SEC on April 3, 2017.

Results of operations for the three months ended ~~September 30, 2017.~~March 31, 2022 and 2021.For the three months ended ~~September 30, 2017, our continuing operations~~March 31, 2022, we generated ~~gross~~ revenues of ~~$3,830,420~~$5,918,599 compared to ~~gross revenues of $3,191,969~~$4,282,901 for the comparable prior-year period, representing an increase of ~~638,451,~~$1,635,698, or ~~20.0%~~38.2%. This increase was ~~primarily~~ attributable to the continued recovery of our ~~focus on Premium Games such as~~ ~~High Card Flush, Heads Up Hold ’em~~land-based customers from the effects of the COVID-19 crisis, particularly in the United Kingdom. Also, our online gaming revenues increased due to increased revenue earned by our iGaming clients, reflecting continued growth in their non-US markets and ~~Player’s Edge, which command a higher price point per unit, and the improved performance of side bet games such as~~ ~~21+3~~ ~~and~~ ~~Bonus Craps~~. significantly increased revenue in existing or newly-opened US markets.

Selling, general and administrative expenses for the three months ended ~~September 30, 2017~~March 31, 2022 were ~~$2,362,601~~$3,043,359 compared to ~~$1,553,556~~$2,711,052 for the comparable ~~prior~~prior-year period,, representing an increase of ~~$809,045,~~$332,307, or ~~52.1%~~12.3%. ~~Significant quarter-over-quarter changes in selling, general and administrative expenses consisted of the following categories:~~

Three Months Ended September 30,

2017

2016

Compensation and related

$
1,078,284

$
591,233

Professional and compliance fees

477,171

231,875

~~Employee compensation~~This increase was due to higher internal labor and related expenses ~~increased as~~(base salary, payroll-related taxes, bonus accrual and travel). These increases were offset by a ~~result of our investments~~decrease in ~~personnel as we continue~~legal fees related to grow and attract new talent, as well as higher sales commissions due to increased revenues in 2017. Professional and compliance fees have increased due to on-going regulatory applications in various jurisdictions.the Triangulum lawsuit.

Research and development expenses for the three months ended ~~September 30, 2017~~March 31, 2022 were ~~$139,185,~~$199,070, compared to ~~$89,513~~$118,701 for the comparable prior-year period, representing an increase of ~~$49,672,~~$80,369, or ~~55.5%~~67.7%. This increase was primarily due to ~~increased costs associated with testing our products currently in development.~~higher internal labor and related expenses (base salary, payroll-related taxes, commissions and bonus accrual).

~~Stock-based~~Share-based compensation expenses for the three months ended ~~September 30, 2017~~March 31, 2022 were ~~$384,925,~~$310,002, as compared to ~~$41,075~~$316,640 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$343,850,~~$6,638, or ~~837.1%~~2.1%. The ~~increase~~decrease was due primarily ~~due~~ to ~~stock options~~a change in the level and ~~restricted shares~~the composition of ~~common stock issued~~fees paid to members of our Board of Directors in ~~2017 to executive officers, board members and independent contractors.~~ 2022.

~~Income~~As a result of the changes described above, income from operations ~~decreased $608,312~~increased $1,184,166 or ~~57.3%~~292.4% to ~~$453,210~~$1,589,116 for the three months ended ~~September 30, 2017,~~March 31, 2022, compared to ~~$1,061,522~~income from operations of $404,950 for the comparable prior-year period. ~~This decrease was primarily attributable to higher selling, general and administrative and share-based compensation expenses.~~

During the three months ended September 30, 2016, we entered into a settlement agreement with Red Card Gaming, Inc. and AGS, LLC to settle all claims and counter-claims related to contract dispute litigation. As a result of the settlement agreement, we recognized settlement income of $697,214, which includes a $350,000 payment from AGS and a release of $347,214 in accrued contingent consideration owed to AGS.

