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: ~~22,354,804~~24,253,124 common shares as of November ~~9, 2021.~~4, 2022.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED ~~SEPTEMBER~~September 30, ~~2021~~2022


ASSETS	September 30, 2021			December 31, 2020			September 30, 2022			December 31, 2021
Current assets:	(Unaudited)
Cash and cash equivalents	$	7,401,870		$	5,993,388		$	19,275,180		$	16,058,714
Accounts receivable, net of allowance of $244,810 and $145,000, respectively		4,767,656			2,493,254
Accounts receivable, net of allowance of $250,821 and $348,695, respectively								3,558,352			4,377,165
Inventory		748,237			668,525			924,021			770,248
Income tax receivable		1,540,950			1,229,795			766,225			1,536,682
Prepaid expenses		631,772			1,167,068			893,024			1,125,777
Other current assets		148,535			10,803			8,640			21,536
Total current assets		15,239,020			11,562,833			25,425,442			23,890,122
Property and equipment, net		117,005			116,724			67,452			98,594
Operating lease right-of-use assets		1,225,692			1,367,821			1,061,140			1,167,903
Assets deployed at client locations, net		301,206			232,156			481,362			360,735
Goodwill		1,091,000			1,091,000			1,091,000			1,091,000
Other intangible assets, net		14,180,964			16,086,896			14,110,589			13,677,264
Other assets		229,793			117,164			245,217			167,087
Total assets	$	32,384,680		$	30,574,594		$	42,482,202		$	40,452,705
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	405,789		$	467,792		$	3,399,386		$	374,323
Accrued expenses		2,501,084			1,333,032			2,982,457			2,666,073
Revenue contract liability		43,750			29,167			44,095			37,500
Current portion of operating lease liabilities								243,038			222,806
Current portion of long-term debt		2,607,913			2,222,392			600,000			1,100,369
Current portion of operating lease liabilities		222,968			195,411
Total current liabilities		5,781,504			4,247,794			7,268,976			4,401,071
Long-term operating lease liabilities		1,075,560			1,215,680			895,318			1,019,029
Long-term liabilities, net		47,607,272			49,691,184
Interest rate swap liability		—			66,009
Long-term debt and liabilities, net								52,794,860			52,143,810
Deferred tax liabilities, net		150,892			150,892			29,000			175,218
Total liabilities		54,615,228			55,371,559			60,988,154			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; 22,299,804 and 21,970,638 shares issued and outstanding, respectively		22,300			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; 24,327,426 and 23,523,969 shares issued and outstanding, respectively								24,327			23,524
Additional paid-in capital		11,990,912			10,798,536			17,221,963			16,380,597
Accumulated deficit		(34,141,735	)		(35,655,163	)		(35,371,644	)		(33,543,351	)
Accumulated other comprehensive (loss) income		(102,025	)		37,691
Accumulated other comprehensive loss								(380,598	)		(147,193	)
Total stockholders’ deficit		(22,230,548	)		(24,796,965	)		(18,505,952	)		(17,286,423	)
Total liabilities and stockholders’ deficit	$	32,384,680		$	30,574,594		$	42,482,202		$	40,452,705

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						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020			September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Revenue:
Licensing fees	$	5,281,788		$	1,797,833		$	14,314,127		$	6,956,122		$	5,906,989		$	5,281,788		$	17,501,783		$	14,314,127
Total revenue	$	5,281,788		$	1,797,833		$	14,314,127		$	6,956,122			5,906,989			5,281,788			17,501,783			14,314,127
Costs and expenses:
Cost of ancillary products and assembled components		26,310			11,142			60,212			40,855			71,363			26,310			174,392			60,212
Selling, general and administrative		2,740,328			1,833,723			7,984,035			7,264,410			3,340,691			2,740,328			9,867,968			7,984,035
Research and development		156,768			97,081			405,327			391,333			127,774			156,768			478,866			405,327
Depreciation and amortization		722,475			575,637			2,160,217			1,499,927			740,069			722,475			2,189,789			2,160,217
Share-based compensation		449,564			178,553			1,207,649			512,818			329,140			449,564			954,550			1,207,649
Total costs and expenses		4,095,445			2,696,136			11,817,440			9,709,343			4,609,037			4,095,445			13,665,565			11,817,440
Income (loss) from operations		1,186,343			(898,303	)		2,496,687			(2,753,221	)
Income from operations														1,297,952			1,186,343			3,836,218			2,496,687
Other income (expense):
Interest income		392			1,412			1,163			25,313			18,674			392			23,166			1,163
Interest expense		(129,422	)		(162,082	)		(450,474	)		(506,922	)		(1,896,865	)		(129,422	)		(5,281,322	)		(450,474	)
Share redemption consideration		(195,482	)		(195,482	)		(586,446	)		(586,446	)		—			(195,482	)		—			(586,446	)
Foreign currency exchange (loss) gain		(33,781	)		20,014			(31,511	)		(95,976	)
Foreign currency exchange loss														(255,140	)		(33,781	)		(490,041	)		(31,511	)
Change in fair value of interest rate swap liability		—			55,330			66,009			21,650			—			—			—			66,009
Other non-recurring income		25,000			15,320			25,000			15,320
Other non-recurring (loss) income														(18,255	)		25,000			(18,255	)		25,000
Total other expense, net		(333,293	)		(265,488	)		(976,259	)		(1,127,061	)		(2,151,586	)		(333,293	)		(5,766,452	)		(976,259	)
Income (loss) before benefit (provision) for income taxes		853,050			(1,163,791	)		1,520,428			(3,880,282	)
Benefit (provision) for income taxes		21,186			(133,708	)		(7,000	)		492,807
Net income (loss)		874,236			(1,297,499	)		1,513,428			(3,387,475	)
(Loss) income before benefit (provision) from income taxes														(853,634	)		853,050			(1,930,234	)		1,520,428
Benefit (provision) from income taxes														154,944			21,186			101,941			(7,000	)
Net (loss) income														(698,690	)		874,236			(1,828,293	)		1,513,428
Foreign currency translation adjustment		(81,716	)		—			(139,716	)		—			(77,871	)		(81,716	)		(233,405	)		(139,716	)
Comprehensive income (loss)	$	792,520		$	(1,297,499	)	$	1,373,712		$	(3,387,475	)
Comprehensive (loss) income													$	(776,561	)	$	792,520		$	(2,061,698	)	$	1,373,712

Net income (loss) per share:
Net (loss) income per share:
Basic	$	0.04		$	(0.07	)	$	0.07		$	(0.18	)	$	(0.03	)	$	0.04		$	(0.07	)	$	0.07
Diluted	$	0.04		$	(0.07	)	$	0.07		$	(0.18	)	$	(0.03	)	$	0.04		$	(0.07	)	$	0.07

