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, 2020

 

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 12, 2020, the registrant had outstanding 4,506,788 shares of common stock, $.001 par value per share. 

 

 

 

 

 

Table Trac, Inc.

 

Index

 

  Page
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 1
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
   
Item 4. Controls and Procedures 15
   
PART II. OTHER INFORMATION  
   
Item 1A.  Risk Factors 16
   
Item 5. Other Information 16
   
Item 6. Exhibits 17
   
SIGNATURES 18

  

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

TABLE TRAC, INC.

 

CONTENTS

 

  Page
CONDENSED FINANCIAL STATEMENTS  
   
Condensed Balance Sheets 2
   
Condensed Statements of Operations 3
   
Condensed Statements of Stockholders’ Equity 4
   
Condensed Statements of Cash Flows 5
   
Notes to Condensed Financial Statements 6

  

1

 

 

TABLE TRAC, INC.

CONDENSED BALANCE SHEETS

 

    (Unaudited)
March 31,
2020 		    December 31,
2019 		 
ASSETS            
CURRENT ASSETS            
Cash   $ 1,204,805     $ 1,263,762  
Accounts receivable, net of allowance for doubtful accounts of $198,623 at March 31, 2020 and December 31, 2019     2,125,919       2,537,892  
Inventory     1,899,927       1,263,589  
Prepaid expenses and other current assets     264,371       379,982  

Income tax receivable

    30,673       167,673  
TOTAL CURRENT ASSETS     5,525,695       5,612,898  
                 
LONG-TERM ASSETS                
Property and equipment, net     60,193       74,149  
Operating lease right-of-use assets     63,510       77,922  
Contract and other long-term assets     862,624       1,037,364  
Long-term accounts receivable – financed contracts     1,756,931       2,253,667  
TOTAL LONG-TERM ASSETS     2,743,258       3,443,102  
TOTAL ASSETS   $ 8,268,953     $ 9,056,000  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts payable and accrued expenses   $ 148,876     $ 367,730  
Payroll liabilities     70,986       44,500  
Current portion of operating lease liabilities     51,392       53,538  
Customer deposits     291,284       253,709  
TOTAL CURRENT LIABILITIES     562,538       719,477  
                 
LONG-TERM LIABILITIES                
Operating lease liabilities     16,041       27,867  
Contract liabilities     2,628,972       3,148,410  
Deferred tax liability     438,000       543,000  
TOTAL LIABILITIES     3,645,551       4,438,754  
STOCKHOLDERS’ EQUITY                
Common stock, $0.001 par value; 25,000,000 shares authorized:  4,656,734 shares issued; and 4,506,788 shares outstanding at March 31, 2020 and December 31, 2019.     4,507       4,507  
Additional paid-in capital     1,854,938       1,847,594  
Retained earnings     3,009,588       3,010,776  
      4,869,033       4,862,877  
Treasury stock, 149,946 shares (at cost) at March 31, 2020 and December 31, 2019.     (245,631 )     (245,631 )
TOTAL STOCKHOLDERS’ EQUITY     4,623,402       4,617,246  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 8,268,953     $ 9,056,000  

 

See notes to condensed unaudited financial statements.

 

2

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

 

   

For the
Three Months Ended

March 31,

 
    2020     2019  
Revenues   $ 1,307,376     $ 1,368,630  
Cost of sales     401,888       331,965  
Gross profit     905,488       1,036,665  
Operating expenses:                
Selling, general and administrative     932,790       1,061,508  
Loss from operations     (27,302 )     (24,843 )
Interest income     58,114       16,798  
Income (loss) before taxes     30,812       (8,045 )
Income tax expense(benefit)     32,000       (16,000 )
Net income (loss)   $ (1,188 )   $ 7,955  
Net income (loss) per share - basic   $ (0.00 )   $ 0.00  
Net income (loss) per share - diluted   $ (0.00 )   $ 0.00  
Weighted-average shares outstanding - basic     4,486,788       4,496,494  
Weighted-average shares outstanding - diluted     4,486,788       4,504,503  

 

See notes to condensed unaudited financial statements.

 

3

 

 

TABLE TRAC, INC.

CONDENDSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

 

    Common Stock     Additional Paid-in Capital     Retained Earnings     Treasury Stock     Total  
BALANCE, December 31, 2018   $ 4,529     $ 1,795,955     $ 2,194,778     $ (196,526 )   $ 3,798,736  
Stock compensation expense     0       12,406       0       0       12,406  
Q1 2019 net income     0       0       7,955       0       7,955  
BALANCE, March 31, 2019   $ 4,529     $ 1,808,362     $ 2,202,733     $ (196,526 )   $ 3,819,098  
                                         
BALANCE, December 31, 2019   $ 4,507     $ 1,847,594     $ 3,010,776     $ (245,631 )   $ 4,617,246  
Stock compensation expense     0       7,344       0       0       7,344  
Q1 2020 net loss     0       0       (1,188 )     0       (1,188 )
BALANCE, March 31, 2020   $ 4,507     $ 1,854,938     $ 3,009,588     $ (245,631 )   $ 4,623,402  

 

See notes to condensed unaudited financial statements.

 

4

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

 

    For the
Three Months Ended
March 31, 		 
    2020     2019  
OPERATING ACTIVITIES                
Net income (loss)   $ (1,188 )   $ 7,955  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
Depreciation and amortization     13,956       11,004  
Gain on sale of asset     0       (25,713 )
Deferred income taxes     (105,000 )     (41,000 )
Stock compensation expense     7,344       12,407  
Changes in operating assets and liabilities:                
Accounts receivable     908,709       15,861  
Inventory     (636,338 )     (277,894 )
Prepaid expenses and other assets     304,763       (274,960 )
Accounts payable and accrued expenses     (232,826 )     (156,974 )
Payroll liabilities     26,486       107,516  
Contract liabilities and customer deposits     (481,863 )     15,572  
Income taxes payable (receivable)     137,000       25,000  
Net cash used in operating activities     (58,957 )     (581,226 )
FINANCING ACTIVITIES                
Payments on notes payable     0       (2,221 )
Net cash used in financing activities     0       (2,221 )
                 
NET INCREASE (DECREASE) IN CASH     (58,957 )     (583,447 )
                 
CASH                
Beginning of period     1,263,762       1,290,797  
End of period   $ 1,204,805     $ 707,350  
                 
Non-cash investing and financing activities:                
Note from sale of Colombian receivables   $ 800     $ 7,800  
                 
Supplemental cash flow information:                
Operating cash outflow for operating lease   $ 15,293     $ 15,519  

 

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 balance sheet as of March 31, 2020 and the statements of operations, cash flows and stockholders’ equity for the three months ended March 31, 2020 and 2019 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.

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. An adjustment has been made to the Consolidated Statements of Operations for fiscal quarter ended March 31, 2019, to identify the reclassification of maintenance related wages from Selling, General and Administrative to Cost of Sales. These reclassifications had no effect on the reported results of operations.

 

The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Table Trac Annual Report on Form 10-K for the year ended December 31, 2019.

 

Nature of Business

 

Table Trac was formed under the laws of the State of Nevada in June 1995. The Company has offices in Minnetonka, Minnesota and Oklahoma City, Oklahoma. The Company has developed and sells an information and management system that automates and monitors various aspects of the operations of casinos.

 

Table Trac provides system sales and technical support to casinos. System sales include installation, custom casino system configuration, and training. In addition, license and technical support are provided under separate license and service contracts.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s use of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations, realizability of accounts receivable, the valuation of deferred tax assets and liabilities, deferred revenue and costs, and 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, 2019.

 

Revenue

 

The Company derives revenues from the sales of systems, licenses and maintenance fees, and services, and rental agreements.

 

6

 

 

System Sales

 

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected, when applicable from customers, which are subsequently remitted to governmental authorities.

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company’s systems sales have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation based on its SSP. The Company generally determines the SSP based on the price charged to customers. The Company does offer customers extended payment terms representing a significant financing component.  The Company must evaluate if any extended payment terms in the contract is an indicator of the transaction price not being probable. The Company only includes the amount for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.  The Company occasionally enters into a contract that includes multiple sites; management has determined that each site installation is a separate performance obligation. In these instances, the Company recognizes revenue upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells the Company’s products; monthly the reseller notifies the Company of their successful installations, and submits an invoice to the Company for those installations. Provided all other revenue recognition steps have been satisfied, the Company recognizes the revenue if payment of a significant portion of the contract consideration is due within 12 months of the delivery of the product.  System contracts that do not meet this criteria are deferred and recognized when the uncertainty is resolved, which is consistent with when contractual payments become due. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts which include a financing component which is usually a market interest rate. The associated interest income is reflected accordingly on the statement of operations without making concessions for determining if revenue should be recognized. 

 

Maintenance Revenue

 

Maintenance revenue is recognized ratably over the contract period. The stand-alone selling price for maintenance is based upon the renewal rate for contracted services.

