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TBTC Table Trac

Filed: 17 May 21, 10:18am
 

 



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2021

 

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number:   001-32987

 

Table Trac, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada

 

88-0336568

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification Number)

 

6101 Baker Road, Suite 206, Minnetonka, Minnesota 55345

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (952) 548-8877

 

N/A 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which register

N/A

 

N/A

 

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

 

As of May 17, 2021, the registrant had outstanding 4,521,988 shares of common stock, $.001 par value per share. 

 



 

 

 
 

 

1

 

TABLE TRAC, INC.

CONDENSED BALANCE SHEETS

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 
ASSETS  (Unaudited)     

CURRENT ASSETS

        

Cash and cash equivalents

 $2,946,441  $1,731,869 

Accounts receivable, net of allowance for doubtful accounts of $77,623 at March 31, 2021 and December 31, 2020.

  1,467,097   1,303,724 

Inventory, net

  1,530,014   1,748,414 

Prepaid expenses

  252,500   311,170 
Net investment in sales type leases - current  37,640   0 

Income tax receivable

  0   97,273 

TOTAL CURRENT ASSETS

  6,233,692   5,192,450 
         

LONG-TERM ASSETS

        

Accounts receivable - Long-term

  166,090   33,783 

Property and equipment, net

  23,417   30,843 
Net investment in sales type leases - long term  167,084   0 
Investment  57,000   0 

Operating lease right-of-use assets

  32,788   46,810 

TOTAL LONG-TERM ASSETS

  446,379   111,436 

TOTAL ASSETS

 $6,680,071  $5,303,886 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES

        

Accounts payable and accrued expenses

 $150,642  $104,362 

Payroll liabilities

  89,623   41,641 

Customers deposits

  245,875   163,709 

Current portion of operating lease liabilities

  29,082   40,742 
Accrued income taxes  111,327   0 

TOTAL CURRENT LIABILITIES

  626,549   350,454 
         

LONG-TERM LIABILITIES

        
Long-term debt  473,400   0 

Operating lease liabilities

  5,616   8,939 

Deferred tax liability

  252,000   251,000 

TOTAL LIABILITIES

  1,357,565   610,393 
         

STOCKHOLDERS’ EQUITY

        

Common stock, $0.001 par value; 25,000,000 shares authorized: 4,656,734 shares issued; and 4,521,988 and 4,506,788 shares outstanding at March 31, 2021 and December 31, 2020, respectively.

  4,522   4,507 

Additional paid-in capital

  1,877,929   1,876,970 

Retained earnings

  3,673,654   3,057,647 
   5,556,105   4,939,124 

Treasury stock, 134,746 and 149,946 shares (at cost) at March 31, 2021 and December 31, 2020, respectively.

  (233,599)  (245,631)

TOTAL STOCKHOLDERS’ EQUITY

  5,322,506   4,693,493 
         

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $6,680,071  $5,303,886 

 

See notes to condensed unaudited financial statements.

 

2

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

 

  

For the Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 

Revenues

 $2,176,973  $1,125,630 

Cost of sales

  460,460   227,148 

Gross profit

  1,716,513   898,482 

Operating expenses:

        

Selling, general and administrative

  935,985   937,790 

Income (loss) from operations

  780,528   (39,308)

Interest income

  47,979   58,114 

Income before taxes

  828,507   18,806 

Income tax expense

  212,500   29,000 

Net income (loss)

 $616,007  $(10,194)

Net income (loss) per share - basic

 $0.14  $(0.00)

Net income (loss) per share - diluted

 $0.14  $(0.00)

Weighted-average shares outstanding - basic

  4,500,672   4,486,788 

Weighted-average shares outstanding - diluted

  4,505,132   4,486,788 

 

See notes to condensed unaudited financial statements.

