Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | |
Dec. 31, 2023 | Mar. 29, 2024 | |
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, 2023 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Public Float | $ 4,649,383 | |
Entity Common Stock, Shares Outstanding | 4,649,383 | |
Document Fiscal Period Focus | FY | |
Document Fiscal Year Focus | 2023 | |
EntityEmergingGrowthCompany | false | |
Entity Small Business | true | |
Entity Interactive Data Current | Yes | |
Entity Incorporation State Country Code | NV | |
Entity File Number | 000-52575 | |
AuditorName | Assurance Dimensions | |
AuditorLocation | Margate, Florida, USA | |
AuditorFirmId | 5036 | |
EntityVoluntaryFilers | No | |
EntityPublicFloat | $ 4,649,383 | |
EntityShellCompany | false | |
EntityWellKnownSeasonedIssuer | No |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2023 | Dec. 31, 2022 |
ASSETS | ||
Cash | $ 1,722,323 | $ 1,486,852 |
Accounts receivable, net | 544,371 | 912,090 |
Inventory | 363,995 | 484,955 |
Prepaid expenses | 161,483 | 168,024 |
Total Current Assets | 2,792,172 | 3,051,921 |
Property, Plant and Equipment, net | 1,030,971 | 2,279,834 |
Other Assets | 8,193 | 8,193 |
License Fees, net of accumulated amortization | 13,450 | 12,800 |
Total Assets | 4,233,593 | 5,763,487 |
Liabilities and Stockholders' Deficit | ||
Accounts payable | 86,067 | 51,378 |
Accrued expenses | 85,552 | 167,058 |
Current portion of long term notes payable | 689,366 | 790,371 |
Interest payable | 64 | 93 |
Total Current Liabilities | 970,675 | 1,108,288 |
Long Term Debt and Other Liabilities | ||
Long term notes payable | 2,592,264 | 3,166,528 |
Interest payable and other liabilities | 20,268 | 36,645 |
Other long term liabilities | 178,230 | 271,476 |
Fair value of warrants and convertibility feature of long term debt | 358,964 | 573,436 |
Total Long Term Debt and Other Liabilities | 3,149,726 | 4,048,085 |
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, 2022 and 2021 | ||
Common stock: $0.001 par value; authorized 90,000,000 shares; 4,916,285 shares issued; 4,649,383 outstanding at December 31, 2022 and 2021 | 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, 2022 and 2021 | 33,300 | 33,300 |
Additional paid in capital | 30,656,697 | 30,656,371 |
Accumulated deficit | (30,560,911) | (30,066,663) |
Treasury stock, 266,902 shares at cost | (20,811) | (20,811) |
Total Stockholders' Equity | 113,192 | 607,114 |
Total Liabilities and Stockholders' Equity | $ 4,233,593 | $ 5,763,487 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2023 | Dec. 31, 2022 |
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 | 4,649,383 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) | 12 Months Ended | |
Dec. 31, 2023 | Dec. 31, 2022 | |
Costs and operating expenses | ||
Cost of products sold | $ 552,679 | $ 1,158,659 |
Operating expenses | 377,207 | 460,732 |
Research and development | 625,357 | 641,584 |
Selling, general & administrative expenses | 2,121,531 | 2,278,050 |
Depreciation and amortization | 28,093 | 33,144 |
Total costs and operating expenses | 3,152,188 | 3,413,510 |
Operating income (loss) | (187,378) | 106,018 |
Non-operating income (expense) | ||
Net interest expense | (527,540) | (638,854) |
Change in value of warrants | 214,472 | 140,914 |
Other income (expense) | 231,059 | |
Net income | $ (494,248) | $ (1,496,611) |
Net loss per common share including Series A Nonvoting shares-basic and diluted | $ (0.01) | $ 0 |
Weighted average Series A Nonvoting shares outstanding-basic and diluted | 33,300,000 | 33,300,000 |
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 |
License and Service Fees | ||
Revenues | ||
Revenues | $ 3,169,260 | $ 3,758,502 |
Sales of Gaming Products and Parts | ||
Revenues | ||
Revenues | $ 1,463,403 | $ 2,062,236 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 12 Months Ended | |
Dec. 31, 2023 | Dec. 31, 2022 | |
Changes in Assets and Liabilities | ||
Decrease in accounts receivable | $ 314,069 | $ (227,436) |
Decrease in inventories | 547,477 | 597,026 |
Increase (decrease) in accounts payable | 34,688 | (467,861) |
Increase in accrued expenses | (81,506) | 41,474 |
Decrease in fair value of warrants and convertible feature of long term debt | (214,472) | (140,914) |
NET CASH USED IN OPERATING ACTIVITES | 1,269,589 | 920,286 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of equipment | (309,165) | (304,843) |
Proceeds from sale of fixed assets | ||
Decrease in license fees | ||
Net cash Used in Investing activities | (309,165) | (304,843) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net proceeds from issuance of Notes | (709,452) | (733,495) |
Payment on capital lease | (15,501) | (14,668) |
Net cash provided by financing activities | (724,953) | (748,163) |
Net Increase (Decrease) in Cash | 233,471 | (132,720) |
Cash - Beginning of period | 1,486,852 | 1,619,572 |
Cash - End of period | 1,722,323 | 1,486,852 |
Supplemental Disclosure of Non-Cash Financing Activities: | ||
Inventory transferred to fixed assets | 426,312 | 247,717 |
Issuance of convertible debt option | ||
Cash paid for interest | $ 588,937 | $ 588,937 |
Nature of Business and Signific
Nature of Business and Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2023 | |