 

Service Revenue and Other Revenue

 

Service revenue is recognized after the services are performed and collection of the resulting receivable is reasonably assured. 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 Company may offer customers a rental contract.  Revenues are billed monthly on a per-game per-day basis. There is an option to purchase the system after the rental contract expires at a pre-determined residual value.

 

The following table summarizes disaggregated revenues by major product line for the three months ended March 31, 2020 and 2019, respectively:

 

    Three Months Ended March 31,  
    2020     2019     2020     2019  
                (percent of revenues)  
System revenue   $ 564,132     $ 658,595       43.1 %     48.1 %
Maintenance revenue     710,827       672,569       54.4 %     49.1 %
Service and other revenue     32,417       37,466       2.5 %     2.8 %
Total revenues   $ 1,307,376     $ 1,368,630       100.0 %     100.0 %

 

See Major Customers for disaggregated revenue information about primary geographical markets.

 

7

 

 

Significant Judgments

 

Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

 

Judgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.

 

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.  

 

We evaluated the contractual payment terms of all system sales generated during the year to determine the proper recognition or deferral of revenue. We believe the twelve-month subsequent collection threshold of 67% or greater is the most appropriate for the Company to constrain revenue.

 

We evaluate the interest rates in customer contracts with extended payment terms, representing a significant financing component. These rates range from approximately 1% to 6% and we believe those to be appropriate market interest rates for the financing component.

 

Deferred System Sales Costs

 

Incremental costs to obtain and fulfill a contract are deferred and amortized over the related system contract term. These costs are recognized on a straight-line basis over the term of the contract which is generally 18-48 months beginning when revenues are generated. These costs are the most significant component of contract and other long-term assets on the balance sheet, and are $862,624 and $1,037,364 as of March 31, 2020 and December 31, 2019, respectively.

 

Accounts Receivable / Allowance for Doubtful Accounts

 

Accounts receivable are initially recorded at the invoiced amount and carried on the balance sheet at net realizable value, which includes foreign currency translation as of each balance sheet date. Accounts receivable include unsecured regular customer receivables and unsecured amounts from financed contracts coming due within twelve months. Amounts from financed contracts due beyond twelve months are recorded as “Long-term accounts receivable – financed contracts.”  Interest is recorded upon receipt to other income on the statements of operations. An allowance for doubtful accounts is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for doubtful accounts, are fully collectible. Accounts receivable are written off when management determines collection is no longer likely. While the ultimate result may differ, management believes future write-offs not included in the allowance will not have a material impact on the Company’s financial position.

 

Major Customers

 

For the three-month period ended March 31, 2020, one customer comprised approximately 26% of revenue compared to two customer who accounted for approximately 28% for the three months ending March 31, 2019. At March 31, 2020, three customers comprised approximately 61% of accounts receivable compared to three customers accounting for approximately 41% at March 31, 2019. The following table summarizes major customer’s information for the three months ended March 31, 2020 and 2019:

 

    For the Three months ended March 31  
    2020     2019  
    % Revenues     % AR     % Revenues     % AR  
Major     25.9 %     61.3 %     27.6 %     40.9 %
All Others     74.1 %     38.7 %     72.4 %     59.1 %
Total     100.0 %     100.0 %     100.0 %     100.0 %

 

8

 

 

For the three-month periods ending March 31, 2020 and 2019, sales to customers in the United States represent 91.8% and 79.1% of total revenues, respectively. For the three-month periods ending March 31, 2020 and 2019, sales to a customer in Australia represent 1.2% and 12.3% of total revenues, respectively.

 

A major customer is defined as any customer that represents at least 10% of revenue for a given period or 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 annually for the lower of cost or net realizable value and obsolescence. Any material cost found to be above net realizable value or considered obsolete is written down accordingly. The inventory value as of March 31, 2020 was $1,899,927, which included work-in-process of $680. The inventory value was $1,263,589 as of December 31, 2019, which included work-in-process of $7,742. The Company had no obsolescence reserve at March 31, 2020 or December 31, 2019.

 

Research and Development

 

The Company expenses all costs related to research and development as incurred. Research and development expense were $19,322 and $1,760 for the three months ended March 31, 2020 and 2019, respectively. Research and development expenses are included in selling, general and administrative expenses on the statements of operations.

