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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:~~22,187,304~~24,116,083 common shares as of August 108, 2022.~~, 2021.~~

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020			June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Revenue:
Licensing fees	$	4,749,330		$	663,972		$	9,032,339		$	5,158,289		$	5,676,195		$	4,749,330		$	11,594,794		$	9,032,339
Total revenue	$	4,749,330		$	663,972		$	9,032,339		$	5,158,289			5,676,195			4,749,330			11,594,794			9,032,339
Costs and expenses:
Cost of ancillary products and assembled components		19,599			7,902			33,903			29,713			50,439			19,599			103,029			33,903
Selling, general and administrative		2,532,655			2,438,635			5,243,707			5,430,688			3,483,918			2,532,655			6,527,277			5,243,707
Research and development		129,859			138,599			248,560			294,252			152,022			129,859			351,092			248,560
Depreciation and amortization		720,488			454,485			1,437,742			924,291			725,258			720,488			1,449,720			1,437,742
Share-based compensation		441,444			176,669			758,084			334,265			315,408			441,444			625,410			758,084
Total costs and expenses		3,844,045			3,216,290			7,721,996			7,013,209			4,727,045			3,844,045			9,056,528			7,721,996
Income (loss) from operations		905,285			(2,552,318	)		1,310,343			(1,854,920	)
Income from operations														949,150			905,285			2,538,266			1,310,343
Other income (expense):
Interest income		388			2,126			771			23,900			2,259			388			4,492			771
Interest expense		(140,142	)		(177,170	)		(321,052	)		(344,841	)		(1,697,435	)		(140,142	)		(3,384,457	)		(321,052	)
Share redemption consideration		(195,482	)		(195,482	)		(390,964	)		(390,964	)		—			(195,482	)		—			(390,964	)
Foreign currency exchange gain (loss)		11,355			11,302			2,271			(115,989	)
Foreign currency exchange (loss) gain														(174,638	)		11,355			(234,901	)		2,271
Change in fair value of interest rate swap liability		16,187			42,483			66,009			(33,680	)		—			16,187			—			66,009
Total other expense		(307,694	)		(316,741	)		(642,965	)		(861,574	)
Income (loss) before (provision) benefit for income taxes		597,591			(2,869,059	)		667,378			(2,716,494	)
(Provision) benefit for income taxes		(47,136	)		662,477			(28,186	)		626,515
Net income (loss)		550,455			(2,206,582	)		639,192			(2,089,979	)
Total other expense, net														(1,869,814	)		(307,694	)		(3,614,866	)		(642,965	)
(Loss) income before provision for income taxes														(920,664	)		597,591			(1,076,600	)		667,378
Provision for income taxes														(194,977	)		(47,136	)		(53,003	)		(28,186	)
Net (loss) income														(1,115,641	)		550,455			(1,129,603	)		639,192
Foreign currency translation adjustment		21,207			—			(58,000	)		—			(113,585	)		21,207			(155,534	)		(58,000	)
Comprehensive income (loss)	$	571,662		$	(2,206,582	)	$	581,192		$	(2,089,979	)
Comprehensive (loss) income													$	(1,229,226	)	$	571,662		$	(1,285,137	)	$	581,192

Net income (loss) per share:
Net (loss) income per share:
Basic	$	0.03		$	(0.12	)	$	0.03		$	(0.12	)	$	(0.05	)	$	0.03		$	(0.05	)	$	0.03
Diluted	$	0.03		$	(0.12	)	$	0.03		$	(0.12	)	$	(0.05	)	$	0.03		$	(0.05	)	$	0.03

Weighted-average shares outstanding:
Basic		18,952,464			18,247,266			18,895,658			18,135,013			24,665,496			18,952,464			24,506,442			18,895,658
Diluted		20,741,009			18,247,266			20,512,648			18,135,013			24,665,496			20,741,009			24,506,442			20,512,648

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

NOTE 1. NATURE OF OPERATIONS

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

We are an established global gaming company specializing in the design, development, acquisition, assembly, marketing and licensing of proprietary casino table games and associated technology, platforms and systems for the casino gaming industry. Casinos use our proprietary products and services to enhance their gaming operations and improve their profitability ~~productivity~~ and ~~security,~~productivity, as well as to offer popular cutting-edge gaming entertainment content and technology to their players. We market our products and services to online casinos worldwide and to land-based casino gaming companies in North America, the Caribbean, Central America, the United Kingdom, Europe and Africa as well as to cruise ship companies. We license our products and services for use solely in legalized gaming markets. We also license our content and distribute content from other companies to iGaming operators throughout the world.

~~Share Redemption.~~ On May 6, 2019, we redeemed all 23,271,667 shares of our common stock held by Triangulum Partners, LLC (“Triangulum”), an entity controlled by Robert B. Saucier, Galaxy Gaming's founder, and, prior to the redemption, the holder of a majority of our outstanding common stock. 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 Triangulum related to the redemption and other matters. See Note 11.~~

~~Membership Interest Purchase Agreement.~~ On August 21, 2020, the 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 June 30, 2021, the balance owed to the sellers of PGP was settled in full.

~~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~~COVID-19. Disruptions due to the COVID-19 ~~outbreak. As a result, we did not earn revenue for~~crisis continue to impact our results of operations. Most of the ~~use~~Company’s land-based customers have resumed normal operations. However, some of our ~~games~~customers rely on international travelers from countries that are still enforcing COVID-19 lockdowns or are affected 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~~war 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.~~Ukraine.

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.

The phased billing approach for our physical casino customers instituted in 2020 is no longer in effect. Physical casino customers who are now open are being billed at pre-COVID billing levels. Similar to 2020, our online gaming customers continue to generate revenue in 2021.

We ~~also~~ rely on third-party suppliers and manufacturers in ~~China, many~~China. Many of ~~whom~~these suppliers were ~~shut down or severely cut back production during some portion of 2020. Although this has not had a material effect on our~~affected by COVID-19 and the worldwide supply chain ~~any future disruption~~disruptions that ensued and, in many cases, are continuing. These disruptions 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.

Disruptions of the COVID-19 crisis continue to impact our results of operations. A significant portion of the Company’s land-based customers have reopened at limited capacity after the restrictions due to the COVID-19 crisis were lifted. However, during Q2 2021, some customers have been required to close again due to local regulations and conditions, and some customers will remain closed through the remainder of 2021.

~~Recently adopted accounting standards.~~ ~~Simplifying the Accounting for Income Taxes.~~ ~~In December 2019, the FASB issued Accounting Standard Update No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (ASU 2019-12), which simplifies the accounting for income taxes. This guidance is effective for the first quarter of 2021 on a prospective basis. We have adopted the new standard effective January 1, 2021, and its adoption does not have a material impact on our consolidated financial statements.

