The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
Notes to Financial Statements
December 31, 2017 and 2016
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company
Table Trac, Inc. (the Company) was formed under the laws of
the State of Nevada in June 1995. The Company has its offices in Minnetonka, Minnesota. The Company has developed and patented
a proprietary information and management system that automates and monitors the operations of casino games.
The Company provides system sales and technical support to casinos.
System sales include installation, custom casino system configuration and training. In addition, license and technical support
are provided under an annual license and service contract.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates these estimates, including
those related to revenue recognition, bad debts, valuation of inventory, and deferred income taxes. Actual results could differ
from those estimates.
Concentrations of Risk
Cash Deposits in Excess of Federally Insured Limits
The Company maintains its cash balances at two financial institutions.
Accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At times throughout the year, the Company’s
cash balances may exceed amounts insured by the FDIC. The Company doesn’t believe it is exposed to any significant credit
risk on its cash balances.
Major Customers
The following table summarizes significant customer information
for the years ended December 31, 2017 and 2016:
|
|
For the Years ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
% Revenues
|
|
|
% AR
|
|
|
% Revenues
|
|
|
% AR
|
|
A
|
|
|
10.4
|
%
|
|
|
6.5
|
%
|
|
|
11.4
|
%
|
|
|
19.8
|
%
|
B
|
|
|
12.8
|
%
|
|
|
0.0
|
%
|
|
|
14.1
|
%
|
|
|
8.2
|
%
|
C
|
|
|
2.2
|
%
|
|
|
12.9
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
All Others
|
|
|
74.6
|
%
|
|
|
80.6
|
%
|
|
|
74.5
|
%
|
|
|
72.0
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Revenue Recognition
The Company derives revenues from the sales of systems, licenses
and maintenance fees, and services.
System Sales and Licenses
Revenue from systems that have been demonstrated to meet customer
specifications during installation is recognized when evidence of an arrangement exists, the product has been delivered, title
and risk of loss have transferred to the customer and collection of the resulting receivable is reasonably assured. System sales,
which are accounted for as multiple-element arrangements, include multiple products and/or services. For multiple-element arrangements,
the Company allocates the revenue to each element based on the hierarchy of estimated selling price for the deliverables. The selling
price for each deliverable will be based on vendor specific objective evidence (VSOE), Third Party Evidence (“TPE”)
if VSOE is not available, or estimated selling price if neither VSOE or TPE is available. The Company recognizes the associated
revenue when all revenue recognition criteria have been met for each element. If there are contracts the Company does not have
VSOE of all elements, the Company would follow the selling price hierarchy to allocate arrangement consideration.
The Company does offer its customers contracts with extended
payment terms. The Company must evaluate if any extended payment terms in the contract is an indicator of the revenue not
being fixed or determinable. Provided all other revenue recognition criteria have been satisfied, the Company recognizes
the revenue if payment of a significant portion of the systems sales is due within 12 months of the delivery of the product.
The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended
payment term contracts without making concessions for determining if revenue should be recognized. Revenue and associated
set-up costs are deferred if contract terms exceed historical collection results or if a substantial portion of the contract is
not due within 12 months after delivery of the product. The Company analyzes each contract for proper revenue recognition
based on that contract’s facts and circumstances. Interest is recorded upon receipt to “other income” on
the statements of operations.
Maintenance revenue
Maintenance revenue is recognized ratably over the contract
period. The VSOE for maintenance is based upon the renewal rate for contracted services.
Service revenue
Service revenue is recognized after the services are performed
and collection of the resulting receivable is reasonably assured. The VSOE for service revenue is established based upon the actual
selling prices for the services or prior similar arrangements.
Rental revenue
The Company offers certain new customers a rental contract.
Revenues are billed monthly based on a per-game per-day basis. There is an option to purchase the system after the rental
agreement at a pre-determined residual value.
Deferred System Sales Costs
Deferred system sales costs consist of installed system costs
incurred on participation-based contracts. These costs are recognized on a straight-line basis over the term of the contract which
is generally 18-48 months beginning when revenues are generated. At the end of the contract period, the customer will typically
receive title to the system. These costs are included in other long-term assets on the balance sheet, and are $967,092 and $1,291,519
as of December 31, 2017 and 2016, respectively.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts
receivable, accounts payable and accrued expenses. Fair value estimates are at a specific point in time, based on relevant market
information about the financial instrument. These estimates are subjective in nature and matters of significant judgment and therefore
cannot be determined with precision. The Company considers the carrying values of its financial instruments to approximate fair
value due to their short-term nature.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held
no cash equivalents at December 31, 2017 or 2016.
