Table Trac Inc 10-Q for FY2021 Q3
Table Trac Inc (TBTC)
About this 10-Q
Table Trac Inc filed this 10-Q on November 12, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.45M
- up 22.0% from $1.19M a year earlier
- Net income
- $186.81K
- up 533.0% from net income of $29.51K a year earlier
- Diluted EPS
- $0.04
- up 300.0% from $0.01 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
or
Commission File Number:
Table Trac, Inc.
(Exact Name of Registrant as Specified in its Charter)
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| (State or Other Jurisdiction of |
| (I.R.S. Employer |
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (
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 |
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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.
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).
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 ☐ |
| | Smaller reporting company |
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| 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
As of November 12, 2021, the registrant had outstanding
Table Trac, Inc.
Index
Item 1. Financial Statements
TABLE TRAC, INC.
CONTENTS
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| CONDENSED FINANCIAL STATEMENTS |
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CONDENSED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | (Unaudited) | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of and at September 30, 2021 and December 31, 2020, respectively. | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Net investment in sales type leases - current | ||||||||
| Income tax receivable | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| LONG-TERM ASSETS | ||||||||
| Accounts receivable - Long-term | ||||||||
| Property and equipment, net | ||||||||
| Net investment in sales type leases - long term | ||||||||
| Operating lease right-of-use assets | ||||||||
| TOTAL LONG-TERM ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Payroll liabilities | ||||||||
| Customer deposits | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Accrued income taxes | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term debt | ||||||||
| Operating lease liabilities | ||||||||
| Deferred tax liability | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, par value; shares authorized: shares issued; and and shares outstanding at September 30, 2021 and December 31, 2020, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, and shares (at cost) at September 30, 2021 and December 31, 2020, respectively. | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See notes to condensed unaudited financial statements.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
| For the Three Months Ended |
For the Nine Months Ended |
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| September 30, |
September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of sales |
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| Gross profit |
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| Operating expenses: |
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| Selling, general and administrative |
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| Income from operations |
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| Investment loss |
( |
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| Interest income |
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| Income before taxes |
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| Income tax expense |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Net income per share - basic |
$ | $ | $ | $ | ||||||||||||
| Net income per share - diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted-average shares outstanding - basic |
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| Weighted-average shares outstanding - diluted |
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See notes to condensed unaudited financial statements.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| Common Stock Outstanding |
Additional |
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| Number of |
Par |
Paid-in |
Retained |
Treasury |
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| Shares |
Amount |
Capital |
Earnings |
Stock |
Total |
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| BALANCE, December 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock compensation expense |
0 | |||||||||||||||||||||||
| Q1 2020 net loss |
0 | ( |
) | ( |
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| BALANCE, March 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock compensation expense |
0 | |||||||||||||||||||||||
| Q2 2020 net income |
0 | |||||||||||||||||||||||
| BALANCE, June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock compensation expense |
0 | |||||||||||||||||||||||
| Q3 2020 net income |
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| BALANCE, September 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| BALANCE, December 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock compensation expense |
0 | |||||||||||||||||||||||
| Common stock issued to employees from treasury |
( |
) | ||||||||||||||||||||||
| Q1 2021 net income |
0 | |||||||||||||||||||||||
| BALANCE, March 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock compensation expense |
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| Q2 2021 net income |
0 | |||||||||||||||||||||||
| BALANCE, June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock compensation expense |
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| Q3 2021 net income |
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| BALANCE, September 30 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
See notes to condensed unaudited financial statements.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
| For the Nine Months Ended |
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| September 30, |
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| 2021 |
2020 |
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| OPERATING ACTIVITIES |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: |
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| Depreciation |
$ | $ | ||||||
| Deferred income taxes |
$ | ( |
) | $ | ( |
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| Stock compensation expense |
$ | $ | ||||||
| Bad debt expense |
$ | $ | ||||||
| Loss on Investment |
$ | |||||||
| Changes in operating assets and liabilities: |
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| Accounts receivable |
$ | ( |
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| Inventory |
$ | $ | ( |
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| Prepaid expenses |
$ | $ | ||||||
| Net investment in sales type leases |
$ | ( |
) | $ | ||||
| Accounts payable, accrued expenses and other |
$ | $ | ( |
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| Payroll liabilities |