 

2.  Accounts Receivable –

 

Accounts receivable consisted of the following at:

 

    March 31,
2020 		    December 31,
2019 		 
Accounts receivable under normal 30-day terms   $ 1,178,777     $ 1,649,695  
Financed contracts:                
Current portion of long-term     1,145,765       1,086,820  
Long-term, net of current portion     1,756,931       2,253,667  
Total accounts receivable     4,081,473       4,990,182  
Less allowance for doubtful accounts     (198,623 )     (198,623 )
Accounts receivable, net   $ 3,882,850     $ 4,791,559  
Presented on the balance sheet as:                
Accounts receivable, net   $ 2,125,919     $ 2,537,892  
Long-term accounts receivable - financed contracts     1,756,931       2,253,667  

 

The allowance for financed and trade receivable represents management’s estimate of probable losses in our trade and financed receivables as of the date of the financial statements. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the trade and financed receivables, but that have not been specifically identified.

 

Accounts receivable includes financed contracts at March 31, 2020 and December 31, 2019 which were $2,902,696 and $3,340,487, respectively, offset by contract liabilities on the balance sheets of $2,628,972 and $3,148,410, respectively.

 

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

 

    March 31,
2020 		    December 31,
2019 		 
Accounts receivable allowance, beginning of period   $ 198,623     $ 165,840  
Provision adjustment     0       115,000  
Write-off     0       (82,217 )
Accounts receivable allowance, end of period   $ 198,623     $ 198,623  

 

9

 

 

The allowance for doubtful accounts as of March 31, 2020 is $47,623 for the trade receivables and $151,000 for financed contracts. The allowance for doubtful accounts as of December 31, 2019 is $42,623 for the trade receivables and $156,000 for financed contracts.

 

3. 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 included in our ROU assets and lease liabilities if they are reasonably certain of exercise.

 

Our leases do not provide an implicit rate; we use our incremental borrowing rate of 5% which is based on the information available at the date of adoption in determining the present value of the lease payments.

 

The cost components of our operating leases were $15,861 and 15,519 for the period ended March 31, 2020 and 2019, respectively.

Maturities of our lease liabilities for all operating leases are as follows as of March 31, 2020:

 

    Leased Facilities  
2020     42,143  
2021     28,632  
Total Lease Payments     70,775  
Less: Interest     (3,342 )
Present value of lease liabilities   $ 67,433  

 

The weighted average remaining lease terms equals .92 years as of March 31, 2020.

 

4. General Credit Agreement –

 

In February 2020, the Company obtained a general credit and security agreement with a lender, which provides a revolving credit line of up to $500,000 and expires on February 1, 2021. 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, 2020. Interest on outstanding borrowing is payable monthly and charged at the Prime Rate, which was 3.25% at March 31, 2020.

 

5. Stockholders’ Equity –

 

Stock Repurchase Program

 

During the three-month period ended March 31, 2020, the Company did not repurchase any shares for its treasury.

 

Stock Compensation

 

On January 8, 2018, the Board of Directors of Table Trac Inc. appointed Randy Gilbert as the Company’s Chief Financial Officer and awarded him 50,000 Restricted Stock shares. These shares are subject to a four-year vesting schedule as follows: 20,000 shares on January 8, 2019 and 10,000 shares in each subsequent year. Grant date fair value of $117,500 will be recognized equally over the vesting period as stock compensation expense as a component of selling, general and administration expense.

 

The unvested stock compensation expense is expected to be recognized over a weighted average period of approximately two years. As of March 31, 2020, the remaining unrecognized stock compensation expense approximated $51,500.

 

The Company has no stock options outstanding as of March 31, 2020 and 2019.

 

10

 

 

The Company had 20,000 and 30,000 unvested restricted shares outstanding at March 31, 2020 and December 31, 2019, respectively.

 

6. 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, 2020. 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.

 

7.  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, 2020 and 2019:

 

   

For the Three Months Ended

March 31,

 
    2020     2019  
Basic and diluted earnings per share calculation:                
Net income (loss) to common stockholders   $ (1,188 )   $ 7,955  
Weighted average number of common shares outstanding - basic     4,486,788       4,496,494  
Basic net income (loss) per share   $ (0.00 )   $ 0.00  
Weighted average number of common shares outstanding - diluted     4,486,788       4,504,503  
Diluted net income (loss) per share   $ (0.00 )   $ 0.00  

 

8. Subsequent Event –

 

On April 14, 2020, 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 2 years with a 1% per annum interest rate. Payments are deferred for 6 months 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.

 

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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 25, 2020 relating to our year ended December 31, 2019.

 

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. 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 April 2020 we applied and were approved for a Payroll 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.

 

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In May of 2019 the Company received Patent Pending status 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 2020, the Company delivered one casino management system. 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 160 casinos worldwide.

 

Results of Operations – Three Months Ended March 31, 2020 Compared to Three months ended March 31, 2019

 

During the three months ended March 31, 2020, the loss from operations was $27,302 compared to loss from operations of $24,843 for the three months ended March 31, 2019. 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 $1,307,376 for the three months ended March 31, 2020 compared to $1,368,630 for the three months ended March 31, 2019.  