Accounts Receivable / Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount. Accounts
receivable are recorded at net realizable value, which includes foreign currency translation as of each balance sheet date. Accounts
receivable include unsecured regular customer receivables and unsecured amounts from financed contracts coming due within 12 months.
Amounts from financed contracts due beyond 12 months are recorded as "Long-term accounts receivable – financed contracts." Interest
is recorded upon receipt to other income on the statements of operations. An allowance for doubtful accounts is recorded when the
Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for doubtful accounts,
are fully collectible. Accounts receivable are written off when management determines collection is no longer likely. While the
ultimate result may differ, management believes that any write-off not allowed for will not have a material impact on the Company's
financial position. Accounts receivable are recorded at net realizable value, which includes foreign currency translation into
U.S. Dollars, as of each balance sheet date.
Inventory
Inventory, consisting of finished goods, is stated at the lower
of cost or net realizable value. The average cost method (which approximates the first in, first out method) is used to value inventory.
Inventory is reviewed annually for the lower of cost or net realizable value and obsolescence. Any material cost found to be above
market value or considered obsolete is written down accordingly. The total inventory value was $466,207 and $843,233 as of December
31, 2017 and 2016, respectively, which included work-in-process of $0 and $141,238 as of December 31, 2017 and 2016, respectively,
and the remaining amount is comprised of finished goods. The Company had no obsolescence reserve at December 31, 2017 and 2016.
At December 31, 2017 the Company recorded a prepayment for inventory yet to be received of approximately $362,000 as a component
of prepaid expenses and other current assets.
Property and Equipment
Property and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets which range from two to five years. Repair and maintenance
costs are expensed as incurred; major renewals and improvements are capitalized. As items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating
income.
Long-lived Assets
The Company periodically assesses the recoverability of long-lived
assets and certain identifiable intangible assets by reviewing for potential impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets.
Income Taxes
Income taxes are provided for using the liability method of
accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary
differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment. At December 31, 2017, the Company recorded an income tax payable of approximately $63,000 as a component
of accounts payable and accrued expenses.
The Company accounts for income taxes pursuant to Financial
Accounting Standards Board (FASB) guidance. This guidance prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than not (a greater than 50 percent likelihood of being realized) to be sustained
upon examination by taxing authorities. The Company believes its income tax filing positions and deductions will be sustained upon
examination and, accordingly, no reserves, or related accruals for interest and penalties have been recorded at December 31, 2017
and 2016. In accordance with the guidance, the Company has adopted a policy under which, if required to be recognized in the future,
interest and penalties related to the underpayment of income taxes will be classified in income taxes in the statements of operations.
The Company has three open years of tax returns subject to examination starting with 2014.
Research and Development
Expenditures for research and product development costs are
expensed as incurred. Research and development expenses were $46,686 and $76,155 for the years ended December 31, 2017 and 2016,
respectively, and is included in selling, general and administrative expenses on the statements of operations.
Stock-based Compensation
The Company measures and recognizes compensation expense for
all stock-based payment awards made to employees and directors. The compensation expense for the Company’s stock-based payments
is based on estimated fair values at the time of the grant.
The Company estimates the fair value of stock-based awards on
the date of grant using the closing sales price on that date. The Company’s stock-based compensation awards are not subject
to vesting requirements.
Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective
functional currencies of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign
currency differences arising on retranslation are recognized in profit or loss.
Basic and Diluted Earnings Per Share
Basic earnings per share is computed by dividing net income
by the weighted average shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic
earnings per share except that the weighted average shares outstanding are increased to include additional shares from the assumed
exercise of stock options or warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding
stock options or warrants were exercised and that the proceeds from the exercise were used to acquire shares of common stock at
the average market price during the reporting period (See Note 7).
Recently Adopted Accounting Pronouncements
In July 2015, FASB issued ASU No. 2015-11, which amended Inventory
(Topic 330) Related to Simplifying the Measurement of Inventory of the Accounting Standards Codification. The amended guidance
applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory
measured using first-in, first-out (FIFO) or average cost is included in the new amendments. Inventory within the scope of the
new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement
is unchanged for inventory measured using LIFO or the retail inventory method. The Company adopted the guidance on January 1, 2017
and it did not have a material impact on its financial statements.