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

NOTE 3. REVENUE RECOGNITION

Revenue recognition. 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 customer contract.

Disaggregation of revenue

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
North America and Caribbean	$	2,465,741	$	159,085	$	4,967,723	$	3,291,260	$	2,683,756	$	2,465,741	$	4,975,669	$	4,967,723
Europe, Middle East and Africa		2,283,589		504,887		4,064,616		1,867,029		2,992,439		2,283,589		6,619,125		4,064,616
Total revenue	$	4,749,330	$	663,972	$	9,032,339	$	5,158,289	$	5,676,195	$	4,749,330	$	11,594,794	$	9,032,339

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

Contract Assets. The Company’s contract assets consist solely of unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables totaled ~~$680,258~~$945,867 and ~~$502,860 for the periods ended~~$771,294 as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021, respectively, and are included in the accounts receivable balance in the accompanying condensed consolidated balance sheets.

NOTE 4. INVENTORY

Inventory consisted of the following at:

June 30,

December 31,

2021

2020

Raw materials and component parts

$
365,134

$
300,244

Finished goods

333,811

368,281

Inventory, net

$
698,945

$
668,525

~~NOTE 5. PROPERTY AND EQUIPMENT~~

~~Property and equipment, net, consisted of the following at:~~

June 30,

December 31,

2021

2020

Furniture and fixtures

$
312,639

$
312,639

Automotive vehicles

215,127

215,127

Office and computer equipment

370,423

332,544

Leasehold improvements

35,531

32,547

Property and equipment, gross

933,720

892,857

Less: accumulated depreciation

(818,350
)

(776,133
)
Property and equipment, net

$
115,370

$
116,724

For the three months ended June 30, 2021 and 2020, depreciation expense related to property and equipment was $18,761 and $22,322, respectively. For the six months ended June 30, 2021 and 2020, depreciation expense related to property and equipment was $42,218 and $45,316, respectively.

~~NOTE 6. ASSETS DEPLOYED AT CLIENT LOCATIONS~~

~~Assets deployed at client locations, net,~~ ~~consisted of the following at:~~

June 30,

December 31,

2021

2020

Enhanced table systems

$
1,000,694

$
890,560

Less: accumulated depreciation

(727,185
)

(658,404
)
Assets deployed at client locations, net

$
273,509

$
232,156


	June 30,		December 31,
	2022		2021
Raw materials and component parts	$	418,366	$	413,320
Finished goods		465,209		356,928
Inventory	$	883,575	$	770,248

For the three months ended June 30, 2021 and 2020, depreciation expense related to assets deployed at client locations was $48,397 and $58,244, respectively. For the six months ended June 30, 2021 and 2020, depreciation expense related to assets deployed at client locations was $93,023 and $122,556, respectively.

NOTE 7.5. GOODWILL AND OTHER INTANGIBLE ASSETS

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

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


	June 30,			December 31,			June 30,			December 31,
	2021			2020			2022			2021
Patents	$	13,507,997		$	13,507,997		$	13,507,997		$	13,507,997
Customer relationships		13,942,115			13,942,115			14,040,856			14,040,856
Trademarks		2,880,967			2,880,967			2,880,967			2,880,967
Non-compete agreements		660,000			660,000			660,000			660,000
Software		233,314			183,415			458,266			283,340
Other intangible assets, gross		31,224,393			31,174,494			31,548,086			31,373,160
Less: accumulated amortization		(16,390,099	)		(15,087,598	)		(19,004,284	)		(17,695,896	)
Other intangible assets, net	$	14,834,294		$	16,086,896		$	12,543,802		$	13,677,264

For the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, amortization expense related to other intangible assets ~~was $653,330~~were $655,058 and ~~$373,919,~~$653,330, and $1,308,388 and $1,302,502, respectively. ~~For the six months ended June 30, 2021 and 2020, amortization expense related to assets deployed at client locations was $1,302,502 and $756,418, respectively.~~

~~Estimated future amortization expense is as follows:~~11

NOTE 6. LEASES

Twelve Months Ending June 30,

Total

2022

$
2,606,277

2023

1,735,114

2024

1,442,751

2025

1,424,276

2026

1,424,276

Thereafter

6,201,600

Total amortization

$
14,834,294

Lessee

~~NOTE 8. ACCRUED EXPENSES~~

~~Accrued expenses consisted of the following at:~~

June 30,

December 31,

2021

2020

Share redemption consideration

$
119,811

$
510,776

Commissions and royalties

761,982

398,096

Payroll and related

630,561

173,487

Interest

109,685

95,879

Income tax payable

—

42,218

Other

116,269

112,576

Total accrued expenses

$
1,738,308

$
1,333,032

~~NOTE 9. LEASES~~

~~Lessee~~

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

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

As of June 30, ~~2021,~~2022, our leases have remaining lease terms ranging from ~~six~~ 18 months to 6657 months.

Supplemental balance sheet information related to leases is as follows:


	As of June 30, 2021				As of June 30, 2022
	Amount			Classification	Amount			Classification
Operating leases:
Operating lease right-of-use lease assets	$	1,259,803			$	1,118,888

Operating lease current liabilities	$	217,927		Current portion of operating lease liabilities	$	237,915		Current portion of operating lease liabilities

Operating lease long-term liabilities		1,111,258		Long-term operating lease liabilities		957,095		Long-term operating lease liabilities

Total operating lease liabilities	$	1,329,185			$	1,195,010

Weighted-average remaining lease term:
Operating leases	5.4 years					4.43

Weighted-average discount rate:
Operating leases		4.2	%			4.4	%

The components of lease expense are as follows:

Three Months Ended June 30, 2021

Three Months Ended June 30, 2022

Amount

Classification

Amount

Classification

Operating lease cost

70,782

Selling, general and administrative expense

71,249

Selling, general and administrative expense

Six Months Ended June 30, 2021

Six Months Ended June 30, 2022

Amount

Classification

Amount

Classification

Operating lease cost

140,610

Selling, general and administrative expense

142,154

Selling, general and administrative expense

Supplemental cash flow information related to leases is as follows:

Six Months Ended June 30, 2021

Six Months Ended June 30, 2022

Amount

Classification

Amount

Classification

Cash paid for amounts included in the

measurement of lease liabilities:

Operating cash flows from operating leases

115,684

Net income

139,596

Net income

Right-of-use assets obtained in exchange

for lease liabilities:

Operating leases

5,312

Supplemental cash flow information

71,901

Supplemental cash flow information

As of June 30, ~~2021,~~2022, future maturities of our operating lease liabilities are as follows:

