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

tbltrc20200630_10q.htm
 

 



 

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 June 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 August 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)

         
   

June 30,

   

December 31,

 
   

2020

   

2019

 

ASSETS

               

CURRENT ASSETS

               

Cash

  $ 1,507,922     $ 1,263,762  

Accounts receivable, net of allowance for doubtful accounts of $47,623 at June 30, 2020 and $198,623 at December 31, 2019

    2,347,177       2,537,892  

Inventory

    1,955,223       1,263,589  

Prepaid expenses and other current assets

    212,353       379,982  

Income tax receivable

    61,237       167,673  

TOTAL CURRENT ASSETS

    6,083,912       5,612,898  
                 

LONG-TERM ASSETS

               

Property and equipment, net

    48,514       74,149  

Operating lease right-of-use assets

    49,097       77,922  

Contract and other long-term assets

    776,373       1,037,364  

Long-term accounts receivable – financed contracts

    1,410,185       2,253,667  

TOTAL LONG-TERM ASSETS

    2,284,169       3,443,102  

TOTAL ASSETS

  $ 8,368,081     $ 9,056,000  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

CURRENT LIABILITIES

               

Accounts payable and accrued expenses

  $ 121,820     $ 367,730  

Payroll liabilities

    82,168       44,500  

Current portion of operating lease liabilities

    49,204       53,538  
Current maturities of long-term debt     208,240       0  

Customer deposits

    258,759       253,709  

TOTAL CURRENT LIABILITIES

    720,191       719,477  
                 

LONG-TERM LIABILITIES

               
Long-term debt, net of current maturities     265,160       0  

Operating lease liabilities

    4,027       27,867  

Contract liabilities

    2,281,383       3,148,410  

Deferred tax liability

    433,000       543,000  

TOTAL LIABILITIES

    3,703,761       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 June 30, 2020 and December 31, 2019.

    4,507       4,507  

Additional paid-in capital

    1,862,282       1,847,594  

Retained earnings

    3,043,162       3,010,776  
      4,909,951       4,862,877  

Treasury stock, 149,946 shares (at cost) at June 30, 2020 and December 31, 2019.

    (245,631 )     (245,631 )

TOTAL STOCKHOLDERS’ EQUITY

    4,664,320       4,617,246  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $ 8,368,081     $ 9,056,000  

 

See notes to condensed unaudited financial statements.

 

2

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

 

   

For the

   

For the

 
   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenues

  $ 1,212,551     $ 2,254,339     $ 2,519,927     $ 3,622,968  

Cost of sales

    183,536       720,978       585,424       1,052,848  

Gross profit

    1,029,015       1,533,361       1,934,503       2,570,120  

Operating expenses:

                               

Selling, general and administrative

    1,037,504       1,217,112       1,970,294       2,278,714  

Income (loss) from operations

    (8,489 )     316,249       (35,791 )     291,406  

Interest income

    11,263       11,514       69,377       28,312  

Income before taxes

    2,774       327,763       33,586       319,718  
Income tax expense (benefit)     (30,800 )     61,000       1,200       45,000  

Net income

  $ 33,574     $ 266,763     $ 32,386     $ 274,718  

Net income per share - basic

  $ 0.01     $ 0.06     $ 0.01     $ 0.06  

Net income per share - diluted

  $ 0.01     $ 0.06     $ 0.01     $ 0.06  

Weighted-average shares outstanding - basic

    4,486,788       4,498,668       4,486,788       4,498,668  

Weighted-average shares outstanding - diluted

    4,492,435       4,505,354       4,493,684       4,507,736  

 

See notes to condensed unaudited financial statements.

 

3

 

 

TABLE TRAC, INC.

CONDENDSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

 

           

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  
                                         

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  

 

See notes to condensed unaudited financial statements.

 

4

 

 

TABLE TRAC, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

 

   

For the

 
   

Six Months Ended

 
   

June 30,

 
   

2020

   

2019

 

OPERATING ACTIVITIES

               

Net income

  $ 32,386     $ 274,718  

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

               

Depreciation and amortization

    25,635       22,121  

Gain on sale of asset

    0       (25,713 )

Deferred income taxes

    (110,000 )     20,000  

Stock compensation expense

    14,688       24,812  
Bad debt expense     91,629       0  

Changes in operating assets and liabilities:

               

Accounts receivable

    942,568       (133,560 )

Inventory

    (691,634 )     (638,805 )

Prepaid expenses and other assets

    457,445       (15,308 )

Accounts payable and accrued expenses

    (274,084 )     (164,659 )

