Lightning Gaming 10Q 2023 Q1 Quarterly report

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, 2023

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period __________ to __________

	Commission File Number: 000-52575

	Lightning Gaming, Inc.
	(Exact name of registrant as specified in its charter)

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

	23 Creek Circle, Boothwyn, PA 19061
	(Address of principal executive offices)

	(610) 494-5534
	(Registrant’s telephone number)

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

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

Yes x No ¨

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

Large accelerated filer ¨

Accelerated filer ¨

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

Smaller reporting company x

Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,649,383 shares of (voting) Common Stock as of November 10, 2023 and 33,300,000 shares of Nonvoting Common Stock as of November 10, 2023

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	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

1	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 (audited);
2	Unaudited Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022;
3	Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2023 and 2022;
4	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022;
5	Notes to Unaudited Consolidated Financial Statements.

Item

1. Financial Statements.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2023		December 31, 2022
	(unaudited)		(audited)
Assets
Current Assets
Cash	$	1,985,681	$	1,486,852
Accounts receivable, net		433,705		912,090
Inventory, net		166,727		484,955
Deposit with vendor		111,602		—
Prepaid expenses		134,654		168,024
Total Current Assets		2,832,369		3,051,921

Property and Equipment, net		1,410,034		2,279,834

Right-of-use asset – building, net		257,689		313,747
Long-term accounts receivable		—		96,992
Other assets		8,193		8,193
License fees, net of accumulated amortization		450		12,800

Total Assets	$	4,508,735	$	5,763,487

See Notes to Unaudited Consolidated Financial Statements

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

	September 30, 2023			December 31, 2022
	(unaudited)			(audited)
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	50,245		$	51,378
Accrued expenses		106,170			167,058
Accrued interest		65			93
Current portion of lease liability		90,835			83,884
Current portion of auto loan		16,156			15,504
Current portion of notes payable, net		665,246			790,371
Total Current Liabilities		928,717			1,108,288

Long-Term Debt and Other Liabilities
Long-term notes payable, net		2,772,971			3,166,528
Long-term portion of auto loan		24,449			36,645
Warrant liability		563,924			573,436
Long-term lease liability		202,675			271,476
Total Long-Term Debt and Other Liabilities		3,564,019			4,048,085

Total Liabilities		4,492,736			5,156,373

Commitments (Note 8)

Stockholders' Equity
Preferred stock: $0.001 par value; authorized 10,000,000 shares, Series A Nonvoting preferred stock 6,000,000 shares designated, -0- shares issued and outstanding		—			—

Common stock: $0.001 par value; authorized 90,000,000 shares; 4,916,285 shares issued and 4,649,383 outstanding		4,917			4,917

Nonvoting common stock: $0.001 par value; authorized 50,000,000 shares; 33,300,000 issued and outstanding		33,300			33,300

Additional paid in capital		30,656,622			30,656,371
Accumulated deficit		(30,658,029	)		(30,066,663	)
Treasury stock, 266,902 shares, at cost		(20,811	)		(20,811	)
Total Stockholders’ Equity		15,999			607,114

Total Liabilities and Stockholders’ Equity	$	4,508,735		$	5,763,487

See Notes to Unaudited Consolidated Financial Statements

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2023 and 2022

(Unaudited)

	September 30, 2023			September 30, 2022
Revenues
Lease and license fees	$	785,271		$	910,309
Sales of gaming products and parts		473,314			346,782
Total revenues		1,258,585			1,257,091
Costs of Revenue
Cost of products sold		208,605			134,337
Depreciation		277,674			280,160
License Fees		2,563			2,142
Costs of revenue		488,842			416,639

Gross Profit	$	769,743		$	840,452

Operating expenses
Operating expenses		80,958			146,731
Research and development		149,982			168,697
Selling, general and administrative expenses		528,307			582,545
Depreciation		6,887			8,335
Total operating expenses		766,134			906,308

Operating income (loss)	$	3,609		$	(65,856	)

Non-operating income (expense)
Interest expense		(128,077	)		(158,074	)
Interest income		2,884			3,920
(Loss) gain on change in fair value of warrant liability		(121,114	)		130,502
Total non-operating expense		(246,307	)		(23,652	)
Net (loss) before income taxes		(242,698	)		(89,508	)
Income tax expense		(375	)		(375	)
Net (loss)	$	(243,073	)	$	(89,883	)
Net (loss) per common share - basic	$	(0.01	)	$	(0.00	)
Net (loss) per common share - diluted	$	(0.01	)	$	(0.00	)
Weighted average Common shares outstanding – basic and diluted		4,649,383			4,649,383
Weighted average Nonvoting Common shares outstanding – basic and diluted		33,300,000			33,300,000

See Notes to Unaudited Consolidated Financial Statements

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2023 and 2022

(Unaudited)

	September 30, 2023			September 30, 2022
Revenues
Lease and license fees	$	2,543,095		$	2,775,311
Sales of gaming products and parts		934,564			1,456,498
Total revenues		3,477,659			4,231,809
Costs of Revenue
Cost of products sold		426,235			812,474
Depreciation		851,311			855,276
License fees		8,989			2,142
Costs of revenue		1,286,535			1,669,892

Gross Profit	$	2,191,124		$	2,561,917

Operating expenses
Operating expenses		270,700			349,881
Research and development		471,094			516,663
Selling, general and administrative expenses		1,630,909			1,730,581
Depreciation		20,885			25,929
Total operating expenses		2,393,588			2,623,054

Operating (loss)	$	(202,464	)	$	(61,137	)

Non-operating income (expense)
Interest expense		(404,216	)		(487,308	)
Interest income		8,266			9,412
Gain on change in fair value of warrant liability		9,512			176,718
Income from tax retention credits		—			231,059
Total non-operating expense		(386,438	)		(70,119	)
Net (loss) before income taxes		(588,902	)		(131,256	)
Income tax expense		(2,464	)		(1,125	)
Net (loss)	$	(591,366	)	$	(132,381	)
Net (loss) per common share - basic	$	(0.02	)	$	(0.00	)
Net (loss) per common share - diluted	$	(0.02	)	$	(0.00	)
Weighted average Common shares outstanding – basic and diluted		4,649,383			4,649,383
Weighted average Nonvoting Common shares outstanding – basic and diluted		33,300,000			33,300,000

See Notes to Unaudited Consolidated Financial Statements

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2023 and 2022

(Unaudited)

