10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017

OR

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

For the transition period from       to

Commission file number: 000-30653

Galaxy Gaming, Inc.

(Exact name of small business issuer as specified in its charter)

Nevada	20-8143439
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
6767 Spencer Street, Las Vegas, NV 89119
(Address of principal executive offices)
(702) 939-3254
(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

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

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

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 39,565,591 common shares as of November 8, 2017.

GALAXY GAMING, INC.

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

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements (unaudited)	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4:	Controls and Procedures	21
	PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	23
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6:	Exhibits	23

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

Condensed Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016	4
Condensed Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (unaudited and restated)	5
Condensed Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited and restated)	6
Notes to Condensed Financial Statements (unauditedand restated)	7

3

GALAXY GAMING, INC.

CONDENSED BALANCE SHEETS

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

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

4

GALAXY GAMING, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Revenue:				(Restated)						(Restated)
Product leases and royalties	$	3,830,351		$	3,190,823		$	10,955,055		$	9,229,815
Product sales and service		69			1,146			9,469			10,425
Total revenue		3,830,420			3,191,969			10,964,524			9,240,240
Costs and expenses:
Cost of ancillary products and assembled components		50,369			26,763			133,517			78,075
Selling, general and administrative		2,362,601			1,553,556			6,808,659			4,819,373
Research and development		139,185			89,513			403,618			270,734
Depreciation and amortization		440,130			419,540			1,323,772			1,252,860
Share-based compensation		384,925			41,075			553,313			91,006
Total costs and expenses		3,377,210			2,130,447			9,222,879			6,512,048
Income from operations		453,210			1,061,522			1,741,645			2,728,192
Other income (expense):
Settlement income		—			697,214			—			697,214
Interest expense		(432,466	)		(227,632	)		(1,316,045	)		(741,045	)
Loss on extinguishment of debt		—			(515,037	)		—			(515,037	)
Foreign currency exchange gains (losses)		59,624			(5,926	)		125,576			354,301
Change in estimated fair value of warrant liability		(86,308	)		2,933			(409,717	)		2,933
Interest income		—			56			—			202
Total other expense		(459,150	)		(48,392	)		(1,600,186	)		(201,432	)
(Loss) income before provision for income taxes		(5,940	)		1,013,130			141,459			2,526,760
Provision for income taxes		(21,990	)		(351,412	)		(86,881	)		(873,768	)
Net (loss) income	$	(27,930	)	$	661,718		$	54,578		$	1,652,992
Net (loss) income per share, basic and diluted	$	(0.00	)	$	0.02		$	0.00		$	0.04
Weighted-average shares outstanding:
Basic		39,432,982			39,315,591			39,368,521			39,372,944
Diluted		39,432,982			39,465,676			41,216,750			39,559,494

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

5

GALAXY GAMING, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30, 2017			September 30, 2016
Cash flows from operating activities:				(restated)
Net income	$	54,578		$	1,652,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,323,772			1,252,860
Amortization of debt issuance costs and debt discount		218,910			136,710
Bad debt expense		6,000			—
Loss on extinguishment of debt		—			515,037
Change in estimated fair value of warrant liability		409,717			(2,933	)
Share-based compensation		553,313			91,006
Unrealized foreign exchange (gains) losses on cash and cash equivalents		(92,243	)		31,886
Changes in operating assets and liabilities:
Restricted cash		(8,693	)		10,009
Accounts receivable		(264,842	)		(108,674	)
Inventory		(271,149	)		(181,319	)
Prepaid expenses and other current assets		(112,410	)		8,922
Accounts payable		(132,720	)		(858,404	)
Income tax payable		(124,271	)		822,482
Accrued expenses		612,611			152,871
Deferred revenue		35,685			152,938
Other current liabilities		29,000			(15,069	)
Deferred rent		(10,111	)		(3,555	)
Net cash provided by operating activities		2,227,147			3,657,759
Cash flows from investing activities:
Investment in intangible assets		(43,917	)		—
Acquisition of property and equipment		(52,352	)		(43,345	)
Net cash used in investing activities		(96,269	)		(43,345	)
Cash flows from financing activities:
Proceeds from stock option exercises		35,000			—
Debt issuance costs		(17,091	)		—
Proceeds received from long-term debt		—			932,126
Principal payments on capital lease obligations		(23,087	)		(51,698	)
Principal payments on long-term debt		(1,361,038	)		(3,209,922	)
Net cash used in financing activities		(1,366,216	)		(2,329,494	)
Effect of exchange rate changes on cash		92,243			(31,886	)
Net increase in cash and cash equivalents		856,905			1,253,034
Cash and cash equivalents – beginning of period		2,304,761			570,623
Cash and cash equivalents – end of period	$	3,161,666		$	1,823,657
Supplemental cash flow information:
Cash paid for interest	$	1,099,738		$	753,250
Inventory transferred to assets held for lease	$	172,711		$	108,577
Cash paid for income taxes	$	150,000		$	35,000
Supplemental non-cash financing activities information:
Issuance of warrants in conjunction with term loan	$	—		$	809,631
Points paid on term loan	$	—		$	262,500

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

6

GALAXY GAMING, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND RESTATEMENT

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

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

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

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

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

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

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

7

NOTE 2. SIGNIFICANT BUSINESS DEVEVELOPMENTS

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

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

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

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

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

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

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

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

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

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

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

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

8

NOTE 3. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation.The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. As permitted by the rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.  The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

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

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

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

Use of estimates and assumptions. We are required to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, contract terms, observance of known trends in our company 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.

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

Recently adopted accounting standards

Inventory.  In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory.  Inventory is now required to be measured at the lower of cost or net realizable value, while the concept of market value will be eliminated.  The ASU defines net realizable value as the estimated selling process in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  We adopted ASU 2015-11 effective January 1, 2017 using the required prospective adoption approach, which did not have a material effect on our financial condition, results of operations or cash flows.

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

New accounting standards not yet adopted

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

9

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

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

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

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

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

Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. This guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adopting this guidance.

NOTE 4. INVENTORY

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

	2017			2016
Raw materials and component parts	$	270,863		$	171,478
Finished goods		96,834			128,956
Work-in-process		182,846			151,671
Inventory, gross		550,543			452,105
Less: inventory reserve		(25,000	)		(25,000	)
Inventory, net	$	525,543		$	427,105

10

NOTE 5. PROPERTY AND EQUIPMENT

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

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

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

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

NOTE 6. PRODUCTS LEASED AND HELD FOR LEASE

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

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

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

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and finite-lived intangible assets, net consisted of the following at September 30, 2017 and December 31, 2016:

	2017			2016
Goodwill	$	1,091,000		$	1,091,000
Finite-lived intangible assets:
Patents		13,615,967			13,615,967
Customer relationships		3,400,000			3,400,000
Trademarks		2,740,000			2,740,000
Non-compete agreements		660,000			660,000
Internally-developed software		102,968			—
Other intangible assets, gross		20,518,935			20,415,967
Less: accumulated amortization		(9,784,930	)		(8,660,948	)
Other intangible assets, net		10,734,005			11,755,019
Goodwill and other intangible assets, net	$	11,825,005		$	12,846,019

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

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

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

NOTE 8. ACCRUED EXPENSES

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

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

TableMAX license fee.Under the terms of a five-year licensing agreement (the “TMAX Agreement”) with TableMAX Corporation (“TMAX”), a provider of electronic table games and platforms headquartered in Las Vegas, Nevada, we previously had exclusive worldwide rights (excluding one international territory and two U.S. states) to the TMAX electronic gaming platform and certain related game titles.  Pursuant to the terms of the TMAX Agreement, the licensee fee payable to TMAX is dependent upon our generating profitable operating results specifically from the use of TMAX products.  To the extent there are net profits (as defined in the TMAX Agreement), a percentage of such net profits is payable to TMAX depending on the number of TMAX product installations.  The TMAX Agreement expired during 2016, and we are currently negotiating the licensing fee that is payable to TMAX.

NOTE 9. CAPITAL LEASE OBLIGATIONS

Capital lease obligations consisted of the following at September 30, 2017 and December 31, 2016:

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

For the years ending September 30, future annual payments for capital leases obligations are as follows: 

September 30,	Total
2018	$	32,332
2019		22,589
Total minimum lease payments	$	54,921

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NOTE 10. LONG-TERM DEBT

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

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

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

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

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

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

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

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

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

September 30,	Total
2018	$	1,088,957
2019		1,090,223
2020		1,076,750
2021		6,584,849
2022		5,656
Total notes payable		9,846,435
Less:
Unamortized debt issuance costs		(513,151	)
Warrants issued		(624,097	)
Notes payable, net	$	8,709,187

NOTE 11. COMMITMENTS AND CONTINGENCIES

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

	Location	2017 Revenue		2016 Revenue
Client A	North America		13.6%		13.6%

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

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

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

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

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

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

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

Legal proceedings.In the ordinary course of conducting our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff or defendant, that are complex in nature and have outcomes that are difficult to predict.  We record accruals for such contingencies to the extent we conclude that it is probable that a liability will be incurred and the amount of the related loss can be

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reasonably estimated.  Our assessment of each matter may change based on future unexpected events.  An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position.  Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period.  We assume no obligation to update the status of pending litigation, except as may be required by U.S. GAAP, applicable law, statue or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12 in Item 8. “Financial Statements and Supplementary Data” included in our 2016 10-K.

NOTE 12. STOCKHOLDERS’ EQUITY

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

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

NOTE 13. INCOME TAXES

Our forecasted annual effective tax rate at September 30, 2017 was 56.6%, as compared to 34.2% at September 30, 2016.  For the nine months ended September 30, 2017 and 2016, our effective tax rate was 51.4% and 34.3%, respectively.  The increase in the effective tax rate was primarily due to the permanent book-to-tax difference generated by changes in the estimated fair value of the warrant liability as of and for the nine months ended September 30, 2017.

NOTE 14. STOCK WARRANTS, OPTIONS AND GRANTS

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

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

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

The fair value of all stock options granted for the nine months ended September 30, 2017 and 2016 was determined to be $652,895 and $96,137, respectively, using the Black-Scholes option pricing model with the following assumptions:

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

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A summary of stock option activity is as follows:

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

A summary of unvested stock option activity is as follows:

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

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

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

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

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

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NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

NOTE 16. SUBSEQUENT EVENTS

We evaluated subsequent events through the date of issuance of the financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the financial statements as of and for the three and nine months ended September 30, 2017.

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

OVERVIEW

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

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

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

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Results of operations for the three months ended September 30, 2017.For the three months ended September 30, 2017, our continuing operations generated gross revenues of $3,830,420 compared to gross revenues of $3,191,969 for the comparable prior-year period, representing an increase of 638,451, or 20.0%.  This increase was primarily attributable to our focus on Premium Games such as High Card Flush, Heads Up Hold ’em and Player’s Edge, which command a higher price point per unit, and the improved performance of side bet games such as 21+3 and Bonus Craps. Selling, general and administrative expenses for the three months ended September 30, 2017 were $2,362,601 compared to $1,553,556 for the comparable prior period, representing an increase of $809,045, or 52.1%. Significant quarter-over-quarter changes in selling, general and administrative expenses consisted of the following categories:

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

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

Research and development expenses for the three months ended September 30, 2017 were $139,185, compared to $89,513 for the comparable prior-year period, representing an increase of $49,672, or 55.5%. This increase was primarily due to increased costs associated with testing our products currently in development.

Stock-based compensation expenses for the three months ended September 30, 2017 were $384,925, as compared to $41,075 for the comparable prior-year period, representing an increase of $343,850, or 837.1%. The increase was primarily due to stock options and restricted shares of common stock issued in 2017 to executive officers, board members and independent contractors.  

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

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

Total interest expense increased $204,834, or 90.0%, to $432,466 for the three months ended September 30, 2017, compared to $227,632 for the comparable prior-year period. The increase in interest expense was primarily due to the Term Loan refinance transaction completed in August 2016.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20

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

	Three Months Ended September 30,						Nine Months Ended September 30,
Adjusted EBITDA Reconciliation:	2017			2016			2017			2016
				(Restated)						(Restated)
Net (loss) income	$	(27,930	)	$	661,718		$	54,578		$	1,652,992
Interest income		—			(56	)		—			(202	)
Interest expense		432,466			227,632			1,316,045			741,045
Income tax provision		21,990			351,412			86,881			873,768
Depreciation and amortization		440,130			419,540			1,323,772			1,252,860
Loss on extinguishment of debt		—			515,037			—			515,037
Share based compensation expense		384,925			41,075			553,313			91,006
Foreign currency exchange gains		(59,624	)		5,926			(125,576	)		(354,301	)
Change in estimated fair value of warrant liability		86,308			(2,933	)		409,717			(2,933	)
Settlement income		—			(697,214	)		—			(697,214	)
Adjusted EBITDA	$	1,278,265		$	1,522,137		$	3,618,730		$	4,072,058

Liquidity and capital resources. As of September 30, 2017, we had total current assets of $6,483,723 and total assets of $19,292,441. This compares to $5,148,435 and $19,011,945, respectively, as of December 31, 2016. The increase in current assets as of September 30, 2017 was primarily impacted by an increase in cash and cash equivalents and accounts receivable. Cash increased significantly due to reduced principal payments on the Term Loan as compared to the PTG Notes, partially offset by cash used to pay off the Related Party Note Payable in August 2017. Our total current liabilities as of September 30, 2017 were $5,026,550 and $4,708,685 as of December 31, 2016. This increase was primarily driven by the increase in accrued expenses (primarily due to the increase in TableMAX license fee accrual and payroll and related accruals). Our business model continues to be highly profitable and we have several options to ensure we are able to meet our short-term and long-term obligations.

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

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

Our operating activities provided $2,227,147 in cash for the nine months ended September 30, 2017, compared to $3,657,759 for the nine months ended September 30, 2016. The decrease in operating cash flow was primarily due to the decreases in net income, income tax payable and loss on extinguishment of debt recorded in 2016, partially offset by changes in estimated fair value of warrant liability, share-based compensation and increases in accounts payable and accrued expenses.

Additionally, investing activities used cash of $96,269 for the nine months ended September 30, 2017. The cash flows from investing activities are due to the acquisition of software and property and equipment.  Cash used in financing activities during the nine months ended September 30, 2017 was $1,366,216, which was primarily due to principal payments towards long-term debt and capital leases.

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

21

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

Critical accounting policies.The discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Critical accounting policies are those policies that, in management's view, are most important in the portrayal of our financial condition and results of operations. See Note 2of our financial statements included in Item 8. “Financial Statements and Supplementary Data” of our 2016 10-K for further detail on these critical accounting policies.

Off balance sheet arrangements.As of September 30, 2017, there were no off balance sheet arrangements.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

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

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

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

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

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PART II – OTHER INFORMATION

ITEM 1. 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, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by GAAP, applicable law, statute or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 12 in Item 8. “Financial Statements and Supplementary Data” included in our See Note 2 in Item 8. “Financial Statements and Supplementary Data” included in our 2016 10-K. There are no material updates to matters previously reported on our 2016 10-K. 

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

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

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

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

ITEM 6. EXHIBITS

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

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

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SIGNATURES

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

	Galaxy Gaming, Inc.
Date:	November 14, 2017
	By:	/s/ TODD P. CRAVENS
		Todd P. Cravens
		President and Chief Executive Officer (Principal Executive Officer)
	Galaxy Gaming, Inc.
Date:	November 14, 2017
	By:	/s/ HARRY C. HAGERTY
		Harry C. Hagerty
		Chief Financial Officer (Principal Accounting Officer)

24

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Todd P. Cravens, certify that;

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2017 of Galaxy Gaming, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2017

/s/ TODD P. CRAVENS

By: Todd P. Cravens

Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Harry C. Hagerty, certify that;

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2017 of Galaxy Gaming, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2017

/s/ HARRY C. HAGERTY

By: Harry C. Hagerty

Title: Chief Financial Officer

EX-32.1

Exhibit 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

In connection with the quarterly Report of Galaxy Gaming, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2017 filed with the Securities and Exchange Commission (the “Report”), I, Todd P. Cravens, Chief Executive Officer of the Company, and I, Harry C. Hagerty, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

By:	/s/ TODD P. CRAVENS
Name:	Todd P. Cravens
Title:	Principal Executive Officer and Director
Date:	November 14, 2017

By:	/s/ HARRY C. HAGERTY
Name:	Harry C. Hagerty
Title:	Principal Financial Officer and Director
Date:	November 14, 2017

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 08, 2017
Document And Entity Information [Abstract]
Entity Registrant Name	Galaxy Gaming, Inc.
Entity Central Index Key	0000013156
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		39,565,591
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2017

XML

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

XML

Condensed Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Statement Of Financial Position [Abstract]
Accounts receivables, net allowance for bad debts	$ 38,015	$ 31,125
Preferred Stock, Shares authorized	10,000,000	10,000,000
Preferred Stock, Par Value	$ 0.001	$ 0.001
Preferred Stock, Issued	0	0
Preferred Stock, Outstanding	0	0
Common Stock, Shares authorized	65,000,000	65,000,000
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, Issued	39,565,591	39,315,591
Common Stock, Outstanding	39,565,591	39,315,591

XML

Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenue:
Product leases and royalties	$ 3,830,351	$ 3,190,823	$ 10,955,055	$ 9,229,815
Product sales and service	69	1,146	9,469	10,425
Total revenue	3,830,420	3,191,969	10,964,524	9,240,240
Costs and expenses:
Cost of ancillary products and assembled components	50,369	26,763	133,517	78,075
Selling, general and administrative	2,362,601	1,553,556	6,808,659	4,819,373
Research and development	139,185	89,513	403,618	270,734
Depreciation and amortization	440,130	419,540	1,323,772	1,252,860
Share-based compensation	384,925	41,075	553,313	91,006
Total costs and expenses	3,377,210	2,130,447	9,222,879	6,512,048
Income from operations	453,210	1,061,522	1,741,645	2,728,192
Other income (expense):
Settlement income		697,214		697,214
Interest expense	(432,466)	(227,632)	(1,316,045)	(741,045)
Loss on extinguishment of debt		(515,037)		(515,037)
Foreign currency exchange gains (losses)	59,624	(5,926)	125,576	354,301
Change in estimated fair value of warrant liability	(86,308)	2,933	(409,717)	2,933
Interest income		56		202
Total other expense	(459,150)	(48,392)	(1,600,186)	(201,432)
(Loss) income before provision for income taxes	(5,940)	1,013,130	141,459	2,526,760
Provision for income taxes	(21,990)	(351,412)	(86,881)	(873,768)
Net (loss) income	$ (27,930)	$ 661,718	$ 54,578	$ 1,652,992
Net (loss) income per share, basic and diluted	$ 0.00	$ 0.02	$ 0.00	$ 0.04
Weighted-average shares outstanding:
Basic	39,432,982	39,315,591	39,368,521	39,372,944
Diluted	39,432,982	39,465,676	41,216,750	39,559,494

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net income	$ 54,578	$ 1,652,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,323,772	1,252,860
Amortization of debt issuance costs and debt discount	218,910	136,710
Bad debt expense	6,000
Loss on extinguishment of debt		515,037
Change in estimated fair value of warrant liability	409,717	(2,933)
Share-based compensation	553,313	91,006
Unrealized foreign exchange (gains) losses on cash and cash equivalents	(92,243)	31,886
Changes in operating assets and liabilities:
Restricted cash	(8,693)	10,009
Accounts receivable	(264,842)	(108,674)
Inventory	(271,149)	(181,319)
Prepaid expenses and other current assets	(112,410)	8,922
Accounts payable	(132,720)	(858,404)
Income tax payable	(124,271)	822,482
Accrued expenses	612,611	152,871
Deferred revenue	35,685	152,938
Other current liabilities	29,000	(15,069)
Deferred rent	(10,111)	(3,555)
Net cash provided by operating activities	2,227,147	3,657,759
Cash flows from investing activities:
Investment in intangible assets	(43,917)
Acquisition of property and equipment	(52,352)	(43,345)
Net cash used in investing activities	(96,269)	(43,345)
Cash flows from financing activities:
Proceeds from stock option exercises	35,000
Debt issuance costs	(17,091)
Proceeds received from long-term debt		932,126
Principal payments on capital lease obligations	(23,087)	(51,698)
Principal payments on long-term debt	(1,361,038)	(3,209,922)
Net cash used in financing activities	(1,366,216)	(2,329,494)
Effect of exchange rate changes on cash	92,243	(31,886)
Net increase in cash and cash equivalents	856,905	1,253,034
Cash and cash equivalents – beginning of period	2,304,761	570,623
Cash and cash equivalents – end of period	3,161,666	1,823,657
Supplemental cash flow information:
Cash paid for interest	1,099,738	753,250
Inventory transferred to assets held for lease	172,711	108,577
Cash paid for income taxes	$ 150,000	35,000
Supplemental non-cash financing activities information:
Issuance of warrants in conjunction with term loan		809,631
Points paid on term loan		$ 262,500