$ | $ | ||||||
| Customer deposits |
$ | $ | ( |
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| Income tax receivable (accrued income taxes) |
$ | $ | ||||||
| Net cash provided by operating activities |
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| INVESTING ACTIVITIES |
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| Purchase of investment |
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| Net cash used in investing activities |
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| FINANCING ACTIVITIES |
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| Proceeds from Paycheck Protection Program loan |
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| Net cash and cash equivlents provided by financing activities |
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| NET INCREASE IN CASH AND CASH EQUIVALENTS |
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| CASH AND CASH EQUIVALENTS |
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| Beginning of period |
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| End of period |
$ | $ | ||||||
| Non-cash investing and financing activities: |
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| Treasury stock cost related to compensation |
$ | $ | ||||||
| Supplemental cash flow information: |
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| Operating cash outflow for operating leases |
$ | $ | ||||||
See notes to condensed unaudited financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
| 1. | Nature of Business and Summary of Significant Accounting Policies – |
Basis of Presentation
The accompanying unaudited condensed financial statements of Table Trac, Inc. (the “Company,” or “Table Trac”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The condensed balance sheet as of September 30, 2021 and the condensed statements of operations, cash flows and stockholders’ equity for the three and nine months ended September 30, 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 investments, 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.
Stock-Based Compensation
The Company's stock-based compensation consists of stock options and restricted stock issued to certain company employees. The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, directors and non-employees. The compensation expense for the Company’s stock-based payments is based on estimated fair values at the time of the grant.
The Company estimates the fair value of restricted stock awards on the date of grant using the closing traded price on that date. The Company’s restricted stock awards are subject to vesting requirements and the corresponding compensation is recorded ratably over the service period.
For stock options, the Company recognizes compensation expense based on an estimated grant date fair value using the Black-Scholes option-pricing model. The Company has elected to account for forfeitures as they occur and to use the simplified method to determine the expected life of stock options.
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, and receives monthly payments.
Service Revenue and Other Revenue
Service revenue is recognized upon completion of the services and is 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 September 30, 2021 and 2020, respectively:
| Three Months ended September 30, | ||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System revenue | $ | $ | % | % | ||||||||||||
| Maintenance revenue | % | % | ||||||||||||||
| Lease revenue | % | % | ||||||||||||||
| Service and other revenue | % | % | ||||||||||||||
| Total revenues | $ | $ | % | % | ||||||||||||
The following table summarizes disaggregated revenues by major product line for the nine months ended September 30, 2021 and 2020, respectively:
| Nine Months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System revenue | $ | $ | % | % | ||||||||||||
| Maintenance revenue | % | % | ||||||||||||||
| Lease revenue | % | % | ||||||||||||||
| Service and other revenue | % | % | ||||||||||||||
| Total revenues | $ | $ | % | % | ||||||||||||
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
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 income is recorded upon receipt 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.
In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Company determined that we have complied with all of the conditions required to receive the credit. A receivable of approximately $
Major Customers
The following table summarizes the Company's major customers' information for the nine months ended September 30, 2021 and 2020:
| For the Nine Months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| % Revenues | % AR | % Revenues | % AR | |||||||||||||
| Major | % | % | % | % | ||||||||||||
| All Others | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
For the nine month periods ending September 30, 2021 and 2020, sales to customers in the United States represent
The following table summarizes the Company's major customers' information for the three months ended September 30, 2021 and 2020:
| For the Three Months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| % Revenues | % Revenues | |||||||
| Major | % | % | ||||||
| All Others | % | % | ||||||
| Total | % | % | ||||||
For the three month periods ending September 30, 2021 and 2020, sales to customers in the United States represent
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 $
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 approximately
Research and Development
The Company expenses all costs related to research and development as incurred. Research and development expense were $
| 2. | Accounts Receivable – |
Accounts receivable consisted of the following at:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Accounts receivable - Current | $ | $ | ||||||
| Less allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable current - net | $ | $ | ||||||
| Accounts receivable - Long-term | $ | $ | ||||||
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:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Accounts receivable allowance, beginning of period | $ | $ | ||||||
| Provision adjustment | ||||||||
| Write-off | ( | ) | ( | ) | ||||
| Accounts receivable allowance, end of period | $ | $ | ||||||
| 3. | Net Investment in Sales Type Lease – |
In January 2021, the Company entered into a year lease with a customer for hardware which had an implied interest rate of
At inception, the Company recorded $
The future minimum lease payments receivable for sales type leases are as follows:
| Amount | ||||
| 2021 (remaining three months) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total undiscounted cash flows | ||||
| Present value discount | ( | ) | ||
| Net investment in lease as of September 30, 2021 | $ | |||
The total net investments in sales type leases, as of September 30, 2021 was $
| 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.
