Galaxy Gaming, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS

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

We are an established global gaming company specializing in the design, development, acquisition, assembly, marketing and licensing of proprietary casino table games, side bets, and associated technology, platforms and systems for the casino and iGaming industries. Casinos use our proprietary products and services to enhance their gaming operations and improve their profitability and productivity, as well as to offer popular cutting-edge gaming entertainment content and technology to their players. We market our products and services to online and land-based casinos worldwide with products currently present in North America, the Caribbean, Central America, the United Kingdom, Europe, Africa, and to cruise ships exploring the world's oceans. We license our products and services for use in regulated land-based gaming markets. We also license our content and distribute content from other companies to licensed iGaming operators in gaming markets throughout the world where iGaming is not illegal.

On July 18, 2024, we entered into an Agreement and Plan of Merger (as amended on November 24, 2025, the “Merger Agreement”) with Evolution Malta Holding Limited, a company registered in Malta ("Evolution"). On July 21, 2026, Evolution notified us that Evolution terminated the Merger Agreement. Under the terms of the Merger Agreement, Evolution paid us a cash termination fee in the amount of $5,234,678, which was recorded in other income.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

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

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. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes as of and for the year ended December 31, 2025 included in our 2025 Form 10-K ("2025 10-K").

Use of estimates and assumptions. The preparation of financial statements in conformity with U.S. GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.

Consolidation. The financial statements are presented on a consolidated basis and include the results of the Company and its wholly owned subsidiaries, Progressive Games Partner, LLC ("PGP") and Galaxy Gaming-01 LLC ("GG-01"). All intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents. Cash and cash equivalents consist primarily of deposits held at major banks and highly liquid investments with original maturities of three months or less. With the exception of funds held outside the U.S., these deposits are in insured banking institutions, which are insured up to $250,000 per account. To date, we have not experienced uninsured losses.

Accounts receivable and allowance for credit losses. Accounts receivable are stated at face value net of allowance for credit losses. Management estimates the allowance for expected credit losses balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in the current environmental economic conditions and reasonable and supportable forecast. The allowance for expected credit losses on financial instruments is measured on a collective (pool) basis when similar risk characteristics exist. Accounts receivable are non-interest bearing. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received.

For the three and nine months ended September 30, 2026, there wasno material activity in allowance for credit losses.

Goodwill. The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed, is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit.

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

Software relates primarily to assets where costs are capitalizable during the application development phase. External and internal labor-related costs associated with product development are included in software. The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount. No impairment was recorded for thethree and nine months ended September 30, 2026.

Fair value of financial instruments. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement(“ASC 820”), defines fair value and provides guidance on how to measure it. ASC 820 outlines required disclosures and describes valuation techniques, including the market approach (using comparable market prices), the income approach (present value of future income or cash flows), and the cost approach (replacement cost of an asset's service capacity). ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:

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

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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.

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

The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. The estimated fair value of our long-term debt approximates its carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk (level 2). The Company currently has no financial instruments measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties.

Leases. The Company classifies leases at inception as operating leases or finance leases in accordance with ASC Topic 842, Leases. We account for lease components (such as rent payments) separately from non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). Operating and finance leases with terms greater than 12 months are recorded on the condensed consolidated balance sheets as right-of-use assets with corresponding lease liabilities. Lease liabilities are amortized over the lease term using the effective interest method, while lease assets are depreciated over the shorter of the asset's useful life or the lease term. The discount rate used to determine present value is typically the incremental borrowing rate at lease commencement, unless the implicit rate in the lease is readily determinable. Subsequent changes in lease terms or payments are adjusted accordingly.

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

Foreign currency translation. The functional currency for PGP is the Euro. Gains and losses from settlement of transactions involving foreign currency amounts are included in other income or expense in the Condensed Consolidated Statements of Operations. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in accumulated other comprehensive income (loss) in the Condensed Consolidated Statements of Changes in Stockholders’ Deficit.

Basic and diluted earnings (loss) per share. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, outstanding warrants, shares to be purchased under the employee stock purchase plan, and unvested restricted stock units (“RSUs”).

