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 September 30, 2016
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨   No  x

 

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

 

	Large accelerated filer  ¨	Accelerated filer  ¨
	Non-accelerated filer    ¨	Smaller reporting company  x

(Do not check if a smaller reporting company) 

 

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: 4,688,474 shares of (voting) Common Stock as of November 14, 2016; 33,300,000 shares of Nonvoting Common Stock as of November 14, 2016; and -0- shares of Series A Nonvoting Capital Stock as of November 14, 2016

 

 

 

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	16
Item 3.	Quantitative and Qualitative  Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

  

1	Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 (audited);
2	Unaudited Consolidated Statements of Operations for the three months ended September 30, 2016 and 2015;
3	Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2016 and 2015;
4	Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2016 and 2015;
5	Notes to Consolidated Condensed Financial Statements.

 

 

 

 

 

Item 1. Financial Statements.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

		September 30, 2016 (unaudited)				December 31, 2015 (audited)
Assets
Current Assets
Cash		$	210,791			$	357,477
Accounts receivable, net			272,091				621,894
Inventory			165,843				143,805
Prepaid expenses			97,218				140,941
Total Current Assets			745,943				1,264,117
Property and Equipment, net			189,614				407,064
Other Assets			8,193				8,193
License fees, net of accumulated amortization			24,657				51,682
Total Assets		$	968,407			$	1,731,056
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable		$	165,576			$	444,637
Accrued expenses			126,466				93,961
Total Current Liabilities			292,042				538,598
Long-Term Liabilities			53,427				57,478
Commitments (Note 6)
Stockholders' Equity
Preferred stock: $0.001 par value; authorized 10,000,000 shares; Series A Nonvoting capital stock 6,000,000 shares authorized, -0- shares issued and outstanding			—				—
Common stock: $0.001 par value; authorized 90,000,000 shares; 4,916,285 shares issued and 4,688,474 shares outstanding			4,917				4,917
Nonvoting common stock: $0.001 par value; authorized 50,000,000 shares; 33,300,000 shares issued and outstanding			33,300				33,300
Additional paid in capital			30,348,857				30,348,856
Accumulated deficit			(29,745,325	)			(29,233,282	)
Treasury stock, 227,811 shares, at cost			(18,811	)			(18,811	)
Total Stockholders’ Equity			622,938				1,134,980
Total Liabilities and Stockholders’ Equity		$	968,407			$	1,731,056
See Notes to Consolidated Condensed Financial Statements

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2016 and 2015

 

 

		September 30, 2016 (unaudited)				September 30, 2015 (unaudited)
Revenues
Lease and license fees		$	632,761			$	740,500
Sales of gaming products and parts			60,020				171,945
Total revenues			692,781				912,445
Costs and operating expenses
Cost of products sold			12,835				32,426
Operating expenses			126,689				176,420
Research and development			94,625				136,271
Selling, general and administrative expenses			501,839				546,649
Depreciation and amortization			69,536				129,713
Total costs and operating expenses			805,524				1,021,479
Operating loss			(112,743	)			(109,034	)
Non-operating expense
Net interest expense			—				(309	)
Net loss		$	(112,743	)		$	(109,343	)
Net loss per share including Nonvoting Common and Series A Nonvoting shares-basic and diluted		$	0.00			$	(0.00	)
Weighted average Series A Nonvoting shares outstanding-basic and diluted			—				1,760,870
Weighted average Common shares outstanding-basic and diluted			4,688,474				4,717,648
Weighted average Nonvoting Common shares outstanding-basic and diluted			33,300,000				20,269,565
See Notes to Consolidated Condensed Financial Statements

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2016 and 2015

 

 

		September 30, 2016 (unaudited)				September 30, 2015 (unaudited)
Revenues
Lease and license fees		$	1,887,407			$	2,610,572
Sales of gaming products and parts			186,958				230,231
Total revenues			2,074,365				2,840,803
Costs and operating expenses
Cost of products sold			100,451				33,911
Operating expenses			382,270				575,183
Research and development			314,583				386,194
Selling, general and administrative expenses			1,551,619				1,524,293
Depreciation and amortization			237,485				412,824
Total costs and operating expenses			2,586,408				2,932,405
Operating loss			(512,043	)			(91,602	)
Non-operating expense
Net interest expense			—				(294,967	)
Change in value of warrants			—				6,424
Net loss		$	(512,043	)		$	(380,145	)
Net loss per share including Nonvoting Common and Series A Nonvoting shares-basic and diluted		$	(0.01	)		$	(0.03	)
Weighted average Series A Nonvoting shares outstanding-basic and diluted			—				3,576,923
Weighted average Common shares outstanding-basic and diluted			4,688,474				4,620,152
Weighted average Nonvoting Common shares outstanding-basic and diluted			33,300,000				6,830,769
See Notes to Consolidated Condensed Financial Statements

