NOTES TO CONDENSED FINANCIAL STATEMENTS
|
1.
|
Nature of Business and Summary
of Significant Accounting Policies –
|
Basis of Presentation
The accompanying unaudited condensed financial statements of
Table Trac, Inc. (the “Company,” or “Table Trac”) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
The balance sheet as of June 30, 2018 and the statements of operations for the three and six months ended June 30, 2018 and 2017,
and the statements of cash flows for the six months ending June 30, 2018 and 2017 are unaudited but include all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the financial position at such date and the operating results
and cash flows for those periods. Certain information normally included in financial statements and related footnotes prepared
in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The accompanying financial statements should be read in conjunction with the financial
statements and notes included in the Table Trac Annual Report on Form 10-K for the year ended December 31, 2017.
Nature of Business
Table Trac 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 sells an information and management
system that automates and monitors various aspects of the operations of casinos.
Table Trac 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 separate license and service contracts.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the 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. The Company uses of estimates and assumptions include:
for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone
selling price (“SSP”) of performance obligations, variable consideration, and other obligations, realizability of accounts
receivable, the valuation of deferred tax assets and liabilities, deferred revenue and costs, and the valuation of inventory. Actual
results could differ from those estimates.
The Company’s significant accounting policies are described
in Note 1 of the financial statement included in its Annual Report on Form 10-K for the year ended December 31, 2017. Significant
changes to the Company’s accounting policies as a result of adopting Accounting Standards Codification (ASC) 606 are discussed
below.
Revenue
The Company derives revenues from the sales of systems, licenses
and maintenance fees, and services, and rental agreements.
System Sales
Revenue is recognized upon transfer of control of promised products
or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct
and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected, when applicable from customers,
which are subsequently remitted to governmental authorities.
A performance obligation is a promise in a contract to transfer
a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company’s systems sales
have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance
services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation
on its SSP. The Company generally determines the SSP based on the price charged to customers. The Company does offer its customers
contracts with extended payment terms representing a significant financing component. The Company must evaluate if any extended
payment terms in the contract is an indicator of the transaction price not being probable. The Company only includes the amount
for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty
is resolved. Provided all other revenue recognition steps have been satisfied, the Company recognizes the revenue if payment
of a significant portion of the contract consideration is due within 12 months of the delivery of the product. System contracts
that do not meet this criteria are deferred and recognized when the uncertainty is resolved, which is consistent with when contractual
payments become due. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting
on extended payment term contracts which include a financing component which is usually a market interest rate. The associated
interest income is reflected accordingly on the statement of operations without making concessions for determining if revenue should
be recognized.
Maintenance revenue
Maintenance revenue is recognized ratably over the contract
period. The stand-alone selling price 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 stand-alone selling price for service revenue is established
based upon actual selling prices for the services or prior similar arrangements.
Rental revenue
The Company may offer customers a rental contract. Revenues
are billed monthly on a per-game per-day basis. There is an option to purchase the system after the rental contract expires
at a pre-determined residual value.
The following table summarizes disaggregated revenues by major product line for the three months ended
June 30, 2018 and 2017, respectively:
|
|
Three Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
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2017
|
|
|
|
|
|
|
|
|
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(percent of revenues)
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|
System sales
|
|
$
|
2,359,112
|
|
|
$
|
1,533,574
|
|
|
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78.5
|
%
|
|
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70.2
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%
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Maintenance fees
|
|
|
626,690
|
|
|
|
550,363
|
|
|
|
20.9
|
%
|
|
|
25.2
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%
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Service and other sales
|
|
|
17,333
|
|
|
|
99,850
|
|
|
|
0.6
|
%
|
|
|
4.6
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%
|
Total revenues
|
|
$
|
3,003,135
|
|
|
$
|
2,183,787
|
|
|
|
100.0
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%
|
|
|
100.0
|
%
|
The following table summarizes disaggregated revenues by major
product line for the six months ended June 30, 2018 and 2017, respectively:
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|
Six months ended June 30,
|
|
|
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2018
|
|
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2017
|
|
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2018
|
|
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2017
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
2,739,979
|
|
|
$
|
2,068,773
|
|
|
|
67.1
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%
|
|
|
63.0
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%
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Maintenance fees
|
|
|
1,253,708
|
|
|
|
1,095,983
|
|
|
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30.7
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%
|
|
|
33.4
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%
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Service and other sales
|
|
|
90,716
|
|
|
|
119,664
|
|
|
|
2.2
|
%
|
|
|
3.6
|
%
|
Total revenues
|
|
$
|
4,084,403
|
|
|
$
|
3,284,420
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
See Major Customers for disaggregated revenue information
about primary geographical markets.
Significant Judgments
Our contracts with customers often include
promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct
performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine the SSP
for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately. We use
a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there
is a discount to be allocated based on the relative SSP of the various products and services.
