TABLE TRAC INC - Quarter Report: 2020 September (Form 10-Q)

 

 

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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 September 30, 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 November 12, 2020, the registrant had outstanding 4,506,788 shares of common stock, $.001 par value per share. 

 

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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 6. Exhibits	17
SIGNATURES	18

  

 

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

 

 

		(Unaudited)
		September 30,				December 31,
		2020				2019
ASSETS
CURRENT ASSETS
Cash		$	1,954,885			$	1,263,762
Accounts receivable, net of allowance for doubtful accounts of $47,623 at September 30, 2020 and $198,623 at December 31, 2019			2,118,370				2,537,892
Inventory			1,843,238				1,263,589
Prepaid expenses and other current assets			135,974				379,982
Income tax receivable			0				167,673
TOTAL CURRENT ASSETS			6,052,467				5,612,898
LONG-TERM ASSETS
Property and equipment, net			38,857				74,149
Operating lease right-of-use assets			60,831				77,922
Contract and other long-term assets			740,774				1,037,364
Long-term accounts receivable – financed contracts			1,302,362				2,253,667
TOTAL LONG-TERM ASSETS			2,142,824				3,443,102
TOTAL ASSETS		$	8,195,291			$	9,056,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	111,344			$	367,730
Payroll liabilities			76,704				44,500
Current portion of operating lease liabilities			52,221				53,538
Current maturities of long-term debt			287,582				0
Customer deposits			161,234				253,709
Accrued income taxes			6,063				0
TOTAL CURRENT LIABILITIES			695,148				719,477
LONG-TERM LIABILITIES
Long-term debt, net of current maturities			185,818				0
Operating lease liabilities			12,218				27,867
Contract liabilities			2,164,580				3,148,410
Deferred tax liability			387,000				543,000
TOTAL LIABILITIES			3,444,766				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 September 30, 2020 and December 31, 2019.			4,507				4,507
Additional paid-in capital			1,869,626				1,847,594
Retained earnings			3,122,023				3,010,776
			4,996,156				4,862,877
Treasury stock, 149,946 shares (at cost) at September 30, 2020 and December 31, 2019.			(245,631	)			(245,631	)
TOTAL STOCKHOLDERS’ EQUITY			4,750,525				4,617,246
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	8,195,291			$	9,056,000

 

		For the								For the
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenues		$	1,288,559			$	2,438,819			$	3,808,486			$	6,061,788
Cost of sales			349,998				448,885				935,422				1,577,328
Gross profit			938,561				1,989,934				2,873,064				4,484,460
Operating expenses:
Selling, general and administrative			843,781				1,339,651				2,814,075				3,542,771
Income from operations			94,780				650,283				58,989				941,689
Interest income			5,381				10,752				74,758				39,064
Income before taxes			100,161				661,035				133,747				980,753
Income tax expense			21,300				130,000				22,500				175,000
Net income		$	78,861			$	531,035			$	111,247			$	805,753
Net income per share - basic		$	0.02			$	0.12			$	0.02			$	0.18
Net income per share - diluted		$	0.02			$	0.12			$	0.02			$	0.18
Weighted-average shares outstanding - basic			4,486,788				4,493,777				4,486,788				4,497,435
Weighted-average shares outstanding - diluted			4,494,758				4,500,862				4,495,569				4,503,138

 

						Additional				Retained				Treasury
		Common Stock				Paid-in Capital				Earnings				Stock				Total
BALANCE, December 31, 2018		$	4,529			$	1,795,955			$	2,194,778			$	(196,526	)		$	3,798,736
Stock compensation expense			0				12,407				0				0				12,407
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
Stock compensation expense			0				12,405				0				0				12,405
Q2 2019 net income			0				0				266,763				0				266,763
BALANCE, June 30, 2019		$	4,529			$	1,820,767			$	2,469,496			$	(196,526	)		$	4,098,266
Stock compensation expense			0				12,406				0				0				12,406
Shares repurchased into treasury			(25	)											(51,475	)			(51,500	)
Q3 2019 net income			0				0				531,035				0				531,035
BALANCE, September 30, 2019		$	4,504			$	1,833,173			$	3,000,531			$	(248,001	)		$	4,590,207
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
Stock compensation expense			0				7,344				0				0				7,344
Q2 2020 net income			0				0				33,574				0				33,574
BALANCE, June 30, 2020		$	4,507			$	1,862,282			$	3,043,162			$	(245,631	)		$	4,664,320
Stock compensation expense			0				7,344				0				0			$	7,344
Q3 2020 net income			0				0				78,861				0			$	78,861
BALANCE, September 30, 2020		$	4,507			$	1,869,626			$	3,122,023			$	(245,631	)		$	4,750,525

 

