Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the issuer has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.

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: ~~17,910,344~~21,582,638 common shares as of November ~~10, 2019.~~12, 2020.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, ~~2019~~2020

ASSETS	September 30, 2019			December 31, 2018		September 30, 2020			December 31, 2019
Current assets:	(Unaudited)					(Unaudited)
Cash, cash equivalents and restricted cash	$	8,577,296		$	6,311,563
Accounts receivable, net of allowance of $82,936 and $54,136, respectively		3,225,242			2,849,861
Cash and cash equivalents						$	2,668,906		$	9,686,698
Accounts receivable, net of allowance of $129,587 and $77,433, respectively							2,183,744			3,099,586
Inventory, net		689,767			531,814		761,345			665,654
Income tax receivable		337,292			—		350,244			260,347
Prepaid expense		550,340			510,254
Other current assets		4,541			3,352
Prepaid expense and other current assets							704,557			761,650
Total current assets		13,384,478			10,206,844		6,668,796			14,473,935
Property and equipment, net		137,349			199,585		116,152			144,909
Operating lease right-of-use assets		101,958			—		1,482,534			306,859
Assets deployed at client locations, net		419,035			471,562		258,856			405,522
Goodwill		1,091,000			1,091,000		1,091,000			1,091,000
Other intangible assets, net		7,782,892			8,890,252		16,610,045			7,430,643
Deferred tax assets, net		338,676			334,482		892,090			399,283
Other assets, net							27,305			—
Total assets	$	23,255,388		$	21,193,725	$	27,146,778		$	24,252,151
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	1,014,502		$	681,936	$	2,099,180		$	766,305
Accrued expenses		1,285,310			1,295,570		844,146			1,450,879
Income taxes payable		—			82,091
Revenue contract liability		1,294,680			1,438,492		587,094			1,294,265
Deferred rent, current portion		—			14,025
Current portion of long-term debt		1,437,950			1,456,847		2,530,149			1,634,527
Current portion of operating lease liabilities		83,953			—		197,067			276,963
Other current liabilities		—			21,654
Total current liabilities		5,116,395			4,990,615		6,257,636			5,422,939
Long-term operating lease liabilities		23,074			—		1,266,215			30,325
Long-term debt, net		46,680,702			8,649,828
Long-term liabilities, net							45,991,154			46,291,014
Interest rate swap liability		174,621			96,181		118,846			140,495
Total liabilities		51,994,792			13,736,624		53,633,851			51,884,773
Commitments and Contingencies (See Note 11)
Stockholders’ equity (deficit)
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; 17,910,344 and 39,921,591 shares issued and outstanding, respectively		17,910			39,922
Common stock, 65,000,000 shares authorized; $0.001 par value; 21,582,638 and 18,017,944 shares issued and outstanding, respectively							21,582			18,018
Additional paid-in capital		5,536,497			4,733,701		10,344,181			5,795,636
Accumulated earnings (deficit)		(34,293,811	)		2,683,478
Total stockholders’ equity (deficit)		(28,739,404	)		7,457,101
Total liabilities and stockholders’ equity (deficit)	$	23,255,388		$	21,193,725
Accumulated deficit							(36,833,752	)		(33,446,276	)
Accumulated other comprehensive loss							(19,084	)		—
Total stockholders’ deficit							(26,487,073	)		(27,632,622	)
Total liabilities and stockholders’ deficit						$	27,146,778		$	24,252,151

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018			September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Revenue:
Product leases and royalties	$	5,371,450		$	4,775,754		$	16,116,533		$	13,672,459
Product sales and service		196			30			1,050			191
Product leases, royalties and other													$	1,797,833		$	5,371,646		$	6,956,122		$	16,117,583
Total revenue		5,371,646			4,775,784			16,117,583			13,672,650		$	1,797,833		$	5,371,646			6,956,122		$	16,117,583
Costs and expenses:
Cost of ancillary products and assembled components		37,674			47,828			167,009			107,215			11,142			37,674			40,855			167,009
Selling, general and administrative		3,460,319			2,559,056			9,941,029			7,741,213			1,833,723			3,645,319			7,264,410			10,126,029
Research and development		208,253			373,456			685,693			816,657			97,081			208,253			391,333			685,693
Depreciation and amortization		476,112			462,402			1,439,220			1,372,752			575,637			476,112			1,499,927			1,439,220
Share-based compensation		242,016			192,998			678,199			550,588			178,553			242,016			512,818			678,199
Total costs and expenses		4,424,374			3,635,740			12,911,150			10,588,425			2,696,136			4,609,374			9,709,343			13,096,150
Income from operations		947,272			1,140,044			3,206,433			3,084,225
(Loss) income from operations														(898,303	)		762,272			(2,753,221	)		3,021,433
Other income (expense):
Interest income														1,412			25,326			25,313			45,891
Interest expense		(361,188	)		(206,425	)		(818,555	)		(819,837	)		(162,082	)		(165,706	)		(506,922	)		(503,262	)
Foreign currency exchange loss		(69,470	)		(22,095	)		(57,299	)		(542	)
Share redemption consideration														(195,482	)		(195,482	)		(586,446	)		(315,293	)
Foreign currency exchange gain (loss)														20,014			(69,470	)		(95,976	)		(57,299	)
Change in estimated fair value of interest rate swap liability		13,162			48,528			(78,440	)		(28,707	)		55,330			13,162			21,650			(78,440	)
Loss on extinguishment of debt		—			(1,765	)		—			(1,349,271	)
Non-recurring severance expense		(185,000	)		—			(185,000	)		—
Interest income		25,326			343			45,891			974
Other non-recurring income														15,320			—			15,320			—
Total other expense		(577,170	)		(181,414	)		(1,093,403	)		(2,197,383	)		(265,488	)		(392,170	)		(1,127,061	)		(908,403	)
Income before benefit (provision) for income taxes		370,102			958,630			2,113,030			886,842
(Loss) income before benefit (provision) for income taxes														(1,163,791	)		370,102			(3,880,282	)		2,113,030
Benefit (provision) for income taxes		210,132			(166,662	)		(17,189	)		(154,799	)		(133,708	)		210,132			492,807			(17,189	)
Net income	$	580,234		$	791,968		$	2,095,841		$	732,043
Net (loss) income													$	(1,297,499	)	$	580,234		$	(3,387,475	)	$	2,095,841

Net income per share:
Net (loss) income per share:
Basic	$	0.03		$	0.02		$	0.07		$	0.02		$	(0.07	)	$	0.03		$	(0.18	)	$	0.07
Diluted	$	0.03		$	0.02		$	0.07		$	0.02		$	(0.06	)	$	0.03		$	(0.17	)	$	0.07

Weighted-average shares outstanding:
Basic		17,774,022			39,844,863			28,083,665			39,805,144			19,745,525			17,774,022			18,675,769			28,083,665
Diluted		19,102,709			41,184,368			29,672,645			41,059,384			20,475,085			19,102,709			19,483,464			29,672,645

CONDENSED ~~STATEMENTS~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

Additional
Paid in

Accumulated Earnings

Total
Shareholders'

Shares

Amount

Capital

(Deficit)

Equity (Deficit)

Beginning balance, December 31, 2018

39,921,591

$
39,922

$
4,733,701

$
2,683,478

$
7,457,101

Common stock redemption

(23,271,667
)

(23,271
)

—

(39,073,130
)

(39,096,401
)
Net income

—

—

—

1,515,607

1,515,607

Stock options exercised

556,220

556

96,051

—

96,607

Share based compensation expense

546,600

546

435,636

—

436,182

Balance, June 30, 2019

17,752,744

17,753

5,265,388

(34,874,045
)

(29,590,904
)
Net income

—

—

—

580,234

580,234

Stock options exercised

75,000

75

29,175

—

29,250

Share based compensation expense

82,600

82

241,934

—

242,016

Balance, September 30, 2019

17,910,344

$
17,910

$
5,536,497

$
(34,293,811
)

$
(28,739,404
)

	Common Stock				Additional Paid in		Accumulated Earnings			Accumulated Other			Total Shareholders'
	Shares		Amount		Capital		(Deficit)			Comprehensive Income			Deficit
Beginning balance, December 31, 2019		18,017,944	$	18,018	$	5,795,636	$	(33,446,276	)	$	—		$	(27,632,622	)
Net income		—		—		—		116,605			—			116,605
Stock options exercised		25,000		25		7,475		—			—			7,500
Share-based compensation		63,333		63		157,533		—			—			157,596
Balance, March 31, 2020		18,106,277	$	18,106	$	5,960,644	$	(33,329,671	)	$	—		$	(27,350,921	)
Net loss		—		—		—		(2,206,582	)		—			(2,206,582	)
Stock options exercised		150,000		150		30,113		—			—			30,263
Share-based compensation		80,000		80		176,589		—			—			176,669
Balance, June 30, 2020		18,336,277	$	18,336	$	6,167,346	$	(35,536,253	)	$	—		$	(29,350,571	)
Shares issued in connection with PGP asset acquisition		3,141,361		3,141	$	3,986,387		—			—			3,989,528
Net loss		—		—		—		(1,297,499	)		—			(1,297,499	)
Foreign currency translation adjustment		—		—		—		—			(19,084	)		(19,084	)
Stock options exercised		50,000		50		11,950		—			—			12,000
Share-based compensation		55,000		55		178,498		—			—			178,553
Balance, September 30, 2020		21,582,638	$	21,582	$	10,344,181	$	(36,833,752	)	$	(19,084	)	$	(26,487,073	)

Common Stock

Additional
Paid in

Total
Shareholders'

Shares

Amount

Capital

Accumulated Earnings

Equity

Beginning balance, December 31, 2017

39,565,591

$
39,566

$
3,957,703

$
1,465,599

$
5,462,868

Net loss

—

—

—

(59,595
)

(59,595
)
Share based compensation expense

278,000

278

357,312

—

357,590

Balance, June 30, 2018

39,843,591

39,844

4,315,015

1,406,004

5,760,863

Net income

—

—

—

791,968

791,968

Share based compensation expense

39,000

39

192,959

—

192,998

Balance, September 30, 2018

39,882,591
��

$
39,883

$
4,507,974

$
2,197,972

$
6,745,829

	Common Stock						Additional Paid in		Accumulated Earnings			Accumulated Other		Total Shareholders'
	Shares			Amount			Capital		(Deficit)			Comprehensive Income		Equity (Deficit)
Beginning balance, December 31, 2018		39,921,591		$	39,922		$	4,733,701	$	2,683,478		$	—	$	7,457,101
Net income		—			—			—		460,664			—		460,664
Stock options exercised		98,332			98			36,134		—			—		36,232
Share-based compensation		470,200			470			223,134		—			—		223,604
Balance, March 31, 2019		40,490,123		$	40,490		$	4,992,969	$	3,144,142		$	—	$	8,177,601
Common stock redemption		(23,271,667	)		(23,271	)		—		(39,073,130	)		—		(39,096,401	)
Net income		—			—			—		1,054,943			—		1,054,943
Stock options exercised		457,888			458			59,917		—			—		60,375
Share-based compensation		76,400			76			212,502		—			—		212,578
Balance, June 30, 2019		17,752,744		$	17,753		$	5,265,388	$	(34,874,045	)	$	—	$	(29,590,904	)
Net income		—			—			—		580,234			—		580,234
Stock options exercised		75,000			75			29,175		—			—		29,250
Share-based compensation		82,600			82			241,934		—			—		242,016
Balance, September 30, 2019		17,910,344		$	17,910		$	5,536,497	$	(34,293,811	)	$	—	$	(28,739,404	)

