Lightning Gaming 10-K 30 Mar 20 2019 FY Annual report Financial data

Document and Entity Information

Document and Entity Information - shares	12 Months Ended
	Dec. 31, 2019	Mar. 30, 2020
Fair value of warrants and convertibility feature of long term debt
Entity Registrant Name	Lightning Gaming, Inc.
Entity Central Index Key	0001392545
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		4,649,383
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2019
EntityEmergingGrowthCompany	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	NV
Entity File Number	000-52575

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($)	Dec. 31, 2019	Dec. 31, 2018
ASSETS
Cash	$ 1,598,749	$ 565,461
Accounts receivable, net	747,704	415,466
Inventory	1,468,210	584,221
Prepaid expenses	440,783	678,647
Total Current Assets	4,255,446	2,243,795
Property, Plant and Equipment, net	4,277,223	2,243,795
Other Assets	8,193	8,193
License Fees, net of accumulated amortization	36,005	9,339
Total Assets	8,676,937	37,587,000
Liabilities and Stockholders' Deficit
Accounts payable	557,199	191,751
Accrued expenses	382,806	98,241
Current portion of long term notes payable	439,594	572,298
Interest payable		12,891
Total Current Liabilities	1,480,682	898,181
Long Term Debt and Other Liabilities
Long term notes payable	4,397,410	1,178,113
Interest payable and other liabilities	44,417
Other long term liabilities	17,944	32,344
Fair value of warrants and convertibility feature of long term debt	779,901
Total Long Term Debt and Other Liabilities	5,195,255	1,210,457
Commitments
Stockholders' Deficit
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 as of December 31, 2019 and 2018
Common stock: $0.001 par value; authorized 90,000,000 shares; 4,916,285 shares issued as at December 31, 2019 and 2018, 4,649,383 outstanding as at December 31, 2019 and 2018	4,917	4,917
Nonvoting common stock: $0.001 par value; authorized 50,000,000 shares; 33,300,000 issued and outstanding at December 31, 2019	33,300	33,300
Additional paid in capital	30,352,427	30,467,906
Accumulated deficit	(28,548,833)	(28,835,250)
Treasury stock, 266,902 shares at cost	(20,811)	(20,811)
Total Stockholders' Equity	2,001,000	1,650,062
Total Liabilities and Stockholders' Equity	$ 8,676,937	$ 3,758,700

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Stockholders' Deficit
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred Stock Series A Nonvoting capital stock, authorized shares	6,000,000	6,000,000
Preferred Stock Series A Nonvoting capital stock, issued shares
Preferred Stock Series A Nonvoting capital stock, outstanding shares
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized shares	90,000,000	90,000,000
Common stock, issued shares	4,916,285	4,916,285
Common stock, outstanding shares	4,649,383	4,688,474

Consolidated Statements of Oper

Consolidated Statements of Operations (Unaudited) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Revenues
License and service fees	$ 4,395,359	$ 2,259,216
Sales of gaming products and parts	2,617,504	3,420,434
Total revenues	7,012,863	5,679,650
Costs and operating expenses
Cost of products sold	1,898,506	1,585,589
Operating expenses	574,514	593,400
Research and development	427,095	383,494
Selling, general & administrative expenses	2,118,830	1,925,053
Depreciation and amortization	675,385	83,110
Total costs and operating expenses	5,694,330	4,570,646
Operating income (loss)	1,318,533	1,109,004
Non-operating income (expense)
Net interest expense	(599,822)	(66,944)
Other income (expense)	(419,563)
Net income	$ 286,417	$ 1,019,060
Net loss per common share including Series A Nonvoting shares-basic and diluted	$ 0.01	$ 0.03
Weighted average Series A Nonvoting shares outstanding-basic and diluted	37,311,151	37,240,000
Weighted average common shares outstanding- basic and diluted	5,459,698	5,024,739
Weighted average nonvoting common shares outstanding-basic and diluted	37,311,151	37,240,000