Payroll liabilities

    37,668       116,120  

Contract liabilities and customer deposits

    (861,977 )     (497,691 )

Income taxes payable (receivable)

    106,436       (71,300 )

Net cash used in operating activities

    (229,240 )     (1,089,265 )
INVESTING ACTIVITIES                
Proceeds from sale of Colombian receivables     0       7,000  

Net cash used in financing activities

    0       7,000  

FINANCING ACTIVITIES

               

Payments on notes payable

    0       (2,221 )
Proceeds from Paycheck Protenction Plan loan     473,400       0  
Net cash provided by (used in) financing activities     473,400       (2,221 )
                 

NET INCREASE (DECREASE) IN CASH

    244,160       (1,084,486 )
                 

CASH

               

Beginning of period

    1,263,762       1,290,797  

End of period

  $ 1,507,922     $ 206,311  
                 

Non-cash investing and financing activities:

               

Note from sale of Colombian receivables

  $ 800     $ 800  
                 

Supplemental cash flow information:

               

Operating cash outflow for operating lease

  $ 31,491     $ 31,038  

 

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 June 30, 2020 and the statements of operations, cash flows and stockholders’ equity for the three and six months ended June 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 fiscal quarter ended June 30, 2020, 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.

 

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. 

 

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.

 

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 June 30, 2020 and 2019, respectively:

 

   

Three Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                   

(percent of revenues)

 

System revenue

  $ 551,718     $ 1,498,786       45.5 %     66.5 %

Maintenance revenue

    603,648       691,703       49.8 %     30.7 %

Service and other revenue

    57,185       63,850       4.7 %     2.8 %

Total revenues

  $ 1,212,551     $ 2,254,339       100.0 %     100.0 %

 

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

 

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                   

(percent of revenues)

 

System revenue

  $ 1,115,850     $ 2,157,381       44.3 %     59.5 %

Maintenance revenue

    1,314,475       1,364,272       52.1 %     37.7 %

Service and other revenue

    89,602       101,315       3.6 %     2.8 %

Total revenues

  $ 2,519,927     $ 3,622,968       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. 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.

 

7

 

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 $776,373 and $1,037,364 as of June 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 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 to 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 six-month period ended June 30, 2020, one customer comprised approximately 13% of revenue compared to one customer who accounted for approximately 31% for the six months ending June 30, 2019. At June 30, 2020, one customer comprised approximately 38% of accounts receivable compared to two customers accounting for approximately 37% at June 30, 2019. The following table summarizes major customer’s information for the six months ended June 30, 2020 and 2019:

 

   

For the Six Months Ended June 30,

 
   

2020

   

2019

 
   

% Revenues

   

% AR

   

% Revenues

   

% AR

 

Major

    13.4 %     37.7 %     30.9 %     36.5 %

All Others

    86.6 %     62.3 %     69.1 %     63.5 %

Total

    100.0 %     100.0 %     100.0 %     100.0 %

 

For the six-month periods ending June 30, 2020 and 2019, sales to customers in the United States represent 91.1% and 87.7% of total revenues, respectively.

 

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

 

   

For the Three Months Ended

 
   

June 30,

 
   

2020

   

2019

 
   

% Revenues

   

% Revenues

 

Major

    32.8 %     40.3 %

All Others

    67.2 %     59.7 %

Total

    100.0 %     100.0 %


For the three-month periods ending June 30, 2020 and 2019, sales to customers in the United States represent 89.3% and 92.4% of total revenues, respectively.

 

A major customer is defined as any customer that represents at least 10% of revenue for a given period or 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 June 30, 2020 was $1,955,223, 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 June 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 $39,695 and $14,244 for the six months ended June 30, 2020 and 2019, 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:

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Accounts receivable under normal 30-day terms

  $ 1,442,900     $ 1,649,695  

Financed contracts:

               

Current portion of long-term

    951,900       1,086,820  

Long-term, net of current portion

    1,410,185       2,253,667  

Total accounts receivable

    3,804,985       4,990,182  

Less allowance for doubtful accounts

    (47,623 )     (198,623 )

Accounts receivable, net

  $ 3,757,362     $ 4,791,559  

Presented on the balance sheet as:

               

Accounts receivable, net

  $ 2,347,177     $ 2,537,892  

Long-term accounts receivable - financed contracts

    1,410,185       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 June 30, 2020 and December 31, 2019 which were $2,362,085 and $3,340,487, respectively, which correspond to contract liabilities on the balance sheets of $2,281,383 and $3,148,410, respectively.