	September 30, 2023			September 30, 2022
Cash Flows from Operating Activities
Net loss	$	(591,366	)	$	(132,381	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		872,196			881,205
Inventory write offs		(205	)		—
Stock based compensation		251			8,768
Amortization of debt discount		28,101			37,710
Gain on change in fair value of warrant liability		(9,512	)		(176,718	)
Changes in Assets and Liabilities
Decrease (increase) in accounts receivable		575,377			(304,841	)
Decrease in inventory		637,552			351,486
Increase in deposit with vendor		(111,602	)		—
Decrease in prepaid expenses		33,370			16,451
Increase in right-of-use asset and lease liability		(5,791	)		(4,056	)
Decrease in accounts payable		(1,133	)		(445,738	)
(Decrease) increase in accrued expenses		(60,889	)		110,252
Decrease in accrued interest		(28	)		(96	)
Net Cash Provided by Operating Activities		1,366,321			342,042

Cash Flows from Investing Activities
Purchase of equipment		(309,165	)		(206,615	)

Net Cash Used in Investing Activities		(309,165	)		(206,615	)

Cash Flows from Financing Activities
Repayment of notes payable		(546,783	)		(542,209	)
Payments on auto loan		(11,544	)		(10,922	)

Net Cash Used in Financing Activities		(558,327	)		(553,131	)

Net Increase (decrease) in Cash		498,829			(417,704	)

Cash - Beginning of period		1,486,852			1,619,572

Cash - End of period	$	1,985,681		$	1,201,868

See Notes to Unaudited Consolidated Financial Statements

LIGHTNING GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2023 and 2022 (Continued)

(Unaudited)

	September 30, 2023		September 30, 2022
Supplemental Disclosure of Non-Cash Financing Activities:
Transfers among inventory, equipment and licenses, net	$	319,118	$	189,478

Supplemental Information:
Cash paid for:
Interest	$	376,150	$	449,694
Income taxes	$	1,299	$	1,533

See Notes to Unaudited Consolidated Financial Statements

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

September 30, 2023

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

Nature of Business

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

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

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

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

Basis of Presentation

The unaudited interim consolidated financial statements contained herein should be read in conjunction with the Company’s annual report on Form 10-K filed on April 4, 2023 (“Form 10-K”). The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 8.03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, accordingly, do not include all the disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with the Company’s accounting practices described in the Form 10-K but have not been audited. In management’s opinion, the consolidated financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods presented. The consolidated balance sheet data as of December 31, 2022 was derived from the Company’s consolidated audited financial statements. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the entire year.

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. Although the Company realized a net loss, it generated approximately $1,366,000 in cash from operations for the nine months ended September 30, 2023 and has maintained and sustained a working capital surplus. In addition, based on our working capital surplus, financial condition, cash flow projections, anticipated revenues and financing agreements, we believe we have sufficient cash flows to support our operations for the next twelve months, however if supplemental financing becomes necessary, there is no assurance that the Company would be able to obtain such financing, on reasonable and feasible terms, or at all. If the Company needs additional funding and is unable to obtain it, its financial condition would be adversely affected. In that event, it would have to postpone or discontinue planned operations and projects for expansion. The Company’s continuance as a going concern is dependent upon these factors, among others. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

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

Basis of Presentation (Continued)

Cash: For the purposes of reporting the statement of cash flows, the Company considers all cash accounts and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintained and will maintain cash balances with highly reputable financial institutions, which at times throughout the year exceeded the federally insured amount of $250,000. The Company has not experienced any losses from deposits above the federally insured amount and the amount of funds in excess of the federally insured amount was $1,297,352 as of September 30, 2023 and $1,052,654 as of December 31, 2022.

Accounts Receivable and Allowance for Doubtful Accounts: In January 2022, the Company adopted Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, an update issued by the Financial Accounting Standards Board (“FASB”). The update 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 broad 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 Company regularly evaluates the collectability of its trade receivable balances based on a combination of factors. When a customer’s account becomes past due, dialogue is initiated with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to us, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results, financial position, or other material events impacting its business, a specific reserve is recorded for bad debts to reduce the related receivable to the amount expected to be recovered, given all information presently available. Except for this allowance, the Company believes its receivables are collectible. If circumstances related to specific customers change, our estimates of the recoverability of receivables could materially change. Recoveries of receivables previously written off are recorded as revenue when recovered. Delinquency of accounts receivable is determined based on contractual terms, customer payment history, and current creditworthiness. The Company does not charge interest on its past due receivables.

Installments on receivables from sales contracts with maturities greater than one year are classified as long-term accounts receivable.

Under CECL, the Company determined that an allowance of .9% of the outstanding accounts receivable balance was sufficient to cover unexpected credit losses and maintained an allowance of $6,593 as of September 30, 2023 and December 31, 2022. During each of the three and nine months ended September 30, 2023 and 2022, respectively, the Company wrote off $-0- of accounts receivable considered to be uncollectible.

Inventory: Inventory is stated at the lower of cost using the first-in, first-out method, or net realizable value. Inventory is routinely evaluated to identify damaged, obsolete, and unusable inventory and for physical inventory differences. An allowance of approximately 5% to 10% of the parts balance is maintained to account for obsolescence and physical inventory differences and impaired inventory is written off when necessary. The Company maintained an allowance of $4,210 and $4,416 as of September 30, 2023 and December 31, 2022, respectively.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

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

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

Accounting Standards Codification (“ASC”) 820 – Fair Value Measurement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 further establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques into the following three levels, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs:

	·	Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity can access at the measurement date;

	·	Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities that are observable, either directly or indirectly;

	·	Level 3: Unobservable inputs for the asset or liability, including significant assumptions of the reporting entity and other market participants.

The fair value of and the methodology used by the Company for the warrant liability is discussed in Note 9.

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

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

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

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

	September 30, 2023 (unaudited)		September 30, 2022
Stock options		2,875,000		2,975,000
Warrant		7,000,000		7,000,000
		9,875,000		9,975,000

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 2. Inventory

Inventory consists of the following:

	September 30, 2023 (unaudited)			December 31, 2022
Finished products	$	82,233		$	360,301
Raw materials and work in process		88,704			129,070
Less allowance for inventory obsolescence		(4,210	)		(4,416	)
Inventory, net	$	166,727		$	484,955

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

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

Note 3. Property and Equipment

Property and equipment consist of the following:

	September 30, 2023 (unaudited)			December 31, 2022
Equipment, principally gaming equipment under lease	$	5,858,406		$	5,990,537
Delivery truck		78,247			78,247
Office equipment, furniture and fixtures		88,024			89,162
Leasehold improvements		91,794			91,794
Property and equipment		6,116,471			6,249,740
Less accumulated depreciation and amortization		(4,706,437	)		(3,969,906	)
Property and equipment, net	$	1,410,034		$	2,279,834

Depreciation expense related to the gaming equipment under lease is listed separately in the consolidated Statements of Operations as costs of revenue. Depreciation expense related to all other property and equipment included in the consolidated Statements of Operations was $6,887 and $8,335 for the three months ended September 30, 2023 and 2022, respectively, and $20,885 and $25,929 for the nine months ended September 30, 2023 and 2022, respectively.