Total interest expense increased ~~$204,834,~~$1,506,112, or ~~90.0%~~832.5%, to ~~$432,466~~$1,687,022 for the three months ended ~~September 30, 2017,~~March 31, 2022, compared to ~~$227,632~~$180,910 for the comparable prior-year period. The increase was attributable to 1) a larger balance of debt outstanding in the current period as compared to the prior year, and 2) higher rates of interest on the current borrowings.

Share redemption consideration was $0 in the three months ended March 31,2022, compared to $195,482 in the comparable prior-year period. The reduction is due to the payment in full of the Triangulum Redemption Consideration Obligation in November 2021.

Income tax benefit was ($141,974) for the three months ended March 31, 2022, compared to income tax benefit of ($18,950) for the comparable prior-year period. The increase in ~~interest expense was~~benefit is primarily ~~due to~~ the ~~Term Loan refinance transaction completed in August 2016.~~

~~During the three months ended September 30, 2016, we repaid in full the PTG Notes and wrote off the related unamortized debt discounts, which resulted in a loss of extinguishment of debt of $515,037.~~

The change in estimated fair value of warrants issued in connection with the Term Loan resulted in other expense of $86,308 for the three months ended September 30, 2017, compared to other income of $2,933 for the comparable prior-year period. The estimated fair value is determined using the Black-Scholes pricing model.

Income tax provision was $21,990 for the three months ended September 30, 2017, compared to $351,412 for the comparable prior-year period. This change was primarily attributable to the decrease in income before provision for income taxes and ~~the permanent book-to-tax difference generated by changes in the estimated fair value of the warrant liability as of and for the~~ ~~three months ended September 30, 2017.~~

~~Results of operations for the~~ ~~nine months ended September 30, 2017~~. ~~For the~~ ~~nine months ended September 30, 2017~~, our continuing operations generated gross revenues of $10,964,524 compared to gross revenues of $9,240,240 for the comparable prior-year period, representing an increase of $1,724,284, or 18.7%. This increase was primarily attributable to our focus on Premium Games such as ~~High Card Flush~~, ~~Heads Up Hold ’em~~ ~~and~~ ~~Player’s Edge, which command a higher price point per unit, and the improved performance of side bet games such as~~ ~~21+3~~ ~~and~~ ~~Bonus Craps. Selling, general and administrative expenses were $6,808,659 for the~~ ~~nine months ended September 30, 2017,~~ ~~compared to $4,819,373 for the~~ ~~comparable prior period, representing an increase of $1,989,286, or 41.3%. Significant year-over-year changes in selling, general and administrative expenses consisted of the following categories:~~

Nine Months Ended September 30,

2017

2016

Compensation and related

$
2,852,292

$
1,731,032

Professional and compliance fees

1,459,045

1,125,434

~~Employee compensation and related expenses increased as a~~ result of ~~our investments in personnel as we continue to grow and attract new talent, as well as higher sales commissions due to~~ increased ~~revenues in 2017. Professional and compliance fees have increased due to on-going regulatory applications in various jurisdictions.~~

~~Research and development expenses for the~~ ~~nine months ended September 30, 2017~~ were $403,618, compared to $270,734 for the comparable prior-year period, representing an increase of $132,884, or 49.1%. This increase was primarily due to increased costs associated with testing our products currently in development.

~~Stock-based compensation expenses for the~~ ~~nine months ended September 30, 2017~~ were $553,313, as compared to $91,006 for the comparable prior-year period, representing an increase of $462,307, or 508.0%. The increase was primarily due to stock options and restricted shares of common stock issued in 2017 to executive officers, board members and independent contractors.

~~Income from operations decreased $986,547, or 36.2%, to $1,741,645 for the~~ ~~nine months ended September 30, 2017, compared to $2,728,192 for the comparable prior-year period. This decrease was primarily attributable to higher selling, general and administrative and share-based compensation expenses.~~

~~During the nine months ended September 30, 2016, we entered into a settlement agreement with Red Card Gaming, Inc. and AGS, LLC to settle all claims and counter-claims~~favorable discrete items related to ~~contract dispute litigation. As a result of the settlement agreement, we recognized settlement income of $697,214, which includes a $350,000 payment~~excess tax benefits from ~~AGS and a release of $347,214 in accrued contingent consideration owed to AGS.~~stock-based compensation.

