Form 10-Q


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended March 31, 2010o Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934For the transition period __________  to __________





Commission File Number: 000-52575Lightning 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)(Former name, former address and former fiscal year, if changed since last report)





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  xNo   ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈





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





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





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: 4,652,474 common shares as of  May 10, 2010; 500,000 Series A Nonvoting Capital Stock shares as of May 10, 2010



















TABLE OF CONTENTSPagePART I - FINANCIAL INFORMATIONItem 1.
Financial Statements
2Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15Item 3.
Quantitative and Qualitative  Disclosures About Market Risk
20Item 4T.
Controls and Procedures
20PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
20Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
20Item 3.
Defaults Upon Senior Securities
20Item 4.
Reserved
20Item 5.
Other Information
20Item 6.
Exhibits
21





PART I - FINANCIAL INFORMATION





Item 1.     Financial Statements





The Company’s unaudited financial statements included in this Form 10-Q are as follows:





1
Consolidated  Balance Sheets as of  March 31, 2010 and December 31, 2009 (audited);2
Consolidated  Statements of Operations for the three months ended March 31, 2010 and  2009;3
Consolidated  Statements of Cash Flows for the three months ended March 31, 2010 and 2009;4
Notes to Consolidated Condensed Financial Statements.








1







Item 1. Financial Statements.


LIGHTNING GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


March 31,

2010


December 31, 2009(unaudited)


(audited)AssetsCurrent AssetsCash

$
1,707,321


$
457,855Accounts receivable, net


215,782



235,787Inventory


732,200



788,881Prepaid expenses


25,903



44,731Total Current Assets


2,681,206



1,527,254Property, Plant and Equipment, net


1,070,463



1,227,563Other Assets


33,870



64,238Intangible Assets, net


351,233



183,110Total Assets

$
4,136,772


$
3,002,165Liabilities and Stockholders' DeficitCurrent LiabilitiesCurrent portion of  capital lease

$
-


$
15,879Accounts payable


498,146



555,241Accrued expenses


740,455



825,917Total Current Liabilities


1,238,601



1,397,037Long Term DebtLong term debt


13,339,933



12,444,297Accrued interest and other long term liabilities


2,589,295



2,485,393Fair value of warrants


209,424



337,643Total Long Term  Liabilities


16,138,652



15,267,333CommitmentsStockholders' DeficitPreferred stock: $0.001 par value; authorized 10,000,000 shares, Series A Nonvoting capital stock 6,000,000 shares authorized March 31, 2010 500,000 shares issued and outstanding


500



-Common stock: $0.001 par value; authorized 90,000,000 shares, 4,660,285 shares issued and 4,652,474 outstanding at March 31, 2010 and December 31, 2009


4,661



4,661Additional paid in capital


3,722,479



2,385,317Accumulated deficit


(16,960,310)



(16,044,372)Treasury stock, 7,811 shares at cost


(7,811)



(7,811)Total Stockholders’ Deficit


(13,240,481)



(13,662,205)Total Liabilities and Stockholders’ Deficit

$
4,136,772


$
3,002,165See Notes to Consolidated Condensed Financial Statements










2





LIGHTNING GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


Three Months Ended March 31, 2010 and 2009


Three Months EndedMarch 31,2010


2009RevenuesSales of gaming products and parts

$
233,579

$
385,312License and service  fees


163,019


298,954Total revenues


396,598


684,266Costs and operating expensesCost of products sold

65,040


183,366Operating expenses

92,026


138,541Research and development

260,045


267,337Selling, general & administrative expenses


532,963


320,530Depreciation and amortization


187,710


231,235Total costs and operating expenses


1,137,784


1,141,009Operating loss


(741,186)


(456,743)Non-operating expenseNet interest expense


(315,056)


(308,269)Change in value of warrants


141,607


(93,824)Other expense


(1,303)


(13,323)Net loss

$
(915,938)

$
(872,159)Net loss per Series A Nonvoting share-basic and diluted

$
(0.19)

$
-Net loss per common share-basic and diluted

$
(0.19)

$
(0.19)Weighted average Series A Nonvoting shares outstanding-basic and diluted


166,667


-Weighted average common shares outstanding-

basic and diluted


4,652,474


4,647,474See Notes to Consolidated Condensed Financial Statements














3





LIGHTNING GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


Three Months Ended March 31, 2010 and 2009











Three Months EndedMarch 31,2010


2009NET CASH USED IN OPERATING ACTIVITES

$
(586,761
)

$
(783,707
)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment


(36,702
)


(156,239
)Increase in intangible and other assets


(216,624
)


(74,791
)Proceeds from sale of  equipment


153,679



327,000NET CASH PROVIDED  BY  (USED IN) INVESTING ACTIVITIES


(99,647
)


95,970CASH FLOWS FROM FINANCING ACTIVITIESPayment on capital lease


(64,126
)


(4,082
)Proceeds from  issuance of debt


2,000,000



-NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


1,935,874



(4,082
)NET INCREASE (DECREASE)  IN CASH


1,249,466



(691,819
)CASH - Beginning of period


457,855



2,429,493CASH - End of period

$
1,707,321


$
1,737,674Supplemental Disclosure of Cash Flow Information:Non cash financing activities:Issuance of Series A Nonvoting capital stock in exchange for  a note and accrued interest

$
1,206,273


$
-See Notes to Consolidated Condensed Financial Statements










4





LIGHTNING GAMING, INC. AND SUBSIDIARIES


Notes to Consolidated Condensed Financial Statements


March 31, 2010





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





Nature of Business:





On January 29, 2008, under the Agreement and Plan of Merger dated September 28, 2007, Lightning Gaming, Inc. (formerly known as  Red Pearl Acquisition Corp.) (the “Company”) completed a merger (the "Merger") with Lightning Poker, Inc. (“Lightning Poker”), as a result of which Lightning Poker became a wholly-owned subsidiary of the Company.