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2016 and 2015

 

 

		September 30, 2016 (unaudited)				September 30, 2015 (unaudited)
Net Cash Used in Operating Activities		$	(99,212	)		$	(15,177	)
Cash Flows From Investing Activities
Purchase of equipment			(67,017	)			(82,028	)
Proceeds from sale of equipment			18				217,266
Decrease in license fees			19,525				(7,915	)
Net Cash Provided by (Used in) Investing Activities			(47,474	)			127,323
Cash Flows From Financing Activities
Issuance of common stock			—				750
Net Cash Provided by Financing Activities			—				750
Net Increase (Decrease) in Cash			(146,686	)			112,896
Cash - Beginning of period			357,477				274,547
Cash - End of period		$	210,791			$	387,443
See Notes to Consolidated Condensed Financial Statements

 

 

 

 

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

September 30, 2016

 

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 is 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. The current slot machine products are:

 

·	Popeye	·	Jungle Book
·	Popeye’s Bonus Voyage	·	Golden Egg
·	Popeye’s Seven Seas	·	Just Jackpots
·	Blondie’s Penny Bonanza	·	Duck Dynamite
·	Hagar the Horrible	·	Candy Cash
·	Beetle Bailey	·	Olive Oyl’s Jumbo Stacks
·	Swamp Fever	·	Jumbo Fish Stacks
·	Vampires Fortune	·	Lightning Lotto
·	Penny Palooza	·	Slotto
·	Snow White	·	Year of the Horse
·	Fins N Wins	·	Cinderella
·	Around the World in 80 Days	·	Flash Gordon
·	Garfield	·	Ye Xian
·	Cash Flow	·	Si Shou

 

Our gaming products feature advanced graphics and engaging games based on licensed, well-recognized brands, cartoon characters and proprietary non-branded 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 in consolidation.

 

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 25, 2016 (“Form 10-K”). The accompanying interim 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 condensed 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 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 balance sheet data as of December 31, 2015 were derived from the Company’s audited financial

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

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

 

Basis of Presentation (Continued)

 

statements, but do not include all disclosures required by GAAP. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the entire year.

 

The accompanying 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 has limited capital resources and the Company has experienced net operating losses and negative cash flows from operations since inception. The generation of cash flow sufficient to meet the Company’s cash needs in the future will depend on the Company’s ability to obtain the regulatory approvals required to distribute its products and successfully market them to more casinos. Based on our cash flow projections and anticipated revenues, 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. 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.

 

There were no material changes during the most recent fiscal quarter in the Company’s significant accounting policies described in the Form 10-K.

 

The allowance for accounts receivable at September 30, 2016 and December 31, 2015 was $23,000 and $18,000, respectively, which includes amounts for expected credits to be issued as well as doubtful accounts.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) issued converged guidance on recognizing revenue from contracts with customers. The new guidance removes inconsistencies in current revenue recognition requirements, provides a framework for addressing revenue issues, improves comparability of revenue recognition across industries, entities and jurisdictions, and provides more useful information to users of financial statements through improved disclosure requirements. This guidance replaces the numerous GAAP revenue recognition requirements that are industry specific and establishes the principles to report about the nature, timing, and uncertainty of revenue from contracts with customers to users of financial statements.

 

Additions to this update were issued by the FASB and IASB in March 2016, clarifying the operability and understandability on principal versus agent considerations. In April 2016, further clarifications were issued on two aspects: identifying performance obligations and clarifying the licensing implementation guidance. An additional update was issued in May 2016, which included a technical correction, clarifying the objective of assessing the collectability criterion, the presentation of sales and other similar taxes collected from customers, specifying that the measurement date for noncash consideration is at contract inception, and practical guidance for applying contract modifications and completed contracts at the transition date. These updates do not change the core principles of this guidance but rather provide clarification and implementation within the scope of this topic.

 

The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, and the Company is assessing the impact it will have on our financial statements.

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

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

 

Recent Accounting Pronouncements (Continued)

 

In August 2014, the FASB issued guidance regarding disclosures in the presentation of financial statements when the uncertainty exists about an entity’s ability to continue as a going concern. The update provides guidance in GAAP about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Along with requiring management’s assessment of the entity’s ability to continue as a going concern, the guidance provides:

 

·         a definition for the term “substantial doubt”;

·         requires an evaluation every reporting period including interim periods;

·         provides principles for considering the mitigating effect of management’s plans;

·         requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans;

·         requires an express statement and other disclosures when substantial doubt is not alleviated; and

·         requires an assessment for a period of one year after the date that the financial statements are issued.

 

The amendment is effective for the annual and interim periods ending after December 15, 2016 and early adoption is permitted. The Company is assessing the impact this guidance may have on our financial statements.

 

In July 2015, the FASB issued an update under the inventory topic which more clearly articulates the requirements for the measurement and disclosure of inventory, stating that an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendment is effective for the fiscal years beginning after December 15, 2016 and interim periods beginning after December 15, 2017. The Company is assessing the impact this guidance may have on our financial statements.

 

In November 2015, the FASB issued an update under the income taxes topic, simplifying the presentation of deferred income taxes, requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This update aligns the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (“IFRS”). The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and the Company is assessing the impact this guidance may have on our financial statements.

 

In February 2016, the FASB finalized the accounting standard and issued an update under the Leases topic. The update provides for major changes by lessees in that a lessee must recognize on its statement of financial position both an asset (“right-of-use”), representing its right to use the underlying asset, and a lease liability for all leases, other than short-term leases with terms of twelve months or less. The guidance defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has both (1) the right to obtain substantially all of the economic benefits from the use of the asset and (2) the right to direct the use of the asset. Differentiation between finance and operating leases still remains however the most notable difference from previous guidance is recognizing the asset and liability on the statement of financial position for operating leases.

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

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

 

Recent Accounting Pronouncements (Continued)

 

For finance leases, lessees are required to:

	1.	Recognize a right-of-use asset and a lease liability in the statement of financial position which is initially measured at the present value of the lease payments;
	2.	Recognize interest in the statement of comprehensive income on the lease liability separately from amortization of the right-of-use asset; and
	3.	Classify in the statement of cash flows repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities.

 

For operating leases, lessees are required to:

	1.	Recognize a right-of-use asset and a lease liability in the statement of financial position which is initially measured at the present value of the lease payments;
	2.	Recognize a single lease cost, generally allocated over the lease term on a straight-line basis; and
	3.	Classify all cash payments in the statement of cash flows as operating activities.

 

Under the update, lessor accounting for leases remains largely unchanged providing that lessor accounting is aligned with changes made to the lessee accounting guidance and key aspects under the revenue recognition guidance.

 

The amendments in this update are effective for fiscal and interim periods beginning after December 15, 2018 and the Company is assessing the impact this guidance will have on our financial statements.

 

In March 2016, the FASB issued an update on the stock compensation topic, simplifying several aspects of the accounting for share-based payment transactions, including income tax consequences, balance sheet classification of awards as either equity or liabilities, and statement of cash flows classification. While the amendments in the update are effective for annual and interim periods beginning after December 15, 2016, certain aspects of the amendment, such as those relating to the timing of excess tax benefits recognized, minimum statutory withholding requirements, forfeitures, and cash flow classification must be applied retrospectively. The Company is assessing the impact this guidance will have on our financial statements.

 

 

Note 2.  Inventory

 

Inventory consists of the following:

		September 30, 2016				December 31, 2015
Finished products		$	19,989			$	1,685
Raw materials and work in process			145,854				142,120
Inventory		$	165,843			$	143,805

 

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

Note 3.  Property and Equipment

 

Property and equipment consist of the following:

		September 30, 2016				December 31, 2015
Equipment, principally gaming equipment under lease		$	4,039,966			$	4,108,598
Delivery truck			28,140				28,140
Furniture and fixtures			92,237				90,525
Leasehold improvements			91,794				91,794
Property and equipment			4,252,137				4,319,057
Less accumulated depreciation			(4,062,523	)			(3,911,993	)
Property and equipment, net		$	189,614			$	407,064

 

 

Note 4.  License Fees

 

License fees consist of the following:

		September 30, 2016				December 31, 2015
Purchased licenses		$	347,479			$	367,004
Less accumulated amortization			(322,822	)			(315,322	)
License fees, net		$	24,657			$	51,682

 

Purchased licenses are amortized over 3 years.