Weighted-average shares outstanding:
Basic		20,410,950			19,745,525			20,315,730			18,675,769			24,945,839			20,410,950			24,654,517			20,315,730
Diluted		22,364,694			19,745,525			22,080,338			18,675,769			24,945,839			22,364,694			24,654,517			22,080,338

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

										Accumulated
	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders'
	Shares		Amount		Capital		Deficit			Income (Loss)			Deficit			Common Stock						Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders'
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
																Shares			Amount			Capital			Deficit			Loss			Deficit
Beginning balance, December 31, 2021																	23,523,969		$	23,524		$	16,380,597		$	(33,543,351	)	$	(147,193	)	$	(17,286,423	)
Net loss																	—			—			—			(13,962	)		—			(13,962	)
Foreign currency translation loss		—		—		—		—			(79,207	)		(79,207	)		—			—			—			—			(41,949	)		(41,949	)
Stock options exercised		50,000		50		10,949		—			—			10,999			219,999			220			195,236			—			—			195,456
Share-based compensation		55,000		55		316,585		—			—			316,640			18,965			19			309,983			—			—			310,002
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
Balance, March 31, 2022																	23,762,933		$	23,763		$	16,885,816		$	(33,557,313	)	$	(189,142	)	$	(16,836,876	)
Net loss																	—			—			—			(1,115,641	)		—			(1,115,641	)
Foreign currency translation loss																	—			—			—			—			(113,585	)		(113,585	)
Surrender of options																	(365,751	)		(366	)		(1,279,767	)		—			—			(1,280,133	)
Stock options exercised		50,000		50		15,451		—			—			15,501			671,665			672			733,641			—			—			734,313
Share-based compensation		55,000		55		441,389		—			—			441,444			47,236			47			315,361			—			—			315,408
Balance, June 30, 2021		22,180,638	$	22,181	$	11,582,910	$	(35,015,971	)	$	(20,309	)	$	(23,431,189	)
Net income		—		—		—		874,236			—			874,236
Balance, June 30, 2022																	24,116,083		$	24,116		$	16,655,051		$	(34,672,954	)	$	(302,727	)	$	(18,296,514	)
Net loss																	—			—			—			(698,690	)		—			(698,690	)
Foreign currency translation loss		—		—		—		—			(81,716	)		(81,716	)		—			—			—			—			(77,871	)		(77,871	)
Stock options exercised		119,166		119		62,697		—			—			62,816			182,168			182			237,801			—			—			237,983
Share-based compensation		—		—		345,305		—			—			345,305			29,175			29			329,111			—			—			329,140
Balance, September 30, 2021		22,299,804	$	22,300	$	11,990,912	$	(34,141,735	)	$	(102,025	)	$	(22,230,548	)
Balance, September 30, 2022																	24,327,426		$	24,327		$	17,221,963		$	(35,371,644	)	$	(380,598	)	$	(18,505,952	)

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

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

Nine Months Ended

September 30, 2021

September 30, 2020

Cash flows from operating activities:

Net income (loss)

$
1,513,428

$
(3,387,475
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

2,160,217

1,499,927

Amortization of right-of-use assets

170,733

207,378

Amortization of debt issuance costs and debt discount

47,939

26,935

Bad debt expense

233,160

166,002

Gain on sale of property and equipment

(25,000
)

—

Change in fair value of interest rate swap liability

(66,009
)

(21,650
)
Deferred income tax benefit

—

(492,807
)
Share-based compensation

1,207,649

512,818

Unrealized foreign exchange loss

33,166

84,757

Changes in operating assets and liabilities:

Accounts receivable

(2,615,929
)

1,333,515

Inventory

(293,360
)

(123,359
)
Income tax receivable/payable

(311,155
)

(14,379
)
Prepaid expenses and other current assets

394,457

54,953

Other assets

(112,629
)

—

Accounts payable

(59,173
)

552,166

Accrued expenses

1,069,409

(698,380
)
Revenue contract liability

14,583

(707,171
)
Operating lease liabilities

(141,167
)

(254,363
)
Net cash provided by (used in) operating activities

3,220,319

(1,261,133
)
Cash flows from investing activities:

Investment in intangible assets

(49,900
)

—

Proceeds from sale of property and equipment

25,000

—

Acquisition of PGP assets, net of cash acquired

—

(6,266,335
)
Acquisition of property and equipment

(60,069
)

(38,712
)
Net cash used in investing activities

(84,969
)

(6,305,047
)
Cash flows from financing activities:

Proceeds from draw on revolving loan

—

1,000,000

Proceeds from Paycheck Protection Program

—

835,300

Payments of debt issuance costs

(46,117
)

—

Proceeds from stock option exercises

89,315

49,750

Principal payments on long-term debt

(1,697,380
)

(1,264,322
)
Net cash (used in) provided by financing activities

(1,654,182
)

620,728

Effect of exchange rate changes on cash

(72,686
)

(72,340
)
Net increase (decrease) in cash and cash equivalents

1,408,482

(7,017,792
)
Cash and cash equivalents – beginning of period

5,993,388

9,686,698

Cash and cash equivalents – end of period

$
7,401,870

$
2,668,906

Supplemental cash flow information:

Cash paid for interest

$
300,026

$
462,959

Cash paid for income taxes

$
338,447

$
77,465

Supplemental schedule of non-cash activities:

Shares issued in connection with PGP asset acquisition

$
—

$
3,989,528

Right-of-use assets obtained in exchange for lease liabilities

$
28,604

$
1,383,052

Inventory transferred to assets deployed at client locations

$
213,648

$
27,668

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, and its wholly owned and consolidated subsidiaries (“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 condensed consolidated balance sheets. 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 Securities and Exchange Commission (“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. In May 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 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.

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 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 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.

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, 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.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the ~~SEC~~Securities and Exchange Commission ("SEC"). In the opinion of management, the accompanying unaudited interim condensed financial statements contain all necessary adjustments (including all those of a recurring nature and those necessary in order for the financial statements to be not misleading) and all disclosures to present fairly our financial position and the results of our operations and cash flows for the periods ~~presented~~presented..

These unaudited interim condensed financial statements should be read in conjunction with the financial statements and the related notes thereto included in our ~~2020~~2021 10-K.

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

Basis of accounting. The financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP.

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 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.~~subsidiaries. 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.~~

Cash and cash equivalents.Our ~~We consider~~ cash ~~on hand~~ and cash ~~in banks as cash. We consider certificates~~equivalents consist 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.~~deposits. 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~~quarterly basis to determine if any receivables will potentially be uncollectible. The allowance for doubtful accounts is estimated based on specific customer reviews, historical collection trends and current economic and business conditions.