	Nine Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2020			September 30, 2019
Cash flows from operating activities:
Net income	$	2,095,841		$	732,043
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	(3,387,475	)	$	2,095,841
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of intangible assets		1,424,934			1,372,752			1,499,927			1,424,934
Amortization of lease right-of-use assets		203,205			—
Non-cash lease expense								207,378			203,205
Amortization of debt issuance costs and debt discount		25,584			119,809			26,935			25,584
Loss on extinguishment of debt		—			1,349,271
Bad debt expense		101,938			38,374			166,002			101,938
Change in estimated fair value of interest rate swap liability		78,440			28,707			(21,650	)		78,440
Deferred income tax benefit		(4,194	)		—			(492,807	)		(4,194	)
Share-based compensation		678,199			550,588			512,818			678,199
Unrealized foreign exchange gains on cash, cash equivalents and restricted cash		33,291			(24,601	)
Unrealized foreign exchange loss								84,757			33,291
Changes in operating assets and liabilities:
Accounts receivable		(477,319	)		(187,445	)		1,333,515			(477,319	)
Inventory		(315,155	)		(317,978	)		(123,359	)		(315,155	)
Prepaid expenses		(40,086	)		(74,165	)
Other current assets		—			20,156
Income tax receivable/payable								(14,379	)		(414,817	)
Prepaid expenses and other current assets								54,953			(40,086	)
Accounts payable		332,566			(524,503	)		552,166			332,566
Accrued expenses		(14,826	)		335,838			(698,380	)		(14,826	)
Income taxes receivable/payable		(414,817	)		(625,788	)
Revenue contract liability		(143,812	)		137,619			(707,171	)		(143,812	)
Operating lease liabilities		(197,875	)		—			(254,363	)		(197,875	)
Other current liabilities		(71,581	)		(107,054	)		—			(71,581	)
Deferred rent		—			(16,666	)
Net cash provided by operating activities		3,294,333			2,806,957
Net cash (used in) provided by operating activities								(1,261,133	)		3,294,333
Cash flows from investing activities:
Investment in intangible assets		(27,400	)		(33,048	)		—			(27,400	)
Acquisition of PGP assets, net of cash acquired								(6,266,335	)		—
Acquisition of property and equipment		(32,495	)		(67,050	)		(38,712	)		(32,495	)
Net cash used in investing activities		(59,895	)		(100,098	)		(6,305,047	)		(59,895	)
Cash flows from financing activities:
Proceeds from debt issued		—			11,098,986
Proceeds from draw on revolving loan								1,000,000			—
Proceeds from Paycheck Protection Program								835,300			—
Proceeds from stock option exercises		189,981			—			49,750			189,981
Payments of debt issuance costs		(5,736	)		(136,162	)		—			(5,736	)
Payment of warrant liability		—			(1,333,333	)
Principal payments on finance lease obligations		(14,198	)		(24,415	)		—			(14,198	)
Principal payments on long-term debt		(1,105,461	)		(10,296,900	)		(1,264,322	)		(1,105,461	)
Payments of long-term debt redemption premium		—			(374,500	)
Net cash used in financing activities		(935,414	)		(1,066,324	)
Net cash provided by (used in) financing activities								620,728			(935,414	)
Effect of exchange rate changes on cash		(33,291	)		24,601			(72,340	)		(33,291	)
Net increase in cash, cash equivalents and restricted cash		2,265,733			1,665,136
Cash, cash equivalents and restricted cash – beginning of period		6,311,563			3,581,209
Cash, cash equivalents and restricted cash – end of period	$	8,577,296		$	5,246,345
Net (decrease) increase in cash and cash equivalents								(7,017,792	)		2,265,733
Cash and cash equivalents – beginning of period								9,686,698			6,311,563
Cash and cash equivalents – end of period							$	2,668,906		$	8,577,296
Supplemental cash flow information:
Cash paid for interest	$	502,764		$	700,027		$	462,959		$	502,764
Cash paid for income taxes	$	436,200		$	795,818		$	77,465		$	436,200
Supplemental schedule of non-cash activities:
Common stock redemption in exchange for promissory note	$	39,096,401		$	—
Common stock redemption in exchange for share redemption consideration obligation							$	—		$	39,096,401
Shares issued in connection with PGP asset acquisition							$	3,989,528		$	—
Right-of-use assets obtained in exchange for lease liabilities	$	305,163		$	—		$	1,383,052		$	305,163
Inventory transferred to assets deployed at client locations	$	157,202		$	147,434		$	27,668		$	157,202

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

We are an established global gaming company specializing in the design, development, assembly, marketing and acquisition of proprietary casino table games and associated technology, platforms and systems for the casino gaming industry. Casinos use our proprietary products and services to enhance their gaming floor operations and improve their profitability, productivity and security, 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 ~~and riverboat~~casino gaming companies ~~located~~ in North America, the Caribbean, Central America, the British Isles, Europe and Africa and to cruise ship ~~companies~~companies. We license our products and ~~internet~~services for use solely in legalized gaming ~~sites worldwide.~~ markets.

~~On March 14, 2019, we announced the completion of our previously disclosed strategic alternatives review. After a thorough evaluation of a~~Share Redemption. ~~range of strategic alternatives, including a sale of the Company, we have decided to continue our existing plan of product line and geographic expansions as an independent company.~~

On May 6, 2019, we redeemed all 23,271,667 shares of our common stock held by Triangulum Partners, LLC (“Triangulum”), an entity controlled by Robert B. Saucier, Galaxy Gaming's founder, and, prior to the redemption, the holder of a majority of our outstanding common stock. ~~The redemption of Triangulum’s shares was given effect pursuant to our~~Our Articles of Incorporation (the “Articles”)~~, which expressly~~ provide that if certain events occur in relation to a stockholder that is required to undergo a gaming suitability review or similar investigative process, we have the option to purchase all or any part of such stockholder’s shares at a price per share that is equal to the average closing share price over the thirty calendar days preceding the purchase. The average closing share price over the thirty calendar days preceding the redemption was $1.68 per share.

The consideration owed to Triangulum for the redemption ~~we issued a promissory note payable to Triangulum in the face amount of~~is $39,096,401 (the ~~“Triangulum Promissory Note”~~“Redemption Consideration”). See Note 10.

~~Furthermore, we filed a lawsuit on May 6, 2019 seeking (i) a declaratory judgment that we acted lawfully~~There is ongoing litigation between the Company and ~~in full compliance with the Articles when we redeemed the~~ Triangulum ~~shares and (ii) certain remedies for breach of fiduciary duty and breach of contract by Triangulum and its Managing Member, Mr. Saucier (the “Triangulum Lawsuit”). The suit alleges that~~related to the redemption and ~~the~~ other ~~relief sought by us are appropriate and in accordance with the Articles of Incorporation (~~matters. See Note 11.

Membership Interest Purchase Agreement. On February 25, 2020, Galaxy Gaming ~~Inc. v. Triangulum Partners, LLC, Robert B. Saucier,Clark County, Nevada district court (Case No. A-19-794293-B)).~~

The defendants to that lawsuit responded to the complaint, and Triangulum filed counterclaims based on a theory of wrongful redemption by us. The defendants also filed a Motion for Preliminary Injunction seeking the redeemed shares be held in a constructive trust. On July 11, 2019, the Court denied the defendants’ Motion for Preliminary Injunction and all related relief. On September 6, 2019, Defendants appealed the denial of the Motion for Preliminary Injunction to the Nevada Supreme Court. We will oppose the appeal, but a briefing schedule has not yet been set by the Supreme Court. Separately, Triangulum filed amended counterclaims, which we moved to dismiss on a number of legal grounds. The Court denied the motion, stating that the amended complaint was sufficiently plead. The Company will file a Petition for a Writ of Mandamus challenging the ruling.

On October 18, 2019, Saucier also filed counterclaims centered similarly on a theory of wrongful redemption, and also claims that for breach of contract and quantum meruit, alleging Galaxy Gaming was obligated to pay Saucier his year-end bonuses, despite his resignation. We will file a timely response, disputing these claims.

~~Effective June 3, 2019, our Board of Directors (the “Board”) appointed Michael Gavin Isaacs as an independent director. Upon joining the Board, Mr. Isaacs~~ entered into a ~~Board~~Membership Interest Purchase Agreement, dated February 25, 2020 (the “Purchase Agreement”), between the Company and the membership interest holders of ~~Directors Services~~Progressive Games Partners LLC (“PGP”).

On August 21, 2020, the Company entered into a First Amendment to the Purchase Agreement ~~pursuant to which,~~between the Company and the membership interest holders of PGP. The First Amendment, among other things, ~~Mr. Isaacs shall receive 75,000~~fixed the cash portion of the purchase price at $6.425 million and established that the stock portion would be satisfied through the issuance of 3,141,361 shares of ~~our restricted~~the Company’s common stock with a value of $1.27 per share on the date of the acquisition. The entirety of the purchase price ($10,414,528) has been allocated to customer relationships and is included in Other intangible assets, net, on the Company’s balance sheet. See Note 7. The Company also acquired net working capital of $581,885 (including cash of $158,665), all of which ~~vest~~is payable to the sellers of PGP.

Management has determined that the PGP transaction does not meet the definition of a business combination and therefore has been accounted for as an asset acquisition.

COVID-19.On March 11, 2020, the World Health Organization declared a pandemic related to the COVID-19 outbreak, which led to a global health emergency. The public-health impact of the outbreak continues to remain largely unknown and still evolving. The related health crisis could continue to adversely affect the global economy, resulting in ~~three annual installments~~continued economic downturn that could impact demand for our products.

On March 17, 2020, the Company announced that it suspended billing to customers who had closed their doors due to the COVID-19 outbreak. As a result, we did not earn revenue for the use of our games by our physical casino customers during the time that they were closed. In general, the online gaming customers who license our games through our distributor remained and continue to remain in operation in spite of the COVID-19 crisis. We earned revenue from them during the crisis and expect to continue to do so, but potentially at levels that may be lower than we previously received.

As of the date of this filing, many land-based casinos have begun to re-open with significantly reduced occupancy and other limitations. As they reopen, it will take additional time for their operations to return to pre-crisis levels. Given the uncertainties around casino re-openings, we instituted a phased billing approach for our clients through fiscal year 2020, which will result in us realizing substantially less revenue than we might otherwise expect. In addition, because of COVID-19-related financial pressures on our physical casino customers, there can be no assurance that our accounts receivable we will be paid timely (or at all) for revenues earned prior to the shutdowns. Finally, some of our casino clients have notified vendors (including us) that they will lengthen payment terms for a period of time after reopening as they attempt to preserve their own liquidity.

We also rely on third-party suppliers and manufacturers in China, many of whom were shut down or severely cut back production during the shutdown. Although this has not had a material effect on our supply chain, any future disruption of our suppliers and their contract manufacturers may impact our sales and operating results going forward.

Because of the uncertainties of COVID-19, the Company drew on its Revolving Loan in the amount of $1,000,000 on March 12, 2020. Also, on April 17, 2020, the Company obtained an unsecured loan of $835,300 through Zions Bancorporation, N.A. dba Nevada State Bank under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program Flexibility Act (the “Flexibility Act”). Pursuant to the CARES Act, the Federal Reserve created the Main Street Lending Program to provide financing for small and medium-sized businesses. On October 26, 2020, the Company borrowed $4 million from Zions Bancorporation N.A., dba Nevada State Bank under the Main Street Lending Program (the “Main Street Loan”). The Main Street Loan bears interest at a rate of three-month US dollar LIBOR plus 300 basis points (initially 3.215%), and interest payments during the first year are deferred and added to the loan balance. The Main Street Loan may be prepaid at any time and matures on the fifth anniversary of the date it was funded, with 15% of principal amortizing in each of the ~~first three anniversary dates~~third and fourth years the loan is outstanding. See Note 10.

