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, 2019 and the statements of operations and stockholders’ equity for the three and six months
ended June 30, 2019 and 2018, and the statements of cash flows for the six months ending June 30, 2019 and 2018 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, 2018.
Nature of Business
Table Trac was formed under the laws of the State of Nevada
in June 1995. The Company has offices in Minnetonka, Minnesota and Oklahoma City, Oklahoma. 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’s use 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, 2018.
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
based 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. The Company occasionally enters into a contract that includes multiple sites; management
has determined that each site installation is a separate performance obligation. In these instances the Company recognizes revenue
upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells
the Company’s products; monthly the reseller notifies the Company of their successful installations, and submits an invoice
to the reseller for those installations. 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, 2019 and 2018, respectively:
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
1,498,786
|
|
|
$
|
2,359,112
|
|
|
|
66.8
|
%
|
|
|
78.5
|
%
|
Maintenance fees
|
|
|
691,703
|
|
|
|
626,690
|
|
|
|
30.4
|
%
|
|
|
20.9
|
%
|
Service and other sales
|
|
|
63,850
|
|
|
|
17,333
|
|
|
|
2.8
|
%
|
|
|
0.6
|
%
|
Total revenues
|
|
$
|
2,254,339
|
|
|
$
|
3,003,135
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
The following table summarizes disaggregated revenues by major
product line for the six months ended June 30, 2019 and 2018, respectively:
|
|
Six Months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
2,157,381
|
|
|
$
|
2,739,979
|
|
|
|
59.8
|
%
|
|
|
67.1
|
%
|
Maintenance fees
|
|
|
1,364,272
|
|
|
|
1,253,708
|
|
|
|
37.4
|
%
|
|
|
30.7
|
%
|
Service and other sales
|
|
|
101,315
|
|
|
|
90,716
|
|
|
|
2.8
|
%
|
|
|
2.2
|
%
|
Total revenues
|
|
$
|
3,622,968
|
|
|
$
|
4,084,403
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
See Major Customers for disaggregated revenue information
about primary geographical markets.
Significant Judgments
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. 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 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. These costs are the most significant component
of other long-term assets on the balance sheet, and are $406,094 and $528,401 as of June 30, 2019 and December 31, 2018, 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 future
write-offs not included in the allowance will not have a material impact on the Company's financial position.
Major Customers
For the six month period ended June 30, 2019, one customer
comprised approximately 31% of revenue compared to one customer who accounted for approximately 38% for the six months ending
June 30, 2018. At June 30, 2019, two customers comprised approximately 37% of accounts receivable compared to four customers accounting
for approximately 66% at June 30, 2018. The following table summarizes major customer’s information for the six months ended
June 30, 2019 and 2018:
|
|
For the Six Months ended
June 30
|
|
|
|
2019
|
|
|
2018
|
|
|
|
% Revenues
|
|
|
% AR
|
|
|
% Revenues
|
|
|
% AR
|
|
Major
|
|
|
30.9
|
%
|
|
|
36.5
|
%
|
|
|
38.1
|
%
|
|
|
65.8
|
%
|
All Others
|
|
|
69.1
|
%
|
|
|
63.5
|
%
|
|
|
61.9
|
%
|
|
|
34.2
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
For the six month periods ending June 30, 2019 and 2018, sales
to customers in the United States represent 87.7% and 86.4% of total revenues, respectively.
The following table summarizes the major customer’s information
for the three months ended June 30, 2019 and the major customer’s information for the three months ending June 30, 2018:
For the Three Months Ended
June 30
|
|
|
2019
|
|
|
2018
|
|
|
|
% Revenues
|
|
|
% Revenues
|
|
Major
|
|
|
40.3
|
%
|
|
|
51.9
|
%
|
All Others
|
|
|
59.7
|
%
|
|
|
48.1
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
For the three month periods ending June 30, 2019 and 2018,
sales to customers in the United States represent 92.4% and 83.6% of total revenues, respectively.
A major customer is defined as 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, 2019 was
$1,400,970, which included work-in-process of $32,185. The inventory value was $762,165 as of December 31, 2018, which included
work-in-process of $50,824. The Company had no obsolescence reserve at June 30, 2019 or December 31, 2018. At June 30, 2019 the
Company recorded a prepayment for inventory yet to be received of approximately $285,473 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 $14,244 and $15,620 for the three months ended June 30, 2019 and 2018, and $16,004
and $31,705 for the six months ended June 30, 2019 and 2018, respectively. Research and development expenses are included in selling,
general and administrative expenses on the statements of operations.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ('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.
Effective January 1, 2019, we adopted the FASB Accounting Standards
Update ('ASU') 2016-02,
Leases
, which requires the recognition of lease assets and lease liabilities by lessees for
those leases classified as operating leases under previous guidance. The original guidance required application on a modified
retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11,
Targeted Improvements
to ASC 842
, which included an option to not restate comparative periods in transition and elect to use the effective date
of ASC 842,
Leases
, as the date of initial application of transition, which we elected. As a result of the adoption
of ASC 842 on January 1, 2019, we recorded both operating lease right-of-use ('ROU') assets and lease liabilities of approximately
$136,000. The adoption of ASC 842 had an immaterial impact on our Condensed Statement of Operations and Condensed Statement of Cash
Flows for the six-month period ended June 30, 2019. In addition, we elected the package of practical expedients permitted under
the transition guidance within the new standard which allowed us to carry forward the historical lease classification.