Twelve Months Ending June 30,	Amount
2022	$	217,927

			Amount
For the remaining six months ending December 31, 2022			$	141,707
Years ending December 31,
2023		213,145		290,877
2024		230,789		288,892
2025		250,429		294,507
2026		272,200		302,011
2027				2,985
Thereafter		144,695		—
Total lease liabilities	$	1,329,185
Total minimum lease payments				1,320,979
Less: imputed interest				(125,969	)
Total operating lease liability				1,195,010
Less: current portion				(237,915	)
Long-term portion			$	957,095

NOTE ~~10.~~7. LONG-TERM LIABILITIES

Long-term liabilities consisted of the following at:

June 30,

December 31,

2021

2020

Nevada State Bank credit agreement

$
7,641,200

$
8,413,184

Main Street Priority Loan

4,000,000

4,000,000

Redemption Consideration Obligation

39,096,401

39,096,401

Vehicle notes payable

11,440

22,614

Insurance notes payable

173,952

519,194

Long-term liabilities, gross

50,922,993

52,051,393

Less: Unamortized debt issuance costs

(155,522
)

(137,817
)
Long-term liabilities, net of debt issuance costs

50,767,471

51,913,576

Less: Current portion

(2,760,792
)

(2,222,392
)
Long-term liabilities, net

$
48,006,679

$
49,691,184

~~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. We paid the first and second annual payments in the amounts of $781,928 on May 5, 2020 and May 6, 2021. Both payments were accepted by Triangulum. The Redemption Consideration Obligation is unsecured and is subordinated to our existing and future indebtedness.


	June 30,			December 31,
	2022			2021
Fortress credit agreement	$	59,700,000		$	60,000,000
Insurance notes payable		167,645			500,369
Long-term liabilities, gross		59,867,645			60,500,369
Less: Unamortized debt issuance costs		(6,514,209	)		(7,256,190	)
Long-term liabilities, net of debt issuance costs		53,353,436			53,244,179
Less: Current portion		(767,645	)		(1,100,369	)
Long-term liabilities, net	$	52,585,791		$	52,143,810

For most of 2021, our long-term liabilities consisted of term and revolving notes owed to Nevada State Bank, ~~(“NSB”)~~borrowings under the Main Street Priority Loan Program, and redemption consideration owed to Triangulum Partners LLC. All of those liabilities were paid in full from the proceeds of the Fortress Credit Agreement on November 15, 2021.

~~. The Company is party to a~~Fortress 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.Agreement. On March 12, 2020, the Company drew down $1,000,000 on the Revolving Loan component of the Credit Agreement. At June 30, 2021, the principal amount outstanding under the Term Loan component of the Credit Agreement was $6,641,200, bringing the total amount outstanding under the Credit Agreement at ~~June 30, 2021, to $7,641,200.~~

~~On March 29,~~November 15, 2021, the Company entered into ~~an amended and restated credit~~a senior secured term loan agreement with ~~Zions Bancorporation, N.A. dba Nevada State Bank~~Fortress Credit Corp. (“~~the A&R~~Fortress 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~~$60 million.

The Fortress Credit Agreement bears interest at a rate equal to, at the Company’s option, either (a) LIBOR (or a successor rate, determined in accordance with the Fortress Credit Agreement) plus 7.75%, subject to a reduction to 7.50% upon the achievement of a net leverage target or (b) a base rate determined by reference to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by reference to The Wall Street Journal’s “Prime Rate” and (iii) the one-month adjusted LIBOR rate plus 1.00%, plus 6.75%, subject to a ~~Revolving Loan in~~reduction to 6.50% upon the ~~amount~~achievement of ~~$1,000,000. If not paid earlier, amounts outstanding~~a net leverage target. The Fortress Credit Agreement has a final maturity of November 13, 2026. The obligations under the ~~Revolving Loan mature on April 24, 2022, and amounts outstanding under the Term Loan mature on April 24, 2023.~~

~~Under the A&R~~Fortress Credit Agreement ~~outstanding balances accrue interest based on one-month U.S. dollar London interbank offered rate (“LIBOR”) plus an applicable margin~~are guaranteed by the Company’s subsidiaries and are secured by substantially all of ~~3.50% or 4.00%, depending on our Total Leverage Ratio (as defined in~~ the ~~A&R~~assets of the Company and its subsidiaries. The Fortress Credit ~~Agreement). Effective December 31, 2021, LIBOR will no longer serve as a reference rate for bank loans,~~agreement requires, among other ~~investment classes.~~things, principal payments of $150,000 per quarter and includes an annual sweep of 50% of excess cash flow beginning in 2023. The ~~A&R Credit Agreement stipulates that a substitute index rate will be selected and used in lieu of LIBOR.~~

~~The A&R~~Fortress Credit Agreement contains affirmative and negative financial covenants (as defined in the ~~A&R~~Fortress Credit Agreement) and other restrictions customary for borrowings of this nature. ~~In particular, we are~~The Company was required to maintain ~~(i)~~ a ~~quarterly minimum Fixed Charge Coverage ratio~~Total Net Leverage Ratio of 1.25x; (ii) a quarterly maximum Total Leverage ratio of 22.50x for the 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, 2.50x8.00x for the quarter ending June 30, ~~2021~~2022, 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 Fixed Charge Coverage ratio, Senior Leverage ratio, Total Leverage ratio~~that covenant. The Fortress Credit Agreement requires that bank account balances in excess of $1 million at month end to be covered by an account control agreement. From November 30, 2021 through February 28, 2022, the bank accounts held by PGP in the Isle of Man exceeded $1 million and ~~Minimum Liquidity covenants~~did not have control agreements. The Company informed Fortress of the covenant breach, and a Consent and Waiver Agreement was executed among the Company, Fortress as Agent, and the Lenders party to the Fortress Credit Agreement on March 16, 2022. As of March 31, 2022, and through June 30, ~~2021. However,~~2022, the Company was ~~not~~ in compliance with ~~its Minimum EBITDA covenant as~~the covenants and the balances of ~~June 30, 2021. On May~~ those accounts were reduced to less than the $1 million threshold.

