TABLE TRAC INC - Quarter Report: 2021 March (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 March 31, 2021

 

or

 

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

 

Commission File Number:   001-32987

 

Table Trac, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada		88-0336568
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

 

6101 Baker Road, Suite 206, Minnetonka, Minnesota 55345

(Address of Principal Executive Offices) (Zip Code)

 

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

 

N/A 

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

 

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which register
N/A		N/A		N/A

 

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

 

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

 

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

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

 

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

 

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

 

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

 

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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	14
Item 4. Controls and Procedures	14
PART II. OTHER INFORMATION
Item 1A.  Risk Factors	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 5. Other information	15
Item 6. Exhibits	16
SIGNATURES	17

  

 

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

 

 

		March 31,				December 31,
		2021				2020
ASSETS			(Unaudited)
CURRENT ASSETS
Cash and cash equivalents		$	2,946,441			$	1,731,869
Accounts receivable, net of allowance for doubtful accounts of $77,623 at March 31, 2021 and December 31, 2020.			1,467,097				1,303,724
Inventory, net			1,530,014				1,748,414
Prepaid expenses			252,500				311,170
Net investment in sales type leases - current			37,640				0
Income tax receivable			0				97,273
TOTAL CURRENT ASSETS			6,233,692				5,192,450
LONG-TERM ASSETS
Accounts receivable - Long-term			166,090				33,783
Property and equipment, net			23,417				30,843
Net investment in sales type leases - long term			167,084				0
Investment			57,000				0
Operating lease right-of-use assets			32,788				46,810
TOTAL LONG-TERM ASSETS			446,379				111,436
TOTAL ASSETS		$	6,680,071			$	5,303,886
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	150,642			$	104,362
Payroll liabilities			89,623				41,641
Customers deposits			245,875				163,709
Current portion of operating lease liabilities			29,082				40,742
Accrued income taxes			111,327				0
TOTAL CURRENT LIABILITIES			626,549				350,454
LONG-TERM LIABILITIES
Long-term debt			473,400				0
Operating lease liabilities			5,616				8,939
Deferred tax liability			252,000				251,000
TOTAL LIABILITIES			1,357,565				610,393
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 25,000,000 shares authorized: 4,656,734 shares issued; and 4,521,988 and 4,506,788 shares outstanding at March 31, 2021 and December 31, 2020, respectively.			4,522				4,507
Additional paid-in capital			1,877,929				1,876,970
Retained earnings			3,673,654				3,057,647
			5,556,105				4,939,124
Treasury stock, 134,746 and 149,946 shares (at cost) at March 31, 2021 and December 31, 2020, respectively.			(233,599	)			(245,631	)
TOTAL STOCKHOLDERS’ EQUITY			5,322,506				4,693,493
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	6,680,071			$	5,303,886

 

		For the Three Months Ended
		March 31,
		2021				2020
Revenues		$	2,176,973			$	1,125,630
Cost of sales			460,460				227,148
Gross profit			1,716,513				898,482
Operating expenses:
Selling, general and administrative			935,985				937,790
Income (loss) from operations			780,528				(39,308	)
Interest income			47,979				58,114
Income before taxes			828,507				18,806
Income tax expense			212,500				29,000
Net income (loss)		$	616,007			$	(10,194	)
Net income (loss) per share - basic		$	0.14			$	(0.00	)
Net income (loss) per share - diluted		$	0.14			$	(0.00	)
Weighted-average shares outstanding - basic			4,500,672				4,486,788
Weighted-average shares outstanding - diluted			4,505,132				4,486,788

 

		Common Stock Outstanding								Additional
		Number of				Par				Paid-in				Retained				Treasury
		Shares				Amount				Capital				Earnings				Stock				Total
BALANCE, December 31, 2019			4,506,788			$	4,507			$	1,847,594			$	2,750,754			$	(245,631	)		$	4,357,224
Stock compensation expense			0				0				7,344				0				0				7,344
Q1 2020 net loss			0				0				0				(10,194	)			0				(10,194	)
BALANCE, March 31, 2020			4,506,788			$	4,507			$	1,854,938			$	2,740,560			$	(245,631	)		$	4,354,374
BALANCE, December 31, 2020			4,506,788			$	4,507			$	1,876,970			$	3,057,647			$	(245,631	)		$	4,693,493
Stock compensation expense			0				0				13,006				0				0				13,006
Common stock issued to employees from treasury			15,200				15				(12,047	)							12,032				0
Q1 2021 net income			0				0				0				616,007				0				616,007
BALANCE, March 31, 2021			4,521,988				4,522				1,877,929				3,673,654				(233,599	)			5,322,506

 

		For the Three Months Ended
		March 31,
		2021				2020
OPERATING ACTIVITIES
Net income (loss)		$	616,007			$	(10,194	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation			7,426				13,956
Deferred income taxes			1,000				(108,000	)
Stock compensation expense			13,006				7,344
Bad debt expense			0				5,000
Changes in operating assets and liabilities:
Accounts receivable			(295,680	)			571,015
Inventory			218,400				(636,338	)
Prepaid expenses			58,670				116,051
Net investment in sales type leases			(204,724	)			0
Accounts payable, accrued expenses and other			45,319				(218,853	)
Payroll liabilities			47,982				26,487
Customer deposits			82,166				37,575
Income tax receivable (accrued income taxes)			208,600				137,000
Net cash provided by (used in) operating activities			798,172				(58,957	)
INVESTING ACTIVITIES
Purchase of investment			(57,000	)			0
Net cash used in investing activities			(57,000	)			0
FINANCING ACTIVITIES
Proceeds from Paycheck Protection Program loan			473,400				0
Net cash provided by financing activities			473,400				0
NET INCREASE (DECREASE) IN CASH			1,214,572				(58,957	)
CASH
Beginning of period			1,731,869				1,263,762
End of period		$	2,946,441			$	1,204,805
Non-cash investing and financing activities:
Treasury stock cost related to compensation		$	12,047			$	0
Supplemental cash flow information:
Operating cash outflow for operating leases		$	14,504			$	15,293