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Changes in Assets and Liabilities
Decrease in accounts receivable	$ (332,238)	$ (121,705)
Decrease in inventories	(403,579)	(399,833)
Increase (decrease) in accounts payable	365,448	69,743
Increase in accrued interest	(222,829)
Increase in accrued expenses	284,565	13,136
Decrease in fair value of warrants and convertible feature of long term debt	(32,344)	10,841
NET CASH USED IN OPERATING ACTIVITES	1,744,900	201,417
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment	(3,932,780)	(1,526,478)
Proceeds from sale of fixed assets
Decrease in license fees		(10,000)
Net cash Used in Investing activities	(3,932,780)	(1,526,478)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of Notes	7,729,131	1,876,241
Payment on capital lease		(1,000)
Net cash provided by financing activities	3,221,168	1,624,411
Net Increase (Decrease) in Cash	1,033,288	289,350
Cash - Beginning of period	565,461	289,350
Cash - End of period	1,598,749	565,461
Supplemental Disclosure of Non-Cash Financing Activities:
Extinguishment of loan principal	419,563
Extinguishment of accrued interest on loans	$ (222,829)
Conversion of warrants	779,901
Inventory transferred to fixed assets	$ 450,878	62,425
Cash paid for interest	$ 591,210	$ 54,053

Nature of Business and Signific

Nature of Business and Significant Accounting Policies	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Nature of Business and Significant Accounting Policies	Note 1. Nature of Business and Summary of Significant Accounting Policies Nature of Business 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 consolidated financial statements include the accounts of the Company, including All inter-company accounts and transactions have been eliminated. 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. For the year ended December 31, 2019, the Company had net income and cash flows from operations, recognized a significant increase in revenue during the year, has obtained financing to fund inventory purchases, and has maintained and sustained working capital surpluses. The generation of cash flow sufficient to meet the Company’s cash needs in the future will depend on the Company’s ability to distribute its products and successfully market them to more casinos. Based on our current financial condition, cash flow projections, anticipated revenues and presumed temporary impact from COVID-19, 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty. A summary of the Company’s significant accounting policies is as follows: Revenue Recognition Revenue generated under operating leases is recognized when the performance obligation is satisfied. Lease agreements are based on either a fixed daily or monthly rate, or a pre-determined percentage of the monthly net win or “participation” revenue collected 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 agreements are invoiced when participation reports are remitted to us detailing the monthly per unit per theme 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 of the same category 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. In addition, the customer must return the original game theme components to the Company upon conversion of the slot game theme. For the years 2019 and 2018, there was no revenue generated from customers outside the United States. Three and four casino customers accounted for 30% and 56% of our revenues for the years ended December 31, 2019 and 2018, respectively. One casino group represented 9% and 7% of total revenues for each of the years ended December 31, 2019 and 2018, respectively. For each of the years ended December 31, 2019 and 2018, the Company recorded no revenues related to performance obligations from prior periods. Use of Estimates Significant estimates include the recoverable value of long-lived assets and projected cash flows. Cash Concentrations of Credit Risk Receivables and Allowance for Doubtful Accounts At December 31, 2019, accounts receivable from two casino customers represented 44% of total accounts receivable. At December 31, 2018, four casino customers represented 52% of total accounts receivable. One customer represented 32% and 21% of the total accounts receivable balance as of December 31, 2019 and 2018, respectively. License Fees: Patents Research and Development Inventory Fair Value Measurements 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 8 Property and Equipment Income Taxes The Company has assessed its tax position and does not believe there are any uncertain tax positions. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the Statement of Operations. The Company has determined that there are no unrecognized tax benefits, and accordingly, has not recognized any interest or penalties during 2019 and 2018 related to unrecognized tax benefits. There is no accrual for interest or penalties as of December 31, 2019 and 2018. The Company files U.S. income tax returns and multiple state income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2016 and thereafter are subject to examination by the relevant taxing authorities. Advertising Impairment of Long-Lived Assets - Going Concern he Company evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern for a period of one year after the date that the financial statements are issued, taking into consideration the quantitative and qualitative information regarding the Company’s current financial condition, conditional and unconditional obligations due and the funds and cash flow necessary to maintain operations within that time period. Based on management’s evaluation, the Company will be able to continue in operation on a going concern basis for at least the next twelve months from the date these financial statements are issued. Stock Option Plans Note 8 Warrants: Notes 5 8 Earnings per share: 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: December 31, 2019 December 31, 2018 Stock options 3,930,000 4,215,000 Warrant 7,000,000 — 10,930,000 4,215,000