 

3

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) 

 

  

Common Stock Outstanding

  

Additional

             
  

Number of

  

Par

  

Paid-in

  

Retained

  

Treasury

     
  

Shares

  

Amount

  

Capital

  

Earnings

  

Stock

  

Total

 

BALANCE, December 31, 2019

  4,506,788  $4,507  $1,847,594  $2,750,754  $(245,631) $4,357,224 

Stock compensation expense

  0   0   7,344   0   0   7,344 

Q1 2020 net loss

  0   0   0   (10,194)  0   (10,194)

BALANCE, March 31, 2020

  4,506,788  $4,507  $1,854,938  $2,740,560  $(245,631) $4,354,374 
                         

BALANCE, December 31, 2020

  4,506,788  $4,507  $1,876,970  $3,057,647  $(245,631) $4,693,493 

Stock compensation expense

  0   0   13,006   0   0   13,006 

Common stock issued to employees from treasury

  15,200   15   (12,047)      12,032   0 

Q1 2021 net income

  0   0   0   616,007   0   616,007 

BALANCE, March 31, 2021

  4,521,988   4,522   1,877,929   3,673,654   (233,599)  5,322,506 

 

See notes to condensed unaudited financial statements.

 

4

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

 

  

For the Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 
OPERATING ACTIVITIES        

Net income (loss)

 $616,007  $(10,194)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

        

Depreciation

  7,426   13,956 

Deferred income taxes

  1,000   (108,000)

Stock compensation expense

  13,006   7,344 
Bad debt expense  0   5,000 

Changes in operating assets and liabilities:

        

Accounts receivable

  (295,680)  571,015 

Inventory

  218,400   (636,338)

Prepaid expenses

  58,670   116,051 

Net investment in sales type leases

  (204,724)  0 

Accounts payable, accrued expenses and other

  45,319   (218,853)

Payroll liabilities

  47,982   26,487 

Customer deposits

  82,166   37,575 

Income tax receivable (accrued income taxes)

  208,600   137,000 

Net cash provided by (used in) operating activities

  798,172   (58,957)

INVESTING ACTIVITIES

        

Purchase of investment

  (57,000)  0 

Net cash used in investing activities

  (57,000)  0 

FINANCING ACTIVITIES

        

Proceeds from Paycheck Protection Program loan

  473,400   0 

Net cash provided by financing activities

  473,400   0 
         

NET INCREASE (DECREASE) IN CASH

  1,214,572   (58,957)
         

CASH

        

Beginning of period

  1,731,869   1,263,762 

End of period

 $2,946,441  $1,204,805 
         

Non-cash investing and financing activities:

        

Treasury stock cost related to compensation

 $12,047  $0 
         
         

Supplemental cash flow information:

        

Operating cash outflow for operating leases

 $14,504  $15,293 

 

See notes to condensed unaudited financial statements.

 

5

 

TABLE TRAC, INC.

 

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 condensed balance sheet as of March 31, 2021 and the condensed statements of operations, cash flows and stockholders’ equity for the three months ended March 31, 2021 and 2020 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, Inc. Annual Report on Form 10-K for the year ended December 31, 2020.

 

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 configurations, 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, the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, determining collectability, and other obligations, realizability of accounts receivable, the valuation of deferred tax assets and liabilities, and inventory valuation. Actual results could differ from those estimates, and the difference could be significant.

 

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, 2020.

 

Revenue

 

The Company derives revenues from the sale or leasing of systems, license and maintenance fees, hardware leasing and services.

 

System Sales

 

Revenue is recognized upon transfer of control of promised products and 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. See discussion within the significant judgement paragraph regarding our determination of SSP.  At contract inception, management assesses whether it is probable that the company will collect substantially all of the consideration to determine whether the contract meets the criterion for collectability.  The revenue allocated to the casino management system is recognized upon installation.  The Company occasionally enters into contracts that include 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 Company for those installations.  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 significant financing component which is usually a market interest rate. The associated interest income is reflected accordingly on the statement of operations. 

 

Management’s assessment of collectability at both contract inception and on an ongoing basis resulted in the determination that some of our contracts did not meet the criterion for collectability.  The balance of these contracts are not included as part of accounts receivable on the balance sheet.  Accordingly, for these contracts whereby the collectability criterion has not been met, revenue will be recognized as payments are received.

 

6

 

Maintenance Revenue

 

Maintenance revenue is recognized ratably over the contract period. The SSP for maintenance is based upon the renewal rate for contracted services.