~~Inventory.~~ ~~Inventory consists of ancillary products such as signs, layouts and bases for the various games and electronic devices and components to support all our~~ ~~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 valued at the lower of net realizable value or cost, which is determined by the 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 accumulated depreciation. Depreciation on assets deployed at client locations is calculated using the straight-line method over a three-year period.Goodwill.

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

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


Patents		4 - 20 years
Client relationships		9 - 22 years
Trademarks		20 - 30 years
~~Non-compete agreements~~Intellectual property		912 years
~~Internally-developed software~~Non-compete agreements		9 years
Software		3 years

Other intangible assets (Note 7)5) are analyzed for potential impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds the fair value, which is the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the intangible ~~assets~~assets. ~~. NaN~~No impairment was recorded for the three and nine months ended September 30, ~~2021.~~2022.

~~Interest rates swap agreement~~. In May 2018, the Company 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 has not been designated a hedging instrument and is adjusted to fair value through earnings in the Company’s statements of operations. The interest rate swap agreement matured on May 1, 2021.

Fair value of financial instruments. We estimate fair value for financial assets and liabilities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value, provides guidance for measuring fair value, requires certain disclosures and discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

•

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

•

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•

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

•

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

•

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

The estimated fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature. The estimated fair value of our long-term debt approximates its carrying ~~value~~amount based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk. The Company currently has no financial instruments measured at estimated fair value on a recurring ~~basis based on valuation reports provided by counterparties.~~basis.

Leases. We account for lease components (such as rent payments) separately from non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). Operating and finance leases with terms greater than 12 months are recorded on the condensed consolidated balance sheets as right-of-use assets with corresponding lease liabilities. Lease expense is recognized on a straight-line basis using the discount rate implicit in each lease or our incremental borrowing rate at lease commencement date (Note 9)6).

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~~Progressive Games Partners LLC ("PGP") is the Euro. Gains and losses from settlement of transactions involving foreign currency amounts are included in other income or expense in the 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)~~loss in the consolidated statements of changes in stockholders’ ~~deficit~~.deficit.

Net income (loss) per share. Basic net income (loss) 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 (loss) 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.~~period.

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

~~Share-based compensation.~~ We recognize compensation expense for all restricted stock and 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.10

Employment agreement amendment. On June 15, 2022, the Company entered into amendment number 3 (the "Amendment") to the employment agreement, dated July 27, 2017 (and previously amended by amendments number 1 and number 2), between the Company and Todd P. Cravens, the Company’s President and Chief Executive Officer ("CEO"). The Amendment (i) 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 andextends the term of the ~~award. We estimate employee~~agreement from July 27, 2022, to July 26, 2024; (ii) provides for a potential equity incentive grant of stock ~~option exercise behavior based on actual historical exercise activity~~for calendar year 2022 and ~~assumptions regarding future exercise activity~~calendar year 2023, with (x) a grant of ~~unexercised, outstanding options.~~20,000 shares if the Company achieves 80% of its earnings before interest, taxes, depreciation and amortization ("EBITDA") Budget target (as defined by management and as adopted by the Board for the calendar year) for calendar year 2022, (y) a grant of 20,000 shares if the Company achieves 80% of its EBITDA Budget target (as adopted by the Board for the calendar year) for calendar year 2023, and (z) an additional grant under the following performance goals for each of calendar years 2022 and 2023: a) 100% of EBITDA Target – 20,000 shares, b) 110% of EBITDA Target – 30,000 shares, and c) 115% of EBITDA Target – 40,000 shares; and (iii) increases Mr. Cravens' annual compensation to $300,000 effective as of August 01, 2022.

All “shares” above will vest one year from the date of grant. Should Mr. Cravens leave the Company or be terminated with good cause prior the vesting date he will forfeit any and all rights to the shares. Pursuant to the Amendment, the Board maintains reasonable, good faith discretion to make adjustments to the Company's EBITDA performance relating to the Company’s management incentive program, where appropriate in each year, to account for factors contributing positively and negatively to the Company's actual recorded EBITDA performance that could be considered (by the Board) unrelated to or not driven by the Company's performance.

In addition, should there be a circumstance that may trigger a change of control, as defined in the Company's 2014 Equity Incentive Plan (as amended, the "2014 Equity Plan"), in either the 2022 or 2023 calendar years, if not already granted, the 20,000 shares from each of the 2022 and 2023 CEO executive Incentive from the 80% EBITDA Target, will be granted immediately. The Board retains discretion to be exercised reasonably and in good faith to accelerate the grant of remaining shares under the 2022 and 2023 equity incentives set forth in the Amendment.

The balance of the employment agreement, as previously amended, remains in full force and effect.

Option surrender. The Company's 2014 Equity Plan allows option holders to satisfy the exercise price of stock options, and the related tax withholding resulting from such exercise, by cash and by other means of "cashless" exercise, including: (a) by tendering, either actually or by attestation, shares of stock; (b) by irrevocably authorizing a third party to sell shares of stock (or a sufficient portion of the shares) acquired upon exercise of the option and to remit to the Company a sufficient portion of the sale proceeds to pay the exercise price and any tax withholding resulting from such exercise; (c) with respect to options, payment through a net exercise such that, without the payment of any funds, the option holder may exercise the option and receive the net number of shares of stock equal in value to (i) the number of shares of stock as to which the option is being exercised, multiplied by (ii) a fraction, the numerator of which is the fair market value less the exercise price, and the denominator of which is such fair market value (the number of net shares of stock to be received shall be rounded down to the nearest whole number of shares of stock); (d) by personal, certified or cashiers’ check; (e) by other property deemed acceptable by the committee administering the 2014 Equity Plan; or (f) by any combination thereof.

On June 23, 2022, pursuant to the 2014 Equity Plan and a Stock Option Grant Notice and Stock Option Agreement dated July 27, 2017, Mr. Cravens exercised options and satisfied the exercise price and applicable tax withholding through a net settlement by surrendering to the Company options to purchase shares having a fair market value equal to the sum of the exercise price and the taxes. The exercise price and related tax withholding totaled $1,280,133 and was recorded as a reduction to additional paid-in capital and common stock.

Other significant accounting policies. ~~See Note 2 in Item 8 “Financial Statements and Supplementary Financial Information” included~~Our significant accounting policies are described in our ~~2020~~2021 10-K. There have been no material changes to those policies.

~~Recently adopted accounting standards.~~ ~~Simplifying the Accounting for Income Taxes.~~ ~~In December 2019, the FASB issued Accounting Standard (“ASU”) 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~~Accounting Standards Update ("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.