Inventory

Inventory	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Inventory	Note 2. Inventory Inventory consisted of the following: December 31, 2019 December 31, 2018 Finished products $ 1,046,629 $ 403,080 Raw materials 421,581 181,141 Inventory $ 1,468,210 $ 584,221 Inventory is stated at the lower of cost using the first-in, first-out method, or net realizable value. During 2018, the Company started using a new slot machine cabinet design for lease and sale. The cabinets, which are manufactured by a third-party and 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.

Property and Equipment

Property and Equipment	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Property and Equipment	Note 3. Property and Equipment Property and equipment consisted of the following: December 31, 2019 December 31, 2018 Equipment, principally gaming equipment $ 6,281,476 $ 3,208,481 Delivery truck 28,140 28,140 Furniture and fixtures 87,033 104,314 Leasehold improvements 91,794 91,794 Property and equipment 6,488,443 3,432,729 Less accumulated depreciation (2,211,220 ) (1,935,356 ) Property and equipment, net $ 4,277,223 $ 1,497,373 During the years ended December 31, 2019 and 2018, the Company determined that the Poker Tables that had previously been out on lease and returned from customers had no further use to the Company and no resale or scrap value. During the year ended December 31, 2018, the Company wrote off Poker Tables with a cost of $1,276,039 and a net book value of $-0-. During the year ended December 31, 2019, the Company wrote off the remaining Poker Tables with a cost of $30,767 and a net book value of $-0-. Cabinets used in 40 slot machines that were built in 2018 and were out on lease at customers’ facilities during 2019 were deemed to be defective due to numerous service and repair issues associated with the quality of those cabinets. During 2019, the Company requested, and was granted, warranty replacement from the manufacturer of those cabinets. In November 2019, the slot machines containing the defective cabinets were returned from the field so that the units could be disassembled, the defective cabinets returned to the cabinet manufacturer for warranty replacement, and the parts and licenses on those machines returned to inventory for use in other slot machines. The 40 slot machines that were disassembled had a cost of $536,956, a net book value of $429,565, and were removed from the books and the parts and license tags that were installed on those units were returned to inventory at their net realizable values. The cabinets, which had a net realizable value of $284,134, were replaced by the manufacturer with cabinets that had a cost of $321,868. The difference between the net value of the parts and licenses returned to inventory and the cabinets received under warranty of $29,532 was reflected as an inventory valuation adjustment and is included in the consolidated Statements of Operations under operating expenses. Depreciation expense related to the property and equipment included in the consolidated Statements of Operations was $672,053 and $76,166 for the years ended December 31, 2019 and 2018, respectively.

License Fees

License Fees	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
License Fees	Note 4. License Fees License fees consist of the following: December 31, 2019 December 31, 2018 Purchased licenses $ 377,160 $ 351,605 Less accumulated amortization (341,155 ) (342,266 ) License fees, net $ 36,005 $ 9,339 The weighted average useful life of purchased licenses is 3 years. Amortization expense included in the consolidated Statements of Operations and relating to the purchased licenses was $3,333 and $6,944 for the years ended December 31, 2019 and 2018, respectively. Estimated amortization expense related to recorded license fees is as follows: Year Ending December 31, Amount 2020 $ 33,783 2021 2,222 $ 36,005

