TABLE TRAC, INC. Our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth below should be read in conjunction with our unaudited financial statements, and notes thereto, contained in this Quarterly Report on Form 10-Q, as well as our
audited financial statements, and notes thereto, contained in our Form 10-K
filed with the
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 byTable Trac or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has and will continue to impact the economy and has and will likely continue to adversely affect our business. As of the date of this filing, uncertainty exists concerning the magnitude of the impact and duration of the pandemic. Some of our customers have temporarily closed or are operating at a diminished capacity which may negatively impact revenue. The pandemic may shift industry demand for installing and replacing existing casino management systems, impact sales and gross margins in the future, limit our ability to secure products we sell due to supplier and manufacturer shortages, limit the ability of our employees to perform their work due to illness caused by the pandemic and local, state, or federal orders requiring employees to remain at home, limit the ability of carriers to deliver our products to customers, limit the ability of our customers to conduct their business and purchase our products and services, and limit the ability of our customers to pay us on a timely basis. To ensure that our business can continue to operate during this uncertain time, inFebruary 2021 we applied and were approved for a second Paycheck Protection Program (PPP) loan through theSmall Business Administration . This loan allowed us to continue to employ all existing employees to service our client base. InMarch 2021 , the Internal Revenue Service ("IRS") released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit ("ERC"), which is a refundable tax credit against certain employment taxes. Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recorded and the credit reduces salaries and wages expense. We have determined that we qualified and have filed to claim the ERC. InOctober 2021 we have determined that we will receive a credit of approximately$206,000 . These amounts have subsequently been recorded as a receivable. With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization. This includes reducing hiring activities, adjusting pay programs, and limiting discretionary spending. While we are unable to predict the nature, scope or duration of the impact of the COVID-19 pandemic on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. General Overview
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-featuredCasino Management System (CMS) offering what we believe to be a powerful combination of value, efficiency and reliability for casinos seeking to add or upgrade their casino systems. In September of 2020, the Company was granted a Patent (U.S. patent #10,769,885 B2) on itsApril 2017 application 15/946,227 "SYSTEMS AND METHODS OF FACILITATING INTERACTIONS BETWEEN AN ELECTRONIC GAMING MACHINE, GAME PLAYER, AND A CONTROL SYSTEM". In addition, the Company renewed its Trademark claim for "Table Trac" which was grantedJuly 31, 2018 Reg. No. 5,529,779 and made a new Trademark claim on its "CasinoTrac" brand which is pending. The Company sells systems and technical support to casinos. The open architecture of theTable Trac system is designed to provide operators with a scalable and flexible system that can interconnect and operate with most third-party software or hardware. Key products and services include modules designed to drive player tracking programs and kiosk promotions, as well as vault and cage controls. The Company's systems are designed to meet strict auditing, accounting and regulatory requirements applicable to the gaming industry. The Company has developed a patented, real-time system that automates and monitors the operations of casino gaming tables. The Company continues to increase its market share by expanding its product offerings to include new system features, and ancillary products. During the third quarter of 2021, the Company delivered four casino management systems. expanded one existing customer and our exclusive supplier installed our system in multiple locations inAustralia . At the end of the quarter, the Company had casino management systems, table games management systems and ancillary products installed with on-going support and maintenance contracts with over 100 casino operators in over 265 casinos worldwide. 12 --------------------------------------------------------------------------------
Results of Operations - Three Months Ended
During the three months endedSeptember 30, 2021 , income from operations was$288,727 compared to income from operations of$30,432 , for the three months endedSeptember 30, 2020 . The major components of revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed below. Revenues
Revenues totaled
Refer to Note 1 - Revenue, disaggregated revenues by major product line table
During the three months endedSeptember 30, 2021 , the Company delivered four new systems, expanded one existing customer and our exclusive supplier installed our system in multiple locations inAustralia . During the same period in 2020, the Company delivered two systems.