Reference Rate Reform. In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. The amendments in ASU 2021-01 are effective in the same timeframe as ASU 2020-04. Currently, we do not anticipate the need to modify any existing debt agreements as a result of reference rate reform in the current year. We are currently evaluating the impact, but 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 September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2022		2021		2022		2021
North America and Caribbean	$	2,476,619	$	971,147	$	7,394,096	$	4,262,408	$	2,602,001	$	2,476,619	$	7,577,670	$	7,394,096
Europe, Middle East and Africa		2,805,169		826,686		6,920,031		2,693,714		3,304,988		2,805,169		9,924,113		6,920,031
Total revenue	$	5,281,788	$	1,797,833	$	14,314,127	$	6,956,122	$	5,906,989	$	5,281,788	$	17,501,783	$	14,314,127

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 ~~$942,159~~$432,718 and ~~$502,860 for the periods ended~~$771,294 as of September 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:

September 30,

December 31,

2021

2020

Raw materials and component parts

$
397,008

$
300,244

Finished goods

351,229

368,281

Inventory, net

$
748,237

$
668,525

~~NOTE 5. PROPERTY AND EQUIPMENT~~

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

September 30,

December 31,

2021

2020

Furniture and fixtures

$
312,639

$
312,639

Automotive vehicles

171,672

215,127

Office and computer equipment

389,628

332,544

Leasehold improvements

35,531

32,547

Property and equipment, gross

909,470

892,857

Less: accumulated depreciation

(792,465
)

(776,133
)
Property and equipment, net

$
117,005

$
116,724

For the three months ended September 30, 2021 and 2020, depreciation expense related to property and equipment was $17,570 and $22,153, respectively. For the nine months ended September 30, 2021 and 2020, depreciation expense related to property and equipment was $59,788 and $67,469, respectively.

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

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

September 30,

December 31,

2021

2020

Enhanced table systems

$
1,056,869

$
890,560

Less: accumulated depreciation

(755,663
)

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

$
301,206

$
232,156


	September 30,		December 31,
	2022		2021
Raw materials and component parts	$	541,611	$	413,320
Finished goods		382,410		356,928
Inventory	$	924,021	$	770,248

For the three months ended September 30, 2021 and 2020, depreciation expense related to assets deployed at client locations was $51,575 and $51,778, respectively. For the nine months ended September 30, 2021 and 2020, depreciation expense related to assets deployed at client locations was $144,598 and $174,334, 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:


	September 30,			December 31,			September 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
Intellectual property								2,000,000			—
Non-compete agreements		660,000			660,000			660,000			660,000
Software		233,314			183,415			692,966			283,340
Other intangible assets, gross		31,224,393			31,174,494			33,782,786			31,373,160
Less: accumulated amortization		(17,043,429	)		(15,087,598	)		(19,672,197	)		(17,695,896	)
Other intangible assets, net	$	14,180,964		$	16,086,896		$	14,110,589		$	13,677,264

For the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, amortization expense related to other intangible assets was ~~$653,330~~$667,913 and ~~$501,706,~~$653,330, and $1,976,301 and $1,955,832, respectively.

In November 2011, the Company acquired certain intellectual property in exchange for contingent consideration to be paid in the future based on licensing by Galaxy of games utilizing the intellectual property. For the ~~nine~~three months ended September 30, ~~2021 and 2020, amortization expense related to other intangible assets~~2022, the contingent consideration (accounted for as royalty expense) was ~~$1,955,832 and $1,258,124, respectively.~~

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

Twelve Months Ending September 30,

Total

2022

$
2,601,469

2023

1,448,320

2024

1,437,093

2025

1,424,276

2026

1,424,276

Thereafter

5,845,530

Total amortization

$
14,180,964

~~NOTE 8. ACCRUED EXPENSES~~

~~Accrued expenses consisted~~$78,631. Effective September 30, 2022, the Company paid the seller of the ~~following at:~~ contract assets $2,000,000 and terminated any obligation to pay contingent consideration after September 30, 2022. As a result of entering into the agreement, accounts payable at September 30, 2022 increased by $2,000,000. The actual payment of $2,000,000 was made on October 4, 2022.

NOTE 6. LEASES

September 30,

December 31,

2021

2020

Share redemption consideration

$
315,294

$
510,776

Commissions and royalties

869,068

398,096

Payroll and related

931,393

173,487

Interest

144,727

95,879

Income tax payable

3,003

42,218

Other

237,599

112,576

Total accrued expenses

$
2,501,084

$
1,333,032

Lessee

~~NOTE 9. LEASES~~

~~Lessee~~

We have operating leases for our corporate office 2and two satellite facilities in the state of ~~Washington and for certain equipment.~~Washington. 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 September 30, ~~2021, our~~2022, no renewal option periods were included in any estimated minimum lease term as the options were not deemed reasonably certain to be exercised. Our leases have remaining lease terms ranging from ~~three~~15 months to 6354 months.

Supplemental balance sheet information related to leases is as follows:


	As of September 30, 2021				As of September 30, 2022
	Amount			Classification	Amount			Classification
Operating leases:
Operating lease right-of-use lease assets	$	1,225,692			$	1,061,140

Operating lease current liabilities	$	222,968		Current portion of operating lease liabilities	$	243,038		Current portion of operating lease liabilities

Operating lease long-term liabilities		1,075,560		Long-term operating lease liabilities		895,318		Long-term operating lease liabilities

Total operating lease liabilities	$	1,298,528			$	1,138,356

Weighted-average remaining lease term:
Operating leases	5.1 years					4.19

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

The components of lease expense are as follows:

Three Months Ended September 30, 2021

Three Months Ended September 30, 2022

Amount

Classification

Amount

Classification

Operating lease cost

70,755

Selling, general and administrative expense

72,071

Selling, general and administrative expense

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2022

Amount

Classification

Amount

Classification

Operating lease cost

211,366

Selling, general and administrative expense

214,225

Selling, general and administrative expense

Supplemental cash flow information related to leases is as follows:

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2022

Amount

Classification

Amount

Classification

Cash paid for amounts included in the

measurement of lease liabilities:

Operating cash flows from operating leases

183,301

Net income

209,222

Net income

Right-of-use assets obtained in exchange

for lease liabilities:

Operating leases

28,604

Supplemental cash flow information

71,901

Supplemental cash flow information

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

Twelve Months Ending September 30,	Amount
2022	$	222,968

			Amount
For the remaining three months ending December 31, 2022			$	72,080
Years ending December 31,
2023		229,705		290,877
2024		238,179		288,892
2025		255,707		294,507
2026		277,812		302,011
Thereafter		74,157
Total lease liabilities	$	1,298,528
2027				2,985
Total minimum lease payments				1,251,352
Less: imputed interest				(112,996	)
Total operating lease liability				1,138,356
Less: current portion				(243,038	)
Long-term portion			$	895,318

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

Long-term liabilities consisted of the following at:

September 30,

December 31,

2021

2020

Nevada State Bank credit agreement

$
7,251,800

$
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

5,813

22,614

Insurance notes payable

—

519,194

Long-term liabilities, gross

50,354,014

52,051,393

Less: Unamortized debt issuance costs

(138,829
)

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

50,215,185

51,913,576

Less: Current portion

(2,607,913
)

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

$
47,607,272

$
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. On October 7, 2021, Galaxy announced that it had entered into a Settlement Agreement with Triangulum and Robert Saucier. The Settlement Agreement is contingent upon payment to Triangulum in the amount of $39,096,401, plus accrued and unpaid interest at a rate of 2% per annum from May 6, 2021, until the date of payment. Upon payment, the Share Redemption Consideration Obligation will be extinguished.