Share repurchases. Shares of common stock repurchased by the Company are retired. The excess of the repurchase price over par value is recorded as a reduction of additional paid-in capital.

Segment information. Operating segments are defined as components of our enterprise for which separate financial information is regularly reviewed by the Chief Operating Decision Maker ("CODM"), CEO, Matthew Reback, to assess performance and make operational decisions. Currently, we have two revenue streams—land-based gaming and online gaming—that are aggregated into asingle reporting segment based on their similar economic characteristics, products, and distribution methods.

The CODM evaluates performance and allocates resources based on consolidated net income (loss), which is the primary performance metric for the reporting segment. Additionally, the CODM reviews reporting segment revenue in conjunction with consolidated revenues, expenses, and net income (loss) to assess performance. The information provided by the CFO in the monthly reporting package is the same information the CODM has received in the past. The accounting policies of the reporting segment are consistent with those described in the summary of significant accounting policies.

Other significant accounting policies. Our significant accounting policies are described in our 2025 10-K. Other than the share repurchase policy described above, there have been no material changes to those policies.

Recently issued accounting pronouncements. Accounting Standard Update 2024-03, Disaggregation of Income Statement Expenses ("ASU 2024-03"). In November 2024, the FASB issued ASU 2024-03, which requires public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

Accounting Standard Update 2025-06, Accounting for Internal-Use Software ("ASU 2025-06"). In September 2025, the FASB issued ASU 2025-06 to simplify the accounting for internal-use software by replacing the stage-based model with a principles-based approach. The amendments aim to align accounting with modern development practices and reduce complexity. The amendments are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual periods. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

Accounting Standard Update 2025-12, Codification Improvements (“ASU 2025-12”). In December 2025, the FASB issued ASU 2025-12, which amends a wide range of topics in the Codification to clarify guidance, correct errors, and make other minor improvements. The amendments are generally not intended to result in significant changes for most entities. Transition requirements vary by issue, with most amendments permitting prospective or retrospective application; amendments related to the calculation of diluted earnings per share require retrospective application. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company elected to early adopt ASU 2025-12 in its condensed consolidated financial statements for the three and nine months ended September 30, 2026, applied as of January 1, 2026, as required for adoption in an interim period. The adoption had no effect on previously reported periods and did not have a material impact on the Company’s condensed consolidated financial statements.

Accounting Standard Update 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). In December 2025, the FASB issued ASU 2025-11, which clarifies the scope of Topic 270, the form and content of interim financial statements, and the disclosures required in interim reporting periods. The amendments consolidate the interim disclosure requirements found throughout the Codification into a comprehensive list within Topic 270 and add a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments are not intended to change the fundamental nature of interim reporting or to expand or reduce existing interim disclosure requirements. For public business entities, the amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, and may be applied prospectively or retrospectively. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its interim condensed consolidated financial statements and footnote disclosures.

We do not expect the adoption of these accounting standards to have a material impact on our results of operations, financial position or cash flow; however, adoption of ASU 2024-03 is expected to result in expanded disclosures in the notes to the consolidated financial statements.

NOTE 3. REVENUE RECOGNITION

Revenue recognition. We generate revenue primarily from the licensing of our intellectual property and the intellectual property that we license from third parties. We recognize revenue under recurring fee license contracts monthly as we satisfy our performance obligation, which consists of granting the customer the right to use said intellectual property. Amounts billed are determined based on flat rates or usage rates stipulated in the customer contract.

From time to time, we may sell the perpetual right to use our intellectual property for our progressive gaming systems, that is separate from the licensing of our game content and from time to time, sell the units used to deliver the progressive gaming systems. Control transfers and we recognize revenue at a point in time when the gaming system is available for use by a customer, which is no earlier than the shipment of the products to the customer or an intermediary for the customer.

From time to time, the Company licenses intellectual property from third-party owners and sub-licenses that intellectual property to its customers. In these arrangements, the Company usually agrees to pay the owner of the intellectual property a royalty based on the revenues the Company receives from licensing the intellectual property to its customers. Depending on the relationship between Galaxy and the licensor, those royalties are either deducted from gross revenue to arrive at net revenue or are included in operating expenses.

Disaggregation of revenue. The following table disaggregates our revenue by geographic location for thethree and nine months ended September 30, 2026, and 2025. All of the royalty expense that is charged to a contra-revenue in our online gaming revenue stream has been allocated to the Europe, Middle East and Africa region in both periods presented below.

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

On May 10, 2023, the Company and a customer entered into an amended and restated agreement (the "Agreement"). The Agreement amends and restates a previous agreement between the parties, dated June 2, 2015, for the provision of licenses for certain table game content and related intellectual property which the Company, succeeded to as successor in interest by merger with PGP.

The Agreement guarantees a minimum payment from the customer of €6,000,000 Euros (converted to approximately $6,804,600 as of September 30, 2026) per each year ended March 31, 2024, 2025, 2026, and 2027 of the Agreement. The amount is to be billed and paid based on minimum monthly payments of €500,000 Euros (converted to approximately $567,050 as of September 30, 2026). Any usage amount lower than the minimum monthly payment is deferred until the end of the contract year when the revenue is considered earned and can be recognized. As of September 30, 2026, the Company had €58,576 Euros of deferred revenue (converted to approximately $66,431 as of September 30, 2026), compared to deferred revenue of €9,637 Euros (converted to approximately $10,929 as of September 30, 2026) in the prior year period. As of September 30, 2026, the Company is in the final contract year of the minimum payment guarantee under the Agreement.

Contract assets. The Company’s contract assets consist solely of unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables are included in the balance of accounts receivable, net of allowance on the balance sheet and totaled $2,594,635, $2,091,932 and $1,742,597 as of September 30, 2026, December 31, 2025 and September 30, 2025, respectively.

Intellectual property agreements. From time to time, the Company purchases or licenses intellectual property from third-parties and the Company, in turn, utilizes that intellectual property in certain games licensed to customers. In these agreements, the Company may agree to pay the seller of the intellectual property a fee if and when the Company receives revenue from games containing the intellectual property.

NOTE 4. OTHER INTANGIBLE ASSETS

Other intangible assets, net consisted of the following:

For the three months ended September 30, 2026 and 2025, amortization expense related to other intangible assets was $522,993 and $552,487, respectively. For the nine months ended September 30, 2026 and September 30, 2025, amortization expense related to other intangible assets was $1,644,278 and $1,657,462, respectively.

NOTE 5. LONG-TERM DEBT AND LIABILITIES

Long-term debt and liabilities consisted of the following at:

BMO Credit Agreement. On January 6, 2025, the Company entered into a credit agreement with BMO Bank N.A. ("BMO"), a national banking association (the "Credit Agreement"). The Credit Agreement provides for senior secured financing in the aggregate amount of up to$47,000,000, consisting of a$2,000,000 senior secured revolving credit facility and a$45,000,000 senior secured term loan.

The Credit Agreement replaced the senior secured term loan agreement with Fortress Credit Corp. ("Fortress Credit Agreement"), which included a term loan with a maturity date of November 13, 2026. On January 6, 2025, the Company borrowed$45,000,000 under the new term loan and used this amount plus cash on hand to repay all amounts outstanding under the Fortress Credit Agreement, which was terminated. The Company recognized a loss on extinguishment of debt of $2,969,585 for the nine months ended September 30, 2025 related to the refinancing of our debt from Fortress to BMO in January 2025, primarily driven by the write-off of unamortized debt issuance costs.