In instances where SSP is not directly
observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include
market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to
the stratification of those products and services by customers and circumstances. In these instances, we may use information such
as the size of the customer and geographic region in determining the SSP.
We evaluated the contractual payment terms
of all system sales generated during the year to determine the proper recognition or deferral of revenue was recorded. We believe
the 12 month subsequent collection threshold of 67% or greater is the most appropriate for the Company to constrain revenue.
We evaluate the interest rates used in
customer contracts with extended payment terms, representing a significant financing component. These rates range from approximately
1% to 6% and we believe those to be appropriate market interest rates for the financing component.
Deferred System Sales Costs
Incremental cost to obtain and fulfil a contract are deferred and amortized
over the related system contract term. 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 usually
receive title to the system. These costs are a significant component of other long-term assets on the balance sheet, and are $636,059
and $967,092 as of June 30, 2018 and December 31, 2017, respectively.
Accounts Receivable / Allowance for Doubtful Accounts
Accounts receivable are initially recorded at the invoiced amount
and carried on the balance sheet 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.
Major Customers
For the six month period ended June 30, 2018, four customers
comprised approximately 51% of revenue compared to two customers who accounted for approximately 32% for the six months ending
June 30, 2017. At June 30, 2018, the same four customers comprised approximately 66% of accounts receivable revenue compared to
two customers accounting for approximately 29% for the six months ending June 30, 2017. The following table summarizes major customer information for the six months ended June 30, 2018 and 2017:
|
|
For the Six Months ended June 30
|
|
|
|
2018
|
|
|
2017
|
|
|
|
% Revenues
|
|
|
% AR
|
|
|
% Revenues
|
|
|
% AR
|
|
Major
|
|
|
51.3
|
%
|
|
|
65.8
|
%
|
|
|
31.8
|
%
|
|
|
28.5
|
%
|
All Others
|
|
|
48.7
|
%
|
|
|
34.2
|
%
|
|
|
68.2
|
%
|
|
|
61.5
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
For the six month periods ending June 30, 2018 and 2017, sales
to customers in the United States represent 86.4% and 92.4% of total revenues, respectively.
The following table summarizes the major customer information for the three months ended June 30, 2018
and the three major customers information for the three months ending June 30, 2017:
For the Three Months Ended June 30
|
|
|
2018
|
|
|
2017
|
|
|
|
% Revenues
|
|
|
% Revenues
|
|
Major
|
|
|
51.9
|
%
|
|
|
41.9
|
%
|
All Others
|
|
|
48.1
|
%
|
|
|
58.1
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
For the three month periods ending June 30, 2018 and 2017, sales
to customers in the United States represent 83.6% and 94.5% of total revenues, respectively.
A major customer is defined any customer that represents at
least 10% of revenue or outstanding account receivable for a given period.
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
net realizable value or considered obsolete is written down accordingly. The inventory value as of June 30, 2018 was $490,027,
which included work-in-process of $52,387. The inventory value was $466,207 as of December 31, 2017, which included work-in-process
of $0. The Company had no obsolescence reserve at June 30, 2018 or December 31, 2017. At June 30, 2018 the Company recorded a prepayment
for inventory yet to be received of approximately $330,010 as a component of prepaid expenses and other current assets.
Research and Development
The Company expenses all costs related to research and development as incurred.
Research and development expense was $15,620 and $23,972 for the three months ended June 30, 2018 and 2017, and $56,585 and $31,705
for the six months ended June 30, 2018 and 2017, respectively. Research and development expenses are included in selling, general
and administrative expenses on the condensed statements of operations.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued a new standard related to revenue
recognition. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount
that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard
requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We adopted the standard effective January 1, 2018, using
the modified retrospective method, which did not require us to restate each prior reporting period presented. We elected the available
practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information
on adoption.
Accounts receivable consisted of the following at:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Accounts receivable under normal 30 day terms
|
|
$
|
2,202,296
|
|
|
$
|
1,493,084
|
|
Financed contracts:
|
|
|
|
|
|
|
|
|
Current portion of long-term
|
|
|
948,849
|
|
|
|
1,741,669
|
|
Long-term, net of current portion
|
|
|
1,161,112
|
|
|
|
1,515,120
|
|
Total accounts receivable
|
|
|
4,312,257
|
|
|
|
4,749,873
|
|
Less allowance for doubtful accounts
|
|
|
(125,027
|
)
|
|
|
(181,473
|
)
|
Accounts receivable, net
|
|
$
|
4,187,230
|
|
|
$
|
4,568,400
|
|
Presented on the balance sheet as:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
3,026,118
|
|
|
$
|
3,053,280
|
|
Long-term accounts receivable - financed contracts
|
|
|
1,161,112
|
|
|
|
1,515,120
|
|
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.
Accounts receivable includes financed contracts at June 30,
2018 and December 31, 2017 which are $2,109,961 and $3,256,789, respectively, offset by contract liabilities on the balance sheets
of $1,947,632 and $3,313,772, respectively.