Notes Payable

Notes Payable	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Notes Payable	Note 5. Notes Payable On July 17, 2018, the Company entered into a Master Loan Agreement (the “Prior Loan”) with PDS Gaming LLC (“PDS” or the “Lender”) to make a series of advances under the Prior Loan in the principal amount of up to $2,500,000 for the purposes of financing the purchase or manufacturing of equipment. The Loan was evidenced by Promissory Notes (each a “Note” and collectively the “Notes”) executed by the Company payable to the order of the Lender, and 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 was advanced, in parts, pursuant to the Prior Loan and in the amounts of each Note during the advance period which originally expired on July 17, 2019. Each subsequent advance being made at the Lender’s sole and absolute discretion. Under the original terms, the Notes bore interest on the outstanding principal amount at the lesser of the maximum rate or interest rate specified on each note based on a 360 day year. Payments consisting of principal and interest, as well as “Contingent Interest Payments” (“CIP”) of $3.50 per day for each on-line day up to a maximum of 730 on-line days for each unit financed under the Note were due and payable monthly. Each Note matured in 36 months and CIP obligations matured 48 months after the respective closing of each Note. On March 29, 2019, the Lender agreed to increase the total principal amount that may be borrowed under the Loan from $2,500,000 to $5,500,000. On April 15, 2019, the Lender agreed to additional amendments, extending the advance period to 24 months beyond the Prior Loan date expiring July 17, 2020, and defining the CIP in each Note. In addition, the original Notes on Advances 1 through 5 were amended (the “Amendment” or the “Amended Note[s]”), extending the maturity dates, reducing the base monthly payments of principal and interest, reducing the CIP to $3.00 per day for each on-line day, extending the CIP obligation maturity date to 60 months, and defining the remaining CIP days under each Amended Note. All other terms of the Notes and Prior Loan remained unchanged and in full force, including the interest rate which remained at 11% on each Note. On November 27, 2019 (the “Closing Date”), the Company entered into a new 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 the existing outstanding indebtedness of the Company under the Prior Loan and Amendment for Advances 1 through 8 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 and will be 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 will be advanced, in parts, pursuant to the Loan and in the amounts of each Note during the advance period which runs until November 30, 2020. The Notes will 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. Each Note is prepayable subject to a sliding scale prepayment fee, declining 1% from 4% in the first twelve months to 0% after the 48 th 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 commence on January 1, 2020 and will mature on December 1, 2024. 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 is 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 8 The Company incurred a closing fee of 1% on the principal amount of the Note, excluding the portion of the principal amount of the first Note that is attributable to the refinancing of the Prior Loan as of the closing date, of $12,342. In addition, the Company paid $10,000 as a deposit for out of pocket expenses, of which $8,121 was subsequently reimbursed for a net of $1,879. The total fees of $14,221 were recorded as expense and are included in the consolidated Statements of Operations. 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 will be amortized on a straight-line basis until the earlier of the end of the advance period or until the remaining advances under the Loan are made. When the remaining advances under the Loan are made, the proportionate amount of the unamortized deferred fee remaining will be reclassified as debt discount and amortized over the life of the advance using the interest method. ASC Topic 470 – Debt, requires an analysis to determine if the debt instruments under a refinancing transaction are substantially different by testing the present value (“PV”) of the cash flows under the terms of the new debt instrument versus the PV of the remaining cash flows under the terms of the original instrument. In cases where the transactions are deemed to be significantly different, an extinguishment has occurred, the old debt is derecognized and the new debt is recorded at fair value and fees paid to the lender on the old debt are expensed. The difference between the net carrying value of the original debt and the fair value of the new debt is recorded as a gain or a loss and interest expense is recorded based on the effective rate of interest on the new debt. The Company prepared the analysis and determined that the change in PV of cash flows is greater than 10%, the threshold established in ASC 470, and considered the transaction an extinguishment. The total cost of the debt of $557,072 was calculated as the difference between the fair value of the Warrant and the deferred debt commitment fee and the portion of the cost of debt reacquired associated with the carrying value of the old debt of $419,563 (75.3% x $557,072) was recognized as a loss on extinguishment of debt and is separately stated as such in the consolidated Statements of Operations. Debt discount of $137,509 was calculated as the cost associated with the new debt in proportion to the total cost of the debt refinanced or reacquired and is presented on the consolidated Balance Sheets as a direct reduction to the value of the debt. From the period January to September 2019, the Company took advances on the Prior Loan, PDS Advances 4 through 8, which totaled $2,729,131 and as of December 31, 2019 and 2018, Notes payable consist of the following: Advance Date Maturity Date Note Amount Monthly Payment Interest Rate December 31, 2019 December 31, 2018 PDS Advance 1 7/17/2018 7/17/2022 $ 489,989 $ 11,737 11 % $ — $ 431,407 PDS Advance 2 9/18/2018 9/18/2022 $ 723,565 $ 17,699 11 % — 671,986 PDS Advance 3 11/15/2018 11/15/2022 $ 662,686 $ 16,163 11 % — 647,018 PDS Gaming Advance 9 11/27/2019 12/1/2024 $ 5,000,000 $ 91,616 13 % 4,837,004 — Total Notes Payable 4,837,004 1,750,411 Less: amounts classified as current (439,594 ) (572,298 ) Long-Term Notes Payable $ 4,397,410 $ 1,178,113 The following table lists the future principal payments due on the Notes as of December 31, 2019: Year Ending December 31, Amount 2020 $ 439,594 2021 508,257 2022 585,217 2023 673,832 2024 2,630,104 $ 4,837,004 The following table provides a breakdown of the interest expense as included in the consolidated Statements of Operations: Year ended December 31, 2019 2018 Interest on Notes payable $ 377,160 $ 59,783 Contingent interest obligations 201,159 7,161 Amortization of deferred debt commitment fee 18,569 — Amortization of debt discount 2,934 $ 599,822 $ 66,944 On January 29, 2020, the Company closed on its next advance (“PDS Gaming Advance 10”) under the Loan with PDS Gaming. See Note 12