Borrowings under the Credit Agreement bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (1) at a floating rate equal to the base rate (the “Base Rate”) determined by reference to the greatest of: (a) the prime commercial rate announced or otherwise established by BMO, (b) the federal funds rate plus one half of 1%, and (c) the one-month Term Secured Overnight Financing Rate ("SOFR") (as defined in the Credit Agreement) plus 1.00%; or (2) at a fixed rate based on Term SOFR with an interest period of one, three or six months (at the Company’s election). The applicable margin for borrowings is determined by reference to a pricing grid based on the Company’s then current Total Funded Debt to EBITDA Ratio (as defined in the Credit Agreement). The applicable margin for Base Rate loans ranges from 2.0% to 2.5% per annum. The applicable margin for SOFR loans ranges from 3.0% to 3.5% per annum. The Company pays interest on amonthly basis and has elected the one-month SOFR plus 1.00%. The Company will pay a commitment fee, payable quarterly in arrears, equal to the applicable margin on the average daily undrawn amount under the new revolving credit facility.

Pursuant to the terms of the Credit Agreement, the new term loan and new revolving credit facility will mature on January 6, 2028 as the merger with Evolution was not completed by December 31, 2025.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The Credit Agreement includes financial covenants requiring the Company to maintain a maximum Total Funded Debt to EBITDA Ratio, a minimum Fixed Charge Coverage Ratio, minimum EBITDA, and maximum Capital Expenditures (each as defined in the Credit Agreement).

The Company’s obligations under the Credit Agreement are guaranteed by the Company’s domestic subsidiaries, and secured by a first-priority security interest in substantially all of the tangible and intangible personal property of the Company and each subsidiary.

On July 24, 2026, the Company entered into an amendment (the "First Amendment") to its Credit Agreement with BMO. The First Amendment amended the Credit Agreement to, among other things, permit the Company to repurchase up to$4,000,000 of the Company’s capital stock, equity interests or warrants, provided that such approved restricted payment satisfies certain conditions, including that (i) the Company has minimum unencumbered liquid assets of$5,000,000 after taking into account such approved restricted payments; (ii) the sole source of funds for the payment of such approved restricted payment is the termination fee paid to the Company in connection with the termination of the Merger Agreement by Evolution, (iii) the Company is in compliance with all financial covenants; and (iv) certain other conditions are satisfied. The First Amendment also amended the Fixed Charge Coverage Ratio, and various requirements related to the provision of certain financial reports by the Company to BMO.

On September 23, 2026, the Company entered into an amendment (the "Second Amendment") to its Credit Agreement with BMO, as amended by the First Amendment dated as of July 24, 2026. The Second Amendment, among other things, (i) increases the annual capital expenditure limitation imposed upon the Company and any of its Subsidiaries, up to no more than ten percent (10%) of the prior year’s net revenue per annum and (ii) approves a one-time EBITDA addback in the amount of$505,361 solely for purposes of determining compliance with certain financial ratios set forth in the Credit Agreement.

Warrant Cancellation. In connection with the Fortress Credit Agreement, on November 15, 2021, the Company issued warrants to purchase an aggregate of 778,320 shares of the Company’s common stock to certain holders, each of which was an affiliate of Fortress Credit Corp. On August 12, 2026, the Company and the warrantholders entered into warrant cancellation agreements, pursuant to which the warrants were cancelled. In consideration for the cancellation of the warrants, the Company paid the holders an aggregate of $1,214,933 in cash, funded from a portion of the termination fee received from Evolution in connection with the termination of the Merger Agreement. Upon execution of each warrant cancellation agreement, the applicable warrants were cancelled and terminated in all respects and deemed null and void. The payment was recorded as a reduction of additional paid-in capital. The transaction was applied against the$4,000,000 share repurchase program adopted by the Company's Board of Directors on July 22, 2026. Following the warrant cancellation, the Company has no warrants outstanding.

For purposes of calculating earnings (loss) per share, the Warrants were considered outstanding until their cancellation on August 12, 2026.

As of September 30, 2026, future maturities of our long-term obligations are as follows:

NOTE 6. COMMITMENTS AND CONTINGENCIES

Concentration of risk. We are exposed to risks associated with customers who represent a significant portion of total revenues.