 

 

Note 5.  Debt

 

On August 6, 2015, the Company entered into an agreement with The Co-Investment Fund II, L.P. (“CI II”) in which the entire principal and accrued interest on promissory notes and other related loan agreements outstanding and due to CI II, including warrants to purchase a maximum of 12,151,385 shares of Company stock, as well as the 4,500,000 shares of Preferred Series A Nonvoting Capital Stock then outstanding, were converted into 181,000 shares of (voting) Common Stock, par value $0.001, and 33,300,000 shares of Nonvoting Common Stock, par value $0.001, of the Company. Upon the conversion, all notes, loans, accrued interest, and warrants due to CI II were terminated in their entirety and all obligations were extinguished.

 

Prior to conversion, substantially all of the Company’s assets had been pledged as collateral on debt and all of the notes were due on June 30, 2017 with interest at 8% on each note payable at maturity. In May 2015, the lender agreed to suspend the accrual of interest on all of the notes outstanding, effective April 1, 2015, in anticipation of converting its debt and related obligations to equity in the transaction described above.

 

See Note 7, Stockholders’ Equity, and Note 9, Related Party Transactions, for more information on debt and warrant transactions.

 

 

Note 6. Commitments

In November 2009, the Company entered into a lease agreement for its corporate offices 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.

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

Note 6. Commitments (Continued)

 

 

Rental expense is recognized on a straight-line basis over the life of the lease and is recorded as a deferred rent obligation during the abatement period. The deferred rent is reduced by the difference between the rent due and the straight-line expense upon commencement of the rental payments. Rental expense under this lease for the three months ended September 30, 2016 and 2015 was $37,386 and $34,475, respectively. Rental expense under this lease for the nine months ended September 30, 2016 and 2015 was $117,095 and $105,156, respectively.

 

Future minimum lease payments are as follows:

 

Year Ending December 31,				Amount
	2016			$	24,629
	2017				99,337
	2018				101,821
	2019				104,366
	2020				106,975
	2021				18,124
				$	455,252

 

The Company routinely enters into license agreements for the use of intellectual properties and technologies. These agreements generally provide for royalty advances and license fee payments when the agreements are signed and minimum commitments which are cancelable in certain circumstances.

 

In October 2009 the Company entered into an exclusive license agreement with Hearst Holdings, Inc. and King Features Syndicate Division to use the brands POPEYE and related family of characters in gaming devices distributed worldwide excluding the United Kingdom and Japan. The initial term of the agreement was for one year with the Company’s right to extend the agreement for eight additional one-year terms upon payment of minimum royalties. The Company paid the minimum royalties and extended the term of the agreement to December 2013. In April 2013, the Company was granted the right to sublicense the POPEYE brand for distribution to bar and salon customers only in Spain for the remainder of the renewal term. In December 2013, the Company and Hearst Holdings entered into a second renewal agreement extending the license and sublicense renewal term from January 1, 2014 to December 31, 2016. The extension agreement provides the Company the right to extend the agreement for six additional renewal terms upon the payment of minimum royalties during the renewal period.

 

In June 2011, the Company entered into a license agreement with Hearst Holdings, Inc. to use the brand Blondie and related family of characters in gaming devices distributed worldwide. The initial term of the agreement was for two years with the Company’s right to extend the agreement for eight additional one-year terms upon payment of minimum royalties. The Company and Hearst Holdings entered into a renewal agreement extending the renewal term from June 1, 2013 to December 31, 2015. The agreement is currently on a month-to-month basis.

 

In November 2011, the Company entered into a license agreement with Hearst Holdings, Inc. to use the brand Beetle Bailey and related family of characters in gaming devices distributed worldwide. The initial term of the agreement was for two years with the Company’s right to extend the agreement for eight additional one-year terms upon payment of minimum royalties. The Company and Hearst Holdings entered into a renewal agreement extending the renewal term from January 1, 2014 to December 31, 2015. The agreement is currently on a month-to-month basis.

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

Note 6. Commitments (Continued)

 

In March 2013, the Company entered into a license agreement with Hearst Holdings, Inc. to use the brand Hagar the Horrible and related family of characters in gaming devices distributed worldwide. The initial term of the agreement ran from April 1, 2013 to June 30, 2015. The Company had the right to extend the agreement for eight additional one-year terms upon payment of $50,000 in minimum royalties however the Company has opted not to extend.

 

In October 2014, the Company entered into a license agreement with Paws, Inc. to use the brand Garfield and associated family of characters in gaming devices distributed worldwide, except in the embargo countries of Cuba, Iran and Sudan. The initial term of the agreement runs from December 1, 2014 to November 30, 2017 and is subject to a guaranteed minimum royalty of $75,000. In December 2014 and 2015, the Company paid $25,000 as non-refundable advances against the guaranteed royalty. An additional $25,000 is payable before November 1, 2016. The guaranteed advanced payments are recoupable out of royalties earned on the license.