13 ~~2021,~~

In connection with entering into the Fortress Credit Agreement, the Company ~~and NSB entered into~~also issued warrants to purchase a ~~Forbearance~~total of up to ~~the A&R Credit Agreement, in which NSB agreed to forbear from exercising any of its rights or remedies that would result from the potential breaches~~778,320 shares of the ~~Minimum EBITDA and Total Leverage ratio covenant for the quarters ending June 30, 2021 and September 30, 2021.~~

~~The obligations under the A&R Credit Agreement are secured by substantially all~~Company’s common stock to certain affiliates of ~~the assets of the Company. The Company’s wholly owned subsidiary, PGP is 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.~~

~~The MSPLP bears interest~~Fortress at a ~~rate~~price per share of ~~three-month U.S. dollar LIBOR plus 300 basis points (initially 3.215%~~$0.01 (the “Warrants”)~~, 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~~Warrants are exercisable 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~~subject to executive officers that exceeds the total compensation they received in 2019. The entire outstanding principal balance of the MSPLP, together with all accrued and 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.~~restrictions.

As of June 30, ~~2021,~~2022, minimum future maturities of our long-term liabilities are as ~~follows:~~ follows (the excess cash flow sweep mechanism in the Fortress Credit Agreement may increase repayments in 2023 through 2026):

Twelve Months Ending June 30,	Total
2022	$	2,760,792

			Total
For the remaining six months ending December 31, 2022			$	467,645
Years ending December 31,
2023		5,065,800		600,000
2024		600,000		600,000
2025		600,000		600,000
2026		2,800,000		57,600,000
Thereafter		39,096,401
Long-term liabilities, gross	$	50,922,993	$	59,867,645

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

Concentration of risk. We are exposed to risks associated with clients who represent a significant portion of total revenues. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, we had the following client ~~revenue~~ concentrations:


	Location	Six Months ended June 30, 2021 Revenue			Six Months ended June 30, 2020 Revenue			Accounts Receivable June 30, 2021		Accounts Receivable December 31, 2020		Location	Six Months Ended June 30, 2022 Revenue			Six Months Ended June 30, 2021 Revenue			Accounts Receivable June 30, 2022		Accounts Receivable December 31, 2021
Client A	Europe		28.4	%		12.9	%	$	439,872	$	348,781	Europe		27.8	%		28.4	%	$	977,727	$	—
Client B	North America		10.9	%		8.5	%	$	1,063,764	$	400,663	North America		8.7	%		10.9	%	$	389,361	$	138,338

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. There are no current or threatened legal proceedings.

~~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~~Intellectual property agreements. From time to ~~the redemption, the holder of a majority of our outstanding common stock.~~

~~On May 6, 2019,~~time, 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 acted lawfully~~purchases 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 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. 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 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 appeal of the denial of Advancement to Saucier is fully briefed by the parties and the parties await a hearing datelicenses intellectual property from the Nevada Supreme Court. Galaxy’s appeal of the first request of the grant of lawyer’s fees in litigating the Advancement action, is fully briefed by the parties. The parties await a hearing date on both matters from the Nevada Supreme Court. Saucier filed a separate supplemental motion for attorneys’ fees, which was denied by the Nevada district court, finding the fees incurred to be unreasonable, among other things. Saucier also appealed this ruling of the Nevada district court. Briefing on this third related matter began June 6, 2021.

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. The appeal is currently being briefed by the parties.

~~The appeals to the Nevada Supreme Court by both Saucier~~third-parties and the Company, in turn, utilizes that intellectual property in certain games licensed to clients. In these purchase and license agreements, the ~~Triangulum Lawsuit and~~Company may agree to pay 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 any~~seller 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~~intellectual property a ~~Motion for Partial Summary Judgment in the Triangulum Lawsuit in the Nevada district court, seeking a ruling that~~fee if and when the Company ~~violated Nevada law and its Articles by issuing a promissory note as consideration for~~receives revenue from games containing the redeemed shares and that the redemption was ineffective as a matter 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 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. Galaxy also appealed the denial of its CMSJ. Briefing on the appeals will begin in September 2021.intellectual property.

NOTE 9. INCOME TAXES

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 filed its Answer to the Indemnity Lawsuit.

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. On June 22, 2021, Galaxy’s Motion to Dismiss was granted, with prejudice to the right of TMAX to file an amended complaint.

An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given period and accordingly, 0 provision for loss has been reflected in the accompanying financial statements related to these matters.

~~NOTE 12. INCOME TAXES~~

Our forecasted annual effective tax rate (“AETR”) at June 30, ~~2021~~2022 was ~~12.8%~~8.4%, as compared to ~~22.2%~~12.8% at June 30, ~~2020.~~2021. This ~~decrease~~reduction was primarily due to ~~excess tax benefits from stock-based compensation, utilization of tax credits, foreign rate differential, Subpart F inclusion and a~~the change in valuation allowance as a result of changes in estimates of current-year ordinary income considered in determining the forecasted ~~AETR.~~AETR and favorable discrete items related to stock compensation in the current and previous quarters.

For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, our effective tax rate (“ETR”) was ~~4.2~~(4.9)% and ~~23.1%~~4.2%, respectively. The decrease in the ETR for the six months ended June 30, ~~2021~~2022 is a result of ~~the foreign rate differential, Subpart F inclusion, changes in valuation allowance and~~ favorable discrete items related to excess tax benefits from stock-based ~~compensation..~~compensation and changes in valuation allowance against deferred tax attributes.

NOTE 10. SUBSEQUENT EVENTS

~~NOTE 13. SHARE-BASED COMPENSATION~~

~~Stock Options~~

On ~~May 10, 2018,~~and as of July 13, 2022, the Company's Board appointed Ms. Meredith Brill as a member of the Board, ~~ratified and confirmed~~to serve as a Class II director with a term expiring (12) months from her appointment or until 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~~ ~~June 30, 2021, a~~ ~~total of 7,550,750 shares of our common stock were authorized for issuance. As of June 30, 2021, 963,701 shares~~ ~~remained available for issuance as new awards under the 2014 Plan.~~

During the six months ended June 30, 2021 and 2020, we issued 60,000 and 225,000 options to purchase our common stock, respectively, to members of our Board, executive officers, employees and independent contractors. The fair value of all stock options granted for the six months ended June 30, 2021 and 2020 was determined to be $94,829 and $255,017, respectively, using the Black-Scholes option pricing model with the following assumptions:

Options Issued Six Months ended June 30, 2021

Options Issued Six Months ended June 30, 2020

Dividend yield

0
%

0
%
Expected volatility

63.50% - 68.74%

70.98
%
Risk-free interest rate

0.48% - 0.87%

1.39
%
Expected life (years)

5.00

5.00

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

Common
Stock
Options

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value

Weighted-
Average
Remaining
Contractual
Term (Years)

Outstanding – December 31, 2020

2,982,000

$
1.08

$
2,101,780

2.35

Issued

60,000

2.90

—

—

Exercised

(100,000
)

0.27

(285,925
)

—

Forfeited or expired

(42,000
)