Note 4. License Fees

License fees consist of the following:

	September 30, 2023 (unaudited)			December 31, 2022
Purchased licenses	$	398,396		$	410,746
Less accumulated amortization		(397,946	)		(397,946	)
License fees, net	$	450		$	12,800

Under a patent cross license agreement with a licensor amended on November 30, 2021, the Company is required to pay a per unit license fee on games (slot machines) placed in service, each identifiable by a unique serial number.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 4. License Fees (Continued)

In December 2021, the Company paid $32,500 upfront for the first 50 machines to be deployed under the amended agreement, with subsequent fees due and payable on a quarterly basis and based on machines initially deployed in the preceding calendar quarter. The $650 per unit fee for the licenses is added to the cost of slot machines as they are built for sale or lease. The remaining per unit license fee as of September 30, 2023 and December 31, 2022 was $-0- and $12,350, respectively. See Note 8 for further details regarding the patent cross license agreement.

The weighted average useful life of purchased source code licenses is 3 years. All purchased source code licenses are fully amortized.

Note 5. Notes Payable

On November 27, 2019, the Company entered into a Master Loan Agreement (the “Loan”) with PDS Gaming – Nevada, LLC (“PDS - Gaming” or the “Lender”) to make a series of advances under the Loan in the principal amount of up to $7,000,000 in order to (i) re-finance 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 was advanced, in parts, pursuant to the Loan and in the amounts of each Note during the advance period which ran until November 30, 2020. The initial advance was evidenced by a Note in the principal amount of $5,000,000 with monthly payments of $91,616 commencing on January 1, 2020 and maturing on December 1, 2024. On January 29, 2020, the Company closed on Advance 10 under the Loan with PDS Gaming which was evidenced by a Note in the principal amount of $1,000,000. Monthly payments of $18,309 commenced on March 1, 2020, and the Note matures on February 1, 2025. The Notes are prepayable subject to a sliding scale prepayment fee, declining 1% from 4% in the first twelve months to 0% after the 48th month, based on the then-outstanding principal amount of the Note.

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 9 for further details regarding the Warrant.

On the Closing Date, the Company recorded the percentage of the Loan remaining for advance in proportion to the total Loan, i.e. 2/7 ($2,000,000/$7,000,000) or 28.6% or $229,829, as a deferred debt commitment fee which was amortized on a straight-line basis until the end of the advance period which expired on November 30, 2020. In January 2020, a $10,000 loan fee was paid to the Lender and the fee as well as the proportionate amount of the unamortized deferred fee attributable to the $1,000,000 advance of $92,845 were reclassified as debt discount and are being amortized over the life of the advance using the interest method. The balance of the debt discount attributable to the advance taken in January 2020 was $38,006 as of December 31, 2022.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 5. Notes Payable (Continued)

Debt discount of $137,509 was calculated as the cost associated with the debt in proportion to the total cost of the debt that was refinanced or reacquired and is presented as a direct reduction to the value of the debt and is being amortized over the life of the advance using the interest method. The balance of the debt discount attributable to the advance taken on November 27, 2019 was $45,659 as of December 31, 2022.

The Loan is subject to covenant clauses whereby the Company is required to meet certain key financial ratios. Due to the material effect that COVID-19 had on the Company’s revenues, the Lender amended the Loan in September 2020, providing a waiver of compliance with the financial ratio covenants and extending and resetting the compliance with the covenants until the quarter ending June 30, 2021. Due to the continued impact of COVID-19 on the Company’s operations, the Lender executed a second amendment to the Loan in March 2021, which waived compliance with the financial ratio covenants and further extended and reset compliance with the covenants commencing with the quarter ending December 31, 2021. In August 2022, the Lender executed a third amendment which reset the financial ratio covenants through June 30, 2023.

On June 1, 2023, the Lender agreed to the Fourth Amendment of the Loan (the “Amendment”) which combined the two notes payable with a total principal balance then outstanding of $3,703,884 into one, converted the interest rate from a fixed rate of 13% per annum to a floating rate based on the Secured Overnight Financing Rate (“SOFR”) plus the applicable margin rate, which is defined in the Amendment at 7.95%, and extended the maturity date to November 1, 2027, which reduced the monthly payment. Per the agreement, the interest rate and monthly payment will be adjusted monthly based upon fluctuation in the SOFR rate plus the stated applicable margin. The starting rate on June 1, 2023 was 13% and the initial monthly payment of principal and interest was $92,598. In addition, the Lender waived compliance with certain financial covenants for the period ended March 31, 2023, and amended and reset the existing financial ratio covenants through and including the quarter ending December 31, 2024.

The Loan remains in full force and effect in all other aspects except as those defined in the June 1, 2023 Amendment. In addition, there were no changes to the terms or conditions of the Warrant as a result of the Amendment, and no additional fees were paid or incurred.

Under the guidance of Accounting Standards Code (“ASC”) 470-50-40-10, the Amendment is considered a modification and therefore, any fees incurred would be capitalized and amortized as part of the effective yield. Since there were no additional fees incurred, the debt discount remaining as of the Amendment date is considered a cost of the debt reacquired and is shown as a reduction of the carrying value of the amended debt and is being amortized over the remaining term of the Loan. The combined balance of the debt discount attributable to the two advances on the Amendment date was $64,064, and the balance of the debt discount as of September 30, 2023 was $55,599.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 5. Notes Payable (Continued)

As of September 30, 2023 and December 31, 2022, Notes payable, net of debt discount, consist of the following:

	Advance Date	Maturity Date	Note Amount		Monthly Payment		Interest Rate			September 30, 2023 (unaudited)			December 31, 2022

PDS Gaming Advance 9	11/27/2019	12/1/2024	$	5,000,000	$	91,616		13	%	$	—		$	3,303,936
PDS Gaming Advance 10	1/29/2020	2/1/2025	$	1,000,000	$	18,309		13	%		—			652,963
PDS Gaming Note Payable	6/1/2023	11/1/2027	$	3,703,884	$	92,598		13.25	%*		3,438,217			—

Total Notes Payable											3,438,217			3,956,899
Less: amounts classified as current											(665,246	)		(790,371	)
Long-Term Notes Payable										$	2,772,971		$	3,166,528

*As of September 30, 2023, the total interest rate was calculated at 5.3% SOFR plus the applicable margin rate of 7.95%.