 

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

 

During the three months ended March 31, 2020, the Company delivered one system. During the same period in 2019, the Company delivered three systems. In the periods presented, the Company continues to recognize revenue as payments become due for systems that were previously installed and for which revenue was deferred.

 

Cost of Sales

 

Cost of sales increased to $401,888 for the three months ended March 31, 2020 from $331,965 for the three months ended March 31, 2019 due to an increase in systems sales, in 2019, which did not require the purchase of equipment from the Company.  The following table summarizes our cost of sales for the three months ended March 31, 2020 and 2019, respectively:

 

    Three Months Ended March 31,  
    2020     2019     2020     2019  
                (percent of revenues)  
System   $ 280,755     $ 228,941       21.5 %     16.7 %
Maintenance     105,000       90,000       8.0 %     6.6 %
Service and other     16,133       13,024       1.2 %     1.0 %
Total cost of sales   $ 401,888     $ 331,965       30.7 %     24.3 %
Gross profit   $ 905,488     $ 1,036,665       69.3 %     75.7 %

  

The Company’s gross profit was 69.3% and 75.7% for the three months ended March 31, 2020 and 2019, respectively. This increase is due to system sales in Australia, which did not require equipment during the three months ended March 31, 2019, and no such transactions for the three months ended March 31, 2020.

 

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Selling, General and Administrative Expenses

 

For the three months ended March 31, 2020, selling, general and administrative expenses were $932,790 compared to $1,061,508 for the same period in 2019. This decrease of approximately $129,000 is due to a decrease in legal fees and expenses related to shows attended during Q1 2019 that we did not attend during Q1 2020. 

 

Interest Income

 

For the three months ended March 31, 2020, interest income was $58,114 compared to $16,798 for the same period in 2019.  This increase of approximately $41,000 is due to recognizing interest income for the significant financing component of a significant contract during the three months ended March 31, 2020, and no such transactions during the three months ended March 31, 2019.

 

Tax Provision

 

The income tax expense for the three months ended March 31, 2020 was $32,000 compared to an income tax benefit of $16,000 for the same period in 2019. The effective rate fluctuates significantly due to fluctuations in periodic net income (loss) and changes in state apportionment rates.

 

Net Income/Loss

 

Income before taxes for the three months ended March 31, 2020, was $30,812 compared to a loss before taxes of $8,045 for the same period in 2019. Net loss for the three months ended March 31, 2020 was $1,188 compared to net income of $7,955 for the same period in 2019. The basic and diluted loss per share was $0.00 compared to income per share of $0.00 for the three months ended March 31, 2020 and 2019, 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 two projects in its backlog at March 31, 2020. The Company had three projects in its backlog as of March 31, 2019.

 

Subsequent to March 31, 2020, the Company has not signed any 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.

 

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 with a lender. 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 used by operations for the three-month period ending March 31, 2020 were approximately $59,000, compared to cash used from operation of $581,000 for the period ending March 31, 2019. This decrease was a result of a number of factors including a decrease in net receivables and prepaid expenses. These increases were offset by an increase in inventory and a decrease in accounts payable and accrued expenses. Additionally, during 2020 more sales have been impact sales (revenue recognized immediately) rather than deferred sales, as such there has been a large reduction in contract liabilities as deferred revenue is being recognized.

 

There was no cash used for investing or financing activities for the three months ended March 31, 2020.

 

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Off-Balance Sheet Arrangements

 

The Company had no off-balance sheet arrangements as of March 31, 2020.

 

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

 

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our 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 our management, including our 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, 2020, 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 effective as of March 31, 2020. There were no changes in our internal controls over financial reporting during our most recently completed reporting period that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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 25, 2020 relating to our year ended December 31, 2019, to include additional information.

 

Our business may be adversely impacted by the COVID-19 pandemic

 

The COVID-19 pandemic has and will continue to impact the economy and will likely adversely affect our business. As of the date of this filing, uncertainty exists concerning the magnitude of the impact and duration of the pandemic. 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.

 

Item 5. Other Information

 

On April 14, 2020, 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 2 years with a 1% per annum interest rate. Payments are deferred for 6 months 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.

 

The foregoing summary description of the terms and conditions of the Promissory Note does not purport to be complete and is qualified in its entirety by reference to the Promissory Note, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

 

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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 April 14, 2020 between Table Trac, Inc. and Alerus Financial, N.A. (filed herewith).
     
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).
     

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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
     

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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 12, 2020 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)

 

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