 

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

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Accounts receivable allowance, beginning of period

  $ 198,623     $ 165,840  

Provision adjustment

    34,378       115,000  

Write-off

    (185,378 )     (82,217 )

Accounts receivable allowance, end of period

  $ 47,623     $ 198,623  

 

The allowance for doubtful accounts as of June 30, 2020 is $47,623 for the trade receivables and $0 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.  In addition, during the three months ended June 30, 2020 the company also directly wrote off approximately $57,000 of uncollectible receivables to bad debt expense not previously allowed for.

 

 

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 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 $31,491 and 15,630 for the three months and six months ended June 30, 2020, respectively.

 

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

 

   

Leased

 
   

Facilities

 

2020

    26,850  

2021

    28,632  

Total Lease Payments

    55,482  

Less: Interest

    (2,251 )

Present value of lease liabilities

  $ 53,231  

 

The weighted average remaining lease terms equals .67 years as of June 30, 2020.

 

9

 

 

4.

Bank Financing –

 

Revolving Credit Line

 

In February 2020, the Company obtained a revolving credit line from 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 six months ended June 30, 2020. Interest on outstanding borrowing is payable monthly and charged at the Prime Rate, which was 4.0% during the three and six months ended   June 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. 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 June 30, 2020 are as follows, for the twelve months ending June 30:

 

2021

  $ 208,240  

2022

    265,160  
Total Debt     473,400  

 

 

5.

Stockholders’ Equity –

 

Stock Repurchase Program

 

During the six-month period ended June 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 June 30, 2020, the remaining unrecognized stock compensation expense approximated $51,500.

 

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

 

The Company had 20,000 and 30,000 unvested restricted shares outstanding at June 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 June 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.

 

10

 

 

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 six months ended June 30, 2020 and 2019:

 

   

For the Six Months Ended

 
   

June 30,

 
   

2020

   

2019

 

Basic and diluted earnings per share calculation:

               

Net income to common stockholders

  $ 32,386     $ 274,718  

Weighted average number of common shares outstanding - basic

  $ 4,486,788     $ 4,498,668  

Basic net income per share

  $ 0.01     $ 0.06  

Weighted average number of common shares outstanding - diluted

  $ 4,493,684     $ 4,507,736  

Diluted net income per share

  $ 0.01     $ 0.06  

 

   

For the Three Months Ended

 
   

June 30,

 
   

2020

   

2019

 

Basic and diluted earnings per share calculation:

               

Net income to common stockholders

  $ 33,574     $ 266,763  

Weighted average number of common shares outstanding - basic

  $ 4,486,788     $ 4,498,668  

Basic net income per share

  $ 0.01     $ 0.06  

Weighted average number of common shares outstanding - diluted

  $ 4,492,435     $ 4,505,354  

Diluted net income per share

  $ 0.01     $ 0.06  

 

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 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 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 April 2020 we applied and were approved for a 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 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 second quarter of 2020, the Company delivered four casino management systems. 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 170 casinos worldwide.

 

12

 

Results of Operations – Three Months Ended June 30, 2020 Compared to Three months ended June 30, 2019

 

During the three months ended June 30, 2020, the loss from operations was $8,489 compared to income from operations of $316,249 for the three months ended June 30, 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 $1,212,551 for the three months ended June 30, 2020 compared to $2,254,339 for the three months ended June 30, 2019.  

 

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

 

During the three months ended June 30, 2020, the Company delivered four systems. During the same period in 2019, the Company delivered two systems plus an exclusive supplier installed our system in three locations in Australia. The average contract value of systems delivered in 2020 was smaller than the systems delivered in the same period in 2019.  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 decreased to $183,536 for the three months ended June 30, 2020 from $720,978 for the three months ended June 30, 2019 due to a decrease in systems sales in 2019.  The following table summarizes our cost of sales for the three months ended June 30, 2020 and 2019, respectively:

 

   

For the Three Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                   

(percent of revenues)

 

System

  $ 160,829     $ 680,968       13.3 %     30.2 %

Maintenance

    6,037       11,000       0.5 %     0.5 %

Service and other

    16,670       29,010       1.3 %     1.3 %

Total cost of sales

  $ 183,536     $ 720,978       15.1 %     32.0 %

Gross profit

  $ 1,029,015     $ 1,533,361       84.9 %     68.0 %

 

The Company’s gross profit was 84.9% and 68% for the three months ended June 30, 2020 and 2019, respectively. This increase is due to system sales involving refurbished units which lowered the per unit pricing on system hardware sold during the three months ended June 30, 2019, and no such transactions for the three months ended June 30, 2020.  The system sales involving refurbished units was a unique situation and will most likely not occur in future periods.