The following table lists the future principal payments due on the Note as of September 30, 2023:

Year Ending December 31,		Amount
	Remaining 2023	$	156,665
	2024		690,022
	2025		798,393
	2026		920,835
	2027		872,302
		$	3,438,217

The following table provides a breakdown of the interest expense included in the consolidated Statements of Operations related to the Notes payable for the three months ended September 30, 2023 and 2022:

	September 30, 2023 (unaudited)		September 30, 2022

Interest on Notes payable	$	121,151	$	144,744
Amortization of debt discount		6,330		12,522
	$	127,481	$	157,266

The following table provides a breakdown of the interest expense included in the consolidated Statements of Operations related to the Notes payable for the nine months ended September 30, 2023 and 2022:

	September 30, 2023 (unaudited)		September 30, 2022

Interest on Notes payable	$	374,222	$	447,116
Amortization of debt discount		28,066		37,710
	$	402,288	$	484,826

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 6. Auto Loan

On January 30, 2021, the Company financed the purchase of a 2021 Ford F-650 box truck to be used as its delivery truck. The purchase price of the truck of $78,248 was financed with Ford Credit (“FC”) for a term of sixty months at an annual percentage rate of 5.54%. Monthly payments of $1,500 commenced March 16, 2021. Interest expense included in the consolidated Statements of Operations related to the auto loan for the three months ended September 30, 2023 and 2022 was $596 and $808, respectively. Interest expense related to the auto loan for the nine months ended September 30, 2023 and 2022 was $1,928 and $2,482, respectively.

As of September 30, 2023 and December 31, 2022, the principal balance of the auto loan was as follows:

	September 30, 2023 (unaudited)			December 31, 2022
Total Auto Loan	$	40,605		$	52,149
Less: amounts classified as current		(16,156	)		(15,504	)
Long-Term Portion of Auto Loan	$	24,449		$	36,645

The following table lists the future principal payments due to FC on the auto loan as of September 30, 2023:

Year Ending December 31,		Amount
	Remaining 2023	$	3,957
	2024		16,378
	2025		17,313
	2026		2,957
		$	40,605

Note 7. Leases

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

On September 30, 2020, the right-of-use asset and corresponding lease liability of $462,858 were recorded to account for the second amendment to the lease.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 7. Leases (Continued)

The following table summarizes the right-of-use asset and lease liability as of September 30, 2023:

Office lease right-of-use asset	$	462,858
Less accumulated amortization		(205,169	)
Balance of right-of-use asset	$	257,689

Lease Liability
Current	$	90,835
Long-term		202,675
	$	293,510

Lease expense for the three months ended September 30, 2023 and 2022 was $42,230 and $40,654, respectively, and lease expense for the nine months ended September 30, 2023 and 2022 was $131,898 and $121,776, respectively.

The following table summarizes the Company’s scheduled future minimum lease payments as of September 30, 2023:

Year Ended December 31:
Remaining 2023	$	27,758
2024		111,612
2025		113,925
2026		77,106
Minimum lease payments		330,401
Less: imputed interest		(36,891	)
Present value of minimum lease payments		293,510
Less: current maturities of lease liability		(90,835	)
Long-term lease liability	$	202,675

As of September 30, 2023 and December 31, 2022, the weighted-average remaining lease term for the building lease was 2.9 years and 3.7 years, respectively. Due to the fact that we do not have access to the rate implicit in the lease, we utilized our incremental borrowing rate as the discount rate. The weighted average discount rate associated with the lease as of September 30, 2023 and December 31, 2022 was 8%.

Note 8. Commitments

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

On March 10, 2020 and October 13, 2020, the Company and a licensor amended the terms under a patent cross license agreement 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. The March 2020 amendment removed the upfront per unit license fee in the original agreement and replaced it with a quarterly un-recoupable fee of $45,000 payable within fifteen days after the end of each calendar quarter

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 8. Commitments (Continued)

and removed all audit provisions. The amendment was to terminate after five years from October 1, 2019, or September 30, 2024. The October 2020 amendment allowed the Company to defer the payment of the quarterly fees according to the deferred payment schedule delineated in the amendment, extended the termination of the agreement to December 31, 2024, increased the final four quarterly payments to $50,000 and extended the final four quarterly payments beyond the termination date to 2025.

On November 30, 2021, the agreement was further amended reverting to a per unit fee on games and stipulates that fees are due and payable on a quarterly basis based on games initially deployed in the preceding calendar quarter. See Note 4 for further details regarding the patent cross license agreement.

Note 9. Stockholders’ Equity

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

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

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

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

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 9. Stockholders’ Equity (Continued)

Stock Option Plan (Continued)

A summary of option transactions in 2023 under the 2016 Plan is as follows:

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2022		2,975,000		$	0.13
Options granted		—			—
Options exercised		—			—
Options cancelled		(100,000	)		0.13
Options outstanding at September 30, 2023		2,875,000		$	0.13
Options available for grant under the 2016 Plan at September 30, 2023		2,825,000

Stock-based compensation expense is recognized in the consolidated Statements of Operations based on awards ultimately expected to vest and may be reduced for estimated forfeitures. Additional compensation expense arising from the modification of the exercise price was recognized over the vesting period. Compensation expense related to stock options for the three months ended September 30, 2023 and 2022 was $75 and $93, respectively. Compensation expense related to stock options for the nine months ended September 30, 2023 and 2022 was $251 and $8,768, respectively.