As of the ~~services agreement. Mr. Isaacs shall also receive quarterly grants~~date of ~~12,400 common shares (vesting immediately at grant date) for his continued service~~this filing, the Company believes that it has adequate liquidity to meet its short-term obligations. If the effects of the COVID-19 crisis endure or there is a second period of casino closures (Note 16), we may be required to reassess our obligations, including our ability to pay employee compensation and benefits.

The COVID-19 crisis may change the behavior of gaming patrons. Most of our clients operate places of public accommodation, and their patrons may reduce visitation and play as a ~~director~~precaution. Further, governmental authorities may continue to impose reduced hours of operation or limit the capacity of such places of public accommodation. A long-term reduction in play could have a material adverse impact on our results of operations. Depending on the length and ~~shall receive $42,000~~severity of any such adverse impact, we may fail to comply with our obligations, including covenants in ~~cash compensation annually, paid monthly in arrears. As a non-employee director, he will be entitled~~our credit agreement, and we may need to ~~receive any other annual cash and equity compensation payable to~~reassess the carrying value of our ~~other non-employee directors from time to time.~~assets.

On August 28, 2019, the Company held its Annual Shareholder meeting. The detailed results are available for review as previously reported on Form 8-K. The Company’s current Board of Directors were reelected to stand for the next period.

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”). 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) and all disclosures to present fairly our financial position and the results of our operations and cash flows for the periods presented. As permitted by the rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.

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, ~~2018,~~2019, filed with the SEC on ~~April 1, 2019~~March 30, 2020 (the ~~“2018~~“2019 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.

Basis of accounting. The financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP. Revenues are recognized as income when earned and expenses are recognized when they are incurred. We do not have significant categories of cost of revenues. Expenses such as wages, consulting expenses, legal, regulatory and professional fees and rent are recorded when the expense is incurred.

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, including the results of the Company and its wholly owned subsidiary, PGP. All intercompany transactions and balances have been eliminated in consolidation.

Impairment considerations. We considered whether the impact of the current COVID-19 pandemic on operations and financial results is an indicator that impairment may exist related to the Company’s inventory (Note 4), property and equipment (Note 5), assets deployed at client locations (Note 6) and intangible assets (Note 7). As a result of its impairment assessments, management has determined that its assets are not currently impaired. We considered the following:

Inventory. We considered whether additional write-offs or reserves were necessary to our inventory balance as a result of the impact of COVID-19. The vast majority of our Inventory is not sold to customers but, rather, is used to support new installations and repairs of our electronic table game systems which we account for as Assets Deployed at Client Locations. Based on our assessment, we

determined additional write-offs and reserves were not required. We are in the process of developing a new generation of electronic table game systems and, once that new generation of system is available for customer installation, we will review inventory to determine how much of existing Inventory can be used in the next generation of systems. To the extent that there is Inventory that 1) cannot be used in the new generation of systems and 2) is in excess of what we might expect to need for repair of older generation systems that we expect to remain in the field, we may incur an impairment charge with respect to Inventory that is obsolete.

Long-lived assets. Our long-lived assets include property and equipment, assets deployed at client locations, and intangible assets. We assessed whether there was an indication of impairment of each asset group due to COVID-19 noting that based on the current contracts, including the lengthened payment terms noted above, the carrying value of our long-lived asset groups were recoverable.

Goodwill. We performed a qualitative assessment and determined that it was not more likely than not that the carrying value of the reporting unit was impaired. As part of our qualitative assessment, we considered our previous forecasts and assumptions based on our current projections, which are subject to various risks and uncertainties, including projected revenue, projected operating income, terminal growth rates, and the cost of capital.

Reclassifications. Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statement presentations.

Other ~~Significant Accounting Policies.~~significant accounting policies. SeeSee Note 32 in Item 8. “Financial Statements and Supplementary ~~Data”~~Financial Information” included in our ~~2018~~2019 10-K.

~~Leases.~~Fair Value Measurement. In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASC 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. We have adopted the new standard effective January 1, 2019, using the modified retrospective transition approach and recognized $161,310 of right-of-use operating lease assets and $175,335 of operating lease liabilities on our balance sheets upon adoption (Note 9). In addition, we eliminated leasehold improvements related to a finance lease from fixed assets, recognized $14,286 of right-of-use finance lease assets and maintained the finance lease liability at the carrying cost of the previous capital lease liability of $14,198 upon adoption. The adoption has increased our total assets and liabilities as of January 1, 2019. Lessor accounting related to our enhanced table system remains unchanged.

~~Fair Value Measurement.~~ ~~In August 2018, the FASB issued ASU~~ No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement, removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ~~The~~We have adopted the new standard is effective January 1, 2020, which did not have a material effect on our financial statements or related disclosures.

Financial Instruments – Credit Losses. In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments – Credit Losses (Topic 326). ASU 2020-02 provides updated guidance on how an entity should measure credit losses on financial instruments and delayed the effective date of Topic 326 for ~~annual periods~~certain smaller reporting companies until fiscal years beginning after December 15, ~~2019, including interim periods within those annual periods.~~2022. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our financial ~~statements.~~statements or related disclosures.

~~Internal-Use Software.~~ ~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~. ASU 2018-15. This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our financial statements.

Revenue recognition. We generate revenue primarily from the licensing of our intellectual property. We also, occasionally, receive a one-time sale of certain products and/or reimbursement of our equipment.

License fees. We derive product lease and royalty revenue from negotiated recurring fee license agreements and the performance of our products. We account for these agreements as month-to-month contracts and recognize revenue each month as we satisfy our performance ~~obligations by granting access to intellectual property to our clients.~~obligations. In addition, revenue associated with performance-based agreements is recognized during the month that the usage of the product or intellectual property occurs.

Some of our intellectual property requires the installation of certain equipment and both the intellectual property and the related equipment are licensed in one bundled package. We have determined that the equipment is not distinct from the intellectual property and, therefore, we have only one performance obligation and, as a result, the allocation of the transaction price to different performance obligations is not necessary.

Product sales. Occasionally, we sell certain incidental products or receive reimbursement of our equipment after the commencement of the new license agreement. Revenue from such sales is recognized as a separate performance obligation when we ship the items.

The following table disaggregates our revenue by geographic location for the following periods:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
North America and Caribbean	$	3,891,875	$	3,622,729	$	11,644,353	$	10,568,129	$	971,147	$	3,891,875	$	4,262,408	$	11,644,353
Europe		1,479,771		1,153,055		4,473,230		3,104,521
Europe, Middle East and Africa										826,686		1,479,771		2,693,714		4,473,230
Total revenue	$	5,371,646	$	4,775,784	$	16,117,583	$	13,672,650	$	1,797,833	$	5,371,646	$	6,956,122	$	16,117,583

For a portion of our business, we invoice our clients monthly in advance for unlimited use of our intellectual property licenses and recognize a revenue contract liability that represents such advanced billing to our clients for unsatisfied performance. We reduce the revenue contract liability and recognize revenue when we transfer those goods or services and, therefore, satisfy our performance obligation.

The table below summarizes changes in the revenue contract liability during the nine months ended September 30, ~~2019:~~2020:

Beginning balance – January 1, 2019	$	1,438,492
Beginning balance – January 1, 2020				$	1,294,265
Increase (advanced billings)		11,547,925			7,199,100
Decrease (revenue recognition)		(11,691,737	)		(7,906,271	)
Ending balance – September 30, 2019	$	1,294,680
Ending balance – September 30, 2020				$	587,094

Revenue recognized during the three and nine months ended September 30, ~~2019~~2020 that was included in the beginning balance of revenue contract liability ~~above~~ was ~~$1,436,410.~~

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Raw materials and component parts	$	361,433		$	267,517		$	379,711		$	359,349
Finished goods		358,333			306,335			428,103			343,305
Inventory, gross		719,766			573,852			807,814			702,654
Less: inventory reserve		(29,999	)		(42,038	)		(46,469	)		(37,000	)
Inventory, net	$	689,767		$	531,814		$	761,345		$	665,654

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Furniture and fixtures	$	312,640		$	312,640		$	312,640		$	312,639
Automotive vehicles		215,127			215,127			215,127			215,127
Office and computer equipment								329,296			302,296
Leasehold improvements		9,883			156,843			18,554			6,843
Computer equipment		189,294			159,838
Office equipment		53,483			53,484
Property and equipment, gross		780,427			897,932			875,617			836,905
Less: accumulated depreciation		(643,078	)		(698,347	)		(759,465	)		(691,996	)
Property and equipment, net	$	137,349		$	199,585		$	116,152		$	144,909

Property and equipment, net included $150,000 of leasehold improvements acquired under capital leases and $135,714 of related accumulated depreciation as of December 31, 2018, both of which were reclassified to finance lease right-of-use assets upon the adoption of ASC 842 on January 1, 2019 (Note 9).

For the ~~nine~~three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, depreciation expense related to property and equipment was $22,153 and $26,467, respectively. For the nine months ended September 30, 2020 and 2019, depreciation expense related to property and equipment was $67,469 and $80,445, ~~and $99,944,~~ respectively.

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Enhanced table systems	$	1,042,997		$	946,237		$	908,295		$	993,127
Less: accumulated depreciation		(623,962	)		(474,675	)		(649,439	)		(587,605	)
Assets deployed at client locations, net	$	419,035		$	471,562		$	258,856		$	405,522

For the three months ended September 30, 2020 and 2019, depreciation expense related to assets deployed at client locations was $51,778 and $70,145, respectively. For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, depreciation expense related to assets deployed at client locations was $174,334 and $209,729, ~~and $145,419,~~ respectively.

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

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

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Patents	$	13,485,000		$	13,485,000		$	13,507,997		$	13,485,000
Customer relationships		3,400,000			3,400,000			13,814,528			3,400,000
Trademarks		2,880,967			2,880,967			2,880,967			2,880,967
Non-compete agreements		660,000			660,000			660,000			660,000
Internally-developed software		153,415			126,015			183,416			183,415
Other intangible assets, gross		20,579,382			20,551,982			31,046,908			20,609,382
Less: accumulated amortization		(12,796,490	)		(11,661,730	)		(14,436,863	)		(13,178,739	)
Other intangible assets, net	$	7,782,892		$	8,890,252		$	16,610,045		$	7,430,643

For the three months ended September 30, 2020 and 2019, amortization expense related to other intangibles was $501,706 and $379,499, respectively. For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, amortization expense related to the other intangible assets was ~~$1,134,760~~$1,258,124 and ~~$1,127,388,~~$1,134,760, respectively.

11The increase in customer relationships was result of acquiring customer contracts/agreements valued at $10.4 million in connection with the closing on the Purchase Agreement in August 2020.

Twelve Months Ending September 30,	Total		Total
2020	$	1,500,836
2021		1,410,341	$	2,582,511
2022		1,398,822		2,570,659
2023		253,507		1,417,510
2024		252,930		1,414,600
2025				1,410,100
Thereafter		2,966,456		7,214,665
Total amortization	$	7,782,892	$	16,610,045

	September 30,		December 31,		September 30,		December 31,
	2019		2018		2020		2019
Payroll and related	$	889,137	$	1,136,808	$	249,902	$	747,458
Interest		322,249		—		26,924		9,895
Share redemption consideration						315,293		510,776
Commissions and royalties		45,482		113,462		148,098		78,528
Income tax payable						—		64,832
Other		28,442		45,300		103,929		39,390
Total accrued expenses	$	1,285,310	$	1,295,570	$	844,146	$	1,450,879

We have operating leases for our corporate office, two 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). ~~Discount~~The discount rate represents the interest rate implicit in each lease or our incremental borrowing rate at lease commencement date.