On May 18, 2021, we extended our lease for the Minnesota location. The term of the extension is
Our leases do not provide an implicit rate; we use our incremental borrowing rate of
The cost components of our operating leases were $
Maturities of our lease liabilities for all operating leases are as follows as of September 30, 2021:
| Leased Facilities | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total Lease Payments | ||||
| Less: Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
The weighted average remaining lease terms equals
| 5. | Bank Financing – |
Revolving Credit Line
The Company has a revolving credit line of up to $
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 $
Estimated maturities of long-term debt at September 30, 2021 are as follows, for the twelve months ending September 30,:
| 2023 | ||||
| Total Debt |
| 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
Additionally, on March 8, 2021, the Company awarded
The unvested stock compensation expense is expected to be recognized over a weighted average period of approximately years. As of September 30, 2021, the remaining unrecognized stock compensation expense related to restricted shares is approximated $
The Company had
On May 14, 2021, the Board of Directors of Table Trac, Inc. approved the 2021 Stock Incentive Plan (the "Plan"). The Plan provides for the issuance of incentive and other equity-based awards to its employees. Options issued under the Plan are exercisable for periods not to exceed years, and vest and contain such other terms and conditions as specified in the applicable award document. Options to buy common stock are issued under the Plan, with exercise prices equal to the closing price of shares of the Company’s common stock on the OTCQX Exchange at closing on the trading day of the date of award. The Company had
On May 14, 2021, the Board of Directors of Table Trac, Inc. awarded
The fair value of the Company’s stock options issued was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions:
| Expected volatility | % | |||
| Expected life (in years) | ||||
| Risk-free interest rate | % | |||
| Expected dividend yield | % |
For the three and nine months ended September 30, 2021, the Company recorded compensation expense related to stock options granted of $
| Options Outstanding | Options Exercisable | ||||||||||||||||||||||||
| Options Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Aggregate Intrinsic Value | Options Exercisable | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||
As of September 30, 2021, the Company had $
| 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 September 30, 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 as 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 and nine months ended September 30, 2021 and 2020:
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Basic and diluted earnings per share calculation: | (unaudited) | |||||||
| Net income to common stockholders | $ | $ | ||||||
| Weighted average number of common shares outstanding - basic | ||||||||
| Basic net income per share | $ | $ | ||||||
| Weighted average number of common shares outstanding - diluted | ||||||||
| Diluted net income per share | $ | $ | ||||||
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Basic and diluted earnings per share calculation: | (unaudited) | |||||||
| Net income to common stockholders | $ | $ | ||||||
| Weighted average number of common shares outstanding - basic | ||||||||
| Basic net income per share | $ | $ | ||||||
| Weighted average number of common shares outstanding - diluted | ||||||||
| Diluted net income per share | $ | $ | ||||||
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 unaudited financial statements, and notes thereto, contained in this Quarterly Report on Form 10-Q, as well as our
audited financial statements, and notes thereto, contained in our Form 10-K filed with the SEC on March 31,2021 relating to our year ended December 31, 2020.