Leases

Leases	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Note Payable Related Party	Note 6. Leases 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. Since the original lease inception, rental expense had been recognized on a straight-line basis over the life of the lease and was recorded as a deferred rent obligation during the abatement period. The deferred rent was reduced by the difference between the rent due and the straight-line expense upon commencement of the rental payments, which was identical to the lease expense that would have been recognized applying the principals under ASC 842. Since there was no difference in the lease versus rent expense calculation, there was no effect to prior periods and the balance sheet adjustment to record the remaining balances in the right-of-use asset of $177,521, lease liability of $209,864, and to eliminate the balance remaining in the deferred rent account of $32,343 was made as of January 1, 2019. The following table summarizes the right-of-use asset and lease liability as of December 31, 2019: Right-of-use Asset $ 100,070 Lease Liability Current $ 101,083 Long-term 17,944 $ 119,027 Rental expense under this lease for the years ended December 31, 2019 and 2018 was $141,366 and $141,601, respectively. The following table summarizes the Company’s scheduled future minimum lease payments as of December 31, 2019: Year Ended December 31: 2020 $ 106,975 2021 18,124 Minimum lease payments 125,099 Less: imputed interest (6,072 ) Present value of minimum lease payments 119,027 Less: current maturities of lease liability 101,083 Long-term lease liability $ 17,944

Commitments

Commitments	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Commitments	Note 7. 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. The Company has recorded liability for estimated license fee payments of $269,250 and $13,500 as of December 31, 2019 and 2018, respectively. See Note 12