For thenine months ended September 30, 2026 and 2025, respectively, we had the following client revenue concentrations based on gross revenues before royalties:

Employment agreement amendments. On September 8, 2026, the Company entered into an Amended and Restated Employment Agreement, effective September 1, 2026 (the “Kopjo Employment Agreement”), with Steven Kopjo, the Company’s Chief Financial Officer, Secretary and Treasurer. The Kopjo Employment Agreement, among other things (i)extends the term of his employment through February 28, 2029; (ii) provides for base compensation of $262,500 for the one year period ending August 31, 2027 and $275,000 for the remainder of the term; (iii) provides eligibility to receive an annual discretionary bonus with a target equal to 75% of his base salary based on the achievement of individual and corporate performance objectives established by the Board; and (iv) provides for a grant of a stock option to purchase 120,000 shares of Employer’s common stock at a strike price equal to $1.656 (the price per share of the Company’s common stock as reported on OTC Markets on the grant date), which option will vest as follows: (a) as to the first 40,000 shares of stock, on July 25, 2027, (b) as to the next 40,000 shares of stock, on July 25, 2028, (c) as to the next 40,000 shares of stock, on July 25, 2029; and (v) provides for a conditional grant of 100,000 shares of restricted stock subject to Mr. Kopjo meeting target criteria established by the Board based on metrics concluding on December 31, 2028. The Kopjo Employment Agreement contains customary restrictive covenants, including non-competition, non-solicitation of partners, non-disclosure and non-disparagement provisions.

On September 18, 2026, the Company entered into an Amended and Restated Employment Agreement, effective September 1, 2026 (the “Reback Employment Agreement”), with Matt Reback, the Company’s President and Chief Executive Officer. The Reback Employment Agreement, among other things (i)extends the term of his employment through May 31, 2029; (ii) provides for base compensation of $367,500 for the one year period ending August 31, 2027 and $385,000 for the remainder of the term; (iii) provides eligibility to receive an annual discretionary bonus with a target equal to 75% of his base salary based on the achievement of individual and corporate performance objectives established by the Board; (iv) provides for a grant of a stock option to purchase 150,000 shares of common stock at a strike price equal to $1.656 (the price per share of the Company’s common stock as reported on OTC Markets on the grant date), which option will vest as follows: (a) as to the first 50,000 shares of stock, on September 1, 2027, (b) as to the next 50,000 shares of stock, on September 1, 2028, (c) as to the next 50,000 shares of stock, on September 1, 2029; and (v) provides for a conditional grant of 150,000 shares of restricted stock subject to Mr. Reback meeting target criteria established by the Board based on metrics concluding on December 31, 2028. The Reback Employment Agreement contains customary restrictive covenants, including non-competition, non-solicitation of partners, non-disclosure and non-disparagement provisions.

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.

An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given period and, accordingly, no provision for loss has been reflected in the accompanying financial statements related to those matters.

Regulatory matters. The Company conducted a self-initiated review of its historical sales and use tax compliance as part of its ongoing internal control and process improvement initiatives. In connection with this review, the Company identified a potential compliance gap related to the application of sales and use tax in certain jurisdictions for prior periods.

The Company engaged third-party tax advisors to assist in evaluating the matter and participated in a self-initiated managed audit in a certain jurisdiction. As of September 30, 2026, the managed audit was finalized. Based on the final audit findings, the Company recognized and paid a total of $516,075 of state tax expense, of which$505,361 was recognized in the second quarter of 2026 and $10,714 was recognized upon finalization in the third quarter of 2026, largely relating to sales and use tax not charged to customers, substantially all of which is attributable to periods prior to 2026. As part of the resolution of the managed audit, the taxing authority abated substantially all applicable penalties. The Company does not expect any additional material liabilities related to this certain jurisdiction.

During the third quarter of 2026, the Company initiated voluntary disclosures and managed audits with certain other jurisdictions and recognized additional state tax expense of $175,551, largely relating to sales and use tax not charged to customers, substantially all of which is attributable to periods prior to 2026. Including the managed audit discussed above, the Company recognized $186,265 and $691,626 of state tax expense related to these sales and use tax matters during the three and nine months ended September 30, 2026, respectively.