Forward-Looking Statements
Some of the statements made in this section of our report are forward-looking statements. These forward-looking statements generally relate to and are based upon our current plans, expectations, assumptions and projections about future events. Our management currently believes that the various plans, expectations, and assumptions reflected in or suggested by these forward-looking statements are reasonable. Nevertheless, all forward-looking statements involve risks and uncertainties and our actual actions or future results may be materially different from our plans, objectives or expectations, or our assumptions and projections underlying our present plans, objectives and expectations, which are expressed in this report.
In light of the foregoing, prospective investors are cautioned that the forward-looking statements included in this filing may ultimately prove to be inaccurate - even materially inaccurate. Because of the significant uncertainties inherent in such forward-looking statements, the inclusion of such information should not be regarded as a representation or warranty by Table Trac or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has and will continue to impact the economy and has and will likely continue to adversely affect our business. As of the date of this filing, uncertainty exists concerning the magnitude of the impact and duration of the pandemic. Some of our customers have temporarily closed or are operating at a diminished capacity which may negatively impact revenue. The pandemic may shift industry demand for installing and replacing existing casino management systems, impact sales and gross margins in the future, limit our ability to secure products we sell due to supplier and manufacturer shortages, limit the ability of our employees to perform their work due to illness caused by the pandemic and local, state, or federal orders requiring employees to remain at home, limit the ability of carriers to deliver our products to customers, limit the ability of our customers to conduct their business and purchase our products and services, and limit the ability of our customers to pay us on a timely basis.
To ensure that our business can continue to operate during this uncertain time, in February 2021 we applied and were approved for a second Paycheck Protection Program (PPP) loan through the Small Business Administration. This loan allowed us to continue to employ all existing employees to service our client base.
In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recorded and the credit reduces salaries and wages expense. We have determined that we qualified and have filed to claim the ERC. In October 2021 we have determined that we will receive a credit of approximately $206,000. These amounts have subsequently been recorded as a receivable.
With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization. This includes reducing hiring activities, adjusting pay programs, and limiting discretionary spending.
While we are unable to predict the nature, scope or duration of the impact of the COVID-19 pandemic on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.
General Overview
Table Trac, Inc. is a Nevada corporation, formed on June 27, 1995, with its principal office in Minnetonka, Minnesota.
The Company has developed and patented (U.S. patent # 5,957,776) a proprietary information and management system (called our “Table Trac” system) that automates and monitors the operations of casino table game operations. In addition to its table games management system, Table Trac has been adding functionality to related casino system modules for guest rewards and loyalty club, marketing analysis, guest service, promotions, administration / management, vault / cage management and audit / accounting tasks. Aggregated together, all of these modules have become the “Casino Trac” product, a full-featured Casino Management System (CMS) offering what we believe to be a powerful combination of value, efficiency and reliability for casinos seeking to add or upgrade their casino systems.
In September of 2020, the Company was granted a Patent (U.S. patent #10,769,885 B2) on its April 2017 application 15/946,227 “SYSTEMS AND METHODS OF FACILITATING INTERACTIONS BETWEEN AN ELECTRONIC GAMING MACHINE, GAME PLAYER, AND A CONTROL SYSTEM”. In addition, the Company renewed its Trademark claim for “Table Trac” which was granted July 31, 2018 Reg. No. 5,529,779 and made a new Trademark claim on its “CasinoTrac” brand which is pending.
The Company sells systems and technical support to casinos. The open architecture of the Table Trac system is designed to provide operators with a scalable and flexible system that can interconnect and operate with most third-party software or hardware. Key products and services include modules designed to drive player tracking programs and kiosk promotions, as well as vault and cage controls. The Company’s systems are designed to meet strict auditing, accounting and regulatory requirements applicable to the gaming industry. The Company has developed a patented, real-time system that automates and monitors the operations of casino gaming tables. The Company continues to increase its market share by expanding its product offerings to include new system features, and ancillary products.
During the third quarter of 2021, the Company delivered four casino management systems. expanded one existing customer and our exclusive supplier installed our system in multiple locations in Australia. 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 265 casinos worldwide.
Results of Operations – Three Months Ended September 30, 2021 Compared to Three months ended September 30, 2020
During the three months ended September 30, 2021, income from operations was $288,727 compared to income from operations of $30,432, for the three months ended September 30, 2020. The major components of revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed below.
