UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

 

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2021
o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period __________  to __________

 

	Commission File Number: 000-52575
	Lightning Gaming, Inc.
	(Exact name of registrant as specified in its charter)

 

Nevada		20-8583866
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

	23 Creek Circle, Boothwyn, PA 19061
	(Address of principal executive offices)
	(610) 494-5534
	(Registrant’s telephone number)

 

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

Yes x No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one)

 

Large accelerated filer  ¨

Accelerated filer  ¨

Non-accelerated filer  ¨(Do not check if a smaller reporting company)

Smaller reporting company  x

Emerging Growth Company ¨

 

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 standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,649,383 shares of (voting) Common Stock as of May 14, 2021; 33,300,000 shares of Nonvoting Common Stock as of May 14, 2021; and -0- shares of Series A Nonvoting Capital Stock as of May 14, 2021

 

 

 

TABLE OF CONTENTS
		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

  

1	Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020 (audited);
2	Unaudited Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020;
3	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020;
4	Notes to Unaudited Consolidated Financial Statements.

 

 

 

 

Item 1. Financial Statements 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

		March 31,  2021				December 31, 2020
		(unaudited)				(audited)
Assets
Current Assets
Cash		$	1,831,704			$	1,857,901
Accounts receivable, net			440,725				421,448
Inventory			705,242				1,148,549
Prepaid expenses			217,492				211,339
Deposits with vendors			3,341				3,704
Total Current Assets			3,198,504				3,642,941
Property and Equipment, net			4,019,942				3,768,322
Right-of-use asset - building			431,184				446,927
Other assets			8,193				8,193
License fees, net of accumulated amortization			1,839				2,672
Total Assets		$	7,659,662			$	7,869,055
See Notes to Unaudited Consolidated Financial Statements

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

 

 

		March 31,  2021				December 31, 2020
		(unaudited)				(audited)
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		$	95,051			$	289,724
Accrued expenses			177,616				172,687
Accrued interest			190				—
Current portion of lease liability			69,193				41,577
Current portion of auto loan			14,066				—
Current portion of notes payable, net			612,659				591,118
Total Current Liabilities			968,775				1,095,106
Long-Term Debt and Other Liabilities
Long-term notes payable, net			4,476,476				4,640,383
Long-term portion of auto loan			63,218				—
Warrant liability			105,879				84,671
Long-term lease liability			412,490				430,600
Total Long-Term Debt and Other Liabilities			5,058,063				5,115,654
Total Liabilities			6,026,838				6,250,760
Commitments (Note 9)
Stockholders' Equity
Preferred stock: $0.001 par value; authorized 10,000,000 shares, Series A Nonvoting capital stock 6,000,000 shares designated, -0- shares issued and outstanding			—				—
Common stock: $0.001 par value; authorized 90,000,000 shares; 4,916,285 shares issued and 4,649,383 outstanding			4,917				4,917
Nonvoting common stock: $0.001 par value; authorized 50,000,000 shares; 33,300,000 issued and outstanding			33,300				33,300
Additional paid in capital			30,611,114				30,595,461
Accumulated deficit			(28,995,696	)			(28,994,572	)
Treasury stock, 266,902 shares, at cost			(20,811	)			(20,811	)
Total Stockholders’ Equity			1,632,824				1,618,295
Total Liabilities and Stockholders’ Equity		$	7,659,662			$	7,869,055
See Notes to Unaudited Consolidated Financial Statements

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2021 and 2020

(Unaudited)

 

 

		March 31,  2021				March 31, 2020
Revenues
Lease and license fees		$	986,822			$	1,090,477
Sales of gaming products and parts			33,535				136,862
Total revenues			1,020,357				1,227,339
Costs of Revenue
Cost of products sold			3,699				85,007
Depreciation			265,641				251,191
License fees			12,220				—
Costs of revenue			281,560				336,198
Gross Profit		$	738,797			$	891,141
Operating expenses
Operating expenses			140,613				34,766
Research and development			55,595				112,847
Selling, general and administrative expenses			325,261				528,094
Depreciation and amortization			7,210				3,400
Total operating expenses			528,679				679,107
Operating income		$	210,118			$	212,034
Non-operating income (expense)
Interest expense			(188,134	)			(233,486	)
Interest income			194				—
Gain (loss) on change in fair value of warrant liability			(21,208	)			425,475
Total non-operating income (expense)			(209,148	)			191,989
Net income before income taxes			970				404,023
Income tax expense			2,094				—
Net (loss) income		$	(1,124	)		$	404,023
Net (loss) income per common share - basic		$	(0.00	)		$	0.01
Net (loss) income per common share - diluted		$	(0.00	)		$	0.01
Weighted average Common shares outstanding – basic			4,649,383				4,649,383
Weighted average Common shares outstanding - diluted			4,649,383				11,654,383
Weighted average Nonvoting Common shares outstanding - basic			33,300,000				33,300,000
Weighted average Nonvoting Common shares outstanding - diluted			33,300,000				37,225,000
See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2021 and 2020

(Unaudited)

 

 

		March 31, 2021				March 31,  2020
Cash Flows from Operating Activities
Net (loss) income		$	(1,124	)		$	404,023
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization			272,851				254,591
Stock based compensation			15,653				15,855
Amortization of debt discount and deferred debt commitment fee			13,015				48,666
Loss (gain) on change in fair value of warrant liability			21,208				(425,475	)
Changes in Assets and Liabilities
(Increase) decrease in accounts receivable			(19,277	)			280,821
Decrease (increase) in inventory			443,307				(374,850	)
(Increase) decrease in prepaid expenses			(6,153	)			10,262
Decrease in deposits with vendors			362				1,529
Decrease (increase) in right-of-use asset and lease liability			25,249				(3,777	)
Decrease in accounts payable			(194,673	)			(367,435	)
Increase (decrease) in accrued expenses			4,929				(337,424	)
Increase in accrued interest			190				—
Net Cash Provided by (Used in) Operating Activities			575,537				(493,214	)
Cash Flows from Investing Activities
Purchase of equipment			(523,636	)			(212,487	)
Purchase of licenses			—				(45,000	)
Net Cash Used in Investing Activities			(523,636	)			(257,487	)
Cash Flows from Financing Activities
Proceeds from notes payable, net of loan fee			—				990,000
Proceeds from auto loan			78,248				—
Repayment of notes payable			(155,381	)			(126,646	)
Payments on auto loan			(965	)			—
Net Cash Provided by (Used in) Financing Activities			(78,098	)			863,354
Net Increase (Decrease) in Cash			(26,197	)			112,653
Cash - Beginning of period			1,857,901				1,598,749
Cash - End of period		$	1,831,704			$	1,711,402
See Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2021 and 2020 (Continued)

(Unaudited)

 

 

 

		March 31,  2021				March 31,  2020
Supplemental Disclosure of Non-Cash Financing Activities:
Transfers among inventory, equipment and licenses, net		$	—			$	30,000
Supplemental Information:
Cash paid for:
Interest		$	174,929			$	184,820
Income taxes		$	655			$	3,905
Operating building lease		$	—			$	26,523
See Notes to Unaudited Consolidated Financial Statements

 

 

 

 LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

March 31, 2021

 

Note 1.   Nature of Business and Summary of Significant Accounting Policies

 

Nature of Business:

 

Lightning Gaming, Inc. (the “Company”) was incorporated on March 1, 2007 and on January 29, 2008, completed a merger with Lightning Poker, Inc. (“Lightning Poker”) which became a wholly-owned subsidiary of the Company.

 

Lightning Poker was formed to manufacture and market a fully automated, proprietary electronic poker table (the “Poker Table”) to commercial and tribal casinos, card clubs, and other gaming and lottery venues. Lightning Poker’s Poker Table was designed to improve economics for casino operators while improving overall player experience.

 

In 2008, the Company, as the sole member, established Lightning Slot Machines, LLC (“Lightning Slots”) through which it commenced the design, manufacture, marketing, sale and operation of video slot machines to customers in various gaming jurisdictions. Our gaming products feature advanced graphics and engaging games based on proprietary themes.

 

Our consolidated financial statements include the accounts of the Company, including Lightning Poker and Lightning Slots. All inter-company accounts and transactions have been eliminated.