	September 30,			December 31,
	2022			2021
Fortress credit agreement	$	59,550,000		$	60,000,000
Insurance notes payable		—			500,369
Long-term debt and liabilities, gross		59,550,000			60,500,369
Less: Unamortized debt issuance costs		(6,155,140	)		(7,256,190	)
Long-term debt and liabilities, net of debt issuance costs		53,394,860			53,244,179
Less: Current portion of long-term debt		(600,000	)		(1,100,369	)
Long-term debt and liabilities, net	$	52,794,860		$	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 September 30, 2021, the principal amount outstanding under the Term Loan component of the Credit Agreement was $6,251,800, bringing the total amount outstanding under the Credit Agreement at ~~September 30, 2021, to $7,251,800.~~

~~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” and such agreement, “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.~~

1514

~~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~~8.00x for the quarter ending September 30, ~~2021 with semi-annual step-downs of 0.25x commencing December 31, 2021~~2022, 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 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 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 as~~did not have control agreements. The Company informed Fortress of ~~June 30, 2021. However,~~the covenant breach, and a Consent and Waiver Agreement was executed among the Company, ~~was not in compliance with its Minimum EBITDA covenant~~Fortress as ~~of June 30, 2021. On May 13, 2021,~~Agent, and the ~~Company and NSB entered into a Forbearance~~Lenders party to the ~~A&R~~Fortress Credit Agreement ~~in which NSB agreed to forbear from exercising any~~on March 16, 2022. As of ~~its rights or remedies that would result from the potential breaches of the Minimum EBITDA~~March 31, 2022, and ~~Total Leverage ratio covenant for the quarters ending June 30, 2021 and~~through September 30, ~~2021. The~~2022, the Company was in compliance with ~~its Fixed Charge Coverage ratio, Senior Leverage ratio, Minimum EBITDA and Minimum Liquidity~~the covenants as of September 30, 2021. However, the Company was not in compliance with its Total Leverage ratio as of September 30, 2021. On May 13, 2021, the Company and NSB entered into a Forbearance 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 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 of the assets of the Company. The Company’s wholly owned subsidiary, PGP, is also a guarantor of the A&R~~Fortress Credit Agreement, and ~~related agreements.~~

~~Main Street Priority Loan Borrowings~~maintained bank account balances within the $.1 ~~On October 26, 2020,~~million threshold.

In connection with entering into the Fortress Credit Agreement, the Company ~~obtained an unsecured loan~~also issued warrants to purchase a total of ~~$4,000,000 through Zions Bancorporation, N.A. dba Nevada State Bank under section 13(3)~~up to 778,320 shares of the ~~Federal Reserve Act.~~

~~The MSPLP bears interest~~Company’s common stock to certain affiliates of 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 September 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 September 30,	Total
2022	$	2,607,913

			Total
For the remaining three months ending December 31, 2022			$	150,000
Years ending December 31,
2023		4,649,700		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	$	50,354,014	$	59,550,000

Concentration of risk. We are exposed to risks associated with clients who represent a significant portion of total revenues. ~~We do not believe the loss of any single customer would materially impact our operating results, as our licenses are within well-established markets.~~ For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, we had the following client ~~revenue~~ concentrations:


	Location	Nine Months Ended September 30, 2021 Revenue (a)			Nine Months Ended September 30, 2020 Revenue			Accounts Receivable September 30, 2021		Accounts Receivable December 31, 2020		Location	Nine Months Ended September 30, 2022 Revenue			Nine Months Ended September 30, 2021 Revenue			Accounts Receivable September 30, 2022		Accounts Receivable December 31, 2021
Client A	Europe		27.1	%		17.0	%	$	433,864	$	348,781	Europe		27.5	%		27.1	%	$	529,182	$	—
Client B	North America		10.3	%		8.6	%	$	444,961	$	400,663	North America		8.5	%		10.3	%	$	843,946	$	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 ~~the Triangulum Lawsuit~~turn, utilizes that intellectual property in certain games licensed to clients. In these purchase 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 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~~license agreements, 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 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.

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.

On October 7, 2021, the Company announced that it had entered into a Settlement Agreement with Triangulum and Robert Saucier. The Settlement Agreement is contingent upon payment to Triangulum in the amount of $39,096,401, plus accrued and unpaid interest at a rate of two percent (2%) from May 6, 2021 until the date of payment. In connection with the Settlement Agreement, the parties submitted joint stipulations to stay all matters in the litigation, including appeals. The courts entered orders effectively staying the matters until the matters have been dismissed or until January 7, 2022, at which time the parties will file case status reports. The Company is in discussions with parties to raise the capital neededmay agree to pay the ~~settlement amount by December 31, 2021. If~~seller of the intellectual property a fee if and when the Company ~~does not make~~receives revenue from games containing the ~~payment by December 31, 2021, the Settlement Agreement will expire unless extended by the consent of all parties.~~

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, the Company’s Motion to Dismiss was granted, with prejudice to the right of TMAX to file an amended complaint. The Company considers the matter closed.

~~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.property.

~~Royalty Agreements.~~ ~~Certain of the Company’s licensing contracts include an initial one-time payment and future royalty payments dependent upon future sales.~~NOTE 9. INCOME TAXES

~~NOTE 12. INCOME TAXES~~

Our forecasted annual effective tax rate (“AETR”) at September 30, ~~2021~~2022 was ~~10.4%~~4.3%, as compared to ~~12.0%~~10.4% at September 30, ~~2020.~~2021. This decrease was primarily due to excess tax benefits ~~from stock-based compensation, utilization of tax credits,~~reduced foreign rate differential, reduced Subpart F inclusion and a change in valuation allowance ~~as a result~~because of changes in estimates of current-year ordinary income considered in determining the forecasted AETR.

