Revenue

3 Months Ended

Sep. 30, 2020

PaymentOnCapitalLease

Revenue

Note 10.  Revenue

The Company applies the guidance under ASC 606 in recognizing revenue, which is generated from leasing and selling slot machines and from sales of parts and certain services relating to the slot machines. Revenue is recognized on sales of products, net of rebates, discounts and allowances, when an agreement exists, typically an approved sales proposal or contract, or upon receipt of customer’s purchase order, in which the sales price is fixed or determinable, and when the performance obligations under that agreement have been completed. This typically occurs when products are delivered and/or installed and upon receipt of regulatory approval, if required. If multiple units of the products are included in any one sale or lease agreement or ancillary services are provided such as delivery or installation, revenue is allocated to each unit or service based upon its respective fair value against the total contract value, or itemized price within the contract, and revenue recognition is deferred on those units or services until all of the performance obligation requirements under the applicable section(s) of that agreement have been completed.

Revenue generated under the leasing model is recognized when the ability to collect is reasonably assured. Lease agreements are based on either a fixed daily or a pre-determined percentage of the monthly net “participation” revenue collected, i.e. revenue share, for each slot machine, subject to monthly minimums and maximums. Customers under fixed daily rate agreements are invoiced on the first day of the month at the agreed upon daily rate per unit for the number of days the unit is leased during the month, typically the total number of days in the month. Customers under revenue share agreements are invoiced when participation reports are remitted to us detailing the monthly per unit information including coin-in, net win, and days on the floor data. Revenue under both of these bases is recorded as lease revenue and recognized in the month to which the lease data pertains.

There may be instances in which a lease is offered to a customer with the option to convert to a sale upon the completion of certain obligations such as a pre-determined paid or reduced-rate lease term and/or a free-trial period. In addition, circumstances may arise in which a customer wishes to purchase machines after being on lease at their facility. In all of these situations, the initial revenue is recorded as lease revenue as described above, and the agreed upon sales price is shown as sales revenue when the lease is converted to a sale and all performance obligations of the sale have been met.

For sales of slot machines, a warranty on parts is typically offered which expires after a defined period of time, usually 90 days after delivery or installation date. One slot machine theme conversion per unit sold is also typically offered during the one year period beginning upon the delivery and/or installation of the slot machine, and only if the slot game fails to earn at least eighty percent of the rolling monthly slot machine gaming floor area average for the customer. The game theme must be approved in the customer's gaming jurisdiction for use in the slot machine and the customer must provide written notice requesting the conversion, including certification of the average that serves as the basis for any such game theme conversion. In addition, the customer must return the original game theme components to the Company

upon conversion of the slot game theme. The cost of the warrantied and theme conversion items are borne by the Company. Historically, these costs have been immaterial and are expensed at time of issuance, however the Company has and will continue to assess these post-sales costs to determine whether they constitute performance obligations and should be recorded at time of sale.

A contract asset is recorded when the performance obligations of the Company have been met and the customer has not been billed. A contract liability is recorded when the Company has an obligation to transfer products or services to a customer for which consideration has been received. As of September 30, 2020 and December 31, 2019, respectively, there were no performance obligations outstanding and there was no revenue expected to be recognized in future periods related to performance obligations. As such, there were no contract liabilities recorded as of September 30, 2020 or December 31, 2019, respectively.

The following table provides a breakdown of the revenue by category as included in the consolidated Statements of Operations:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Lease and license fees:
Flat daily rate lease	$	489,795	$	878,238	$	1,426,873	$	2,305,812
Participation lease		216,240		351,737		563,211		835,651
License fees		9,000		—		9,000		9,000
	$	715,035	$	1,229,975	$	1,999,084	$	3,150,463
Sales of gaming products and parts:
Slot machine sales	$	—	$	191,500	$	462,000	$	1,243,300
Parts and ancillary items sales		21,529		8,465		74,501		1,147,283
	$	21,529	$	199,965	$	536,501	$	2,390,583

The following table provides a breakdown of the lease revenue by product type:

	Three months ended           September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Lease and license fees by product:
Slot machines	$	715,035	$	1,229,975	$	1,999,084	$	3,150,239
Poker Tables		—		—		—		224
	$	715,035	$	1,229,975	$	1,999,084	$	3,150,463
						1,284,049