 

Basis of Presentation

 

The unaudited interim financial statements contained herein should be read in conjunction with the Company’s annual report on Form 10-K filed on March 30, 2021 (“Form 10-K”). The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 8.03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, accordingly, do not include all the disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with the Company’s accounting practices described in the Form 10-K but have not been audited. In management’s opinion, the consolidated financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods presented. The consolidated balance sheet data as of December 31, 2020 was derived from the Company’s consolidated audited financial statements. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the entire year.

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. Although the Company recognized a net loss for the three months ended March 31, 2021, it generated approximately $576,000 in cash from operations for the three months ended March 31, 2021 and has maintained and sustained a working capital surplus. Due to the ongoing effects of the outbreak of the novel coronavirus disease (COVID-19), the Company’s operations, as well as our customers’, are open with limitations and through strict adherence to guidelines established by the Centers for Disease Control and Prevention (“CDC”) and each facility’s respective state or tribal government. The ability to measure the degree to which COVID-19 will impact the Company’s performance in its aftermath will depend on the continued duration and spread of COVID-19, as well as any future restrictions placed on us or our customers due to the outbreak, whether mandated or recommended.

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 1.  Nature of Business and Summary of Significant Accounting Policies (Continued)

 

Basis of Presentation (Continued)

 

On February 12, 2021, we received $237,030 in funding under the second round of the federal loan program known as the Paycheck Protection Program (“PPP2”) through the Small Business Association (“SBA”) which has helped to lessen the impact of COVID-19 for the expenses covered under the program.

 

In addition, aggressive expense management has been employed to mitigate the adverse impact that COVID-19 has had on our operations and performance. We anticipate that the effects of COVID-19 on our operations will be temporary and we will continue to have the ability to meet our obligations, however the Company’s future performance will depend on the duration of COVID-19 and the Company’s ability to distribute its products and successfully market them to more casinos and gaming venues. Although we realized a net loss for the three months ended March 31, 2021 due to the COVID-19, based on our working capital surplus, financial condition, cash flow projections, anticipated revenues and financing agreements, we believe we have sufficient cash flows to support our operations for the next twelve months, however if supplemental financing becomes necessary, there is no assurance that the Company would be able to obtain such financing, on reasonable and feasible terms, or at all. If the Company needs additional funding and is unable to obtain it, its financial condition would be adversely affected. In that event, it would have to postpone or discontinue planned operations and projects for expansion. The Company’s continuance as a going concern is dependent upon these factors, among others. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Cash: For the purposes of reporting the statement of cash flows, the Company considers all cash accounts and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintained and will maintain cash balances with highly reputable financial institutions, which at times throughout the year exceeded the federally insured amount of $250,000. The Company has not experienced any losses from deposits above the federally insured amount and the amount of funds in excess of the federally insured amount was $1,435,867 as of March 31, 2021 and $1,434,119 as of December 31, 2020.

 

Accounts Receivable and Allowance for Doubtful Accounts: The Company regularly evaluates the collectability of its trade receivable balances based on a combination of factors. When a customer’s account becomes past due, dialogue is initiated with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to us, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results, financial position, or other material events impacting its business, a specific reserve is recorded for bad debts to reduce the related receivable to the amount expected to be recovered, given all information presently available. The Company maintained a reserve of $6,593 as of March 31, 2021 and December 31, 2020. Except for this reserve, the Company believes its receivables are collectible. If circumstances related to specific customers change, our estimates of the recoverability of receivables could materially change. Recoveries of receivables previously written off are recorded as revenue when recovered. Delinquency of accounts receivable is determined based on contractual terms, customer payment history, and current creditworthiness. The Company does not charge interest on its past due receivables. During each of the three months ended March 31, 2021 and 2020, respectively, the Company wrote off $-0- of accounts receivable considered to be uncollectible.

 

Inventory: Inventory is stated at the lower of cost using the first-in, first-out method, or net realizable value. Inventory is routinely evaluated to identify damaged, obsolete, and unusable inventory and for physical inventory differences. A reserve of approximately 5% to 10% of the parts balance is maintained to account for obsolescence and physical inventory differences and impaired inventory is written off when necessary. The Company maintained a reserve of $4,334 and $3,460 as of March 31, 2021 and December 31, 2020, respectively.

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 1.  Nature of Business and Summary of Significant Accounting Policies (Continued)

 

Fair Value Measurements: Given their short-term nature and expected maturity, the carrying amounts reported in these financial statements for cash, prepaid and other current assets, accounts payable, and accrued expenses approximate fair value.

 

Accounting Standards Codification (“ASC”) 820 – Fair Value Measurement defines fair value as 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. ASC 820 further establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques into the following three levels, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs:

 

 

	·	Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity can access at the measurement date;
	·	Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities that are observable, either directly or indirectly;
	·	Level 3: Unobservable inputs for the asset or liability, including significant assumptions of the reporting entity and other market participants.

 

 

The fair value of and the methodology used by the Company for the warrant liability is discussed in Note 10.

 

Earnings per share: The Company computes earnings per share in accordance with generally accepted accounting principles which require presentation of both basic and diluted earnings per share ("EPS") on the face of the Statement of Operations. Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted to common stock. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.

 

The Company uses the two-class method in computing earnings per share. Under the two-class method, undistributed earnings are allocated among common and participating shares to the extent each security may share in such earnings.

 

In computing earnings per share, the Company's Nonvoting Stock is considered a participating security. Each share of Nonvoting Stock has identical rights, powers, limitations and restrictions in all respects as each share of common stock of the Company including the right to receive the same consideration per share payable in respect of each share of common stock, except that holders of Nonvoting Stock shall have no voting rights or powers whatsoever.

 

The following table summarizes the number of dilutive shares, which may dilute future earnings per share, outstanding for each of the periods presented:

 

		March 31, 2021				March 31, 2020
Stock options			3,875,000				3,930,000
Warrant			7,000,000				7,000,000
			10,875,000				10,930,000

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 1.  Nature of Business and Summary of Significant Accounting Policies (Continued)

 

Reclassification

 

Depreciation expense related to the gaming equipment under lease reported under Operating expenses in the prior year’s consolidated Statements of Operations has been reclassified to conform to the current year’s presentation. This reclassification had no effect on the reported results of operations.

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued the update Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the estimation of credit losses from an “incurred loss” methodology to one that reflects “expected credit losses” (the Current Expected Credit Loss model, or “CECL”) which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Measurement under CECL is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability of reported amounts. The amendments in the update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is evaluating the impact, if any, the implementation of the CECL model will have on our financial statements.

 

In December 2019, the FASB issued an update within the scope of Topic 740, Income Taxes. The update simplifies the accounting for income taxes by removing certain exceptions to the general principles within the Topic and improves consistent application of and simplifies generally accepted accounting principles (“GAAP”) for other areas by clarifying and amending existing guidance. The amendments in this update became effective during this interim period for the fiscal year beginning after December 15, 2020 and did not have a material impact on our consolidated financial statements.

 

Note 2.  Inventory

 

Inventory consists of the following:

		March 31, 2021				December 31, 2020
Finished products		$	562,576			$	983,866
Raw materials and work in process			142,666				164,683
Inventory		$	705,242			$	1,148,549

 

Inventory is stated at the lower of cost using the first-in, first-out method, or net realizable value.

 

Slot machine cabinets, which are manufactured by a third-party, include monitors, toppers, stands and certain electronic components, are shown as finished products. Raw materials primarily consist of the flash drives, motherboards, spare parts and interchangeable electronic components for the slot machines.

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 3.  Property and Equipment

 

Property and equipment consist of the following:

		March 31, 2021				December 31, 2020
Equipment, principally gaming equipment under lease		$	6,341,791			$	5,928,277
Delivery truck			78,247				28,140
Office equipment, furniture and fixtures			90,206				90,206
Leasehold improvements			91,794				91,794
Property and equipment			6,602,038				6,138,417
Less accumulated depreciation and amortization			(2,582,096	)			(2,370,095	)
Property and equipment, net		$	4,019,942			$	3,768,322

 

Depreciation expense related to the gaming equipment under lease is listed separately in the consolidated Statements of Operations as costs of revenue. Depreciation expense related to all other property and equipment included in the consolidated Statements of Operations was $6,377 and $2,567 for the three months ended March 31, 2021 and 2020, respectively.