Stockholders Equity

Stockholders Equity	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Stockholders' Deficit	Note 8. Stockholders’ Equity Stock Option Plans 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 "2007 Plan") having substantially the same terms. The options are granted at the discretion of the Board of Directors and, Stock Option Plans (Continued) at December 31, 2019, 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 of Directors 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 and no awards may be granted after October 16, 2017, the expiration date of the 2007 Plan. Options 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. 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 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. A summary of option transactions in 2019 and 2018 under the 2007 Plan is as follows: Shares Weighted Average Exercise Price Options outstanding at January 1, 2018 375,000 $ 0.81 Options granted — — Options exercised — — Options cancelled (100,000 ) 2.00 Options outstanding at December 31, 2018 275,000 $ 0.37 Options granted — — Options exercised — — Options cancelled (270,000 ) 0.34 Options outstanding at December 31, 2019 5,000 $ 2.00 Options available for grant under the 2007 Plan at December 31, 2019 2,495,000 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 4,015,000 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. A summary of option transactions in 2019 and 2018 under the 2016 Plan is as follows: Shares Weighted Average Exercise Price Options outstanding at January 1, 2018 3,940,000 $ 0.13 Options granted — — Options exercised — — Options cancelled — — Options outstanding at December 31, 2018 3,940,000 $ 0.13 Options granted 100,000 0.13 Options exercised — — Options cancelled (115,000 ) 0.13 Options outstanding at December 31, 2019 3,925,000 $ 0.13 Options available for grant under the 2016 Plan at December 31, 2019 1,775,000 Stock-based compensation expense is recognized in the Statements of Operations based on awards ultimately expected to vest and is adjusted for estimated forfeitures. The additional compensation expense arising from the modification of the exercise price amounted to $105,767 and is being recognized over the vesting period. Expense relating to the stock option plans was $64,521 and $82,910 for the years ended December 31, 2019, and 2018, respectively. The following table summarizes information with respect to stock options outstanding at December 31, 2019: 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 2007 Plan 5,000 0.6 $2.00 - 5,000 0.6 $2.00 - 2016 Plan 3,925,000 7.2 $0.13 - 1,540,000 7.2 $0.13 - The following table summarizes information with respect to stock options outstanding at December 31, 2018: 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 2007 Plan 275,000 0.5 $0.37 - 275,000 0.5 $0.37 - 2016 Plan 3,940,000 8.2 $0.13 - 788,000 8.2 $0.13 - As of December 31, 2019, all compensation costs related to share-based compensation arrangements granted under the 2007 Plan had been fully recognized. As of December 31, 2019, there was approximately $137,564 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 2.3 years at an estimated forfeiture rate of 0% for executives and 20% for non-executives. Warrants *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. Although the put right can be only be exercised upon the occurrence of certain events, the put, in itself, creates an obligation and the warrant should be classified as a liability within the scope of ASC 480. The fair value of the warrant was estimated as $779,901 using the Black-Scholes pricing model and was recognized as a liability in the accompanying consolidated Balance Sheets. The following assumptions were used to determine the fair value of the Warrant at its issuance on November 27, 2019: Assumption Stock price $ 0.14 Exercise price $ 0.05 Weighted average volatility 44.8 % Expected dividend yield — Expected term (in years) 10 Weighted average risk free interest rate 1.8 % The following table is a summary of the Warrant activity for the year ended December 31, 2019: Shares Weighted Average Exercise Price Warrants at January 1, 2019 — — Warrants granted 7,000,000 $ 0.05 Warrants exercised — — Warrants cancelled — — Warrants at December 31, 2019 7,000,000 $ 0.05 Warrants exercisable at December 31, 2019 7,000,000 The following table summarizes information with respect to the Warrant outstanding at December 31, 2019: Warrant Outstanding Weighted Average Weighted Remaining Average Aggregate Contractual Exercise Intrinsic Shares Life (Years) Price Value 7,000,000 9.9 $0.05 - The fair value assumptions used at December 31, 2019 remained unchanged from those used at the November 27, 2019 issuance date and therefore, the fair value remained at $779,901 at December 31, 2019 and no subsequent adjustment to fair value was necessary. The following table reconciles the changes in the fair value of the warrant liability classified as Level 3 in the fair value hierarchy: Warrant Liability Balance at January 1, 2019 $ — Fair value of Warrant at issuance 779,901 Balance at December 31, 2019 $ 779,901

Revenue

Revenue	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Revenue	Note 9. Revenue The following table provides a breakdown of the revenue by category as included in the consolidated Statements of Operations: Year ended December 31, 2019 2018 Lease, license and service fees: Flat daily rate lease $ 3,216,089 $ 1,615,266 Participation lease 1,150,820 613,197 Placement and license fees 28,450 30,753 $ 4,395,359 $ 2,259,216 The following table provides a breakdown of the sales of gaming products and parts as included in the consolidated Statements of Operations: Year ended December 31, 2019 2018 Sales of gaming products and parts: Slot machine sales $ 1,243,300 $ 1,863,932 Installation fees — 940 Parts and ancillary items sales 1,374,204 1,555,562 $ 2,617,504 $ 3,420,434 The following table provides a breakdown of the lease revenue by product type: Year ended December 31, 2019 2018 Lease, license and service fees by product: Slot machines $ 4,395,135 $ 2,242,250 Poker Tables 224 16,966 $ 4,395,359 $ 2,259,216