Lightning Poker was formed to manufacture and market gaming products  to commercial and tribal casinos, card clubs, other gaming and lottery venues, bars and restaurants and the home market. The major product to date is a fully automated, proprietary electronic poker table (the “System”).  The System is designed to improve economics for casino operators while improving overall player experience.





In 2009 the Company commenced the design, manufacture, marketing, sale and operation of video and reel spinning gaming machines to customers in various legalized gaming   jurisdictions. The current products are (i) a Video SCRABBLE bonus slot machine (ii) a multi rack Scrabble slot machine and (iii) spinning reel SCRABBLE and POPEYE  slot machines.





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





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 31, 2010 (“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 generally accepted accounting principles 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 results of operations for the periods presented. The balance sheet data as of December 31, 2009 were derived from the Company’s audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the entire year.





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





The allowance for doubtful accounts at March 31, 2010 and December 31, 2009 was $229,162.





The Company’s financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. We have limited capital resources, net operating losses and negative cash flows from operations since the





5








Lightning Gaming, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Continued)
 
 Note 1.   Nature of Business and Summary of Significant Accounting Policies (Continued)




Basis of Presentation (Continued)





Company’s inception and expect these conditions to continue for the foreseeable future. The generation of cash flow sufficient to meet the Company’s cash needs in the future will depend on the Company’s ability to obtain the regulatory approvals required to distribute the System  and  gaming machines and successfully market our products  to more casinos and card clubs. The Company believes it will be able to support its operations for the foreseeable future.





However, if sales of its products do not meet, or the Company’s expenses exceed, the Company’s projections, the Company may need to raise additional funds through an offering of securities or a credit facility. If that becomes necessary, there is no assurance that the Company would be able to obtain such financing on reasonable and feasible 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. The Company has received assurance from a major stockholder to support its operations for 2010 should such support become necessary.





Recent Accounting Pronouncements





In May 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on subsequent events. The guidance  establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  The guidance is effective for interim or annual financial periods ending after June 15, 2009. The adoption of the guidance did not have a  material impact on  the Company.





In June 2009, the FASB issued the Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.The Hierarchy  names the FASBAccounting Standards Codification ("ASC") as the source of authoritative accounting and reporting standards in the United States, in addition to guidance issued by the SEC.  The ASC is a restructuring of accounting and reporting standards designed to simplify user access to all authoritative GAAP by providing the authoritative literature in a topically organized structure.  The ASC reduces the GAAP hierarchy to two levels, one that is authoritative and one that is not.  The ASC is not intended to change GAAP or any requirements of the SEC.  The ASC became authoritative upon its release on July 1, 2009 and is effective for interim and annual periods ending after September 15, 2009.





In October 2009, the FASB issued guidance on revenue recognition for  multiple-deliverable revenue arrangements. The guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. We plan to adopt the guidance effective January 1, 2011 and we do not expect it to have a material impact on our financial position or results of operations.





In October 2009, the FASB issued guidance on certain revenue arrangements that include software elements. The guidance reduces the types of transactions that fall within the current scope of software revenue recognition guidance. Existing software revenue recognition guidance requires that its provisions be applied to an entire arrangement when the sale of any products or services containing or utilizing software when the software is considered more than incidental to the product or service. As a result of the amendments included in the guidance, many tangible products and services that rely on software will be accounted for under the multiple-element arrangements revenue recognition guidance rather than under the software revenue recognition guidance. Under this new guidance, the following








6





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




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




Recent Accounting Pronouncements (Continued)





components would be excluded from the scope of software revenue recognition guidance: the tangible element of the product, software products bundled with tangible products where the software components and non-software components function together to deliver the product's essential functionality, and undelivered components that relate to software that is essential to the tangible product's functionality. The guidance also addresses how to allocate transaction consideration when an arrangement contains both deliverables within the scope of software guidance (software deliverables) and deliverables not within the scope of that guidance (non-software deliverables). This guidance will be effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We may elect to adopt the provisions prospectively to new or materially modified arrangements beginning on the effective date or retrospectively for all periods presented. However, we must elect the same transition method for this guidance as that chosen for revenue recognition for multiple-deliverable revenue arrangements. We are currently evaluating the impact the guidance will have on our consolidated financial statements.





On January 1, 2010, the Company adopted the FASB guidance on fair value measurements and disclosures which adds disclosure requirements about transfers in and out of Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements and clarifies existing disclosure requirements related to the level of disaggregation and input and valuation techniques. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.