 

Lease Revenue

 

The Company derives a portion of its revenue from a sales type leasing arrangement in accordance with ASC 842. The Company leases hardware to a customer, with monthly payments.

 

Service Revenue and Other Revenue

 

Service revenue is recognized upon completion of the services and are billed in arrears. The SSP for service revenue is established based upon actual selling prices for the services or prior similar arrangements.

 

The Company offers qualified customers a licensing agreement. Licensing revenue is recognized after the intellectual property (CMS system), the performance obligation, is delivered and in its operational and functional state. The SSP for licensing revenue is established based upon actual selling prices for the license. 

 

The following table summarizes disaggregated revenues by major product line for the three months ended March 31, 2021 and 2020, respectively:

 

  

Three Months ended March 31,

 
  

2021

  

2020

  

2021

  

2020

 
          

(percent of revenues)

 

System revenue

 $1,073,984  $382,385   49.3%  34.0%

Maintenance revenue

  783,692   710,827   36.0%  63.1%
Lease revenue  212,658   0   9.8%  0.0%

Service and other revenue

  106,640   32,418   4.9%  2.9%

Total revenues

 $2,176,973  $1,125,630   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, including lease and non-lease components. We use a single amount to estimate SSP when we sell a product or service separately. 

 

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 perform a gross margin analysis using information such as the size of the customer and geographic region in determining the SSP.

 

The collectability assessment requires the company to use judgement and consider all relevant facts and circumstances. 

 

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.

 

7

 

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 as of each balance sheet date.  For receivables related to contracts that contain an interest rate, interest is recorded upon receipt to interest 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

 

The following table summarizes the major customer’s information for the three months ended March 31, 2021 and 2020:

 

  

For the Three Months ended March 31,

 
  

2021

  

2020

 
  

% Revenues

  

% AR

  

% Revenues

  

% AR

 

Major

  53.0%  51.8%  28.0%  45.3%

All Others

  47.0%  48.2%  72.0%  54.7%

Total

  100.0%  100.0%  100.0%  100.0%


For the three-month periods ending March 31, 2021 and 2020, sales to customers in the United States represent 84.7% and 90.5%, of total revenues, respectively.  For the three month periods ending  March 31, 2021 and 2020, sales to a customer in Australia represent 13.1% and 1.4%, of total revenues, respectively

 

A major customer is defined as any customer that represents at least 10% of revenue for a given period or 10% of outstanding account receivable at the end of a 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 quarterly 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. Based on that evaluation, the Company had $40,165 and $45,045 of obsolescence reserve at  March 31, 2021 and December 31, 2020, respectively.  The total inventory value was $1,570,178 and $1,793,459, as of March 31, 2021 and December 31, 2020, respectively, which included work-in-process of $0 and $140,022 as of  March 31, 2021 and December 31, 2020, respectively, and the remaining amount is comprised of finished goods. At March 31, 2021 and December 31, 2020 the Company had $6,810 and $0 of prepaid inventory as a component of prepaid expenses, respectively.

 

Net Investment in Sales Type Lease

 

Net investment in leases are recognized when the Company's leases qualify as sales-type leases. The net investment in leases is initially measured at the present value of the fixed lease payments, discounted at the rate implicit in the lease. 

 

Investment

 

Investment consists of an approximately 29% of  the membership interest in a start-up technology Company.

 

Research and Development

 

The Company expenses all costs related to research and development as incurred.  Research and development expense were $8,474 and $19,322 for the three months ended March 31, 2021 and 2020, respectively. Research and development expenses are included in selling, general and administrative expenses on the statements of operations.

 

8

 

 

2. 

Accounts Receivable –

 

Accounts receivable consisted of the following at:

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 

Accounts receivable - Current

 $1,544,720  $1,381,347 

Less allowance for doubtful accounts

  (77,623)  (77,623)

Accounts receivable current - net

 $1,467,097  $1,303,724 
         

Accounts receivable - Long-term

 $166,090  $33,783 

 

The allowance for accounts receivable represents management’s best estimate of probable losses in our 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 receivables, but that have not been specifically identified.