 

In November 2014, the Company entered into a license agreement with Hearst Holdings, Inc. for the worldwide distribution of gaming devices using Flash Gordon and associated family of characters. The initial term of the agreement runs from November 1, 2014 to October 31, 2017 with royalties based on a percentage of revenues earned on the license, payable on a quarterly basis which commenced on January 31, 2016.

 

In July 2016, the Company entered into a license agreement with Ainsworth Game Technology Ltd for the intellectual property rights to use certain game technology in slot machines titled as Flash Gordon, Ye Xian and Cash Flow. The term of the agreement runs from July 1, 2016 to May 30, 2018 with royalties based on a percentage of revenues earned on the slot machines running the aforementioned titles, payable on a quarterly basis with the first royalty payment due by October 31, 2016.

 

At September 30, 2016, the Company had total license fee commitments and advances made as follows:

			Minimum Commitments
Total royalty and license fee commitments		$	81,250
Advances made			(56,250	)
Potential future payments		$	25,000

 

As of September 30, 2016, the Company estimates that potential future royalty payments will be $25,000 for the year ending December 31, 2016.

 

 

Note 7.  Stockholders’ Equity

 

Stock Option Plan: On March 8, 2006, Lightning Poker adopted an equity incentive plan to enable Lightning Poker to offer key employees, consultants and directors equity interests in Lightning Poker, thereby helping to attract, retain and motivate such persons to exercise their best efforts on behalf of Lightning Poker. After the Merger, the options previously granted by Lightning Poker were exchanged for options to buy the Company's stock under the Company's 2007 Equity Incentive Plan (the "Stock Plan") having substantially the same terms. The options are granted at the discretion of the Board of Directors (the “Board”) and, at September 30, 2016, the maximum aggregate number of shares issuable under the Stock Plan was 2,500,000. 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.

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

Note 7. Stockholders’ Equity (Continued)

 

Stock Option Plan (Continued)

 

Options generally vest at 20% per year starting from the grant date and are fully vested after five years. The options can be exercised in partial or full amounts upon a change in control and at such other times as specified in the award agreements.

 

A summary of option transactions in 2016 is as follows:

		Shares				Weighted Average Exercise Price
Outstanding at December 31, 2015			1,198,000			$	1.64
Options granted			—				—
Options exercised			—				—
Options cancelled			(313,000	)			1.40
Options outstanding at September 30, 2016			885,000			$	1.80
Options available for grant under the Stock Plan at September 30, 2016			1,615,000

 

 

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. There were no options granted during the nine months ended September 30, 2016.

 

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 will permit the granting of nonqualified stock options. The shares underlying the options will be shares of our 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. As of September 30, 2016, there were no options granted under the 2016 Plan.

 

Stock-based compensation expense is recognized in the statement of operations based on awards ultimately expected to vest and may be reduced for estimated forfeitures. Compensation expense related to stock options for the three months ended September 30, 2016 and 2015 was $-0- and $84, respectively. For the nine months ended September 30, 2016 and 2015, compensation expense related to stock options was $-0- and $591, respectively.

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

Note 7.  Stockholders’ Equity (Continued)

 

Stock Option Plan (Continued)

 

The following table summarizes information with respect to stock options outstanding at September 30, 2016:

 

Options Outstanding					Vested Options
Number	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value		Number	Weighted Average Contractual Term (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value
885,000	1.6	$1.80	-		885,000	1.6	$1.80	-

 

The following table summarizes information with respect to stock options outstanding at December 31, 2015:

 

Options Outstanding					Vested Options
Number	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value		Number	Weighted Average Contractual Term (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value
1,198,000	2.0	$1.64	-		1,198,000	2.0	$1.64	-

 

As of September 30, 2016, all compensation costs related to nonvested share-based compensation arrangements granted under the Stock Plan had been fully recognized.

 

Warrants: In accordance with the loans obtained by the Company, the lender previously held warrants to purchase 12,151,385 shares of the Company’s common stock at a price of $1.00 per share, expiring at various times from April 2016 through October 2019. The purchase price was subject to adjustment from time to time pursuant to the respective provisions of the warrant agreements. The Company calculated the value of warrants at the time of issuance using a binomial pricing model.

 

On August 6, 2015, the Company entered into an agreement with CI II in which the entire principal and accrued interest on promissory notes and other related loan agreements outstanding and due to CI II, including the warrants described above, as well as the 4,500,000 shares of Preferred Series A Nonvoting Capital Stock then outstanding, were converted into 181,000 shares of (voting) Common Stock, par value $0.001, and 33,300,000 shares of Nonvoting Common Stock, par value $0.001, of the Company.

