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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period

for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~39,565,591~~22,075,638 common shares as of ~~November 8, 2017.~~May 10, 2021.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2021

September 30,

December 31,

ASSETS

2017

2016

Current assets:

(Unaudited)

Cash and cash equivalents

$
3,161,666

$
2,304,761

Restricted cash

93,270

84,577

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

2,396,087

2,137,245

Inventory, net

525,543

427,105

Prepaid expense and other

307,157

194,747

Total current assets

6,483,723

5,148,435

Property and equipment, net

293,488

356,253

Products leased and held for lease, net

300,168

212,131

Goodwill and other intangible assets, net

11,825,005

12,846,019

Deferred tax assets, net

367,057

367,057

Other assets, net

23,000

82,050

Total assets

$
19,292,441

$
19,011,945

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
329,193

$
461,913

Accrued expenses

1,722,039

1,109,428

Income taxes payable

662,159

786,430

Deferred revenue

1,050,416

1,014,731

Deferred rent, current portion

21,494

14,938

Current portion of long-term debt and capital lease obligations

1,121,289

1,230,285

Other current liabilities

119,960

90,960

Total current liabilities

5,026,550

4,708,685

Deferred rent, net

21,037

37,704

Capital lease obligations, net

22,589

46,978

Common stock warrant liability

1,333,333

923,616

Long-term debt, net

7,620,230

8,669,151

Total liabilities

14,023,739

14,386,134

Commitments and Contingencies (See Note 10)

Stockholders’ equity

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

—

—

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

39,566

39,316

Additional paid-in capital

3,697,536

3,109,473

Accumulated earnings

1,531,600

1,477,022

Total stockholders’ equity

5,268,702

4,625,811

Total liabilities and stockholders’ equity

$
19,292,441

$
19,011,945

ASSETS	March 31, 2021			December 31, 2020
Current assets:	(Unaudited)
Cash and cash equivalents	$	6,081,421		$	5,993,388
Accounts receivable, net of allowance of $199,599 and $145,000, respectively		3,516,122			2,493,254
Inventory		708,686			668,525
Income tax receivable		1,272,611			1,229,795
Prepaid expenses		892,829			1,167,068
Other current assets		149,716			10,803
Total current assets		12,621,385			11,562,833
Property and equipment, net		125,160			116,724
Operating lease right-of-use assets		1,311,349			1,367,821
Assets deployed at client locations, net		217,379			232,156
Goodwill		1,091,000			1,091,000
Other intangible assets, net		15,487,625			16,086,896
Other assets		261,235			117,164
Total assets	$	31,115,133		$	30,574,594
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	451,946		$	467,792
Accrued expenses		2,162,033			1,333,032
Revenue contract liability		106,250			29,167
Current portion of long-term debt		1,913,355			2,222,392
Current portion of operating lease liabilities		213,531			195,411
Total current liabilities		4,847,115			4,247,794
Long-term operating lease liabilities		1,163,743			1,215,680
Long-term liabilities, net		49,396,992			49,691,184
Interest rate swap liability		16,187			66,009
Deferred tax liabilities, net		150,892			150,892
Total liabilities		55,574,929			55,371,559
Commitments and Contingencies (See Note 11)
Stockholders’ 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; 22,075,638 and 21,970,638 shares issued and outstanding, respectively		22,076			21,971
Additional paid-in capital		11,126,070			10,798,536
Accumulated deficit		(35,566,426	)		(35,655,163	)
Accumulated other comprehensive (loss) income		(41,516	)		37,691
Total stockholders’ deficit		(24,459,796	)		(24,796,965	)
Total liabilities and stockholders’ deficit	$	31,115,133		$	30,574,594

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

CONDENSED ~~STATEMENTS~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2021			March 31, 2020
Revenue:				(Restated)						(Restated)
Product leases and royalties	$	3,830,351		$	3,190,823		$	10,955,055		$	9,229,815
Product sales and service		69			1,146			9,469			10,425
Licensing fees													$	4,282,901		$	4,494,318
Total revenue		3,830,420			3,191,969			10,964,524			9,240,240		$	4,282,901		$	4,494,318
Costs and expenses:
Cost of ancillary products and assembled components		50,369			26,763			133,517			78,075			14,304			21,812
Selling, general and administrative		2,362,601			1,553,556			6,808,659			4,819,373			2,711,052			2,992,052
Research and development		139,185			89,513			403,618			270,734			118,701			155,653
Depreciation and amortization		440,130			419,540			1,323,772			1,252,860			717,254			469,805
Share-based compensation		384,925			41,075			553,313			91,006			316,640			157,596
Total costs and expenses		3,377,210			2,130,447			9,222,879			6,512,048			3,877,951			3,796,918
Income from operations		453,210			1,061,522			1,741,645			2,728,192			404,950			697,400
Other income (expense):
Settlement income		—			697,214			—			697,214
Interest income														382			21,774
Interest expense		(432,466	)		(227,632	)		(1,316,045	)		(741,045	)		(180,910	)		(167,671	)
Loss on extinguishment of debt		—			(515,037	)		—			(515,037	)
Foreign currency exchange gains (losses)		59,624			(5,926	)		125,576			354,301
Change in estimated fair value of warrant liability		(86,308	)		2,933			(409,717	)		2,933
Interest income		—			56			—			202
Share redemption consideration														(195,482	)		(195,482	)
Foreign currency exchange loss														(8,975	)		(127,291	)
Change in estimated fair value of interest rate swap liability														49,822			(76,163	)
Total other expense		(459,150	)		(48,392	)		(1,600,186	)		(201,432	)		(335,163	)		(544,833	)
(Loss) income before provision for income taxes		(5,940	)		1,013,130			141,459			2,526,760
Provision for income taxes		(21,990	)		(351,412	)		(86,881	)		(873,768	)
Net (loss) income	$	(27,930	)	$	661,718		$	54,578		$	1,652,992
Net (loss) income per share, basic and diluted	$	(0.00	)	$	0.02		$	0.00		$	0.04
Income before benefit (provision) for income taxes														69,787			152,567
Benefit (provision) for income taxes														18,950			(35,962	)
Net income														88,737			116,605
Foreign currency translation adjustment														(79,207	)		—
Comprehensive income													$	9,530		$	116,605

Net income per share:
Basic													$	0.00		$	0.01
Diluted													$	0.00		$	0.01

Weighted-average shares outstanding:
Basic		39,432,982			39,315,591			39,368,521			39,372,944			18,838,221			18,022,761
Diluted		39,432,982			39,465,676			41,216,750			39,559,494			20,173,443			19,239,294

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

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

Nine Months Ended

September 30, 2017

September 30, 2016

Cash flows from operating activities:

(restated)

Net income

$
54,578

$
1,652,992

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

Depreciation and amortization

1,323,772

1,252,860

Amortization of debt issuance costs and debt discount

218,910

136,710

Bad debt expense

6,000

—

Loss on extinguishment of debt

—

515,037

Change in estimated fair value of warrant liability

409,717

(2,933
)
Share-based compensation

553,313

91,006

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

(92,243
)

31,886

Changes in operating assets and liabilities:

Restricted cash

(8,693
)

10,009

Accounts receivable

(264,842
)

(108,674
)
Inventory

(271,149
)

(181,319
)
Prepaid expenses and other current assets

(112,410
)

8,922

Accounts payable

(132,720
)

(858,404
)
Income tax payable

(124,271
)

822,482

Accrued expenses

612,611

152,871

Deferred revenue

35,685

152,938

Other current liabilities

29,000

(15,069
)
Deferred rent

(10,111
)

(3,555
)
Net cash provided by operating activities

2,227,147

3,657,759

Cash flows from investing activities:

Investment in intangible assets

(43,917
)

—

Acquisition of property and equipment

(52,352
)

(43,345
)
Net cash used in investing activities

(96,269
)

(43,345
)
Cash flows from financing activities:

Proceeds from stock option exercises

35,000

—

Debt issuance costs

(17,091
)

—

Proceeds received from long-term debt

—

932,126

Principal payments on capital lease obligations

(23,087
)

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

(1,361,038
)

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

(1,366,216
)

