UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2015 or
| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 000-28383
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)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer ¨ | |
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No x
As of November 13, 2015, the registrant had outstanding 4,546,065 shares of common stock, $.001 par value per share.
Table Trac, Inc.
Index
| - 2 - |
TABLE TRAC, INC.
CONTENTS
| Page | |
| CONDENSED FINANCIAL STATEMENTS | |
| Condensed Balance Sheets | 4 |
| Condensed Statements of Operations | 5 |
| Condensed Statements of Cash Flows | 6 |
| Notes to Condensed Financial Statements | 7 |
| - 3 - |
CONDENSED BALANCE SHEETS (Unaudited)
| September 30, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 349,461 | $ | 1,208,201 | ||||
| Accounts receivable, net | 2,588,856 | 2,224,576 | ||||||
| Inventory | 867,916 | 893,743 | ||||||
| Prepaid expenses and other current assets | 59,326 | 98,607 | ||||||
| Income taxes receivable | 68,501 | 16,610 | ||||||
| TOTAL CURRENT ASSETS | 3,934,060 | 4,441,737 | ||||||
| LONG-TERM ASSETS | ||||||||
| Patent, net | 1,979 | 3,003 | ||||||
| Property and equipment, net | 56,324 | 2,138 | ||||||
| Other long-term assets | 902,194 | 344,816 | ||||||
| Deferred tax asset | 210,000 | 19,000 | ||||||
| Long-term accounts receivable – financed contracts | 1,807,526 | 675,683 | ||||||
| TOTAL LONG-TERM ASSETS | 2,978,023 | 1,044,640 | ||||||
| TOTAL ASSETS | $ | 6,912,083 | $ | 5,486,377 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 421,707 | $ | 217,352 | ||||
| Payroll liabilities | 77,090 | 60,726 | ||||||
| Current portion of note payable | 7,096 | 0 | ||||||
| Deferred revenue - short-term | 25,200 | 38,975 | ||||||
| Income taxes payable | 0 | 109,967 | ||||||
| Deferred tax liability | 790,000 | 766,947 | ||||||
| TOTAL CURRENT LIABILITIES | 1,321,093 | 1,193,967 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Note payable, net of current portion | 27,482 | 0 | ||||||
| Deferred revenue - long-term | 2,785,399 | 1,090,746 | ||||||
| TOTAL LONG-TERM LIABILITIES | 2,812,881 | 1,090,746 | ||||||
| TOTAL LIABILITIES | 4,133,974 | 2,284,713 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, 0.001 par value; 25,000,000 shares authorized: 4,655,734 shares issued and 4,552,885 outstanding at September 30, 2015 and 4,705,734 issued and 4,704,734 outstanding at December 31, 2014 | 4,656 | 4,706 | ||||||
| Additional paid-in capital | 1,801,248 | 1,845,198 | ||||||
| Retained earnings | 1,074,688 | 1,353,182 | ||||||
| 2,880,592 | 3,203,086 | |||||||
| Treasury stock, 102,849 and 1,000 shares (at cost) at September 30, 2015 and December 31, 2014 | (102,483 | ) | (1,422 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 2,778,109 | 3,201,664 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 6,912,083 | $ | 5,486,377 | ||||
See notes to condensed financial statements.
| - 4 - |
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Revenues | $ | 811,841 | $ | 870,744 | $ | 2,885,461 | $ | 2,946,256 | ||||||||
| Cost of sales | 254,909 | 125,021 | 905,755 | 656,568 | ||||||||||||
| Gross profit | 556,932 | 745,723 | 1,979,706 | 2,289,688 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling, general and administrative | 841,343 | 689,766 | 2,455,742 | 2,082,751 | ||||||||||||
| Income (loss) from operations | (284,411 | ) | 55,957 | (476,036 | ) | 206,937 | ||||||||||
| Other income | 20,138 | 17,289 | 37,142 | 53,361 | ||||||||||||
| Income (loss) before taxes | (264,273 | ) | 73,246 | (438,894 | ) | 260,298 | ||||||||||
| Income tax expense (benefit) | (93,400 | ) | 20,012 | (160,400 | ) | 83,012 | ||||||||||
| Net income (loss) | $ | (170,873 | ) | $ | 53,234 | $ | (278,494 | ) | $ | 177,286 | ||||||
| Basic earnings (loss) per common share | $ | (0.04 | ) | $ | 0.01 | $ | (0.06 | ) | $ | 0.04 | ||||||
| Weighted-average basic shares outstanding | 4,573,759 | 4,782,305 | 4,615,812 | 4,777,690 | ||||||||||||
| Diluted earnings (loss) per common share | $ | (0.04 | ) | $ | 0.01 | $ | (0.06 | ) | $ | 0.04 | ||||||
| Weighted-average diluted shares outstanding | 4,573,759 | 4,782,305 | 4,615,812 | 4,777,690 | ||||||||||||
See notes to condensed financial statements.
| - 5 - |
CONDENSED STATEMENTS OF CASH FLOW (Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (278,494 | ) | $ | 177,286 | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 5,045 | 16,062 | ||||||
| Deferred income taxes | (167,947 | ) | (120,800 | ) | ||||
| Gain on disposal of asset | (6,000 | ) | 0 | |||||
| Stock issued for services | 22,420 | 6,750 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,496,123 | ) | 1,239,915 | |||||
| Inventory | 25,827 | (234,208 | ) | |||||
| Prepaid expenses and other assets | (518,097 | ) | 98,220 | |||||
| Accounts payable and accrued expenses | 211,572 | (404,189 | ) | |||||
| Payroll liabilities | 16,364 | 8,525 | ||||||
| Deferred revenue | 1,680,878 | (463,903 | ) | |||||
| Income taxes receivable / payable | (161,858 | ) | 187,018 | |||||
| Net cash provided by (used in) operating activities | (666,413 | ) | 510,676 | |||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (17,207 | ) | (2,185 | ) | ||||
| Net cash used in investing activities | (17,207 | ) | (2,185 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Payments on note payable | 0 | (8,180 | ) | |||||
| Repurchase of common stock | (175,120 | ) | 0 | |||||
| Net cash used in financing activities | (175,120 | ) | (8,180 | ) | ||||
| NET INCREASE (DECREASE) IN CASH | (858,740 | ) | 500,311 | |||||
| CASH | ||||||||
| Beginning of year | 1,208,201 | 1,038,288 | ||||||
| End of period | $ | 349,461 | $ | 1,538,599 | ||||
| Cash paid for income taxes | $ | 150,000 | $ | 13,971 | ||||
| NONCASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Vehicle financed with note payable | $ | 34,580 | $ | 0 | ||||
See notes to condensed financial statements.
| - 6 - |
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 September 30, 2015 and the statements of operations for the three and nine months ended September 30, 2015 and 2014, and the statement of cash flows for the nine months ending September 30, 2015 and 2014 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 Annual Report on Form 10-K for the year ended December 31, 2014.
Nature of Business
Table Trac was formed under the laws of the State of Nevada in June 1995. The Company has its offices in Minnetonka, Minnesota. 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 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 uses estimates and assumptions in accounting for the following significant matters, among others: revenue recognition, realizability of accounts receivable, the valuation of deferred tax assets and liabilities, deferred revenue and costs, and other contingencies. Actual results could differ from those estimates.
Revenue Recognition
The Company derives revenues from the sales of systems, licenses and maintenance fees, and services, and rental agreements.
System Sales
Revenue from systems that have been demonstrated to meet customer specifications during installation is recognized when evidence of an arrangement exists, the product has been installed, title and risk of loss have transferred to the customer and collection of the resulting receivable is reasonably assured. System sales, which are accounted for as multiple-element arrangements, include multiple products and/or services. For multiple-element arrangements the Company allocates the revenue to each element based on their relative fair estimated value based on vendor specific objective evidence (VSOE) and recognizes the associated revenue when all revenue recognition criteria have been met for each element. If there are contracts the Company does not have VSOE, or third party evidence of fair value of all elements, an estimated selling price model is used to allocate revenue to delivered elements.
The Company does offer its customers contracts with extended payment terms. The Company must evaluate if any extended payment terms in the contract is an indicator of the revenue not being fixed or determinable. Provided all other revenue recognition criteria have been satisfied, the Company recognizes the revenue if payment of a significant portion of the systems sales is due within 12 months of the delivery of the product. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts without making concessions for determining if revenue should be recognized. Revenue and associated costs of sales are deferred if contract terms exceed historical collection results or if a substantial portion of the contract is not due within 12 months after delivery of the product. The Company analyzes each contract for proper revenue recognition based on that contract’s facts and circumstances. Interest is recorded upon receipt to “other income” on the statements of operations.
| - 7 - |
Maintenance revenue
Maintenance revenue is recognized ratably over the contract period. The VSOE for maintenance is based upon the renewal rate for contracted services.
Service revenue
Service revenue is recognized after the services are performed and collection of the resulting receivable is reasonably assured. The VSOE for service revenue is established based upon the price determined by management having the relative authority when the element is not yet sold separately for the services.
Rental revenue
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.
Deferred System Sales Costs
Deferred system sales costs consist of installed system costs incurred on participation-based contracts. 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. At the end of the contract period, the customer will usually receive title to the system.
Accounts Receivable / Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount. Accounts receivable include regular customer receivables and amounts from financed contracts coming due within 12 months. Amounts from financed contracts due beyond 12 months are recorded as "long-term accounts receivable – financed contracts." Interest is recorded upon receipt to other income on the statements of operations. An allowance for doubtful accounts is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for doubtful accounts, are fully collectible. 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 tables summarize major customer information for the nine and three months ended September 30, 2015 and 2014:
| For the Nine Months Ended September 30 | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| % Sales | % AR | % Sales | % AR | |||||||||||||
| A | 3.6 | % | 0.8 | % | 6.3 | % | 6.3 | % | ||||||||
| B | 6.2 | % | 6.5 | % | 4.6 | % | 16.2 | % | ||||||||
| C | 2.6 | % | 2.8 | % | 17.7 | % | 11.7 | % | ||||||||
| D | 5.0 | % | 0.1 | % | 10.9 | % | 0.0 | % | ||||||||
| E | 1.9 | % | 0.6 | % | 5.3 | % | 5.5 | % | ||||||||
| F | 0.9 | % | 0.0 | % | 4.5 | % | 2.2 | % | ||||||||
| G | 29.5 | % | 14.5 | % | 8.4 | % | 5.4 | % | ||||||||
| H | 4.4 | % | 34.7 | % | 0.0 | % | 0.0 | % | ||||||||
| All Others | 45.9 | % | 40.0 | % | 42.3 | % | 52.7 | % | ||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| - 8 - |
| For the Three Months Ended September 30 | ||||||||
| 2015 | 2014 | |||||||
| % Sales | % Sales | |||||||
| A | 9.8 | % | 18.4 | % | ||||
| B | 8.2 | % | 6.4 | % | ||||
| C | 3.0 | % | 2.4 | % | ||||
| D | 3.4 | % | 6.7 | % | ||||
| E | 2.2 | % | 10.7 | % | ||||
| F | 1.0 | % | 10.2 | % | ||||
| G | 10.1 | % | 9.8 | % | ||||
| H | 11.6 | % | 0.0 | % | ||||
| All Others | 50.7 | % | 35.4 | % | ||||
| Total | 100.0 | % | 100.0 | % | ||||
The Company does derive a portion of its revenue from foreign customers. For the three and nine month periods ending September 30, 2015, South America represents 17.6% and 15.8% of total sales, respectively.
Inventory
Inventory, consisting of finished goods, is stated at the lower of cost or market. 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 market and obsolescence. Any material cost found to be above market value or considered obsolete is written down accordingly. The inventory value as of September 30, 2015 was $867,916, which included work-in-process of $20,679. The Company had no obsolescence reserve at September 30, 2015 or December 31, 2014.
Research and Development
The Company expenses all costs related to research and development as incurred. Research and development expense was $5,108 and $6,536 for the three months ended September 30, 2015 and 2014, and $17,668 and $17,117 for the nine months ended September 30, 2015 and 2014, respectively. Research and development expenses are included in selling, general and administrative expenses on the statements of operations.