Note 2.   Inventory





Inventory consists of the following:





March 31,

2010


December 31,

2009Finished products

$
19,996


$
46,451Raw materials and work in process


712,204



742,430Inventory

$
732,200


$
788,881





Note 3.   Property and Equipment





Property and equipment consist of the following:





March 31,

2010


December 31,

2009Equipment, principally Systems

$
2,835,129


$
2,966,703Furniture and fixtures


51,272



45,582Leasehold improvements


93,897



83,4002,980,298



3,095,685Less accumulated depreciation


(1,909,835
)


(1,868,122
)Property, plant and equipment, net

$
1,070,463


$
1,227,563











7





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





Note 4.   Intangible Assets





Intangible assets consist of the following:





March 31,

2010


December 31,

2009Purchased licenses, software and other

$
416,287


$
229,862Less accumulated amortization


(65,054
)


(46,752
)Intangible assets, net

$
351,233


$
183,110





The software licenses acquired in 2009 and 2008 are being amortized over 3 years.





Note 5.   Debt





Long Term Debt consists of the following:





March 31,

2010


December 31,
2009Capital Lease obligation, interest at 7.5% payable monthly through March, 2013

$
-


$
48,247Notes Payable 8% interest due 2011


11,500,000



12,500,000Notes Payable 8% interest due 2013


2,000,000



-Total long term debt


13,500,000



12,548,247Less: unamortized fair market value of  warrants


(160,067
)


(103,950
)Total long term debt

$
13,339,933


$
12,444,297





Interest is payable at maturity of the Notes.





In March 2008, the Company entered into a capital lease obligation to finance the purchase of a recreational vehicle.  Annual payments, including interest, under the capital lease are $22,152. The capital lease is secured by the vehicle and a certificate of deposit in the amount of $40,000. The certificate of deposit is included in other assets. In March 2010 the Company sold the recreational vehicle and the proceeds were used to repay the capital lease.





In February, 2010 a lender exchanged its $1,000,000 note due in 2010 plus accrued interest of $206,273 for 500,000 shares of Series A Nonvoting Capital Stock.





Also in February, 2010 the Company entered into a $2,000,000 three-year loan agreement with interest at 8% per annum.  At the discretion of the lenders, all principal and interest outstanding on the loan may be converted into shares of the Company's capital stock issued in the Company's next equity financing at the same price and upon the same terms as the shares issued in the next equity financing.  In connection with the loan the Company issued warrants to purchase $2,000,000 worth of shares of the Company's capital stock at an exercise price equal to $2.00 per share.  The warrants are exercisable through February 22, 2015.





In accordance with various loans obtained by the Company, the lenders hold warrants to purchase 8,009,145 shares of the Company’s common stock at any time through February, 2015 at prices ranging between $1.10 and $2.00 per share.  The purchase prices are subject to adjustment from time to time pursuant to the provisions of the respective warrant agreements.  The Company accounts for the value of these warrants in the same manner used for stock-based compensation. Expense recognized for the three months






8




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





Note 5.   Debt (Continued)





ended March 31, 2010 and March 31, 2009 related  to these warrants was  $57,251, and $62,474, respectively, and was included in interest expense.





Certain notes in the amount of $7,500,000 and related accrued interest of $949,123 at March 31, 2010 are convertible, at the discretion of the lender into shares of the Company’s common stock on the same terms and conditions of  the next equity financing.





Note 6. Commitments





In 2008  the Company entered into a technology agreement with Intuicode for a nonexclusive perpetual license to use its  gaming platform/ operating system.   The agreement provides for royalty fees on a per-unit basis and is for a term of two years.





In March 2009 the Company entered into an exclusive  license agreement with Hasbro, Inc. to use the Scrabble brand in gaming devices distributed in the United States and Canada.  The initial term of the agreement is  five years with the Company’s right to extend the agreement for two additional five- year terms if certain performance standards are met. The agreement calls for minimum annual payments and may be cancelled under certain conditions.





In April 2009 the Company entered into an exclusive  license agreement with Mattel, Inc. to use the Scrabble brand in gaming devices distributed  worldwide excluding  the United States and Canada.  The initial term of the agreement is five years with the Company’s right to extend the agreement for two additional two- year terms if certain performance standards are met. The agreement calls for minimum annual payments and may be cancelled under certain conditions.





In October 2009 the Company entered into an exclusive license agreement with Hearst Holdings, Inc. and King Features Syndicate Division to use the brand POPEYE and related family of characters in gaming devices distributed worldwide excluding the United Kingdom and Japan.  The initial term of the agreement is for one year with the Company’s right to extend the agreement for eight additional one- year terms upon payment of minimum royalties.





In March 2010 the Company entered into a license agreement with Speed Racer Enterprises, Inc. to use the Speed Racer  brand and related family of characters in gaming devices distributed  worldwide excluding  Japan.  The initial term of the agreement is five years commencing May 1, 2010 with the Company’s right to extend the agreement for one additional three- year term if certain performance standards are met.





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




At  March 31, 2010, the Company had total license fee commitments and advances made and potential future royalty and license fee payments as follows:





Minimum

CommitmentsTotal royalty and license fee commitments

$
1,355,000AdvAdvances  made


(100,000
)PotePotential future payments

$
1,255,000









9





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





Note 6. Commitments (Continued)





As of  March 31, 2010, the Company estimates that potential future royalty payments in each fiscal year will be as follows:





Minimum

Commitments2010




$
152,0002011





303,0002012





400,0002013





500,000Total




$
1,355,000





In November, 2009 the Company entered into a lease agreement for its corporate offices. The lease was effective in  January, 2010 and is for  a term of sixty seven months.





