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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Table Trac, Inc.    TBTC

TABLE TRAC, INC.

(TBTC)
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TABLE TRAC : Management's Discussion and Analysis of Financial Condition and Results of Operation. (form 10-K)

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03/25/2020 | 05:05am EDT

The following discussion should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this filing.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made in this report are "forward-looking statements," as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon our current expectations and projections about future events. Whenever used in this report, the words "believe," "anticipate," "intend," "estimate," "expect" and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings "Description of Business," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," but are found in other parts of this report as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.

Some, but not all, of the factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the "Risk Factors" section of this report.



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Industry data and other statistical information used in this report are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.

Due to the recent outbreak of the coronavirus in the U.S. and globally, our customers may be impacted. The impact of the coronavirus on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, the success of actions taken to contain or treat the coronavirus, and reactions by consumers, companies, governmental entities and capital markets. It is possible we will have collection issues or customer concessions as a result.



BACKLOG


The Company's backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.

The Company had three projects in its backlog at December 31, 2018. The Company had one project in its backlog as of December 31, 2019.

Subsequent to December 31, 2019, the Company has one signed new contract with a customer.

The Company is currently serving gaming establishments in thirteen U.S. states, as well as countries in Central and South America, the Caribbean and Australia. The Company aims to pursue further opportunities and strategic partnerships.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that the Company has adequate cash to meet its obligations and continue operations for both existing customer contracts and ongoing product development for at least the next 12 months from the date of this filing. In February 2020, the Company obtained a $500,000 line of credit with a lender. The Company's primary sources of liquidity are cash, receivables and potentially other current assets. Management is not aware of any trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way.

The Company's cash position at December 31, 2019 was $1,263,762, a decrease of $27,035 from $1,290,797 at December 31, 2018. Net cash flows provided by operating activities during the year ended December 31, 2019 were approximately $55,000 compared to $139,000 for the same period in 2018. This decrease of $84,000 was primarily due to a number of factors including an increase in net income, an increase in the change in contract liabilities, a decrease in net receivables, an increase in inventory and an increase in income tax receivable.

Net cash used in investing activities was $28,445 during the year ended December 31, 2019, compared to $50,715 for the same period in 2018. This decrease of $22,270 was due primarily to less capital expenditures during 2019.

Net cash used in financing activities was $53,721 during the year ended December 31, 2019, compared to $120,019 for the same period in 2018. This decrease of $66,298 was caused primarily by the company repurchasing less of its stock during 2019 as part of the approved stock buyback program, see Note 5.

On December 31, 2019, total stockholders' equity was $4,617,247 compared to $3,798,736 in 2018, an increase of $814,511 or 21%, which was primarily due to the 2019 net income.

RESULTS OF OPERATIONS, YEAR ENDED DECEMBER 31, 2019 COMPARED TO YEAR ENDED DECEMBER 31, 2018

The most significant events that affected the 2019 results of operations were the Company's (1) installation of 29 casino management systems at seven operating entities; (2) expansion into the Nevada, Oklahoma, Iowa and Australian markets; (3) signing an exclusivity contract with the Japanese company, BroadBand Security Inc., in Tokyo, to rebrand, adapt and market their casino management system (CMS) to the developing Japanese gaming market. The contract deliverables were satisfied in 2019; $1.2 million of revenue was recognized.

During 2019, the Company delivered product with a value of approximately $4,460,000 on new contracts at the respective contract dates. Approximately $2,500,000 of the revenue for these system sales will be recognized in future periods, since a substantial amount is not due within 12 months. As a result, those contracts, along with the related maintenance, are expected to add approximately $97,000 each month to the existing recurring revenue.



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See Note 1: Revenue, disaggregated revenues by major product line table

Total revenues decreased $313,326, a 4% decrease, due to more and larger installations being deferred rather than being recognized immediately in 2019 as compared to 2018. System sales decreased $1,694,187, a 34% decrease, due to deferred revenue recognition rather than immediate recognition on more systems that were installed in 2019 compared to 2018. Maintenance revenue increased $194,618, a 28.4% increase, due to our high customer retention rate along with new accounts added during 2019. Service and other revenue, which includes promotional kiosk software sales and licensing agreements increased $1,189,243, due to a licensing agreement in Japan.

During 2019, the Company delivered a total of twenty nine systems, domestically, in the Caribbean and Australia. Some of the revenue for the installations was deferred, and will be recognized in future periods. In addition the Company signed a licensing contract in Japan as described above. During 2018, the Company delivered twelve systems.

Cost of sales decreased to $1,715,054 in 2019 from $2,500,407 in 2018. The decrease of $785,353 was primarily due to a decrease in system sales requiring equipment purchased and a decrease in the total size of the systems sold from Table Trac. The following table summarizes our cost of sales:



                                       Years ended December 31,
                         2019            2018            2019             2018
                                                        (percent of revenues)
System                $ 1,043,583$ 2,281,997           13.90 %        29.19 %
Maintenance               218,157         112,597            2.91 %         1.44 %
Service and other         453,314         105,813            6.04 %         1.35 %
Total cost of sales   $ 1,715,054$ 2,500,407            22.9 %         32.0 %
Gross profit          $ 5,790,317$ 5,318,290            77.1 %         68.0 %



The gross profit in 2019 was $5,790,317 or 77.1% of sales compared with $5,318,290 or 68% of sales in 2018. This is primarily due to the lower relative cost of goods sold for the licensing agreement revenue in Japan during 2019.