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NATURE OF OPERATIONS AND RESTATEMENT

9 Months Ended

Sep. 30, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

NATURE OF OPERATIONS AND RESTATEMENT

NOTE 1. NATURE OF OPERATIONS AND RESTATEMENT

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

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

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

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

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

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

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

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SIGNIFICANT BUSINESS DEVELOPMENTS

9 Months Ended

Sep. 30, 2017

Significant Business Developments [Abstract]

SIGNIFICANT BUSINESS DEVELOPMENTS

NOTE 2. SIGNIFICANT BUSINESS DEVEVELOPMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 3. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation.The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. As permitted by the rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.  The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

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

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

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

Use of estimates and assumptions. We are required to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, contract terms, observance of known trends in our company 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.

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

Recently adopted accounting standards

Inventory.  In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory.  Inventory is now required to be measured at the lower of cost or net realizable value, while the concept of market value will be eliminated.  The ASU defines net realizable value as the estimated selling process in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  We adopted ASU 2015-11 effective January 1, 2017 using the required prospective adoption approach, which did not have a material effect on our financial condition, results of operations or cash flows.

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

New accounting standards not yet adopted

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

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

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

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

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

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

Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. This guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adopting this guidance.

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INVENTORY

9 Months Ended

Sep. 30, 2017

Inventory Disclosure [Abstract]

INVENTORY

NOTE 4. INVENTORY

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

	2017			2016
Raw materials and component parts	$	270,863		$	171,478
Finished goods		96,834			128,956
Work-in-process		182,846			151,671
Inventory, gross		550,543			452,105
Less: inventory reserve		(25,000	)		(25,000	)
Inventory, net	$	525,543		$	427,105

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PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2017

Property Plant And Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 5. PROPERTY AND EQUIPMENT

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

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

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

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

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PRODUCTS LEASED AND HELD FOR LEASE

9 Months Ended

Sep. 30, 2017

Leases Operating [Abstract]

PRODUCTS LEASED AND HELD FOR LEASE

NOTE 6. PRODUCTS LEASED AND HELD FOR LEASE

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

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

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

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and finite-lived intangible assets, net consisted of the following at September 30, 2017 and December 31, 2016:

	2017			2016
Goodwill	$	1,091,000		$	1,091,000
Finite-lived intangible assets:
Patents		13,615,967			13,615,967
Customer relationships		3,400,000			3,400,000
Trademarks		2,740,000			2,740,000
Non-compete agreements		660,000			660,000
Internally-developed software		102,968			—
Other intangible assets, gross		20,518,935			20,415,967
Less: accumulated amortization		(9,784,930	)		(8,660,948	)
Other intangible assets, net		10,734,005			11,755,019
Goodwill and other intangible assets, net	$	11,825,005		$	12,846,019

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

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

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

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ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2017

Payables And Accruals [Abstract]

ACCRUED EXPENSES

NOTE 8. ACCRUED EXPENSES

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

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

TableMAX license fee.Under the terms of a five-year licensing agreement (the “TMAX Agreement”) with TableMAX Corporation (“TMAX”), a provider of electronic table games and platforms headquartered in Las Vegas, Nevada, we previously had exclusive worldwide rights (excluding one international territory and two U.S. states) to the TMAX electronic gaming platform and certain related game titles.  Pursuant to the terms of the TMAX Agreement, the licensee fee payable to TMAX is dependent upon our generating profitable operating results specifically from the use of TMAX products.  To the extent there are net profits (as defined in the TMAX Agreement), a percentage of such net profits is payable to TMAX depending on the number of TMAX product installations.  The TMAX Agreement expired during 2016, and we are currently negotiating the licensing fee that is payable to TMAX.

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CAPITAL LEASE OBLIGATIONS

9 Months Ended

Sep. 30, 2017

Leases [Abstract]

CAPITAL LEASE OBLIGATIONS

NOTE 9. CAPITAL LEASE OBLIGATIONS

Capital lease obligations consisted of the following at September 30, 2017 and December 31, 2016:

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

For the years ending September 30, future annual payments for capital leases obligations are as follows: 

September 30,	Total
2018	$	32,332
2019		22,589
Total minimum lease payments	$	54,921

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LONG-TERM DEBT

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

LONG-TERM DEBT

NOTE 10. LONG-TERM DEBT

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

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

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

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

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

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

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

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

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

September 30,	Total
2018	$	1,088,957
2019		1,090,223
2020		1,076,750
2021		6,584,849
2022		5,656
Total notes payable		9,846,435
Less:
Unamortized debt issuance costs		(513,151	)
Warrants issued		(624,097	)
Notes payable, net	$	8,709,187

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2017

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 11. COMMITMENTS AND CONTINGENCIES

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

	Location	2017 Revenue		2016 Revenue
Client A	North America		13.6%		13.6%

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

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

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

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

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

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

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

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

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 12. STOCKHOLDERS’ EQUITY

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

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

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INCOME TAXES

9 Months Ended

Sep. 30, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 13. INCOME TAXES

Our forecasted annual effective tax rate at September 30, 2017 was 56.6%, as compared to 34.2% at September 30, 2016.  For the nine months ended September 30, 2017 and 2016, our effective tax rate was 51.4% and 34.3%, respectively.  The increase in the effective tax rate was primarily due to the permanent book-to-tax difference generated by changes in the estimated fair value of the warrant liability as of and for the nine months ended September 30, 2017.

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STOCK WARRANTS, OPTIONS AND GRANTS

9 Months Ended

Sep. 30, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK WARRANTS, OPTIONS AND GRANTS

NOTE 14. STOCK WARRANTS, OPTIONS AND GRANTS

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

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

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

The fair value of all stock options granted for the nine months ended September 30, 2017 and 2016 was determined to be $652,895 and $96,137, respectively, using the Black-Scholes option pricing model with the following assumptions:

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

A summary of stock option activity is as follows:

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

A summary of unvested stock option activity is as follows:

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

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

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

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

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

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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SUBSEQUENT EVENT

9 Months Ended

Sep. 30, 2017

Subsequent Events [Abstract]

SUBSEQUENT EVENT

NOTE 16. SUBSEQUENT EVENTS

We evaluated subsequent events through the date of issuance of the financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the financial statements as of and for the three and nine months ended September 30, 2017.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Nature of operations

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

Restatement

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

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

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

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

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

Basis of presentation and Basis of accounting

Basis of presentation.The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. As permitted by the rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations.  The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

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

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

Use of estimates and assumptions

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.

Reclassifications

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

Recently adopted accounting standards

Recently adopted accounting standards

Inventory.  In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory.  Inventory is now required to be measured at the lower of cost or net realizable value, while the concept of market value will be eliminated.  The ASU defines net realizable value as the estimated selling process in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  We adopted ASU 2015-11 effective January 1, 2017 using the required prospective adoption approach, which did not have a material effect on our financial condition, results of operations or cash flows.

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

New accounting standards not yet adopted

New accounting standards not yet adopted

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

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

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

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

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

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

Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. This guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adopting this guidance.

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NATURE OF OPERATIONS AND RESTATEMENT (Tables)

9 Months Ended

Sep. 30, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Schedule of Restatement Adjustments to Financial Statements

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

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

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

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

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SIGNIFICANT BUSINESS DEVELOPMENTS (Tables)

9 Months Ended

Sep. 30, 2017

Significant Business Developments [Abstract]

Recipients of Voting and Dispositive Control of Shares

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

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

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

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INVENTORY (Tables)

9 Months Ended

Sep. 30, 2017

Inventory Disclosure [Abstract]

Schedule of Inventory, Net

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

	2017			2016
Raw materials and component parts	$	270,863		$	171,478
Finished goods		96,834			128,956
Work-in-process		182,846			151,671
Inventory, gross		550,543			452,105
Less: inventory reserve		(25,000	)		(25,000	)
Inventory, net	$	525,543		$	427,105

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PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

Sep. 30, 2017

Property Plant And Equipment [Abstract]

Schedule of Property and Plant Equipment, Net

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

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

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PRODUCTS LEASED AND HELD FOR LEASE (Tables)

9 Months Ended

Sep. 30, 2017

Leases Operating [Abstract]

Schedule of Products Leased and Held for Lease, Net

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

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

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Goodwill and Finite-lived Intangible Assets, Net

Goodwill and finite-lived intangible assets, net consisted of the following at September 30, 2017 and December 31, 2016:

	2017			2016
Goodwill	$	1,091,000		$	1,091,000
Finite-lived intangible assets:
Patents		13,615,967			13,615,967
Customer relationships		3,400,000			3,400,000
Trademarks		2,740,000			2,740,000
Non-compete agreements		660,000			660,000
Internally-developed software		102,968			—
Other intangible assets, gross		20,518,935			20,415,967
Less: accumulated amortization		(9,784,930	)		(8,660,948	)
Other intangible assets, net		10,734,005			11,755,019
Goodwill and other intangible assets, net	$	11,825,005		$	12,846,019

Schedule of Estimated Amortization Expense

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

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

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ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2017

Payables And Accruals [Abstract]

Schedule of Accrued Expenses

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

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

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CAPITAL LEASE OBLIGATIONS (Tables)

9 Months Ended

Sep. 30, 2017

Leases [Abstract]

Schedule of Capital Lease Obligations

Capital lease obligations consisted of the following at September 30, 2017 and December 31, 2016:

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

Schedule of Future Annual Payments for Capital Leases Obligations

For the years ending September 30, future annual payments for capital leases obligations are as follows: 

September 30,	Total
2018	$	32,332
2019		22,589
Total minimum lease payments	$	54,921

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LONG-TERM DEBT (Tables)

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Schedule of Long-term Debt

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

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

Schedule of Maturities

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

September 30,	Total
2018	$	1,088,957
2019		1,090,223
2020		1,076,750
2021		6,584,849
2022		5,656
Total notes payable		9,846,435
Less:
Unamortized debt issuance costs		(513,151	)
Warrants issued		(624,097	)
Notes payable, net	$	8,709,187

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2017

Commitments And Contingencies Disclosure [Abstract]

Schedule of Client Revenue Concentration

For the nine months ended September 30, 2017 and 2016, respectively, we had the following client revenue concentration:

	Location	2017 Revenue		2016 Revenue
Client A	North America		13.6%		13.6%

Schedule of Estimates of Annual Future Minimum Lease Obligations

As of September 30, 2017, the amounts shown in the accompanying table reflect our estimates of annual future minimum lease obligations:

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

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STOCK WARRANTS, OPTIONS AND GRANTS (Tables)

9 Months Ended

Sep. 30, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Options Pricing

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

Summary of Stock Option Activity

A summary of stock option activity is as follows:

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

Summary of Unvested Stock Option Activity

A summary of unvested stock option activity is as follows:

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

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NATURE OF OPERATIONS AND RESTATEMENT - Schedule of Restatement Adjustments of Condensed Statements of Operations (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statements of Income
Selling, general and administrative	$ 2,362,601	$ 1,553,556	$ 6,808,659	$ 4,819,373
Provision for income taxes	(21,990)	(351,412)	(86,881)	(873,768)
Foreign currency exchange (losses) gains	59,624	(5,926)	125,576	354,301
Loss on extinguishment of debt		(515,037)		(515,037)
Net income	$ (27,930)	661,718	$ 54,578	1,652,992
As Originally Reported
Statements of Income
Selling, general and administrative		1,576,480		4,850,785
Provision for income taxes		(602,619)		(990,639)
Loss on extinguishment of debt		(87,578)		(87,578)
Net income		820,972		1,577,867
Impact of Restatement
Statements of Income
Selling, general and administrative		(22,924)		(31,412)
Provision for income taxes		251,207		116,871
Foreign currency exchange (losses) gains		(5,926)		354,301
Loss on extinguishment of debt		(427,459)		(427,459)
Net income		$ (159,254)		$ 75,125

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NATURE OF OPERATIONS AND RESTATEMENT - Schedule of Restatement Adjustments of Condensed Statements of Cash Flows (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement of Cash Flow
Net income	$ (27,930)	$ 661,718	$ 54,578	$ 1,652,992
Loss on extinguishment of debt		515,037		515,037
Unrealized foreign exchange losses on cash and cash equivalents			(92,243)	31,886
Increase in accounts receivable			(264,842)	(108,674)
Decrease in prepaid expenses and other current assets			(112,410)	8,922
Decrease in accounts payable			(132,720)	(858,404)
Increase in income taxes payable			(124,271)	822,482
Increase in accrued expenses			612,611	152,871
Net cash provided by operating activities			2,227,147	3,657,759
Principal payments on notes payable			(1,361,038)	(3,209,922)
Net cash used in financing activities			$ (1,366,216)	(2,329,494)
As Originally Reported
Statement of Cash Flow
Net income		820,972		1,577,867
Loss on extinguishment of debt		87,578		87,578
Deferred income tax provision				54,370
Increase in accounts receivable				(107,969)
Decrease in other current assets				43,017
Decrease in prepaid expenses and other current assets				6,608
Decrease in accounts payable				(858,954)
Increase in income taxes payable				936,269
Increase in accrued expenses				141,841
Net cash provided by operating activities				3,321,274
Principal payments on notes payable				(2,873,437)
Net cash used in financing activities				(1,993,009)
Impact of Restatement
Statement of Cash Flow
Net income		(159,254)		75,125
Loss on extinguishment of debt		$ 427,459		427,459
Deferred income tax provision				(54,370)
Unrealized foreign exchange losses on cash and cash equivalents				31,886
Increase in accounts receivable				(705)
Decrease in other current assets				(43,017)
Decrease in prepaid expenses and other current assets				2,314
Decrease in accounts payable				550
Increase in income taxes payable				(113,787)
Increase in accrued expenses				11,030
Net cash provided by operating activities				336,485
Principal payments on notes payable				(336,485)
Net cash used in financing activities				$ (336,485)

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SIGNIFICANT BUSINESS DEVELOPMENTS (Details Narrative)			9 Months Ended
	Aug. 31, 2017 USD ($)	Jul. 24, 2017 USD ($)	Sep. 30, 2017	Sep. 22, 2017 Agreement	Aug. 17, 2017
Executive Vice President of Business Development and Chief Product Officer
Significant Business Developments [Line Items]
Annual salary		$ 225,000
President and CEO
Significant Business Developments [Line Items]
Annual salary		$ 230,000
Bonus compensation description			eligible for bonuses if and as approved by the Compensation Committee of the Board
Employment Agreement term expiration			Jul. 26, 2020
Lipparelli Agreement | Mark Lipparelli
Significant Business Developments [Line Items]
Monthly compensation	$ 7,500
VDCTA Agreements
Significant Business Developments [Line Items]
Number of agreements | Agreement				5
Triangulum
Significant Business Developments [Line Items]
Percentage of total issued and outstanding common stock owned and controlled					60.12%

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SIGNIFICANT BUSINESS DEVELOPMENTS - Recipients of Voting and Dispositive Control of Shares (Details) - shares		Sep. 30, 2017	Sep. 22, 2017	Dec. 31, 2016
Significant Business Developments [Line Items]
Number of shares		39,565,591	39,365,591	39,315,591
VDCTA Agreements
Significant Business Developments [Line Items]
Number of shares			6,345,805
Percentage of total outstanding	[1]		16.12%
VDCTA Agreements | Mark Lipparelli
Significant Business Developments [Line Items]
Number of shares			1,269,161
Percentage of total outstanding	[1]		3.22%
VDCTA Agreements | Bryan Waters
Significant Business Developments [Line Items]
Number of shares			1,269,161
Percentage of total outstanding	[1]		3.22%
VDCTA Agreements | Norm DesRosiers
Significant Business Developments [Line Items]
Number of shares			1,269,161
Percentage of total outstanding	[1]		3.22%
VDCTA Agreements | William Zender
Significant Business Developments [Line Items]
Number of shares			1,269,161
Percentage of total outstanding	[1]		3.22%
VDCTA Agreements | John Connelly
Significant Business Developments [Line Items]
Number of shares			1,269,161
Percentage of total outstanding	[1]		3.22%

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

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SIGNIFICANT BUSINESS DEVELOPMENTS - Recipients of Voting and Dispositive Control of Shares (Parenthetical) (Details) - shares	Sep. 30, 2017	Sep. 22, 2017	Dec. 31, 2016
Significant Business Developments [Abstract]
Total outstanding shares	39,565,591	39,365,591	39,315,591

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INVENTORY - Schedule of Inventory, Net (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials and component parts	$ 270,863	$ 171,478
Finished goods	96,834	128,956
Work-in-process	182,846	151,671
Inventory, gross	550,543	452,105
Less: inventory reserve	(25,000)	(25,000)
Inventory, net	$ 525,543	$ 427,105

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PROPERTY AND EQUIPMENT - Schedule of Property and Plant Equipment, Net (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Furniture and Fixtures
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 280,694	$ 269,471
Automotive Vehicles
Property Plant And Equipment [Line Items]
Property and equipment, gross	215,127	202,143
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and equipment, gross	156,843	156,843
Less: accumulated depreciation	(105,322)	(82,183)
Computer Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross	117,645	105,114
Office Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross	53,483	37,871
Property Plant and Equipment Excluding Assets Leased to Others
Property Plant And Equipment [Line Items]
Property and equipment, gross	823,792	771,442
Less: accumulated depreciation	(530,304)	(415,189)
Property and equipment, net	$ 293,488	$ 356,253

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PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Property Plant and Equipment Excluding Assets Leased to Others
Property Plant And Equipment [Line Items]
Depreciation expense	$ 115,117	$ 97,326
Accumulated depreciation	530,304		$ 415,189
Leasehold Improvements
Property Plant And Equipment [Line Items]
Accumulated depreciation	$ 105,322		$ 82,183

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PRODUCTS LEASED AND HELD FOR LEASE - Schedule of Products Leased and Held for Lease, Net (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Leases Operating [Abstract]
Enhanced table systems	$ 546,539	$ 424,364
Less: accumulated depreciation	(246,371)	(212,233)
Products leased and held for lease, net	$ 300,168	$ 212,131

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PRODUCTS LEASED AND HELD FOR LEASE (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Leases Operating [Abstract]
Products leased and held for lease, Depreciation	$ 84,674	$ 38,595

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GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of Goodwill and Finite-lived Intangible Assets, Net (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Finite Lived Intangible Assets [Line Items]
Goodwill	$ 1,091,000	$ 1,091,000
Finite-lived intangible assets:
Other intangible assets, gross	20,518,935	20,415,967
Less: accumulated amortization	(9,784,930)	(8,660,948)
Other intangible assets, net	10,734,005	11,755,019
Goodwill and other intangible assets, net	11,825,005	12,846,019
Patents
Finite-lived intangible assets:
Other intangible assets, gross	13,615,967	13,615,967
Customer Relationships
Finite-lived intangible assets:
Other intangible assets, gross	3,400,000	3,400,000
Trademarks
Finite-lived intangible assets:
Other intangible assets, gross	2,740,000	2,740,000
Non-compete Agreements
Finite-lived intangible assets:
Other intangible assets, gross	660,000	$ 660,000
Internally-developed Software
Finite-lived intangible assets:
Other intangible assets, gross	$ 102,968

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization expense	$ 1,123,980	$ 1,116,938

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GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of Estimated Amortization Expense (Details)	Sep. 30, 2017 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
2018	$ 1,498,873
2019	1,498,873
2020	1,481,712
2021	1,391,218
2022	1,390,676
Thereafter	3,472,653
Total amortization	$ 10,734,005

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ACCRUED EXPENSES - Schedule of Accrued Expenses (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Accrued Expenses [Line Items]
Payroll and related	$ 664,140	$ 405,553
Professional fees	152,962	59,567
Commissions and royalties	110,353	54,551
Other	58,156	119,245
Total accrued expenses	1,722,039	1,109,428
TableMAX
Accrued Expenses [Line Items]
TableMAX license fee	$ 736,428	$ 470,512