Future minimum lease payments  are as follows:





Year Ending December 31,

Amount2010

$
-2011


79,1112012


105,4822013


108,1422014


108,142Thereafter


66,254$
467,131





Rent expense for the three months ended March 31, 2010 and 2009 was $17,666 and $17,582, respectively.





The Company has entered into non-exclusive licensing agreements with two vendors whereby the Company is required to pay the vendors for maintenance and software licenses used in conjunction with the Company’s products.





Note 7.   Stockholders’ Deficit





Stockholders’ deficit includes the following transactions:





Stock Options:  In 2007 the Company adopted the 2007 Equity Incentive Plan (the “Stock Plan”) to enable the Company to offer key employees, consultants and directors equity interests in the Company, thereby helping to attract, retain and motivate such persons to exercise their best efforts on behalf of the Company.  Stock options under the Stock Plan are granted at the discretion of the Board of Directors (acting as the Company’s Compensation Committee). The maximum aggregate number of shares of common stock issuable under the Stock Plan is 2,500,000.  The exercise price of each option will be determined by the Board of Directors at the time the option is granted, but in no event will be less than 100% of the fair market value of the common stock at the time of grant.  Options granted will not be exercisable after 10 years from the grant date.











10








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





Note 7.   Stockholders’ Deficit (Continued)


Stock Options(Continued)





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





Options granted   under the Stock Plan  are accounted for  under the FASB guidance for share based payments.  Accordingly, compensation costs  recognized for the three months ended March 31, 2010 and March 31, 2009 were $30,908 and, $27,526, respectively.





A summary of option transactions in 2010 is as follows:





WeightedAverageShares


Exercise PriceOutstanding at December 31, 2009
2,448,200

$
1.34Options granted
-

$
-Options exercised
-

$
-Options cancelled
(295,200)

$
1.68Options outstanding at March 31, 2010
2,153,000

$
1.30Options available for grant  under the Stock Plan at March 31, 2010
344,000





Included in the options outstanding at  December 31, 2009 are options for 115,200 shares granted outside the Stock 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.





Stock-based compensation expense is recognized in the statement of operations based on awards ultimately expected to vest and may be reduced for estimated forfeitures.





The following table summarizes information with respect to stock options outstanding at March 31, 2010:





Options Outstanding

Vested OptionsWeightedAverage
Weighted



Weighted
WeightedRemaining
Average
Aggregate


Average
Average
AggregateContractual
Exercise
Intrinsic


Contractual
Exercise
IntrinsicNumber
Life (Years)
Price
Value

Number
Term (Years)
Price
Value2,153,000
5.9
$1.30
-

968,200
5.8
$1.50
-














11







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





Note 7.   Stockholders’ Deficit (Continued)




Stock Options(Continued)





The following table summarizes information with respect to stock options outstanding at December 31, 2009:





Options Outstanding

Vested OptionsWeightedAverage
Weighted



Weighted
WeightedRemaining
Average
Aggregate


Average
Average
AggregateContractual
Exercise
Intrinsic


Contractual
Exercise
IntrinsicNumber
Life (Years)
Price
Value

Number
Term (Years)
Price
Value2,488,200
6.1
$1.34
-

995,600
5.6
$1.49
-





As of March 31, 2010, there was approximately $266,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Stock Plan.  The cost is expected to be recognized over a weighted-average period of 3.0 years.





Warrants:  In accordance with the loans obtained by the Company (Note 5), the lenders hold warrants to purchase 8,009,145 shares of the Company’s common stock at any time through February 2015 at prices ranging between $1.10 and $2.00 per share.  The purchase prices are subject to adjustment from time to time pursuant to the provisions of the respective warrant agreements.  The Company accounts for the value of these warrants in the same manner used for stock-based compensation.





The following table is a summary of the Company’s warrant activity for the three months ended March 31, 2010:





WeightedWarrants


AverageOutstanding


Exercise PriceOutstanding at December 31, 2009


7,009,145


$
1.70Warrants granted


1,000,000


$
2.00Warrants exercised


-


$
-Warrants cancelled


-


$
-Warrants outstanding at March 31, 2010


8,009,145


$
1.73





The following table summarizes information with respect to warrants outstanding at March 31, 2010:





Warrants Outstanding

Vested WarrantsWeightedAverage
Weighted



WeightedRemaining
Average
Aggregate


Average
AggregateContractual
Exercise
Intrinsic


Exercise
IntrinsicNumber
Life (Years)
Price
Value

Number
Price
Value8,009,145
2.6
$1.73
-

8,009,145
$1.73
-





The weighted average fair value per share of each  warrant granted for the three months ended March 31, 2010 was $0.10.











12





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





Note 7.   Stockholders’ Deficit (Continued)




Warrants  (Continued)





The following table summarizes information with respect to warrants outstanding at December 31, 2009:





Warrants Outstanding

Vested WarrantsWeightedAverage
Weighted



WeightedRemaining
Average
Aggregate


Average
AggregateContractual
Exercise
Intrinsic


Exercise
IntrinsicNumber
Life (Years)
Price
Value

Number
Price
Value7,009,145
2.6
$1.70
-

7,009,145
$1.70
-




The table below provides a reconciliation of the beginning and ending balances for our warrant liability and decrease in fair value using a Black-Scholes model as of March 31, 2010.
 