The following table summarizes information with respect to stock options outstanding at September 30, 2023:

	Options Outstanding				Vested Options
		Weighted
		Average	Weighted			Weighted	Weighted
		Remaining	Average	Aggregate		Average	Average	Aggregate
		Contractual	Exercise	Intrinsic		Contractual	Exercise	Intrinsic
	Number	Life (Years)	Price	Value	Number	Term (Years)	Price	Value
2016 Plan	2,875,000	3.6	$0.13	-	2,810,000	3.5	$0.13	-

The following table summarizes information with respect to stock options outstanding at December 31, 2022:

	Options Outstanding				Vested Options
		Weighted
		Average	Weighted			Weighted	Weighted
		Remaining	Average	Aggregate		Average	Average	Aggregate
		Contractual	Exercise	Intrinsic		Contractual	Exercise	Intrinsic
	Number	Life (Years)	Price	Value	Number	Term (Years)	Price	Value
2016 Plan	2,975,000	4.3	$0.13	-	2,885,000	4.2	$0.13	-

As of September 30, 2023, there was approximately $689 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 2.5 years at an estimated forfeiture rate of 0% for executives and 20% for non-executives.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 9. Stockholders’ Equity (Continued)

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

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

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

The fair value of the warrant is estimated using the Black-Scholes pricing model and is recognized as a liability in the accompanying consolidated Balance Sheets. The following assumptions were used to determine the fair value of the Warrant at September 30, 2023 and December 31, 2022:

	September 30, 2023			December 31, 2022
Stock price	$	0.11		$	0.10
Exercise price	$	0.05		$	0.05
Weighted average volatility		51.8	%		70.4	%
Expected dividend yield		—			—
Expected term (in years)		6.2			6.9
Weighted average risk free interest rate		4.6	%		4.0	%

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

Based on the volatility in stock price of the comparable public companies and the calculation of the CV per the formula above, the resulting stock price of $0.11 and $0.10 price per share was used in the Black Scholes model to determine fair value of the Warrant at September 30, 2023 and December 31, 2022, respectively.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 9. Stockholders’ Equity (Continued)

Warrants (Continued)

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

	Warrant Liability
Balance at December 31, 2022	$	573,436
Net change in fair value		(174,471	)
Balance at March 31, 2023		398,965
Net change in fair value		43,845
Balance at June 30, 2023		442,810
Net change in fair value		121,114
Balance at September 30, 2023	$	563,924

The following table is a summary of the Warrant activity for the nine months ended September 30, 2023:

	Shares		Weighted Average Exercise Price
Warrants at December 31, 2022		7,000,000	$	0.05
Warrants granted		—		—
Warrants exercised		—		—
Warrants cancelled		—		—
Warrants at September 30, 2023		7,000,000	$	0.05
Warrants exercisable at September 30, 2023		7,000,000

The following table summarizes information with respect to the Warrant outstanding at September 30, 2023:

Warrant Outstanding
	Weighted
	Average	Weighted
	Remaining	Average	Aggregate
	Contractual	Exercise	Intrinsic
Shares	Life (Years)	Price	Value
7,000,000	6.2	$0.05	-

The following table summarizes information with respect to the Warrant outstanding at December 31, 2022:

Warrant Outstanding
	Weighted
	Average	Weighted
	Remaining	Average	Aggregate
	Contractual	Exercise	Intrinsic
Shares	Life (Years)	Price	Value
7,000,000	6.9	$0.05	-

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 9. Stockholders’ Equity (Continued)

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

	September 30, 2023		September 30, 2022
Common Stock		7,000,000		7,000,000
Nonvoting Common Stock		2,875,000		2,975,000

The following table presents the changes in stockholders’ equity for the three and nine months ended September 30, 2023:

	Common Stock				Nonvoting Common Stock				Additional Paid In		Accumulated			Treasury Stock
	Shares		Amount		Shares		Amount		Capital		Deficit			Shares		Amount			Total
Balances at December 31, 2022		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,371	$	(30,066,663	)		266,902	$	(20,811	)	$	607,114
Net loss		—		—		—		—		—		(167,026	)		—		—			(167,026	)
Stock based compensation		—		—		—		—		92		—			—		—			92
Balances at March 31, 2023		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,463	$	(30,233,689	)		266,902	$	(20,811	)	$	440,180
Net loss		—		—		—		—		—		(181,267	)		—		—			(181,267	)
Stock based compensation		—		—		—		—		84		—			—		—			84
Balances at June 30, 2023		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,547	$	(30,414,956	)		266,902	$	(20,811	)	$	258,997
Net loss		—		—		—		—		—		(243,073	)		—		—			(243,073	)
Stock based compensation		—		—		—		—		75		—			—		—			75
Balances at September 30, 2023		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,622	$	(30,658,029	)		266,902	$	(20,811	)	$	15,999

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 9. Stockholders’ Equity (Continued)

The following table presents the changes in stockholders’ equity for the three and nine months ended September 30, 2022:

	Common Stock				Nonvoting Common Stock				Additional Paid In		Accumulated			Treasury Stock
	Shares		Amount		Shares		Amount		Capital		Deficit			Shares		Amount			Total
Balances at December 31, 2021		4,916,285	$	4,917		33,300,000	$	33,300	$	30,647,509	$	(29,917,052	)		266,902	$	(20,811	)	$	747,863
Net loss		—		—		—		—		—		(95,197	)		—		—			(95,197	)
Stock based compensation		—		—		—		—		8,570		—			—		—			8,570
Balances at March 31, 2022		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,079	$	(30,012,249	)		266,902	$	(20,811	)	$	661,236
Net income		—		—		—		—		—		52,699			—		—			52,699
Stock based compensation		—		—		—		—		105		—			—		—			105
Balances at June 30, 2022		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,184	$	(29,959,550	)		266,902	$	(20,811	)	$	714,040
Net loss		—		—		—		—		—		(89,883	)		—		—			(89,883	)
Stock based compensation		—		—		—		—		93		—			—		—			93
Balances at September 30, 2022		4,916,285	$	4,917		33,300,000	$	33,300	$	30,656,277	$	(30,049,433	)		266,902	$	(20,811	)	$	624,250

Note 10. Revenue

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

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.

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 10. Revenue (Continued)

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 may be 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 may also be 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.

A contract asset is recorded when the performance obligations of the Company have been met and the customer has not been billed. A contract liability is recorded when the Company has an obligation to transfer products or services to a customer for which consideration has been received. As of September 30, 2023 and December 31, 2022, respectively, there were no performance obligations outstanding and there was no revenue expected to be recognized in future periods related to performance obligations. As such, there were no contract liabilities recorded as of September 30, 2023 or December 31, 2022, respectively.