~~Total interest expense increased $575,000, or 77.6%, to $1,316,045 for the~~ ~~nine months ended September 30, 2017, compared to $741,045 for the comparable prior-year period. The increase in interest expense was primarily due to the Term Loan refinance transaction completed in August 2016.~~

~~During the nine months ended September 30, 2016, we repaid in full the PTG Notes and wrote off the related unamortized debt discounts, which resulted in a loss of extinguishment of debt of $515,037.~~

~~The change in estimated fair value of warrants issued in connection with the Term Loan resulted in other expense of $409,717 for the~~ ~~nine months ended September 30, 2017, compared to other income of $2,933 for the comparable prior-year period. The estimated fair value is determined using the Black-Scholes pricing model.~~

~~Income tax provision was $86,881 for the~~ ~~nine months ended September 30, 2017, compared to $873,768 for the comparable prior-year period. This change was attributable to the decrease in income before provision for income taxes and the permanent book-to-tax difference generated by changes in the estimated fair value of the warrant liability as of and for the nine months ended September 30, 2017~~.

2015

Adjusted EBITDA.Adjusted EBITDA includes ~~adjustment~~adjustments to net income to exclude interest, income taxes, depreciation, amortization, ~~share based~~share-based compensation, ~~loss~~ ~~on extinguishment of debt,~~ foreign currency exchange ~~gains,~~loss (gain), change in ~~estimated~~ fair value of ~~warrant~~interest rate swap liability and s~~ettlement income.~~ severance and other expenses related to litigation. Adjusted EBITDA is not a measure of performance defined in accordance with U.S. ~~generally accepted accounting principles ("U.S. GAAP")~~.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 to net cash provided by operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating our performance. A reconciliation of U.S. GAAP net income ~~from operations~~ to Adjusted EBITDA is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Adjusted EBITDA Reconciliation:	2017			2016			2017			2016			2022			2021
				(Restated)						(Restated)
Net (loss) income	$	(27,930	)	$	661,718		$	54,578		$	1,652,992		$	(13,962	)	$	88,737
Interest expense														1,687,022			180,910
Share redemption consideration														—			195,482
Interest income		—			(56	)		—			(202	)		(2,233	)		(382	)
Interest expense		432,466			227,632			1,316,045			741,045
Income tax provision		21,990			351,412			86,881			873,768
Depreciation and amortization		440,130			419,540			1,323,772			1,252,860			724,462			717,254
Loss on extinguishment of debt		—			515,037			—			515,037
Share based compensation expense		384,925			41,075			553,313			91,006
Foreign currency exchange gains		(59,624	)		5,926			(125,576	)		(354,301	)
Change in estimated fair value of warrant liability		86,308			(2,933	)		409,717			(2,933	)
Settlement income		—			(697,214	)		—			(697,214	)
Share-based compensation														310,002			316,640
Foreign currency exchange loss/(gain)														60,263			8,975
Change in fair value of interest rate swap liability														—			(49,822	)
(Benefit) provision for income taxes														(141,974	)		(18,950	)
Severance expense														21,727			3,750
Special project expense														28,124			249,436
Adjusted EBITDA	$	1,278,265		$	1,522,137		$	3,618,730		$	4,072,058		$	2,673,431		$	1,692,030

Liquidity and capital resources.We have generally been able to fund our continuing operations, our investments, and the interest expense and principal amortization 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 these activities 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 ~~September 30, 2017,~~March 31, 2022, we had total current assets of ~~$6,483,723~~$24,204,981 and total assets of ~~$19,292,441.~~$40,152,056. This compares to ~~$5,148,435~~$23,890,122 and ~~$19,011,945,~~$40,452,705, respectively, as of December 31, ~~2016.~~2021. The increase in total current assets ~~as of September 30, 2017~~at March 31, 2022 was due primarily to higher revenues in the 2022 period. The decrease in total assets was primarily ~~impacted by an increase in cash and cash equivalents and accounts receivable. Cash increased significantly~~ due to ~~reduced principal payments on the Term Loan as compared to the PTG Notes, partially offset by cash used to pay off the Related Party Note Payable in August 2017.~~ amortization of other intangibles.