 

Note 4.  License Fees

 

License fees consist of the following:

		March 31, 2021				December 31, 2020
Purchased licenses		$	347,160			$	347,160
Less accumulated amortization			(345,321	)			(344,488	)
License fees, net		$	1,839			$	2,672

 

The cost of licenses for gaming machine patents and technology is expensed as license fees on a straight-line basis over the term of the license period.

 

The weighted average useful life of purchased source code licenses is 3 years. Amortization expense included in the consolidated Statements of Operations relating to the source code licenses was $833 for the three months ended March 31, 2021 and 2020, respectively.

 

Estimated future amortization and expense related to recorded source code license fees is $1,389 for the year ending December 31, 2021.

 

Note 5.  Notes Payable

 

On November 27, 2019 (the “Closing Date”), the Company entered into a Master Loan Agreement (the “Loan”) with PDS Gaming – Nevada, LLC (“PDS Gaming” or the “Lender”) to make a series of advances under the Loan in the principal amount of up to $7,000,000 in order to (i) re-finance existing outstanding indebtedness of the Company which totaled $3,765,792, (ii) finance the Company’s purchase or manufacturing of equipment and (iii) to be used for general working capital. The Loan is evidenced by Promissory Notes (each a “Note” and collectively the “Notes”) executed by the Company payable to the order of the Lender, and is secured by a Security Agreement dated of even date with the Loan, between the Company and the Lender granting a security interest to the Lender in all of the Company’s right, title and interest in and to personal property, tangible and intangible, wherever located or situated and whether now owned or acquired or created. The Loan is advanced, in parts, pursuant to the Loan and in the amounts of each Note during the advance period which ran until November 30, 2020.

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 5. Notes Payable (Continued)

 

The Notes bear interest on the outstanding principal amount at a rate per annum equal to an annual rate of 13%. Payments consisting of principal and interest for each advance financed under the Note are due and payable monthly based on an 84-month amortization and mature in 60 months, at which time the entire principal balance plus all accrued and unpaid interest under the Notes are due and payable in full. Each Note is prepayable subject to a sliding scale prepayment fee, declining 1% from 4% in the first twelve months to 0% after the 48th month, based on then-outstanding principal amount of the Note.

 

The initial advance dated November 27, 2019 is evidenced by a Note in the principal amount of $5,000,000 (“Advance 9”). Monthly payments of $91,616 on Advance 9 commenced on January 1, 2020 and will mature on December 1, 2024. On January 29, 2020, the Company closed on Advance 10 under the Loan with PDS Gaming which is evidenced by a Note in the principal amount of $1,000,000. Monthly payments of $18,309 commenced on March 1, 2020, and the Note matures on February 1, 2025.

 

As inducement to the Lender to make the Loan, the Company issued to the Lender a warrant (“Warrant”) entitling the Lender to purchase up to 7,000,000 shares of common stock of the Company which was equal to 15.6% of the outstanding common stock on the Closing Date. The Warrant is detachable with an exercise price of $0.05 per share and expires ten years from the Closing Date. The Warrant cannot be exercised until PDS Gaming is fully licensed in all of the Company’s gaming jurisdictions. The Company calculated the fair value of the Warrant to be $779,901 at the time of issuance using the Black-Scholes pricing model, and under ASC 480, recorded the Warrant as a liability. See Note 10 for further details regarding the Warrant.

 

On the Closing Date, the Company recorded the percentage of the Loan remaining for advance in proportion to the total Loan, i.e. 2/7 ($2,000,000/$7,000,000) or 28.6% or $229,829, as a deferred debt commitment fee which was amortized on a straight-line basis until the end of the advance period which expired on November 30, 2020. In January 2020, a $10,000 loan fee was paid to the Lender and the fee as well as the proportionate amount of the unamortized deferred fee attributable to the $1,000,000 advance of $92,845 were reclassified as debt discount and are being amortized over the life of the advance using the interest method. The balance of the debt discount attributable to the advance taken in January 2020 was $76,530 and $82,063 as of March 31, 2021 and December 31, 2020, respectively.

 

Debt discount of $137,509 was calculated as the cost associated with the debt in proportion to the total cost of the debt that was refinanced or reacquired and is presented as a direct reduction to the value of the debt and is being amortized over the life of the advance using the interest method. The balance of the debt discount attributable to the advance taken on November 27, 2019 was $96,402 and $103,874 as of March 31, 2021 and December 31, 2020, respectively.

 

The Loan is subject to covenant clauses whereby the Company is required to meet certain key financial ratios. Due to the material effect that COVID-19 has had on the Company’s revenues, the Lender amended the Loan in September 2020, providing a waiver of compliance with the financial ratio covenants and extending and resetting the compliance with the covenants until the quarter ending June 30, 2021. Due to the continued impact of COVID-19 on the Company’s operations, the Lender executed a second amendment to the Loan in March 2021, which waives compliance with the financial ratio covenants and further extends and resets compliance with the covenants commencing with the quarter ending December 31, 2021.

 

 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 5. Notes Payable (Continued)

 

As of March 31, 2021 and December 31, 2020, Notes payable, net of debt discount, consist of the following:

 

		Advance Date		Maturity Date		Note Amount				Monthly Payment				Interest Rate				March 31, 2021				December 31, 2020
PDS Gaming Advance 9		11/27/2019		12/1/2024		$	5,000,000			$	91,616				13	%		$	4,274,927			$	4,397,410
PDS Gaming Advance 10		1/29/2020		2/1/2025		$	1,000,000			$	18,309				13	%			814,208				834,091
Total Notes Payable																			5,089,135				5,231,501
Less: amounts classified as current																			(612,659	)			(591,118	)
Long-Term Notes Payable																		$	4,476,476			$	4,640,383

 

The following table lists the future principal payments due on the Notes as of March 31, 2021:

 

Year Ending December 31,				Amount
	Remaining 2021			$	448,752
	2022				683,484
	2023				790,371
	2024				2,768,025
	2025				398,503
				$	5,089,135

 

The following table provides a breakdown of the interest expense in the consolidated Statements of Operations related to the Notes payable for the three months ended March 31, 2021 and 2020:

 

		March 31, 2021				March 31, 2020
Interest on Notes payable		$	174,394			$	184,820
Amortization of deferred debt commitment fee			—				37,138
Amortization of debt discount			13,015				11,528
		$	187,409			$	233,486

 

Note 6. Auto Loan

 

On January 30, 2021, the Company financed the purchase of a 2021 Ford F-650 box truck to be used as its delivery truck. The purchase price of the truck of $78,248 was financed with Ford Credit (“FC”) for a term of sixty months at an annual percentage rate of 5.54%. Monthly payments of $1,500 commenced March 16, 2021. The principal balance of the loan on March 31, 2021 was $77,284, and interest expense in the consolidated Statements of Operations related to the auto loan for the three months ended March 31, 2021 was $725.

 

 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 6. Auto Loan (Continued)

 

The following table lists the future principal payments due to FC on the auto loan as of March 31, 2021:

 

Year Ending December 31,				Amount
	Remaining 2021			$	10,464
	2022				14,664
	2023				15,499
	2024				16,375
	2025				17,311
	2026				2,971
				$	77,284

 

Note 7. Deferred Income

 

In March 2020, Congress established the Paycheck Protection Program (“PPP”) to provide relief to small businesses during the coronavirus pandemic (“COVID-19”) as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The legislation authorized Treasury to use the Small Business Association’s (“SBA’s”) 7(a) small business lending program to fund forgivable loans that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities during the “Covered Period” defined as the 8-week period starting on the date the PPP loan proceeds are received. Upon meeting certain criteria as specified in the PPP program, the loans are eligible for partial or total forgiveness.

 

On June 5, 2020, the PPP Flexibility Act of 2020 (the “Act”) was signed into law, giving borrowers flexibility with certain criteria under the PPP program including extension of the Covered Period to 24 weeks from 8 weeks, reduction to 60% of the payroll costs requirement (previously 75%), extension of the payment deferral period, extension of the full-time equivalent (“FTE”) restoration deadline to December 31, 2020, and safe harbor provisions to remove the FTE reduction in forgiveness under limited circumstances.