 Balance as of January 1, 2010

$
337,643Fair value of warrants issued in 2010


92,382Fair value of warrants canceled in 2010


(57,317)Decrease in fair value of warrants


(163,284)Balance as of March 31, 2010

$
209,424
 
 On April 15, 2010, SIG Strategic Investments, LLLP (“SIG”)  notified us that it has voluntarily abandoned and forfeited Warrants, dated December 11, 2009 and March 19, 2010, to purchase a total of 1,000,000 shares of our common stock at $2.00 per share.





Note 8.   Income Taxes





The Company accounts for income taxes under the provisions of the FASB guidance on accounting for income taxes.  The guidance  provides for the recognition and measurement of 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 March 31, 2010, the Company has available, for federal and state income tax purposes, net operating loss (“NOL”) carryforwards of approximately $11,700,000, which expire at various times through 2030.  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 in the financial statements.





Note 9.  Related Party Transactions





During 2006, 2007, 2008 and 2010 the Company borrowed $14,500,000 under various loan agreements with The Co Investment Fund II LP (“CI II”), SIG  and Stewart Greenebaum, LLC (“Greenebaum”). CI II, SIG and Greenebaum each  beneficially owned more than 5% of the Company’s outstanding common stock as of March 31, 2010. CI II is managed by Cross Atlantic Capital Partners Inc. (“Cross Atlantic”) and Donald Caldwell, a director of the Company,  is the founder and Chief Executive Officer of Cross Atlantic  and  Frederick Tecce, also a director of the Company, is a  managing director and of counsel of Cross Atlantic.  In connection with those loans, the Company issued warrants to CI II, SIG and Greenebaum to purchase a total of 7,901,385 shares of common stock. The aggregate fair market value of the warrants at the respective times that the Company issued them was $953,030. In addition, principal and interest on certain notes in the amount of $8,449,123 at March 31, 2010 are convertible into shares of common stock on the same terms and conditions  of the next equity offering. During the three months ended March 31, 2010 and 2009, interest on the CI II Loans amounted to $198,165, and  $190,000, respectively . During 2010 and 2009, we made no principal payments on the loans.




13




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




Note 9.  Related Party Transactions (Continued)





In February 2010 we borrowed $1,000,000 from CI II and $1,000,000 from Greenebaum and we issued to each lender a warrant to purchase up to 500,000 shares of common stock at $2 per share. The loans were for a three-year term, with interest at 8% per annum. The aggregate fair market value of the warrants at the time we issued them was $99,980.


In February 2010, Greenebaum and we entered into a Debt Conversion Agreement under which a $1,000,000 note that Lightning Poker issued to Greenebaum in 2007 was converted into 500,000 shares of our Series A Nonvoting Capital Stock. All amounts payable under that note were canceled. Our Nonvoting Stock participates with, and is identical to, our common stock except for the lack of voting rights.





CI II holds notes in the aggregate principal amount of $10,500,000 as of March 31, 2010, with a weighted average interest rate of 8% per annum. As of March 31, 2010, the aggregate accrued but unpaid interest on all of the notes held by CI II was $2,031,263.





Included in the notes held by CI II and accrued interest thereon are notes in the principal amount of $5,500,000 and accrued interest of $801,178, which are convertible into shares of our common stock on the same terms and conditions of the next equity offering. Also, the notes held by Greenebaum in the principal amount of $2,000,000 and accrued interest of $147,945 are convertible into shares of our common stock on the same terms and conditions of the next equity offering.





On April 15, 2010, SIG notified us that it has voluntarily abandoned and forfeited Warrants, dated December 11, 2009 and March 19, 2010, to purchase a total of 1,000,000 shares of our common stock at $2.00 per share. Consequently, SIG no longer is a beneficial owner of more than 5% of our outstanding stock.





As of May 14, 2010 the common stock warrants held by CI II and Greenebaum are as follows:





Holder

Number of Underlying Shares

Weighted Average Exercise Price Per SharesCI II

5,401,385

$1.62Greenebaum

1,500,000

$2.00








Note 10.   Subsequent Events





We considered all material events through the date on which the financial statements were issued and determined there were no reportable matters which have not been disclosed.











14





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,” “projections” and “anticipate” or the negative of such terms and similar words and include all discussions about our ongoing or future plans, objectives or expectations.





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





All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section or elsewhere in this report.  In light of these and other risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.  Factors that might cause our actual results to differ from our expectations, might cause us to modify our plans or objectives, or might affect our ability to meet our expectations include, but are not limited to:  the severe economic downturn that the gaming industry is suffering; the dramatic decline in national and global economic conditions; the tightening of credit in financial markets generally and the particularly severe tightening of them for the gaming industry, which may adversely affect our ability to raise funds through debt or equity financing or to refinance our long- term debt that will become due in 2011, and may also adversely affect the ability of our customers to purchase our product and services; interest rates; our ability to obtain additional gaming licenses; fuel price increases; legislative/regulatory changes; competition; changes in generally accepted accounting principles; and fluctuations in foreign currency exchange rates. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the Securities and Exchange Commission (“SEC”).