		For the
		Nine Months Ended
		September 30,
		2020				2019
OPERATING ACTIVITIES
Net income		$	111,247			$	805,753
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			35,292				33,996
Gain on sale of asset			0				(25,713	)
Deferred income taxes			(156,000	)			(106,000	)
Stock compensation expense			22,032				37,218
Bad debt expense			91,629				115,000
Changes in operating assets and liabilities:
Accounts receivable			1,279,198				117,751
Inventory			(579,649	)			(650,547	)
Prepaid expenses and other assets			557,690				66,237
Accounts payable and accrued expenses			(273,351	)			(216,781	)
Payroll liabilities			32,204				188,027
Contract liabilities and customer deposits			(1,076,305	)			(28,479	)
Income taxes payable (receivable)			173,736				184,700
Net cash provided by operating activities			217,723				521,164
INVESTING ACTIVITIES
Proceeds from sale of Colombian receivables			0				7,000
Capital expenditures			0				(35,445	)
Net cash used in financing activities			0				(28,445	)
FINANCING ACTIVITIES
Payments on notes payable			0				(2,221	)
Repurchase of common stock			0				(51,500	)
Proceeds from Paycheck Protection Plan loan			473,400				0
Net cash provided by (used in) financing activities			473,400				(53,721	)
NET INCREASE IN CASH			691,123				438,998
CASH
Beginning of period			1,263,762				1,290,797
End of period		$	1,954,885			$	1,729,795
Non-cash investing and financing activities:
Note from sale of Colombian receivables		$	800			$	800
Supplemental cash flow information:
Operating cash outflow for operating lease		$	46,824			$	46,367

 

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 September 30, 2020 and the statements of operations, cash flows and stockholders’ equity for the three and nine months ended September 30, 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 three and nine months ended September 30, 2020, to reclassify 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 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, 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, license and maintenance fees, services, and rental agreements.

 

System Sales

 

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration 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 offers 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 contracts 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 SSP 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 September 30, 2020 and 2019, respectively:

 

 

The following table summarizes disaggregated revenues by major product line for the nine months ended September 30, 2020 and 2019, respectively:

 

 

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. 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 $740,774 and $1,037,364 as of September 30, 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 a 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 as other income on the statements of operations upon receipt. 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 nine-month period ended September 30, 2020, one customer comprised approximately 12% of revenue compared to two customers who accounted for approximately 39% for the nine months ending September 30, 2019. At September 30, 2020, one customer comprised approximately 43% of accounts receivable compared to three customers accounting for approximately 40% at September 30, 2019. The following table summarizes major customer’s information for the nine months ended September 30, 2020 and 2019:

 

 

For the nine-month periods ending September 30, 2020 and 2019, sales to customers in the United States represent 93.3% and 68.6% of total revenues, respectively.

 

The following table summarizes the major customer’s information for the three months ended September 30, 2020 and 2019:

 

For the three-month periods ending September 30, 2020 and 2019, sales to customers in the United States represent 97.2% and 41.3% of total revenues, respectively.  For the three month periods ending September 30, 2020 and 2019, sales to customers in Japan represent 0% and 49.2% 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 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 September 30, 2020 was $1,843,238, 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 September 30, 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 $55,522 and $73,044 for the nine months ended September 30, 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:

 

 

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 September 30, 2020 and December 31, 2019 which were $2,217,511 and $3,340,487, respectively, which correspond to contract liabilities on the balance sheets of $2,164,580 and $3,148,410, respectively.

 

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

 

 

The allowance for doubtful accounts as of September 30, 2020 is $47,623 for trade receivables and $0 for financed contracts. The allowance for doubtful accounts as of December 31, 2019 is $42,623 for 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 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 $15,333 and $46,824 for the three months and nine months ended September 30, 2020, respectively.

 

Maturities of our lease liabilities for all operating leases are as follows as of September 30, 2020:

 

 

The weighted average remaining lease terms equals 1.28 years as of September 30, 2020.

 

4.	Bank Financing –

 

Revolving Credit Line

 

In February 2020, the Company obtained a revolving credit line of up to $500,000 that 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 nine months ended September 30, 2020. Interest on outstanding borrowing is payable monthly and charged at the Prime Rate, which was 4.0% during the three and nine months ended  September 30, 2020.

 

Paycheck Protection Program Loan

 

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. Forgiveness of the PPP loan was applied for on September 16, 2020.  As of the filing of this statement the loan has not yet been forgiven.  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 September 30, 2020 are as follows, for the twelve months ending September 30:

 

 

 

5.	Stockholders’ Equity –

 

Stock Repurchase Program

 

During the nine-month period ended September 30, 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 September 30, 2020, the remaining unrecognized stock compensation expense approximated $36,720.

 

The Company has no stock options outstanding as of September 30, 2020 and 2019.

 

The Company had 20,000 and 30,000 unvested restricted shares outstanding at September 30, 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 September 30, 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 and nine months ended September 30, 2020 and 2019: