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 March 31, 2012 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 xNo ¨
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 xNo ¨
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 May 11, 2012, the registrant had outstanding 4,704,305 shares of common stock, $.001 par value per share.
Table Trac, Inc.
Index
| Page | |
| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | 2 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 14 |
| Item 4. Controls and Procedures | 14 |
| PART II. OTHER INFORMATION | |
| Item 6. Exhibits | 15 |
| SIGNATURES | 15 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TABLE TRAC, INC.
CONTENTS
| Page | |
| CONDENSED FINANCIAL STATEMENTS | |
| Condensed Balance Sheets | 3 |
| Condensed Statements of Operations | 4 |
| Condensed Statements of Cash Flows | 5 |
| Notes to Condensed Financial Statements | 6 |
| Page 2 |
TABLE TRAC, INC.
CONDENSED BALANCE SHEETS (Unaudited)
| March 31, 2012 | December 31, 2011 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 966,588 | $ | 834,665 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $237,844 at March 31, 2012 and December 31, 2011 | 1,760,173 | 1,982,237 | ||||||
| Inventory | 173,428 | 150,593 | ||||||
| Prepaid expenses | 105,684 | 61,544 | ||||||
| Other current assets | 15,988 | 18,296 | ||||||
| Income taxes receivable | 76,838 | 74,683 | ||||||
| TOTAL CURRENT ASSETS | 3,098,699 | 3,122,018 | ||||||
| LONG-TERM ASSETS | ||||||||
| Patent, net | 6,755 | 7,097 | ||||||
| Property and equipment, net | 47,622 | 54,606 | ||||||
| System under rental program, net | 57,280 | 64,783 | ||||||
| Other long term assets | 274,482 | 258,522 | ||||||
| Deferred tax asset | 19,000 | 14,000 | ||||||
| Long-term accounts receivable – financed contracts | 1,030,892 | 1,062,709 | ||||||
| TOTAL LONG-TERM ASSETS | 1,436,031 | 1,461,717 | ||||||
| TOTAL ASSETS | $ | 4,534,730 | $ | 4,583,735 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 186,838 | $ | 135,456 | ||||
| Payroll liabilities | 57,377 | 27,359 | ||||||
| Current portion of note payable | 10,907 | 10,907 | ||||||
| Deferred revenue - short term | 17,900 | 45,600 | ||||||
| Deferred tax liability | 531,947 | 579,947 | ||||||
| TOTAL CURRENT LIABILITIES | 804,969 | 799,269 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Note payable, net of current portion | 16,360 | 19,087 | ||||||
| Deferred revenue - long term | 1,273,806 | 1,228,629 | ||||||
| TOTAL LIABILITIES | 2,095,135 | 2,046,985 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, 0.001 par value; 25,000,000 shares authorized: 4,704,305 shares issued and outstanding at March 31, 2012 and December 31, 2011 | 4,704 | 4,704 | ||||||
| Additional paid-in capital | 1,818,613 | 1,818,613 | ||||||
| Retained earnings | 617,700 | 714,855 | ||||||
| 2,441,017 | 2,538,172 | |||||||
| Treasury stock, 1,000 shares (at cost) at March 31, 2012 and December 31, 2011 | (1,422 | ) | (1,422 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 2,439,595 | 2,536,750 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 4,534,730 | $ | 4,583,735 | ||||
See notes to condensed financial statements.
| Page 3 |
TABLE TRAC, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| Revenues | $ | 795,488 | $ | 321,351 | ||||
| Cost of sales | 154,940 | 95,352 | ||||||
| Gross profit | 640,548 | 225,999 | ||||||
| Operating Expenses: | ||||||||
| Selling, general and administrative | 816,177 | 630,271 | ||||||
| Loss from operations | (175,629 | ) | (404,272 | ) | ||||
| Interest income | 25,474 | 23,040 | ||||||
| Loss before taxes | (150,155 | ) | (381,232 | ) | ||||
| Income tax benefit | (53,000 | ) | (141,000 | ) | ||||
| Net loss | $ | (97,155 | ) | $ | (240,232 | ) | ||
| Basic loss per common share | $ | (0.02 | ) | $ | (0.05 | ) | ||
| Weighted-average basic shares outstanding | 4,704,305 | 4,586,305 | ||||||
| Diluted loss per common share | $ | (0.02 | ) | $ | (0.05 | ) | ||
| Weighted-average diluted shares outstanding | 4,704,305 | 4,586,305 | ||||||
See notes to condensed financial statements.
| Page 4 |
TABLE TRAC, INC.
CONDENSED STATEMENTS OF CASH FLOW (Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (97,155 | ) | $ | (240,232 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 14,829 | 7,826 | ||||||
| Allowance for other current assets | 0 | 4,815 | ||||||
| Deferred income taxes | (53,000 | ) | (195,000 | ) | ||||
| Stock compensation expense | 0 | 23,625 | ||||||
| Stock issued for future services | 15,000 | 15,312 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 253,881 | 311,711 | ||||||
| Inventory | (22,835 | ) | (130,430 | ) | ||||
| Prepaid expenses and other assets | (72,792 | ) | 22,065 | |||||
| Accounts payable and accrued expenses | 51,382 | 52,514 | ||||||
| Payroll liabilities | 30,018 | 0 | ||||||
| Deferred revenue | 17,477 | 97,725 | ||||||
| Income taxes receivable / payable | (2,155 | ) | 251,671 | |||||
| Net cash provided by operating activities | 134,650 | 221,602 | ||||||
| FINANCING ACTIVITIES | ||||||||
| Payments on note payable | (2,727 | ) | 0 | |||||
| Net cash used in financing activities | (2,727 | ) | 0 | |||||
| NET INCREASE IN CASH | 131,923 | 221,602 | ||||||
| CASH | ||||||||
| Beginning of period | 834,665 | 935,301 | ||||||
| End of period | $ | 966,588 | $ | 1,156,903 | ||||
| Cash received from (paid for) income taxes | $ | (2,155 | ) | $ | 251,671 | |||
See notes to condensed financial statements.
| Page 5 |
TABLE TRAC, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
| 1. | Nature of Business and Summary of Significant Accounting Policies – |
Basis of Presentation
The accompanying unaudited condensed financial statements of Table Trac 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 March 31, 2012 and the statements of operations and cash flows for the three months ended March 31, 2012 and 2011 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, 2011.
Company
Table Trac, Inc. (the Company) 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 patented a proprietary information and management system that automates and monitors the operations of casino games.
The Company 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 an annual license and service contract.
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. Actual results could differ from those estimates.
Revenue Recognition
The Company derives revenues from the sales of systems, licenses and maintenance fees, and services.
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 of fair value of all elements, revenue is deferred until the earlier of VSOE being determined or when all elements have been delivered.
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 has 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 set-up costs 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 contracts facts and circumstances. Interest is recorded upon receipt to other income on the statements of operations.
| Page 6 |
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 prices for the services.
Rental revenue
The Company offers certain new customers a rental contract. Revenues are billed monthly based on a per-game per-day basis. There is an option to purchase the system after the rental agreement at a pre-determined residual value.
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 table summarizes significant customer information for the three months ended March 31, 2012 and 2011:
| For the Three Months Ended March 31 | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| % Sales | % AR | % Sales | % AR | |||||||||||||
| A | 7.8 | % | 1.3 | % | 16.6 | % | 23.7 | % | ||||||||
| B | 4.7 | % | 0.7 | % | 15.5 | % | 1.6 | % | ||||||||
| C | 4.4 | % | 7.7 | % | 11.5 | % | 14.3 | % | ||||||||
| D | 4.1 | % | 4.0 | % | 10.2 | % | 2.1 | % | ||||||||
| E | 3.7 | % | 4.2 | % | 9.5 | % | 11.1 | % | ||||||||
| F | 2.0 | % | 5.0 | % | 5.1 | % | 25.9 | % | ||||||||
| G | 7.8 | % | 19.2 | % | 0.0 | % | 0.0 | % | ||||||||
| H | 21.6 | % | 35.1 | % | 0.0 | % | 0.0 | % | ||||||||
| I | 22.8 | % | 4.7 | % | 0.0 | % | 0.0 | % | ||||||||
| J | 0.9 | % | 6.4 | % | 2.0 | % | 11.0 | % | ||||||||
| All Others | 20.2 | % | 11.7 | % | 29.6 | % | 10.3 | % | ||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Page 7 |
Inventory
Inventory, comprised of finished goods is stated at the lower of cost or market. The average cost 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 Company had no obsolescence reserve at March 31, 2012 and December 31, 2011.
Research and Development
The Company expenses all costs related to research and development as incurred. Research and development expense was $152,906 and $43,495 for the three months ended March 31, 2012 and 2011, and is included in selling, general and administrative expenses on the statements of operations.