Revenues
Revenues totaled $1,449,881 for the three months ended September 30, 2021 compared to $1,188,612, for the three months ended September 30, 2020.
Refer to Note 1 – Revenue, disaggregated revenues by major product line table
During the three months ended September 30, 2021, the Company delivered four new systems, expanded one existing customer and our exclusive supplier installed our system in multiple locations in Australia. During the same period in 2020, the Company delivered two systems.
Cost of Sales and Gross Profit
Cost of sales increased to $407,174 for the three months ended September 30, 2021 from $314,399, for the three months ended September 30, 2020 due to a increase in systems sales in 2021. The following table summarizes our cost of sales for the three months ended September 30, 2021 and 2020, respectively:
| For the Three Months ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| (percent of revenues) |
(percent of revenues) |
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| System |
$ | 138,421 | $ | 203,692 | 9.5 | % | 17.1 | % | ||||||||
| Maintenance |
180,054 | 90,495 | 12.4 | % | 7.6 | % | ||||||||||
| Lease |
0 | 0 | 0.0 | % | 0.0 | % | ||||||||||
| Service and other |
88,699 | 20,212 | 6.1 | % | 1.7 | % | ||||||||||
| Total cost of sales |
$ | 407,174 | $ | 314,399 | 28.0 | % | 26.4 | % | ||||||||
| Gross profit |
$ | 1,042,707 | $ | 874,213 | 72.0 | % | 73.6 | % | ||||||||
The Company’s gross profit was 72% and 73.6%, for the three months ended September 30, 2021 and 2020, respectively. This decrease is a result maintenance wages not being included in cost of sales for the period ending September 30, 2020 as a result of the COVID pandemic shutting down the gaming industry.
Selling, General and Administrative Expenses
For the three months ended September 30, 2021, selling, general and administrative expenses were $753,980 compared to $843,781 for the same period in 2020. This decrease is a result of the Company receiving Employee Retention Credits offset by an increase in sales and marketing efforts as well as the Company's bonus accrual.
Interest Income
For the three months ended September 30, 2021, interest income was $11,584 compared to $11,263 for the same period in 2020.
Tax Provision
The income tax expense for the three months ended September 30, 2021 was $56,500 compared to an income tax expense of $12,182 for the same period in 2020. The effective rate fluctuates significantly due to fluctuations in periodic net income, changes in state apportionment rates and availability of research and development and foreign tax credits.
Net Income
Income before taxes for the three months ended September 30, 2021, was $243,311 compared to income before taxes of $41,695, for the same period in 2020. Net income for the three months ended September 30, 2021 was $186,811 compared to net income of $29,513, for the same period in 2020. The basic and diluted income per share was $0.04 compared to income per share of $0.01, for the three months ended September 30, 2021 and 2020, respectively.
Results of Operations – Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
During the nine months ended September 30, 2021, the income from operations was $1,234,317 compared to income from operations of $69,655 for the nine months ended September 30, 2020. The major components of revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed below.
Revenues
Revenues totaled $5,073,900 for the nine months ended September 30, 2021 compared to $3,447,312 for the nine months ended September 30, 2020.
Refer to Note 1 – Revenue, disaggregated revenues by major product line table
During the nine months ended September 30, 2021, the Company delivered eight new systems, expanded one existing customer and our exclusive supplier installed our system in multiple locations in Australia. During the same period in 2020, the Company delivered seven system and expanded two existing customers.