On January 28, 2019, we executed a first amendment to the corporate office lease to amend the lease expiration date from September 30, 2019 to December 31, 2019, with monthly base rents of $20,508 from July 1, 2019 to December 31, 2019. As a result of the amendment, we recorded a $117,755 increase to operating lease right-of-use assets and operating lease liabilities. In connection with negotiating the original corporate office lease in 2014, the landlord agreed to finance tenant improvements of $150,000. Upon adoption of ASC 842 (effective January 1, 2019), the remaining amount was classified as a finance lease on the condensed balance sheet, which was paid in full by June 30, 2019.

As of September 30, ~~2019,~~2020, our leases have remaining lease terms ranging from three months to 3375 months. ~~Gross right-of-use assets recorded under finance leases and operating leases were $14,286 and $290,877, respectively, and the related accumulated amortization was $14,286 and $188,919, respectively.~~

	As of September 30, 2019				As of September 30, 2020
	Amount			Classification	Amount			Classification
Operating leases:
Operating lease right-of-use lease assets	$	101,958			$	1,482,534

Operating lease current liabilities	$	83,953		Current portion of operating lease liabilities	$	197,067		Current portion of operating lease liabilities

Operating lease long-term liabilities		23,074		Long-term operating lease liabilities		1,266,215		Long-term operating lease liabilities

Total operating lease liabilities	$	107,027			$	1,463,282

Weighted-average remaining lease term:
Operating leases	1.1 years				5.9 years

Weighted-average discount rate:
Operating leases		5.8	%			4.3	%

As of September 30, ~~2019,~~2020, future maturities of our operating lease liabilities are as follows:

Twelve Months Ending September 30,	Amount		Amount
2020	$	83,524
2021		14,730	$	197,067
2022		8,773		208,249
2023				215,373
2024				234,917
2025				255,707
Thereafter				351,969
Total lease liabilities	$	107,027	$	1,463,282

~~Our agreements with the casino clients~~On July 3, 2020 we entered into a new 75-month lease for ~~the license of~~ ~~proprietary tables games are outside of the scope of ASC 842 as such agreements are related~~our corporate headquarters in Las Vegas. Pursuant to the ~~license~~new lease, we now occupy approximately 14,000 square feet of ~~intellectual property.~~

~~Enhanced table systems~~office and warehouse space. The lease commenced on October 1, 2020, with rent abated through the remainder of 2020. Early occupancy was granted on September 15, 2020. Therefore, the right-of-use asset and corresponding liability were recorded on this date. Beginning in January 2021, we will commence paying rent and common area charges in an amount that is approximately equal to what we are ~~electronic enhancements used on casino table games~~paying pursuant to ~~add to player appeal and enhance game security. An example in this category is~~ our Bonus Jackpot System (“BJS”), an advanced electronic system installed on gaming tables designed to collect data by detecting player wagers and other game activities. Typically, the BJS system includes a server, an electronic video display known as ~~TableVision~~, which shows game information designed to generate player interest and to promote various aspects of the game, and other electronic components. Our BJS agreements with clients convey to them the rights to use equipment. However, ~~these agreements~~ are month-to-month and there is no penalty for either party to terminate the agreements without permission from the other party. As a result, these agreements are not considered leases and, therefore, are outside of the scope of ~~ASC 842 as well.~~

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Nevada State Bank credit agreement	$	9,041,000		$	10,042,400		$	8,629,800		$	8,699,900
Triangulum Promissory Note		39,096,401			—
Paycheck Protection Program borrowing								835,300			—
Share redemption consideration obligation								39,096,401			39,096,401
Vehicle notes payable		54,776			85,043			28,162			44,490
Insurance notes payable		—			73,794			—			177,894
Long-term debt, gross		48,192,177			10,201,237
Long-term liabilities, gross								48,589,663			48,018,685
Less: Unamortized debt issuance costs		(73,525	)		(94,562	)		(68,360	)		(93,144	)
Long-term debt, net		48,118,652			10,106,675
Long-term liabilities, net of debt issuance costs								48,521,303			47,925,541
Less: Current portion		(1,437,950	)		(1,456,847	)		(2,530,149	)		(1,634,527	)
Long-term debt, long-term portion	$	46,680,702		$	8,649,828
Long-term liabilities, net							$	45,991,154		$	46,291,014

~~Amendments to the Nevada State Bank (“NSB”) Credit Agreement.~~ ~~On May 6, 2019, we entered into a Second Amendment to the~~ Nevada State Bank (“NSB”) Credit Agreement. The Company is party to ~~(i) provide an additional $10 million~~a Credit Agreement with Zions Bancorporation, N.A. dba Nevada State Bank (as amended, the “Credit Agreement”), which was last amended on October 26, 2020. The Credit Agreement provided for a Term Loan ~~B availability~~in the initial amount of $11,000,000 and a Revolving Loan in the amount of $1,000,000. On March 12, 2020, the Company drew down $1,000,000 on the Revolving Loan component of the Credit Agreement. At September 30, 2020, the principal amount outstanding under the Term ~~Loan; and (ii) waive for a period~~Loan component of ~~180 days the breach of any covenant in~~ the Credit Agreement ~~resulting of~~was $7,629,800, bringing the ~~redemption of common stock held by Triangulum.~~total amount outstanding under the Credit Agreement at September 30, 2020, to $8,629,800.

~~On August 16, 2019, we entered into a Third Amendment to~~Under the ~~NSB~~ Credit Agreement, ~~pursuant to which we agreed to pay a fee on the unused amounts under the revolving portion of the credit agreement at a rate of 0.25% per annum, retroactive to April 22, 2019.~~

On October 14, 2019, we entered into a Fourth Amendment to the NSB Credit Agreement, which established a Senior Leverage Ratio (as defined in the amended Credit Agreement) of 2.0x for the remaining term of the NSB Credit Agreement. In addition, the Total Leverage Ratio (as defined in the amended Credit Agreement) was set at 7.25x, with semi-annual step-downs of 0.25x every six months, commencing June 30, 2020 through December 31, 2022. Lastly, the $10 million additional Term Loan B availability that was provided in the Second Amendment was eliminated.

~~Outstanding~~outstanding balances ~~under amended NSB Credit Agreement~~ accrue interest based on one-month US dollar London interbank offered rate (“LIBOR”) plus an Applicable Margin of 3.50% or 4.00%, depending on our Total Leverage Ratio (as defined in the amended Credit ~~Agreement).~~

Agreement). Effective December 31, 2021, LIBOR will no longer serve as a reference rate for bank loans, among other investment classes. The Fourth Amendment to the Credit Agreement stipulates that an alternative reference rate will be selected and used in lieu of LIBOR.

The Credit Agreement, as amended, contains affirmative and negative financial covenants and other restrictions customary for borrowings of this nature. In particular, we are required to maintain (i) a minimum trailing-four-quarters Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.25x; (ii) a maximum Total Leverage Ratio (as defined in the Credit Agreement) of 7.25x (with semi-annual step-downs of 0.25x every six months, commencing June 30, 2020 through December 31, 2022 (the current required Total Leverage Ratio is 7.00x) and (iii) a maximum Senior Leverage Ratio (as defined in the Credit Agreement) of 2.00x. We were not in compliance with the Fixed Charge Coverage Ratio, Total Leverage Ratio and Senior Leverage Ratio as of September 30, 2020. Furthermore, because the impact of the COVID-19 crisis on our trailing-four-quarters Adjusted EBITDA into 2021, we think it is likely that we will not be in compliance with one or more of the Fixed Charge Coverage Ratio, Total Leverage Ratio and Senior Leverage Ratio through the first quarter of 2021. In view of that, the Company and NSB entered into a Forbearance and Fifth Amendment to Credit Agreement dated August 14, 2020 (the “Fifth Amendment”). In the Fifth Amendment, NSB agreed to forbear from exercising any of its rights or remedies that result from the aforementioned covenant breaches during the aforementioned period. The Fifth Amendment also imposes a new Minimum EBITDA covenant pursuant to which the Company must demonstrate trailing-four-quarter EBITDA of $2.4 million for the each of the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 and $3.0 million thereafter. The Company was in compliance with the Minimum EBITDA covenant as of September 30, 2020. On October 26, 2020, the Company and NSB entered into the Sixth Amendment to Credit Agreement dated August 14, 2018 (the “Sixth Amendment”) in connection with the Company’s borrowing under the Main Street Loan Program (see Note 16 Subsequent Events). The Sixth Amendment added a Minimum Liquidity covenant requiring that the Company have cash and cash equivalents of no less than $1.5 million at quarter ends through and including June 30, 2021, and $2.5 million thereafter. The Company was in compliance with the Minimum Liquidity covenant as of September 30, 2020. On November 16, 2020, the Company entered into a Seventh Amendment to the Credit Agreement with Zions Bancorporation N.A., dba Nevada State Bank. The Seventh Amendment changed the trailing-four-quarter Minimum EBITDA covenant from $3.0 million to $2.4 million for each fiscal quarter ending September 30, 2020 and thereafter.

Paycheck Protection Program Borrowings~~Triangulum Promissory Note.~~. On April 17, 2020, the Company obtained an unsecured loan of $835,300 through Zions Bancorporation, N.A. dba Nevada State Bank under the Paycheck Protection Program pursuant to the CARES Act and the Flexibility Act. The Paycheck Protection Program is administered by the United States Small Business Administration. In accordance with the requirements of the CARES Act, the Company used proceeds from the PPP Loan primarily for payroll costs. Under the terms of the CARES and Flexibility Acts, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the Paycheck Protection Program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent and utility costs.

On July 16, 2020, the Company filed an application and supporting documentation for forgiveness in full of the PPP Loan. The review of the Company’s forgiveness application could take as long as five months, and there is no assurance that the PPP Loan will be forgiven in full or in any amount. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the pending application for forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our adherence to the forgiveness criteria.

Share Redemption Consideration Obligation. On May 6, 2019, we issued ~~the Triangulum Promissory Note~~a promissory note in the face amount of ~~$39,096,401.~~$39,096,401 to Triangulum in connection with the share redemption disclosed in Note 1. In the litigation that followed the share redemption (Note 11), Triangulum is disputing, among other things, the validity of the note and has not accepted its terms. Since no agreement on terms exists between the Company and Triangulum, the promissory note has not been given accounting effect in the Company’s financial statements. The Company has instead recorded a long-term obligation payable to Triangulum, ~~Promissory Note has~~based on the redemption value specified in our Articles of Incorporation. The obligation is classified as long-term because we do not expect that a final agreement with respect to the litigation will be reached between the parties in the next twelve months. We may repay the Redemption Consideration Obligation at any time but no ~~mandatory amortization, matures~~later than May 6, 2029; however, there can be no assurance that Triangulum will accept such payments. Additional share redemption consideration is being accrued at 2% on the redemption obligation, and we paid the first annual payment on May 5, ~~2029, and bears interest at a rate~~2020 in the amount of ~~2% per annum, with accrued interest payable annually in arrears. It~~$781,928, which was accepted by Triangulum. The share redemption consideration obligation is unsecured and is subordinated to our existing and future ~~indebtedness in accordance with its terms. We may prepay principal and any accrued interest in full or in part at any time.~~indebtedness.

As of September 30, ~~2019,~~2020, future maturities of our long-term ~~debt obligations~~liabilities are as follows:

Twelve Months Ending September 30,	Total			Total
2020	$	1,437,950
2021		1,530,149		$	2,530,307
2022		1,616,655			1,616,655
2023		4,511,022			4,511,000
2024		—			—
2025					835,300
Thereafter		39,096,401			39,096,401
Long-term debt, gross		48,192,177
Less:
Unamortized debt issuance costs		(73,525	)
Long-term debt, net	$	48,118,652
Long-term liabilities, gross				$	48,589,663

Concentration of risk. We are exposed to risks associated with clients who represent a significant portion of total revenues. For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, we had the following client revenue concentration:

Legal ~~proceedings (also see Note 1).~~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.