Our total current liabilities as of ~~September 30, 2017 were $5,026,550 and $4,708,685~~March 31, 2022 decreased to $3,656,939 from $4,401,071 as of December 31, ~~2016. This increase was~~2021, primarily ~~driven by the increase in accrued expenses (primarily~~ due to the ~~increase~~payment of accrued bonuses in ~~TableMAX license fee accrual and payroll and related accruals).~~ March 2022.

Our business ~~model continues to be highly~~was profitable and cash-flow positive from operations in Q1 2022. Based on our current forecast of operations, we believe we will have ~~several options~~sufficient liquidity to ~~ensure we are able~~fund our operations and to meet the obligations under our ~~short-term and long-term obligations.~~financing arrangements as they come due.

We ~~have undertaken certain growth initiatives~~continue to ~~expand our recurring revenue base. As such we have made investments~~file applications for new or enhanced licenses in personnel and research related to the development of our enhanced table systems. Additionally, we increased our sales and marketing budget and spent monies on regulatory efforts for the purpose of expanding our distribution network. We are also subject to several ~~regulatory investigations and proceedings~~jurisdictions, which may result in significant future legal and regulatory expenses. A significant increase in such expenses may require us to postpone growth initiatives or investments in personnel, inventory and research and development of our products. It is our intention to continue such initiatives and investments. However, to the extent we are not able to achieve our growth objectives or raise additional capital, we will need to evaluate the reduction of operating expenses.

At September 30, 2017, we do not have any available third-party lines or letters of credit or any written or oral commitments from officers or shareholders to provide us with loans or advances to support our operations or fund potential acquisitions.

Our operating activities provided ~~$2,227,147 in~~ cash of $1,426,499 for the three months ended March 31, 2022, compared to $767,829 for the ~~nine months ended September 30, 2017, compared to $3,657,759 for the nine months ended September 30, 2016.~~comparable prior period. The ~~decrease~~increase in operating cash flow was primarily due to ~~the decreases in net~~higher income ~~income tax payable and loss on extinguishment of debt recorded in 2016,~~from operations, partially offset by ~~changes in estimated fair value of warrant liability, share-based compensation and increases in accounts payable and accrued expenses.~~higher interest expense.

~~Additionally, investing~~Investing activities used cash of ~~$96,269~~($65,747) for the ~~nine~~three months ended ~~September 30, 2017. The~~March 31, 2022, compared to cash ~~flows from investing activities are~~used of ($81,792) for the comparable prior period. This decrease was primarily due to the acquisition of certain software ~~and property and equipment.~~ tools in the 2021 period which did not recur in the 2022 period.

Cash used in financing activities during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 was ~~$1,366,216,~~ ~~which~~($120,480). This compares to ($557,639) cash used by financing activities for the comparable prior period. The decreased was ~~primarily~~ due to lower amortization of principal ~~payments towards long-term debt and capital leases.~~

~~We intend to fund~~on our continuing operations through increased sales and cash flow. However, the issuance of debt or equity financing arrangements may be required to fund expenditures or other cash requirements. There can be no assurance that we will be successful in raising additional funding, if necessary, and even if we are successful, it may not be on advantageous terms to us. If we are not able to

~~secure additional funding, the implementation of our business plan could be impaired. In addition, we may incur higher capital expenditures~~borrowings in the ~~future~~2022 period and to ~~expand our operations. We may~~higher proceeds from time to time acquire products and businesses complementary to our business. We may also incur significant expenses when applying for new licenses or in complying with current jurisdictional requirements. As a public entity, we may issue shares of our common stock and preferred stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. To the extent that we seek to acquire other businesses in exchange for our common stock, fluctuations in our stock price could have a material adverse effect on our ability to complete acquisitions.option exercises.

Critical accounting policies.~~The discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Critical~~ Our significant accounting policies are described in our 2021 10-K. There have been no material changes to those ~~policies that, in management's view, are most important in the portrayal of our financial condition and results of operations. See Note 2of our financial statements included in~~ ~~Item 8. “Financial Statements and Supplementary Data” of our 2016 10-K~~ ~~for further detail on these critical accounting~~ policies.

