Nature of Business and Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

PaymentOnCapitalLease

Nature of Business and Significant Accounting Policies

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

Nature of Business:

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

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

In 2008, the Company, as the sole member, established Lightning Slot Machines, LLC (“Lightning Slots”) through which it commenced the design, manufacture, marketing, sale and operation of video slot machines to customers in various gaming jurisdictions. The current slot machine products are:

·	Popeye	·	Jumbo Fish Stacks
·	Popeye’s Bonus Voyage	·	Jungle Book
·	Popeye’s Seven Seas	·	Jungle Jackpots
·	Olive Oyl’s Jumbo Stacks	·	Just Jackpots
·	Flash Gordon	·	Lightning Lotto
·	Garfield	·	Penny Palooza
·	Around the World in 80 Days	·	Screaming Links Multi
·	Beauty and the Beast	·	Si Shou
·	Candy Cash	·	Si Xiang
·	Cash Flow	·	Slotto
·	Cinderella	·	Snow White
·	Duck Dynamite	·	Swamp Fever
·	Fins N Wins	·	Swamp Frenzy
·	Golden Egg	·	Vampires Fortune
·	Goyaate	·	Year of the Horse
·	Great Balls of Fire	·	Ye Xian
·	Hao Yun	·	Zhang Jiao
·	Hua Mulan	·	Zuo Ci

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

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

Basis of Presentation:

The unaudited interim financial statements contained herein should be read in conjunction with the Company’s annual report on Form 10-K filed on March 28, 2019 (“Form 10-K”). The accompanying interim financial statements are presented in accordance with the requirements of Article 8.03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, accordingly, do not include all the disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) with respect to annual financial statements. The interim consolidated condensed financial statements have been prepared in accordance with the Company’s accounting practices described in the Form 10-K but have not been audited. In management’s opinion, the financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods presented. The balance sheet data as of December 31, 2018 was derived from the Company’s audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the entire year.

The accompanying consolidated condensed 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 had net income for the three months ended March 31, 2019, realized a significant increase in revenue for the period ending March 31, 2019 versus March 31, 2018, and has maintained and sustained working capital surpluses. The generation of cash flow sufficient to meet the Company’s cash needs in the future will depend on the Company’s ability to distribute its products and successfully market them to more casinos and gaming venues. The Company has increased the number of lease contracts during 2019, and 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 the next twelve months, however if supplemental financing becomes necessary, there is no assurance that the Company would be able to obtain such financing, on reasonable and feasible terms, or at all. If the Company needs additional funding and is unable to obtain it, its financial condition would be adversely affected. In that event, it would have to postpone or discontinue planned operations and projects for expansion. The Company’s continuance as a going concern is dependent upon these factors, among others. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

During the most recent fiscal quarter, the Company adopted Accounting Standard Codification 842 (“ASC 842”) with regards to lease accounting as described more fully below.

The Company has a reserve for uncollectible accounts of $14,217 and $6,593 as of March 31, 2019 and December 31, 2018, respectively. Except for this reserve, the Company believes its receivables are collectible. If circumstances related to specific customers change, our estimates of the recoverability of receivables could materially change. Recoveries of receivables previously written off are recorded as revenue when recovered. Delinquency of accounts receivable is determined based on contractual terms. The Company does not charge interest on its past due receivables. During the three months ended March 31, 2019 and 2018, respectively, the Company wrote off $7,624 and $-0- considered to be uncollectible.

Recent Accounting Pronouncements

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

For finance leases, lessees are required to:

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

For operating leases, lessees are required to:

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

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

The amendments in this update as well as the targeted and codification improvements issued in July 2018, became effective for fiscal and interim periods beginning after December 15, 2018. The Company adopted this guidance, referred to as ASC 842, effective January 1, 2019 using the optional transition method and has elected the package of practical expedients permitted under the transition guidance which allows, among other things, the carryforward of the historical lease classification. In addition, the Company has elected to use the hindsight practical expedient to determine the lease term for existing leases, and has elected to keep leases with a term of 12 months or less off of the balance sheet.

The Company has determined that one lease agreement for its corporate offices, as described in more detail in Note 6, Leases, falls under the scope of this guidance as an operating lease. A balance sheet adjustment to record the amounts remaining on the lease as the Right-of-Use Asset, Lease Liability and to eliminate the balance remaining in the deferred rent as of January 1, 2019 was made and there was no effect to prior periods. Payments under this lease are recognized in the consolidated condensed Statements of Operations on a straight-line basis.

In November 2016, the FASB issued an update under the Statement of Cash Flows topic which applies to entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts described as restricted cash or restricted cash equivalents, and that the amounts generally described as restricted cash and restricted cash equivalents be included in the beginning-of-period and end-of-period total amounts shown on the statement.

The amendments in this update became effective for interim periods and fiscal years beginning after December 15, 2017 and did not have a material impact on our financial statements.