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ACCRUED EXPENSES (Details Narrative)	9 Months Ended
	Sep. 30, 2017
TMAX Agreement | TableMAX Corporation
Accrued Expenses [Line Items]
Terms of licensing agreement	5 years

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CAPITAL LEASE OBLIGATIONS - Schedule of Capital Lease Obligations (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Capital Lease Obligation [Line Items]
Less: Current portion	$ (32,332)	$ (31,030)
Total capital lease obligations – long-term	22,589	46,978
Leasehold Improvements
Capital Lease Obligation [Line Items]
Capital lease obligation	$ 54,921	$ 78,008

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CAPITAL LEASE OBLIGATIONS - Schedule of Future Annual Payments for Capital Leases Obligations (Details)	Sep. 30, 2017 USD ($)
Leases [Abstract]
2018	$ 32,332
2019	22,589
Total minimum lease payments	$ 54,921

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LONG-TERM DEBT - Schedule of Long-term Debt (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016	Aug. 31, 2016
Debt Instrument [Line Items]
Notes payable, gross	$ 9,846,435	$ 11,207,472
Unamortized debt issuance costs	(513,151)	(595,462)
Warrants issued	(624,097)	(743,604)
Notes payable, net	8,709,187	9,868,406
Less: Current portion	(1,088,957)	(1,199,255)
Long-term debt, net	7,620,230	8,669,151
Term Loan
Debt Instrument [Line Items]
Notes payable, gross	9,712,500	10,500,000	$ 10,500,000
Notes Payable, Related Party
Debt Instrument [Line Items]
Notes payable, gross		509,135
Equipment Notes Payable
Debt Instrument [Line Items]
Notes payable, gross	$ 133,935	162,274
Insurance Notes Payable
Debt Instrument [Line Items]
Notes payable, gross		$ 36,063

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LONG-TERM DEBT (Details Narrative) - USD ($)		1 Months Ended	9 Months Ended
	Aug. 11, 2017	Aug. 31, 2016	Sep. 30, 2017	Jan. 01, 2017	Dec. 31, 2016	Aug. 29, 2016
Debt Instrument [Line Items]
Aggregate principal amount			$ 9,846,435		$ 11,207,472
Notes Payable, Related Party
Debt Instrument [Line Items]
Aggregate principal amount					509,135
Maturity date			Dec. 31, 2018
Annual principal and interest payments			$ 109,908
Note payable, Frequency of periodic payment			annual
Fixed interest rate			7.30%
Balloon payment			$ 354,480
Notes payable, repayment date			Aug. 11, 2017
Repayment of outstanding principal along with accrued and unpaid interest	$ 459,683
Warrant Agreement
Debt Instrument [Line Items]
Warrants issued, number of shares of common stock						1,965,780
Term Loan
Debt Instrument [Line Items]
Aggregate principal amount		$ 10,500,000	$ 9,712,500		$ 10,500,000
Debt instrument, interest rate during period			14.00%
Debt instrument, interest rate for quarterly period			12.50%
Quarterly principal payments of borrowings plus accrued interest				$ 262,500
Maturity date			Aug. 29, 2021
Percentage of proceeds from disposition of asset			100.00%
Percentage of proceeds from sale and issuance of capital stock			25.00%
Term Loan | Warrant Agreement
Debt Instrument [Line Items]
Warrants purchase period		6 years
Warrants issued, number of shares of common stock		1,965,780
Estimated fair value of warrants on grant date		$ 809,632

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LONG-TERM DEBT - Schedule of Maturities (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Total notes payable	$ 9,846,435	$ 11,207,472
Unamortized debt issuance costs	(513,151)	(595,462)
Warrants issued	(624,097)	(743,604)
Notes payable, net	8,709,187	$ 9,868,406
Promissory Note
Debt Instrument [Line Items]
2018	1,088,957
2019	1,090,223
2020	1,076,750
2021	6,584,849
2022	5,656
Total notes payable	9,846,435
Unamortized debt issuance costs	(513,151)
Warrants issued	(624,097)
Notes payable, net	$ 8,709,187

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COMMITMENTS AND CONTINGENCIES - Schedule of Client Revenue Concentration (Details)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Customer Concentration Risk | Revenue | North America | Client A
Product Information [Line Items]
Concentration Risk	13.60%	13.60%

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COMMITMENTS AND CONTINGENCIES (Details Narrative)	1 Months Ended	9 Months Ended
	Feb. 28, 2014 ft²	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)
Commitments And Contingencies [Line Items]
Rent expense		$ 217,650	$ 208,961
Operating lease commitments beyond April 1, 2020		$ 0
Spencer Lease
Commitments And Contingencies [Line Items]
Rental term	5 years
Area of building | ft²	24,000
Lease expiration date		Jun. 30, 2019
Rent expense		$ 153,000
Annual rental increase		4.00%
Tenant Improvement Allowance Option		$ 150,000
Interest rate		5.50%
Spencer Lease | Office
Commitments And Contingencies [Line Items]
Area of building | ft²	16,000
Spencer Lease | Warehouse
Commitments And Contingencies [Line Items]
Area of building | ft²	8,000
Credit Concentration Risk | Patents
Commitments And Contingencies [Line Items]
Accounts receivable from client account		$ 5,370,094	$ 4,299,637
Credit Concentration Risk | Revenue | Patents
Commitments And Contingencies [Line Items]
Concentration risk percentage		49.00%	46.50%

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COMMITMENTS AND CONTINGENCIES - Schedule of Estimates of Annual Future Minimum Lease Obligations (Details)	Sep. 30, 2017 USD ($)
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
2018	$ 232,368
2019	179,190
Total obligations	$ 411,558

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STOCKHOLDERS' EQUITY (Details Narrative) - USD ($)				1 Months Ended	9 Months Ended
	Jan. 02, 2019	Jan. 02, 2018	Aug. 31, 2017	Feb. 28, 2017	Sep. 30, 2017
Temporary Equity [Line Items]
Stock options exercised, vested				150,000
Proceeds from stock option exercises				$ 35,000	$ 35,000
Restricted Stock
Temporary Equity [Line Items]
Forfeited of restricted stock, shares				100,000
Restricted Stock | Board
Temporary Equity [Line Items]
Restricted common stock, granted			800,000
Vesting period description					shares vest as follows: (i) as to the first 200,000 shares, on August 31, 2017, (ii) as to the next 200,000 shares, on January 2, 2018, and (iii) as to the next 400,000 shares, on January 2, 2019
Restricted Stock | Board | Share-based Compensation Award, Tranche One
Temporary Equity [Line Items]
Restricted common stock, vested			200,000
Award vesting date			Aug. 31, 2017
Restricted Stock | Board | Share-based Compensation Award, Tranche Two
Temporary Equity [Line Items]
Award vesting date			Jan. 02, 2018
Restricted Stock | Board | Share-based Compensation Award, Tranche Two | Scenario Forecast
Temporary Equity [Line Items]
Restricted common stock, vested		200,000
Restricted Stock | Board | Share-based Compensation Award, Tranche Three
Temporary Equity [Line Items]
Award vesting date			Jan. 02, 2019
Restricted Stock | Board | Share-based Compensation Award, Tranche Three | Scenario Forecast
Temporary Equity [Line Items]
Restricted common stock, vested	400,000