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





Overview





On January 29, 2008, Lightning Gaming, Inc. (the “Company”) acquired Lightning Poker, Inc. (“Lightning Poker”) in a merger (the “Merger”), under which Lightning Poker became a wholly-owned subsidiary of the Company. As a result of the Merger the stockholders of Lightning Poker became the Company’s stockholders with the same percentage ownership interests in the Company  as they had in Lightning Poker prior to the Merger, all of the Company's previously outstanding stock was canceled with no obligation on the part of the Company for the payment of any consideration, and the Company ceased being a shell company.





Exchange Act reports for periods ending after the date of the Merger are presented on a consolidated basis, reflecting the Company’s ownership of Lightning Poker.









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Lightning Poker was formed to develop and market gaming products  to commercial and tribal casinos, card clubs, other gaming and lottery venues, bars and restaurants and the home market. The major product to date is a fully automated, proprietary electronic poker table  (the “System”). The System provides a fully automated table gaming experience without a dealer in casinos and card rooms in regulated jurisdictions worldwide.   The System is designed to increase revenue and security while helping to reduce the labor costs associated with poker play.  The System enables up to ten players to make their wagers and game decisions via individual touch- screen betting stations. It utilizes a software application written in Java, which runs on a Linux-based multi-game table platform. The System achieves the goal of increasing revenue by allowing a larger number of hands to be played per hour, increasing the “rake” or per- hand fee collected by the operator commensurately.   The elimination of a live dealer also reduces labor costs and permits more tables to be operational in jurisdictions where skilled poker dealers are in short supply. The System has an added benefit of eliminating mistakes by the dealer or the player, and it eliminates the need to tip the dealer.   The System also provides an opportunity to present information about the game to the players via individual player screens and via the common center monitor.





The System has received Gaming Laboratories Incorporated  (“GLI”) certification for a casino version of Texas Holdem, Omaha, cash, and single table tournament poker, which the Company needs in order to install the System in certain jurisdictions.





Poker is one of several card games in which two or more players strategically bet against each other. Many casinos and “card clubs” operate poker rooms that typically consist of tables at which up to 10 players play any of several types of poker against the other players at the table. A dealer employed by the casino or card club is responsible for dealing cards, calculating bets, collecting the “rake,” which is the amount the casino or card club charges for each hand of poker, and distributing payouts. Unlike most other games played at a casino, where the casino may win the full amount of a player’s bet, the casino or card club’s revenue from the poker room is limited to the rake.





The number of Systems installed at any particular location is fluid and may increase or decrease over time. For example, casinos remodel periodically and may expand or contract the amount of floor space allocated to poker. In addition, from time to time certain customers find that they license more Systems from us than demand will support in their poker rooms, which itself is affected by factors ranging from seasonality (people tend to travel shorter distances in the winter months) to macroeconomic and competitive factors. In other cases, regulatory changes in a particular jurisdiction may result in a temporary delay or removal of Systems. Sometimes, we may elect to redeploy Systems to more productive venues to maximize our return on investment. Frequently we install Systems at new customer sites where we engage in trial periods of varying lengths with customers to satisfy regulatory requirements as well as to test demand, and educate customers. We view these fluctuations as an expected and normal part of the growth phase of our business and an effective tool for managing our assets.





In the third quarter of 2009 the Company commenced the design, manufacture, marketing, sale and operation of video and reel-spinning gaming machines in various gaming jurisdictions. The Company’s current products of this nature are described below.





The Company has developed and has received GLI certification for a casino version of Video SCRABBLE.  Video SCRABBLE is a bonus slot machine that engages players with a simple two-draw game play.  The object of the game is to score the highest possible word value using the official SCRABBLETM (“SCRABBLE”) tournament word list.  The highest value word is calculated and compared to a paytable to calculate the win.  A bonus is initiated when the player uses all seven letters and scores on the paytable. Video SCRABBLE does not require spelling or vocabulary as the game will instantly reassemble drawn letters to form the highest possible word score and will automatically provide word definitions, thereby adding an enjoyable learning aspect to the game.








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A SCRABBLE bonus occurs when a player uses all seven letters that score in the paytable.  The bonus consists of a partially completed SCRABBLE board that is displayed on a secondary screen. The player will automatically get one draw of seven letter tiles that will be sorted into the best word score in the board above.  Word scores from the bonus board are calculated into credits.   If all seven letter tiles are used the player will win an additional 50 points.  Video Scrabble is available as a five coin game.





The SCRABBLE SPIN bonus slot machine is a five reel 20 line game geared towards a traditional slot player. It pays a player if he matches two or more letters on any line. If a 5 letter word is created on any line the player is paid the word value times five.  When The Captain Scrabble Mystery Feature appears it will double or triple the word win. Five to 50 Free Spins are awarded based on the number of Captain Scrabble symbols appearing.




SCRABBLE Board Bonus is activated when aplayer picks seven tiles to reveal letters. These letters are placed in a partially completed Scrabble board in the best possible location. Credits are awarded based on Scrabble rules.





The multi rack SCRABBLE slot machine game consists of two draws on 25 racks, rewarding the player for creating a word of 13 points or higher based on Scrabble letter values. Spelling or vocabulary skills are not required. Words and definitions are automatically shown to the player making it easy and entertaining for all.





The SCRABBLE and POPEYE spinning reel games  are a low -volatility game with high-hit frequency bonuses.