The Company's review of its historical sales and use tax position is ongoing with respect to other jurisdictions in which it has conducted business. Several of the Company's customer agreements provide that the customer is responsible for determining, self-assessing, and remitting any applicable sales, use, or similar transaction taxes associated with the products and services provided by the Company. These contractual provisions do not necessarily relieve the Company of any statutory obligation to a taxing authority; however, to the extent the Company is ultimately required to remit tax in a jurisdiction, it may have contractual rights to recover such amounts from the applicable customers. Any such recoveries would be recognized only when realization becomes reasonably assured and, accordingly, no amounts have been recognized in the accompanying financial statements.

The Company does not believe its potential exposure in any individual remaining jurisdiction is material. However, the Company's evaluation of nexus, taxability, the availability of customer exemptions, the extent to which customers have directly assessed and remitted applicable taxes, the enforceability and collectibility of the customer tax-responsibility provisions in its agreements, and applicable lookback periods in these jurisdictions is not complete, and the manner of resolution in each jurisdiction — which may include managed audits, voluntary disclosure agreements, or similar programs — has not been determined. It is reasonably possible that the Company will record additional liabilities as these matters are resolved in future periods. As a result, the Company is unable to estimate the aggregate amount of any additional liability at this time, and no accrual related to these remaining jurisdictions has been recorded as of September 30, 2026.

Intellectual property agreements. From time to time, the Company purchases or licenses intellectual property from third-parties and the Company, in turn, utilizes that intellectual property in certain games licensed to customers. In these purchase or license agreements, the Company may agree to pay the seller of the intellectual property a fee, if and when, the Company receives revenue from games containing the intellectual property.

NOTE 7. SEGMENT

We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision maker ("CODM"), CEO, Matthew Reback, to evaluate performance and make operating decisions. We currently have two revenue streams—land-based gaming and online gaming—which are aggregated intoone reporting segment. The land-based revenue stream, which we refer to as core revenue, derives its revenues from casinos using our proprietary products to enhance their gaming operations. The online gaming ("iGaming") revenue stream, which we refer to as digital revenue, derives its revenues from the licensing and distribution of our content to iGaming operators. The Company has intra-entity sales between subsidiaries. The accounting policies of each revenue stream are the same as those described in the summary of significant accounting policies.

The CODM assesses performance of the revenue streams and allocates resources based on consolidated net income (loss), which is the primary performance metric. Net income (loss) is used to monitor budget versus actual results and assess the performance of the business. The measure of segment assets is reported on the Condensed Consolidated Balance Sheet as total assets, which are not allocated to individual revenue streams for performance evaluation by the CODM.

The Company determined the following significant expenses: cost of ancillary products and assembled components, selling, general and administrative, compensation and related expenses, research and development, depreciation and amortization, and stock-based compensation. The CODM reviews these significant expenses as provided in the monthly reporting package.

A summary of significant segment expense activity is as follows:

NOTE 8. INCOME TAXES

Our forecasted annual effective tax rate (“AETR”) at September 30, 2026 was 4.1%, as compared to 2.9% at September 30, 2025. This increase was primarily driven by an increase in forecasted pre-tax book income offset by rate impacting components such as permanent items as compared to the prior-year period.

For the nine months ended September 30, 2026 and 2025, our effective tax rate (“ETR”) was 2.0% and 142.6%, respectively. The decrease in the ETR for the nine months ended September 30, 2026, as compared to the prior-year period, was mainly attributable to an increase in the pre-tax book income for the nine months ended September 30, 2026, including the termination fee received from Evolution under the terms of the Merger Agreement, which was treated as a discrete item with its tax effect offset by the valuation allowance, as compared to the prior-year period.

NOTE 9. SUBSEQUENT EVENTS

On October 21, 2026, the Company announced that Meredith Brill, a Class II Director, had informed the Board of Directors of her intention to step down from the Board effective October 20, 2026. On the same date, the Board appointed John M. Boushy as a Class II Director, effective October 21, 2026, to succeed Ms. Brill.