 

In December 2020, the Consolidated Appropriations Act was passed providing additional COVID-19 relief to small businesses by providing a second round of PPP loans, referred to as PPP2, including a second PPP loan for small businesses facing significant revenue declines in any 2020 quarter compared to the same quarter in 2019. In addition, borrowers can select any Covered Period between 8 and 24 weeks.

 

In June 2020, the AICPA issued Technical Question and Answer (“TQA”) 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program. The TQA addresses accounting for nongovernmental entities that are not Not-For-Profits, i.e. business entities, that believe the PPP loan represents, in substance, a grant that is expected to be forgiven, it may account for the loan as a deferred income liability. The TQA further states that if such an entity expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents in substance, a grant that is expected to be forgiven, it may analogize to International Accounting Standard (“IAS”) 20 to account for the PPP loan.

 

IAS 20 provides a model for the accounting of different forms of government assistance, which includes forgivable loans. Under this model, government assistance is not recognized until there is reasonable assurance (similar to the probable threshold in U.S. GAAP) that any conditions attached to the assistance will be met and the assistance will be received.

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 7. Deferred Income (Continued)

 

Once there is reasonable assurance that the conditions will be met, the earnings impact of the grant is recorded on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate. Hence, a business entity would record the cash inflow from the PPP loan as a deferred income liability and subsequently reduce the liability, with the offset through earnings as either a credit in the income statement or a reduction of the related expenses, as it recognizes the related cost to which the loan relates, for example, payroll expense.

 

The Company applied for and received proceeds of $237,030 through the PPP2 program on February 12, 2021 and has elected a 24-week Covered Period. The Company determined both through internal calculations and those provided by the AICPA’s forgiveness model, that all criteria for forgiveness based on both the CARES Act and the Act have been met as of March 31, 2021 and that the PPP loan will be 100% forgiven. In analogizing to IAS 20, the Company considers the PPP2 loan a grant that is expected to be forgiven and as such, recorded the proceeds as a deferred income liability when received and recognized the PPP2 grant as a reduction of the related expenses to which the loan was intended to compensate.

 

For the period February 12, 2021 through March 31, 2021, the Company incurred the following costs related to and compensated through the PPP2 proceeds and which are expected to be forgiven in their entirety:

 

Salaries and wages		$	228,541
401K match			7,295
Payroll taxes			1,194
Total eligible and forgivable expense under PPP2 program		$	237,030

 

As of March 31, 2021, in accordance with methods acceptable under IAS 20, the Company reduced the PPP2 deferred income liability and offset the expenses listed above by their respective amounts, leaving a balance remaining of $-0- as of that date.

 

Note 8. Leases

 

In November 2009, the Company entered into a lease agreement for its corporate office and warehouse facility which became effective in January 2010 for a term of sixty-seven months. In September 2014, the lease was amended to include the following: 1) an extension of the lease term to February 28, 2021; 2) modification of the minimum annual and monthly rents for the extended lease term; 3) a rent abatement period of six months commencing October 1, 2014; and 4) an option to extend the term for a period of five years. In August 2020, a second amendment to the lease was executed to include: 1) an extension of the lease term to August 31, 2026; 2) modification of the minimum annual and monthly rents for the second extended lease term; 3) a rent abatement period of six months commencing October 1, 2020; and 4) removal of the option to extend the term beyond the amended expiration date.

 

In September 2020, the remaining balances in the right-of-use asset and lease liability associated with the first amendment to the lease of $37,016 and $44,417, respectively, were eliminated and the difference of $7,401 was adjusted as a credit to rent expense. On September 30, 2020, the right-of-use asset and corresponding lease liability of $462,858 were recorded to account for the second amendment to the lease.

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 8. Leases (Continued)

 

The following table summarizes the right-of-use asset and lease liability as of March 31, 2021:

 

Right-of-use Asset		$	431,184
Lease Liability
Current		$	69,193
Long-term			412,490
		$	481,683

 

Lease expense for the three months ended March 31, 2021 and 2020 was $40,654 and $37,148, respectively.

 

The following table summarizes the Company’s scheduled future minimum lease payments as of March 31, 2021:

 

Year Ended December 31:
	Remaining 2021			$	78,649
	2022				106,985
	2023				109,299
	2024				111,612
	2025				113,925
	2026				77,107
	Minimum lease payments				597,577
	Less: imputed interest				(115,894	)
	Present value of minimum lease payments				481,683
	Less: current maturities of lease liability				(69,193	)
	Long-term lease liability			$	412,490

 

Note 9. Commitments

 

The Company routinely enters into license agreements for the use of intellectual properties and technologies. These agreements generally provide for license fee payments when the agreements are signed and minimum commitments, which are cancellable in certain circumstances. On March 10, 2020, the Company and a licensor amended the terms under a patent cross license agreement dated February 28, 2017, which required the Company to pay an upfront per unit license fee on games (slot machines) placed in service after the agreement date and for a period of five years and settled on the amount due upon audit conducted by the licensor for the period March 1, 2017 through September 30, 2019. Upon the payment of the $158,250 audit settlement amount, the Company was released from all claims under the agreement. The amendment removed the upfront per unit license fee and replaced it with a quarterly un-recoupable fee of $45,000 payable within fifteen days after the end of each calendar quarter and removed all audit provisions. The amendment terminates after five years from October 1, 2019, or September 30, 2024. The $66,000 difference between the $203,250 combined amount paid by the Company for the audit settlement and the quarterly license fee, and the $269,250 balance in the estimated liability for the license fee, was reversed in March 2020 and is included as a reduction to the operating expenses in the consolidated Statements of

 

\

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 9. Commitments (Continued)

Operations for the three months ended March 31, 2020. On October 13, 2020, the agreement was further amended allowing the Company to defer the payment of the quarterly fees according to the deferred payment schedule as delineated in the agreement, extended the termination of the agreement to December 31, 2024, increased the final four quarterly payments to $50,000 and extended the final four quarterly payments beyond the termination date to 2025.

License fees included as operating expenses in the consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 were $45,000 and ($66,000), respectively.

Note 10. Stockholders’ Equity

 

Stock Option Plan: In order to provide an incentive to designated employees, officers, directors, consultants, independent contractors and other service providers who perform services contributing to the growth of the Company, and by aligning the interests of participants with the interests of stockholders, the Board declared it advisable and in the Company’s best interest and on May 25, 2016, approved the 2016 Stock Option Plan (the “2016 Plan”). The 2016 Plan permits the granting of nonqualified stock options. The shares underlying the options will be shares of the Company’s nonvoting common stock, par value $0.001 per share, and the total aggregate number of shares that may be issued under the 2016 Plan is 5,700,000 shares. The purchase price of each option will be determined by the Board at the time the option is granted, but in no event will be less than 100% of the fair market value of the common stock at the time of grant. Options granted will not be exercisable after 10 years from the grant date.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based upon publicly traded companies with characteristics similar to those of the Company. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

On March 8, 2017, the Board of Directors approved by unanimous written consent, the authorization to grant to employees with at least one year of service, non-qualified stock options to purchase shares of nonvoting common stock of the Company under its 2016 Plan. The options were issued at an exercise price of $.28 per share and vest ratably over five years. The options are subject to the terms and conditions of the 2016 Plan and each individual’s stock option agreement.

 

On November 30, 2018, the Board of Directors, based on current valuation information available, authorized the reduction of the option exercise price to $.13 per share which was determined to be the market price of the Company’s stock on that date. The Company calculated the incremental fair value by calculating the fair value of the options immediately before and immediately after the modification. The fair value of the options immediately before the repricing is based on assumptions (e.g., volatility, expected term, etc.) reflecting the current facts and circumstances on the modification date and therefore, differs from the fair value calculated on the grant date.