 

 

Note 8.  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 a result of the cancellation of debt and accrued interest on debt on August 6, 2015, the Company recognized an attribute reduction of the net operating loss (“NOL”) carryforward effective January 1, 2016 of approximately $11,683,000, reducing the NOL carryforward available as of that date from $25,104,000 to $13,126,000. As of September 30, 2016, the Company has available, for federal and state income tax purposes, carryforwards of approximately $13,617,000, which expire at various times through 2036. 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.

 

 

 

 

Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)

 

 

Note 9.  Related Party Transactions

 

In May 2015, CI II agreed to suspend the accrual of interest on all of the notes outstanding, effective April 1, 2015, in anticipation of entering into an agreement with the Company to convert its debt outstanding into equity. On August 6, 2015, the Company entered into an agreement with CI II in which the entire principal and accrued interest on promissory notes and other related loan agreements outstanding and due to CI II, including warrants to purchase a maximum of 12,151,385 shares of Company stock, as well as the 4,500,000 shares of Preferred Series A Nonvoting Capital Stock then outstanding, were converted into 181,000 shares of the Company’s Common Stock, par value $0.001 per share, and 33,300,000 shares of the Company’s Nonvoting Common Stock, $0.001 par value per share. Upon the conversion, all notes, loans, accrued interest, and warrants due to CI II were terminated in their entirety and all obligations were extinguished.

 

During the three months ended September 30, 2016 and 2015, interest expense on all of the loans to CI II as described above, amounted to $-0- and $312, respectively. Interest on the loans from CI II was $-0- and $294,970 for the nine months ended September 30, 2016 and 2015, respectively. During 2015, the Company made no principal or interest payments on those loans and, on August 6, 2015, the loans were converted into equity in the transaction as described above.

 

 

Note 10. Concentration of Risk – Major Customers

 

The Company generated approximately 16% of its revenue from its top three customers for the nine months ended September 30, 2016 and 15% of its revenue from its top three customers for the nine months ended September 30, 2015.

 

 

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 severe economic downturn that the gaming industry is suffering; the dramatic decline in national and global economic conditions; 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. 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. The current products are:

 

·	Popeye	·	Jungle Book
·	Popeye’s Bonus Voyage	·	Golden Egg
·	Popeye’s Seven Seas	·	Just Jackpots
·	Blondie’s Penny Bonanza	·	Duck Dynamite
·	Hagar the Horrible	·	Candy Cash
·	Beetle Bailey	·	Olive Oyl’s Jumbo Stacks
·	Swamp Fever	·	Jumbo Fish Stacks
·	Vampires Fortune	·	Lightning Lotto
·	Penny Palooza	·	Slotto
·	Snow White	·	Year of the Horse
·	Fins N Wins	·	Cinderella
·	Around the World in 80 Days	·	Flash Gordon
·	Garfield	·	Ye Xian
·	Cash Flow	·	Si Shou

  

 

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 gaming products feature advanced graphics and engaging games and are based on licensed, well-recognized brands, cartoon characters and proprietary non-branded themes.

 

Our Poker Table is designed to increase revenue and security while helping to reduce the labor costs associated with poker play. Our Poker Table achieves the goal of increasing revenue by allowing a larger number of hands to be played per hour, increasing the “rake” or per-hand fee collected by the operator commensurately. The elimination of a live dealer also reduces labor costs and permits more tables to be operational in jurisdictions where skilled poker dealers are in short supply. In 2008, we developed a newer version of the Poker Table, which eliminated the need for a separate, stand-alone cashless accounting system. The newer version allows for cash management at the Poker Table.

 

Our slot machines are placed into the market using a daily lease model or a revenue sharing model. We have 198 slot machines out on lease or revenue share in 41 different casinos and cruise ships. As of November 14, 2016, we have sold or leased 62 newer version Poker Tables to domestic and international casinos, card rooms, and cruise ships.

 

We are registered as an approved vendor to distribute products to gaming venues located in 14 state and Canadian province jurisdictions.

 

We have generated revenues, but we have a history of losses since our inception. We incurred a net loss of $512,043 in the nine months ended September 30, 2016.

 

 

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

 

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

 

Revenues

 

The Company’s revenues for the three months ended September 30, 2016 were $693,000 compared to $912,000 for the comparable prior year period, a decrease of $219,000.