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 60 months beginning when revenues are generated. At the end of the contract period, the customer will typically receive title to the system.
| 2. | Accounts Receivable – |
Accounts receivable consisted of the following at March 31, 2012 and December 31, 2011
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Accounts receivable under normal 30 day terms | $ | 991,756 | $ | 875,013 | ||||
| Financed contracts: | ||||||||
| Short-term | 0 | 357,567 | ||||||
| Current portion of long-term | 1,006,261 | 987,501 | ||||||
| Long-term, net of current portion | 1,030,892 | 1,062,709 | ||||||
| Total accounts receivable | 3,028,909 | 3,282,790 | ||||||
| Less allowance for doubtful accounts | (237,844 | ) | (237,844 | ) | ||||
| Accounts receivable, net | $ | 2,791,065 | $ | 3,044,946 | ||||
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 have not been specifically identified.
Included in Accounts receivable – Financed contracts at March 31, 2012 and December 31, 2011 is $2,037,153 and $2,050,210 with an offset to deferred revenues on the balance sheet of $1,273,806 and $1,228,629 at March 31, 2012 and December 31, 2011.
| Page 8 |
A roll-forward of the Company’s allowance for doubtful accounts is as follows:
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Accounts receivable allowance, beginning of period | $ | 237,844 | $ | 179,416 | ||||
| Provision adjustment during period | 0 | 58,428 | ||||||
| Accounts receivable allowance, end of period | $ | 237,844 | $ | 237,844 | ||||
The allowance for doubtful accounts is $237,844 for the trade receivables and $0 for the financed contracts at March 31, 2012 and December 31, 2011.
| 3. | Stockholders’ Equity – |
In April 2011, the Company issued 37,000 shares, at $1.50 per share for a total cost of $55,500 to the Board of Directors for annual compensation for the period from April 1, 2011 to March 31, 2012. A total of $6,000 was recognized as stock compensation expense for the three months ended March 31, 2012, which was one fourth of the annual stock award for a director. In July 2011, the Company issued 36,000 shares, at $1.00 per share for a total cost of $36,000 to the Board of Directors for annual compensation for the period from July 1, 2011 to June 30, 2012. A total of $9,000 was recognized as stock compensation expense for the three months ended March 31, 2012, which was one fourth of the annual stock award for the directors. The total including previously issued stock vesting in the three-month period ended March 31, 2012 was $15,000.
As of March 31, 2012, the Company holds 1,000 common stock shares in treasury at a total cost of $1,422 for future employee incentives under the bonus program which was part of the 2009 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. The federal net operating loss carryforward at March 31, 2012 was approximately $624,000 expiring in 2031 and the state net operating loss carryforward is approximately $754,000 which starts expiring in 2025. An allowance for net operating loss carryforward is recorded when the Company believes the amount may not be collected. Management believes the net operating loss carryforward, net of the allowance, is fully collectible. 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, it has concluded that there are no significant unrecognized tax positions. The Company’s evaluation was performed for the tax years ended December 31, 2008 through 2011, the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2012. 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.
| Page 9 |
| 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 earnings per share for the three months ended March 31, 2012 and 2011:
| Three Months Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| Basic earnings per share calculation: | ||||||||
| Net loss to common stockholders | $ | (97,155 | ) | $ | (240,232 | ) | ||
| Weighted average number of common shares outstanding | 4,704,305 | 4,586,305 | ||||||
| Basic net loss per share | $ | (0.02 | ) | $ | (0.05 | ) | ||
| Diluted earnings per share calculation: | ||||||||
| Net loss | $ | (97,155 | ) | $ | (240,232 | ) | ||
| Weighted average number of common shares outstanding | 4,704,305 | 4,586,305 | ||||||
| Common stock equivalents: | ||||||||
| Stock options | (1 | ) | (2 | ) | ||||
| Weighted average diluted shares outstanding | 4,704,305 | 4,586,305 | ||||||
| Diluted net loss per share | $ | (0.02 | ) | $ | (0.05 | ) | ||
Stock options outstanding of (1) 70,000 and (2) 337,500 were not included in the calculation as they would have been anti-dilutive.
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 29, 2012 relating to our year ended December 31, 2011.
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 the 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, Inc. 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.
| Page 10 |
General Overview
Table Trac is a Nevada corporation, formed on June 27, 1995, with principal offices in Minnetonka, Minnesota. It developed and patented (U. S. patent number 5,957,776) a proprietary information and management system (Table Trac) that automates and monitors the operations of casino table games. Since 2000, Table Trac has added functionality, developed related casino system modules for guest rewards and patron management, marketing analysis, guest service, promotion administration/management, vault/cage management and audit/accounting to its existing table games and casino management programs.