Accounts receivable consisted of the following at:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Accounts receivable under normal 30 day terms
|
|
$
|
2,540,327
|
|
|
$
|
2,165,820
|
|
Financed contracts:
|
|
|
|
|
|
|
|
|
Current portion of long-term
|
|
|
670,169
|
|
|
|
866,494
|
|
Long-term, net of current portion
|
|
|
903,482
|
|
|
|
1,030,354
|
|
Total accounts receivable
|
|
|
4,113,978
|
|
|
|
4,062,668
|
|
Less allowance for doubtful accounts
|
|
|
(95,263
|
)
|
|
|
(165,840
|
)
|
Accounts receivable, net
|
|
$
|
4,018,715
|
|
|
$
|
3,896,828
|
|
Presented on the balance sheet as:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
3,115,233
|
|
|
$
|
2,866,474
|
|
Long-term accounts receivable - financed contracts
|
|
|
903,482
|
|
|
|
1,030,354
|
|
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 in the trade and financed receivables, but that have not been specifically identified.
Accounts receivable includes financed contracts at June 30,
2019 and December 31, 2018 which are $1,573,651 and $1,896,848, respectively, offset by contract liabilities on the balance sheets
of $1,373,187 and $1,690,660, respectively.
A roll-forward of the Company’s allowance for doubtful
accounts for the periods presented is as follows:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Accounts receivable allowance, beginning of year
|
|
$
|
165,840
|
|
|
$
|
181,473
|
|
Provision adjustment
|
|
|
0
|
|
|
|
125,405
|
|
Write-off
|
|
|
(70,577
|
)
|
|
|
(141,038
|
)
|
Accounts receivable allowance, end of period
|
|
$
|
95,263
|
|
|
$
|
165,840
|
|
The allowance for doubtful accounts is $46,259 and $104,040
for the trade receivables at June 30, 2019 and December 31, 2018, respectively, and 49,004 and $61,800 for the financed contracts
at June 30, 2019 and December 31, 2018, respectively.
We lease space under non-cancelable operating leases for our
two office locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives,
or other build-out clauses. Further, the leases do not contain contingent rent provisions.
Our leases include one or more options to renew. The exercise
of lease renewal options are included in our ROU assets and lease liabilities if they are reasonably certain of exercise.
Our leases do not provide an implicit rate; we use our incremental
borrowing rate of 5% which is based on the information available at the date of adoption in determining the present value of the
lease payments.
The cost components of our operating leases were $15,519
and $31,038 for the three months and six months ended June 30, 2019, respectively.
Maturities of our lease liabilities for all operating leases
are as follows as of June 30, 2019:
|
|
Leased Facilities
|
2019
|
|
$
|
30,662
|
|
2020
|
|
|
57,436
|
|
2021
|
|
|
28,632
|
|
Total Lease Payments
|
|
|
116,730
|
|
Less: Interest
|
|
|
(7,985
|
)
|
Present value of lease liabilities
|
|
$
|
108,745
|
|
The weighted average remaining lease terms equals 1.88 years
as of June 30, 2019.
4.
|
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 six month period ended June 30, 2019, the Company
did not repurchase any shares for its treasury.
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 shares. These shares
are subject to a four year vesting schedule as follows: 20,000 shares on January 8, 2019 and 10,000 shares in each subsequent
year. Grant date fair value of $117,500 will be recognized equally over the vesting period as stock compensation expense as a
component of selling, general and administration expense.
Additionally, on December 12, 2018, the Board of Directors
of Table Trac Inc. approved a resolution which awarded 9,000 Restricted Stock shares to employees and the new Board of Directors.
These shares are subject to a one year vesting period.
The unvested stock compensation expense is expected to be recognized
over a weighted average period of approximately two years. As of June 30, 2019, the remaining unrecognized stock compensation
expense approximated $78,000.
The Company has no stock options outstanding as of June 30,
2019 and December 31, 2018.
The Company has 39,000 shares of restricted stock outstanding
as of June 30, 2019 and 59,000 restricted shares outstanding at December 31, 2018
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 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, 2015 through 2018, which are the tax years that
remain subject to examination by major tax jurisdictions as of June 30, 2019. 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, 2019 and 2018:
|
|
For the Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Basic and diluted earnings per
share calculation:
|
|
|
|
|
|
|
|
|
Net income to
common stockholders
|
|
$
|
274,718
|
|
|
$
|
230,701
|
|
Weighted average number of common shares outstanding - basic
|
|
|
4,498,668
|
|
|
|
4,477,545
|
|
Basic net income per share
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
4,505,736
|
|
|
|
4,477,545
|
|
Diluted net income per share
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
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, 2019 and 2018:
|
|
For the Three Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Basic and diluted earnings per
share calculation:
|
|
|
|
|
|
|
|
|
Net income to
common stockholders
|
|
$
|
266,763
|
|
|
$
|
410,538
|
|
Weighted average number of common shares outstanding - basic
|
|
|
4,498,668
|
|
|
|
4,468,630
|
|
Basic net income per share
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
4,505,354
|
|
|
|
4,468,630
|
|
Diluted net income per share
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|