| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company 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. 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 (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. 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 For
the year ended December 30, 2018, two customers comprised approximately 38% of revenue compared to two customers who accounted
for approximately 23% for the year ended December 31, 2017. At December 31, 2018, three customers comprised approximately 46%
of accounts receivable compared to one customers accounting for approximately 13% at December 31, 2017. The following table summarizes
major customer’s information for the years ended December 31, 2018 and 2017:
For
the Years ended December 31
2018 2017
%
Revenues %
AR %
Revenues %
AR
Major 37.7 % 45.6 % 23.2 % 12.9 %
All
Others 62.3 % 54.4 % 76.8 % 87.1 %
Total 100.0 % 100.0 % 100.0 % 100.0 % A
major customer is defined any customer that represents at least 10% of revenue or outstanding account receivable for a given period. Revenue
Recognition 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
the Company expects to receive in exchange for those products or services. the Company enters 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, Revenue From Contracts With Customers 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 years ended December 31, 2018 and 2017, respectively:
For
the years ended December 31,
2018 2017 2018 2017
(percent
of revenues)
System
sales $ 4,953,871 $ 3,926,420 63.4 % 61.5 %
Maintenance fees 2,635,122 2,269,840 33.7 % 35.6 %
Other
sales 229,704 184,107 2.9 % 3.0 %
Total
revenues $ 7,818,697 $ 6,380,367 100.0 % 100.0 % Significant
Judgments Contracts
with customers typically contain promises to transfer multiple products and services to a customer. Judgment is required to determine
whether each product and/or service is considered to be a distinct performance obligation that should be accounted for separately
under the contract. The Company allocates the transaction price to the distinct performance obligations based on relative standalone
selling price (“SSP”). The Company estimates SSP by maximizing use of observable prices such as the prices charged
to customers on a standalone basis, established prices lists, contractually stated prices, profit margins and other entity-specific
factors, or by using information such as market conditions and other observable inputs. Determining
whether systems and services are distinct performance obligations that should be accounted for separately, or not distinct and
thus accounted for together, requires significant judgment. In most arrangements the Company’s systems and certain services
are distinct from each other and therefore the Company has concluded that these promised goods and services are separate performance
obligations. The
Company is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances,
the consideration expected to be received is variable based on the specific terms of the contract or based on the Company’s
expectations of the term of the contract. Generally, the Company has not experienced significant returns from or refunds to customers
as the Company has a policy to not accept returns other than for defective product. Management has determined that change in these
estimates will not have a significant effect on its results of operations during the periods involved. 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. 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 2018 and 2017, 92% and 95% of the Company’s revenues were from the United States, 4% and 1% from the Caribbean,
2% and 1% from Central America, and 2% and 3% from South America, respectively. As
of December 31, 2018 and 2017, 89% and 82% of the Company’s accounts receivable were from the United States, 5% and <1%
from the Caribbean, 4% and 6% from Central America, and 2% and 12% from South America, respectively. 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 included in other long-term assets on the balance sheet, and are $528,401 and $967,092
as of December 31, 2018 and 2017, respectively. Fair
Value of Financial Instruments The
Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and debt. 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, 2018 or 2017. 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. 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 $762,165 and $466,207 as of December 31, 2018 and 2017, respectively, which included work-in-process
of $50,824 and $0 as of December 31, 2018 and 2017, respectively, and the remaining amount is comprised of finished goods. The
Company had no obsolescence reserve at December 31, 2018 and 2017. At December 31, 2018 the Company recorded a prepayment for
inventory yet to be received of approximately $124,000 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, 2018, the Company recorded
an income tax payable of approximately $53,000. 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, 2018 and 2017. 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 2015. Research
and Development Expenditures
for research and product development costs are expensed as incurred. Research and development expenses were $118,765 and $46,686
for the years ended December 31, 2018 and 2017, 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, directors and non-employees.
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 subject to vesting requirements and the corresponding compensation is recorded ratably over
the vesting terms. 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 restricted stock shares subject to vesting.
The number of additional shares is calculated by assuming that outstanding stock options 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. Restrictive
stock shares are included in dilutive shares as of the beginning of the period in which the vesting conditions are satisfied.
(See Note 7). 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. In
August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain
disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded
the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments,
an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note
or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period
for which a statement of operations is required to be filed. The Company anticipates its first presentation of changes in stockholders’
equity will be included in its Form 10-Q for the quarter ended March 31, 2019. Recently
Issued Accounting Pronouncements 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 evaluated the impact that the adoption of this guidance will have on the Company’s
financial statements and anticipates the new guidance will result in the recognition of right of use assets and lease liabilities
on the Company’s balance sheet primarily as a result of operating leases not recognized on the balance sheet. |
