Notes to Financial Statements
December 31, 2018 and 2017
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
. 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 (67%) 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 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.
NOTE 2. ACCOUNTS RECEIVABLE
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Accounts receivable under normal 30 day terms
|
|
$
|
2,165,820
|
|
|
$
|
1,493,084
|
|
Financed contracts:
|
|
|
|
|
|
|
|
|
Current portion of long-term
|
|
|
866,494
|
|
|
|
1,741,669
|
|
Long-term, net of current portion
|
|
|
1,030,354
|
|
|
|
1,515,120
|
|
Total accounts receivable
|
|
|
4,062,668
|
|
|
|
4,749,873
|
|
Less allowance for doubtful accounts
|
|
|
(165,840
|
)
|
|
|
(181,473
|
)
|
Accounts receivable, net
|
|
$
|
3,896,828
|
|
|
$
|
4,568,400
|
|
Presented on the balance sheet as:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
2,866,474
|
|
|
$
|
3,053,280
|
|
Long-term accounts receivable - financed contracts
|
|
|
1,030,354
|
|
|
|
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.
Included in accounts receivable - Financed contracts at December
31, 2018 and 2017 is $1,896,848 and $3,256,789, respectively, with an offset to contract liabilities on the balance sheet of $1,690,660
and $3,313,772 at December 31, 2018 and 2017, respectively.
A roll-forward of the Company’s allowance for doubtful
accounts for the years ended is as follows:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Accounts receivable allowance, beginning of year
|
|
$
|
181,473
|
|
|
$
|
200,266
|
|
Provision adjustment
|
|
|
125,405
|
|
|
|
131,454
|
|
Write-off
|
|
|
(141,038
|
)
|
|
|
(150,247
|
)
|
Accounts receivable allowance, end of year
|
|
$
|
165,840
|
|
|
$
|
181,473
|
|
The allowance for doubtful accounts as of December 31, 2018
is $104,040 for the trade receivables and $61,800 for financed contracts. The allowance for doubtful accounts as of December 31,
2017 is $181,473 for the trade receivables and $0 for financed contracts.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Office equipment
|
|
$
|
49,294
|
|
|
$
|
49,294
|
|
Vehicles
|
|
|
176,020
|
|
|
|
115,305
|
|
Total
|
|
|
225,314
|
|
|
|
164,599
|
|
Less: accumulated depreciation
|
|
|
(138,658
|
)
|
|
|
(92,813
|
)
|
Property and equipment, net
|
|
$
|
86,656
|
|
|
$
|
71,786
|
|
Depreciation expense totaled $45,845 and $33,222 for the years
ended December 31, 2018 and 2017, 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.
Additionally, the company entered into a two year lease on an office in Oklahoma City, Oklahoma, which began
in September 2018. The rent is $1,300 per month excluding operating expenses. Future minimum lease payments are as follows:
2019
|
|
|
61,700
|
|
2020
|
|
|
57,436
|
|
2021
|
|
|
28,632
|
|
Total
|
|
$
|
147,768
|
|
Rent expense was $52,583 and $46,932 for the years ended December
31, 2018 and 2017, respectively.
NOTE 5. STOCKHOLDERS’ EQUITY
Common Stock
As of December 31, 2018 and 2017, the Company holds 128,065 and 144,769 common stock shares in treasury at
a total cost of $196,526 and $146,360 respectively for future employee and professional service providers issuances under the bonus
program which was part of both 2018 and 2014 repurchase of shares.
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.
The Company repurchased 48,500 shares totaling approximately
$112,000 at an average price of $2.31 per share for its treasury during 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 shares. These shares are subject to a four year vesting schedule as follows: 20,000 shares
in year one; 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.
During
2018, the Company awarded approximately 6,000 shares approximating $14,000 to a non-employee in exchange for services.
The unvested stock compensation
expense is expected to be recognized over a weighted average period of approximately two years. As of December 31, 2018, the remaining
unrecognized stock compensation expense approximated $103,000.
The Company has no stock options outstanding as of December 31, 2018 and 2017.
The Company has 59,000 shares of restricted stock outstanding as of December 31, 2018, 20,000 of which vested
on January 8, 2019. There were no restricted shares outstanding at December 31, 2017.