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

	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Lease and license fees:
Flat daily rate lease	$	604,139	$	624,503	$	1,952,823	$	1,823,137
Participation lease		177,562		283,426		579,562		949,794
License fees		3,570		2,380		10,710		2,380
	$	785,271	$	910,309	$	2,543,095	$	2,775,311
Sales of gaming products and parts:
Slot machine sales	$	437,400	$	309,209	$	715,400	$	1,374,395
Kiosk sales		—		—		131,766		—
Parts and ancillary items sales		35,915		37,573		87,398		82,103
	$	473,315	$	346,782	$	934,564	$	1,456,498

LIGHTNING GAMING, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

September 30, 2023

Note 11. Income from Tax Retention Credits

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted in March 2020 contained a provision that provided an Employee Retention Credit (“ERC”) against certain employment taxes equal to 50% of eligible wages. Qualified wages were capped at $10,000 per employee for wages paid from March 13, 2020 to December 31, 2020 for eligible employers, for a maximum credit of $5,000 per employee for the year. Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (“Tax Relief Act”) enacted in December 2020, certain provisions of the CARES Act were modified with respect to the ERC. The Tax Relief Act increased the credit to 70% of eligible wages capped at $10,000 per employee per quarter or $7,000, extended the application of the ERC to wages paid after December 31, 2020 and before July 1, 2021, and retroactively removed the ERC exclusion for entities that had received PPP loans with the stipulation that wages used for forgiveness under the PPP loan were barred as qualified wages for use in application of the ERC. Under these revised provisions, the Company qualified for application of the ERC. The calculation of qualified wages, which included qualified health plan expenses, for the period March 13, 2020 through June 30, 2021 was completed in February 2022 and the respective employer quarterly federal tax claim for refund forms were submitted. In June 2022, the Company received refunds for the full amount of the ERC claimed of $231,059 plus interest of $2,756.

Note 12. Income Taxes

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

As of September 30, 2023, the Company has available, for federal and state income tax purposes, NOL carryforwards of approximately $15,043,000. $12,773,000 of the NOL carryforwards expire at various times through 2038 and $2,270,000 of the NOLs can be carried forward indefinitely. The utilization of the NOL carryforwards is dependent upon the ability of the Company to generate sufficient taxable income during the carryforward periods. The NOL carryforwards are also subject to certain limitations on their utilization should changes in Company ownership occur. The Company has not recognized any NOL carryforward benefits or other net deferred tax assets in the financial statements.

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

Note 13. Concentration of Risk – Major Customers

The Company generated approximately 24% and 28% of its revenue from its top three customers for each of the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, accounts receivable from two customers represented 37% of total accounts receivable. At December 31, 2022, accounts receivable from two casino customers represented 54% of total accounts receivable. One customer represented 19% of the accounts receivable balance as of September 30, 2023 and one customer represented 36% of the accounts receivable balance as of December 31, 2022.

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

Forward-Looking Statements

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

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

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

The most significant factors affecting our suppliers, customers and employees, and causing disruptions in current and future plans for operations and expansion, revolve around the impact and aftermath of COVID-19. In the wake of COVID-19, customers may continue to lose patrons due to fears about being in public and potential exposure to COVID-19 or future pandemics. Customers may experience significant losses or change their business models due to the COVID-19 outbreak and may terminate their existing contracts or postpone or ultimately cancel future planned orders and contracts due to those losses. Travel may be restricted to certain areas which may limit our ability to obtain new customers or jurisdictions, or to provide services in those areas in which our customers are currently located. We may experience a shortage of labor due to quarantine or prolonged illness within our own organization or at supplier or customer locations.

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

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

Overview

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

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

·	Americana	·	Jungle Book
·	Around the World in 80 Days	·	Jungle Jackpots – Screaming Links
·	Beauty and the Beast	·	Just Jackpots
·	Bierfeier – Screaming Links	·	Lightning Lotto
·	Candy Cash	·	Lucky Shamrock – Screaming Links
·	Captivating Wizards	·	Penny Palooza
·	Cash Flow	·	Prosperous Buddha – Persistent Link
·	Ching Shih	·	Scarabs of Egypt – Screaming Links
·	Cinderella	·	Si Shou
·	Coinolicious-Fortuitous Panda	·	Si Xiang – Screaming Links
·	Crazy 8’s Link Deluxe	·	Slotto
·	Drachma	·	Snow White
·	Duck Dynamite	·	Snow White – Screaming Links
·	Eye of RA – Persistent Link	·	Swamp Fever
·	Fins N Wins	·	Swamp Fever – Persistent Link
·	Fruit Jackpots	·	Swamp Frenzy
·	Fruit Treasure	·	Ultimate Screaming Links – Golden Egg
·	Golden Egg	·	Ultimate Screaming Links – Golden Geigi
·	Goyaate	·	Ultimate Screaming Links – Great Balls of Fire
·	Great Balls of Fire – Screaming Links	·	Vampires Fortune
·	Hao Yun	·	Year of the Horse
·	Hua Mulan – Screaming Links	·	Ye Xian
·	Jackpot Link Deluxe – Jackpot Link Deluxe	·	Zhang Jiao – Screaming Links
·	Jumbo Fish Stacks	·	Zuo Ci – Screaming Links

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

Our slot machines are placed into the market using a daily lease model or a revenue sharing model. We are registered as an approved vendor to distribute products to gaming venues located in 22 state jurisdictions. As of September 30, 2023, we had 261 video slot machines out on lease or revenue share placed in 38 different casinos.

We realized a net loss of $591,366 and generated $1,366,321 in cash from operations in the nine months ended September 30, 2023.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

Revenues

The Company’s revenues for the three months ended September 30, 2023 were $1,259,000 compared to $1,257,000 for the comparable prior year period, an increase of $2,000. Lease and license fees decreased by a net of $125,000 to $785,000 for the three months ended September 30, 2023 as compared to $910,000 for the three months ended September 30, 2022. The decrease is directly attributable to the decrease in the average number of units out on lease as well as the average daily rate on our leased slot machines as a result of the pressure placed on our customers to reduce operating expenses to combat the effects of COVID-19.

Sales of gaming products and related parts increased by $126,000 to $473,000 for the three months ended September 30, 2023 as compared to $347,000 for the three months ended September 30, 2022. The Company sold 24 slot machines, 4 of which were previously out on lease, for $437,000 and had miscellaneous parts sales of $36,000 during the quarter ending September 30, 2023. The Company sold 17 slot machines, 10 of which were previously on lease, for $309,000 and had miscellaneous parts sales of $38,000 during the quarter ending September 30, 2022.