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

92,243

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

856,905

1,253,034

Cash and cash equivalents – beginning of period

2,304,761

570,623

Cash and cash equivalents – end of period

$
3,161,666

$
1,823,657

Supplemental cash flow information:

Cash paid for interest

$
1,099,738

$
753,250

Inventory transferred to assets held for lease

$
172,711

$
108,577

Cash paid for income taxes

$
150,000

$
35,000

Supplemental non-cash financing activities information:

Issuance of warrants in conjunction with term loan

$
—

$
809,631

Points paid on term loan

$
—

$
262,500

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

										Accumulated
	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive		Total Shareholders'
	Shares		Amount		Capital		Deficit			Income (Loss)		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	)

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

	Three Months Ended
	March 31, 2021			March 31, 2020
Cash flows from operating activities:
Net income	$	88,737		$	116,605
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		717,254			469,805
Amortization of right-of-use assets		56,472			69,301
Amortization of debt issuance costs and debt discount		12,243			9,159
Bad debt expense		76,160			166,002
Change in estimated fair value of interest rate swap liability		(49,822	)		76,163
Share-based compensation		316,640			157,596
Unrealized foreign exchange (gain) loss		(3,573	)		77,557
Changes in operating assets and liabilities:
Accounts receivable		(1,139,395	)		369,313
Inventory		(70,010	)		(86,885	)
Income tax receivable/payable		(42,816	)		35,962
Prepaid expenses and other current assets		138,788			(197,283	)
Other assets		(144,072	)		—
Accounts payable		(66,044	)		8,784
Accrued expenses		834,001			(365,512	)
Revenue contract liability		77,083			4,186
Operating lease liabilities		(33,817	)		(69,305	)
Net cash provided by operating activities		767,829			841,448
Cash flows from investing activities:
Investment in intangible assets		(49,900	)		—
Acquisition of property and equipment		(31,892	)		(1,448	)
Net cash used in investing activities		(81,792	)		(1,448	)
Cash flows from financing activities:
Proceeds from draw on revolving loan		—			1,000,000
Proceeds from stock option exercises		10,999			7,500
Principal payments on long-term debt		(568,637	)		(405,498	)
Net cash (used in) provided by financing activities		(557,638	)		602,002
Effect of exchange rate changes on cash		(40,366	)		(77,557	)
Net increase in cash and cash equivalents		88,033			1,364,445
Cash and cash equivalents – beginning of period		5,993,388			9,686,698
Cash and cash equivalents – end of period	$	6,081,421		$	11,051,143
Supplemental cash flow information:
Cash paid for interest	$	112,487		$	152,949
Cash paid for income taxes	$	500		$	—
Supplemental schedule of non-cash activities:
Debt modification fee payable	$	50,185		$	—
Inventory transferred to assets deployed at client locations	$	29,849		$	26,056

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

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

~~Nature of operations.~~ We are an established global gaming company specializing in the design, development, ~~manufacturing,~~acquisition, assembly, marketing and ~~acquisition~~licensing of proprietary casino table games and associated technology, platforms and systems for the casino gaming industry. ~~We are a leading supplier of gaming entertainment products worldwide and provide a diverse offering of quality~~Casinos use our proprietary products and services ~~at competitive prices designed~~ to enhance ~~the player experience.~~

~~Restatement.~~ ~~The financial statements as of~~their gaming operations and ~~for the three~~improve their profitability, productivity and ~~nine months ended September 30, 2016 have been restated to correct the following errors noted during the preparation of the financial statements for the year ended December 31, 2016: (i)~~ ~~the amortization of original issue discount related to~~ ~~notes payable to Prime~~ Table Games LLC and Prime Table Games UK (the “PTG Notes”) was not previously deducted from taxable income in our federal tax returns from 2011 through 2015 or to derive the income tax provision for the three and nine months ended September 30, 2016, which resulted in an understatement of deferred tax assets and an overstatement of the income tax provision in those periods; and (ii) foreign currency exchange gains and losses related to the PTG Notes were incorrectly reported as other comprehensive income instead of earnings (~~i.e., non-operating income).~~ ~~The restatements to reflect the correction of both errors are referred to herein collectively as the "Restatement."~~

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

Three Months Ended
September 30, 2016

Nine Months Ended
September 30, 2016

Statements of Income

As originally
reported

Impact of
restatement

As restated

As originally
reported

Impact of
restatement

As restated

Selling, general and
   administrative

$
1,576,480

$
(22,924
)

$
1,553,556

$
4,850,785

$
(31,412
)

$
4,819,373

Provision for income taxes

(602,619
)

251,207

(351,412
)

(990,639
)

116,871

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

—

(5,926
)

(5,926
)

—

354,301

354,301

Loss on extinguishment of
   debt

(87,578
)

(427,459
)

(515,037
)

(87,578
)

(427,459
)

(515,037
)
Net income

820,972

(159,254
)

661,718

1,577,867

75,125

1,652,992

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

Statement of Cash Flow

As originally
reported

Impact of
restatement

As restated

  Net income

$
1,577,867

$
75,125

$
1,652,992

  Loss on extinguishment of debt

87,578

427,459

515,037

  Deferred income tax provision

54,370

(54,370
)

—

  Unrealized foreign exchange losses on cash and cash equivalents

—

31,886

31,886

  Increase in accounts receivable

(107,969
)

(705
)

(108,674
)
  Decrease in other current assets

43,017

(43,017
)

—

  Decrease in prepaid expenses and other current assets

6,608

2,314

8,922

  Decrease in accounts payable

(858,954
)

550

(858,404
)
  Increase in income taxes payable

936,269

(113,787
)

822,482

  Increase in accrued expenses

141,841

11,030

152,871

  Net cash provided by operating activities

3,321,274

336,485

3,657,759

  Principal payments on notes payable

(2,873,437
)

(336,485
)

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

(1,993,009
)

(336,485
)

(2,329,494
)

~~Resignation of Chairman, Chief Executive Officer (“CEO”) and President.~~ On July 24, 2017, Robert B. Saucier resigned from his positions as Chairman of the Board, CEO and President in order to aid us in our expanded regulatory jurisdictional ambitions. Concurrently with Mr. Saucier’s resignation, the Board of Directors (the “Board”) appointed Mr. Saucier to serve as Executive Vice President of Business Development and Chief Product Officer. In these new positions, he receives an annual salary of $225,000 and is eligible to receive performance-based bonuses and incentives,security, as well as ~~employee benefits~~to offer popular cutting-edge gaming entertainment content and technology to their players. We market our products and services to online casinos worldwide and to land-based casino gaming companies in North America, the Caribbean, Central America, the United Kingdom, Europe and Africa as well as to cruise ship companies. We license our products and services for use solely in legalized gaming markets. We also license our content and distribute content from other ~~perquisites. Mr. Saucier’s resignation was not~~companies to iGaming operators throughout the ~~result of any disagreements with the Company, and he remains a member of the Board.~~

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

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

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

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

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

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

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

~~The Recipients of the voting and dispositive control of the shares under the VDCTA Agreements are as follows:~~world.

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

~~Messrs. Lipparelli, Waters, DesRosiers and Zender are members of our Board. During the term of the VDCTA Agreements, Triangulum granted an irrevocable proxy to each of the Recipients to vote the~~Share Redemption. On May 6, 2019, we redeemed all 23,271,667 shares of our common stock ~~covered~~held by Triangulum Partners, LLC (“Triangulum”), an entity controlled by Robert B. Saucier, Galaxy Gaming's founder, and, prior to the ~~VDCTA Agreements,~~redemption, the holder of a majority of our outstanding common stock. Our Articles of Incorporation (the “Articles”) 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 is $39,096,401 (the “Redemption Consideration Obligation”). See Note 10.

There is ongoing litigation between the Company and ~~conveyed~~Triangulum related to ~~each Recipient~~ the ~~right to “Transfer”~~redemption and other matters. See Note 11.