1.04

—

—

Outstanding – June 30, 2021

2,900,000

$
1.14

$
7,275,000

1.99

Exercisable – June 30, 2021

2,051,667

$
0.93

$
5,588,442

1.35

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

Common
Stock
Options

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value

Weighted-
Average
Remaining
Contractual
Term (Years)

Unvested – December 31, 2020

845,000

$
1.55

$
197,608

3.83

Granted

60,000

2.90

—

—

Vested

(15,000
)

1.82

—

—

Forfeited

(41,666
)

1.04

—

—

Unvested – June 30, 2021

848,334

$
1.66

$
1,686,559

3.52

~~As of June 30, 2021, our unrecognized share-based compensation expense associated with the stock options issued was $511,629, which will be amortized over a weighted-average period of 1.89 years.~~

~~Restricted Awards~~

~~During the six months ended June 30, 2021, we issued~~ ~~an aggregate~~ ~~of 110,000 restricted shares of our common stock valued at~~ ~~$360,250 to~~ ~~our Board members~~ in consideration of their service on the Board. These shares vested immediately on the grant date. An additional 80,000 restricted shares of our common stock valued at $181,600 were issued to an employeeCompany's next annual meeting of the ~~Company on February 17, 2021. These shares were granted in consideration of the individual’s service to the Company. These shares vest on November 12, 2021. As of~~ ~~June 30, 2021, there were~~ ~~2,291,133~~ ~~restricted shares outstanding. Of the restricted shares outstanding,~~ ~~235,000~~ ~~restricted shares were unvested.~~ Company's shareholders.

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources as of and for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. This discussion should be read together with our audited consolidated financial statements and related notes included in Item 8 Financial Statements and Supplementary Financial Information included in our ~~2020~~2021 10-K. Some of the information contained in this discussion includes forward-looking statements that involve risks and uncertainties; therefore our “Special Note Regarding Forward-Looking Statements” should be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, such forward-looking statements.

OVERVIEW

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

Results of operations for the three months ended June 30, ~~2021~~2022 and ~~2020.~~2021. For the three months ended June 30, ~~2021,~~2022, we generated ~~gross~~ revenues of ~~$4,749,330~~$5,676,195 compared to ~~$663,972~~$4,749,330 for the comparable prior-year period, representing an increase of ~~$4,085,358,~~$926,865, or ~~615.3%~~19.5%. This increase was ~~directly~~ attributable to the ~~re-opening of a significant portion~~continued recovery of our land-based customers ~~after~~from the ~~restrictions due to~~effects of the COVID-19 crisis, ~~were lifted. Also, our~~particularly in the United Kingdom. Our online gaming revenues increased due to increased revenue earned by our iGaming clients, reflecting continued growth in their non-US markets and significantly ~~due primarily to~~increased revenue in existing or newly-opened US markets. However, revenue in both Galaxy Core and Galaxy Digital were adversely affected by the ~~acquisition~~strengthening of ~~PGP~~the US Dollar versus the Euro and UK Pound. In local currency, revenues in ~~August of 2020 as well as to the opening of new markets~~Galaxy Core increased 15.6% and revenues in ~~the U.S.~~Galaxy Digital increased 31.6%.

Selling, general and administrative expenses for the three months ended June 30, ~~2021~~2022 were ~~$2,532,655~~$3,483,918 compared to ~~$2,438,635~~$2,532,655 for the comparable prior-year period, representing an increase of ~~$94,020,~~$951,263, or ~~3.9%~~37.6%. This increase was ~~primarily~~ due to higher internal labor and related expenses due to both an increase in the number of employees and an increase in compensation for continuing employees. In addition, we experienced increases in travel expenses ~~directly~~and increase in marketing expenses related to ~~increased revenue (royalty expenses, regulatory licensing fees, taxes and repairs and maintenance). This increase was offset by~~our attendance at trade shows that were not held in 2021. Finally, a decrease in legal fees ~~due~~related to ~~decreased legal fees associated with~~ the Triangulum ~~Lawsuit.~~ ~~In Q2 2021,~~lawsuit was more than offset by legal and other fees related to the ~~Company incurred $80,210 in legal expenses associated with the Triangulum Lawsuit as compared to $480,085 for the comparable prior-year period.~~contested proxy solicitation.

Research and development expenses for the three months ended June 30, ~~2021~~2022 were ~~$129,859,~~$152,022, compared to ~~$138,599~~$129,859 for the comparable prior-year period, representing ~~a decrease~~an increase of ~~$8,740,~~$22,163, or ~~6.3%~~17.1%. This ~~decrease~~increase was primarily due to ~~the Company no longer using certain third-party research~~higher internal labor and ~~development firms.~~related expenses.

Share-based compensation expenses for the three months ended June 30, ~~2021~~2022 were ~~$441,444,~~$315,408, as compared to ~~$176,669~~$441,444 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$264,775,~~$126,036, or ~~149.9%~~28.6%. ~~This increase~~The decrease was due primarily to a change in the ~~quarterly restricted shares granted~~level and the composition of fees paid to members of our Board members being issued at a higher stock price than the comparable prior-year period. The increase was also due to increased amortization related to restricted shares being issued to two employees and a contractor of the Company in ~~November 2020 and February 2021.~~2022.

As a result of the changes described above, income from operations increased~~$3,457,603~~ $43,865 or ~~135.5%~~4.8% to ~~$905,285~~$949,150 for the three months ended June 30, ~~2021,~~2022, compared to ~~a loss~~income from operations of ~~($2,552,318)~~$905,285 for the comparable prior-year period.

Total interest expense ~~decreased $37,028, or 20.9%,~~increased $1,557,293 to ~~$140,142~~$1,697,435 for the three months ended June 30, ~~2021,~~2022, compared to ~~$177,170~~$140,142 for the comparable prior-year period. The ~~decrease~~increase was ~~mainly~~ attributable to ~~lower~~a larger balance of debt outstanding in the current period as compared to the prior year, and higher rates of interest ~~expense~~ on the ~~Term Loan due to lower balances and lower interest rates.~~current borrowings.

Share redemption consideration was ~~$195,482 in 2021 compared to $195,482 in 2020. The share redemption consideration is related to the Triangulum Redemption Consideration Obligation.~~

~~Income tax expense was $47,136~~$0 for the three months ended June 30, ~~2021,~~2022, compared to $195,482 in the comparable prior-year period. The reduction is due to the payment in full of the Triangulum Redemption Consideration Obligation in November 2021.

Income tax expense was $194,977 for the three months ended June 30, 2022, compared to income tax ~~benefit~~expense of ~~$662,477~~$47,136 for the comparable prior-year period. The increase in expense is primarily athe result of ~~improved business conditions in the current period following the COVID-19 pandemic as well as the foreign rate differential, Subpart F inclusion, changes in valuation allowance and~~decreased favorable discrete items related to excess tax benefits from stock-based ~~compensation.~~compensation and changes in valuation allowance against deferred tax attributes.

Results of operations for the six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. For the six months ended June 30, ~~2021,~~2022, we generated ~~gross~~ revenues of ~~$9,032,339~~$11,594,794 compared to ~~$5,158,289~~$9,032,339 for the comparable prior-year period, representing an increase of ~~$3,874,050,~~$2,562,455, or ~~75.1%~~28.4%. This increase was ~~directly~~ attributable to the ~~re-opening~~continued recovery of ~~a significant portion~~Galaxy Core from the effects of ~~our land-based customers after the restrictions due to~~ the COVID-19 crisis, ~~were lifted. Also, our~~particularly in the United

Kingdom. Our online gaming revenues increased due to increased revenue earned by our iGaming clients, reflecting continued growth in their non-US markets and significantly ~~due primarily to~~increased revenue in existing or newly-opened US markets. However, revenue in both Galaxy Core and Galaxy Digital were adversely affected by the ~~acquisition~~strengthening of ~~PGP~~the US Dollar versus the Euro and UK Pound. In local currency, revenues in ~~August of 2020 as well as to the opening of new markets~~Galaxy Core increased 22.0% and revenues in ~~the U.S.~~Galaxy Digital increased 40.5%.

Selling, general and administrative expenses for the six months ended June 30, ~~2021~~2022 were ~~$5,243,707~~$6,527,277 compared to ~~$5,430,688~~$5,243,707 for the comparable prior-year period, representing ~~a decrease~~an increase of ~~$186,981,~~$1,283,570, or ~~3.4%~~24.5%. This ~~decrease~~increase was ~~primarily attributable~~due to higher internal labor and related expenses due to both an increase in the number of employees and an increase in compensation for continuing employees. In addition, we experienced increases in travel expenses and increase in marketing expenses related to our attendance at trade shows that were not held in 2021. Finally, a decrease in legal fees ~~due~~related to ~~decreased legal fees associated with~~ the Triangulum ~~Lawsuit.~~ For the six months ended June 30, 2021, the Company incurred $329,646 in legal expenses associated with the Triangulum Lawsuit as compared to $653,356 for the six months ended June 30, 2020. This decreaselawsuit was more than offset by ~~an increase in~~ ~~expenses directly~~legal and other fees related to ~~increased revenue (royalty expenses, regulatory licensing fees, taxes and repairs and maintenance).~~the contested proxy solicitation.

Research and development expenses for the six months ended June 30, ~~2021~~2022 were ~~$248,560,~~$351,092, compared to ~~$294,252~~$248,560 for the comparable prior-year period, representing ~~a decrease~~an increase of ~~$45,692,~~$102,532, or ~~15.5%~~41.3%. This ~~decrease~~increase was primarily due to ~~the Company no longer using certain third-party research~~higher internal labor and ~~development firms~~related expenses (base salary, payroll-related taxes, commissions and ~~consultants.~~bonus accrual).

Share-based compensation expenses for the six months ended June 30, ~~2021~~2022 were ~~$758,084,~~$625,410, as compared to ~~$334,265~~$758,084 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$423,819,~~$132,674, or ~~126.8%~~17.5%. ~~This increase~~The decrease was due primarily to a change in the ~~quarterly restricted shares granted~~level and the composition of fees paid to members of our Board members being issued at a higher stock price than the comparable prior-year period. The increase was also due to increased amortization related to restricted shares being issued to two employees and a contractor of the Company in ~~November 2020 and February 2021.~~2022.

As a result of the changes described above, income from operations increased ~~$3,165,263~~$1,227,923 or ~~170.6%~~93.7% to ~~$1,310,343~~$2,538,266 for the six months ended June 30, ~~2021,~~2022, compared to ~~a loss~~income from operations of ~~$1,854,920~~$1,310,343 for the comparable prior-year period.

Total interest expense ~~decreased $23,789, or 6.9%,~~increased $3,063,405 to ~~$321,052~~$3,384,457 for the six months ended June 30, ~~2021,~~2022, compared to ~~$344,841~~$321,052 for the comparable prior-year period. The ~~decrease~~increase was ~~mainly~~ attributable to ~~lower~~a larger balance of debt outstanding in the current period as compared to the prior year, and higher rates of interest ~~expense~~ on the ~~Term Loan due to lower balances and lower interest rates.~~current borrowings.

Share redemption consideration was ~~$390,964 in 2021 compared to $390,964 in 2020. The share redemption consideration is related to the Triangulum Redemption Consideration Obligation.~~

~~Income tax provision was $28,186~~$0 for the six months ended June 30, ~~2021,~~2022, compared to $390,964 in the comparable prior-year period. The reduction is due to the payment in full of the Triangulum Redemption Consideration Obligation in November 2021.

Income tax expense was $53,003 for the six months ended June 30, 2022, compared to income tax ~~benefit~~expense of ~~$626,515~~$28,186 for the comparable prior-year period. The slight increase in expense is primarily athe result of ~~improved business conditions in the current period following the COVID-19 pandemic as well as the foreign rate differential, Subpart F inclusion,~~ changes in valuation allowance ~~and favorable discrete items related to excess~~against deferred tax ~~benefits from stock-based compensation.~~attributes.

Adjusted EBITDA. Adjusted EBITDA includes adjustments to net income to exclude interest, income taxes, depreciation, amortization, ~~share based~~share-based compensation, foreign currency exchange loss (gain), change in fair value of interest rate swap liability and severance and other expenses related to ~~litigation~~.litigation. Adjusted EBITDA is not a measure of performance defined in accordance with ~~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 to Adjusted EBITDA is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
Adjusted EBITDA Reconciliation:	2021			2020			2021			2020			2022			2021			2022			2021
Net income (loss)	$	550,455		$	(2,206,582	)	$	639,192		$	(2,089,979	)
Net (loss) income													$	(1,115,641	)	$	550,455		$	(1,129,603	)	$	639,192
Interest expense		140,142			177,170			321,052			344,841			1,697,435			140,142			3,384,457			321,052
Share redemption consideration		195,482			195,482			390,964			390,964			—			195,482			—			390,964
Interest income		(388	)		(2,126	)		(771	)		(23,900	)		(2,259	)		(388	)		(4,492	)		(771	)
Depreciation and amortization		720,488			454,485			1,437,742			924,291			725,258			720,488			1,449,720			1,437,742
Share-based compensation		441,444			176,669			758,084			334,265			315,408			441,444			625,410			758,084
Foreign currency exchange (gain) loss		(11,355	)		(11,302	)		(2,271	)		115,989
Foreign currency exchange loss (gain)														174,638			(11,355	)		234,901			(2,271	)
Change in fair value of interest rate swap liability		(16,187	)		(42,483	)		(66,009	)		33,680			—			(16,187	)		—			(66,009	)
(Benefit) provision for income taxes		47,136			(662,477	)		28,186			(626,515	)
Provision for income taxes														194,977			47,136			53,003			28,186
Severance expense		—			20,801			3,750			23,301			6,750			—			28,477			3,750
Special project expense⁽¹⁾		80,210			480,085			329,646			653,356
Special project expense (benefit) - Triangulum														—			79,317			(86,959	)		296,227
Special project expense - Other														361,821			893			476,904			33,419
Adjusted EBITDA	$	2,147,427		$	(1,420,278	)	$	3,839,565		$	80,293		$	2,358,387		$	2,147,427		$	5,031,818		$	3,839,565