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. 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 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. For the year ended December 31, 2023, the Company recognized a net loss of $494,248 however it generated cash flows from operations, has sufficient inventory to fill outstanding lease and sales orders, and has maintained and sustained working capital surpluses. Although the Company’s leasing revenues experienced a decline during the year, sales of slot machines helped to fill the gap in revenues and profits. Aggressive expense management has been and continues to be employed to mitigate the effects that the lower revenues have had on performance. Although we realized a net loss for the year ended December 31, 2023, 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. 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 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. For the years 2023 and 2022, there was no revenue generated from customers outside the United States. Four casino customers accounted for 31% and 36% of our revenues for the years ended December 31, 2023 and 2022, respectively. One casino group represented 15% and 17% of total revenues for each of the years ended December 31, 2023 and 2022, respectively. For each of the years ended December 31, 2023 and 2022, 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, allowance for doubtful accounts, valuation of warrant liability fair value and projected cash flows. Cash Concentrations of Credit Risk Receivables and Allowance for Doubtful Accounts The Company regularly evaluates the collectability of its trade receivable balances based on a combination of factors. When a customer’s account becomes past due, dialogue is initiated with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to us, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results, financial position, or other material events impacting its business, a specific reserve is recorded for bad debts to reduce the related receivable to the amount expected to be recovered, given all information presently available. 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. Under CECL, the Company determined that a weighted average reserve of 0.7% of the outstanding accounts receivable balance was sufficient to cover unexpected credit losses and maintained an allowance of $6,593 as of December 31, 2023 and 2022, respectively. During each of the years ended December 31, 2023 and 2022, respectively, the Company wrote off $-0- of accounts receivable considered to be uncollectible. During the years ended December 31, 2023 and 2022, respectively, sales contracts totaling $526,000 and $673,500 were sold on an installment basis, with downpayments due upon receipt at 50% of the total contract amount or a set dollar amount, and the remaining balances due in 24 equal monthly installments. The Company records the installments receivable net of an implied or stated interest rate, and recognizes interest income as the installments are paid. At December 31, 2023, installments receivable totaled $346,080, $150,644 of which have maturities greater than one year and are classified as long-term accounts receivable. At December 31, 2022, installments receivable totaled $370,638 with $96,992 classified as long-term accounts receivable. Interest income on installments totaled $10,768 and $9,996 for the year ended December 31, 2023 and 2022, respectively. At December 31, 2023, accounts receivable from two casino customers represented 61% of total accounts receivable. At December 31, 2022, two casino customers represented 54% of total accounts receivable. One customer represented 49% and 36% of the total accounts receivable balance as of December 31, 2023 and 2022, respectively. License Fees: Patents Research and Development product costs associated with the development of our products. As of December 31, 2023 and 2022, no amounts had been capitalized. 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 9 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 2023 and 2022 related to unrecognized tax benefits. There is no accrual for interest or penalties as of December 31, 2023 and 2022. 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, 2020 and thereafter are subject to examination by the relevant taxing authorities. Advertising Impairment of Long-Lived Assets - Liquidity The 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 operations on a going concern basis for at least the next twelve months from the date these financial statements are issued. Stock Option Plans Note 9 Warrants: Notes 5 9 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, December 31, Stock options 2,875,000 2,975,000 Warrants 7,000,000 7,000,000 9,875,000 9,975,000 |
Inventory
Inventory | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Inventory | Note 2. Inventory Inventory consisted of the following: December 31, December 31, 2022 Finished products $ 273,136 $ 360,301 Raw materials 95,069 129,070 Less allowance for inventory obsolescence (4,210 ) (4,416 ) Inventory, net $ 363,995 $ 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. |
Property and Equipment
Property and Equipment | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Property and Equipment | Note 3. Property and Equipment Property and equipment consisted of the following: December 31, December 31, Equipment, principally gaming equipment $ 4,945,521 $ 5,990,537 Delivery truck 78,247 78,247 Furniture and fixtures 88,024 89,162 Leasehold improvements 91,794 91,794 Property and equipment 5,203,586 6,249,740 Less accumulated depreciation (4,172,615 ) (3,969,906 ) Property and equipment, net $ 1,030,971 $ 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 $28,093 and $33,144 for the years ended December 31, 2023 and 2022, respectively. |