Membership Interest Purchase Agreement. On August 21, 2020, the ~~shares, defined as a “sale, transfer, tender, assignment, encumbrance, gift, pledge, hedge, swap, or other disposition, directly or indirectly”~~Company completed the acquisition of 100% of the member interests in Progressive Games Partners LLC (“PGP”). The entirety of the purchase price ($10,414,528) and transaction-related costs ($127,586) were allocated to customer relationships and are included in Other intangible assets, net, on the Company’s balance sheet. The cash portion of the purchase price was $6,425,000, and the balance of the purchase price was satisfied through the issuance of 3,141,361 shares of the Company’s common stock with a value of $1.27 per share on the date of the acquisition. The shares issued are being held in escrow pending the performance of the assets acquired during the twelve months following the acquisition. See Note 7 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” of our Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 31, 2021 (the “2020 10-K”) for further details. The Company also acquired certain receivables and payables in the net amount of $581,885, which was to be remitted to the sellers of PGP as the receivables and payables were settled. As of March 31, 2021, the remaining balance owed to the sellers was $55,186.

Management determined that, for accounting purposes, the PGP transaction did not meet the definition of a business combination and, therefore, was 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 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.

Given the uncertainties around casino re-openings, we instituted a phased billing approach for our clients through fiscal year 2020, which resulted 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 will be paid timely for revenues earned prior to the shutdowns. Finally, the Company was notified by some of the land-based casinos that they would be extending their payment terms.

We also rely on third-party suppliers and manufacturers in China, many of whom were shut down or severely cut back production during some portion of 2020. Although this has not had a material effect on our supply chain, any ~~right or interest therein.~~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. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Federal Reserve created the Main Street Priority Loan Program (“MSPLP”) to provide financing for small and medium-sized businesses. On October 26, 2020, the Company borrowed $4,000,000 from Zions Bancorporation N.A., dba Nevada State Bank under this program. See Note 10.

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 have been reflected herein.~~ misleading)~~As permitted by~~ and all disclosures to present fairly our financial position and the ~~rules~~results of our operations and ~~regulations of~~cash flows for the ~~SEC, certain information~~periods presented.

These unaudited interim condensed financial statements should be read in conjunction with the financial statements and ~~footnote disclosures normally~~the related notes thereto included in ~~financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.~~ our 2020 10-K.

The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

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

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

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

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

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

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

~~Recently adopted accounting standards~~Cash and cash equivalents. We consider cash on hand and cash in banks as cash. We consider certificates of deposit and other short-term securities with maturities of three months or less when purchased as cash equivalents. Our cash in bank balances are deposited in insured banking institutions, which are insured up to $250,000 per account. To date, we have not experienced uninsured losses, and we believe the risk of future loss is negligible.

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

Inventory. ~~In July 2015,~~Inventory consists of ancillary products such as signs, layouts and bases for the ~~FASB issued ASU No. 2015-11,~~various games and electronic devices and components to support all our ~~Inventory: Simplifying the Measurement of Inventory.~~electronic enhancements used on casino table games (“Enhanced Table Systems”), and we maintain inventory levels based on historical and industry trends. We regularly assess inventory quantities for excess and obsolescence primarily based on forecasted product demand. Inventory is ~~now required to be measured~~valued at the lower of ~~cost or~~ net realizable value ~~while~~or cost, which is determined by the ~~concept~~average cost method.

Assets deployed at client locations, net. Our Enhanced Table Systems are assembled by us and accounted for as inventory until deployed at our casino clients’ premises (Note 6). Once deployed and placed into service at client locations, the assets are transferred from inventory and reported as assets deployed at client locations. These assets are stated at cost, net of ~~market~~accumulated depreciation. Depreciation on assets deployed at client locations is calculated using the straight-line method over a three-year period.

Property and equipment, net. Property and equipment are being depreciated over their estimated useful lives (three to five years) using the straight-line method of depreciation (Note 5). Property and equipment are analyzed for potential impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds their fair value.

Goodwill. Goodwill (Note 7) is assessed for impairment at least annually or at other times during the year if events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting asset is below the carrying amount. If found to be impaired, the carrying amount will be ~~eliminated.~~ reduced, and an impairment loss will be recognized. The ~~ASU~~Company performed a qualitative evaluation of goodwill impairment at March 31, 2021 and determined it was not necessary to perform a quantitative assessment As a result, no impairment was recorded in the period ended March 31, 2021.

Other intangible assets, net. The following intangible assets have finite lives and are being amortized using the straight-line method over their estimated economic lives as follows:

Other intangible assets (Note 7) are analyzed for potential impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds the fair value, which is the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the intangible assets. No impairment was recorded for the three months ended March 31, 2021.

Interest rates swap agreement. The Company has entered into an interest rate swap agreement to reduce the impact of changes in interest rates on its floating rate long-term debt. The interest rate swap agreement matures May 1, 2021. The interest rate swap has not been designated a hedging instrument and is adjusted to fair value through earnings in the Company’s statements of operations.

Fair value of financial instruments. We estimate fair value for financial assets and liabilities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines ~~net realizable~~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 ~~selling process~~fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature. The estimated fair value of our long-term debt approximates its carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk. As of March 31, 2021, 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.

Leases. We account for lease components (such as rent payments) separately from non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). Operating and finance leases with terms greater than 12 months are recorded on the balance sheet as right-of-use assets with corresponding lease liabilities. Lease expense is recognized on a straight-line basis using the discount rate implicit in each lease or our incremental borrowing rate at lease commencement date (Note 9).

Revenue recognition. We account for our revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. See Note 3.

Costs of ancillary products and assembled components. Ancillary products include pay tables (display of payouts), bases, layouts, signage and other items as they relate to support of specific proprietary games in connection with the licensing of our games. Assembled components represent the cost of the equipment, devices and incorporated software used to support our Enhanced Table Systems.

Research and development. We incur research and development (“R&D”) costs to develop our new and next-generation products. Our products reach commercial feasibility shortly before the products are released, and therefore R&D costs are expensed as incurred. Employee-related costs associated with product development are included in R&D costs.

Foreign currency translation. The functional currency for PGP is the Euro. Gains and losses from settlement of transactions involving foreign currency amounts are included in other income or expense in the ~~ordinary course~~consolidated statements of operations. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in accumulated other comprehensive income or (loss) in the consolidated statements of changes in stockholders’ deficit.

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

Segmented Information. We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We currently operate our business ~~less reasonably predictable costs~~as one operating segment which generates revenue from the licensing of ~~completion, disposal~~intellectual property.

Share-based compensation. We recognize compensation expense for all restricted stock and ~~transportation.~~stock option awards made to employees, directors and independent contractors. The fair value of restricted stock is measured using the grant date trading price of our stock.The fair value of stock option awards (Note 13) is estimated at the grant date using the Black-Scholes option-pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. We have elected to recognize compensation expense for all options with graded vesting on a straight-line basis over the vesting period of the entire option. The determination of fair value using the Black-Scholes pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors. We estimate volatility based on historical volatility of our common stock, and estimate the expected term based on several criteria, including the vesting period of the grant and the term of the award. We estimate employee stock option exercise behavior based on actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options.

Other significant accounting policies. See Note 2 in Item 8 “Financial Statements and Supplementary Financial Information” included in our 2020 10-K.

Recently adopted accounting standards. Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued Accounting Standard Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. ASU ~~2015-11~~2019-12 is effective for the fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We have adopted the new standard effective January 1, ~~2017 using the required prospective~~2021, and its adoption ~~approach, which did not have~~ ~~a material effect on our financial condition, results of operations or cash flows.~~

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

~~Revenue Recognition.~~ adopted. Financial Instruments – Credit Losses. In ~~May 2014,~~February 2020, the FASB issued ASU No. ~~2014-09~~2020-02, Financial Instruments – Credit Losses (Topic ~~606),~~ 326).~~Revenue from Contracts with Customers, which is a comprehensive new revenue recognition standard that will supersede virtually all existing revenue~~ ASU 2020-02 provides updated guidance ~~including industry-specific guidance. Under the new standard, revenue will be recognized when control of the promised goods or services is transferred to customers in~~on how an ~~amount that reflects the consideration to which we expect to be entitled in exchange for those goods~~entity should measure credit losses on financial instruments and services. The standard creates a five-step model that will generally require companies to use more judgment and make more estimates than under current guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer.