~~(1)~~

~~Includes expenses associated with the Triangulum lawsuit.~~

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

As of June 30, ~~2021,~~2022, we had total current assets of ~~$13,176,506~~$24,541,004 and total assets of ~~$31,007,771.~~$40,070,869. This compares to ~~$11,562,833~~$23,890,122 and ~~$30,574,594,~~$40,452,705, respectively, as of December 31, ~~2020.~~2021. The increase in total current assets ~~and~~at June 30, 2022 was due primarily to higher revenues in the 2022 period. The decrease in total assets ~~as of June 30, 2021~~ was primarily due to ~~an increase in the accounts receivable balance, resulting from higher billings and lower collections directly related to the COVID-19 crisis. The increase in total assets was offset by monthly~~ amortization ~~on the Company’s long-term~~of other ~~intangible assets.~~intangibles.

Our total current liabilities as of June 30, ~~2021~~2022 increased to ~~$5,170,131~~$4,622,553 from ~~$4,247,794~~$4,401,071 as of December 31, ~~2020,~~2021, primarily due to ~~the Company accruing for 2021 employee bonuses and~~ an increase in accrued royalties in our online gaming ~~business. Also, the Revolving Loan was reclassed from long-term to short-term~~business and an increase in ~~April 2021.~~federal income tax payable.

~~Despite the continuing effects of the COVID-19 crisis, our~~Our business was profitable and cash-flow positive from operations in Q2 ~~2021.~~2022. Based on our current forecast of operations, we believe we will have sufficient liquidity to fund our operations and to meet the obligations under our financing arrangements as ~~the~~they come due.

We continue to file applications for new or enhanced licenses in several jurisdictions, which may result in significant future legal and regulatory expenses. A significant increase in such expenses may require us to postpone growth initiatives or investments in personnel, inventory and research and development of our products. It is our intention to continue such initiatives and investments. However, to the extent we are not able to achieve our growth objectives or raise additional capital, we will need to evaluate the reduction of operating expenses.

Our operating activities provided cash of ~~$1,009,660~~$1,982,655 for the six months ended June 30, ~~2021,~~2022, compared to ~~cash used of ($984,462)~~$1,009,660 for the comparable prior period. The increase in operating cash flow was primarily due to higher ~~net~~ income ~~for the period as a result of the re-opening of a significant portion of our land-based customers after the restrictions due to the COVID-19 crisis were lifted. This increase was~~from operations, partially offset by ~~changes~~higher interest expense.

Cash used in ~~operating assets and liabilities such as Accounts Receivable, Accrued Expenses and Revenue Contract Liability, as a result of the COVID-19 crisis.~~

~~Investing~~investing activities ~~used cash of ($90,763) for~~during the six months ended June 30, ~~2021,~~2022 was $193,359, compared to cash used of ~~($22,480)~~$90,763 for the comparable prior period. This increase was primarily due to an increase in ~~expenditures for~~the acquisition of certain software ~~and property and equipment~~tools in ~~Q2 2021.~~2022 compared to the prior period.

Cash used in financing activities during the six months ended June 30, ~~2021~~2022 was ~~($1,101,900).~~$328,207. This compares to ~~$1,038,273~~$1,101,900 cash ~~provided~~used by financing activities for the comparable prior period. ~~This~~The decreased was due to ~~a $1,000,000 draw~~lower amortization of principal on our ~~Revolving Loan~~borrowings in ~~March 2020 and $835,300 from~~ the ~~Paycheck Protection Program Loan in April 2020, both being included in prior year numbers.~~ 2022 period.

Critical accounting policies. Our ~~consolidated financial statements~~significant accounting policies are described in our 2021 10-K. There have been ~~prepared in accordance with U.S. GAAP. We consider the following accounting policies~~no material changes to ~~be the most important to understanding and evaluating our financial results:~~those policies.

~~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 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 a reporting asset is below the carrying amount. If found to be impaired, the carrying amounts will be reduced, and an impairment loss will be recognized.

~~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 June 30, ~~2021,~~2022, there were no off-balance sheet arrangements.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures

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

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, ~~2021~~2022, our disclosure controls and procedures were effective.

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

Limitations on the effectiveness of internal controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

2318

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have been named in and have brought lawsuits in the normal course of business. See Note ~~11 above~~8 to condensed consolidated financial statements included in Item 1 in this Form 10-Q, and Note 11 to our audited financial statements included in Item 8 “Financial Statements and Supplementary Financial Information” in our ~~2020~~2021 10-K.

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

On June 30, ~~2021, we issued an aggregate~~ ~~of 55,000 restricted~~ ~~shares of our common stock valued at~~ ~~$200,750~~ ~~to Messrs. Lipparelli, Isaacs, Waters, and Zender,~~ ~~in consideration of their service on the Board during the three months ended June 30, 2021. These shares vested immediately on the grant date. An additional 80,000~~2022, 22,237 restricted shares of our common stock valued at ~~$181,600~~$82,499 were issued to ~~Mr. Cravens on February 17, 2021.~~members of our Board in partial consideration for their service in Q2 2022. These shares were ~~granted in consideration of the individual’s service to the Company.~~fully vested upon issuance. 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.

ITEM 6. EXHIBITS

Exhibit

Number

Description

Form

File No.

Exhibit

Filing Date

Filed

Herewith

Description

Form

File No.