 

1.	Nature of Business and Summary of Significant Accounting Policies –

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements of Table Trac, Inc. (the “Company,” or “Table Trac”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The condensed balance sheet as of March 31, 2021 and the condensed statements of operations, cash flows and stockholders’ equity for the three months ended March 31, 2021 and 2020 are unaudited but include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position at such date and the operating results and cash flows for those periods. Certain information normally included in financial statements and related footnotes prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

 

The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Table Trac, Inc. Annual Report on Form 10-K for the year ended December 31, 2020.

 

Nature of Business

 

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

 

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

 

Use of Estimates

 

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

 

The Company’s significant accounting policies are described in Note 1 of the financial statement included in its Annual Report on Form 10-K for the year ended December 31, 2020.

 

Revenue

 

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

 

System Sales

 

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

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company’s systems sales have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation based on its SSP. See discussion within the significant judgement paragraph regarding our determination of SSP.  At contract inception, management assesses whether it is probable that the company will collect substantially all of the consideration to determine whether the contract meets the criterion for collectability.  The revenue allocated to the casino management system is recognized upon installation.  The Company occasionally enters into contracts that include multiple sites; management has determined that each site installation is a separate performance obligation. In these instances, the Company recognizes revenue upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells the Company’s products; monthly the reseller notifies the Company of their successful installations and submits an invoice to the Company for those installations.  The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts which include a significant financing component which is usually a market interest rate. The associated interest income is reflected accordingly on the statement of operations. 

 

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

 

 

Maintenance Revenue

 

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

 

Lease Revenue

 

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

 

Service Revenue and Other Revenue

 

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

 

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

 

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

 

 

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

 

Significant Judgments

 

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

 

Judgment is required to determine the SSP for each distinct performance obligation, including lease and non-lease components. We use a single amount to estimate SSP when we sell a product or service separately. 

 

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

 

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

 

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

 

 

Accounts Receivable / Allowance for Doubtful Accounts

 

Accounts receivable are initially recorded at the invoiced amount and carried on the balance sheet at net realizable value as of each balance sheet date.  For receivables related to contracts that contain an interest rate, interest is recorded upon receipt to interest income on the statements of operations. An allowance for doubtful accounts is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for doubtful accounts, are fully collectible. Accounts receivable are written off when management determines collection is no longer likely. While the ultimate result may differ, management believes that any write-off not allowed for will not have a material impact on the Company’s financial position.

 

Major Customers

 

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

 

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

 

A major customer is defined as any customer that represents at least 10% of revenue for a given period or 10% of outstanding account receivable at the end of a period.

 

Inventory

 

Inventory, consisting of finished goods, is stated at the lower of cost or net realizable value. The average cost method (which approximates the first in, first out method) is used to value inventory. Inventory is reviewed quarterly for the lower of cost or net realizable value and obsolescence. Any material cost found to be above net realizable value or considered obsolete is written down accordingly. Based on that evaluation, the Company had $40,165 and $45,045 of obsolescence reserve at  March 31, 2021 and December 31, 2020, respectively.  The total inventory value was $1,570,178 and $1,793,459, as of March 31, 2021 and December 31, 2020, respectively, which included work-in-process of $0 and $140,022 as of  March 31, 2021 and December 31, 2020, respectively, and the remaining amount is comprised of finished goods. At March 31, 2021 and December 31, 2020 the Company had $6,810 and $0 of prepaid inventory as a component of prepaid expenses, respectively.

 

Net Investment in Sales Type Lease

 

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

 

Investment

 

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

 

Research and Development

 

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

 

2.	Accounts Receivable –

 

Accounts receivable consisted of the following at:

 

 

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

 

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

 

 

 

3.	Net Investment in Sales Type Lease –

 

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

 

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

 

 

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

 

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

 

 

 

4.	Operating Leases –

We lease space under non-cancelable operating leases for our two office locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions.

 

Our leases include one or more options to renew. The exercise of lease renewal options are included in our right of use assets and lease liabilities if they are reasonably certain of exercise.

 

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

 

The cost components of our operating leases were $14,504 for the three months ended March 31, 2021.

 

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

 

 

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

 

5.	Bank Financing –

 

Revolving Credit Line

 

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

 

Paycheck Protection Program Loan

 

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

 

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

 

 

 

6.	Stockholders’ Equity –

 

Stock Compensation

 

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

 

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

 

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

 

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

 

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

 

7.	Income Tax –

 

The Company accounts for income taxes by following the asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of the tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted. Management believes that any write-off not allowed for will not have a material impact on the Company’s financial position.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Based on its evaluation, the Company believes that it has no significant unrecognized tax positions. The Company’s evaluation was performed for the tax years ended December 31, 2016 through 2019, which are the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2021. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

 

The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results. In accordance with current guidance, the Company classifies interest and penalties as income tax expense is incurred.

 

8.	Earnings Per Share –

 

The Company computes earnings per share under two different methods, basic and diluted, and presents per-share data for all periods in which statements of operations are presented. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding.

 

The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:

 

 

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