 

A roll-forward of the Company’s allowance for doubtful accounts for the periods presented is as follows:

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 
        

Accounts receivable allowance, beginning of period

 $77,623  $42,623 

Provision adjustment

  0   64,378 

Write-off

  0   (29,378)

Accounts receivable allowance, end of period

 $77,623  $77,623 

 

 

3.

Net Investment in Sales Type Lease –

 

In January 2021, the Company entered into a five year lease with a customer for hardware which had an implied interest rate of 6%.

 

At inception, the Company recorded $210,782 in "Net investment in sales type leases" and derecognized $139,521 from “Inventory" on its condensed balance sheet. The Company recognized $71,261 in profit from sales type leases in its condensed statements of operations for the three months ended March 31, 2021 as a result of the transaction. For the three months ended March 31, 2021 the Company recognized $6,057 of interest income in the Company's condensed statements of operations

 

 

The future minimum lease payments receivable for sales type leases are as follows:

  

Amount

 

2021 (remaining nine months)

 $36,675 

2022

  48,900 

2023

  48,900 

2024

  48,900 

2025

  48,900 

Thereafter

  4,075 

Total undiscounted cash flows

  236,350 

Present value discount

  (31,626)

Net investment in lease as of March 31, 2021

 $204,724 

 

The total net investments in sales type leases, as of March 31, 2021 was $204,724. The current portion of $37,640 is included in Current Assets on the condensed balance sheet as of March 31, 2021, and the long term portion of $167,084 is included in Long-Term Assets on the condensed balance sheet as of March 31, 2021.  The lease contains a purchase option at the conclusion of the lease, which the Company has determined does not meet the probability criterion.  The Company has not recorded an unguaranteed residual asset.

 

 

 

4.

Operating Leases –

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 right of use 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 $14,504 for the three months ended March 31, 2021.

 

Maturities of our lease liabilities for all operating leases are as follows as of March 31, 2021:

 

  

Leased Facilities

 

2021

 $26,711 

2022

  9,200 

Total Lease Payments

  35,911 

Less: Interest

  (1,213)

Present value of lease liabilities

 $34,698 

 

The weighted average remaining lease terms equals .92 years as of March 31, 2021.

 

9

 

 

5.

Bank Financing –

 

Revolving Credit Line

 

The Company has a revolving credit line of up to $500,000 that expires on February 1, 2022. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had no borrowings under the credit line during the three months ended March 31, 2021. Interest on outstanding borrowings is payable monthly and charged at the Prime Rate, which was 4.0%, subject to a floor of 3.75% during the three months ended  March 31, 2021.

 

Paycheck Protection Program Loan

 

On February 8, 2021, the Company entered into a Promissory Note with Alerus Financial, N.A. (the “Promissory Note”), which provides for an unsecured loan of $473,400 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”). The Promissory Note has a term of five years with a 1% per annum interest rate. Payments are deferred for approximately one year from the date of the Promissory Note and the Company can apply for forgiveness of the Promissory Note after 60 days. Forgiveness of the Promissory Note will be determined in accordance with the provisions of the CARES Act and applicable regulations. Any principal and interest amounts outstanding after the determination of amounts forgiven will be repaid on a monthly basis. The Company intends to use the entire loan amount for designated qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the PPP.  No assurance can be given that the Company will obtain forgiveness of the loan in whole or in part.  In the event that the loan is not forgiven, it is the Company's intention to repay the loan immediately.

 

Estimated maturities of long-term debt at March 31, 2021 are as follows, for the twelve months ending March 31:

 

2022

 $0 

2023

  473,400 
Total Debt  473,400 

 

 

6.

Stockholders’ Equity –

 

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 March 8, 2021, the Company awarded 15,200 Restricted Stock shares to employees out of treasury stock. These shares are subject to a two year vesting period.  Grant date fair value of $45,300 will be recognized over the vesting period as stack compensation expense as a component of selling, general and administrative expense.

 

The unvested stock compensation expense is expected to be recognized over a weighted average period of approximately two years. As of March 31, 2021, the remaining unrecognized stock compensation expense approximated $61,600.

 

The Company has no stock options outstanding as of March 31, 2021 and 2020.

 

The Company had 25,200 and 20,000 unvested restricted shares outstanding at March 31, 2021 and December 31, 2020, respectively.

 

 

7.

Income Tax –

 

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, 2016 through 2019, which are the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2021. 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.

 

10

 

 

8. 

Earnings Per Share –

 

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 three months ended March 31, 2021 and 2020:

 

  

For the Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 

Basic and diluted earnings per share calculation:

       

Net income (loss) to common stockholders

 $616,007  $(10,194)

Weighted average number of common shares outstanding - basic

  4,500,672   4,486,788 

Basic net income (loss) per share

 $0.14  $(0.00)

Weighted average number of common shares outstanding - diluted

  4,505,132   4,486,788 

Diluted net income (loss) per share

 $0.14  $(0.00)

 

For the three month period ended March 31, 2021 there were common stock equivalents that had a dilutive effect of approximately 4,460 shares.

 

11

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below should be read in conjunction with our audited financial statements, and notes thereto, contained in our Form 10-K filed with the SEC on March 31,2021 relating to our year ended December 31, 2020.

 

Forward-Looking Statements

 

Some of the statements made in this section of our report are forward-looking statements. These forward-looking statements generally relate to and are based upon our current plans, expectations, assumptions and projections about future events.  Our management currently believes that the various plans, expectations, and assumptions reflected in or suggested by these forward-looking statements are reasonable.  Nevertheless, all forward-looking statements involve risks and uncertainties and our actual actions or future results may be materially different from our plans, objectives or expectations, or our assumptions and projections underlying our present plans, objectives and expectations, which are expressed in this report.

 

In light of the foregoing, prospective investors are cautioned that the forward-looking statements included in this filing may ultimately prove to be inaccurate - even materially inaccurate.  Because of the significant uncertainties inherent in such forward-looking statements, the inclusion of such information should not be regarded as a representation or warranty by Table Trac or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever.

 

Impact of COVID-19 on Our Business

 

The COVID-19 pandemic has and will continue to impact the economy and has and will likely continue to adversely affect our business. As of the date of this filing, uncertainty exists concerning the magnitude of the impact and duration of the pandemic. The company continues to operate while adhering to social distancing and state orders. Some of our customers have temporarily closed or are operating at a diminished capacity which may negatively impact revenue. The pandemic may shift industry demand for installing and replacing existing casino management systems, impact sales and gross margins in the future, limit our ability to secure products we sell due to supplier and manufacturer shortages, limit the ability of our employees to perform their work due to illness caused by the pandemic and local, state, or federal orders requiring employees to remain at home, limit the ability of carriers to deliver our products to customers, limit the ability of our customers to conduct their business and purchase our products and services, and limit the ability of our customers to pay us on a timely basis.

 

To ensure that our business can continue to operate during this uncertain time, in February 2021 we applied and were approved for a second Paycheck Protection Program (PPP) loan through the Small Business Administration. This loan will allow us to continue to employ all existing employees to service our client base.

 

With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization. This includes reducing hiring activities, adjusting pay programs, and limiting discretionary spending.

 

While we are unable to predict the nature, scope or duration of the impact of the COVID-19 pandemic on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

 

General Overview

 

Table Trac, Inc. is a Nevada corporation, formed on June 27, 1995, with its principal office in Minnetonka, Minnesota.

 

The Company has developed and patented (U.S. patent # 5,957,776) a proprietary information and management system (called our “Table Trac” system) that automates and monitors the operations of casino table game operations. In addition to its table games management system, Table Trac has been adding functionality to related casino system modules for guest rewards and loyalty club, marketing analysis, guest service, promotions, administration / management, vault / cage management and audit / accounting tasks. Aggregated together, all of these modules have become the “Casino Trac” product, a full-featured Casino Management System (CMS) offering what we believe to be a powerful combination of value, efficiency and reliability for casinos seeking to add or upgrade their casino systems.