In this first quarter 2012, Table Trac signed two new customers in two new markets in the U.S. and Caribbean; the Moapa Band of Paiute Indians outside of Las Vegas, Nevada and the Coral Casino Bonaire on the island of Bonaire in the Dutch Caribbean. Table Trac installed both of these systems in the first quarter and ended the first quarter with no systems in backlog. At the end of the first quarter there were 37 casinos using the Company’s casino management systems worldwide.
In the first quarter of 2012, the Company participated in the ICE Totally Gaming Show, the 14th Indian Gaming Marketing Conference and the California Nations Indian Gaming Association Conference.
The Company signed a dealer agreement with CountR, a worldwide company specializing in cash handling and coinless gaming kiosks for the gaming industry. The agreement allows for Table Trac to represent and distribute CountR’s cash handling kiosk product lines in numerous gaming jurisdictions in the U.S., Central and South America. The agreement also allows for Table Trac to represent and distribute CountR’s latest gaming innovation, the TiTa, a micro ticket redemption machine for casino table games. The Company expects to begin selling and placing the CountR products under this distribution agreement in the late second quarter/early third quarter.
The first quarter of 2012 has been focused on completing key technology development initiatives, including having the Company’s CasinoTrac casino management system tested by Gaming Laboratories International (GLI) and BMM Compliance, as well as creating the necessary interfaces to our new technology partners, Tipping Pont Gaming. We expect these initiatives to be completed by the end of the second quarter 2012 or early in the third quarter 2012.
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, 2011.
Results of Operations - Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
During the three months ended March 31, 2012, loss from operations was $175,629 compared to a loss of $404,272 for the three months ended March 31, 2011. The major components of revenues, cost of sales and selling, general and administrative expenses are discussed below.
Revenues
Revenues totaled $795,488 for the three months ended March 31, 2012 compared to $321,351 for the three months ended March 31, 2011. The following table summarizes our revenues for the three months ended March 31, 2012 and 2011, respectively:
| Three Months Ended March 31, | ||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System sales | $ | 416,612 | $ | 0 | 52.4 | % | 0.0 | % | ||||||||
| License and maintenance fees | 259,802 | 214,639 | 32.6 | % | 66.8 | % | ||||||||||
| Other sales | 119,074 | 106,712 | 15.0 | % | 33.2 | % | ||||||||||
| Total revenues | $ | 795,488 | $ | 321,351 | 100.0 | % | 100.0 | % | ||||||||
| Page 11 |
During the three months ended March 31, 2012, revenues from System sales mostly improved as a result of two new installations. Other sales, which include sales of printers, kiosk software, mailing services, and rental sales improved as a result of increased rental sales compared to the same period in 2011.
Cost of Sales
Cost of sales for the three months ended Mach 31, 2012 increased to $154,940 from $95,352 for the three months ended March 31, 2011. The following table summarizes our cost of sales for the three months ended March 31, 2012 and 2011, respectively:
| Three Months Ended March 31, | ||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| (percent of revenues) | ||||||||||||||||
| System sales | $ | 50,032 | $ | 0 | 6.3 | % | 0.0 | % | ||||||||
| License and maintenance fees | 34,500 | 34,675 | 4.3 | % | 10.8 | % | ||||||||||
| Other sales | 70,408 | 60,677 | 8.9 | % | 18.9 | % | ||||||||||
| Total cost of sales | $ | 154,940 | $ | 95,352 | 19.5 | % | 29.7 | % | ||||||||
The Company's gross profit was 80% and 70% for the three months ended March 31, 2012 and 2011, respectively. This increase is primarily due to the increased system sales which have higher margins as a result of the software included in each system sale.
Selling, General and Administrative Expenses
For the three months ended March 31, 2012, selling, general and administrative expenses were $816,177 compared to $630,271 for the same period in 2011. Our most significant changes in operating expenses from the two three-month interim periods related to research and development programming, compensation, and travel costs. A discussion of the various components of our operating expenses for the three months ended March 31, 2012 and 2011 appears below:
Research and development programming costs. Research and development programming costs increased for the three months ended March 31, 2012 to $152,906 compared to $43,495 for the same period in 2011. The Company incurred costs during the first quarter which were originally budgeted for the second and third quarters. With the early completion of this project, the Company will be able to market the Tipping Point interface much earlier in 2012.
Compensation costs. Compensation expenses increased for the three months ended March 31, 2012, to $290,282 compared to $244,237 for the same period in 2011 primarily due to three additional employees and converting one development contractor to an employee.