Exhibit

Filing Date

Filed

Herewith

10.1

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

8-K

000-30653

10.1

March 31, 2021

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

8-K

000-30653

10.1

March 31, 2021

10.2

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

8-K

000-30653

10.1

May 17, 2021

10.3

Settlement Agreement with former Chairman and Chief Executive Officer, Robert Saucier and Triangulum Partners LLC dated October 6, 2021

8-K

000-30653

10.1

October 8, 2021

10.4

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

8-K

000-30653

10.1

November 17, 2021

10.5

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

8-K

000-30653

10.1

March 22, 2022

10.6

Cooperation Agreement, dated April 20, 2022, by and

between the Company and Tice Brown

8-K

000-30653

10.1

April 25, 2022

10.7

Amendment #3 to the Employment Agreement between the Company and Todd Cravens

8-K

000-30653

10.1

June 21, 2022

10.8

Board of Directors Service Agreement with Meredith Brill, Director

8-K

000-30653

10.1

July 15, 2022

10.9

First Amendment to Board of Directors Service Agreement with Meredith Brill, Director

8-K

000-30653

10.1

July 26, 2022

31.1

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

31.2

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

32.1

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

101

Financials in XBRL format

101.INS

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

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~SIGNATURES~~

104

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Galaxy Gaming, Inc.

Date:	August ~~13, 2021~~12, 2022

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

	Galaxy Gaming, Inc.

Date:	August ~~13, 2021~~12, 2022

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

2522


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

6480 Cameron Street Ste. 305 – Las Vegas, NV89118
(Address of principal executive offices)

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


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


	PART I
Item 1:	Financial Statements (unaudited)	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2015
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	2318
Item 4:	Controls and Procedures	2318
	PART II
Item 1:	Legal Proceedings	2419
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	2419
Item 6:	Exhibits	2420


Condensed Consolidated Balance Sheets as of June 30, ~~2021 (unaudited)~~2022 and December 31, ~~2020~~2021 (unaudited)	4
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income ~~(Loss)~~ for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	7
Notes to Condensed Consolidated Financial Statements (unaudited)	8


ASSETS	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Current assets:	(Unaudited)
Cash and cash equivalents	$	5,779,612		$	5,993,388		$	17,249,631		$	16,058,714
Accounts receivable, net of allowance of $244,242 and $145,000, respectively		4,518,011			2,493,254
Accounts receivable, net of allowance of $333,978 and $348,695, respectively								4,661,439			4,377,165
Inventory		698,945			668,525			883,575			770,248
Income tax receivable		1,498,819			1,229,795			766,225			1,536,682
Prepaid expenses		655,804			1,167,068			971,559			1,125,777
Other current assets		25,315			10,803			8,575			21,536
Total current assets		13,176,506			11,562,833			24,541,004			23,890,122
Property and equipment, net		115,370			116,724			90,579			98,594
Operating lease right-of-use assets		1,259,803			1,367,821			1,118,888			1,167,903
Assets deployed at client locations, net		273,509			232,156			426,717			360,735
Goodwill		1,091,000			1,091,000			1,091,000			1,091,000
Other intangible assets, net		14,834,294			16,086,896			12,543,802			13,677,264
Other assets		257,289			117,164			258,879			167,087
Total assets	$	31,007,771		$	30,574,594		$	40,070,869		$	40,452,705
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	378,104		$	467,792		$	527,871		$	374,323
Accrued expenses		1,738,308			1,333,032			3,014,122			2,666,073
Revenue contract liability		75,000			29,167			75,000			37,500
Current portion of operating lease liabilities								237,915			222,806
Current portion of long-term debt		2,760,792			2,222,392			767,645			1,100,369
Current portion of operating lease liabilities		217,927			195,411
Total current liabilities		5,170,131			4,247,794			4,622,553			4,401,071
Long-term operating lease liabilities		1,111,258			1,215,680			957,095			1,019,029
Long-term liabilities, net		48,006,679			49,691,184
Interest rate swap liability		—			66,009
Long-term debt and liabilities, net								52,585,791			52,143,810
Deferred tax liabilities, net		150,892			150,892			201,944			175,218
Total liabilities		54,438,960			55,371,559			58,367,383			57,739,128
Commitments and Contingencies (See Note 11)
Commitments and Contingencies (See Note 8)
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; 22,180,638 and 21,970,638 shares issued and outstanding, respectively		22,181			21,971
Preferred stock, 10,000,000 shares authorized, $0.001 par value; 0 shares issued and outstanding								—			—
Common stock, 65,000,000 shares authorized; $0.001 par value; 24,116,083 and 23,523,969 shares issued and outstanding, respectively								24,116			23,524
Additional paid-in capital		11,582,910			10,798,536			16,655,051			16,380,597
Accumulated deficit		(35,015,971	)		(35,655,163	)		(34,672,954	)		(33,543,351	)
Accumulated other comprehensive (loss) income		(20,309	)		37,691
Accumulated other comprehensive loss								(302,727	)		(147,193	)
Total stockholders’ deficit		(23,431,189	)		(24,796,965	)		(18,296,514	)		(17,286,423	)
Total liabilities and stockholders’ deficit	$	31,007,771		$	30,574,594		$	40,070,869		$	40,452,705


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


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

~~Large accelerated filer~~	☐	~~Accelerated filer~~	☐

~~Non-accelerated filer~~	☒	~~Smaller reporting company~~	☒

~~Emerging growth company~~	☐
Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☐

										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 loss		—		—		—		—			(79,207	)		(79,207	)
Stock options exercised		50,000		50		10,949		—			—			10,999
Share-based compensation		55,000		55		316,585		—			—			316,640
Balance, March 31, 2021		22,075,638		22,076		11,126,070		(35,566,426	)		(41,516	)		(24,459,796	)
Net income		—		—		—		550,455			—			550,455
Foreign currency translation gain		—		—		—		—			21,207			21,207
Stock options exercised		50,000		50		15,451		—			—			15,501
Share-based compensation		55,000		55		441,389		—			—			441,444
Balance, June 30, 2021		22,180,638	$	22,181	$	11,582,910	$	(35,015,971	)	$	(20,309	)	$	(23,431,189	)


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

	Options Issued Six Months ended June 30, 2021			Options Issued Six Months ended June 30, 2020
Dividend yield		0	%		0	%
Expected volatility	63.50% - 68.74%				70.98	%
Risk-free interest rate	0.48% - 0.87%				1.39	%
Expected life (years)		5.00			5.00

	Common Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value			Weighted- Average Remaining Contractual Term (Years)
Outstanding – December 31, 2020		2,982,000		$	1.08	$	2,101,780			2.35
Issued		60,000			2.90		—			—
Exercised		(100,000	)		0.27		(285,925	)		—
Forfeited or expired		(42,000	)		1.04		—			—
Outstanding – June 30, 2021		2,900,000		$	1.14	$	7,275,000			1.99
Exercisable – June 30, 2021		2,051,667		$	0.93	$	5,588,442			1.35