In November 2015, the FASB issued ASU No. 2015-17,
Income
Taxes: Balance Sheet Classification of Deferred Taxes
, which simplifies the presentation of deferred taxes by requiring deferred
tax assets and liabilities be classified as noncurrent on the balance sheet. As a result of our prospective adoption of this guidance
on January 1, 2017, all deferred tax assets and liabilities have been classified as noncurrent on our balance sheet at
December 31, 2017, while our balance sheet at December 31, 2016 reflects classifications of deferred tax assets and liabilities
in accordance with previous GAAP. The adoption of this guidance had no impact on our results of operations or cash flows.
Recently Issued Accounting Pronouncements
In May 2014, and amended in July 2015, FASB issued guidance creating Accounting Standards Codification (“ASC”)
Section 606, “Revenue from Contracts with Customers.” The new section will replace Section 605, “Revenue Recognition”
and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section
is intended to conform revenue accounting principles to a concurrently issued International Financial Reporting Standards with
previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance
disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning
on or after December 15, 2017, and interim periods within those annual periods. The Company will adopt the new provisions of this
accounting standard at the beginning of 2018. The Company determined this guidance will not have a material impact on its financial
statements, but will expand our disclosures of the nature of our revenue.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842),
which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets
and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease
payments. The accounting guidance for lessors is largely unchanged. The ASU is effective for the Company beginning in 2019. The
Company is currently evaluating the impact that the adoption of this guidance will have on the Company’s financial statements.
NOTE 2. ACCOUNTS RECEIVABLE
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Accounts receivable under normal 30 day terms
|
|
$
|
1,493,084
|
|
|
$
|
979,564
|
|
Financed contracts:
|
|
|
|
|
|
|
|
|
Current portion of long-term
|
|
|
1,741,669
|
|
|
|
2,028,025
|
|
Long-term, net of current portion
|
|
|
1,515,120
|
|
|
|
1,421,330
|
|
Total accounts receivable
|
|
|
4,749,873
|
|
|
|
4,428,919
|
|
Less allowance for doubtful accounts
|
|
|
(181,473
|
)
|
|
|
(200,266
|
)
|
Accounts receivable, net
|
|
$
|
4,568,400
|
|
|
$
|
4,228,653
|
|
Presented on the balance sheet as:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
3,053,280
|
|
|
$
|
2,807,323
|
|
Long-term accounts receivable - financed contracts
|
|
|
1,515,120
|
|
|
|
1,421,330
|
|
The allowance for financed and trade receivable represents management’s
estimate of probable losses in our trade and financed receivables as of the date of the financial statements. The allowance provides
for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent
of the trade and financed receivables, but that have not been specifically identified.
Included in accounts receivable - Financed contracts at December
31, 2017 and 2016 is $3,256,789 and $3,449,355, respectively, with an offset to deferred revenues long-term on the balance sheet
of $3,313,772 and $2,745,081 at December 31, 2017 and 2016, respectively.
A roll-forward of the Company’s allowance for doubtful
accounts for the years ended is as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Accounts receivable allowance, beginning of year
|
|
$
|
200,266
|
|
|
$
|
185,397
|
|
Provision adjustment
|
|
|
(18,793
|
)
|
|
|
14,869
|
|
Write-off
|
|
|
0
|
|
|
|
0
|
|
Accounts receivable allowance, end of year
|
|
$
|
181,473
|
|
|
$
|
200,266
|
|
The allowance for doubtful accounts as of December 31, 2017
is $181,473 for the trade receivables and $0 for the financed contracts. The allowance for doubtful accounts as of December 31,
2016 is $200,266 for the trade receivables and $0 for the financed contracts.
In addition, during the second quarter of 2017, the Company incurred bad debt expense related to a direct
write-off for a customer that notified the Company of their inability to pay of approximately $150,000. This customer was not previously
included in the allowance as of December 31, 2016. The Company has determined this customer’s amount to be fully uncollectable.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Office equipment
|
|
$
|
49,294
|
|
|
$
|
49,294
|
|
Vehicles
|
|
|
115,305
|
|
|
|
118,375
|
|
Total
|
|
|
164,599
|
|
|
|
167,669
|
|
Less: accumulated depreciation
|
|
|
(92,813
|
)
|
|
|
(134,243
|
)
|
Property and equipment, net
|
|
$
|
71,786
|
|
|
$
|
33,426
|
|
Depreciation expense totaled $32,949 and $21,108 for the years
ended December 31, 2017 and 2016, respectively.