For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, our effective tax rate (“ETR”) was ~~0.5%~~5.2% and ~~12.7%~~0.5%, respectively. The ~~decrease~~increase in the ETR for the nine months ended September 30, ~~2021~~2022 is a result of increased favorable discrete items related to excess tax benefits from stock-based compensation that were greater than the previous comparable ~~period.~~

~~NOTE 13. SHARE-BASED COMPENSATION~~

~~Stock Options~~

~~On May 10, 2018,~~period, in addition to changes in valuation allowance as the ~~Board ratified and confirmed the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan is a broad-based plan under which shares~~result of ~~our common stock are authorized for issuance for awards, including stock options, stock appreciation rights, restricted stock, and cash incentive awards to~~ ~~members~~changes in estimates of ~~our Board, executive officers, employees and independent contractors~~current-year ordinary income.~~. As of~~ ~~September 30, 2021, a~~ ~~total of 7,550,750 shares of our common stock were authorized for issuance. As of September 30, 2021, 933,701 shares~~ ~~remained available for issuance as new awards under the 2014 Plan.~~

During the nine months ended September 30, 2021 and 2020, we issued 90,000 and 465,000 options to purchase our common stock, respectively, to members of our Board, executive officers, employees and independent contractors. The fair value of all stock options granted for the nine months ended September 30, 2021 and 2020 was determined to be $162,252 and $435,639, respectively, using the Black-Scholes option pricing model with the following assumptions:

Options Issued Nine Months Ended September 30, 2021

Options Issued Nine Months Ended September 30, 2020

Dividend yield

0
%

0
%
Expected volatility

61.12% - 68.74%

70.98% - 76.97%

Risk-free interest rate

0.48% - 0.98%

0.27% - 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

90,000

3.38

—

—

Exercised

(219,166
)

0.41

(740,953
)

—

Forfeited or expired

(42,000
)

1.04

—

—

Outstanding – September 30, 2021

2,810,834

$
1.20

$
8,793,377

1.83

Exercisable – September 30, 2021

2,095,833

$
1.00

$
6,980,567

1.34

~~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

90,000

3.38

—

—

Vested

(178,333
)

1.59

—

—

Forfeited

(41,666
)

1.04

—

—

Unvested – September 30, 2021

715,001

$
1.79

$
1,812,810

3.27

~~As of September 30, 2021, our unrecognized share-based compensation expense associated with the stock options issued was $470,548, which will be amortized over a weighted-average period of 1.93 years.~~15

~~Restricted Awards~~

~~During the nine months ended September 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 employee 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 11, 2021. As of ~~September 30, 2021, there were~~ ~~2,291,133~~ ~~restricted shares outstanding. Of the restricted shares outstanding,~~ ~~235,000~~ ~~restricted shares were unvested.~~

NOTE ~~14.~~10. SUBSEQUENT EVENTS

On ~~October 7, 2021,~~November 11, 2022, the Board of Directors reauthorized repurchases of the Company's common stock of up to $750,000, subject to the Company ~~announced that it had entered into a Settlement Agreement with Triangulum and Robert Saucier. The Settlement Agreement is contingent upon payment to Triangulum~~remaining in ~~the amount of $39,096,401, plus accrued and unpaid interest at a rate of two percent (2%) from May 6, 2021 until the date of payment. In connection~~compliance with the ~~Settlement~~provisions of the Fortress Credit Agreement and, in particular, the parties submitted joint stipulations to stay all matters in the litigation, including appeals. The courts entered orders effectively staying the matters until the matters have been dismissed or until January 7, 2022, at which time the parties will file case status reports.$750,000 restricted payments basket.

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 nine months ended September 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 September 30, ~~2021~~2022 and ~~2020.~~2021. For the three months ended September 30, ~~2021,~~2022, we generated ~~gross~~ revenues of ~~$5,281,788~~$5,906,989 compared to ~~$1,797,833~~$5,281,788 for the comparable prior-year period, representing an increase of ~~$3,483,955,~~$625,201, or ~~193.8%~~11.8%. 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-U.S. markets and significantly ~~due primarily to~~increased revenue in existing or newly-opened U.S. markets. However, revenue in both Galaxy Core and Galaxy Digital were adversely affected by the ~~acquisition~~strengthening of ~~PGP in August of 2020 as well as to the opening of new markets in~~ the U.S. Dollar versus the Euro and UK Pound. In local currency, revenues in Galaxy Core increased 10.3% and revenues in Galaxy Digital increased 31.3%.

Selling, general and administrative expenses for the three months ended September 30, ~~2021~~2022 were ~~$2,740,328~~$3,340,691 compared to ~~$1,833,723~~$2,740,328 for the comparable prior-year period, representing an increase of ~~$906,605,~~$600,363, or ~~49.4%~~21.9%. This increase was due to higher internal labor and related expenses ~~(base salary, payroll-related taxes, bonus accrual~~due to both an increase in the number of employees and ~~travel). Also, higher insurance payments~~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, we incurred significant outside consulting expenses in the ~~financed D&O policy contributed to the higher~~ current ~~period expenses. This increase was offset by a decrease in legal fees~~quarter related to ~~the Triangulum Lawsuit and overall general business.~~ enhancing our financial reporting systems.~~In Q3 2021, the Company incurred $95,894 in legal expenses associated with the Triangulum Lawsuit as compared to $183,059 for the comparable prior-year period.~~

Research and development expenses for the three months ended September 30, ~~2021~~2022 were ~~$156,768,~~$127,774, compared to ~~$97,081~~$156,768 for the comparable prior-year period, representing an decrease of $28,994, or 18.5%. This decrease was primarily due to higher internal labor and related expenses.

Share-based compensation expenses for the three months ended September 30, 2022 were $329,140, as compared to $449,564 for the comparable prior-year period, representing a decrease of $120,424, or 26.8%. The decrease was due primarily to a change in the level and the composition of fees paid to members of our Board in 2022.

As a result of the changes described above, income from operations increased $111,609 or 9.4% to $1,297,952 for the three months ended September 30, 2022, compared to income from operations of $1,186,343 for the comparable prior-year period.

Total interest expense increased $1,767,443 to $1,896,865 for the three months ended September 30, 2022, compared to $129,422 for the comparable prior-year period. The increase was attributable to a larger balance of debt outstanding in the current period as compared to the prior year, and higher rates of interest on the current borrowings.

No share redemption consideration for the three months ended September 30, 2022, compared to $195,482 in the comparable prior-year period. The reduction is due to the payment in full of the Triangulum Redemption Consideration Obligation in November 2021.

Income tax benefit was $154,944 for the three months ended September 30, 2022, compared to income tax benefit of $21,186 for the comparable prior-year period. The increase in benefit is primarily the result of increased favorable discrete items related to excess tax benefits from stock-based compensation and changes in valuation allowance against deferred tax attributes because of changes in estimates of current-year ordinary income.