~~Off balance~~16

Off-balance sheet arrangements.As of ~~September 30, 2017,~~March 31, 2022, there were no ~~off balance~~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.

ITEM 3. QUANTITATIVE AND QUALITATIVE 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 ~~September 30, 2017~~March 31, 2022, our disclosure controls and procedures were effective.

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 SEC'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 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.

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 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.

2218

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

InWe have been named in and have brought lawsuits in the ~~ordinary~~normal course of ~~conducting~~business. See Note 8 above and Note 11 to 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, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations oraudited 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. We assume no obligation to update the status of pending litigation, except as may be required by GAAP, applicable law, statute or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12statements included in Item 8.8 “Financial Statements and Supplementary ~~Data” included~~Financial Information” in our S~~ee Note 2 in Item 8. “Financial Statements and Supplementary Data” included in our 2016~~2021 10-K. ~~There are no material updates to matters previously reported on our 2016 10-K.~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On ~~July 26, 2017, in connection with the Cravens Employment Agreement, Mr. Cravens was granted options to purchase up to 450,000~~March 31, 2022, 18,965 restricted shares of our common stock ~~which vest as follows: (i) as~~valued at $87,808 were issued to the first 150,000 shares of stock, on July 26, 2017, (ii) as to the next 150,000 shares of stock, on August 1, 2018, and (iii) as to the next 150,000 shares of stock, on August 1, 2019, all pursuant to the terms of a Stock Option Grant Agreement by and between us and Mr. Cravens. Provided that Mr. Cravens is a full-time employee on August 1, 2020, we agreed to grant to Mr. Cravens an option to purchase an additional 150,000 shares of our common stock with a strike price equal to the price per share of our common stock as reported on OTC Markets on August 1, 2020 (or the nearest trading date thereafter), which option will vest on August 1, 2020 (or the nearest trading date thereafter).

~~On September 30, 2017, we issued options to purchase up to 75,000 shares of our common stock to four~~ members of our Board of Directors in partial consideration offor their service on the Board, at an exercise price of $1.17 per share. Each of the aforementioned options to purchase common stock was exercisable as of the date of grant. The options must be exercised within five years from the date of grant or 90 days from the date of the recipient’s departure from the Board. In each of the transactions listed above, thein Q1 2022. These shares were fully vested upon issuance. These securities were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) and rules and regulations promulgated thereunder.

Our reliance upon Section 4(a)(2) of the Securities Act in granting the aforementioned options to purchase shares of our common stock was based in part upon the following factors: (a) each of the issuances of the securities was in connection with an isolated private transaction which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; and (d) the negotiations for the issuance of the securities took place directly between the offeree and us.

ITEM 6. EXHIBITS

~~Exhibit Number~~		~~Description of Exhibit~~

~~10.1~~		Board of director service agreement of Mark A Lipparelli, dated August 31, 2017 (incorporated by reference to the Form 8-K, filed by the Company with the Securities and Exchange Commission on August 31, 2017).
~~10.2~~		~~Form of voting and dispositive control transfer agreement (incorporated by reference to the Form 8-K, filed by the Company with the Securities and Exchange Commission on September 27, 2017).~~
~~31.1~~		~~Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002~~
~~31.2~~		~~Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002~~
~~32.1~~		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
~~101~~		~~Financials in XBRL format~~

Exhibit

Number

Description

Form

File No.

Exhibit

Filing Date

Filed

Herewith

10.1

Amended and Restated Credit Agreement dated March 29, 2021 with Zions Bancorporation, N.A. dba Nevada State Bank

8-K

000-30653

10.1

March 31, 2021

10.2

Forbearance to Amended and Restated Credit Agreement dated March 29, 2021 with Zions Bancorporation, N.A. dba Nevada State Bank

8-K

000-30653

10.1

May 17, 2021

10.3

Settlement Agreement with former Chairman and Chief Executive Officer, Robert Saucier and Triangulum Partners LLC dated October 7, 2021

8-K

000-30653

10.1

October 8, 2021

10.4

Credit Agreement dated November 15, 2021, with Fortress Credit Corp.