~~In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers~~delayed the effective date of ~~ASU 2014-09 by one year to now be effective~~Topic 326 for ~~fiscal years, and interim~~smaller reporting periods within those years, beginning after December 15, 2017. Early adoption of the standard is permitted but not before the original effective date of December 15, 2016. The ASU may be adopted using a full retrospective approach or a modified retrospective approach (reporting the cumulative effect as of the date of adoption.

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

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

~~Leases.~~ ~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842).~~ The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases being recognized on our balance sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective forcompanies until fiscal years beginning after December 15, ~~2018 and interim periods within those fiscal years with earlier~~2022. Early adoption is permitted. We ~~are currently evaluating the impact of adopting this guidance.~~

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

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

The following table disaggregates our revenue by eliminating Step 2 of the test. This guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment chargegeographic location for the ~~amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019~~following periods:

Contract liabilities. Amounts billed and ~~interim periods within those fiscal years,~~cash received in advance of performance obligations fulfilled are recorded as contract liabilities and ~~should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We~~recognized as performance obligations are ~~currently evaluating the impact of adopting this guidance.~~fulfilled.

Contract Assets. The Company’s contract assets consist solely of unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables totaled $545,928 and $502,860 for the periods ended March 31, 2021 and December 31, 2020 and are included in the accounts receivable balance in the accompanying balance sheets.

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

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

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, depreciation expense related to property and equipment ~~of $115,117~~was $23,456 and ~~$97,326, respectively, is included in depreciation and amortization expense.~~

~~Accumulated depreciation of leasehold improvements totaled $105,322 and $82,183 as of September 30, 2017 and December 31, 2016,~~$22,994, respectively.

NOTE 6. ~~PRODUCTS LEASED AND HELD FOR LEASE~~ASSETS DEPLOYED AT CLIENT LOCATIONS

Assets deployed at client locations, net, consisted of the following ~~at September 30, 2017 and December 31, 2016:~~at:

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, depreciation expense related to ~~products leased~~assets deployed at client locations was $44,626 and ~~held for lease of $84,674 and $38,595, respectively, is included in depreciation and amortization expense.~~$64,312, respectively.

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

Other intangible assets, net. Other intangible assets, net consisted of the following ~~at September 30, 2017 and December 31, 2016:~~

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

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

For the three months ended March 31, 2021 and 2020, amortization expense related to other intangible assets was $649,171 and $382,499, respectively.

Accrued expenses consisted of the following ~~at September 30, 2017 and December 31, 2016:~~at:

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). The discount rate represents the interest rate implicit in each lease or our incremental borrowing rate at lease commencement date.

As of March 31, 2021, our leases have remaining lease terms ranging from three months to 69 months.

As of March 31, 2021, future maturities of our operating lease liabilities are as follows:

Share Redemption Consideration Obligation.On May 6, 2019, we issued a promissory note in the face amount of $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. Because Triangulum disputes the promissory note issued by the Company and its terms, 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, 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 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 Consideration Obligation, and we paid the first annual payment on May 5, 2020, in the amount of $781,928, which was accepted by Triangulum. The Redemption Consideration Obligation is unsecured and is subordinated to our existing and future indebtedness. Interest payments were made to Triangulum, in a timely fashion in May of 2020 and May of 2021.

Nevada State Bank (“NSB”) Credit Agreement. The Company is party to a Credit Agreement with Zions Bancorporation, N.A. dba Nevada State Bank (as amended, the “Credit Agreement”). The Credit Agreement provides for a Term Loan 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 March 31, 2021, the principal amount outstanding under the Term Loan component of the Credit Agreement was $7,022,300, bringing the total amount outstanding under the Credit Agreement at March 31, 2021, to $8,022,300.

On March 29, 2021, the Company entered into an amended and restated credit agreement with Zions Bancorporation, N.A. dba Nevada State Bank (“the A&R Credit Agreement”). The A&R Credit Agreement replaced the original Credit Agreement entered into by the Company with Zions Bancorporation, N.A. dba Nevada State Bank on April 24, 2018 and last modified on November 16, 2020. The A&R Credit Agreement provides for a Term Loan in the amount of $7,022,300 and a Revolving Loan in the amount of $1,000,000. If not paid earlier, amounts outstanding under the Revolving Loan mature on April 24, 2022, and amounts outstanding under the Term Loan mature on April 24, 2023.

Under the ~~terms~~A&R Credit Agreement, outstanding balances accrue interest based on one-month U.S. dollar London interbank offered rate (“LIBOR”) plus an applicable margin of ~~a five-year licensing agreement (the “TMAX Agreement”) with TableMAX Corporation (“TMAX”)~~3.50% or 4.00%, a provider of electronic table games and platforms headquartered in Las Vegas, Nevada, we previously had exclusive worldwide rights (excluding one international territory and two U.S. states) to the TMAX electronic gaming platform and certain related game titles. Pursuant to the terms of the TMAX Agreement, the licensee fee payable to TMAX is dependent upondepending on our ~~generating profitable operating results specifically from the use of TMAX products. To the extent there are net profits~~Total Leverage Ratio (as defined in the ~~TMAX~~A&R Credit Agreement),. Effective December 31, 2021, LIBOR will no longer serve as a ~~percentage~~reference rate for bank loans, among other investment classes. The A&R Credit Agreement stipulates that a substitute index rate will be selected and used in lieu of ~~such net profits is payable to TMAX depending on~~LIBOR.

The A&R Credit Agreement contains affirmative and negative financial covenants (as defined in the ~~number~~A&R Credit Agreement) and other restrictions customary for borrowings of ~~TMAX product installations. The TMAX Agreement expired during 2016, and~~this nature. In particular, we are ~~currently negotiating~~required to maintain (i) a quarterly minimum Fixed Charge Coverage ratio of 1.25x; (ii) a quarterly maximum Total Leverage ratio of 22.50x for the ~~licensing fee that~~quarter ending March 31, 2021, 10.00x for quarter ending June 30, 2021, 6.50x for the quarter ending September 30, 2021 with semi-annual step-downs of 0.25x commencing December 31, 2021 and quarterly thereafter; (iii) a quarterly maximum Senior Leverage ratio of 5.25x for the quarter ending March 31, 2021, 2.50x for the quarter ending June 30, 2021 and 2.00x quarterly thereafter; (iv) a quarterly Minimum EBITDA covenant of $2.4 million for each of the quarters ending March 31, 2021, June 30, 2021 and September 30, 2021 and $8.0 million quarterly thereafter; (v) a quarterly Minimum Liquidity covenant requiring the Company to 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 quarterly thereafter; and (vi) a yearly maximum Maintenance Capital Expenditure covenant of 5% of total revenues for the prior year. The Company was in compliance with its affirmative and negative financial covenants as of March 31, 2021.

The obligations under the A&R Credit Agreement are secured by substantially all of the assets of the Company. The Company’s wholly owned subsidiary, PGP is ~~payable to TMAX.~~also a guarantor of the A&R Credit Agreement and related agreements.

Main Street Priority Loan Borrowings (“MSPLP”). On October 26, 2020, the Company obtained an unsecured loan of $4,000,000 through Zions Bancorporation, N.A. dba Nevada State Bank under section 13(3) of the Federal Reserve Act.

~~Capital lease obligations consisted~~The MSPLP bears interest at a rate of three-month U.S. dollar LIBOR plus 300 basis points (initially 3.215%), and interest payments during the first year will deferred and added to the loan balance. The MSPLP has a five-year final maturity, with 15% of principal amortizing in each of years three and four. The MSPLP, plus accrued and unpaid interest, may be prepaid at any time at par. While the MSPLP is outstanding, and for one year after it is repaid in full, the Company may not 1) repurchase stock, pay dividends or make other distributions, or 2) pay compensation to executive officers that exceeds the total compensation they received in 2019. The entire outstanding principal balance of the ~~following at September 30, 2017~~MSPLP, together with all accrued and ~~December 31, 2016:~~unpaid interest, is due and payable in full on October 26, 2025. The terms of the MSPLP provide for customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, breaches of representations and covenants, and the occurrence of certain events. The MSPLP is secured by a security interest in the assets of the Company, which security interest is pari passu with the security interest granted under the Credit Agreement.