 

In September of 2020 the Company was granted a Patent (U.S. patent #10,769,885 B2) on its April 2017 application 15/946,227 “SYSTEMS AND METHODS OF FACILITATING INTERACTIONS BETWEEN AN ELECTRONIC GAMING MACHINE, GAME PLAYER, AND A CONTROL SYSTEM”.  In addition, the Company renewed its Trademark claim for “Table Trac” which was granted July 31, 2018 Reg. No. 5,529,779 and made a new Trademark claim on its “CasinoTrac” brand which is pending.

 

The Company sells systems and technical support to casinos. The open architecture of the Table Trac system is designed to provide operators with a scalable and flexible system that can interconnect and operate with most third-party software or hardware. Key products and services include modules designed to drive player tracking programs and kiosk promotions, as well as vault and cage controls. The Company’s systems are designed to meet strict auditing, accounting and regulatory requirements applicable to the gaming industry. The Company has developed a patented, real-time system that automates and monitors the operations of casino gaming tables. The Company continues to increase its market share by expanding its product offerings to include new system features, and ancillary products.

  

During the first quarter of 2021, the Company delivered two casino management systems including a sales type lease, plus an exclusive supplier installed our system in 57 locations. In this quarter the Company has commenced offering leasing arrangements to qualified customers.  At the end of the quarter, the Company had casino management systems, table games management systems and ancillary products installed with on-going support and maintenance contracts with over 100 casino operators in over 220 casinos worldwide.

 

12

 

Results of Operations – Three Months Ended March 31, 2021 Compared to Three months ended March 31, 2020

 

During the three months ended March 31, 2021, income from operations was $780,528 compared to loss from operations of $39,308, for the three months ended March 31, 2020. The major components of revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed below.

 

Revenues

 

Revenues totaled $2,176,973 for the three months ended March 31, 2021 compared to $1,125,630, for the three months ended March 31, 2020.  

 

Refer to Note 1 – Revenue, disaggregated revenues by major product line table

 

During the three months ended March 31, 2021, the Company delivered two new systems and expanded one existing customer. During the same period in 2020, the Company delivered one system. 

 

Cost of Sales

 

Cost of sales increased to $460,460 for the three months ended March 31, 2021 from $227,148, for the three months ended March 31, 2020 due to a increase in systems sales in 2021.  The following table summarizes our cost of sales for the three months ended March 31, 2021 and 2020, respectively:

 

  

For the Three Months ended March 31,

 
  

2021

  

2020

  

2021

  

2020

 
          

(percent of revenues)

  

(percent of revenues)

 

System

 $133,509  $33,341   6.1%  3.0%

Maintenance

  109,057   105,000   5.0%  9.3%
Lease  167,770   0   7.7%  0.0%

Service and other

  50,124   88,807   2.3%  7.9%

Total cost of sales

 $460,460  $227,148   21.1%  20.2%

Gross profit

 $1,716,513  $898,482   78.9%  79.8%

 

The Company’s gross profit was 78.9% and 79.8%, as restated, for the three months ended March 31, 2021 and 2020, respectively. 

 

Selling, General and Administrative Expenses

 

For the three months ended March 31, 2021, selling, general and administrative expenses were $935,985 compared to $937,790 for the same period in 2020.

 

Interest Income

 

For the three months ended March 31, 2021, interest income was $47,979 compared to $58,114 for the same period in 2020

 

Tax Provision

 

The income tax expense for the three months ended March 31, 2021 was $212,500 compared to an income tax expense of $29,000, as restated, for the same period in 2020. The effective rate fluctuates significantly due to fluctuations in periodic net income (loss), changes in state apportionment rates and availability of research and development and foreign tax credits.

 

Net Income

 

Income before taxes for the three months ended March 31, 2021, was $828,507 compared to income before taxes of $18,806, for the same period in 2020. Net income for the three months ended March 31, 2021 was $616,007 compared to net loss of $10,194, for the same period in 2020. The basic and diluted income per share was $0.14 compared to loss per share of $0.00, for the three months ended March 31, 2021 and 2020, respectively.