Cost of Sales and Gross Profit
Cost of sales increased to $1,201,035 for the nine months ended September 30, 2021 from $638,832 for the nine months ended September 30, 2020 due to an increase in the size of systems sales installed in 2021. The following table summarizes our cost of sales for the nine months ended September 30, 2021 and 2020, respectively:
| For the Nine Months Ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| (percent of revenues) |
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| System |
$ | 374,927 | $ | 381,824 | 7.4 | % | 11.1 | % | ||||||||
| Maintenance |
444,937 | 201,531 | 8.8 | % | 5.8 | % | ||||||||||
| Lease |
167,770 | 0 | 3.3 | % | 0.0 | % | ||||||||||
| Service and other |
213,401 | 55,477 | 4.2 | % | 1.6 | % | ||||||||||
| Total cost of sales |
$ | 1,201,035 | $ | 638,832 | 23.7 | % | 18.5 | % | ||||||||
| Gross profit |
$ | 3,872,865 | $ | 2,808,480 | 76.3 | % | 81.5 | % | ||||||||
The Company’s gross profit was 76.3% and 81.5% for the nine months ended September 30, 2021 and 2020, respectively. This decrease is a result of maintenance wages not included in cost of sales for the nine month period ending September 30, 2020, as a result of the COVID pandemic shut down. Additionally there was an increase in system sales installed during nine months ended September 30, 2021, compared to the system installations, which was lower due to COVID pandemic, during the nine months ended September 30, 2020
Selling, General and Administrative Expenses
For the nine months ended September 30, 2021, selling, general and administrative expenses were $2,638,547 compared to $2,756,825 for the same period in 2020. This decrease is a result of the Company receiving approximately $317,000 in Employee Retention Credits offset by an increase in sales and marketing efforts as well as the Company's bonus accrual.
Interest Income
For the nine months ended September 30, 2021, interest income was $71,635 compared to $80,640 for the same period in 2020.
Tax Provision
The income tax expense for the nine months ended September 30, 2021 was $292,500 compared to an income tax expense of $31,382 for the same period in 2020. The effective rate fluctuates significantly due to fluctuations in periodic net income and changes in state apportionment rates.
Net Income
Income before taxes for the nine months ended September 30, 2021, was $1,248,953 compared to income before taxes of $150,295 for the same period in 2020. Net income for the nine months ended September 30, 2021 was $956,453 compared to net income of $118,913 for the same period in 2020. The basic and diluted income per share was $0.21 compared to income per share of $0.03 for the nine months ended September 30, 2021 and 2020, respectively.
Backlog
The Company’s backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.
The Company had eleven projects in its backlog at September 30, 2021. The Company had three projects in its backlog as of September 30, 2020.
The Company is currently serving gaming establishments in fourteen U.S. states, as well as countries in Central and South America, the Caribbean and Australia. The Company aims to pursue further opportunities and strategic partnerships.
Liquidity and Capital Resources
Management believes that the Company has adequate cash to meet its obligations and continue operations for both existing customer contracts and ongoing product development for at least the next 12 months from the date of this filing. In February 2020, the Company obtained a $500,000 line of credit available with a lender. The Company has a $473,400 Paycheck Protection Program loan to provide liquidity, as noted below. The Company’s primary sources of liquidity are cash and cash equivalents, 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 and cash equivalents provided by operations for the nine months ended September 30, 2021 was approximately $2,212,000 compared to cash provided by operations of approximately $218,000 for the nine month period ending September 30, 2020. This increase was a result of a number of factors including a significant increase in net income, a decrease in inventory, prepaid expenses, accrued income taxes and a substantial increase in customer deposits. These increases were offset by an increase in accounts receivable and net investment in sales type leases.
The Company invested $57,000 for an approximately 29% of the membership interest in a start-up technology company which comprised the cash used for investing activities for the nine months ended September 30, 2021. During the quarter ended September 30, 2021, based on ceased operating activity of the investee, the Company determined the investment was impaired and recorded an investment loss of $57,000.
Cash provided by financing activities was $473,400 as a result of the second Paycheck Protection Program loan for the nine months ended September 30, 2021.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of September 30, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 September 30, 2021, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of September 30, 2021. 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.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully review the risks discussed in our Annual Report on Form 10-K filed with the SEC on March 31, 2021 relating to our year ended December 31, 2020 before making an investment decision.
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Description |
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| 101.INS |
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Inline XBRL Instance Document |
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| 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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: November 12, 2021 |
Table Trac, Inc. |
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(Registrant) |
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By: |
/s/ Chad Hoehne |
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Chad Hoehne Chief Executive Officer (principal executive officer) |
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By: |
/s/ Randy Gilbert |
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Randy Gilbert Chief Financial Officer (principal financial and accounting officer) |