~~For the years ending September 30,~~As of March 31, 2021, future ~~annual payments for capital leases obligations~~maturities of our long-term liabilities are as follows:

~~Long-term debt consisted of the following at September 30, 2017 and December 31, 2016:~~

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

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

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

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

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

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

~~As of September 30, 2017, maturities of our long-term debt obligations are as follows:~~

Concentration of risk.We are exposed to risks associated with ~~a client~~clients who represent a significant portion of total revenues. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively, we had the following client revenue ~~concentration:~~concentrations:

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

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

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

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

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

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

Legal proceedings. In the ordinary course of conducting our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff or defendant, that are complex in nature and have outcomes that are difficult to predict. ~~We record accruals for such contingencies~~

As discussed in Note 1, we redeemed the shares of our common stock held by Triangulum, an entity controlled by Robert B. Saucier, the Company’s founder, and, prior to the ~~extent we conclude~~redemption, the holder of a majority of our outstanding common stock.

On May 6, 2019, the Company redeemed the shares of our common stock held by Triangulum. Also on May 6, 2019, the Company filed a lawsuit seeking: (i) a declaratory judgment that it ~~is probable~~acted lawfully and in full compliance with the Articles when it 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 ~~a liability will be incurred~~the redemption and the other relief sought by the Company are appropriate and in accordance with the Articles.

The defendants to the Triangulum Lawsuit responded to the complaint, and Triangulum filed counterclaims. Triangulum also filed a Motion seeking a mandatory injunction requiring the Company to either reissue shares to Triangulum or reissue shares to be held in a constructive trust for Triangulum (the “Injunction Motion”). On July 11, 2019, the Nevada district court denied Triangulum’s Injunction Motion, finding, among other things, that the business judgment rule applies to the Board’s redemption decisions and the decisions were in the Company’s best interests. On September 6, 2019, Triangulum appealed the denial of the Injunction Motion to the Nevada Supreme Court. The Company submitted its brief in opposition, and Triangulum filed its reply brief. Recently, on January 13, 2021, the Nevada Supreme Court heard oral argument on Triangulum’s appeal. On March 26, 2021, the Nevada Supreme Court affirmed the ruling of the District Court denying Triangulum’s Injunction Motion, the effect of which is to preclude the re-issuance of any shares of Galaxy stock to Triangulum.

On October 18, 2019, Saucier filed counterclaims against the Company and its Chairman of the Board, Mark Lipparelli, including a breach of contract claim alleging that the Company was obligated to pay Saucier his year-end bonus despite his resignation. The Company and Chairman Lipparelli filed an answer to the counterclaims.

Subsequent to its original counterclaims, Triangulum filed amended counterclaims, which the Company and its Directors moved to dismiss on a number of legal grounds (the “Motion to Dismiss”). The Court denied the Motion to Dismiss. The Company and its Directors filed a writ petition challenging the ruling, which the Nevada Supreme Court denied on January 23, 2020.

On May 6, 2020, Saucier made a demand of the Company under our Bylaws and an Indemnification Agreement between Saucier and the Company, for indemnity and advancement of funds seeking repayment of his attorneys’ 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 “Advancement Lawsuit”). 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 Nevada district court’s decision in the Advancement Lawsuit to the Nevada Supreme Court on August 10, 2020. Saucier subsequently moved for attorneys' fees related ~~loss can~~to the filing of the Advancement Lawsuit, which the Nevada district court granted, and the Company filed a notice of appeal to the Nevada Supreme Court. The Company filed its opening appeal brief. When Saucier filed a supplemental motion for attorneys’ fees, the Nevada district court denied his motion, finding the fees incurred to be unreasonable, among other things. Saucier also appealed this ruling of the Nevada district court.

On July 22, 2020, in the Triangulum Lawsuit, the Company and its Directors filed a special motion to dismiss most of Triangulum and Saucier’s counterclaims under Nevada anti-SLAPP statute (Strategic Lawsuit Against Public Participation) because Triangulum and Saucier seek to impose liability on the Company and its Directors based upon their privileged communications with regulators. The Nevada district court denied the motion, and the Company and its Directors appealed the order to the Nevada Supreme Court. Discovery in the Triangulum Lawsuit is stayed pending the outcome of this appeal.

~~reasonably estimated. Our assessment~~The appeals to the Nevada Supreme Court by both Saucier and the Company in the Triangulum Lawsuit and the Advancement Lawsuit were referred to the Nevada Supreme Court’s mandatory Settlement Program. A consolidated settlement conference occurred on November 16, 2020, with no resolution of ~~each~~any of the issues on appeal or the lawsuit. The Nevada Supreme Court subsequently issued briefing schedules on the three appeals.

On November 24, 2020, Triangulum filed a Motion for Partial Summary Judgment in the Triangulum Lawsuit in the Nevada district court, seeking a ruling that the Company violated Nevada law and its Articles by issuing a promissory note as consideration for the redeemed shares and that the redemption was ineffective as a matter ~~may change based~~of law (the “Triangulum MPSJ”). The Company opposed Triangulum’s MPSJ and filed its own Countermotion for Summary Judgment (the “CMSJ”), seeking a ruling that as a matter of law the business judgement rule applies and prohibits any judicial review of the Board’s decisions related to the redemption. During the January 20, 2021 hearing on ~~future unexpected events.~~ both motions, the Nevada district court denied Triangulum’s MPSJ, finding that Nevada statutes allow for the payment of redemption consideration in the form of a promissory note and that the Company’s decisions to redeem and to issue a promissory note as consideration for the redemption are subject to the business judgment rule. The court further found again that the redeemed shares have been actually cancelled and cannot be placed in a constructive trust. The court also denied the Company’s CMSJ, without prejudice for the Company to refile after further discovery. On April 23, 2021, Triangulum appealed the District court’s denial of its MPSJ.

On December 18, 2020 Saucier filed a separate lawsuit in Nevada district court (which was served on January 21, 2021), alleging breach of contract related to his demand for indemnity from the Company (the “Indemnity Lawsuit”). Similar to the Company’s position in the Advancement Lawsuit discussed above, the Company denies that he is entitled to indemnity and moved to dismiss the action on February 16, 2021. The Company filed a Motion to Reassign the case to the Judge presiding over the Triangulum Lawsuit and the Advancement Lawsuit. On February 18, 2021, the Company’s Motion to Reassign was granted. On February 16, 2021, the Company filed a Motion to Dismiss the Indemnity Lawsuit. The Company’s Motion to Dismiss was denied on April 19, 2021. The Company will respond in a timely manner.

As mentioned above, discovery in the Triangulum Lawsuit has been stayed as a result of the Company’s appeal of the Anti-SLAPP motion decision to the Nevada Supreme Court. As such, the previously set April 2021 trial date cannot proceed until the discovery stay is lifted and after additional discovery proceeds.

In September 2018, we were served with a complaint by TableMax Corporation (“TMAX”) regarding an Operation and License Agreement executed between TMax and Galaxy in February 2011 (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 filed a Motion To Enforce Settlement Or, In The Alternative, Motion To Dismiss And/Or For Summary Judgement and Request For Sanctions, on April 30, 2021.

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~~period and accordingly, no ~~obligation~~provision for loss has been reflected in the accompanying financial statements related to update the status of pending litigation, except as may be required by U.S. GAAP, applicable law, statue or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12 in Item 8. “Financial Statements and Supplementary Data” included in our 2016 10-K.

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

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

Our forecasted annual effective tax rate (“AETR”) at ~~September 30, 2017~~March 31, 2021 was ~~56.6%~~12.92%, as compared to ~~34.2%~~23.57% at ~~September 30, 2016.~~ March 31, 2020. This decrease was primarily due to excess tax benefits from stock-based compensation, utilization of tax credits, foreign rate differential, Subpart F inclusion and a change in valuation allowance as a result of changes in estimates of current-year ordinary income considered in determining the forecasted AETR.

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, our effective tax rate (“ETR”) was ~~51.4%~~(27.15%) and ~~34.3%~~23.57%, respectively. The ~~increase~~decrease in the ~~effective tax rate was primarily due to the permanent book-to-tax difference generated by changes in the estimated fair value of the warrant liability as of and~~ETR for the ~~nine~~three months ended ~~September 30, 2017.~~

March 31, 2021 is a result of favorable discrete items related to excess tax benefits from stock-based compensation that resulted in an income tax benefit that exceeded pre-tax book income for the quarter.

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 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 March 31, 2021, a total of 6,550,750 shares of our common stock were authorized for issuance. As of March 31, 2021, 48,367 shares remained available for issuance as new awards under the 2014 Plan.

During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, we issued ~~1,390,000~~30,000 and ~~427,500~~225,000 options to purchase our common stock, respectively, to members of our Board, ~~independent contractors,~~ executive officers, employees and ~~employees.~~

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

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

independent contractors. The fair value of all stock options granted for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 was determined to be ~~$652,895~~$38,012 and ~~$96,137,~~$255,017, respectively, using the Black-Scholes option pricing model with the following assumptions:

Common stock options

Weighted-
average
exercise price

Aggregate
intrinsic
value

Weighted-average
remaining contractual
term (years)

Outstanding – December 31, 2016

1,496,250

$
0.32

$
385,017

3.57

Issued

1,390,000

0.71

—

—

Exercised

(150,000
)

0.23

—

—

Expired

—

—

—

—

Outstanding – September 30, 2017

2,736,250

$
0.52

$
1,767,429

3.87

Exercisable – September 30, 2017

1,822,359

$
0.46

$
1,289,100

3.53

	Common Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value			Weighted- Average Remaining Contractual Term (Years)
Outstanding – December 31, 2020		2,982,000		$	1.08	$	2,101,780			2.35
Issued		30,000			2.25		—			—
Exercised		(50,000	)		0.22		(130,188	)		—
Forfeited		(41,666	)		1.04		—			—
Outstanding – March 31, 2021		2,920,334		$	1.10	$	5,249,621			2.17
Exercisable – March 31, 2021		2,087,001		$	0.90	$	4,163,613			1.56

Common stock
options

Weighted-average
exercise price

Aggregate
intrinsic
value

Weighted-average
remaining contractual
term (years)

Unvested – December 31, 2016

128,889

$
0.34

$
30,933

3.99

Granted

1,390,000

0.71

—

—

Vested

(604,998
)

0.73

—

—

Forfeited or expired

—

—

—

—

Unvested – September 30, 2017

913,891

$
0.65

$
478,329

4.54

	Common Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Term (Years)
Unvested – December 31, 2020		845,000		$	1.55	$	197,608		3.83
Granted		30,000			2.25		—		—
Vested		—			—		—		—
Forfeited		(41,666	)		1.04		—		—
Unvested – March 31, 2021		833,334		$	1.60	$	1,086,009		3.71

As of ~~September 30, 2017,~~March 31, 2021, our unrecognized ~~stock-based~~share-based compensation expense associated with the stock options issued was ~~$333,888,~~$549,503, which will be amortized over a weighted-average of ~~1.96~~1.93 years.

During the three months ended ~~On August 29, 2016, in connection with the Term Loan Agreement,~~March 31, 2021, we issued ~~the lenders the Warrants to purchase 1,965,780~~an aggregate of 55,000 restricted shares of our common stock valued at ~~an initial exercise price~~$159,500 to our Board members in consideration of ~~$0.30 per share. The number of~~their service on the Board. These shares ~~of common stock issuable upon exercise of~~vested immediately on the Warrants, and/or the exercise price of such shares, is subject to standard anti-dilution adjustments in the event of stock splits, reorganizations, stock dividends, and similar events. As of the date of the Warrant Agreement, the shares of common stock issuable upon a full exercise of the Warrants represented 5.0% of the total issued and outstandinggrant date. An additional 80,000 restricted shares of our common ~~stock. The lenders~~stock valued at $181,600 were ~~also granted the right, but not the obligation,~~issued to ~~purchase up to 5.0%~~an employee of the ~~total number~~Company on February 17, 2021. These shares were granted in consideration of ~~new securities that we may, from time to time, sell and issue.~~

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

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

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 capital lease obligations approximates their carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk.November 12, 2021. As of ~~September 30, 2017,~~March 31, 2021, there were 2,236,133 restricted shares outstanding. Of the ~~Warrants~~restricted shares outstanding, 260,000 restricted shares were~~the only financial instrument measured at estimated fair value on a recurring basis based on level 2 inputs.~~ unvested.

~~We evaluated subsequent events through~~On May 13, 2021, the ~~date~~Company and NSB entered into a Forbearance to the A&R Credit Agreement, in which NSB agreed to forbear from exercising any of ~~issuance~~its rights or remedies that would result from potential breaches of the Minimum EBITDA and Total Leverage covenants for the quarters ending June 30, 2021 and September 30, 2021.

Galaxy made a share redemption consideration payment to Triangulum, in connection with the Redemption Consideration Obligation, in a timely fashion in May 2021.

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

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

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

~~The following~~March 31, 2021 and 2020. This discussion ~~of the financial condition and results of operations of the Company~~ should be read ~~in conjunction~~together with ~~the condensed~~our audited consolidated financial statements and ~~the~~ related notes ~~thereto~~ included ~~elsewhere~~ in ~~this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning~~Item 8 Financial Statements and Supplementary Financial Information included in our 2020 10-K. Some of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Such forward-looking statements speak only as of the date of this report; we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report, as well as the disclosures made in the Galaxy Gaming, Inc. Annual Report on Form 10-K for the year ended December 31, 2016 filed on April 14, 2017 (the “2016 10-K”), and other filings we make with the Securities and Exchange Commission, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, operating results, financial condition and stock price.

~~Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements~~information contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance. We disclaim any obligation to updatediscussion includes forward-looking statements ~~contained~~that involve risks and uncertainties; therefore our “Special Note Regarding Forward-Looking Statements” should be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described in, ~~this Quarterly Report.~~or implied by, such forward-looking statements.

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

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

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

Results of operations for the three months ended ~~September 30, 2017.~~March 31, 2021 and 2020. For the three months ended ~~September 30, 2017, our continuing operations~~March 31, 2021, we generated gross revenues of ~~$3,830,420~~$4,282,901 compared to ~~gross revenues of $3,191,969~~$4,494,318 for the comparable prior-year period, representing a decrease of $211,417, or 4.7%. This decrease was attributable to the continuing impact of the COVID-19 crisis, as some of our land-based casino customers remained closed during the first quarter, and those that were open had reduced capacity or realized reduced visitation which, in turn, resulted in us realizing no revenue from those that were closed and reduced revenue from those that were open. The decrease in our land-based revenue was offset by an increase ~~of 638,451, or 20.0%. This increase was primarily attributable to~~in our ~~focus on Premium Games such as~~ online gaming revenues.~~High Card Flush, Heads Up Hold ’em~~ ~~and~~ ~~Player’s Edge, which command a higher price point per unit, and the improved performance of side bet games such as~~ ~~21+3~~ ~~and~~ ~~Bonus Craps~~.

Selling, general and administrative expenses for the three months ended ~~September 30, 2017~~March 31, 2021 were ~~$2,362,601~~$2,711,052 compared to ~~$1,553,556~~$2,992,052 for the comparable ~~prior~~prior-year period,, representing ~~an increase~~a decrease of ~~$809,045,~~$281,000, or ~~52.1%~~9.4%. ~~Significant quarter-over-quarter changes in selling, general and administrative expenses consisted of the following categories:~~

~~Employee compensation and related expenses increased as a result of our investments in personnel as we continue to grow and attract new talent, as well as higher sales commissions~~This decrease was primarily due to ~~increased revenues~~a decrease in ~~2017. Professional~~compensation-related expenses and ~~compliance fees have increased due~~travel and entertainment expenses directly related to ~~on-going regulatory applications~~the COVID-19 crisis. In 2021, the Company incurred $249,436 in ~~various jurisdictions.~~legal expenses associated with the Triangulum Lawsuit.

Research and development expenses for the three months ended ~~September 30, 2017~~March 31, 2021 were ~~$139,185,~~$118,701, compared to ~~$89,513~~$155,653 for the comparable prior-year period, representing a decrease of $36,952, or 23.7%. This decrease was primarily due to a decrease in compensation-related expenses directly related to the COVID-19 crisis. Also, consulting expenses decreased due to the Company no longer using certain third-party research and development firms.

Share-based compensation expenses for the three months ended March 31, 2021 were $316,640, as compared to $157,596 for the comparable prior-year period, representing an increase of ~~$49,672,~~$159,044, or ~~55.5%~~100.9%. This increase was ~~primarily~~ due to ~~increased costs associated with testing~~the quarterly restricted shares granted to our ~~products currently~~Board members being issued at a higher stock price than the comparable prior-year period. The increase was also due to restricted shares being issued to two employees and a contractor of the Company in ~~development.~~November 2020 and February 2021.

~~Stock-based compensation expenses~~As a result of the changes described above, income from operations decreased $292,450 or 41.9% to $404,950 for the three months ended ~~September 30, 2017 were $384,925, as~~March 31, 2021, compared to ~~$41,075~~income of $697,400 for the comparable prior-year ~~period, representing an increase of $343,850,~~period.

Total interest expense increased $13,239, or ~~837.1%. The increase was primarily due~~7.9%, to ~~stock options and restricted shares of common stock issued in 2017 to executive officers, board members and independent contractors.~~

~~Income from operations decreased $608,312 or 57.3% to $453,210~~$180,910 for the three months ended ~~September 30, 2017,~~March 31, 2021, compared to ~~$1,061,522 for the comparable prior-year period. This decrease was primarily attributable to higher selling, general and administrative and share-based compensation expenses.~~

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

~~Total interest expense increased $204,834, or 90.0%, to $432,466 for the three months ended September 30, 2017, compared to $227,632~~$167,671 for the comparable prior-year period. The increase was mainly attributable to interest being accrued on the MSPLP.

Share redemption consideration was $195,482 in ~~interest expense was primarily due~~2021 compared to $195,482 in 2020. The share redemption consideration is related to the ~~Term Loan refinance transaction completed in August 2016.~~Triangulum Redemption Consideration Obligation.

Income tax benefit was ($18,950) for the three months ended ~~September 30, 2016, we repaid in full~~March 31, 2021, compared to income tax provision of $35,962 for the ~~PTG Notes and wrote off the~~comparable prior-year period. The change is primarily a result of favorable discrete items related ~~unamortized debt discounts, which resulted in a~~to excess tax benefits from stock-based compensation.

Adjusted EBITDA.Adjusted EBITDA includes adjustments to net income to exclude interest, income taxes, depreciation, amortization, share based compensation, foreign currency exchange loss, ~~of extinguishment of debt of $515,037.~~

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

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

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

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

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

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

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

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

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

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

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

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

~~Adjusted EBITDA.Adjusted EBITDA includes adjustment to net income to exclude interest, taxes, depreciation, amortization, share based compensation, loss~~litigation ~~on extinguishment of debt, foreign currency exchange gains, change in estimated fair value of warrant liability, and~~ s~~ettlement income.~~. Adjusted EBITDA is not a measure of performance defined in accordance with ~~U.S.~~ generally accepted accounting principles ("in the United States of America (“U.S. ~~GAAP"~~GAAP”). However, Adjusted EBITDA is used by management to evaluate our operating performance. Management believes that disclosure of the Adjusted EBITDA metric offers investors, regulators and other stakeholders a view of our operations in the same manner management evaluates our performance. When combined with U.S. GAAP results, management believes Adjusted EBITDA provides a comprehensive understanding of our financial results. Adjusted EBITDA should not be considered as an alternative to net income or to net cash provided by operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating our performance. A reconciliation of U.S. GAAP net income ~~from operations~~ to Adjusted EBITDA is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Adjusted EBITDA Reconciliation:

2017

2016

2017

2016

(Restated)

(Restated)

Net (loss) income

$
(27,930
)

$
661,718

$
54,578

$
1,652,992

Interest income

—

(56
)

—

(202
)
Interest expense

432,466

227,632

1,316,045

741,045

Income tax provision

21,990

351,412

86,881

873,768

Depreciation and amortization

440,130

419,540

1,323,772

1,252,860

Loss on extinguishment of debt

—

515,037

—

515,037

Share based compensation expense

384,925

41,075

553,313

91,006

Foreign currency exchange gains

(59,624
)

5,926

(125,576
)

(354,301
)
Change in estimated fair value of warrant liability

86,308

(2,933
)

409,717

(2,933
)
Settlement income

—

(697,214
)

—

(697,214
)
Adjusted EBITDA

$
1,278,265

$
1,522,137

$
3,618,730

$
4,072,058

	Three Months Ended March 31,
Adjusted EBITDA Reconciliation:	2021			2020
Net income	$	88,737		$	116,605
Interest expense		180,910			167,671
Share redemption consideration		195,482			195,482
Interest income		(382	)		(21,774	)
Depreciation and amortization		717,254			469,805
Share-based compensation		316,640			157,596
Foreign currency exchange loss		8,975			127,291
Change in estimated fair value of interest rate swap liability		(49,822	)		76,163
(Benefit) provision for income taxes		(18,950	)		35,962
Severance expense		3,750			2,500
Special project expense⁽¹⁾		249,436			173,271
Adjusted EBITDA	$	1,692,030		$	1,500,572

Liquidity and capital resources.We have generally been able to fund our continuing operations, our investments, and the obligations under our existing borrowings through cash flow from operations. In 2020, as a result of COVID, we were required to raise funds from financing sources in order to maintain operations. In addition to our normal operations, we may make acquisitions of products, technologies or entire businesses. Our ability to access capital for operations or for acquisitions will depend on conditions in the capital markets and investors’ perceptions of our business prospects and such conditions and perceptions may not always favor us.

As of ~~September 30, 2017,~~March 31, 2021, we had total current assets of ~~$6,483,723~~$12,621,385 and total assets of ~~$19,292,441.~~$31,115,133. This compares to ~~$5,148,435~~$11,562,833 and ~~$19,011,945,~~$30,574,594, respectively, as of December 31, ~~2016.~~2020. The increase in current assets and total assets as of ~~September 30, 2017~~March 31, 2021 was primarily ~~impacted by~~due to an increase in ~~cash and cash equivalents and~~the accounts receivable. Cash increased significantly due to reduced principal payments on the Term Loan as compared to the PTG Notes, partially offset by cash used to pay off the Related Party Note Payable in August 2017. receivable balance.

Our total current liabilities as of ~~September 30, 2017 were $5,026,550 and $4,708,685~~March 31, 2021 increased to $4,847,115 from $4,247,794 as of December 31, ~~2016. This increase was~~2020, primarily ~~driven by~~due to the Company accruing for 2021 employee bonuses and an increase in accrued ~~expenses (primarily due to~~royalties in our online gaming business.

Despite the ~~increase in TableMAX license fee accrual and payroll and related accruals). Our~~COVID-19 crisis, our business ~~model continues to be highly~~was profitable and cash-flow positive in Q1 2021. Based on our current forecast of operations, we believe we will have ~~several options~~sufficient liquidity to ~~ensure we are able~~fund our operations and to meet the obligations under our ~~short-term and long-term obligations.~~financing arrangements as the come due.

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

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

Our operating activities provided ~~$2,227,147 in~~ cash of $767,829 for the ~~nine~~three months ended ~~September 30, 2017~~,March 31, 2021, compared to ~~$3,657,759~~cash provided of $841,448 for the ~~nine months ended September 30, 2016.~~comparable prior period. The decrease in operating cash flow was primarily due to ~~the decreases in~~lower net income ~~income tax payable and loss on extinguishment~~for the period as a result of ~~debt recorded in 2016, partially offset by changes in estimated fair value of warrant liability, share-based compensation and increases in accounts payable and accrued expenses.~~the COVID-19 crisis.

~~Additionally, investing~~Investing activities used cash of ~~$96,269~~$81,792 for the ~~nine~~three months ended ~~September 30, 2017. The cash flows from investing activities are~~March 31, 2021, compared to $1,448 for the comparable prior period. This was primarily due to ~~the acquisition of~~an increase in expenditures for software and property and ~~equipment.~~ equipment in Q1 2021.