 

Selling, General and Administrative Expenses

 

For the three months ended June 30, 2020, selling, general and administrative expenses were $1,037,504 compared to $1,217,112 for the same period in 2019. This decrease of approximately $180,000 is due primarily to reduced sales efforts as a result of the COVID pandemic. 

 

Interest Income

 

For the three months ended June 30, 2020, interest income was $11,263 compared to $11,514 for the same period in 2019

 

Tax Provision

 

The income tax benefit for the three months ended June 30, 2020 was $30,800 compared to an income tax expense of $61,000 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 June 30, 2020, was $2,774 compared to income before taxes of $327,763 for the same period in 2019. Net income for the three months ended June 30, 2020 was $33,574 compared to net income of $266,763 for the same period in 2019. The basic and diluted income per share was $0.01 compared to income per share of $0.06 for the three months ended June 30, 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 three projects in its backlog at June 30, 2020. The Company had four projects in its backlog as of June 30, 2019.

 

Subsequent to June 30, 2020, the Company has signed one new system contract.

 

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

 

Results of Operations – Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

 

During the six months ended June 30, 2020, the income from operations was $1,934,503 compared to income from operations of $2,570,120 for the six months ended June 30, 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 $2,519,927 for the six months ended June 30, 2020 compared to $3,622,968 for the six months ended June 30, 2019.  

 

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

 

During the six months ended June 30, 2020, the Company delivered five systems. During the same period in 2019, the Company delivered two systems plus an exclusive supplier installed our system in three locations in Australia. The average contract value of systems delivered in 2020 was smaller than the systems delivered in the same period in 2019.  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 decreased to $585,424 for the six months ended June 30, 2020 from $1,052,848 for the six months ended June 30, 2019 due to an decrease in the size of systems sales in 2020.  The following table summarizes our cost of sales for the six months ended June 30, 2020 and 2019, respectively:

 

   

For the Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                   

(percent of revenues)

 

System

  $ 439,126     $ 909,243       17.4 %     25.1 %

Maintenance

    111,037       101,000       4.4 %     2.8 %

Service and other

    35,261       42,605       1.4 %     1.2 %

Total cost of sales

  $ 585,424     $ 1,052,848       23.2 %     29.1 %

Gross profit

  $ 1,934,503     $ 2,570,120       76.8 %     70.9 %

 

The Company’s gross profit was 76.8% and 70.9% for the six months ended June 30, 2020 and 2019, respectively. This increase is due to system sales which utilized refurbished parts during the six months ended June 30, 2019, and no similar transactions for the six months ended June 30, 2020.

 

Selling, General and Administrative Expenses

 

For the six months ended June 30, 2020, selling, general and administrative expenses were $1,970,294 compared to $2,278,714 for the same period in 2019. This decrease of approximately $308,000 is due to a decrease in legal fees and expenses related to gaming shows attended during 2019 that we did not attend during 2020 due to the pandemic. 

 

Interest Income

 

For the six months ended June 30, 2020, interest income was $69,377 compared to $28,312 for the same period in 2019.  This increase of approximately $41,000 is due to recognizing interest income for the financing component of a significant contract during the six months ended June 30, 2020, and no similar transactions during the six months ended June 30, 2019.

 

Tax Provision

 

The income tax expense for the six months ended June 30, 2020 was $1,200 compared to an income tax expense of $45,000 for the same period in 2019. The effective rate fluctuates significantly due to fluctuations in periodic net income and changes in state apportionment rates.

 

Net Income/Loss

 

Income before taxes for the six months ended June 30, 2020, was $33,586 compared to income before taxes of $319,718 for the same period in 2019. Net income for the six months ended June 30, 2020 was $32,386 compared to net income of $274,718 for the same period in 2019. The basic and diluted income per share was $0.01 compared to income per share of $0.06 for the six months ended June 30, 2020 and 2019, respectively.

 

14

 

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 six months ended June 30, 2020 were approximately $229,000 compared to cash used from operation of $1,089,000 for the period ending June 30, 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 activities for the six months ended June 30, 2020 .

 

There was $473,400 of cash provided by financing activities obtained via the Paycheck Protection Program for the six months ended June 30, 2020 .

 

Off-Balance Sheet Arrangements

 

The Company had no off-balance sheet arrangements as of June 30, 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 June 30, 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 June 30, 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.

 

15

 

 

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. 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.

 

 

Item 5. Other Information

 

The information with respect to the Promissory Note in Item 5 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2020 is incorporated herein by reference.

 

 

16

 

 

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. (incorporated by reference to Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q filed on May 12, 2020).

 

 

 

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

 

17

 

 

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: August 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)

 

 

 

 

 

18