 

 

 

 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 10.  Stockholders’ Equity (Continued)

 

Stock Option Plan (Continued)

 

A summary of option transactions in 2021 under the 2016 Plan is as follows:

		Shares				Weighted Average Exercise Price
Outstanding at December 31, 2020			3,925,000			$	0.13
Options granted			—				—
Options exercised			—				—
Options cancelled			(50,000	)			0.13
Options outstanding at March 31, 2021			3,875,000			$	0.13
Options available for grant under the 2016 Plan at March 31, 2021			1,825,000

 

Stock-based compensation expense is recognized in the consolidated Statements of Operations based on awards ultimately expected to vest and may be reduced for estimated forfeitures. Additional compensation expense arising from the modification of the exercise price is being recognized over the vesting period. Compensation expense related to stock options for the three months ended March 31, 2021 and 2020 was $15,653 and $15,855, respectively.

 

The following table summarizes information with respect to stock options outstanding at March 31, 2021:

 

		Options Outstanding					Vested Options
			Weighted
			Average	Weighted				Weighted	Weighted
			Remaining	Average	Aggregate			Average	Average	Aggregate
			Contractual	Exercise	Intrinsic			Contractual	Exercise	Intrinsic
		Number	Life (Years)	Price	Value		Number	Term (Years)	Price	Value
2016 Plan		3,875,000	5.9	$0.13	-		3,090,000	5.9	$0.13	-

 

The following table summarizes information with respect to stock options outstanding at December 31, 2020:

 

		Options Outstanding					Vested Options
			Weighted
			Average	Weighted				Weighted	Weighted
			Remaining	Average	Aggregate			Average	Average	Aggregate
			Contractual	Exercise	Intrinsic			Contractual	Exercise	Intrinsic
		Number	Life (Years)	Price	Value		Number	Term (Years)	Price	Value
2016 Plan		3,925,000	6.2	$0.13	-		2,325,000	6.2	$0.13	-

 

As of March 31, 2021, there was approximately $58,462 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2016 Plan. The cost is expected to be recognized over a weighted-average period of 0.9 years at an estimated forfeiture rate of 0% for executives and 20% for non-executives.

 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 10.  Stockholders’ Equity (Continued)

 

Warrants: On November 27, 2019 in connection with the Loan obtained by the Company, the Company issued to PDS Gaming a Warrant entitling the Lender to purchase up to 7,000,000 shares of (voting) common stock of the Company at an exercise price of $.05 per share, expiring 120 months* after the issue date. The Warrant cannot be exercised until PDS Gaming is licensed in all of the Company’s gaming jurisdictions and cannot be exercised in a cashless exercise within the first six months following issuance.

 

*The “Expiration Date” was initially defined under the Warrant as 36 months. The Warrant was revoked, amended and resissued on December 27, 2019 and defined the Expiration Date as 119 months from date of issuance of the amended Warrant, which was the original intent between the Company and the Lender.

 

The Warrant contains a put feature providing the right to the holder, i.e. the Lender, for a net cash settlement in the event of a fundamental transaction which is defined under the Warrant as a sale of all of the stock, voting stock, or all, or substantially all, of the assets of the Company. Under such a transaction, the holder can require the Company to purchase any unexercised shares under the Warrant at the pro-rata share of the sales price or calculated value less the exercise price of the Warrant share.

 

The fair value of the warrant is estimated using the Black-Scholes pricing model and is recognized as a liability in the accompanying consolidated condensed Balance Sheets. The following assumptions were used to determine the fair value of the Warrant at March 31, 2021 and December 31, 2020:

 

		March 31, 2021				December 31, 2020
Stock price		$	0.03			$	0.02
Exercise price		$	0.05			$	0.05
Weighted average volatility			68.7	%			67.7	%
Expected dividend yield			—				—
Expected term (in years)			8.7				8.9
Weighted average risk free interest rate			1.7	%			0.9	%

 

There currently is no public market for the Company’s stock price. The valuation of the Company was determined by utilizing a formula of six (6) times the Company’s Earnings Before Interest Taxes, Depreciation and Amortization (“EBITDA”) for the prior twelve (12) month period minus all outstanding debt of the Company plus all cash and cash equivalents owned by the Company which is defined in the Warrant agreement as the Calculated Value (“CV”) of the Company. Volatility is based on the average stock price of comparable public companies in the industry.

 

The pandemic COVID-19 has had a significant impact on the operating results of the Company and the stock prices of the comparable public companies, and the CV of the Company reflects that impact at the March 31, 2021 and December 31, 2020 measurement dates. Based on the volatility in stock price of the comparable public companies and the significant impact to the Company’s revenues and performance from COVID-19, the CV resulted in a $0.03 and $0.02 price per share which was used in the Black Scholes model to determine fair value of the Warrant at March 31, 2021 and December 31, 2020, respectively.

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 10.  Stockholders’ Equity (Continued)

 

Warrants (Continued)

 

The following table reconciles the change in the fair value of the warrant liability classified as Level 3 in the fair value hierarchy:

 

		Warrant Liability
Balance at December 31, 2020		$	84,671
Net change in fair value			21,208
Balance at March 31, 2021		$	105,879

 

The following table is a summary of the Warrant activity for the three months ended March 31, 2021:

 

		Shares				Weighted Average Exercise Price
Warrants at December 31, 2020			7,000,000			$	0.05
Warrants granted			—				—
Warrants exercised			—				—
Warrants cancelled			—				—
Warrants at March 31, 2021			7,000,000			$	0.05
Warrants exercisable at March 31, 2021			7,000,000

 

The following table summarizes information with respect to the Warrant outstanding at March 31, 2021:

 

Warrant Outstanding
	Weighted
	Average	Weighted
	Remaining	Average	Aggregate
	Contractual	Exercise	Intrinsic
Shares	Life (Years)	Price	Value
7,000,000	8.7	$0.05	-

 

The following table summarizes information with respect to the Warrant outstanding at December 31, 2020:

Warrant Outstanding
	Weighted
	Average	Weighted
	Remaining	Average	Aggregate
	Contractual	Exercise	Intrinsic
Shares	Life (Years)	Price	Value
7,000,000	8.9	$0.05	-

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 10.  Stockholders’ Equity (Continued)

 

In computing earnings per share, the Company's Nonvoting Stock is considered a participating security. Each share of Nonvoting Stock has identical rights, powers, limitations and restrictions in all respects as each share of common stock of the Company including the right to receive the same consideration per share payable in respect of each share of common stock, except that holders of Nonvoting Stock shall have no voting rights or powers whatsoever.

 

The following table summarizes the number of dilutive shares outstanding for each of the periods presented which may dilute future earnings per share, and is included in the calculation of diluted earnings per share on the consolidated Statements of Operations:

 

		March 31, 2021				March 31, 2020
Common Stock			7,000,000				7,005,000
Nonvoting Common Stock			3,875,000				3,925,000

 

The following table presents a basic and diluted net (loss) income per share for the three months ended March 31, 2021 and 2020:

 

		March 31, 2021				March 31, 2020
Net (loss) income		$	(1,124	)		$	404,023
Basic weighted average Common shares outstanding			4,649,383				4,649,383
Weighted average effect of dilutive securities:
Stock options			—				5,000
Warrant			—				7,000,000
Diluted weighted average Common shares outstanding			4,649,383				11,654,383
Basic weighted average Nonvoting Common shares outstanding			33,300,000				33,300,000
Weighted average effect of dilutive securities:
Stock options			—				3,925,000
Diluted weighted average Nonvoting Common shares outstanding			33,300,000				37,225,000
Net (loss) income per share:
Basic		$	(0.00	)		$	0.01
Diluted		$	(0.00	)		$	0.01

 

The following table reconciles the changes in stockholder’s equity for the three months ended March 31, 2021:

 

		Common Stock								Nonvoting Common Stock								Additional Paid In				Accumulated				Treasury Stock
		Shares				Amount				Shares				Amount				Capital				Deficit				Shares				Amount					Total
Balances at December 31, 2020			4,916,285			$	4,917				33,300,000			$	33,300			$	30,595,461			$	(28,994,572	)			266,902			$	(20,811	)		$	1,618,295
Net loss			—				—				—				—				—				(1,124	)			—				—				(1,124	)
Stock based compensation			—				—				—				—				15,653				—				—				—				15,653
Balances at March 31, 2021			4,916,285			$	4,917				33,300,000			$	33,300			$	30,611,114			$	(28,995,696	)			266,902			$	(20,811	)		$	1,632,824