License Fees
License Fees | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
License Fees | Note 4. License Fees License fees consist of the following: December 31, December 31, Purchased licenses $ 360,160 $ 410,746 Less accumulated amortization (346,710 ) (397,946 ) License fees, net $ 13,450 $ 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. In December 2021, the Company paid $32,500 upfront for the first 50 machines 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 fees as of December 31, 2023 and 2022 was $13,000 and $12,350, respectively. See Note 8 The weighted average useful life of purchased source code licenses is 3 years. All purchased source code licenses are fully amortized. |
Notes Payable
Notes Payable | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Notes Payable | 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 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. 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 December 31, 2023 was $49,522. As of December 31, 2023 and 2022, Notes payable, net of debt discount, consist of the following: Advance Date Maturity Date Note Amount Monthly Payment Interest Rate December 31, 2023 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 $ 93,221 13.33 %* 3,281,630 Total Notes Payable 3,281,630 3,956,899 Less: amounts classified as current (689,366 ) (790,371 ) Long-Term Notes Payable $ 2,592,264 $ 3,166,528 *As of December 31, 2023, the total interest rate was calculated at 5.38% SOFR plus the applicable margin rate of 7.95%. The following table lists the future principal payments due on the Note as of December 31, 2023: Year Ending December 31, Amount 2024 $ 689,366 2025 798,277 2026 921,421 2027 872,566 $ 3,281,630 The following table provides a breakdown of the interest expense related to the Notes payable and Auto Loan as included in the consolidated Statements of Operations: Year ended December 31, 2023 2022 Interest on Notes payable $ 490,928 $ 585,605 Interest on Auto Loans (See Note 6 2,470 3,238 Amortization of debt discount 34,142 50,011 $ 527,540 $ 638,854 |
Auto Loan
Auto Loan | 12 Months Ended |
Dec. 31, 2023 | |
Accounting Policies [Abstract] | |
Auto Loan | 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 in the consolidated Statements of Operations related to the auto loan for the years ended December 31, 2023 and 2022, respectively, was $2,470 and $3,238. As of December 31, 2023 and 2022, the principal balance of the auto loan was as follows: December 31, 2023 December 31, 2022 Total Auto Loan $ 36,648 $ 52,149 Less: amounts classified as current (16,380 ) (15,504 ) Long-Term Portion of Auto Loan $ 20,268 $ 36,645 The following table lists the future principal payments due to FC on the auto loan as of December 31, 2023: Year Ending December 31, Amount 2024 $ 16,380 2025 17,313 2026 2,955 $ 36,648 |
Leases
Leases | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Note Payable Related Party | 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. The following table summarizes the right-of-use asset and lease liability as of December 31, 2023: Office lease right-of-use asset $ 462,858 Less accumulated amortization (224,695 ) Balance of right-of-use asset $ 238,163 Lease Liability Current $ 93,246 Long-term 178,230 $ 271,476 Lease expense for the years ended December 31, 2023 and 2022 was $174,128 and $157,004, respectively. The following table summarizes the Company’s scheduled future minimum lease payments as of December 31, 2023: Year Ended December 31: 2024 $ 111,612 2025 113,925 2026 77,106 Minimum lease payments 302,643 Less: imputed interest (31,167 ) Present value of minimum lease payments 271,476 Less: current maturities of lease liability (93,246 ) Long-term lease liability $ 178,230 As of December 31, 2023 and 2022, the weighted-average remaining lease term for the building lease was 2.7 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 December 31, 2023 and 2022 was 8%. |
Commitments
Commitments | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Commitments | Note 8. Commitments and Contingencies 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 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 |
Stockholders Equity
Stockholders Equity | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Stockholders' Deficit | Note 9. Stockholders’ Equity Stock Option Plan 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 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 2023 and 2022 under the 2016 Plan is as follows: Shares Weighted Average Exercise Price Options outstanding at December 31, 2021 2,975,000 $ 0.13 Options granted — — Options exercised — — Options cancelled — — Options outstanding at December 31, 2022 2,975,000 $ 0.13 Options granted — — Options exercised — — Options cancelled (100,000 ) 0.13 Options outstanding at December 31, 2023 2,875,000 $ 0.13 Options available for grant under the 2016 Plan at December 31, 2023 2,825,000 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 is being recognized over the vesting period. Expense relating to the stock option plans was $326 and $8,862 for the years ended December 