Accounting Pronouncement
In May 2014, and amended in July 2015, the Financial Accounting Standards Board (FASB) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from Contracts with Customers.” The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles to a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning on or after December 15, 2017, and interim periods within those annual periods. The Company will adopt the new provisions of this accounting standard at the beginning of 2018. The Company will further study the implications of this statement in order to evaluate the expected impact on its financial statements.
| 2. | Accounts Receivable – |
Accounts receivable consisted of the following at September 30, 2015 and December 31, 2014:
| September 30, 2015 | December 31, 2014 | |||||||
| Accounts receivable under normal 30 day terms | $ | 979,394 | $ | 1,406,665 | ||||
| Financed contracts: | ||||||||
| Short-term | 0 | 22,754 | ||||||
| Current portion of long-term | 1,710,541 | 896,236 | ||||||
| Long-term, net of current portion | 1,807,526 | 675,683 | ||||||
| Total accounts receivable | 4,497,461 | 3,001,338 | ||||||
| Less allowance for doubtful accounts | (101,079 | ) | (101,079 | ) | ||||
| Accounts receivable, net | $ | 4,396,382 | $ | 2,900,259 | ||||
| Presented on the balance sheet as: | ||||||||
| Accounts receivable, net | $ | 2,588,856 | $ | 2,224,576 | ||||
| Long-term accounts receivable - financed contracts | 1,807,526 | 675,683 | ||||||
| - 9 - |
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 of the trade and financed receivables, but that have not been specifically identified.
Accounts receivable includes financed contracts at September 30, 2015 and December 31, 2014 which are $3,518,067 and $1,594,673, respectively, with an offset accounting for deferred revenues on the balance sheet of $2,785,399 and $1,090,746, respectively.
A roll-forward of the Company’s allowance for doubtful accounts is as follows:
| September 30, 2015 | December 31, 2014 | |||||||
| Accounts receivable allowance, beginning of period | $ | 101,079 | $ | 112,054 | ||||
| Provision adjustment during year | 0 | (10,975 | ) | |||||
| Write-off | 0 | 0 | ||||||
| Accounts receivable allowance, end of period | $ | 101,079 | $ | 101,079 | ||||
The allowance for doubtful accounts is $101,079 for the trade receivables and $0 for the financed contracts at both September 30, 2015 and December 31, 2014.
| 3. | Stockholders’ Equity – |
Stock Repurchase Program
On December 23, 2014, the Company’s Board of Directors approved the repurchase of its outstanding shares of up to $100,000 of its common stock from private unsolicited sellers’ paper certificate blocks (non-street name) in the open market until September 30, 2015, which was subsequently extended by the Board of Directors. On March 17, 2015, the Company’s Board of Directors approved another repurchase of up to $75,000 for the same program. On September 4, 2015, the Company’s Board of Directors approved another repurchase of up to $50,000 for the same program. The remaining amount approved for repurchasing common stock is $49,059 as of September 30, 2015. Company insiders are prohibited from participating in the stock repurchase program. The Company has repurchased 184,349 shares at an average price of $.95 per share through September 30, 2015.
During the nine month period ended September 30, 2015, the Company repurchased and retired 50,000 shares for approximately $44,000 at an average price of $.88 per share, and repurchased 120,849 shares for approximately $122,000 at an average price of $1.01 per share for its treasury. In August 2015, the Company issued 7,500 shares at a price of $1.18 per share from its treasury to a director, for services rendered during the period January 1, 2015 through June 30, 2015, and 11,500 shares at a price of $1.18 per share to two employees for bonuses for a total expense of $22,420. As of September 30, 2015, the Company holds 102,849 common shares in treasury for future employee issuances for potential bonuses, which was part of the recent repurchase of shares.
| 4. | 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.
| - 10 - |
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Based on its evaluation, it has concluded that there are no significant unrecognized tax positions. The Company’s evaluation was performed for the tax years ended December 31, 2012 through 2014, the tax years that remain subject to examination by major tax jurisdictions as of September 30, 2015. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve 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.
| 5. | Earnings (Loss) Per Share – |
The Company computes earnings (loss) 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 (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) 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 loss per share for the three and nine months ended September 30, 2015 and 2014:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Basic earnings per share calculation: | ||||||||||||||||
| Net income (loss) to common stockholders | $ | (170,873 | ) | $ | 53,234 | $ | (278,494 | ) | $ | 177,286 | ||||||
| Weighted average number of common shares outstanding | 4,573,759 | 4,782,305 | 4,615,812 | 4,777,690 | ||||||||||||
| Basic net income (loss) per share | $ | (0.04 | ) | $ | 0.01 | $ | (0.06 | ) | $ | 0.04 | ||||||
| Diluted earnings per share calculation: | ||||||||||||||||
| Net income (loss) | $ | (170,873 | ) | $ | 53,234 | $ | (278,494 | ) | $ | 177,286 | ||||||
| Weighted average number of common shares outstanding | 4,573,759 | 4,782,305 | 4,615,812 | 4,777,690 | ||||||||||||
| Common stock equivalents: | ||||||||||||||||
| Stock options | (a) | (b) | (a) | (b) | ||||||||||||
| Weighted average diluted shares outstanding | 4,573,759 | 4,782,305 | 4,615,812 | 4,777,690 | ||||||||||||
| Diluted net income (loss) per share | $ | (0.04 | ) | $ | 0.01 | $ | (0.06 | ) | $ | 0.04 | ||||||
Stock options outstanding of (a) 10,000 and (b) 60,000 were not included in the calculation as the stock expense price is greater than the fair market price.
| 6. | Foreign Currency Exchange Rate Risk |
The Company is exposed to foreign currency risks that arise from some of its foreign customers in Colombia, transacted in Colombia Pesos. In addition, exchange rate fluctuations may cause our international results to fluctuate when translated into U.S. dollars. These risks may change over time as business practices evolve and could have an impact on the Company’s financial results in the future. The Company monitors its risk associated with the volatility of certain foreign currencies against U.S. dollars.
| 7. | Commitment and Contingencies |
During 2015, the Company entered into an Agreement with a contractor to design and execute on a sales and marketing strategy for the Company in key Latin American and Caribbean gaming jurisdictions. The Agreement expires July 14, 2016 unless terminated earlier in accordance with the terms of the Agreement. The remaining commitment as of September 30, 2015 is approximately $59,000.
| - 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 30, 2015 relating to our year ended December 31, 2014.
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.
General Overview
Table Trac, Inc. (the “Company” or “Table Trac”) is a Nevada corporation, formed on June 27, 1995, with principal offices 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.
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 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.
In the third quarter of 2015, the Company delivered one system, and continued to install systems for new customers in South America. 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 for 71 casino operators worldwide.
Discussion of Critical Accounting Policies
There were no changes to our accounting policies for the quarter. For our existing policies, see Note 1 in our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014.
Results of Operations - Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014
During the three months ended September 30, 2015, loss from operations was $284,411 compared to income from operations of $55,957 for the three months ended September 30, 2014. The major components of revenues, cost of sales and selling, general and administrative expenses are discussed below.
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Revenues
Revenues totaled $811,841 for the three months ended September 30, 2015 compared to $870,744 for the three months ended September 30, 2014. The following table summarizes our revenues for the three months ended September 30, 2015 and 2014, respectively:
| Three Months Ended September 30, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System sales | $ | 363,434 | $ | 469,588 | 44.8 | % | 53.9 | % | ||||||||
| License and maintenance fees | 441,014 | 350,861 | 54.3 | % | 40.3 | % | ||||||||||
| Other sales | 7,393 | 50,295 | 0.9 | % | 5.8 | % | ||||||||||
| Total revenues | $ | 811,841 | $ | 870,744 | 100.0 | % | 100.0 | % | ||||||||
During the three months ended September 30, 2015, the Company delivered one system domestically and additional systems in South America. Most of the revenue for the installation was deferred, and will be recognized in future periods, since a substantial amount is not due within 12 months. During the same period in 2014, the Company delivered one system. Other sales, which include third party products, decreased over 2014 as a result of no kiosk sales.
Cost of Sales
Cost of sales for the three months ended September 30, 2015 increased to $254,909 from $125,021 for the three months ended September 30, 2014. The following table summarizes our cost of sales for the three months ended September 30, 2015 and 2014, respectively:
| Three Months Ended September 30, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System sales | $ | 228,103 | $ | 89,127 | 28.1 | % | 10.2 | % | ||||||||
| License and maintenance fees | 22,166 | 26,348 | 2.7 | % | 3.0 | % | ||||||||||
| Other sales | 4,640 | 9,546 | 0.6 | % | 1.1 | % | ||||||||||
| Total cost of sales | $ | 254,909 | $ | 125,021 | 31.4 | % | 14.4 | % | ||||||||
| Gross profit | $ | 556,932 | $ | 745,723 | 68.6 | % | 85.6 | % | ||||||||
The Company's gross profit was 68.6% and 85.6% for the three months ended September 30, 2015 and 2014, respectively. This decrease is primarily due to the mix of hardware sold with the systems. The decrease is also attributable to pursuing sales in foreign markets and the related foreign currency exchange rates, which the Company expects to continue in future quarters.
Selling, General and Administrative Expenses
For the three months ended September 30, 2015, selling, general and administrative expenses were $841,343 compared to $689,766 for the same period in 2014. Our most significant changes in operating expenses are related to additional contractor fees related to the expanded operations in South America, and the shares issued from the Company treasury during the quarter.
Other Income
For the three months ended September 30, 2015, other income was $20,138 compared to $17,289 for the same period in 2014. This increase is primarily related to the gain on an asset disposal during the three months ended September 30, 2015.
Tax Provision
The income tax benefit for the three months ended September 30, 2015 was $93,400, which was calculated at a 35.3% effective rate, compared to an income tax expense of $20,012 for the same period in 2014, which was calculated at a 27.3% effective rate.
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Net Income (Loss)
Loss before taxes for the three months ended September 30, 2015, was $264,273 compared to income before taxes of $73,246 for same period in 2014. Net loss for the three months ended September 30, 2015 was $170,873 compared to net income of $53,234 for the same period in 2014. The basic loss per share was $0.04 compared to earnings per share of $0.01 for the three months ended September 30, 2015 and 2014, respectively.
Results of Operations - Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014
During the nine months ended September 30, 2015, loss from operations was $476,036 compared to income from operations of $206,937 for the nine months ended September 30, 2014. The major components of revenues, cost of sales and selling, general and administrative expenses are discussed below.
Revenues
Revenues for the nine months ended September 30, 2015 decreased to $2,885,461 from $2,946,256 for the nine months ended September 30, 2014. The following table summarizes our revenues for the nine months ended September 30, 2015 and 2014, respectively:
| Nine Months Ended September 30, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System sales | $ | 1,637,217 | $ | 1,547,017 | 56.7 | % | 52.5 | % | ||||||||
| License and maintenance fees | 1,222,443 | 980,362 | 42.4 | % | 33.3 | % | ||||||||||
| Other sales | 25,801 | 418,877 | 0.9 | % | 14.2 | % | ||||||||||
| Total revenues | $ | 2,885,461 | $ | 2,946,256 | 100.0 | % | 100.0 | % | ||||||||
During the nine months ended September 30, 2015, the Company delivered four systems. Most of the revenue for three of the installations was deferred, and will be recognized in future periods, since a substantial amount is not due within 12 months. During the same period in 2014, the company delivered three systems. Other sales, which include third party products, decreased over 2014 as a result of no kiosk sales.
Deferred Revenues long-term
Deferred revenues – long-term increased $1,694,653 from $1,090,746 at December 31, 2014 to $2,785,399 at September 30, 2015. The increase represents contracts which have been signed and invoiced, but revenue will be recognized and cash collected monthly over multiple years. The balance at September 30, 2015 represents multiple contracts that were signed and installed at September 30, 2015 combined with the contracts installed in previous, which had deferred revenue remaining as of September 30, 2015.
Cost of Sales
Cost of sales for the nine months ended September 30, 2015 increased to $905,755 from $656,568 for the nine months ended September 30, 2014. The following table summarizes our cost of sales for the nine months ended September 30, 2015 and 2014, respectively:
| Nine Months Ended September 30, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System sales | $ | 826,429 | $ | 447,162 | 28.6 | % | 15.1 | % | ||||||||
| License and maintenance fees | 66,302 | 78,274 | 2.3 | % | 2.7 | % | ||||||||||
| Other sales | 13,024 | 131,132 | 0.5 | % | 4.5 | % | ||||||||||
| Total cost of sales | $ | 905,755 | $ | 656,568 | 31.4 | % | 22.3 | % | ||||||||
| Gross profit | $ | 1,979,706 | $ | 2,289,688 | 68.6 | % | 77.7 | % | ||||||||
The Company's gross profit was 68.6% and 77.7% for the nine months ended September 30, 2015 and 2014, respectively. This decrease is primarily due to the mix of hardware sold with our systems. The decrease is also attributable to pursuing sales in foreign markets and the related foreign currency exchange rates, which the Company expects to continue in future quarters.
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Selling, General and Administrative Expenses
For the nine months ended September 30, 2015, selling, general and administrative expenses were $2,455,742 compared to $2,082,751 for the same period in 2014. Our most significant changes in operating expenses are related to additional contractor fees related to the expansion in South America. In addition, bad debt recovery in the second quarter of 2014 lowered selling, general and administrative expenses for that nine-month period.
Other Income
For the nine months ended September 30, 2015, other income was $37,142 compared to $53,361 for the same period in 2014. This decrease is primarily related to a lower balance financed through the Company in 2015 compared to 2014.
Tax Provision
The income tax benefit for the nine months ended September 30, 2015 was $160,400, which was calculated at a 36.5% effective rate, compared to an expense of $83,012 for the same period in 2014, which was calculated at a 31.9% effective rate.
Net Income (Loss)
Loss before taxes for the nine months ended September 30, 2015, was $438,894 compared to an income before taxes of $260,298 for same period in 2014. Net loss for the nine months ended September 30, 2015 was $278,494 compared to a net income of $177,286 for the same period in 2014. The basic loss per share was $0.06 compared to earnings per share of $0.04 for the nine months ended September 30, 2015 and 2014, respectively.
Backlog
The Company’s backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.
The Company had two projects in its backlog at September 30, 2015.
The Company is currently serving gaming establishments in ten U.S. states, as well as countries in Central and South America, and the Caribbean. The Company aims to pursue opportunities and strategic partnerships.
Liquidity and Capital Resources
At September 30, 2015, the Company had cash of $349,461 compared to cash of $1,208,201 on September 30, 2014. Decrease in cash flows related primarily to changes in operating assets and liabilities, including accounts receivable, inventory, and repurchases of common stock.
We do not know of any trends, events or uncertainties that are likely to have a material impact on our short or long-term liquidity or our capital resources. We expect that our primary source of liquidity in both the short and long-term will be system sales and the resulting license and maintenance fees generated from existing systems. We anticipate we will be able to manage expenses and cash flow in order to satisfy our monthly expense obligations with cash flow from operations. We believe the Company has adequate cash for at least the next 12 months to meet its obligations and continue operations for both existing and future customers as well as ongoing sales efforts and product development.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of September 30, 2015.
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.
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As of September 30, 2015, our Chief Executive Officer / 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 / Chief Financial Officer concluded our disclosure controls and procedures are effective as of September 30, 2015.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Company Repurchases of Registered Common Stock
The Company made the following repurchases of registered common stock during the period covered by this report:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
| Jul-15 | 13,000 | $ | 1.14 | 146,149 | ||||||||||
| Aug-15 | 3,200 | $ | 1.14 | 149,349 | ||||||||||
| Sep-15 | 35,000 | $ | 1.15 | 184,349 | (a) | |||||||||
(a) Maximum number of shares that may yet be purchased is determined by average price per share,
and amounts approved by the Company's Board of Directors, for the repurchase program. In addition, in the future, the Company’s Board of Directors may increase or extend its authorization of the stock repurchase program.
On December 23, 2014, the Company’s Board of Directors approved the repurchase of its outstanding shares of up to $100,000 of its common stock from private unsolicited sellers’ paper certificate blocks (non-street name) in the open market until June 30, 2015, which was subsequently extended by the Board of Directors. On March 17, 2015, the Company’s Board of Directors approved another repurchase of up to $75,000 for the same program. On September 4, 2015, the Company’s Board of Directors approved another repurchase of up to $50,000 for the same program. The remaining amount approved for repurchasing common stock is $49,059 as of September 30, 2015. Company insiders are prohibited from participating in the stock repurchase program. Since the beginning of the program, the Company has repurchased 184,349 shares as of September 30, 2015.
| 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, 2012 (incorporated by reference to Exhibit 3.2 to the registrant’s annual report on Form 10-K filed on September 30, 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 September 30, 2011). | |
| 31 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
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|
32 |
Certification 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 |
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 13, 2015 | Table Trac, Inc. |
| (Registrant) |
| By: | /s/ Brian Hinchley | |
| Brian Hinchley (Principal Executive Officer and Principal Financial and Accounting Officer) |
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