 

Backlog

 

The Company’s backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.

 

The Company had nine projects in its backlog at March 31, 2021. The Company had two projects in its backlog as of March 31, 2020.

 

Subsequent to March 31, 2021, the Company has signed three new system contracts.

 

The Company is currently serving gaming establishments in fourteen U.S. states, as well as countries in Central and South America, the Caribbean and Australia. The Company aims to pursue further opportunities and strategic partnerships.

 

13

 

Liquidity and Capital Resources

 

Management believes that the Company has adequate cash to meet its obligations and continue operations for both existing customer contracts and ongoing product development for at least the next 12 months from the date of this filing. In February 2020, the Company obtained a $500,000 line of credit available with a lender. The Company has a $473,400 Paycheck Protection Program loan to provide liquidity, as noted below.  The Company’s primary sources of liquidity are cash, receivables and potentially other current assets. Management is not aware of any trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.

 

Cash provided by operations for the three months ended March 31, 2021 was approximately $798,000 compared to cash used in operations of  approximately $59,000 for the period ending March 31, 2020. This increase was a result of a number of factors including a significant increase in net income,  a decrease in inventory, prepaid expenses and customer deposits. These increases were offset by an increase in accounts receivable and net investment in sales type leases. 

 

The Company invested $57,000 for an approximately 29% of  the membership interest in a start-up technology which comprised the cash used for investing activities for the three months ended March 31, 2021 .

 

Cash provided by financing activities was $473,400 as a result of the second Paycheck Protection Program loan for the three months ended March 31, 2021 .

 

Off-Balance Sheet Arrangements

 

The Company had no off-balance sheet arrangements as of March 31, 2021.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

As of March 31, 2021, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting for the year ended  March 31, 2021.  Remediation efforts have already been implemented which primarily consists of new policies and procedures to assist management in recording transactions appropriately, particularly related to revenue and cost recognition.  We will consider this material weakness to be fully remediated once the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively, which management expects to be completed by June 30, 2021.

 

14

 

 

PART II. OTHER INFORMATION

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully review the risks described below before making an investment decision. The following risk factor updates the risk factors discussed in our Annual Report on Form 10-K filed with the SEC on March 31, 2021 relating to our year ended December 31, 2020, to include additional information.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Unregistered Sales of Equity Securities

 

In March 2021, the Company awarded 15,200 shares of restricted stock to employees. The shares are subject to a two year vesting period. The shares were issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act on the basis that the shares were issued in a transaction not involving any public offering.

 

Item 5. Other Information

 

The information with respect to the Promissory Note in Item 9B of the Company’s Annual Report on Form 10-K filed on March 31, 2021 is incorporated herein by reference. 

 

 

 

 

 

15

 

 

Item 6. Exhibits

 

Exhibit

 

Description

 

 

 

3.1

 

Articles of Incorporation, filed with the Nevada Secretary of State on June 2, 1995 (incorporated by reference to Exhibit 3 to the registrant’s registration statement on Form 10SB-12G filed on December 6, 1999).

 

 

 

3.2

 

Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on January 26, 2010 (incorporated by reference to Exhibit 3.2 to the registrant’s annual report on Form 10-K filed on March 31, 2011).

 

 

 

3.3

 

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to the registrant’s annual report on Form 10-K filed on March 31, 2011).

 

 

 

3.4

 

Amendment No. 1 to Bylaws dated March 9, 2016 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on March 15, 2016).

 

 

 

10.1 Promissory Note dated February 8, 2021 between Table Trac, Inc. and Alerus Financial, N.A. (incorporated by reference to Exhibit 10.2 to the registrant's annual report on Form 10-K filed on March 31, 2021).
   

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

16

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: May 17, 2021

Table Trac, Inc.

 

 

(Registrant)

 

 

 

 

 

 

By:

/s/ Chad Hoehne

 

 

 

Chad Hoehne

Chief Executive Officer

(principal executive officer)

 

 

 

By:

/s/ Randy Gilbert

 

 

 

Randy Gilbert

Chief Financial Officer

(principal financial and accounting officer)

 

 

 

 

 

17