8-K

000-30653

10.1

November 17, 2021

10.5

Consent and Waiver to Term Loan Credit Agreement, dated November 15, 2021, by among Galaxy Gaming, Inc., a Nevada corporation, the lenders from time to time party and Fortress Credit Corp., as administrative agent and Collateral agent

8-K

000-30653

10.1

March 22, 2022

10.6

Cooperation Agreement, dated April 20, 2022, by and between the Company and Tice Brown

8-K

000-30653

10.1

April 25, 2022

31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document – the instance does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document

* In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

2320

~~SIGNATURES~~

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.


	Galaxy Gaming, Inc.

Date:	~~November 14, 2017~~May 16, 2022

	By:	/s/ TODD P. CRAVENS
		Todd P. Cravens
		President and Chief Executive Officer ~~(Principal~~ (Principal Executive Officer)

	Galaxy Gaming, Inc.

Date:	~~November 14, 2017~~May 16, 2022

	By:	/s/ HARRY C. HAGERTY
		Harry C. Hagerty
		Chief Financial Officer ~~(Principal~~ (Principal Accounting Officer)

	September 30,		December 31,
ASSETS	2017		2016
Current assets:	(Unaudited)
Cash and cash equivalents	$	3,161,666	$	2,304,761
Restricted cash		93,270		84,577
Accounts receivable, net of allowance for bad debts of $38,015 and $31,125, respectively		2,396,087		2,137,245
Inventory, net		525,543		427,105
Prepaid expense and other		307,157		194,747
Total current assets		6,483,723		5,148,435
Property and equipment, net		293,488		356,253
Products leased and held for lease, net		300,168		212,131
Goodwill and other intangible assets, net		11,825,005		12,846,019
Deferred tax assets, net		367,057		367,057
Other assets, net		23,000		82,050
Total assets	$	19,292,441	$	19,011,945
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	329,193	$	461,913
Accrued expenses		1,722,039		1,109,428
Income taxes payable		662,159		786,430
Deferred revenue		1,050,416		1,014,731
Deferred rent, current portion		21,494		14,938
Current portion of long-term debt and capital lease obligations		1,121,289		1,230,285
Other current liabilities		119,960		90,960
Total current liabilities		5,026,550		4,708,685
Deferred rent, net		21,037		37,704
Capital lease obligations, net		22,589		46,978
Common stock warrant liability		1,333,333		923,616
Long-term debt, net		7,620,230		8,669,151
Total liabilities		14,023,739		14,386,134
Commitments and Contingencies (See Note 10)
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, $0.001 par value; 0 shares issued and outstanding, respectively		—		—
Common stock, 65,000,000 shares authorized; $0.001 par value; 39,565,591 and 39,315,591 shares issued and outstanding, respectively		39,566		39,316
Additional paid-in capital		3,697,536		3,109,473
Accumulated earnings		1,531,600		1,477,022
Total stockholders’ equity		5,268,702		4,625,811
Total liabilities and stockholders’ equity	$	19,292,441	$	19,011,945

	Three Months Ended September 30, 2016									Nine Months Ended September 30, 2016
Statements of Income	As originally reported			Impact of restatement			As restated			As originally reported			Impact of restatement			As restated
Selling, general and administrative	$	1,576,480		$	(22,924	)	$	1,553,556		$	4,850,785		$	(31,412	)	$	4,819,373
Provision for income taxes		(602,619	)		251,207			(351,412	)		(990,639	)		116,871			(873,768	)
Foreign currency exchange (losses) gains		—			(5,926	)		(5,926	)		—			354,301			354,301
Loss on extinguishment of debt		(87,578	)		(427,459	)		(515,037	)		(87,578	)		(427,459	)		(515,037	)
Net income		820,972			(159,254	)		661,718			1,577,867			75,125			1,652,992