 

 

 

 

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES 

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 10.  Stockholders’ Equity (Continued)

 

The following table reconciles the changes in stockholder’s equity for the three months ended March 31, 2020:

 

		Common Stock								Nonvoting Common Stock								Additional Paid In Capital				Accumulated				Treasury Stock
		Shares				Amount				Shares				Amount				Capital				Deficit				Shares				Amount					Total
Balances at December 31, 2019			4,916,285			$	4,917				33,300,000			$	33,300			$	30,532,427			$	(28,548,833	)			266,902			$	(20,811	)		$	2,001,000
Net income			—				—				—				—				—				404,023				—				—				404,023
Stock based compensation			—				—				—				—				15,855				—				—				—				15,855
Balances at March 31, 2020			4,916,285			$	4,917				33,300,000			$	33,300			$	30,548,282			$	(28,144,810	)			266,902			$	(20,811	)		$	2,420,878

 

Note 11.  Revenue

 

The Company applies the guidance under ASC 606 in recognizing revenue, which is generated from leasing and selling slot machines and from sales of parts and certain services relating to the slot machines. Revenue is recognized on sales of products, net of rebates, discounts and allowances, when an agreement exists, typically an approved sales proposal or contract, or upon receipt of customer’s purchase order, in which the sales price is fixed or determinable, and when the performance obligations under that agreement have been completed. This typically occurs when products are delivered and/or installed and upon receipt of regulatory approval, if required. If multiple units of the products are included in any one sale or lease agreement or ancillary services are provided such as delivery or installation, revenue is allocated to each unit or service based upon its respective fair value against the total contract value, or itemized price within the contract, and revenue recognition is deferred on those units or services until all of the performance obligation requirements under the applicable section(s) of that agreement have been completed.

 

Revenue generated under the leasing model is recognized when the ability to collect is reasonably assured. Lease agreements are based on either a fixed daily or a pre-determined percentage of the monthly net “participation” revenue collected, i.e. revenue share, for each slot machine, subject to monthly minimums and maximums. Customers under fixed daily rate agreements are invoiced on the first day of the month at the agreed upon daily rate per unit for the number of days the unit is leased during the month, typically the total number of days in the month. Customers under revenue share agreements are invoiced when participation reports are remitted to us detailing the monthly per unit information including coin-in, net win, and days on the floor data. Revenue under both of these bases is recorded as lease revenue and recognized in the month to which the lease data pertains.

 

There may be instances in which a lease is offered to a customer with the option to convert to a sale upon the completion of certain obligations such as a pre-determined paid or reduced-rate lease term and/or a free-trial period. In addition, circumstances may arise in which a customer wishes to purchase machines after being on lease at their facility. In all of these situations, the initial revenue is recorded as lease revenue as described above, and the agreed upon sales price is shown as sales revenue when the lease is converted to a sale and all performance obligations of the sale have been met.

 

For sales of slot machines, a warranty on parts is typically offered which expires after a defined period of time, usually 90 days after delivery or installation date. One slot machine theme conversion per unit sold is also typically offered during the one-year period beginning upon the delivery and/or installation of the slot machine, and only if the slot game fails to earn at least eighty percent of the rolling monthly slot machine gaming floor area average for the customer. The game theme must be approved in the customer's gaming jurisdiction for use in the slot machine and the customer must provide written notice requesting the conversion, including certification of the average that serves as the basis for any such game theme conversion.

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 11.  Revenue (Continued)

 

In addition, the customer must return the original game theme components to the Company upon conversion of the slot game theme. The cost of the warrantied and theme conversion items is borne by the Company. Historically, these costs have been immaterial and are expensed at time of issuance, however the Company has and will continue to assess these post-sales costs to determine whether they constitute performance obligations and should be recorded at time of sale.

 

A contract asset is recorded when the performance obligations of the Company have been met and the customer has not been billed. A contract liability is recorded when the Company has an obligation to transfer products or services to a customer for which consideration has been received. As of March 31, 2021 and December 31, 2020, respectively, there were no performance obligations outstanding and there was no revenue expected to be recognized in future periods related to performance obligations. As such, there were no contract liabilities recorded as of March 31, 2021 or December 31, 2020, respectively.

 

The following table provides a breakdown of the revenue by category as included in the consolidated Statements of Operations:

 

		Three Months Ended March 31,
		2021				2020
Lease and license fees:
Flat daily rate lease		$	716,219			$	842,637
Participation lease			257,873				247,840
License fees			12,730				—
		$	986,822			$	1,090,477
Sales of gaming products and parts:
Slot machine sales		$	17,000			$	90,000
Parts and ancillary items sales			16,535				46,862
		$	33,535			$	136,862

 

Note 12.  Income Taxes

 

The Company recognizes and measures deferred income tax benefits and liabilities based on the likelihood of their realization in future years. A valuation allowance must be established to reduce deferred income tax benefits if it is more likely than not that a portion of the deferred benefits will not be realized.

 

As of March 31, 2021, the Company has available, for federal and state income tax purposes, NOL carryforwards of approximately $14,661,000, which expire at various times through 2037. The utilization of the NOL carryforwards is dependent upon the ability of the Company to generate sufficient taxable income during the carryforward periods. The NOL carryforwards are also subject to certain limitations on their utilization should changes in Company ownership occur. The Company has not recognized any NOL carryforward benefits or other net deferred tax assets in the financial statements.

 

The current tax expense represents the amount of estimated minimum state taxes payable.

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

March 31, 2021

 

Note 13. Concentration of Risk – Major Customers

 

The Company generated approximately 22% and 20% of its revenue from its top three customers for each of the three months ended March 31, 2021 and 2020, respectively.

 

At March 31, 2021, accounts receivable from three casino customers represented 22% of total accounts receivable. At December 31, 2020, accounts receivable from four casino customers represented 32% of total accounts receivable. One customer represented 11% of the accounts receivable balance as of March 31, 2021 and one customer represented 14% of the accounts receivable balance as of December 31, 2020.

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

Throughout this report we make “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include the words “may,” “will,” “could,” “would,” “likely,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “project” and “anticipate” or the negative of such terms and similar words and include all discussions about our ongoing or future plans, objectives or expectations.

 

We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of those safe-harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. You should read this report completely and with the understanding that actual future results may be materially different from what we currently expect. We do not plan to update forward-looking statements unless applicable law requires us to do so, even though our situation or plans may change in the future. 

 

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section or elsewhere in this report. In light of these and other risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. Factors that might cause our actual results to differ from our expectations, might cause us to modify our plans or objectives, or might affect our ability to meet our expectations include, but are not limited to: the duration and spread of the outbreak of the novel coronavirus disease COVID-19, as well as any future restrictions placed on us or our customers due to the outbreak; the economic downturn in the financial markets and the dramatic decline in national and global economic conditions, especially in the gaming industry and in the wake of COVID-19; the tightening of credit in financial markets generally and the particularly severe tightening of them for the gaming industry, which may adversely affect our ability to raise funds through debt or equity financing, and may also adversely affect the ability of our customers to purchase our product and services; our ability to obtain additional gaming licenses; fuel price increases; legislative/regulatory changes; competition; changes in generally accepted accounting principles; and fluctuations in foreign currency exchange rates.

 

The most significant factors affecting our suppliers, customers and employees, and causing disruptions in current and future plans for operations and expansion, revolve around the impact of COVID-19. Due to the ongoing effects of the outbreak of COVID-19, the Company’s operations, as well as our customers’, are open with limitations and through strict adherence to guidelines established by the Centers for Disease Control and Prevention (“CDC”) and each facility’s respective state or tribal government. Although a majority of our customers were reopened as of March 31, 2021, only 82% of our slot machines installed at our customers’ locations were generating revenues and the remaining 18% of the slot machines are taped off or off the casino floor in order to adhere to social distancing guidelines. In the aftermath of COVID-19, customers may continue to lose patrons due to fears about being in public and potential exposure to COVID-19 or future pandemics. Customers may experience significant losses due to the COVID-19 outbreak and may terminate their existing contracts or postpone or ultimately cancel future planned orders and contracts due to those losses. Travel may be restricted to certain areas which may limit our ability to obtain new customers or jurisdictions, or to provide services in those areas in which our customers are currently located. We may experience a shortage of labor due to quarantine or prolonged illness within our own organization or at supplier or customer locations.