Income Taxes

Income Taxes	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Income Taxes	Note 10. Income Taxes The components of the income tax provision for the years ended December 31, 2019 and 2018 are as follows: 2019 2018 Current tax expense: Federal $ — $ — State 12,731 23,000 $ 12,731 $ 23,000 Deferred tax benefit (expense): Federal $ (63,000 ) $ (199,000 ) State (34,000 ) (106,000 ) Valuation reserve 97,000 305,000 $ — $ — Net deferred tax assets consist of the following components as of December 31, 2019 and 2018: 2019 2018 Deferred tax asset: Net operating loss carryforward $ 3,678,000 $ 3,777,000 Accounts receivable reserves 2,000 2,000 Property and equipment (340,000 ) (211,000 ) Accrued expenses 188,000 61,000 Impairment charge 211,000 211,000 Start-up costs 7,000 10,000 Stock based compensation 97,000 78,000 Inventory reserves 3,000 3,000 Other (4,000 ) 8,000 3,842,000 3,939,000 Less valuation allowance (3,842,000 ) (3,939,000 ) Net deferred taxes $ — $ — A reconciliation of income tax expense at statutory rates to the income tax expense reported in the Statements of Operations is as follows for the years ended December 31, 2019 and 2018. Year ended December 31, 2019 2018 Federal tax benefit at statutory rate $ 60,000 $ 214,000 State tax benefit net of federal taxes 36,731 104,000 Other 13,000 10,000 Decrease in valuation allowance (97,000 ) (305,000 ) Income tax expense $ 12,731 $ 23,000 As of December 31, 2019, the Company has available, for federal and state income tax purposes, net operating loss (“NOL”) carryforwards of approximately $12,773,000, which expire at various times through 2038. 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 current financial statements.

Recently Issued Pronouncements

Recently Issued Pronouncements	12 Months Ended
	Dec. 31, 2019
PaymentOnCapitalLease
Related Party	Note 11. Recently Issued Pronouncements 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. 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 as well as the targeted and codification improvements issued in July 2018, became effective for fiscal and interim periods beginning after December 15, 2018. The Company adopted this guidance, referred to as ASC 842, effective January 1, 2019 using the optional transition method and has elected the package of practical expedients permitted under the transition guidance which allows, among other things, the carryforward of the historical lease classification. In addition, the Company has elected to use the hindsight practical expedient to determine the lease term for existing leases and has elected to keep leases with a term of 12 months or less off of the balance sheet. The Company has determined that one lease agreement for its corporate offices, as described in more detail in Note 6, Leases to record the amounts remaining on the lease as the right-of-use asset, lease liability and to eliminate the balance remaining in the deferred rent as of January 1, 2019 was made and there was no effect to prior periods. Payments under this lease are recognized in the consolidated Statements of Operations on a straight-line basis. 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 GAAP for other areas by clarifying and amending existing guidance. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is gathering the information and performing the analyses required before the standard’s effective date to determine the impact this guidance will have on our financial statements. In June 2016, the 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, 2019, 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.

Subsequent Events

Subsequent Events	12 Months Ended
	Dec. 31, 2019
Subsequent Events [Abstract]
Subsequent Events	Note 12. Subsequent Events On January 29, 2020, the Company closed on Advance 10 under the Loan with PDS Gaming. The advance is evidenced by a Note in the principal amount of $1,000,000 and bears interest at an annual rate of 13%. Monthly payments of $18,309 commence on March 1, 2020, and the Note matures on February 1, 2025. 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 Company had recorded an estimated liability for the license fee as of December 31, 2019 of $269,250 and recognized a gain on settlement of $66,000 in March 2020 after payment of the audit settlement amount and the $45,000 quarterly fee due and payable for the quarter ended December 31, 2019. Due to the novel coronavirus pandemic COVID-19, the Company, as well as all other non-life-sustaining businesses, was ordered by governor’s mandate to close physical operations within the state of Pennsylvania on March 19, 2020. As of that same date, most, if not all, of the Company’s customers have been mandated to close as well. Although the ability to work remotely with access to IT systems has been established for the majority of personnel, the physical closure of the Company’s facility impedes the ability to assemble the slot machine units to fulfill existing and scheduled future orders. The effects of COVID-19 on the Company’s revenues cannot be calculated at this time. The Company is employing aggressive expense management measures and intends to participate in federal and state assistance programs that may be available in order to mitigate any adverse impact to projected performance.