As discussed in Note 1, we redeemed the shares of our common stock held by Triangulum, an entity controlled by Robert B. Saucier, Galaxy Gaming's founder, and, prior to the redemption, the holder of a majority of our outstanding common stock. On May 6, 2019, we filed a lawsuit seeking (i) a declaratory judgment that we acted lawfully and in full compliance with the Articles when we redeemed the Triangulum shares and (ii) certain remedies for breach of fiduciary duty and breach of contract by Triangulum and its Managing Member, Mr. Saucier (the “Triangulum Lawsuit”). The suit alleges that the redemption and the other relief sought by us are appropriate and in accordance with the Articles.

The defendants to that lawsuit responded to the complaint, and Triangulum filed counterclaims. Triangulum also filed a Motion seeking the redeemed shares be held in a constructive trust. On July 11, 2019, the Court denied Triangulum’s Motion. On September 6, 2019, Triangulum appealed the denial of the Motion to the Nevada Supreme Court. We submitted our brief in opposition, and Triangulum filed its reply brief on June 17, 2020. Separately, Triangulum filed amended counterclaims, which we moved to dismiss on a number of legal grounds. The Court denied the motion. The Company filed a writ petition challenging the ruling, which the Supreme Court denied on January 23, 2020.

On October 18, 2019, Saucier also filed counterclaims, including a claim of breach of contract alleging Galaxy Gaming was obligated to pay Saucier his year-end bonuses, despite his resignation. We filed an answer disputing these claims.

As a result of the effects of Coronavirus, the Court issued a revised Scheduling Order extending time frames for discovery and setting a new trial date in April of 2021.

On May 6, 2020, Saucier made a demand of the Company under our Bylaws and an Indemnity Agreement between Saucier and the Company, for indemnity and advancement of funds seeking repayment of his lawyer’s fees and expenses he allegedly incurred in connection with the Company’s claims against him in the Triangulum Lawsuit. An independent counsel, selected per the terms of the Indemnification Agreement, concluded that Saucier was entitled to a small amount of indemnity funds related to the time he was employed by the Company, but denied an entitlement to indemnification thereafter.

On May 19, 2020, Saucier commenced a separate action in Nevada district court, by filing a complaint he verified as true, seeking advancement of indemnification fees to which he claims an entitlement under the Bylaws and an Indemnification Agreement. The Company filed its opposition on June 4, 2020. Saucier’s Motion was denied in a hearing that occurred on June 24, 2020. Saucier filed a notice of his appeal of the decision to the Nevada Supreme Court on August 10, 2020.

On July 22, 2020 Galaxy and its Directors, filed an Anti-SLAPP motion seeking to dismiss certain claims made against Galaxy and its Directors. The Anti-SLAPP motion was denied by the court. Galaxy has appealed the denial of that motion to the Nevada Supreme Court. The appeal will stay most aspects of the litigation, pending outcome of the appeal.

The appeals to the Nevada Supreme Court by Saucier and by Galaxy, have also been referred to the Supreme Court’s Settlement Program where they are pending. A mandatory settlement conference is scheduled for November 16, 2020.

We remain in the discovery phase of the Triangulum Lawsuit, with discovery set to close on December 31, 2020.

In September 2018, we were served with a complaint by TableMax Corporation (“TMAX”) regarding the TMAX Agreement. We filed an answer denying the allegations and filed a partial motion for summary judgment seeking dismissal of the plaintiff’s claims. The suit was dismissed, subject to the right of the plaintiff to file an amended complaint on or before March 20, 2019. The plaintiff did not file an amended complaint within the time period set by the Judge. After that time, the Company considered the matter closed. TMAX filed a Motion for Leave to Amend their Complaint, which was granted by the Judge on May 11, 2020. On May 26, 2020 TMAX filed an Amended Complaint against the Company and other Co-Defendants. The Company will respond to the Amended Complaint denying the allegations.

An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given ~~period.~~

~~On May 31, 2019~~period and ~~June 6, 2019 respectively, Derek Webb and Hannah O’Donnell together filed a complaint and a related Motion~~accordingly, no provision for ~~Order Granting Request to Compel an Annual Meeting, or~~loss has been reflected in the ~~Alternative for a Writ of Mandamus and Injunctive Relief (the “Motion”). The Motion sought the Court~~accompanying financial statements related to compel us to hold an Annual Shareholder’s Meeting in 2019 and also sought related relief: that we not issue shares or redeem any shares or amend its Bylaws in any manner that could affect the obligation to hold the meeting or elect directors at the meeting. On June 6, 2019, we notified the public of the holding of an Annual Meeting to take place on August 28, 2019 for shareholders of record of July 17, 2019. During a hearing held on July 11, 2019, the Court denied Webb and O’Donnell’s Motion and all related relief. The Annual Meeting took place on August 28, 2019. On October 17, 2019, the Court dismissed the case as a result of a stipulation of the parties.these matters.

During the nine months ended September 30, ~~2019,~~2020, we issued an aggregate of ~~229,200~~173,333 restricted shares of our common stock valued at ~~$388,919,~~$187,186, to our board members in consideration of their service on the Board. These shares vested immediately on the grant date.

~~On May 6, 2019, we redeemed all 23,271,667 shares of our common stock held by Triangulum.~~

Our forecasted annual effective tax rate (“~~ETR”~~AETR”) at September 30, ~~2019~~2020 was ~~16.5%~~12.0%, as compared to ~~17.5%~~16.5% at September 30, ~~2018.~~2019. This decrease was primarily due to the global intangible low-taxed income (“GILTI”) inclusion related to the PGP acquisition and other changes in permanent book-to-tax differences for the nine months ended September 30, ~~2019.~~2020.

For the nine months ended September 30, 2020 and 2019, our effective tax rate (“ETR”) was 12.7% and ~~2018, our ETR was~~ 0.8% ~~and 17.5%~~, respectively. The ~~following discrete items during~~increase in the ETR for the nine months ended September 30, ~~2019 caused the year-to-date effective tax rate to be significantly different from our historical ETR: (i) we recorded an income tax benefit of approximately $150,000 as~~2020 is a result of ~~a prior~~favorable discrete items from the comparable prior-year period ~~change~~that are not recurring in ~~estimate related to~~ the foreign-derived intangible income (“FDII”) special deduction under Section 250 of the Internal Revenue Code, which reduced the ETR by 7.1% and (ii) we recorded an income tax benefit of approximately $180,000 as a result of tax benefits related to non-qualified stock options exercised during the period, which reduced the ETR by 8.5%.

On May 10, 2018, the Board ratified and confirmed the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan is a broad-based plan under which ~~5,550,750~~ shares of our common stock are authorized for issuance for awards, including stock options, stock appreciation rights, restricted stock, and cash incentive awards to members of our Board, executive officers, employees and independent contractors. As of September 30, ~~2019, 177,634~~2020, a total of 6,550,750 shares of our common stock were authorized for issuance. As of September 30, 2020, 381,701 shares remained available for issuance as new awards under the 2014 Plan.

Stock options. During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we issued ~~320,000~~465,000 and ~~270,000~~320,000 options to purchase our common stock, respectively, to members of our Board, executive officers, employees and independent contractors. The fair value of all stock options granted for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was determined to be ~~$564,450~~$435,639 and ~~$169,807,~~$564,450, respectively, using the Black-Scholes option pricing model with the following assumptions:

	Options Issued 2019			Options Issued 2018			Options Issued 2020			Options Issued 2019
Dividend yield		0	%		0	%		0	%		0	%
Expected volatility	71.61% - 72.11		%	78		%	70.98% - 76.97%			71.61% - 72.11%
Risk free interest rate	1.37% - 2.51		%	2.46% - 2.73		%	0.27% - 1.39%			1.37% - 2.51%
Expected life (years)		5.00			5.00			5.00			5.00

On February 21, 2019, we amended the employment agreement between the Company and Todd Cravens, our President and Chief Executive ~~Officer.~~Officer (“Mr. Cravens”). Among other things, this amendment grants Mr. Cravens an option to purchase 150,000 shares of our common stock (the “2020 Option”). The 2020 Option, which vests on August 1, 2020 so long as Mr. Cravens remains a full-time employee of the Company on August 1, 2020, has an exercise 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). If Mr. Cravens is terminated as a result of a change of control of the Company prior to August 1, 2020, the 2020 Option vests in full upon his termination at an exercise price of $1.90 per share, ~~(our common stock closing~~which vested on August 1, 2020.

On February 17, 2020, we entered into Amendment No. #2 to the employment agreement with Mr. Cravens. Among other things, Amendment No. #2 provides that Mr. Cravens receive a grant of 225,000 options at a strike price of $1.93 and vest as follows: 88,000 shares on ~~February 21, 2019).~~July 26, 2021, 87,000 shares on July 26, 2022 and 50,000 shares on July 26, 2023.

Common Stock Options

Weighted-
Average
Exercise Price

Aggregate
Intrinsic
Value

Weighted-
Average
Remaining
Contractual
Term (Years)

Outstanding – December 31, 2018

3,496,250

$
0.66

$
2,608,329

3.04

Issued

320,000

1.76

—

—

Exercised

(712,916
)

0.37

—

—

Forfeited or expired

(103,334
)

0.94

—

—

Outstanding – September 30, 2019

3,000,000

$
0.84

$
2,992,800

2.88

Exercisable – September 30, 2019

1,988,333

$
0.62

$
2,426,025

3.65

	Common Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Term (Years)
Outstanding – December 31, 2019		3,175,000		$	0.92	$	2,692,025		2.79
Issued		465,000			1.57		—		—
Exercised		(225,000	)		0.22		—		—
Forfeited		(100,000	)		1.57		—		—
Outstanding – September 30, 2020		3,315,000		$	1.04	$	144,450		2.49
Exercisable – September 30, 2020		2,245,000		$	0.81	$	614,750		1.81

Common Stock Options

Weighted-
Average
Exercise Price

Aggregate
Intrinsic
Value

Weighted-
Average
Remaining
Contractual
Term (Years)

Unvested – December 31, 2018

1,161,666

$
0.95

$
535,475

4.15

Granted

320,000

1.76

—

—

Vested

(373,333
)

0.76

—

—

Forfeited or expired

(96,666
)

0.93

—

—

Unvested – September 30, 2019

1,011,667

$
1.17

$
680,526

4.39

	Common Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value			Weighted- Average Remaining Contractual Term (Years)
Unvested – December 31, 2019		1,053,333		$	1.43	$	357,734			3.92
Granted		465,000			1.57		—			—
Vested		(348,333	)		1.29		—			—
Forfeited		(100,000	)		1.57		—			—
Unvested – September 30, 2020		1,070,000		$	1.52	$	(470,300	)		3.92

As of September 30, ~~2019,~~2020, our unrecognized share-based compensation expense associated with the stock options issued was ~~$506,330,~~$708,698, which will be amortized over a weighted-average of ~~2.04~~2.24 years.

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:

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 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, ~~2019~~2020, the interest rate swap agreement was the only financial instrument measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties, which are classified as level 2 inputs.

We evaluate subsequent events through the date of issuance of the financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the financial statements as of and for the quarter ended September 30, ~~2019~~2020 except as ~~follows~~ disclosed in Note 1 and ~~Note 11 and~~ as follows:

OnAs discussed in Note 1, on October ~~10, 2019~~26, 2020, the Company entered into a business loan agreement with Zions Bancorporation N.A., dba Nevada State Bank for a secured loan in the amount of $4 million under Main Street Priority Loan Facility as established by the Board of ~~Directors authorized~~Governors of the Federal Reserve System Section 13(3) of the Federal Reserve Act. Among other things, the Main Street Loan has a ~~one million share increase in~~five-year maturity, bears interest at a rate of three-month US dollar LIBOR plus 300 basis points and has deferred interest payments during the ~~number~~first year which will be added to the loan balance.