Costs of Revenue

Cost of products sold, which consists of the cost of slot machines and parts inventory sold, for the three months ended September 30, 2023 was $209,000 as compared to $134,000 for the three months ended September 30, 2022, an increase of $75,000 as a result of the increase in unit sales that occurred during the quarter ended September 30, 2023.

Depreciation on slot machine units out on lease decreased $2,000 to $278,000 for the three months ended September 30, 2023 from $280,000 for the three months ended September 30, 2022. This decrease was the result of slot machines that were fully depreciated and sales of slot machines previously out on lease.

License fee costs remained flat at $2,000 during each of the three months ended September 30, 2023 and 2022.

Operating Expenses

Operating expenses decreased a net of $66,000 to $81,000 for the three months ended September 30, 2023, from $147,000 for the three months ended September 30, 2022. This decrease was the result of decreases in all operating expenses across the board, which includes hardware, supplies, repairs, conversion costs, freight and travel, during the quarter ended September 30, 2023, a direct result of the decrease in the number of leased slot machines during the quarter.

Research and Development Expenses

Research and development expenses decreased by $19,000 to $150,000 for the three months ended September 30, 2023, from $169,000 for the three months ended September 30, 2022. Research and development expenses are primarily related to the development of new gaming equipment themes and technology and consist mainly of payroll and related expenses for programmers and graphic artists, software, and consulting fees. This decrease is the direct result of the elimination of a contract position and the reduction in the bonus accrual during the three months ended September 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $528,000 for the three months ended September 30, 2023 versus $583,000 for the three months ended September 30, 2022, a decrease of $55,000. This decrease is attributable to the reduction in the bonus accrual, the reduction in travel, meals, and entertainment associated with the elimination of a regional sales director, and the reduction in professional fees, license fees and lab costs during the quarter ended September 30, 2023 for a total decrease of $57,000. These decreases were offset by the $2,000 increase in rent attributable to the increase in the monthly common area maintenance fee.

Depreciation

Depreciation decreased by $1,000 to $7,000 for the three months ended September 30, 2023, from $8,000 for the three months ended September 30, 2022 due to the elimination of depreciation on assets that were fully depreciated during the quarter.

Interest Expense

Interest expense decreased $30,000 for the three months ended September 30, 2023, from $158,000 for the three months ended September 30, 2022, to $128,000 due to the paydown of principal on the notes payable and auto loan.

Interest Income

Interest income decreased by $1,000, from $4,000 for the three months ended September 30, 2022 to $3,000 for the three months ended September 30, 2023, the result of interest recognized on installment sales.

Gain on Change in Fair Value of Warrant Liability

The estimated fair market value of our common stock increased from $.09 per share to $.11 per share during the three months ended September 30, 2023, a result of the increase in Company value during the quarter versus the previous quarter. This resulted in a loss of $121,000 during the three months ended September 30, 2023. The gain on the change in fair value of the warrant liability of $131,000 during the three months ended September 30, 2022 was due to the decrease in the estimated fair market value of our common stock during the quarter, from $.12 to $.10 per share.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Revenue

The Company’s revenues for the nine months ended September 30, 2023 were $3,478,000 compared to $4,232,000 for the nine months ended September 30, 2022, a decrease of $754,000. Lease and license fees decreased by $232,000 to $2,543,000 for the nine months ended June 30, 2023 as compared to $2,775,000 for the nine months ended September 30, 2022. This decrease was attributable to the decrease in the average number of slot machines out on lease as well as the decrease in daily rate on our leased slot machines as a result of the pressure placed on our customers to reduce operating expenses to combat the effects of COVID-19.

Sales of slot machines and related parts decreased by $521,000 to $935,000 for the nine months ended September 30, 2023 as compared to $1,456,000 for the nine months ended September 30, 2022. The decrease is mainly attributable to slot machine sales made under a distribution agreement that occurred in the nine months ending September 30, 2022, which generated $657,000 in revenues.

Costs of Revenues

For the nine months ended September 30, 2023, cost of products sold decreased $386,000 to $426,000 from $812,000 for the nine months ended September 30, 2022, a direct result of the decrease in sales of slot machines as described above.

Depreciation on slot machine units out on lease decreased by $4,000 to $851,000 for the nine months ended September 30, 2023 from $855,000 for the nine months ended September 30, 2022. This decrease was the result of the elimination of depreciation on slot machines that were fully depreciated offset by depreciation on fixed assets built and placed in service during the latter part of 2022 and the first half of 2023.

License fee costs increased $7,000 to $9,000 during the nine months ended September 30, 2023, from $2,000 for the nine months ended September 30, 2022, the direct result of a recurring license agreement that commenced in August of 2022.

Operating Expenses

Operating expenses decreased $79,000 to $271,000 for the nine months ended September 30, 2023, from $350,000 for the nine months ended September 30, 2022. This decrease was the result of decreases in hardware, supplies, repairs, conversion costs, freight and travel during the nine months ended September 30, 2023, a direct result of the decrease in the number of leased slot machines during the period.

Research and Development Expenses

Research and development expenses decreased by $46,000 to $471,000 for the nine months ended September 30, 2023 from $517,000 for the nine months ended September 30, 2022. 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 and develop new brands. This decrease is the direct result of the elimination of a contract position and the reduction in the bonus accrual during the nine months ended September 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $100,000 to $1,631,000 for the nine months ended September 30, 2023, from $1,731,000 for the nine months ended September 30, 2022. This decrease is attributable to the reduction in the bonus accrual, the reduction in travel, meals, and entertainment associated with the elimination of a regional sales director, and the reduction in professional fees, license fees and lab costs during the nine months ended September 30, 2023, for a total decrease of $112,000. These decreases were offset by the increase in rent, attributable to the increase in the monthly common area maintenance fee and the annual building expense reconciliation charge, totaling $12,000.

Depreciation

Depreciation decreased $5,000, from $26,000 for the nine months ended September 30, 2022 to $21,000 for the nine months ended September 30, 2023. This decrease was the result of the elimination of depreciation on fixed assets that were fully depreciated during the period.

Interest Expense

Interest expense decreased $83,000 for the nine months ended September 30, 2023, from $487,000 for the nine months ended September 30, 2022, to $404,000 as a result of the paydown of principal on the notes payable and auto loan.

Interest Income

Interest income of $8,000 for the nine months ended September 30, 2023 was the result of interest received on installment sales whereas interest income of $9,000 for the nine months ended September 30, 2022 was the result of interest received on the ERC refunds as well as interest on installment sales.