Results of operations for the nine months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022, we

generated revenues of $17,501,783 compared to $14,314,127 for the comparable prior-year period, representing an increase of ~~$59,687,~~$3,187,656, or ~~61.5%~~22.3%. This increase was attributable to the continued recovery of Galaxy Core from the effects of the COVID-19 crisis, 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-U.S. markets and significantly increased revenue in existing or newly-opened U.S. markets. However, revenue in both Galaxy Core and Galaxy Digital were adversely affected by the strengthening of the U.S. Dollar versus the Euro and UK Pound. In local currency, revenues in Galaxy Core increased 17.7% and revenues in Galaxy Digital increased 37.2%.

Selling, general and administrative expenses for the nine months ended September 30, 2022 were $9,867,968 compared to $7,984,035 for the comparable prior-year period, representing an increase of $1,883,933, or 23.6%. This increase was 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. A decrease in legal fees related to the Triangulum litigation and settlement was almost entirely offset by legal and other expenses related to the contested proxy solicitation.

Research and development expenses for the nine months ended September 30, 2022 were $478,866, compared to $405,327 for the comparable prior-year period, representing an increase of $73,539, or 18.1%. This increase was primarily due to higher internal labor and related expenses (base salary, payroll-related taxes, commissions and bonus accrual).

Share-based compensation expenses for the ~~three~~nine months ended September 30, ~~2021~~2022 were ~~$449,564,~~$954,550, as compared to ~~$178,553~~$1,207,649 for the comparable prior-year period, representing ~~an increase~~a decrease of ~~$271,011,~~$253,099, or ~~151.8%~~21.0%. ~~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 ~~$2,084,646~~$1,339,531 or ~~232.1%~~53.7% to ~~$1,186,343~~$3,836,218 for the ~~three~~nine months ended September 30, ~~2021,~~2022, compared to ~~a loss~~income from operations of ~~($898,303)~~$2,496,687 for the comparable prior-year period.

Total interest expense ~~decreased $32,660, or 20.2%,~~increased $4,830,848 to ~~$129,422~~$5,281,322 for the ~~three~~nine months ended September 30, ~~2021,~~2022, compared to ~~$162,082~~$450,474 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~~There was ~~$195,482 in 2021 compared to $195,482 in 2020. The~~no share redemption consideration for the nine months ended September 30, 2022, compared to $586,446 in the comparable prior-year period. The reduction is ~~related~~due to the payment in full of the Triangulum Redemption Consideration ~~Obligation.~~Obligation in November 2021.

Income tax benefit was ~~($21,186)~~$101,941 for the ~~three~~nine months ended September 30, ~~2021,~~2022, compared to income tax expense of ~~$133,708~~$7,000 for the comparable prior-year period. The ~~decrease~~increase in ~~expense~~benefit is primarily athe result of increased favorable discrete items related to excess tax benefits from stock-based ~~compensation.~~

~~Results~~compensation and changes in valuation allowance against deferred tax attributes because of ~~operations for the nine months ended September 30, 2021 and 2020.For the nine months ended September 30, 2021, we generated gross revenues~~changes in estimates of $14,314,127 compared to $6,956,122 for the comparable prior-year period, representing an increase of $7,358,005, or 105.8%. This increase was directly attributable to the re-opening of a significant portion of our land-based customerscurrent-year ordinary income.

2118

after the restrictions due to the COVID-19 crisis were lifted. Also, our online gaming revenues increased significantly due primarily to the acquisition of PGP in August of 2020 as well as to the opening of new markets in the U.S.

Selling, general and administrative expenses for the nine months ended September 30, 2021 were $7,984,035 compared to $7,264,410 for the comparable prior-year period, representing an increase of $719,625, or 9.9%. This increase was due to ~~higher insurance payments related to the financed D&O policy and higher accounting and consulting fees. These increases were offset by~~ a ~~decrease in legal fees related to the Triangulum Lawsuit and overall general business.~~ For the nine months ended September 30, 2021, the Company incurred $425,540 in legal expenses associated with the Triangulum Lawsuit as compared to $836,415 for the nine months ended September 30, 2020.

Research and development expenses for the nine months ended September 30, 2021 were $405,327, compared to $391,333 for the comparable prior-year period, representing an increase of $13,994, or 3.6%. This increase was primarily due to ~~higher internal labor and related expenses (base salary, payroll-related taxes and bonus expense).~~

Share-based compensation expenses for the nine months ended September 30, 2021 were $1,207,649, as compared to $512,818 for the comparable prior-year period, representing an increase of $694,831, or 135.5%. This increase was due to the quarterly restricted shares granted to 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.

As a result of the changes described above, income from operations increased $5,249,908 or 190.7% to $2,496,687 for the nine months ended September 30, 2021, compared to a loss of $2,753,221 for the comparable prior-year period.

Total interest expense decreased $56,448, or 11.1%, to $450,474 for the nine months ended September 30, 2021, compared to $506,922 for the comparable prior-year period. The decrease was mainly attributable to lower interest expense on the Term Loan due to lower balances and lower interest rates.

~~Share redemption consideration was $586,446 in 2021 compared to $586,446 in 2020. The share redemption consideration is related to the Triangulum Redemption Consideration Obligation.~~

Income tax expense was $7,000 for the nine months ended September 30, 2021, compared to income tax benefit of ($492,807) for the comparable prior-year period. The increase in expense is primarily a result of improved business conditions in the current period following the COVID-19 pandemic as well as favorable discrete items related 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 (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 U.S. GAAP. However, Adjusted EBITDA is used by management to evaluate our operating performance. Management believes that disclosure of the Adjusted EBITDA metric offers investors, regulators and other stakeholders a view of our operations in the same manner management evaluates our performance. When combined with U.S. GAAP results, management believes Adjusted EBITDA provides a comprehensive understanding of our financial results. Adjusted EBITDA should not be considered as an alternative to net income or to net cash provided by operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating our performance. A reconciliation of U.S. GAAP net income to Adjusted EBITDA is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Adjusted EBITDA Reconciliation:

2021

2020

2021

2020

Net income (loss)

$
874,236

$
(1,297,499
)

$
1,513,428

$
(3,387,475
)
Interest expense

129,422

162,082

450,474

506,922

Share redemption consideration

195,482

195,482

586,446

586,446

Interest income

(392
)

(1,412
)

(1,163
)

(25,313
)
Depreciation and amortization

722,475

575,637

2,160,217

1,499,927

Share-based compensation

449,564

178,553

1,207,649

512,818

Foreign currency exchange loss (gain)

33,781

(20,014
)

31,511

95,976

Change in fair value of interest rate
swap liability

—

(55,330
)