NOTE 4. OPERATING LEASES
The Company has a lease on corporate office space in Minnetonka,
Minnesota, which renewed in July 2016. This lease has rent escalations from $3,670 to $4,090 per month through July 2021, excluding
operating expenses. Future minimum lease payments are as follows:
2018
|
|
$
|
45,753
|
|
2019
|
|
|
46,100
|
|
2020
|
|
|
47,036
|
|
2021
|
|
|
28,632
|
|
Total
|
|
$
|
167,521
|
|
Rent expense was $46,932 and $36,075 for the years ended December
31, 2017 and 2016, respectively.
NOTE 5. STOCKHOLDERS’ EQUITY
Common Stock
In March 2016, the Company transferred 7,500 shares from its
treasury at a grant date fair value of $.85 per share to a director, for services rendered during the period July 1 through December
31, 2015 for a total expense of $6,375.
In October 2016, the Company transferred 7,500 shares from its
treasury at a grant date fair value of $1.35 per share to a director for services rendered during the period January 1, 2016 through
June 30, 2016 for a total expense of $10,125.
As of December 31, 2017 and 2016, the Company holds 144,769 common stock shares in treasury at a total cost
of $146,360 for future employee issuances under the bonus program which was part of the 2014 repurchase of shares.
Stock Repurchase Program
On December 23, 2014, the Company’s Board of Directors
approved the repurchase of its outstanding shares of up to $100,000 of its common stock from private unsolicited sellers’
paper certificate blocks (non-street name) in the open market until September 30, 2015, which was subsequently extended by the
Board of Directors. On March 17, 2015, the Company’s Board of Directors approved another repurchase of up to $75,000 for
the same program. On September 4, 2016, the Company’s Board of Directors approved another repurchase of up to $50,000 for
the same program. As of December 31, 2017, no further funds have been approved for the repurchase program and no authorized funds
remain available for use in repurchasing the Company’s shares. Company insiders are prohibited from participating in the
stock repurchase program. The Company has repurchased 240,269 shares at an average price of $.95 per share through December 31,
2017.
The Company did not repurchase any shares during 2017.
On January 7, 2018, The Company’s Board of Directors
approved the repurchase of its outstanding shares, using management’s discretion, of its common stock from private unsolicited
sellers’ in the open market. The Company has repurchased 38,500 shares at an average price of $2.41 per sh
are
through March 30, 2018.
Stock Compensation
On January 8, 2018, the Board of Directors of Table Trac Inc. appointed Randy Gilbert as the Company’s
Chief Financial Officer and awarded him 50,000 Restricted Stock Units. These units are subject to a four year vesting schedule
as follows: 20,000 Units in year one; 10,000 units in each subsequent year. The Company has no stock options or restricted stock
outstanding as of December 31, 2017 and 2016.
NOTE 6. INCOME TAXES
The income tax provision (benefit) consists of the following
for the years ended December 31:
|
|
2017
|
|
|
2016
|
|
Current tax expense
|
|
$
|
78,000
|
|
|
$
|
(158,000
|
)
|
Deferred tax (benefit)
|
|
|
(244,000
|
)
|
|
|
294,000
|
|
Total income tax expense (benefit)
|
|
$
|
(166,000
|
)
|
|
$
|
136,000
|
|
The reconciliation between expected federal income tax rates
and the Company’s effective federal tax rates is as follows:
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Expected federal tax
|
|
$
|
141,800
|
|
|
|
34.0
|
%
|
|
$
|
94,800
|
|
|
|
34.0
|
%
|
Permanent differences
|
|
|
14,500
|
|
|
|
3.5
|
%
|
|
|
13,600
|
|
|
|
4.9
|
%
|
State income tax, net of federal tax benefit
|
|
|
11,300
|
|
|
|
2.7
|
%
|
|
|
6,300
|
|
|
|
2.3
|
%
|
Reduced DPAD due to amended federal net operating loss carryback refund
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
17,400
|
|
|
|
6.2
|
%
|
Other
|
|
|
(12,600
|
)
|
|
|
-3.0
|
%
|
|
|
3,900
|
|
|
|
1.4
|
%
|
Tax law rate change
|
|
|
(321,000
|
)
|
|
|
-77.0
|
%
|
|
|
0
|
|
|
|
0.0
|
%
|
Total
|
|
$
|
(166,000
|
)
|
|
|
-39.8
|
%
|
|
$
|
136,000
|
|
|
|
48.8
|
%
|
The following table summarizes the Company’s deferred