Statement of Cash Flow	As originally reported			Impact of restatement			As restated
Net income	$	1,577,867		$	75,125		$	1,652,992
Loss on extinguishment of debt		87,578			427,459			515,037
Deferred income tax provision		54,370			(54,370	)		—
Unrealized foreign exchange losses on cash and cash equivalents		—			31,886			31,886
Increase in accounts receivable		(107,969	)		(705	)		(108,674	)
Decrease in other current assets		43,017			(43,017	)		—
Decrease in prepaid expenses and other current assets		6,608			2,314			8,922
Decrease in accounts payable		(858,954	)		550			(858,404	)
Increase in income taxes payable		936,269			(113,787	)		822,482
Increase in accrued expenses		141,841			11,030			152,871
Net cash provided by operating activities		3,321,274			336,485			3,657,759
Principal payments on notes payable		(2,873,437	)		(336,485	)		(3,209,922	)
Net cash used in financing activities		(1,993,009	)		(336,485	)		(2,329,494	)

	2017			2016
Furniture and fixtures	$	280,694		$	269,471
Automotive vehicles		215,127			202,143
Leasehold improvements		156,843			156,843
Computer equipment		117,645			105,114
Office equipment		53,483			37,871
Property and equipment, gross		823,792			771,442
Less: accumulated depreciation		(530,304	)		(415,189	)
Property and equipment, net	$	293,488		$	356,253

	2017			2016
Enhanced table systems	$	546,539		$	424,364
Less: accumulated depreciation		(246,371	)		(212,233	)
Products leased and held for lease, net	$	300,168		$	212,131

September 30,	Total
2018	$	1,498,873
2019		1,498,873
2020		1,481,712
2021		1,391,218
2022		1,390,676
Thereafter		3,472,653
Total amortization	$	10,734,005

	2017		2016
TableMAX license fee	$	736,428	$	470,512
Payroll and related		664,140		405,553
Professional fees		152,962		59,567
Commissions and royalties		110,353		54,551
Other		58,156		119,245
Total accrued expenses	$	1,722,039	$	1,109,428

	2017			2016
Capital lease obligation – leasehold improvements	$	54,921		$	78,008
Less: Current portion		(32,332	)		(31,030	)
Total capital lease obligations – long-term	$	22,589		$	46,978

	2017			2016
Term loan	$	9,712,500		$	10,500,000
Notes payable, related party		—			509,135
Equipment notes payable		133,935			162,274
Insurance notes payable		—			36,063
Notes payable, gross		9,846,435			11,207,472
Less:
Unamortized debt issuance costs		(513,151	)		(595,462	)
Warrants issued		(624,097	)		(743,604	)
Notes payable, net		8,709,187			9,868,406
Less: Current portion		(1,088,957	)		(1,199,255	)
Long-term debt, net	$	7,620,230		$	8,669,151

September 30,	Annual obligation
2018	$	232,368
2019		179,190
Total obligations	$	411,558

	Nine months ended September 30, 2017		Nine months ended September 30, 2016
Dividend yield		0%		0%
Expected volatility	80% - 87%		89% - 90%
Risk free interest rate	1.73% - 1.94%		1.01% - 1.22%
Expected life (years)		5.00		5.00

	Common stock options			Weighted- average exercise price		Aggregate intrinsic value		Weighted-average remaining contractual term (years)
Outstanding – December 31, 2016		1,496,250		$	0.32	$	385,017		3.57
Issued		1,390,000			0.71		—		—
Exercised		(150,000	)		0.23		—		—
Expired		—			—		—		—
Outstanding – September 30, 2017		2,736,250		$	0.52	$	1,767,429		3.87
Exercisable – September 30, 2017		1,822,359		$	0.46	$	1,289,100		3.53

	Common stock options			Weighted-average exercise price		Aggregate intrinsic value		Weighted-average remaining contractual term (years)
Unvested – December 31, 2016		128,889		$	0.34	$	30,933		3.99
Granted		1,390,000			0.71		—		—
Vested		(604,998	)		0.73		—		—
Forfeited or expired		—			—		—		—
Unvested – September 30, 2017		913,891		$	0.65	$	478,329		4.54

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company