The Company has filed and will continue to file applications for licensure in various gaming jurisdictions. The Company evaluates economic impact of each jurisdiction in determining the priority of filing in a jurisdiction.





We believe that the use of brand name intellectual property will contribute to the appeal and success of our gaming  machines and that our future ability to license, acquire or develop new brand names is important  to our success.





We plan to sell our gaming products in various legal gaming jurisdictions worldwide. The manufacture and distribution of gaming equipment and related software are subject to regulation and approval by various city, county, state, provincial, federal, tribal and foreign agencies.  We will continue to devote resources to obtain all necessary approvals to manufacture and distribute our gaming products.





We have a history of losses since the Company’s inception. We incurred a net loss of approximately $916,000 in the three  months ended March 31, 2010.





Three Months Ended March 31, 2010  Compared to Three  Months Ended March 31, 2009





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





Revenues





The Company’s revenues for the three months ended March 31, 2010 were $397,000 compared to $684,000 for the comparable prior year period. The decrease  in revenues was principally due to the absence of  sales of Systems and parts, and the decline in the installed base of Systems.





Sales of gaming products and parts decreased by $151,000 (39%) to $234,000 for the three months ended March 31, 2010 as compared to $385,000 for the three months ended March 31, 2009 principally due to the placement of additional Systems at existing international customers in 2009.





License and service fees decreased by $136,000 (45%) to $163,000 for the three months ended March 31, 2010 as compared to $299,000 for the three months ended March 31, 2009 due to the decline in  placement of  Systems at new and existing casino customers.







17




Cost of Products Sold





For the three months ended March 31, 2010, cost of products sold decreased $118,000 (64%) to $65,000 as compared to $183,000 for the three months ended Mach 31, 2009 due to the absence of System placements. Gross margins were 72% for the three months ended March 31, 2010 compared with 52% for the three months ended March 31, 2009. The increase in gross margin for the three months ended March 31, 2010 was principally due to the sale of refurbished Systems.





Operating Expenses





Operating expenses decreased by $47,000 to $92,000 for the three months ended March 31, 2010, from $139,000 for the three months ended March 31, 2009.  This decrease was primarily the result lower commissions earned by our distributor due to lower license fees earned in the quarter.





Research and Development Expenses





Research and development expenses decreased by $7,000 to $260,000 for the three months ended March 31, 2010, from $267,000 for the three months ended March 31, 2009. Research and development expenses are primarily related to the development of the System and gaming equipment.





Selling, General and Administrative Expenses





Selling, general and administrative expenses increased by $212,000 to $533,000 for the three months ended March 31, 2010, from $321,000 for the three months ended March 31, 2009.  This increase was primarily due to higher staff-related costs, regulatory fees, compliance costs, timing of audit fees and expenses related to the move to our new office facility.





Depreciation and Amortization





Depreciation and amortization decreased by $ 43,000 to $188,000 for the three months ended March 31, 2010 from $231,000 for the three months ended March 31, 2009. This decrease was primarily related to the absence of depreciation related to the assets impaired  in 2009.





Net Interest Expense





Net interest expense increased by $7,000 to $315,000 for the three months ended March 31, 2010 from $308,000 for the three months ended March 31, 2009. This change was the result of interest expense associated with the additional  funding in 2010 and lower interest earned due to lower  investable cash balances in the current period partly offset by lower warrant expense in the current period.





Change in Value of Warrants





The  change in fair value of our warrants of $142,000  was  mainly due to the declines in the remaining life  of the warrants and the estimated fair market value of our common stock.





Other Income ( Expense)





The Company receives payment in Euros for certain license fees and sales revenues from certain international customers. Other income (expense) represents the change  in  the Euro/US dollar foreign exchange rate.








18




Liquidity and Capital Resources





Since our inception, we have funded our startup costs, operating costs and capital expenditures through loans and issuances of common stock.





For the three months ended March 31, 2010, we incurred a net loss of $916,000 and used $587,000 of cash in operating activities. At March 31, 2010, we had an accumulated deficit of $16,960,000. The generation of cash flow sufficient to meet our cash needs in the future will depend on our ability to obtain the regulatory approvals required to distribute our products and successfully market them  to more casinos and card clubs.





Our current cash requirements are approximately $160,000 to $270,000 per month, principally for salaries, professional services, marketing, office expenses and the purchase of the hardware components for our  products.





Based on our cash flow projections and anticipated revenues, we believe we will be able to support our operations for the foreseeable future. However, if sales of our products do not meet, or our expenses exceed, our projections, we may need to raise additional funds through an offering of securities or a credit facility and refinance our long-term debt that matures in 2011. If that becomes necessary, there is no assurance that such financing and refinancing would be available to us, particularly during this economic recession and severe downturn in the gaming industry. If we need additional funding and refinancing and are unable to obtain it, our financial condition would be adversely affected. We have  received assurance from a major stockholder to support our operations for 2010 should such support become necessary.





In addition, our ability to sell or lease our products on a large scale may require additional financing for working capital. There is no assurance that such additional financing would be available at all, or on reasonable terms. Our inability to obtain such financing on terms that allow us to lease our products profitably would hamper our ability to distribute our products on a large scale.





Off-Balance Sheet Arrangements





As of March 31, 2010, there were no off-balance sheet arrangements.