 

We received funding under the federal PPP loan program through the SBA that has helped to lessen the impact of COVID-19 for eligible expenses under the program. In addition, aggressive expense management has been employed to mitigate the adverse impact that COVID-19 has had and continues to have on our operations and performance. We anticipate that the effects of COVID-19 on our operations will be temporary and we will continue to have the ability to meet our obligations, however the Company’s future performance will depend on the duration of COVID-19 and the severity of its effects on us, our customers and our suppliers. The full impact of COVID-19 cannot be measured at this time and might not become apparent until sometime in the next few months and beyond.

 

 

 

Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the Securities and Exchange Commission (“SEC”).

 

The information contained in this section has been derived from our financial statements and should be read together with the financial statements and related notes contained elsewhere in this report.

 

Overview

 

We were formed to develop and market our Poker Table, which is an electronic poker table that provides a fully automated table gaming experience without a dealer in casinos and card rooms in regulated jurisdictions worldwide.

 

In 2009, we commenced the design, manufacture, marketing, sale and operation of video slot machines to customers in various gaming jurisdictions. Our video slot machines contain games where the casino patron wagers on multiple pay lines and contain secondary bonus games. The current slot machine products are:

 

·	Around the World in 80 Days		·	Lava Queen – Quick Link
·	Beauty and the Beast		·	Lightning Lotto
·	Bierfeier – Screaming Links		·	Luck of the Irish – Screaming Links
·	Candy Cash		·	Penny Palooza
·	Cash Flow		·	Pixiu – Quick Link
·	Cinderella		·	Prosperous Buddha – Persistent Link
·	Drachma – Quick Link		·	Scarabs of Egypt – Screaming Links
·	Duck Dynamite		·	Si Shou
·	Electric Sevens – Quick Link		·	Si Xiang – Screaming Links
·	Eye of RA – Persistent Link		·	Slotto
·	Fins N Wins		·	Snow White
·	Fruit Jackpots		·	Snow White – Screaming Links
·	Fruit Treasure		·	Swamp Fever
·	Golden Egg		·	Swamp Fever – Persistent Link
·	Goyaate		·	Swamp Frenzy
·	Great Balls of Fire – Screaming Links		·	Thunder Spirit – Quick Link
·	Hao Yun		·	Vampires Fortune
·	Hua Mulan – Screaming Links		·	Xingyun Gou – Quick Link
·	Jumbo Fish Stacks		·	Year of the Horse
·	Jungle Book		·	Ye Xian
·	Jungle Jackpots – Screaming Links		·	Zhang Jiao – Screaming Links
·	Just Jackpots		·	Zuo Ci – Screaming Links

 

When we expanded our products to include slot machines, we embarked on an initiative to market our slot machines to Native American jurisdictions as well as the commercial casino marketplace and cruise lines.

 

Our slot machines are placed into the market using a daily lease model or a revenue sharing model. We are registered as an approved vendor to distribute products to gaming venues located in 18 state jurisdictions. As of March 31, 2021, we had 319 video slot machines out on lease or revenue share placed in 53 different casinos and 72 of our slot machines remain at casino facilities however they are off the floor or taped off to maintain social distancing requirements. We realized a net loss of $1,124 and generated $575,537 in cash from operations in the three months ended March 31, 2021.

 

 

 

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

 

(All amounts rounded to the nearest $1,000)

 

Revenues

 

The Company’s revenues for the three months ended March 31, 2021 were $1,020,000 compared to $1,227,000 for the comparable prior year period, a decrease of $207,000. Lease and license fees decreased by a net of $103,000 to $987,000 for the three months ended March 31, 2021 as compared to $1,090,000 for the three months ended March 31, 2020. This decrease was directly attributable to the closure of and restrictions on our customers’ facilities due to the outbreak of COVID-19 as well as the decrease in slot machine unit and parts sales. A majority of our customers reopened their facilities, and they continue to reopen, however there continues to be restrictions on the number of slot machines available for play on the casino floor due to safety and social distancing requirements. Due to the pressure placed on our customers to reduce operating expenses to combat the effects of COVID-19, the average daily rate on our leased slot machines has decreased as well.

 

Sales of slot machines and related parts decreased by $104,000 to $33,000 for the three months ended March 31, 2021 as compared to $137,000 for the three months ended March 31, 2020. The Company had miscellaneous parts sales of $16,000 and sold 14 slot machine units that were previously leased for $17,000 during the quarter ending March 31, 2021. Miscellaneous parts sales were $47,000 and slot machine unit sales were $90,000 during the quarter ending March 31, 2020.

 

Costs of Revenue

 

Cost of products sold, which consists of the cost of slot machines and parts inventory sold, for the three months ended March 31, 2020 were $85,000 as compared to $4,000 for the three months ended March 31, 2021, a decrease of $81,000 as a result of the unit sales that occurred during the quarter ended March 31, 2020.

 

Depreciation on slot machine units out on lease increased by $15,000 to $266,000 for the three months ended March 31, 2021 from $251,000 for the three months ended March 31, 2020. This increase was the result of the increase in fixed assets built and placed in service during the latter part of 2020 and the first quarter of 2021.

 

License fee costs increased $12,000 during the three months ended March 31, 2021, the direct result of license fees billed during the quarter.

 

Operating Expenses

 

Operating expenses increased a net of $106,000 to $141,000 for the three months ended March 31, 2021, from $35,000 for the three months ended March 31, 2020. This increase was the result of the patent cross license fee of $45,000 incurred during the quarter ended March 31, 2021, the reversal of $66,000 in license fees from the settlement and amendment of the patent cross license agreement that occurred in March 2020, and $29,000 rent expense adjustments on the building lease. These increases were offset by the decrease in payroll and related costs due to the reduction in operational personnel and the application of the PPP2 loan proceeds received during the quarter ended March 31, 2021.

 

Research and Development Expenses

 

Research and development expenses decreased by $57,000 to $56,000 for the three months ended March 31, 2021, from $113,000 for the three months ended March 31, 2020. Research and development expenses are primarily related to the development of new gaming equipment themes and technology and consist mainly of payroll and related expenses for programmers and graphic artists, software, and consulting fees. This decrease is attributable to the decrease in payroll and benefit costs associated with the application of PPP2 proceeds received during the quarter ended March 31, 2021.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $325,000 for the three months ended March 31, 2021 versus $528,000 for the three months ended March 31, 2020, a decrease of $203,000. This decrease is the result of the application of PPP2 proceeds against payroll costs during the quarter ended March 31, 2021. In addition, travel, meals, and entertainment were significantly reduced during the quarter ended March 31, 2021 due to sustained casino and travel restrictions because of COVID-19.

 

Depreciation and Amortization

 

Depreciation and amortization increased by $4,000 to $7,000 for the three months ended March 31, 2021 from $3,000 for the three months ended March 31, 2020. This increase is due to the depreciation on the delivery truck purchased and placed in service in January 2021.

 

Interest Expense

 

Interest expense decreased $45,000 for the three months ended March 31, 2021, from $233,000 for the three months ended March 31, 2020, to $188,000 due to the paydown of principal on the notes payable and the elimination of the deferred debt commitment fee that was fully amortized by November 2020.

 

 

 

Gain (Loss) on Change in Fair Value of Warrant Liability

 

The loss on change in fair value of the warrant liability of $21,000 was mainly due to the increase in the estimated fair market value of our common stock, a result of the improvement in performance during the quarter.

 

Liquidity and Capital Resources

      

We realized a net loss of $1,000 and funded our working capital investments and capital expenditures associated with our growth strategy with the revenue generated from leases and proceeds from the sales of our gaming products. These transactions that occurred in 2021 and 2020 are described in more detail following the discussion of cash flows below:

 

Discussion of Statement of Cash Flows

		Three Months Ended March 31,
		2021				2020				Change
Net cash provided by (used in) operating activities		$	576,000			$	(493,000	)		$	1,069,000
Net cash used in investing activities			(524,000	)			(258,000	)			(266,000	)
Net cash (used in) provided by financing activities			(78,000	)			863,000				(941,000	)
Net (decrease) increase in cash			(26,000	)			112,000			$	(138,000	)
Cash, beginning of year			1,858,000				1,599,000
Cash, end of period		$	1,832,000			$	1,711,000

 

For the three months ended March 31, 2021, operating cash realized a positive swing, increasing $1,069,000 from cash used in operations of $493,000 for the three months ended March 31, 2020 to $576,000 in cash provided by operations. The increase in cash from operating activities was due to the timing of payments to creditors, suppliers and vendors for inventory purchases and license agreements.