NOTE 6. INCOME TAXES
The income tax provision (benefit) consists of the following
for the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Current tax expense
|
|
$
|
214,000
|
|
|
$
|
78,000
|
|
Deferred tax (benefit)
|
|
|
39,000
|
|
|
|
(244,000
|
)
|
Total income tax expense (benefit)
|
|
$
|
253,000
|
|
|
$
|
(166,000
|
)
|
The reconciliation between expected federal income tax rates
and the Company’s effective federal tax rates is as follows:
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Expected federal tax
|
|
$
|
161,300
|
|
|
|
21.0
|
%
|
|
$
|
141,800
|
|
|
|
34.0
|
%
|
Permanent differences
|
|
|
9,100
|
|
|
|
1.2
|
%
|
|
|
14,500
|
|
|
|
3.5
|
%
|
State income tax, net of federal tax benefit
|
|
|
30,900
|
|
|
|
4.0
|
%
|
|
|
11,300
|
|
|
|
2.7
|
%
|
Foreign tax credit
|
|
|
(3,100
|
)
|
|
|
(0.4
|
)%
|
|
|
0
|
|
|
|
0.0
|
%
|
Other
|
|
|
54,800
|
|
|
|
7.1
|
%
|
|
|
(12,600
|
)
|
|
|
(3.0
|
)%
|
Tax law change
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
(321,000
|
)
|
|
|
(77.0
|
)%
|
Total
|
|
$
|
253,000
|
|
|
|
32.9
|
%
|
|
$
|
(166,000
|
)
|
|
|
(39.8
|
)%
|
The following table summarizes the Company’s deferred
tax assets and liabilities at December 31:
|
|
2018
|
|
|
2017
|
|
Current deferred tax asset (liabilities):
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
82,000
|
|
|
$
|
54,000
|
|
Accounts receivable
|
|
|
(1,026,000
|
)
|
|
|
(1,127,000
|
)
|
Allowance for doubtful accounts
|
|
|
46,000
|
|
|
|
44,000
|
|
Prepaid expenses
|
|
|
(75,000
|
)
|
|
|
(110,000
|
)
|
Deferred revenue
|
|
|
376,000
|
|
|
|
554,000
|
|
Net current deferred tax liability
|
|
|
(597,000
|
)
|
|
|
(585,000
|
)
|
Long-term deferred tax asset:
|
|
|
|
|
|
|
|
|
NOL - State
|
|
|
4,000
|
|
|
|
24,000
|
|
Foreign tax credit
|
|
|
38,000
|
|
|
|
52,000
|
|
Book - Tax depreciation
|
|
|
0
|
|
|
|
(7,000
|
)
|
Net long-term deferred tax asset
|
|
|
42,000
|
|
|
|
69,000
|
|
Net deferred tax liability
|
|
$
|
(555,000
|
)
|
|
$
|
(516,000
|
)
|
The federal net operating loss carryforward at December 31,
2018 is $0 and the various state net operating loss carryforwards is approximately $105,000 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 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,
|
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
Net income to common stockholders
|
|
$
|
514,965
|
|
|
$
|
583,051
|
|
Weighted average number of common shares outstanding - basic
|
|
|
4,473,591
|
|
|
|
4,511,965
|
|
Basic net income per share
|
|
$
|
0.12
|
|
|
$
|
0.13
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
4,490,795
|
|
|
|
4,511,965
|
|
Diluted net income per share
|
|
$
|
0.11
|
|
|
$
|
0.13
|
|
For
the year ended December 31, 2018 there were outstanding restricted stock shares that were common stock equivalents that had
a dilutive effect of approximately 17,204 shares.
NOTE 8. 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 nature of our accounts receivable
in Colombia which totaled approximately $31,000 and $314,000 at December 31, 2018 and 2017, respectively. The Company monitors
its risk associated with the volatility of certain foreign currencies against U.S. dollars.
NOTE 9. COMMITMENT AND CONTINGENCIES
The Company has lease commitments for its Minnesota and Oklahoma
offices with future minimum lease payments of approximately $148,000 through July 2021 (see Note 4).