Going Concern





The Company’s financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. We have limited capital resources, net operating losses and negative cash flows from operations since the Company’s inception and expect these conditions to continue for the foreseeable future. The generation of cash flow sufficient to meet the Company’s cash needs in the future will depend on the Company’s ability to obtain the regulatory approvals required to distribute its products and successfully market them to more casinos and card clubs. The Company believes it will be able to support its operations for the foreseeable future. However, if sales of our products do not meet, or the Company’s expenses exceed, the Company’s projections, the Company may need to raise additional funds through an offering of securities or a credit facility and refinance our long-term debt that matures in 2011. If that becomes necessary, there is no assurance that the Company would be able to obtain such funding  on reasonable terms and feasible 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. The Company has received assurance from a major stockholder to support its operations for 2010 should such support become necessary.











19





Item 3. Quantitative and Qualitative Disclosures about Market Risk.





Not applicable.





Item 4T. 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 Chief Financial Officer (“CFO”), 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 March 31, 2010, we conducted an evaluation, under the supervision and with the participation of our management including our CEO and CFO, of the effectiveness of our disclosure controls and procedures.  Based on that evaluation, our CEO and CFO have concluded that as of March 31, 2010, our disclosure controls and procedures were effective at the reasonable assurance level.





There were no changes in our internal control over financial reporting during our quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







PART II - OTHER INFORMATION








Item 1.     Legal Proceedings.


None





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


None





Item 3.     Defaults upon Senior Securities


None





Item 4.     Reserved








Item 5.     Other Information


None











20





Item 6.      Exhibits





EXHIBIT NUMBER

EXHIBIT DESCRIPTION3.1*

Articles of incorporation of the Company (see Exhibit 3.1 to Form 10-K filed March 31, 2010)10.1*

Debt Conversion Agreement, dated February 5, 2010, among the Company, Lightning Poker, Inc. (“LPI”) and Stewart J. Greenebaum, LLC (“Greenebaum”) (see Exhibit 99.1 to Form 8-K filed February 26, 2010)10.2*

Loan Agreement, dated February 22, 2010, among LPI, The Co-Investment Fund II, L.P. (“CI II”) and Greenebaum (collectively with CI II, the “Lenders”) (see Exhibit 99.1 to Form 8-K filed February 26, 2010)10.3*

Promissory Note, dated February 22, 2010, issued by LPI to CI II (see Exhibit 99.3 to Form 8-K filed February 26, 2010)10.4*

Promissory Note, dated February 22, 2010, issued by LPI to Greenebaum (see Exhibit 99.4 to Form 8-K filed February 26, 2010)10.5*

Warrant for Stock ($2,000,000 of shares), dated February 22, 2010, issued by the Company to CI II (see Exhibit 99.5 to Form 8-K filed February 26, 2010)10.6*

Warrant for Stock ($1,000,000 of shares), dated February 22, 2010, issued by the Company to Greenebaum (see Exhibit 99.6 to Form 8-K filed February 26, 2010)10.7*

Guaranty Agreement, dated February 22, 2010, by the Company in favor of CI II as the Lenders’ Agent (“Agent”) (see Exhibit 99.7 to Form 8-K filed February 26, 2010)10.8*

Security Agreement, dated February 22, 2010, between LPI and CI II as Agent (see Exhibit 99.8 to Form 8-K filed February 26, 2010)10.9*

Intellectual Property Security Agreement for Patents and Trademarks, dated February 22, 2010, between LPI and CI II as Agent (see Exhibit 99.9 to Form 8-K filed February 26, 2010)10.10*

Intellectual Property Security Agreement for Copyrights and Mask Works, dated February 22, 2010, between LPI and CI II as Agent (see Exhibit 99.10 to Form 8-K filed February 26, 2010)10.11*

Note and Warrant Purchase Agreement, dated March 19, 2010, among the Company, CI II, Greenebaum and SIG Strategic Investments, LLLP (“SIG”) (see Exhibit 99.1 to Form 8-K filed March 25, 2010)10.12*

Promissory Note, issued as of March 19, 2010 (dated June 30, 2008), by LPI to CI II (see Exhibit 99.2 to Form 8-K filed March 25, 2010)10.13*

Warrant for Stock (250,000 shares), dated March 19, 2010, issued by the Company to CI II (see Exhibit 99.3 to Form 8-K filed March 25, 2010)10.14*

Promissory Note, issued as of March 19, 2010 (dated June 30, 2008), by LPI to Greenebaum (see Exhibit 99.4 to Form 8-K filed March 25, 2010)10.15*

Warrant for Stock (250,000 shares), dated March 19, 2010, issued by the Company to Greenebaum (see Exhibit 99.5 to Form 8-K filed March 25, 2010)10.16*

Warrant for Stock (500,000 shares), dated March 19, 2010, issued by the Company to SIG (see Exhibit 99.6 to Form 8-K filed March 25, 2010)    21
  EXHIBIT NUMBER

EXHIBIT DESCRIPTION31.1

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




*  These documents are incorporated herein by reference as exhibits hereto.  Following the description of each such exhibit is a reference to the document as it appeared in a specified report previously filed with the SEC, to which there have been no amendments or changes unless otherwise indicated.  The Commission File No. for all such filings is 000-52575.










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:  May 17, 2010
Lightning Gaming, Inc.By:
/s/ Brian Haveson

Brian Haveson

President, Chief Executive Officer and Director














22