Cash used in financing activities during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 was ~~$1,366,216,~~ $557,638, which ~~was~~resulted primarily ~~due to~~from principal payments ~~towards~~on long-term ~~debt and capital leases.~~debt. This compares to $602,002 cash provided by financing activities for the comparable prior period.

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

secure additional funding, the implementation of our business plan could be impaired. In addition, we may incur higher capital expenditures 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.

Critical accounting policies. ~~The discussion of our~~Our consolidated financial ~~condition and results of operations is based upon our financial~~ statements ~~which~~ have been prepared in accordance with U.S. GAAP. ~~Critical~~We consider the following accounting policies ~~are those policies that, in management's view, are~~to be the most important to understanding and evaluating our financial results:

Revenue recognition. We account for our revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. We generate revenue primarily from the licensing of our intellectual property. We recognize revenue under recurring fee license contracts monthly as we satisfy our performance obligation, which consists of granting the customer the right to use our intellectual property. Amounts billed are determined based on flat rates or usage rates stipulated in the ~~portrayal~~customer contract.

Goodwill and other intangible assets. Goodwill and other intangible assets are assessed for impairment at least annually or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of ~~our financial condition~~a reporting asset is below the carrying amount. If found to be impaired, the carrying amounts will be reduced, and ~~results of operations. See Note 2of our financial statements included in~~ ~~Item 8. “Financial Statements and Supplementary Data” of our 2016 10-K~~ ~~for further detail on these critical accounting policies.~~an impairment loss will be recognized.

~~Off balance~~Long-term liabilities. The Company issued a promissory note in the face amount of $39,096,401 to Triangulum on May 6, 2019 in connection with the share redemption disclosed in Note 1. 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, 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.

Off-balance sheet arrangements. As of ~~September 30, 2017,~~March 31, 2021, there were no ~~off balance~~off-balance sheet arrangements.

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

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 Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed submitted under the Exchange Act is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2017~~March 31, 2021 our disclosure controls and procedures were effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

No change in our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

InWe have been named in and have brought lawsuits in the ~~ordinary~~normal course of ~~conducting~~business. See Note 11 above and Note 11 to our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations oraudited financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by GAAP, applicable law, statute or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12statements included in Item 8.8 “Financial Statements and Supplementary ~~Data” included~~Financial Information” in our S~~ee Note 2 in Item 8. “Financial Statements and Supplementary Data” included in our 2016~~2020 10-K. ~~There are no material updates to matters previously reported on our 2016 10-K.~~

On ~~July 26, 2017, in connection with the Cravens Employment Agreement, Mr. Cravens was granted options to purchase up to 450,000~~ March 31, 2021, we issued an aggregate of 55,000 restricted shares of our common stock ~~which vest as follows: (i) as~~valued at $159,500 to ~~the first 150,000 shares of stock, on July 26, 2017, (ii) as to the next 150,000 shares of stock, on August 1, 2018,~~Messrs. Lipparelli, Isaacs, Waters, and (iii) as to the next 150,000 shares of stock, on August 1, 2019, all pursuant to the terms of a Stock Option Grant Agreement by and between us and Mr. Cravens. Provided that Mr. Cravens is a full-time employee on August 1, 2020, we agreed to grant to Mr. Cravens an option to purchase an additional 150,000 shares of our common stock with a strike price equal to the price per share of our common stock as reported on OTC Markets on August 1, 2020 (or the nearest trading date thereafter), which option will vest on August 1, 2020 (or the nearest trading date thereafter).

~~On September 30, 2017, we issued options to purchase up to 75,000 shares of our common stock to four members of our Board~~ Zender, in consideration of their service on the Board during the three months ended March 31, 2021. These shares vested immediately on the grant date. An additional 80,000 restricted shares of our common stock valued at ~~an exercise price of $1.17 per share. Each~~$181,600 were issued to Mr. Cravens on February 17, 2021. These shares were granted in consideration of the ~~aforementioned options~~individual’s service to ~~purchase common stock was exercisable as of~~ the ~~date of grant. The options must be exercised within five years from the date of grant or 90 days from the date of the recipient’s departure from the Board.~~Company. These shares vest on November 12, 2021. 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.

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

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~~6480 Cameron Street Ste. 305 – Las Vegas, NV ~~89119~~89118
(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)	3
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	2324
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	2324
Item 6:	Exhibits	2324

Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 (unaudited) and December 31, ~~2016~~2020	4
Condensed Consolidated Statements of Operations and Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 (unaudited and restated)~~2020 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2021 and 2020 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 (unaudited and restated)~~2020 (unaudited)	67
Notes to Condensed Consolidated Financial Statements ~~(unaudited and restated)~~(unaudited)	78

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

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

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

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

Patents		4 - 20 years
Client relationships		9 - 22 years
Trademarks		30 years
Non-compete agreements		9 years
Internally-developed software		3 years

	Three Months Ended March 31,
	2021		2020
North America and Caribbean	$	2,451,896	$	3,130,465
Europe, Middle East and Africa		1,831,005		1,363,853
Total revenue	$	4,282,901	$	4,494,318

							March 31,		December 31,
	2017			2016			2021		2020
Raw materials and component parts	$	270,863		$	171,478		$	369,479	$	300,244
Finished goods		96,834			128,956			339,207		368,281
Work-in-process		182,846			151,671
Inventory, gross		550,543			452,105
Less: inventory reserve		(25,000	)		(25,000	)
Inventory, net	$	525,543		$	427,105		$	708,686	$	668,525

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

Twelve Months Ending March 31,	Total
2022	$	2,609,479
2023		2,023,514
2024		1,446,909
2025		1,425,776
2026		1,424,276
Thereafter		6,557,671
Total amortization	$	15,487,625

	As of March 31, 2021
	Amount			Classification
Operating leases:
Operating lease right-of-use lease assets	$	1,311,349

Operating lease current liabilities	$	213,531		Current portion of operating lease liabilities

Operating lease long-term liabilities		1,163,743		Long-term operating lease liabilities

Total operating lease liabilities	$	1,377,274

Weighted-average remaining lease term:
Operating leases	5.6 years

Weighted-average discount rate:
Operating leases		4.2	%

							March 31,			December 31,
	2017			2016			2021			2020
Furniture and fixtures	$	280,694		$	269,471		$	312,639		$	312,639
Automotive vehicles		215,127			202,143			215,127			215,127
Office and computer equipment								361,451			332,544
Leasehold improvements		156,843			156,843			35,532			32,547
Computer equipment		117,645			105,114
Office equipment		53,483			37,871
Property and equipment, gross		823,792			771,442			924,749			892,857
Less: accumulated depreciation		(530,304	)		(415,189	)		(799,589	)		(776,133	)
Property and equipment, net	$	293,488		$	356,253		$	125,160		$	116,724

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

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

	Location	Q1 2021 Revenue			Q1 2020 Revenue			Accounts Receivable March 31, 2021		Accounts Receivable December 31, 2020
Client A	Europe		29.7	%		7.7	%	$	377,962	$	164,236
Client B	North America		11.1	%		9.0	%	$	590,078	$	79,582

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

	Nine months ended September 30, 2017		Nine months ended September 30, 2016		Options Issued 2021			Options Issued 2020
Dividend yield		0%		0%		0	%		0	%
Expected volatility	80% - 87%		89% - 90%			68.74	%		70.98	%
Risk free interest rate	1.73% - 1.94%		1.01% - 1.22%
Risk-free interest rate						0.48	%		1.39	%
Expected life (years)		5.00		5.00		5.00			5.00

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

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

	Three Months Ended September 30,
	2017		2016
Compensation and related	$	1,078,284	$	591,233
Professional and compliance fees		477,171		231,875

	Nine Months Ended September 30,
	2017		2016
Compensation and related	$	2,852,292	$	1,731,032
Professional and compliance fees		1,459,045		1,125,434

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

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

	Galaxy Gaming, Inc.

Date:	~~November~~May 14, ~~2017~~2021

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

	Galaxy Gaming, Inc.

Date:	~~November~~May 14, ~~2017~~2021

	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