Cost of Sales and Gross Profit
Cost of sales increased to$407,174 for the three months endedSeptember 30, 2021 from$314,399 , for the three months endedSeptember 30, 2020 due to a increase in systems sales in 2021. The following table summarizes our cost of sales for the three months endedSeptember 30, 2021 and 2020, respectively: For the Three Months ended September 30, 2021 2020 2021 2020 (percent of (percent of revenues) revenues) System$ 138,421 $ 203,692 9.5 % 17.1 % Maintenance 180,054 90,495 12.4 % 7.6 % Lease 0 0 0.0 % 0.0 % Service and other 88,699 20,212 6.1 % 1.7 % Total cost of sales$ 407,174 $ 314,399 28.0 % 26.4 % Gross profit$ 1,042,707 $ 874,213 72.0 % 73.6 %
The Company's gross profit was 72% and 73.6%, for the three months ended
Selling, General and Administrative Expenses
For the three months endedSeptember 30, 2021 , selling, general and administrative expenses were$753,980 compared to$843,781 for the same period in 2020. This decrease is a result of the Company receiving Employee Retention Credits offset by an increase in sales and marketing efforts as well as the Company's bonus accrual. Interest Income
For the three months ended
Tax Provision
The income tax expense for the three months ended
Net Income Income before taxes for the three months endedSeptember 30, 2021 , was$243,311 compared to income before taxes of$41,695 , for the same period in 2020. Net income for the three months endedSeptember 30, 2021 was$186,811 compared to net income of$29,513 , for the same period in 2020. The basic and diluted income per share was$0.04 compared to income per share of$0.01 , for the three months endedSeptember 30, 2021 and 2020, respectively. 13
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Results of Operations - Nine Months Ended
During the nine months endedSeptember 30, 2021 , the income from operations was$1,234,317 compared to income from operations of$69,655 for the nine months endedSeptember 30, 2020 . The major components of revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed below. Revenues
Revenues totaled
Refer to Note 1 - Revenue, disaggregated revenues by major product line table
During the nine months endedSeptember 30, 2021 , the Company delivered eight new systems, expanded one existing customer and our exclusive supplier installed our system in multiple locations inAustralia . During the same period in 2020, the Company delivered seven system and expanded two existing customers.
Cost of Sales and Gross Profit
Cost of sales increased to$1,201,035 for the nine months endedSeptember 30, 2021 from$638,832 for the nine months endedSeptember 30, 2020 due to an increase in the size of systems sales installed in 2021. The following table summarizes our cost of sales for the nine months endedSeptember 30, 2021 and 2020, respectively: For the Nine Months Ended September 30, 2021 2020 2021 2020 (percent of revenues) System$ 374,927 $ 381,824 7.4 % 11.1 % Maintenance 444,937 201,531 8.8 % 5.8 % Lease 167,770 0 3.3 % 0.0 % Service and other 213,401 55,477 4.2 % 1.6 % Total cost of sales$ 1,201,035 $ 638,832 23.7 % 18.5 % Gross profit$ 3,872,865 $ 2,808,480 76.3 % 81.5 % The Company's gross profit was 76.3% and 81.5% for the nine months endedSeptember 30, 2021 and 2020, respectively. This decrease is a result of maintenance wages not included in cost of sales for the nine month period endingSeptember 30, 2020 , as a result of the COVID pandemic shut down. Additionally there was an increase in system sales installed during nine months endedSeptember 30, 2021 , compared to the system installations, which was lower due to COVID pandemic, during the nine months endedSeptember 30, 2020
Selling, General and Administrative Expenses
For the nine months ended
Interest Income
For the nine months ended
Tax Provision
The income tax expense for the nine months ended
Net Income Income before taxes for the nine months endedSeptember 30, 2021 , was$1,248,953 compared to income before taxes of$150,295 for the same period in 2020. Net income for the nine months endedSeptember 30, 2021 was$956,453 compared to net income of$118,913 for the same period in 2020. The basic and diluted income per share was$0.21 compared to income per share of$0.03 for the nine months endedSeptember 30, 2021 and 2020, respectively. Backlog
The Company's backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.
The Company had eleven projects in its backlog at
The Company is currently serving gaming establishments in fourteenU.S. states, as well as countries in Central andSouth America , theCaribbean andAustralia . The Company aims to pursue further opportunities and strategic partnerships. 14
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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. InFebruary 2020 , the Company obtained a$500,000 line of credit available with a lender. The Company has a$473,400 Paycheck Protection Program loan to provide liquidity, as noted below. The Company's primary sources of liquidity are cash and cash equivalents, receivables and potentially other current assets. Management is not aware of any trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way. Cash and cash equivalents provided by operations for the nine months endedSeptember 30, 2021 was approximately$2,212,000 compared to cash provided by operations of approximately$218,000 for the nine month period endingSeptember 30, 2020 . This increase was a result of a number of factors including a significant increase in net income, a decrease in inventory, prepaid expenses, accrued income taxes and a substantial increase in customer deposits. These increases were offset by an increase in accounts receivable and net investment in sales type leases. The Company invested$57,000 for an approximately 29% of the membership interest in a start-up technology company which comprised the cash used for investing activities for the nine months endedSeptember 30, 2021 . During the quarter endedSeptember 30, 2021 , based on ceased operating activity of the investee, the Company determined the investment was impaired and recorded an investment loss of$57,000 .
Cash provided by financing activities was
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of
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