tax assets and liabilities at December 31:
|
|
2017
|
|
|
2016
|
|
Current deferred tax asset (liabilities):
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
54,000
|
|
|
$
|
140,000
|
|
Accounts receivable
|
|
|
(1,127,000
|
)
|
|
|
(1,629,000
|
)
|
Allowance for doubtful accounts
|
|
|
44,000
|
|
|
|
68,000
|
|
Prepaid expenses
|
|
|
(110,000
|
)
|
|
|
(55,000
|
)
|
Deferred revenue
|
|
|
554,000
|
|
|
|
562,000
|
|
Net current deferred tax liability
|
|
|
(585,000
|
)
|
|
|
(914,000
|
)
|
Long-term deferred tax asset:
|
|
|
|
|
|
|
|
|
NOL - federal
|
|
|
-
|
|
|
|
80,000
|
|
NOL - state
|
|
|
24,000
|
|
|
|
28,000
|
|
Foreign tax credit
|
|
|
52,000
|
|
|
|
47,000
|
|
Depreciation
|
|
|
(7,000
|
)
|
|
|
(1,000
|
)
|
Net long-term deferred tax asset
|
|
|
69,000
|
|
|
|
154,000
|
|
Net deferred tax liability
|
|
$
|
(516,000
|
)
|
|
$
|
(760,000
|
)
|
The federal net operating loss carryforward at December 31, 2017 is $0 and the various state net operating
loss carryforwards is approximately $389,000 which expires between 2025 and 2035 if not used. An allowance for net operating loss
carryforward is recorded when the Company believes the amount may not be collected or fully utilized. Management believes the state
net operating loss carryforward, is fully collectible or will be fully utilized.
NOTE 7. EARNINGS PER SHARE
Earnings per share is computed under two different methods,
basic and diluted, and is presented for all periods in which statements of operations are presented. Basic earnings per share is
computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share
is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding.
The Company currently does not have any common stock equivalents outstanding.
The following table provides a reconciliation of the numerators
and denominators used in calculating basic and diluted earnings per share:
|
|
For the Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
Net income to common stockholders
|
|
$
|
583,051
|
|
|
$
|
142,851
|
|
Weighted average number of common shares outstanding
|
|
|
4,511,965
|
|
|
|
4,516,171
|
|
Basic and diluted net income per share
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
NOTE 8. GEOGRAPHIC CONCENTRATIONS
The Company sells its technologies and services to casinos in
the United States, the Caribbean and countries in both Central and South America. For 2017 and 2016, 95% and 90% of the Company’s
revenues were from the United States, 1% and 1% from the Caribbean, 1% and 1% from Central America, and 3% and 8% from South America,
respectively.
For 2017 and 2016, 82% and 84% of the Company’s accounts
receivable were from the United States, <1% and 1% from the Caribbean, 6% and 1% from Central America, and 12% and 14% from
South America, respectively.
NOTE 9. FOREIGN CURRENCY EXCHANGE RATE RISK
The Company is exposed to foreign currency risks that arise
from some of its foreign customers in Colombia, transacted in Colombia Pesos. As a result, exchange rate fluctuations may cause
our international results to fluctuate when translated into U.S. dollars. These risks may change over time as business practices
evolve and could have an impact on the Company’s financial results in the future due to the long term nature of our accounts
receivable in Colombia which totaled approximately $314,000 and $384,000 at December 31, 2017 and 2016, respectively. The Company
monitors its risk associated with the volatility of certain foreign currencies against U.S. dollars. The Company recorded a realized
loss on foreign currency of approximately $10,900 and $23,600 in 2017 and 2016, respectively.
NOTE 10. COMMITMENT AND CONTINGENCIES
The Company has lease commitments with future minimum lease payments of approximately $168,000 through July
2021 (see Note 4). During 2016, the Company entered into an Agreement with a contractor to
design
and execute on a sales and marketing strategy for the Company in key Latin American and Caribbean gaming jurisdictions. The Agreement
originally expired on July 14, 2017 and was renewed until December 31, 2017. As of December 31, 2017 agreement is continuing on
a month to month arrangement.