Customer deposits - short-term decreased to $253,709 in 2019 from $334,784 in 2018. The balance represents two down payments received for system installations on order at year-end which are expected to be installed during 2020 compared to three down payments in 2018. These balances will be recognized as revenue when the system installations are completed or as invoices become due.

Contract liabilities - long-term increased to $3,148,409 in 2019 from $1,690,660 in 2018. The balance represents systems which have been installed but revenue will be recognized and invoiced over multiple years. The increase of $1,457,749 in 2019 reflects the fact that the company had a large number of deferred sales in 2019.

Total operating expenses increased to $4,849,767 in 2019 from $4,611,097 in 2018. This 5.1% increase of $238,670 was primarily due to the increase in our marketing and sales efforts in 2019 compared to 2018.

The income tax expense was $177,000 in 2019, for an effective rate of 17.8%, compared to income tax expense of $253,000 for an effective rate of 32.9% in 2018. The decrease in effective rates is primarily due to increased foreign derived intangible income deductions, changes in state apportionment rates and the Research and Development tax credit.

The net income for 2019 was $815,998 compared to net income of $514,965 for 2018, which is an increase of $301,033.

The basic and diluted earnings per share in 2019 were $0.18, compared to basic and diluted earnings per share of $0.12 and $0.11 in 2018, respectively.

OFF-BALANCE SHEET ARRANGEMENTS



None.



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition, bad debts, inventory valuation, intangible assets, and income taxes. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that the Company believes have the most effect on its reported financial position and results of operations are as follows:



Revenue Recognition


The Company derives revenues from the sales of systems, licenses and maintenance fees, and services, and rental agreements.



System Sales


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

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company's systems sales have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation based on its SSP. The Company generally determines the SSP based on the price charged to customers. The Company does offer its customers contracts with extended payment terms representing a significant financing component. The Company must evaluate if any extended payment terms in the contract is an indicator of the transaction price not being probable. The Company only includes the amount for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company occasionally enters into a contract that includes multiple sites; management has determined that each site installation is a separate performance obligation. In these instances the Company recognizes revenue upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells the Company's products; monthly the reseller notifies the Company of their successful installations, and submits an invoice to the Company for those installations. Provided all other revenue recognition steps have been satisfied, the Company recognizes the revenue if payment of a significant portion of the contract consideration is due within 12 months of the delivery of the product. System contracts that do not meet this criteria are deferred and recognized when the uncertainty is resolved, which is consistent with when contractual payments become due. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts which include a financing component which is usually a market interest rate. The associated interest income is reflected accordingly on the statement of operations without making concessions for determining if revenue should be recognized.



Maintenance Revenue


Maintenance revenue is recognized ratably over the contract period. The stand-alone selling price for maintenance is based upon the renewal rate for contracted services.



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Service Revenue and Other Revenue

Service revenue is recognized after the services are performed and collection of the resulting receivable is reasonably assured. The stand-alone selling price for service revenue is established based upon actual selling prices for the services or prior similar arrangements.

The Company offers qualified customers a licensing agreement. Licensing revenue is recognized after the intellectual property (CMS system), the performance obligation, is delivered and in its operational and functional state. The stand-alone selling price for licensing revenue is established based upon actual selling prices for the license. The Company may offer customers a rental contract. Revenues are billed monthly on a per-game per-day basis. There is an option to purchase the system after the rental contract expires at a pre-determined residual value.



See also Note 1.



Deferred System Sales Costs


Incremental cost to obtain and fulfil a contract are deferred and amortized over the related system contract term. These costs are recognized on a straight-line basis over the term of the contract which is generally 18-48 months beginning when revenues are generated. These costs are the most significant component of other long-term assets on the balance sheet, and are $1,037,363 and $528,401 as of December 31, 2019 and December 31, 2018, respectively.

Accounts Receivable / Allowance for Doubtful Accounts

Accounts receivable are initially recorded at the invoiced amount and carried on the balance sheet at net realizable value, which includes foreign currency translation as of each balance sheet date. Accounts receivable include unsecured regular customer receivables and unsecured amounts from financed contracts coming due within 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. Accounts receivable are written off when management determines collection is no longer likely. While the ultimate result may differ, management believes that any write-off not allowed for will not have a material impact on the Company's financial position.



Inventory


Inventory, consisting of finished goods, is stated at the lower of cost or net realizable value. The average cost method (which approximates first in, first out method) is used to value inventory. Inventory is reviewed annually for the lower of cost or net realizable value and obsolescence. Any material cost found to be above market value or considered obsolete is written down accordingly. The Company had no obsolescence reserve at December 31, 2019 and 2018.



Income Taxes


Income taxes are provided for using the liability method of accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. 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. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

© Edgar Online, source Glimpses

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Managers
NameTitle
Chad B. Hoehne Chairman, President, Chief Executive Officer & CTO
Richard E. Gilbert Chief Financial & Accounting Officer
William Martinez Independent Director
Thomas J. Mertens Independent Director
Robert R. Siqveland Secretary, VP, Director-Compliance & IR
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