 

Sales of gaming products, namely slot machines, decreased by $112,000 to $60,000 for the three months ended September 30, 2016 as compared to $172,000 for the three months ended September 30, 2015. Lease and license fees decreased by a net of $108,000 to $633,000 for the three months ended September 30, 2016 as compared to $741,000 for the three months ended September 30, 2015.

 

The decrease in revenues was due to the reduction in the installed slot machine base experienced during mid to late 2015. Pressure on casinos to reduce lease expense and cut costs, consolidations and mergers in the industry creating mega-corporations that undercut pricing to gain market share and eliminate competition, and casinos increasing hold percentages that reduce win percentages on which revenue-share fees are based were several of the reasons for the reduction in the revenue and the recurring revenue base. In addition, while the for-sale market of our slot machines is successfully generating revenue and cash flow, it is reducing the recurring revenue install base. The for-sale market reduced recurring revenue machines by 20 in 2015 and an additional 18 in the first nine months of 2016.

 

Cost of Products Sold

 

For the three months ended September 30, 2016, cost of products sold decreased by $20,000 compared to the three months ended September 30, 2015. This decrease was due to the decrease in sales of slot machines that occurred during the quarter.

 

Operating Expenses

 

Operating expenses decreased by $49,000 to $127,000 for the three months ended September 30, 2016, from $176,000 for the three months ended September 30, 2015. This decrease was the result of the reduction in salaries and associated payroll costs from the vacancy in the operations manager position and the reduction of costs directly associated with the slot machine activity during the quarter, i.e. freight, conversions and installation.

 

Research and Development Expenses

 

Research and development expenses decreased by $41,000 to $95,000 for the three months ended September 30, 2016, from $136,000 for the three months ended September 30, 2015. 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 and the costs to acquire new brands. This decrease is attributable to the reduction in the number of programmers on staff and the use of consultants during the quarter.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses decreased by $45,000 to $502,000 for the three months ended September 30, 2016, from $547,000 for the three months ended September 30, 2015. This decrease was due to the reduction in lab compliance fees as the result of a credit received in July 2016 that offset expense from previous periods and the reduction in personnel costs associated with the vacancies in the outside salesperson in marketing and compliance manager positions.

 

Depreciation and Amortization

 

Depreciation and amortization decreased by $60,000 to $70,000 for the three months ended September 30, 2016 from $130,000 for the three months ended September 30, 2015. This decrease was the result of the reduction of depreciation for slot machines that were fully depreciated or sold.

 

 

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

 

Revenue

 

The Company’s revenues for the nine months ended September 30, 2016 were $2,074,000 compared to $2,841,000 for the comparable prior year period, a decrease of $767,000. As explained above, the decrease in revenues was due to the reduction in the installed slot machine base experienced during mid to late 2015. Pressure on casinos to reduce lease expense and cut costs, consolidations and mergers in the industry creating mega-corporations that undercut pricing to gain market share and eliminate competition, and casinos increasing hold percentages that reduce win percentages on which revenue-share fees are based were several of the reasons for the reduction in the revenue and the recurring revenue base. In addition, while the for-sale market of our slot machines is successfully generating revenue and cash flow, it is reducing the recurring revenue install base. The for-sale market reduced recurring revenue machines by 20 in 2015 and an additional 18 in 2016.

 

Cost of Products Sold

 

For the nine months ended September 30, 2016, cost of products sold increased $66,000 to $100,000 from $34,000 for the nine months ended September 30, 2015. This increase was due to the increase in the number of slot machines sold during the year as part of the for-sale market initiative implemented to diminish the effects of the decrease in lease revenues.

 

Operating Expenses

 

Operating expenses decreased $193,000 to $382,000 for the nine months ended September 30, 2016, from $575,000 for the nine months ended September 30, 2015. This decrease was the result of the reduction in salaries and associated payroll costs from the vacancy in the operations manager position and the reduction of costs directly associated with the slot machine activity during the year, i.e. freight, conversions and installation.

 

Research and Development Expenses

 

Research and development expenses decreased by $71,000 to $315,000 for the nine months ended September 30, 2016, from $386,000 for the nine months ended September 30, 2015. Research and development expenses are related to the development of gaming equipment and consist mainly of payroll and related expenses for programmers and graphic artists and the costs to acquire new brands. This decrease is primarily attributable to the reduction in the number of programmers on staff and consultants used during the year.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses increased by $28,000 to $1,552,000 for the nine months ended September 30, 2016, from $1,524,000 for the nine months ended September 30, 2015. This increase was due to higher professional fees associated with the annual SEC audit requirements and the common area maintenance (“CAM”) cost adjustment associated with the building lease as a result of the lessor’s 2015 CAM reconciliation, offset by reductions in personnel costs in marketing and compliance.