Gain on Change in Fair Value of Warrant Liability

Although the estimated fair market value of our common stock increased from $.10 to $.11 per share during the nine months ended September 30, 2023, a gain was recognized on the change in fair value of the warrant liability of $10,000 during the nine months ended September 30, 2023 from the decrease in the annualized volatility in stock price used in the calculation of the fair value of the warrant. The estimated fair value of our common stock decreased from $.13 to $.12 per share during the nine months ended September 30, 2022. This resulted in a gain in fair value of the warrant liability of $177,000 during the nine months ended September 30, 2022.

Income from Tax Retention Credits

Income from tax retention credits decreased $231,000 for the nine months ended September 30, 2023, from $231,000 for the nine months ended September 30, 2022 to $-0- for the nine months ended September 30, 2023, the result of the refunds received in June 2022 from the Employee Retention Tax credits under the CARES Act.

Liquidity and Capital Resources

We recognized a net loss of $591,000 and funded our working capital investments and capital expenditures associated with our growth strategy with the revenue generated from leases and proceeds from the sales of our gaming products. These transactions that occurred in 2023 and 2022 are described in more detail following the discussion of cash flows below:

Discussion of Statement of Cash Flows

	Nine Months Ended September 30,
	2023			2022			Change
Net cash provided by operating activities	$	1,366,000		$	342,000		$	1,024,000
Net cash used in investing activities		(309,000	)		(206,000	)		(103,000	)
Net cash used in financing activities		(558,000	)		(553,000	)		(5,000	)
Net increase in cash		499,000			(417,000	)	$	916,000
Cash, beginning of year		1,487,000			1,619,000
Cash, end of period	$	1,986,000		$	1,202,000

For the nine months ended September 30, 2023, cash provided by operating activities increased $1,024,000, from $342,000 for the nine months ended September 31, 2022 to $1,366,000. The increase in cash from operating activities was due to the timing of payments to creditors, suppliers and vendors for inventory purchases and license agreements.

Net cash used in investing activities increased by $103,000, from $206,000 used in investing activities for the nine months ended September 30, 2022 to $309,000 used in investing activities for the nine months ended September 30, 2023. Cash used in investing activities is primarily the function of the net investment in property and equipment, principally slot machines used in our operations. This increase in cash used was due to the increase in slot machines built and placed in service during the period.

Net cash used in financing activities was $558,000 for the nine months ended September 30, 2023, versus $553,000 for the nine months ended September 30, 2022, for an increase of $5,000. The increase is directly attributable to the increase in principal payments on the notes and auto loan for the nine months ended September 30, 2023.

Operations and Liquidity Management

For the nine months ended September 30, 2023, we sustained a net loss of $591,000, however we generated $1,366,000 in cash from operating activities and maintained and sustained a working capital surplus.

Due to the effects of the outbreak of the novel coronavirus disease (COVID-19), the Company’s operations have been significantly impacted. In the aftermath of COVID-19, customers may continue to lose patrons due to fears about being in public and potential exposure to COVID-19 or future pandemics. Customers may experience significant losses or change their business models due to the COVID-19 outbreak and may terminate their existing contracts or postpone or ultimately cancel future planned orders and contracts due to those losses. Travel may be restricted to certain areas which may limit our ability to obtain new customers or jurisdictions, or to provide services in those areas in which our customers are currently located. We may experience a shortage of labor due to quarantine or prolonged illness within our own organization or at supplier or customer locations.

The generation of cash flow sufficient to meet our cash needs in the future will depend on our ability to continue to obtain the regulatory approvals required to distribute our products and successfully market them to casinos, the development of new slot machine themes and new cabinets that are appealing to our customers and their patrons, and the lingering effects of COVID-19 on us, our customers, and suppliers.

As of September 30, 2023, our cash balance was $1,986,000 and our current gross cash requirements are approximately $250,000 to $280,000 per month, principally for salaries, professional services, licenses, and operating expenses and $94,000 for debt service. We expect that the effects of COVID-19 on our operations will be temporary and we will continue to have the ability to meet our obligations. Based on our cash flow projections, anticipated revenues, and financing agreements, 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, 2023:

	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years

Lease liability obligations ⁽¹⁾	$	293,510	$	90,835	$	202,675	$	—	$	—
Auto loan ⁽²⁾		40,605		16,156		24,449		—		—
Debt obligations ⁽³⁾		3,438,217		665,246		1,658,444		1,114,527		—
Total	$	3,772,332	$	772,237	$	1,885,568	$	1,114,527	$	—

(1)	Represents operating lease agreement for office and warehouse facility.
(2)	Represents principal payments on auto loan.
(3)	Represents outstanding amounts of notes payable.

Off-Balance Sheet Arrangements

As of September 30, 2023, there were no off-balance sheet arrangements.

Going Concern

The Company’s financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. The Company sustained a net loss for the nine months ended September 30, 2023, however it generated cash from operations and has maintained and sustained a working capital surplus.

The Company is subject to covenant clauses in its Loan Agreement with the Lender whereby it is required to meet certain key financial ratios. Due to the material effect that COVID-19 has on the Company’s revenues, the Lender amended the Loan in September 2020 and again in March 2021, providing a waiver of compliance with the financial ratio covenants and extending and resetting the compliance with the covenants until the quarter ending December 31, 2021. In August 2022, the Lender executed a third amendment which reset the financial ratio covenants through June 30, 2023. Via an amendment to the Loan Agreement on June 1, 2023, the Lender waived compliance with certain financial covenants for the quarter ended March 31, 2023, and amended and reset the existing financial ratios covenants through the quarter ending December 31, 2024. As of September 30, 2023, the Company is in compliance with the amended financial ratio covenants.

We anticipate that the effects of COVID-19 on our operations will be temporary and we will continue to have the ability to meet our obligations, however the Company’s future performance will depend on the effects of COVID-19 in its aftermath and the Company’s ability to distribute its products and successfully market them to more casinos and gaming venues. Based on our current performance, financial condition, cash flow projections, anticipated revenues and financing agreements, we believe we have sufficient cash flows to support our operations for twelve months from the date of this report.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our Chief Executive Officer (“CEO”) and Controller as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 30, 2023, 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, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

None

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

None.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None

Item 6. Exhibits.

EXHIBIT NUMBER			EXHIBIT DESCRIPTION

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

SIGNATURES

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

Date: November 10, 2023

Lightning Gaming, Inc.

By:

/s/ Brian Haveson

Brian Haveson

Chief Executive Officer and Director

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Lightning Gaming 10-Q2023 Q1 Quarterly report

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