Also, on October 26, 2020, the Company entered into a Sixth Amendment to the Credit Agreement between Zions Bancorporation N.A., dba Nevada State Bank. The Sixth Amendment permits the Company to accept the Main Street Loan, establishes a minimum liquidity covenant through the term of ~~shares available~~the Credit Agreement and permits the security interest under the ~~2014 Plan.~~ Main Street Loan to be pari passu with the Lender’s security interest under the Credit Agreement.

On ~~October 22, 2019 we~~November 16, 2020, the Company entered into a Seventh Amendment #3 to the ~~employment agreement~~Credit Agreement with ~~our Chief Financial Officer (“Mr. Hagerty”). Among other things,~~Zions Bancorporation N.A., dba Nevada State Bank. The Seventh Amendment ~~#3 provides (i) that Mr. Hagerty’s base salary will remain at~~changed the ~~annual rate~~trailing-four-quarter Minimum EBITDA covenant from $3.0 million to $2.4 million for each fiscal quarter ending September 30, 2020 and thereafter.

Cases of $200,000.00; (ii) that Mr. Hagerty receive a grant of 200,000 options at a strike price of $1.972, vest as follows: 66,666 shares on October 22, 2020, 66,666 shares on October 22, 2021, and 66,668 shares on April 30, 2022; (iii) that the end dateCOVID-19 infection have been rising in many of the ~~term~~markets we serve. As a result, there have been restrictions put in place on the opening hours of ~~employment be extended from April 30, 2020~~casinos in those markets. In the United Kingdom in particular, casinos have been forced to ~~April 30, 2022.~~close for a period of at least one month beginning on November 5, 2020. Other jurisdictions in which we operate may also decide to order closures of casinos in an effort to reduce transmission of the virus.

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

The following is a discussion and analysis of ~~the~~our financial condition, ~~and~~ results of operations and liquidity and capital resources as of and for the ~~Company~~three and nine months ended September 30, 2020 and 2019. This discussion 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 Data. 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 2018 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.

We develop, acquire, assemble and market technology and entertainment-based products and services for the gaming industry for ~~placement on the casino floor and legal internet gaming sites. Our products and services primarily relate to licensed casino operators’~~ table games activities and focus on either increasing their profitability, productivity and security or expanding their gaming entertainment offerings in the form of proprietary table games, electronically enhanced table game platforms, fully automated electronic tables and other ancillary equipment. In addition, we license intellectual property to legal internet gaming sites. Our products and services are offered in highly regulated markets throughout the world. Our products are assembled at our headquarters in Las Vegas, Nevada, as well as outsourced for certain sub-assemblies in the United States.

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 2018 10-K and on our web site, www.galaxygaming.com. Information found on the web site should not be considered part of this report.

Results of operations for the three months ended September 30, ~~2019~~2020 and ~~2018.~~2019. For the three months ended September 30, ~~2019,~~2020, we generated total revenues of ~~$5,371,646~~$1,797,833 compared to ~~total revenues of $4,775,784~~$5,371,646 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~595,862,~~$3,573,813, or ~~12.5%~~66.5%. This ~~increase~~decrease was ~~primarily~~ attributable to ~~higher~~the COVID-19 crisis, as some of our land-based casino customers remained closed in the third quarter, and those that were open had reduced capacity or realized reduced visitation which, in turn, resulted in us realizing no revenue from ~~additional placements for: (i) Bonus Jackpot System;~~those that were closed and ~~(ii) premium Games such as~~ ~~High Card Flush, Heads Up Hold ’em, Cajun Stud~~reduced revenue from those that were open. We continued to realize revenue from licensing our game content to the online gaming market in the third quarter of 2020 and, ~~Super Three Card~~.with the acquisition of PGP in the third quarter, began to recognize revenue from licensing the newly-acquired game content to the online gaming market.

Selling, general and administrative expenses for the three months ended September 30, ~~2019~~2020 were ~~$3,460,319~~$1,833,723 compared to ~~$2,559,056~~$3,645,319 for the comparable ~~prior~~prior-year period,, representing ~~an increase~~a decrease of ~~$901,263,~~$1,811,596, or ~~35.2%~~49.7%. This ~~increase~~decrease was primarily due to ~~$469,249~~a decrease in compensation-related expenses directly related to the COVID-19 crisis (reduction in workforce, removal of bonuses and lower commissions and distributor fees). Lower legal fees contributed to the decrease as well. Prior year legal expenses included expenses associated with our strategic review, the Triangulum Lawsuit and the related contested proxy ~~campaign~~campaign. Also, travel and ~~$82,650 in~~entertainment-related expenses ~~related~~and professional and compliance-related expenses (consulting and regulatory) decreased due to ~~rebranding. Excluding such expenses, selling, general and administrative expenses as a percentage of total revenue were 54.1% in~~ the ~~three months ended September 30, 2019 as compared to 53.6% in the comparable prior-year period.~~COVID-19 crisis.

Research and development expenses for the three months ended September 30, ~~2019~~2020 were ~~$208,253,~~$97,081, compared to ~~$373,456~~$208,253 for the comparable prior-year period, representing a decrease of ~~$165,203,~~$111,172, or ~~44.2%~~53.4%. This decrease was primarily due to ~~lower payroll~~a reduction in consulting expenses related to a third-party research and ~~related costs as~~development firm no longer used by the Company and a ~~result of the departure of our founder and former~~ ~~Executive Vice President of Business Development~~decrease in ~~November 2018~~ ~~and the former Chief Technology Officer in July 2019.~~compensation-related expenses.

Share-based compensation expenses for the three months ended September 30, ~~2019 was $242,016,~~2020 were $178,553, as compared to ~~$192,998~~$242,016 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$49,018,~~$63,463, or ~~25.4%~~26.2%. This ~~increase~~decrease was mainly due to ~~additional grants~~fewer restricted shares issued ~~to members~~and at a lower stock price than the comparable prior-year period.

As a result of the ~~Board, executive officers, employees and independent contractors.~~

~~Income~~changes described above, income from operations decreased ~~$192,772~~$1,660,575 or ~~16.9%~~217.8% to ~~$947,272~~a loss of $898,303 for the three months ended September 30, ~~2019,~~2020, compared to ~~$1,140,044~~income of $762,272 for the comparable prior-year period. ~~This decrease was primarily attributable to higher selling, general and administrative expenses principally related to the Triangulum lawsuit, the contested proxy and the rebranding.~~

Total interest expense ~~increased $154,763,~~decreased $3,624, or ~~75.0%~~2.2%, to ~~$361,188~~$162,082 for the three months ended September 30, ~~2019,~~2020, compared to ~~$206,425~~$165,706 for the comparable prior-year period. The decrease is attributable to lower balances outstanding under our Term Loan, partially offset by the amount drawn on our Revolving Loan.

Income tax provision was $133,708 for the three months ended September 30, 2020, compared to income tax benefit of $210,132 for the comparable prior-year period. The increase in income tax expense was ~~mainly~~primarily attributable to ~~interest accrued on the Triangulum Promissory Note.~~

~~Loss on extinguishment of debt was $0~~favorable discrete items incurred in the ~~three months ended September 30, 2019, as compared to $1,765 for the comparable~~ prior-year ~~period. The loss~~period not recurring in the ~~comparable prior-year period~~current-year period.

Adjusted EBITDA (as defined below) was ~~a result of legal expenses incurred in connection with the payoff of the previous term loan with Breakaway Capital Management, LLC (the “Breakaway Loan”) that was extinguished on April 24, 2018.~~

~~Income tax benefit was $210,132~~$35,703 for the three months ended September 30, ~~2019,~~2020, compared to income tax provision of $166,662 for the comparable prior-year period. This change was primarily attributable to (i) the income tax benefit of approximately $150,000 we recorded as a result of a prior period change in estimate related to the foreign-derived intangible income (“FDII”) special deduction under Section 250 of the Internal Revenue Code, which reduced the ETR by 7.1% and (ii) the income tax benefit of approximately $180,000 as a result of tax benefits related to non-qualified stock options exercised during the period, which reduced the ETR by 8.5%.

~~Adjusted EBITDA (as defined below) was~~ $2,217,299 ~~for the three months ended September 30, 2019, compared to $1,795,444~~ for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$421,855,~~$2,181,596, or ~~23.5%~~98.4%. This ~~increase~~decrease was primarily attributable ~~to higher earnings after~~ the ~~addback~~significant decrease in ~~2019~~revenue in the quarter not being fully offset by the decreased amount of ~~expenses associated with the Triangulum Lawsuit, the contested proxy campaign, rebranding expenses and severance expense.~~expenses.

Results of operations for the nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. For the nine months ended September 30, ~~2019,~~2020, we generated total revenues of ~~$16,117,583~~$6,956,122 compared to ~~total revenues of $13,672,650~~$16,117,583 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~2,444,933,~~$9,161,461, or ~~17.9%~~56.8%. This ~~increase~~decrease was ~~primarily~~ attributable to ~~higher~~the COVID-19 crisis, as some of our land-based casino customers remained closed in the third quarter, and those that were open had reduced capacity or realized reduced visitation which, in turn, resulted in us realizing no revenue from ~~additional placements for: (i) Bonus Jackpot System; (ii) premium Games such as~~ ~~High Card Flush,Heads Up Hold ’em, Cajun Stud~~those that were closed and ~~Super Three Card~~;reduced revenue from those that were open. We continued to realize revenue from licensing our game content to the online gaming market in the third quarter of 2020 and, ~~(iii) higher internet-based~~with the acquisition of PGP in the third quarter, began to recognize revenue from licensing the newly-acquired game content to the online gaming ~~activities.~~market.

Selling, general and administrative expenses for the nine months ended September 30, ~~2019~~2020 were ~~$9,941,029~~$7,264,410 compared to ~~$7,741,213~~$10,126,029 for the comparable ~~prior~~prior-year period,, representing ~~an increase~~a decrease of ~~$2,199,816,~~$2,861,619, or ~~28.4%~~28.3%. This ~~increase~~decrease was primarily due to ~~$1,235,220~~a decrease in compensation-related expenses directly related to the COVID-19 crisis (reduction in workforce, removal of bonuses and lower commissions and distributor fees). Lower legal fees contributed to the decrease as well. Prior year legal expenses included expenses associated with our strategic review, the Triangulum Lawsuit and the related contested proxy ~~campaign~~campaign. Also, travel and ~~$95,150 of rebranding~~entertainment-related expenses ~~incurred during~~and consulting expenses decreased due to the nine months ended September 30, 2019. Excluding such costs, selling, general and administrative expenses as a percentage of gross revenue decreased to 53.4% for the nine months ended September 30, 2019 from 56.6% for the comparable prior-year period.COVID-19 crisis.

Research and development expenses for the nine months ended September 30, ~~2019~~2020 were ~~$685,693,~~$391,333, compared to ~~$816,657~~$685,693 for the comparable prior-year period, representing a decrease of ~~$130,964,~~$294,360, or ~~16.0%~~42.9%. This decrease was primarily due to ~~lower payroll~~a reduction in consulting expenses related to a third-party research and ~~related expenses as~~development firm no longer used by the Company and a ~~result of the departure of our founder and former~~ ~~Executive Vice President of Business Development~~decrease in ~~November 2018~~ ~~and the former Chief Technology Officer in July 2019.~~compensation-related expenses.

Share-based compensation expenses for the nine months ended September 30, ~~2019 was $678,199,~~2020 were $512,818, as compared to ~~$550,588~~$678,199 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$127,611,~~$165,381, or ~~23.2%~~24.4%. This ~~increase~~decrease was mainly due to ~~additional grants~~fewer restricted shares issued ~~to members~~and at a lower stock price than the comparable prior-year period.

As a result of the ~~Board, executive officers, employees and independent contractors.~~

~~Income~~changes described above, income from operations decreased $5,774,654 or 191.1% to a loss of $2,753,221 for the three months ended September 30, 2020, compared to income of $3,021,433 for the comparable prior-year period.

Total interest expense increased ~~$122,208~~$3,660, or ~~4.0%~~0.7%, to ~~$3,206,433~~$506,922 for the nine months ended September 30, ~~2019,~~2020, compared to ~~$3,084,225~~$503,262 for the comparable prior-year period. ~~This increase was primarily attributable to higher revenue,~~Interest on lower balances of our Term Loan were offset by ~~higher selling, general and administrative expenses.~~

~~Total~~ interest expense ~~decreased $1,282,~~on our Revolving Loan (which was undrawn in 2019).

Share redemption consideration increased $271,153, or ~~0.2%~~86.0%, to ~~$818,555~~$586,446 for the nine months ended September 30, ~~2019,~~2020, compared to ~~$819,837~~$315,293 for the comparable prior-year period. The increase was attributable to the Triangulum share redemption consideration obligation, which was outstanding for only a portion of the prior-year period.

Income tax benefit was $492,807 for the nine months ended September 30, 2020, compared to income tax provision of $17,189 for the comparable prior-year period. The decrease in income tax expense was ~~mainly~~primarily attributable to ~~a lower interest rate on~~ the ~~Term Loan as compared~~reduced operations related to the ~~Breakaway Loan, partially~~COVID-19 pandemic in the nine-month period resulting in a pre-tax book loss, offset by ~~interest accrued on~~ the ~~Triangulum Promissory Note.~~

~~Loss on extinguishment of debt was $0 in~~GILTI inclusion related to the ~~nine months ended September 30, 2019, as compared to $1,349,271 in~~PGP acquisition, which reduced the ~~comparable prior-year period. The~~taxable loss in the ~~comparable prior-year period~~nine-month period.

Adjusted EBITDA (as defined below) was a result of an early redemption premium paid in connection with the payoff of the previous term loan and the write-off of the associated unamortized debt issuance costs and unamortized fair value of the warrants.

~~Income tax provision was $17,189~~$115,997 for the nine months ended September 30, ~~2019,~~2020, compared to income tax provision of $154,799 for the comparable prior-year period. This change was primarily attributable to (i) the income tax benefit of approximately $150,000 we recorded as a result of a prior period change in estimate related to the foreign-derived intangible income (“FDII”) special deduction under Section 250 of the Internal Revenue Code, which reduced the ETR by 7.1% and (ii) the income tax benefit of approximately $180,000 as a result of tax benefits related to non-qualified stock options exercised during the period, which reduced the ETR by 8.5%.

~~Adjusted EBITDA (as defined below) was~~ $6,654,222 ~~for the nine months ended September 30, 2019, compared to $5,007,565~~ for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$1,646,657,~~$6,538,225, or ~~32.9%~~98.3%. This ~~increase~~decrease was primarily attributable to ~~higher~~the net ~~income and addbacks~~loss for the period as a result of the COVID-19 crisis. This decrease was primarily attributable the significant decrease in ~~2019 for costs associated with~~revenue in the ~~strategic alternatives review, the Triangulum Lawsuit, the contested proxy campaign, rebranding expenses and a one-time severance expense of $185,000, partially~~period not being fully offset by the ~~addbacks related to the loss on extinguishment~~decreased amount of ~~debt in 2018.~~expenses.

Adjusted EBITDA. Adjusted EBITDA includes adjustments to net income to exclude interest, taxes, depreciation, amortization, share based compensation, loss on extinguishment of debt, foreign currency exchange gains, ~~change~~changes in ~~estimated fair value of warrant liability, change in~~the estimated fair value of interest rate swap liability, and other non-recurring losses and non-cash charges. Adjusted EBITDA is not a measure of performance defined in accordance with ~~U.S.~~ U.S. GAAP. However, Adjusted EBITDA is used by management to evaluate our operating performance. Management believes that disclosure of the Adjusted EBITDA metric offers investors, regulators and other stakeholders a view of our operations in the same manner management evaluates our performance. When combined with U.S. GAAP results, management believes Adjusted EBITDA provides a comprehensive understanding of our financial results. Adjusted EBITDA should not be considered as an alternative to net income or 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,

Adjusted EBITDA Reconciliation:

2019

2018

2019

2018

Net income

$
580,234

$
791,968

$
2,095,841

$
732,043

Interest expense

361,188

206,425

818,555

819,837

Foreign currency exchange loss

69,470

22,095

57,299

542

Change in estimated fair value of interest rate swap liability

(13,162
)

(48,528
)

78,440

28,707

Loss on extinguishment of debt

—

1,765

—

1,349,271

Income tax provision (benefit)

(210,132
)

166,662

17,189

154,799

Depreciation and amortization

476,112

462,402

1,439,220

1,372,752

Share based compensation expense

242,016

192,998

678,199

550,588

Non-recurring rebranding expense

82,650

—

95,150

—

Non-recurring severance expense

185,000

—

185,000

—

Non-recurring special project cost

469,249

—

1,235,220

—

Interest income

(25,326
)

(343
)

(45,891
)

(974
)
Adjusted EBITDA

$
2,217,299

$
1,795,444

$
6,654,222

$
5,007,565

	Three Months Ended September 30,						Nine Months Ended September 30,
Adjusted EBITDA Reconciliation:	2020			2019			2020			2019
Net (loss) income	$	(1,297,499	)	$	580,234		$	(3,387,475	)	$	2,095,841
Interest expense		162,082			165,706			506,922			438,101
Share redemption consideration		195,482			195,482			586,446			380,454
Interest income		(1,412	)		(25,326	)		(25,313	)		(45,891	)
Depreciation and amortization		575,637			476,112			1,499,927			1,439,220
Share-based compensation		178,553			242,016			512,818			678,199
Foreign currency exchange (gain) loss		(20,014	)		69,470			95,976			57,299
Change in estimated fair value of interest rate swap liability		(55,330	)		(13,162	)		(21,650	)		78,440
(Benefit) provision for income taxes		133,708			(210,132	)		(492,807	)		17,189
Rebranding expense		—			82,650			—			95,150
Other non-recurring income		(15,320	)		—			(15,320	)		—
Severance expense		(3,243	)		185,000			20,058			185,000
Special project expense⁽¹⁾		183,059			469,249			836,415			1,235,220
Adjusted EBITDA	$	35,703		$	2,217,299		$	115,997		$	6,654,222

Liquidity and capital resources. We ~~intend~~have generally been able to fund our continuing operations, our investments, and the obligations under our existing borrowings through ~~increased sales~~cash flow from operations. However, the COVID-19 crisis resulted in negative cash provided by operations during the nine months ended September 30, 2020, and we expect modestly negative cash ~~flow.~~flow from operations in Q4 of 2020. However, based on our forecast of a gradual recovery in the casino gaming industry from the lows of Q2, combined with the $3.92 million in cash we received from the Main Street Loan Facility, we believe we have adequate liquidity to meet our short-term obligations. However, if COVID-19 continues to force casino closures or if the recovery from the closures is slower than we anticipate, the issuance of debt or equity financing arrangements may be required to fund future 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 negatively affected. In addition, we may incur higher capital expenditures in the future to expand our operations. We may 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.

As of September 30, ~~2019,~~2020, we had total current assets of ~~$13,384,478~~$6,668,796 and total assets of ~~$23,255,388.~~$27,146,778. This compares to ~~$10,206,844~~$14,473,935 and ~~$21,193,725,~~$24,252,151, respectively, as of December 31, ~~2018.~~2019. The ~~increase~~decrease in current assets as of September 30, ~~2019~~2020 was primarily due to a decrease in our Accounts Receivable balance, resulting from the COVID-19 shutdown in Q1 of this year and temporary shutdowns throughout Q2 and Q3. Also, we closed on the Purchase Agreement in August 2020, resulting in a decrease in our Cash balance. The increase in total assets as of September 30, 2020 was primarily due to an increase in ~~cash, cash equivalents and restricted cash, accounts receivable and inventory.~~ our Intangibles balance of $10.4 million, as a result of acquiring customer agreements in connection with the closing on the Purchase Agreement.

Our total current liabilities as of September 30, ~~2019~~2020 increased to ~~$5,116,395~~$6,257,636 from ~~$4,990,615~~$5,422,939 as of December 31, ~~2018,~~2019, primarily due to an increase in ~~accounts payable.~~our Accounts Payable balance and the Company drawing down on its $1,000,000 Revolving Loan on March 12, 2020. This increase was offset by decreases in Accrued Expenses and our Revenue Contract Liability.

~~Our~~Despite the COVID-19 crisis, our business ~~model continues to be~~was profitable ~~and we~~in Q1 2020. However, our business was not profitable in Q2 or Q3 of 2020. We anticipate modestly negative cash from operations in Q4 of 2020. We have sufficient working capital ~~and other options to ensure we are able~~ to meet our short-term and long-term ~~obligations.~~ ~~At September 30, 2019~~ ~~and at~~obligations as they become due. Further, we do not currently believe that the ~~filing date~~recent casino closures in the United Kingdom will result in an impairment of ~~this Quarterly Report on Form 10-Q~~, ~~we had $1.0 million available~~our assets or a default under ~~the Revolving Loan.~~ ~~See~~ ~~Note 10 to~~ our ~~condensed financial statements included in Item 1 of this report.~~loan agreements.

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

Our operating activities ~~provided $3,294,333~~used $1,261,133 in cash for the nine months ended September 30, ~~2019,~~2020, compared to ~~$2,806,957~~cash provided of $3,294,333 for the comparable prior period. The ~~increase~~decrease in operating cash flow was primarily due to ~~an increase~~the net loss for the period as a result of the COVID-19 crisis. This decrease was partially offset by changes in ~~net income in~~operating assets and liabilities such as Accounts Receivable, Accounts Payable and Revenue Contract Liability, as a result of the ~~2019 period and a January 2018 license fee payment of $774,645.~~COVID-19 crisis.

~~Additionally, investing~~Investing activities used cash of ~~$59,895~~$6,305,047 for the nine months ended September 30, ~~2019,~~2020, compared to ~~$100,098~~$59,895 for the comparable prior period. ~~In both periods,~~This was due to closing of the ~~investments were~~Purchase Agreement in ~~intangible assets and acquisition of property and equipment.~~ August 2020.

Cash ~~used in~~provided by financing activities during the nine months ended September 30, ~~2019~~2020 was ~~$935,414,~~ $620,728, which ~~was due to~~resulted from the $1,000,000 draw on our Revolving Loan on March 12, 2020, and $835,300 from the PPP Loan, offset by principal payments on long-term ~~debt and finance leases, partially offset by proceeds from stock option exercises.~~debt. This compares to ~~$1,066,324~~$935,414 cash used in financing activities for the comparable prior period.

Significant non-cash activities during the nine months ended September 30, 2019 include the $39,096,401 one-time redemption of Triangulum stock in exchange for the Triangulum Promissory Note. In addition, we recorded $305,163 in r~~ight-of-use assets in exchange for finance and operating lease liabilities as a result of the adoption of ASC 842 effective January 1, 2019. Furthermore, w~~e transferred $157,202 and $147,434 from inventory to assets deployed at client locations for the nine months ended September 30, 2019 and 2018, respectively. These amounts represent the value of our enhanced table systems that were newly installed at our casino clients’ premises during the periods presented but are not reflected as cash flows used in investing activities.

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 accounting policies are those policies that, in management's view, are most important in the portrayal of our financial condition and results of operations. See Note 3~~of our financial statements included~~2 in Item 8. “Financial Statements and Supplementary ~~Data” of~~Financial Information” included in our ~~2018~~2019 10-K for further detail on these critical accounting policies.

Off-balance sheet arrangements. As of September 30, ~~2019,~~2020, there were no off-balance sheet arrangements.

Recently issued accounting pronouncements. We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

A smaller reporting company is not required to provide the information required by this Item.

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.

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, ~~2019~~2020 our disclosure controls and procedures were effective.

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.

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.

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, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, Contingencies, 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 or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by GAAP, applicable law, statute or regulation.

On May 6, 2019, we redeemed all 23,271,667 shares of our common stock held by Triangulum, ~~Partners, LLC (“Triangulum”),~~ an entity controlled by Robert B. Saucier, Galaxy Gaming's founder, and, prior to the redemption, the holder of a majority of our outstanding common stock. The redemption of Triangulum’s shares was given effect pursuant to ~~our~~the Articles, ~~of Incorporation (the “Articles”),~~ which expressly provide that if certain events occur in relation to a stockholder that is required to undergo a gaming suitability review or similar investigative process, we have the option to purchase all or any part of such stockholder’s shares at a price per share that is equal to the average closing share price over the thirty calendar days preceding the purchase. The average closing share price over the thirty calendar days preceding the redemption was $1.68 per share.

As consideration for the redemption, we issued a promissory note payable to Triangulum in the face amount of $39,096,401, ~~(the “Triangulum Promissory Note”).~~which due to the resulting litigation discussed below, has not been given accounting effect in the Company’s financial statements. The Company has instead recorded a long-term share redemption consideration obligation payable to Triangulum, ~~Promissory~~based on the redemption value specified in our Articles of Incorporation. See Note has no mandatory amortization, matures on May 5, 2029, and bears interest at a rate of 2% per annum, with accrued interest payable annually in arrears. It is unsecured and is subordinated to our existing and future indebtedness in accordance with its terms. We may prepay principal and any accrued interest in full or in part at any time.10.

~~In relation to the redemption of the Triangulum shares, on~~On May 6, 2019 we filed a lawsuit seeking (i) a declaratory judgment that we acted lawfully and in full compliance with the Articles when we redeemed the Triangulum shares and (ii) certain remedies for breach of fiduciary duty and breach of contract by Triangulum and its Managing Member, Mr. ~~Saucier (the “Triangulum Lawsuit”).~~Saucier. The ~~suit~~Triangulum Lawsuit alleges that the redemption and the other relief sought by us are appropriate and in accordance with the Articles ~~of Incorporation~~ (Galaxy Gaming, Inc. v. Triangulum Partners, LLC, Robert B. Saucier, Clark County, Nevada district court (Case No. A-19-794293-B)). We are in the discovery phase of the Triangulum Lawsuit.

The defendants to that lawsuit responded to the complaint, and Triangulum filed counterclaims based on a theory of wrongful redemption by us. ~~The defendants~~Triangulum also filed a Motion for Preliminary Injunction seeking the redeemed shares be held in a constructive trust. On July 11, 2019, the Court denied ~~the defendants’~~Triangulum’s Motion for Preliminary Injunction and all related relief. On September 6, 2019, ~~Defendants~~Triangulum appealed the denial of the Motion for Preliminary Injunction to the Nevada Supreme Court. We ~~will oppose the appeal, but a briefing schedule has not yet been set by the Supreme Court.~~submitted our brief in opposition, and Triangulum’s reply brief is due on June 17, 2020. Separately, Triangulum filed amended counterclaims, which we moved to dismiss on a number of legal grounds. The Court denied the motion, stating that the amended complaint was sufficiently plead. ~~We will file~~The Company filed a Petition for a Writ of Mandamus challenging the ~~ruling.~~ruling, which the Supreme Court denied on January 23, 2020.

On October 18, 2019, Saucier also filed counterclaims centered similarly on a theory of wrongful redemption, and also claims that for breach of contract and quantum meruit, alleging Galaxy Gaming was obligated to pay Saucier his year-end bonuses, despite his resignation. We ~~will file a timely response,~~filed an answer disputing these claims.

As a result of the effects of Coronavirus on the Nevada District court, the Court issued a revised Scheduling Order extending time frames for discovery and setting a new trial date in February of 2021.

On May ~~31, 2019~~6, 2020, Saucier made a demand of the Company under our Bylaws and ~~June 6, 2019 respectively, Derek Webb~~an Indemnity Agreement between Saucier and ~~Hannah O’Donnell together filed a complaint~~the Company, for indemnity and ~~a related Motion for Order Granting Request to Compel an Annual Meeting, or~~advancement of funds seeking repayment of his lawyer’s fees and expenses he allegedly incurred in connection with the Company’s claims against him in the ~~Alternative for a Writ of Mandamus~~Triangulum Lawsuit. Saucier asserts that he is entitled to indemnity and Injunctive Relief (the “Motion”). The Motion sought the Court to compel us to hold an Annual Shareholder’s Meeting in 2019 and also sought related relief: that we not issue shares or redeem any shares or amend its Bylaws in any manner that could affect the obligation to hold the meeting or elect directors at the meeting. On June 6, 2019, we notified the public of the holding of an Annual Meeting to take place on August 28, 2019 for shareholders of record of July 17, 2019. During a hearing held on July 11, 2019, the Court denied Webb and O’Donnell’s Motion and all related relief. The Annual Meeting took place on August 28, 2019. On October 17, 2019 the Court dismissed the caseadvancement as a result of ~~a stipulation~~his tenure as an officer, director, and fiduciary of the ~~parties.~~Company, which he claims triggers his rights of indemnity and advancement. The Company rejected his demand. Pursuant to the Indemnity Agreement, an Independent Counsel was agreed to by the parties to hear the dispute. The Independent Counsel generally agreed with the Company but awarded Saucier a small amount of indemnity funds related to the time he was employed by the Company.

Also on May 19, 2020, Saucier commenced a separate action, filed a verified complaint seeking advancement and filed a pleading styled “Motion For Declaratory Judgement On Verified Complaint For Advancement” (Robert B. Saucier v. Galaxy Gaming, Inc. (Clark County, Nevada district court (Case No. A-20-81590-B)) (“the Motion For Declaratory Judgement”). The Company filed its opposition on June 4, 2020. Saucier’s Motion For Declaratory Judgement was denied in a hearing that occurred on June 24, 2020. Saucier appealed the denial to the Nevada Supreme Court on August 10, 2020.

On July 22, 2020 Galaxy and its Directors, filed an Anti-SLAPP motion seeking to dismiss certain claims made against Galaxy and its Directors. The Anti-SLAPP motion was denied by the court. Galaxy and its Directors have appealed the denial of that motion to the Nevada Supreme Court. The appeal will stay most aspects of the litigation, pending outcome of the appeal.

As has been previously reported by the Company, in September 2018, we were served with a complaint by TMAX regarding the TMAX Agreement. We filed an answer denying the allegations and counterclaiming for breach of contract, abuse of process and fraud in the inducement, among other counterclaims. We also filed a partial motion for summary judgment seeking dismissal of the plaintiff’s claims. Pursuant to a motion to dismiss brought by the co-defendant and former CEO of TMAX, the suit was dismissed, subject to the right of the plaintiff to file an amended complaint on or before March 20, 2019.

The plaintiff did not file an amended complaint within the time period set by the Judge. After that time, the Company considered the matter closed. Despite not filing an Amended complaint within the allotted time, thereafter TMAX filed a Motion for Leave to Amend their Complaint, which was granted by the Judge on May 11, 2020. On May 26, 2020 TMAX filed an Amended Complaint against the Company and other Co-Defendants. In the Amended Complaint, TMAX asserted a claim against the Company for conversion of personal property. The Company will respond to the Amended Complaint denying the allegations.

On September 30, ~~2019,~~2020, we issued an aggregate of ~~82,600~~55,000 restricted shares of our common stock valued at ~~$152,067~~$59,400 to Messrs. Lipparelli, ~~DesRosiers,~~ Isaacs, Waters, and Zender, in consideration of their service on the Board during the three months ended September 30, ~~2019.~~2020. These shares vested immediately on the grant date. In each of the transactions listed above, the 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.

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.

Nevada		20-8143439
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

6767 Spencer Street, Las Vegas, NV 89119
(Address of principal executive offices)

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

Title of each class		Trading symbol		Name of exchange on which registered
Common stock		GLXZ		OTCQB marketplace

		~~Page~~
	PART I ~~– FINANCIAL INFORMATION~~
Item 1:	Financial Statements (unaudited)	43
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	2123
Item 4:	Controls and Procedures	2123
	PART II ~~– OTHER INFORMATION~~
Item 1:	Legal Proceedings	2225
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	2227
Item 6:	Exhibits	2327

Condensed Consolidated Balance Sheets as of September 30, ~~2019 (unaudited)~~2020 and December 31, ~~2018~~2019 (unaudited)	4
Condensed Consolidated Statements of ~~Income~~Operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	7
Notes to Condensed Consolidated Financial Statements (unaudited)	8

	Common Stock						Additional Paid in		Accumulated Earnings			Total Shareholders'
	Shares			Amount			Capital		(Deficit)			Equity (Deficit)
Beginning balance, December 31, 2018		39,921,591		$	39,922		$	4,733,701	$	2,683,478		$	7,457,101
Common stock redemption		(23,271,667	)		(23,271	)		—		(39,073,130	)		(39,096,401	)
Net income		—			—			—		1,515,607			1,515,607
Stock options exercised		556,220			556			96,051		—			96,607
Share based compensation expense		546,600			546			435,636		—			436,182
Balance, June 30, 2019		17,752,744			17,753			5,265,388		(34,874,045	)		(29,590,904	)
Net income		—			—			—		580,234			580,234
Stock options exercised		75,000			75			29,175		—			29,250
Share based compensation expense		82,600			82			241,934		—			242,016
Balance, September 30, 2019		17,910,344		$	17,910		$	5,536,497	$	(34,293,811	)	$	(28,739,404	)

	Three Months Ended September 30, 2019
	Amount		Classification
Finance lease cost:
Amortization of right-of-use assets	$	—	Depreciation and amortization
Interest on lease liabilities		—	Interest expense
Total finance lease cost	$	—

Operating lease cost	$	66,303	Selling, general and administrative expense

	Nine Months Ended September 30, 2019
	Amount		Classification
Finance lease cost:
Amortization of right-of-use assets	$	14,286	Depreciation and amortization
Interest on lease liabilities		195	Interest expense
Total finance lease cost	$	14,481

Operating lease cost	$	195,234	Selling, general and administrative expense

	Three Months Ended September 30, 2020
	Amount		Classification
Operating lease cost	$	71,716	Selling, general and administrative expense

	Nine Months Ended September 30, 2020
	Amount		Classification
Operating lease cost	$	215,142	Selling, general and administrative expense

	Common Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Term (Years)
Outstanding – December 31, 2018		3,496,250		$	0.66	$	2,608,329		3.04
Issued		320,000			1.76		—		—
Exercised		(712,916	)		0.37		—		—
Forfeited or expired		(103,334	)		0.94		—		—
Outstanding – September 30, 2019		3,000,000		$	0.84	$	2,992,800		2.88
Exercisable – September 30, 2019		1,988,333		$	0.62	$	2,426,025		3.65

	Galaxy Gaming, Inc.

Date:	November ~~14, 2019~~16, 2020

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

	Galaxy Gaming, Inc.

Date:	November ~~14, 2019~~16, 2020

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company