Travel costs. Travel costs increased for the three months ended March 31, 2012, to $94,365 compared to $56,878 for the same period in 2011 primarily due to demonstrations of new products to customers and prospects.
| Page 12 |
Interest Income
For the three months ended March 31, 2012, interest income was $25,474 compared to $23,040 for 2011. This increase is primarily related to the additional contracts financed through the Company compared to the same period in 2011.
Income Tax Benefit
The income tax benefit for the three months ended March 31, 2012 was $53,000 which was calculated at a 35% effective rate, compared to the tax benefit of $141,000 for the same period in 2011, which was calculated at a 37% effective rate.
Net Loss
The loss before taxes for the three months ended March 31, 2012 was $150,155 compared to $381,232 for same period in 2011. Net loss for the three months ended March 31, 2012 was $97,155 compared to $240,232 for the same period in 2011. The decrease in net loss is due to higher revenues offset by higher selling, general and administrative costs compared to the same period in 2011. The basic loss per share was ($.02) compared to ($.05) for the three months ended March 31, 2012 and 2011, respectively.
Backlog
The Company’s backlog generally consists of future system installations and expansion of offerings for currently installed and supported systems.
The Company has no Casino Trac System in its backlog at March 31, 2012.
The Company is currently serving gaming establishments in seven US states, as well as countries in Central and South America, as well as the Caribbean. The Company has a pipeline of opportunities and strategic partnerships that it is pursuing.
Liquidity and Capital Resources
Summary cash flow data is as follows
| For the Three Months Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows provided by (used in): | ||||||||
| Operating activities | $ | 134,650 | $ | 221,602 | ||||
| Investing activities | - | - | ||||||
| Financing activities | (2,727 | ) | - | |||||
| Net increase in cash | 131,923 | 221,602 | ||||||
| Cash, beginning of period | 834,665 | 935,301 | ||||||
| Cash, end of period | $ | 966,588 | $ | 1,156,903 | ||||
| Page 13 |
At March 31, 2012, the Company had cash of $966,588 compared to cash of $1,156,903 on March 31, 2011. The decrease results mainly from an increase in accounts receivable and funding operations at a higher level. Changes in cash flows provided by operating activities related primarily to deferred income taxes, stock compensation expense, and changes in operating assets and liabilities, including accounts receivable, inventory, income taxes receivable, deferred system sales costs, accrued payroll and related withholding liabilities and deferred revenue.
There are no known trends, events or uncertainties that are likely to have a material impact on our short or long-term liquidity. 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 from existing systems. We anticipate the ability to manage expenses and cash flow so monthly obligations will be satisfied by cash flow from operations. We believe the Company has adequate cash 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 March 31, 2012.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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 March 31, 2012, 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 are effective as of March 31, 2012.
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.
| Page 14 |
PART II. OTHER INFORMATION
Item 6. Exhibits
| Exhibit | Description | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ( filed herewith ). | |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ( filed herewith ). | |
| 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 Definition Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
| * | Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: May 11, 2012 | Table Trac, Inc. | |
| (Registrant) | ||
| By: | /s/ Glenn Goulet | |
| Glenn Goulet (Principal Executive Officer) | ||
| By: | /s/ Brian Hinchley | |
| Brian Hinchley (Principal Financial and Accounting Officer) | ||
| Page 15 |
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Glenn Goulet, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Table Trac, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 11, 2012 | /s/ Glenn Goulet |
| Glenn Goulet | |
| Chief Executive Officer |
EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, Brian Hinchley, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Table Trac, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 11, 2012 | /s/ Brian Hinchley |
| Brian Hinchley | |
| Chief Financial Officer |
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Table Trac, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn Goulet, Chief Executive Officer of the Company and I, Brian Hinchley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1 | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Glenn Goulet | |
| Glenn Goulet | |
| Chief Executive Officer | |
| May 11, 2012 | |
| /s/ Brian Hinchley | |
| Brian Hinchley | |
| Chief Financial Officer | |
| May 11, 2012 |
|
Income Tax
|
3 Months Ended | |||
|---|---|---|---|---|
|
Mar. 31, 2012
|
||||
| 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. The federal net operating loss carryforward at March 31, 2012 was approximately $624,000 expiring in 2031 and the state net operating loss carryforward is approximately $754,000 which starts expiring in 2025. An allowance for net operating loss carryforward is recorded when the Company believes the amount may not be collected. Management believes the net operating loss carryforward, net of the allowance, is fully collectible. 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, it has concluded that there are no significant unrecognized tax positions. The Company’s evaluation was performed for the tax years ended December 31, 2008 through 2011, the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2012. 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. |