31, 2023, and 2022, respectively. The following table summarizes information with respect to stock options outstanding at December 31, 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 3.3 $0.13 - 2,810,000 3.3 $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 December 31, 2023, there was approximately $465 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 2.6 years at an estimated forfeiture rate of 0% for executives and 20% for non-executives. Warrant *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 December 31, 2023 and 2022: December 31, 2023 December 31, Stock price $ 0.08 $ 0.10 Exercise price $ 0.05 $ 0.05 Weighted average volatility 50.5 % 70.4 % Expected dividend yield — — Expected term (in years) 5.9 6.9 Weighted average risk-free interest rate 3.8 % 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 $0.08 and $0.10 price per share was used in the Black Scholes model to determine fair value of the Warrant at December 31, 2023 and 2022, respectively. 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, 2021 $ 714,350 Net change in fair value (140,914 ) Balance at December 31, 2022 573,436 Net change in fair value (214,472 ) Balance at December 31, 2023 $ 358,964 The following table is a summary of the Warrant activity for the years ended December 31, 2023 and 2022: Shares Weighted Average Exercise price Warrants at December 31, 2021 7,000,000 $ 0.05 Warrants granted — — Warrants exercised — — Warrants cancelled — — Warrants at December 31, 2022 7,000,000 $ 0.05 Warrants granted — — Warrants exercised — — Warrants cancelled — — Warrants at December 31, 2023 7,000,000 $ 0.05 Warrants exercisable at December 31, 2023 7,000,000 The following table summarizes information with respect to the Warrant outstanding at December 31, 2023: Warrant Outstanding Weighted Average Weighted Remaining Average Aggregate Contractual Exercise Intrinsic Shares Life (Years) Price Value 7,000,000 5.9 $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 - |
Revenue
Revenue | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Revenue | Note 10. Revenue The following table provides a breakdown of the revenue by category as included in the consolidated Statements of Operations: Year ended December 31, 2023 2022 Lease, license and service fees: Flat daily rate lease $ 2,434,652 $ 2,545,605 Participation lease 715,228 1,206,947 Placement and license fees 19,380 5,950 $ 3,169,260 $ 3,758,502 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, 2023 2022 Sales of gaming products and parts: Slot machine sales $ 1,235,039 $ 1,956,396 Kiosk sales 131,766 — Parts and ancillary items sales 96,598 105,840 $ 1,463,403 $ 2,062,236 |
Other Income
Other Income | 12 Months Ended |
Dec. 31, 2023 | |
Other Income and Expenses [Abstract] | |
Other Income | Note 11. Income from Employee 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 income of $2,756. |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Income Taxes | Note 12. Income Taxes The components of the income tax provision for the years ended December 31, 2023 and 2022 are as follows: Year ended December 31, 2023 2022 Current tax expense: Federal $ — $ — State 4,569 1,500 $ 4,569 $ 1,500 Deferred tax benefit: Federal $ 129,000 $ 50,000 State 67,000 27,000 Valuation allowance (196,000 ) (77,000 ) $ — $ — Net deferred tax assets consist of the following components as of December 31, 2023 and 2022: Year ended December 31, 2023 2022 Deferred tax asset: Net operating loss carryforward $ 4,319,000 $ 4,271,000 Accounts receivable allowance 2,000 2,000 Property and equipment (248,000 ) (389,000 ) Accrued expenses 274,000 265,000 Impairment charge 211,000 211,000 Start-up costs 3,000 3,000 Stock based compensation 133,000 133,000 Inventory allowance 1,000 1,000 Other (36,000 ) (34,000 ) 4,659,000 4,463,000 Less valuation allowance (4,659,000 ) (4,463,000 ) 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, 2023 and 2022. Year ended December 31, 2023 2022 Federal tax benefit at statutory rate $ (104,000 ) $ (31,000 ) State tax benefit net of federal taxes (33,431 ) (10,500 ) Warrant valuation (62,000 ) (41,000 ) Other 8,000 7,000 Increase in valuation allowance 196,000 77,000 Income tax expense $ 4,569 $ 1,500 As of December 31, 2023, the Company has available, for federal and state income tax purposes, net operating loss (“NOL”) carryforwards of approximately $14,997,000. $12,773,000 of the NOL carryforwards expire at various times through 2038 and $2,224,000 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 current financial statements. The current tax expense represents the amount of estimated minimum state taxes payable. |
Recent Pronouncements
Recent Pronouncements | 12 Months Ended |
Dec. 31, 2023 | |
PaymentOnCapitalLease | |
Related Party | Note 13. Recently Issued Pronouncements 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 became effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. In January 2022, the Company adopted this update which did not have a material impact on our financial statements. All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position. There have been no new accounting pronouncements not yet effective that have significance to our consolidated financial statements. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2023 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 14. Subsequent Event As disclosed in Note 5. Notes Payable |