(66,009
)

(21,650
)
(Benefit) provision for income taxes

(21,186
)

133,708

7,000

(492,807
)
Other non-recurring income

(25,000
)

(15,320
)

(25,000
)

(15,320
)
Severance expense

8,846

(3,243
)

12,596

20,058

Special project expense⁽¹⁾

95,894

183,059

425,540

836,415

Adjusted EBITDA

$
2,463,122

$
35,703

$
6,302,689

$
115,997


	Three Months Ended September 30,						Nine Months Ended September 30,
Adjusted EBITDA Reconciliation:	2022			2021			2022			2021
Net (loss) income	$	(698,690	)	$	874,236		$	(1,828,293	)	$	1,513,428
Interest expense		1,896,865			129,422			5,281,322			450,474
Share redemption consideration		—			195,482			—			586,446
Interest income		(18,674	)		(392	)		(23,166	)		(1,163	)
Depreciation and amortization		740,069			722,475			2,189,789			2,160,217
Share-based compensation		329,140			449,564			954,550			1,207,649
Foreign currency exchange loss (gain)		255,140			33,781			490,041			31,511
Change in fair value of interest rate swap liability		—			—			—			(66,009	)
Provision (benefit) for income taxes		(154,944	)		(21,186	)		(101,941	)		7,000
Other non-recurring income		18,255			(25,000	)		18,255			(25,000	)
Severance expense		—			8,846			28,477			12,596
Special project expense (benefit) - Triangulum		—			116,798			(86,959	)		413,024
Special project expense - Other		(17,000	)		(20,904	)		459,904			12,516
Adjusted EBITDA	$	2,350,161		$	2,463,122		$	7,381,979		$	6,302,689

~~(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 September 30, ~~2021,~~2022, we had total current assets of ~~$15,239,020~~$25,425,442 and total assets of ~~$32,384,680.~~$42,482,202. 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 total assets as of~~at September 30, ~~2021~~2022 was due primarily ~~due~~ to ~~an increase~~higher revenues in the ~~accounts receivable balance, resulting from higher billings and lower collections directly related to the COVID-19 crisis.~~2022 period. The increase in total assets was ~~offset by monthly amortization on~~primarily due to the ~~Company’s long-term other intangible assets.~~addition of $2,000,000 in intangibles through the exercise of an option in a contract pursuant to which we terminated the obligation to pay any consideration to a party from whom we acquired game assets in 2011.

Our total current liabilities as of September 30, ~~2021~~2022 increased to ~~$5,781,504~~$7,268,976 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. These increases were offset by a decrease in the notes payable balance, as the final payment on the financed D&O insurance policy was made in September 2021.~~federal income tax payable.

~~Despite the continuing effects of the COVID-19 crisis, our~~Our business was ~~profitable and~~ cash-flow positive ~~in Q3 2021.~~from operations as of September 30, 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 ~~$3,220,319~~$4,502,477 for the nine months ended September 30, ~~2021,~~2022, compared to cash ~~used~~provided of ~~($1,261,133) for~~$3,220,319 in 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. Also, higher depreciation and amortization and share-based compensation contributed to the higher operating cash flow. These increases werefrom operations, partially offset by ~~changes~~higher interest expense.

Cash used in ~~operating assets and liabilities such as Accounts Receivable, Accounts Payable, Accrued Expenses and Revenue Contract Liability.~~

~~Investing~~investing activities ~~used cash of ($84,969) for~~during the nine months ended September 30, ~~2021,~~2022 was $434,576, compared to cash used of ~~($6,305,047) for~~$84,969 in the ~~comparable~~ prior period. This ~~decrease~~ was primarily due to an increase in the acquisition of ~~PGP~~certain software tools in ~~August 2020.~~2022.

Cash used in financing activities during the nine months ended September 30, ~~2021~~2022 was ~~($1,654,182). This compares~~$421,307, compared to ~~$620,728~~ cash ~~provided by financing activities for~~used of $1,654,182 in the ~~comparable~~ prior period. This was due to ~~a $1,000,000 draw~~principal payments on our ~~Revolving Loan~~borrowings in ~~March 2020 and $835,300~~2022, offset by the proceeds from the Paycheck Protection Program Loan in April 2020, both being included in prior year numbers. Also, principal payments in the current year were higher than prior year due to an increase in the financed payments on the Company’s D&O insurance policy.stock option exercised.

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. The Company has the ability but is not required to refinance and settle the litigation.

Off-balance sheet arrangements. As of September 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.

2420

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures

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

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

2521

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 8 to condensed consolidated financial statements included in Item 1 in this Form 10-Q, and Note 11 ~~above and~~ 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 ~~February 17, 2021, 80,000~~September 30, 2022, 29,175 restricted shares of our common stock valued at ~~$181,600~~$80,523 were issued to ~~Mr. Cravens.~~members of our Board in partial consideration for their service in Q3 2022. These shares were ~~granted in consideration of the individual’s service to the Company. These shares vest on November 11, 2021.~~fully vested upon issuance. These securities were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) and rules and regulations promulgated thereunder. ~~There were no restricted shares issued to the Board in consideration of their service on the Board for the three months ended September 30, 2021.~~

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

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

8-K

000-30653

10.1

May 17, 2021

10.3

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

8-K

000-30653

10.1

October 7, 2021

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

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

8-K

000-30653

10.1

June 21, 2022

10.7

Board of Directors Service Agreement with Meredith Brill, Director

8-K

000-30653

10.1

July 15, 2022

10.8

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.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

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

~~SIGNATURES~~

SIGNATURES

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


	Galaxy Gaming, Inc.

Date:	November ~~15, 2021~~14, 2022

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

	Galaxy Gaming, Inc.

Date:	November ~~15, 2021~~14, 2022

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

2824


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	2117
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	2521
Item 4:	Controls and Procedures	2521
	PART II
Item 1:	Legal Proceedings	2622
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	2722
Item 6:	Exhibits	2723


Condensed Consolidated Balance Sheets as of September 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 nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	78
Notes to Condensed Consolidated Financial Statements (unaudited)	89


☒	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	☐

	Options Issued Nine Months Ended September 30, 2021			Options Issued Nine Months Ended September 30, 2020
Dividend yield		0	%		0	%
Expected volatility	61.12% - 68.74%			70.98% - 76.97%
Risk-free interest rate	0.48% - 0.98%			0.27% - 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		90,000			3.38		—			—
Exercised		(219,166	)		0.41		(740,953	)		—
Forfeited or expired		(42,000	)		1.04		—			—
Outstanding – September 30, 2021		2,810,834		$	1.20	$	8,793,377			1.83
Exercisable – September 30, 2021		2,095,833		$	1.00	$	6,980,567			1.34