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INCOME TAXES (Details Narrative)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Income Tax Contingency [Line Items]
Effective tax rate	51.40%	34.30%
Plan
Income Tax Contingency [Line Items]
Effective tax rate	56.60%	34.20%

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STOCK WARRANTS, OPTIONS AND GRANTS (Details Narrative) - USD ($)					9 Months Ended
	Aug. 01, 2020	Jul. 26, 2017	Jul. 24, 2017	May 01, 2017	Sep. 30, 2017	Sep. 30, 2016	Aug. 01, 2019	Aug. 01, 2018	Aug. 29, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Fair market value of shares granted					$ 652,895	$ 96,137
Unrecognized stock-based compensation expense					$ 333,888
Unrecognized stock-based compensation expense, weighted-average period of amortization					1 year 11 months 16 days
Percentage of outstanding common stock issuance upon exercise of warrants									5.00%
Warrants exercise description					The Warrants expire on August 29, 2022, and may not be exercised prior to the earliest of (a) the fifth anniversary of the Term Loan Agreement, (b) the date on which the obligations described in the Term Loan Agreement are satisfied in full, or (c) the date on which the lenders declare all or any portion of the outstanding amount of the Term Loan to be due and payable under the terms of the Term Loan Agreement (collectively, the "Trigger Date").
Warrants expiration date					Aug. 29, 2022
Period for warrant exercise prior written notice					60 days
Call Right
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Value of warrants to be purchased prior written notice					$ 1,333,333
Warrants purchase prior written notice period					30 days
Put Right
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Value of warrants to be purchased prior to trigger date					$ 1,333,333
Warrants expiration date					Aug. 29, 2022
Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Options Issued					1,390,000
Common stock exercise price					$ 0.71
Chief Financial Officer
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Employment Agreement term expiration					Apr. 30, 2020
Annual salary				$ 120,000
Bonus compensation description					eligible for bonuses if and as approved by the Compensation Committee of the Board.
Common stock exercise price				$ 0.60
President and CEO
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Employment Agreement term expiration					Jul. 26, 2020
Annual salary			$ 230,000
Bonus compensation description					eligible for bonuses if and as approved by the Compensation Committee of the Board
Vesting period description					On July 26, 2017, in connection with the Cravens Employment Agreement, Mr. Cravens was granted options to purchase up to 450,000 shares of our common stock, which vest as follows: (i) as to the first 150,000 shares of stock, on July 26, 2017, (ii) as to the next 150,000 shares of stock, on August 1, 2018, and (iii) as to the next 150,000 shares of stock, on August 1, 2019, all pursuant to the terms of a stock option grant agreement by and between us and Mr. Cravens. Provided that Mr. Cravens is a full-time employee on August 1, 2020, we agreed to grant to Mr. Cravens an option to purchase an additional 150,000 shares of our common stock with a strike price equal to the price per share of our common stock as reported on OTC Markets on August 1, 2020 (or the nearest trading date thereafter), which option will vest on August 1, 2020 (or the nearest trading date thereafter).
President and CEO | Common Stock | Scenario Forecast
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Options Issued	150,000
President and CEO | Common Stock | Maximum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Options Issued		450,000
President and CEO | Share-based Compensation Award, Tranche One | Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Common stock, vested		150,000
Award vesting date					Jul. 26, 2017
President and CEO | Share-based Compensation Award, Tranche Two | Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Award vesting date					Aug. 01, 2018
President and CEO | Share-based Compensation Award, Tranche Two | Common Stock | Scenario Forecast
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Common stock, vested								150,000
President and CEO | Share-based Compensation Award, Tranche Three | Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Award vesting date					Aug. 01, 2019
President and CEO | Share-based Compensation Award, Tranche Three | Common Stock | Scenario Forecast
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Common stock, vested							150,000
President and CEO | Share-based Compensation Award, Tranche Four | Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Award vesting date					Aug. 01, 2020
Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Options Issued					1,390,000	427,500
Common Stock | Chief Financial Officer
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Options Issued				400,000
Warrant Agreement
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Warrants issued, number of shares of common stock									1,965,780
Warrants to purchase common stock, exercise price per share									$ 0.30
Maximum percentage of shares granted for lender to purchase common stock									5.00%

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STOCK WARRANTS, OPTIONS AND GRANTS - Summary of Stock Options Pricing (Details) - Stock Option	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Dividend yield	0.00%	0.00%
Expected volatility, minimum	80.00%	89.00%
Expected volatility, maximum	87.00%	90.00%
Risk free interest rate, minimum	1.73%	1.01%
Risk free interest rate, maximum	1.94%	1.22%
Expected life (years)	5 years	5 years

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STOCK WARRANTS, OPTIONS AND GRANTS - Summary of Stock Option Activity (Details) - USD ($)	1 Months Ended	9 Months Ended	12 Months Ended
	Feb. 28, 2017	Sep. 30, 2017	Dec. 31, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options Exercised, number of shares	(150,000)
Common Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning Balance, number of shares		1,496,250
Options Issued, number of shares		1,390,000
Options Exercised, number of shares		(150,000)
Ending Balance, number of shares		2,736,250	1,496,250
Ending Balance, Options Exercisable		1,822,359
Beginning Balance, Weighted-average exercise price		$ 0.32
Options Issued, Weighted-average exercise price		0.71
Options Exercised, Weighted-average exercise price		0.23
Ending Balance, Weighted-average exercise price		0.52	$ 0.32
Ending Balance, Options Exercisable, Weighted-average exercise price		$ 0.46
Options Outstanding, Aggregate intrinsic value		$ 1,767,429	$ 385,017
Options Exercisable, Aggregate intrinsic value		$ 1,289,100
Weighted-average remaining contractual term (years)		3 years 10 months 14 days	3 years 6 months 26 days
Weighted-average remaining contractual term (years), Exercisable		3 years 6 months 11 days

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STOCK WARRANTS, OPTIONS AND GRANTS - Summary of Unvested Stock Option Activity (Details) - Common Stock - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning Balance, number of shares	128,889
Options Granted, number of shares	1,390,000
Options Vested, number of shares	(604,998)
Ending Balance, number of shares	913,891	128,889
Beginning Balance, Weighted-average exercise price	$ 0.34
Granted, Weighted-average exercise price	0.71
Vested, Weighted-average exercise price	0.73
Ending Balance, Weighted-average exercise price	$ 0.65	$ 0.34
Aggregate intrinsic value	$ 478,329	$ 30,933
Weighted-average remaining contractual term (years)	4 years 6 months 14 days	3 years 11 months 27 days