A roll-forward of the Company’s allowance for doubtful
accounts for the periods presented is as follows:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Accounts receivable allowance, beginning of year
|
|
$
|
181,473
|
|
|
$
|
200,266
|
|
Provision adjustment
|
|
|
0
|
|
|
|
(18,793
|
)
|
Write-off
|
|
|
(56,446
|
)
|
|
|
0
|
|
Accounts receivable allowance, end of period
|
|
$
|
125,027
|
|
|
$
|
181,473
|
|
The allowance for doubtful accounts is $125,027 and $181,473
for the trade receivables at June 30, 2018 and December 31, 2017, respectively, and $0 for the financed contracts at both June
30, 2018 and December 31, 2017.
|
3.
|
Stockholders’ Equity –
|
Stock Repurchase Program
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. On
May 10, 2018, the Company’s Board of Directors approved the repurchase of its outstanding common shares in an aggregate amount
of up to 200,000 shares not to exceed $600,000, in both private unsolicited and open –market transactions, until December
31, 2019. Company insiders are prohibited from participating in the stock repurchase program.
During the three month period ended June 30, 2018, the Company
repurchased 10,000 shares totaling approximately $19,000 at an average price of $1.95 per share for its treasury. For the six month
period ending June 30, 2018, the Company repurchased 48,500 shares totaling approximately $112,000 at an average price of $2.31
per share for its treasury.
Stock Compensation
In January, the Company awarded 50,000 shares at a price of $2.35 per share from its treasury to its new CFO.
These shares are subject to a four year vesting schedule as follows: 20,000 shares at the end of year one; 10,000 shares in each
subsequent year. No shares vested during the six month period ended June 30, 2018. Grant date fair value of $117,500 will be recognized
equally over the next sixteen quarters as stock compensation expense as a component of selling, general and administration expense.
The unvested stock compensation is expected to be recognized over a weighted average period of approximately two years. As of June
30, 2018, the remaining unrecognized stock compensation expense approximated $103,000. As of June 30, 2018, the Company holds 138,132
common shares in treasury for future employee issuances for potential bonuses. Such common shares in treasury include shares repurchased
pursuant to the stock repurchase program.
The Company accounts for income taxes by following the asset
and liability approach to accounting for income taxes. Deferred tax assets and liabilities represent the future tax consequences
of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and
liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences and operating loss and
tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. 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. The impact of the tax rate changes on deferred tax assets and liabilities is recognized in the
year that the change is enacted. Management believes that any write-off not allowed for will not have a material impact on the
Company's financial position.
The Company files income tax returns in the U.S. federal jurisdiction
and various state jurisdictions. Based on its evaluation, the Company believes that it has no significant unrecognized tax positions.
The Company’s evaluation was performed for the tax years ended December 31, 2014 through 2017, which are the tax years that
remain subject to examination by major tax jurisdictions as of June 30, 2018. The Company does not believe there will be any material
changes in its unrecognized tax positions over the next 12 months.
The Company may from time to time be assessed interest or penalties
by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results.
In accordance with current guidance, the Company classifies interest and penalties as income tax expense is incurred.
The Company computes earnings per share under two different
methods, basic and diluted, and presents per-share data 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 following table provides a reconciliation of the numerators
and denominators used in calculating basic and diluted earnings per share for the six months ended June 30, 2018 and 2017:
|
|
For the Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
Net income to common stockholders
|
|
$
|
230,701
|
|
|
$
|
40,617
|
|
Weighted average number of common shares outstanding - basic
|
|
|
4,477,545
|
|
|
|
4,511,965
|
|
Basic net income per share
|
|
$
|
0.05
|
|
|
$
|
0.01
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
4,477,545
|
|
|
|
4,511,965
|
|
Diluted net income per share
|
|
$
|
0.05
|
|
|
$
|
0.01
|
|
The following table provides a reconciliation of the numerators and denominators used in calculating basic
and diluted earnings per share for the three months ended June 30, 2018 and 2017:
|
|
For the Three Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
Net income to common stockholders
|
|
$
|
410,538
|
|
|
$
|
164,988
|
|
Weighted average number of common shares outstanding - basic
|
|
|
4,468,630
|
|
|
|
4,511,965
|
|
Basic net income per share
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
4,468,630
|
|
|
|
4,511,965
|
|
Diluted net income per share
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
6.
|
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. In addition, 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 the Company’s
accounts receivable in Colombia, which totaled approximately $91,019 and $314,000 at June 30, 2018 and December 31, 2017, respectively.
The Company monitors its risk associated with the volatility of certain foreign currencies against the U.S. dollar.
|
7.
|
Commitment and Contingencies -
|
The Company has 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
expired December 31, 2017. As of June 30, 2018, the agreement is continuing on a month to month arrangement.