 

Depreciation and Amortization

 

Depreciation and amortization decreased $176,000 from $413,000 for the nine months ended September 30, 2015 to $237,000 for the nine months ended September 30, 2016. This decrease was from assets built and placed in gaming venues in prior years that are now fully depreciated or sold.

 

Net Interest Expense

 

Net interest expense decreased $295,000 from $295,000 for the nine months ended September 30, 2015 to $-0- for the nine months ended September 30, 2016. This decrease was as a result of the agreement by the lenders to discontinue the accrual of interest effective April 1, 2015, in anticipation of converting its debt into equity of the Company.

 

Liquidity and Capital Resources

      

We have incurred net losses since inception. We have historically funded our operating costs, research and development activities, working capital investments and capital expenditures associated with our growth strategy with proceeds from the issuances of our stock and loans however commencing in 2015, we were able to fund these costs with the proceeds from the sales of our gaming products. These transactions are described in more detail following the discussion of cash flows below:

 

Discussion of Statement of Cash Flows

 

		Nine Months Ended September 30,
		2016				2015				Change
Net cash used in operating activities		$	(99,212	)		$	(15,177	)		$	(84,035	)
Net cash provided by (used in) investing activities			(47,474	)			127,323				(174,797	)
Net cash provided by financing activities			—				750				(750	)
Net increase (decrease) in cash			(146,686	)			112,896			$	(259,582	)
Cash, beginning of year			357,477				274,547
Cash, end of period		$	210,791			$	387,443

 

For the nine months ended September 30, 2016, cash used in operating activities increased by $84,000 to $99,000 used in operating activities as compared to cash used of $15,000 for the nine months ended September 30, 2015. The decrease in cash from operating activities was due to the larger net loss experienced in 2016 and the timing of payments to creditors, suppliers and vendors.

 

Net cash used in investing activities realized a swing of $174,000, from $127,000 provided by investing activities for the nine months ended September 30, 2015 to $47,000 used in investing activities for the nine months ended September 30, 2016. Cash used in investing activities is primarily the function of the net investment in property and equipment, principally slot machines used in our operations, and brand licenses. This increase in cash used was the result of the $217,000 reduction in proceeds from the sale of slot machines offset by the reduction of investments in property and equipment and brand licenses of $43,000.

 

Net cash provided by financing activities was $-0- for the nine months ended September 30, 2016, a decrease of $1,000 from $1,000 for the nine months ended September 30, 2015, which represented the net proceeds from the issuance of common stock to a non-related party.

 

Operations and Liquidity Management

 

For the nine months ended September 30, 2016, we incurred a net loss of $512,043 and used $99,212 in cash from operating activities. At September 30, 2016, our cash balance was $210,791. The generation of cash flow sufficient to meet our cash needs in the future will depend on our ability to obtain the regulatory approvals required to distribute our products and successfully market them to casinos and card clubs. Our current gross cash requirements are between approximately $280,000 to $325,000 per month, principally for salaries, professional services, licenses, marketing, office expenses and the purchase of the hardware components for our products.

 

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 September 30, 2016:

 

		Total				Less than 1 year				1 -3 years				3 - 5 years				More than 5 Years
Operating lease obligations (1)		$	455,000			$	99,000			$	231,000			$	125,000			$	—
Royalty fee obligation (2)			25,000				25,000				—				—				—
Total		$	480,000			$	124,000			$	231,000			$	125,000			$	—

(1)	Represents operating lease agreements for office and warehouse facilities.
(2)	Represents guaranteed royalty fee for brand license.

 

 

 

Off-Balance Sheet Arrangements

 

As of September 30, 2016, 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. We have limited capital resources, and have had net operating losses and negative cash flows from operations since the Company’s inception. An increase in sales contracts and installation orders are an indication that conditions have recently been improving and the Company expects these conditions to continue to improve, however the generation of cash flow sufficient to meet the Company’s cash needs in the future will depend on the Company’s ability to obtain the regulatory approvals required to distribute its products and successfully market them to more casinos and card clubs. Based on our cash flow projections and anticipated revenues, 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.

 

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 September 30, 2016, 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 September 30, 2016, our disclosure controls and procedures were effective at the reasonable assurance level.

 

There were no changes in our internal control over financial reporting during our quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 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:  November 14, 2016	Lightning Gaming, Inc.
	By:	/s/ Brian Haveson                                         Brian Haveson Chief Executive Officer and Director

 

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