 

Net cash used in investing activities increased by $266,000, from $258,000 used in investing activities for the three months ended March 31, 2020 to $524,000 used in investing activities for the three months ended March 31, 2021. Cash used in investing activities is primarily the function of the net investment in property and equipment, principally slot machines used in our operations. This increase in cash used was due to the increase in slot machines built and placed in service during the period, as well as the purchase of the delivery truck in January 2021.

 

Net cash provided by financing activities was $990,000 for the three months ended March 31, 2020, the result of the note payable advance taken in January 2020 versus $78,000 for the auto loan taken during the three months ended March 31, 2021, a decrease of $912,000. The decrease in note payable advances and the auto loan, coupled with the increase in principal payments on the notes of $29,000, resulted in the net decrease in cash provided by financing activities of $941,000.

 

Operations and Liquidity Management

 

For the three months ended March 31, 2021, we sustained a net loss of $1,000 however we generated $576,000 in cash from operating activities and maintained and sustained a working capital surplus.

 

Due to the ongoing effects of the outbreak of the novel coronavirus disease (COVID-19), the Company’s operations, as well as our customers’, are open with limitations and through strict adherence to guidelines established by the Centers for Disease Control and Prevention (“CDC”) and each facility’s respective state or tribal government. Although a majority of our customers were reopened as of March 31, 2021, only 82% of our slot machines installed at our customers’ locations were generating revenues and the remaining 18% of the slot machines are taped off or off the casino floor in order to adhere to social distancing guidelines. In the aftermath of COVID-19, customers may continue to lose patrons due to fears about being in public and potential exposure to COVID-19 or future pandemics. Customers may experience significant losses due to the COVID-19 outbreak and may terminate their existing contracts or postpone or ultimately cancel future planned orders and contracts due to those losses. Travel may be restricted to certain areas which may limit our ability to obtain new customers or jurisdictions, or to provide services in those areas in which our customers are currently located. We may experience a shortage of labor due to quarantine or prolonged illness within our own organization or at supplier or customer locations.

 

 

 

The situation surrounding COVID-19 is fluid and the ability to measure the degree to which COVID-19 will impact the Company’s performance in its aftermath will depend on the duration and spread of COVID-19, as well as any future restrictions placed on us or our customers due to the outbreak, whether mandated or recommended. The generation of cash flow sufficient to meet our cash needs in the future will depend on our ability to continue to obtain the regulatory approvals required to distribute our products and successfully market them to casinos, the development of new slot machine themes and new cabinets that are appealing to our customers and their patrons, and the effects of COVID-19 on us, our customers, and suppliers.

 

Prior to the outbreak of COVID-19, our operating cash requirements were approximately $260,000 to $300,000 per month, principally for salaries, professional services, licenses, marketing, office expenses, approximately $500,000 for the purchase of the hardware components for our products, and $110,000 for debt service. The full effects of COVID-19 on our revenues cannot be projected at this time, however, we have employed aggressive expense management measures and received funding through participation in the federal PPP program that has enabled us to mitigate the adverse impact COVID-19 has had on our performance.

 

As of March 31, 2021, our cash balance was $1,832,000 and our current gross cash requirements are approximately $240,000 to $260,000 per month, principally for salaries, professional services, licenses, and office expenses and $110,000 for debt service. We currently have adequate inventory to meet existing orders awaiting shipment and expected future orders and believe that the purchase of hardware components for our products will not be necessary for several months. We expect that the effects of COVID-19 on our operations will be temporary and we will continue to have the ability to meet our obligations. Based on our cash flow projections and anticipated revenues, we believe we have sufficient cash flow to support our operations for the next twelve months.

 

Contractual Obligations

 

The table below sets forth our known contractual obligations as of March 31, 2021:

 

		Total				Less than 1 year				1 - 3 years				3 - 5 years				More than 5 years
Lease liability obligations (1)		$	481,683			$	69,193			$	163,492			$	201,755			$	47,243
Patent cross license fees (2)			740,000				45,000				360,000				335,000				—
Auto loan (3)			77,284				14,066				30,572				32,646				—
Debt obligations (4)			5,089,135				612,659				1,526,364				2,950,112				—
Total		$	6,388,102			$	740,918			$	2,080,428			$	3,519,513			$	47,243

 

 

(1)	Represents operating lease agreement for office and warehouse facility.

 

(2)	Represents amounts due per license agreement.

 

(3)	Represents principal payments on auto loan.

 

(4)	Represents outstanding amounts of notes payable.

 

 

Off-Balance Sheet Arrangements

 

As of March 31, 2021, there were no off-balance sheet arrangements.

 

Going Concern

 

The Company’s financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. The Company sustained a net loss for the three months ended March 31, 2021 however it generated cash from operations and has maintained and sustained a working capital surplus. Due to the outbreak of the novel coronavirus disease (COVID-19), the Company’s performance has been significantly impacted. Although a majority of our customers were reopened as of March 31, 2021, only 82% of our slot machines installed at our customers’ locations were generating revenues and the remaining 18% of the slot machines are taped off or off the casino floor in order to adhere to social distancing guidelines. As the situation surrounding COVID-19 is fluid, the ability to measure the degree to which COVID-19 will impact the Company’s performance in its aftermath will depend on the duration and spread of COVID-19, as well as any future restrictions placed on us or our customers due to the outbreak, whether mandated or recommended.

 

The Company is subject to covenant clauses in its Loan Agreement with the Lender whereby it is required to meet certain key financial ratios. Due to the material effect that COVID-19 has on the Company’s revenues, the Lender amended the Loan in September 2020 and again in March 2021, providing a waiver of compliance with the financial ratio covenants and extending and resetting the compliance with the covenants until the quarter ending December 31, 2021.

 

 

 

We received funding under the federal PPP2 loan that helped to lessen the impact of COVID-19 by covering costs incurred during the covered period for payroll and payroll related expenses. In addition, aggressive expense management has been employed to mitigate the adverse impact that COVID-19 has on our operations and performance. We anticipate that the effects of COVID-19 on our operations will be temporary and we will continue to have the ability to meet our obligations, however the Company’s future performance will depend on the duration of COVID-19 and the Company’s ability to distribute its products and successfully market them to more casinos and gaming venues. Based on our current performance, financial condition, cash flow projections, anticipated revenues and financing agreements, we believe we have sufficient cash flows to support our operations for twelve months from the date of this report.

 

In addition, the Company’s ability to sell or lease its products on a large scale may require additional financing for working capital. There is no assurance that the Company would be able to obtain such financing, if at all, on reasonable terms. If the Company needs additional funding and is unable to obtain it, the Company’s financial condition would be adversely affected. In that event, the Company would have to postpone or discontinue planned operations and projects. The Company’s continuance as a going concern is dependent upon these factors, among others. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

 

Item 4. Controls and Procedures.

 

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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, and that such information is accumulated and communicated to our management including our Chief Executive Officer (“CEO”) and Controller as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 

 

As of March 31, 2021, we conducted an evaluation, under the supervision and with the participation of our management including our CEO and Controller, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and Controller have concluded that as of March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

 

 

 

PART II - OTHER INFORMATION

 

Item 1.   Legal Proceedings.

 

None

 

 

Item 1A. Risk Factors.

 

None

 

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

 

Item 5.   Other Information.

 

None

 

Item 6.   Exhibits.  

 

EXHIBIT NUMBER			EXHIBIT DESCRIPTION
31.1			Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)
31.2			Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350

 

 

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.

 

Date:  May 14, 2021	Lightning Gaming, Inc.
	By:	/s/ Brian Haveson                                         Brian Haveson Chief Executive Officer and Director

 

31