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, 2017 relating to our year ended December 31, 2016.
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. 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 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 2017, the Company delivered seven casino
management systems. 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 83 operators representing 130 sites worldwide. The Company
also received formal approval of completion of the field trials in Nevada during August, and installed systems in Maryland for
the first time.
Results of Operations - Three Months Ended September 30, 2017
Compared to Three Months Ended September 30, 2016
During the three months ended September 30, 2017, income from operations
was $409,926 compared to a loss from operations of $101,500 for the three months ended September 30, 2016. The major components
of revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed
below.
Revenues
Revenues totaled $1,862,684 for the three months ended September
30, 2017 compared to $1,159,530 for the three months ended September 30, 2016. The following table summarizes our revenues
for the three months ended September 30, 2017 and 2016, respectively:
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
1,260,372
|
|
|
$
|
593,588
|
|
|
|
67.7
|
%
|
|
|
51.2
|
%
|
License and maintenance fees
|
|
|
559,624
|
|
|
|
524,029
|
|
|
|
30.0
|
%
|
|
|
45.2
|
%
|
Other sales
|
|
|
42,688
|
|
|
|
41,913
|
|
|
|
2.3
|
%
|
|
|
3.6
|
%
|
Total revenues
|
|
$
|
1,862,684
|
|
|
$
|
1,159,530
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
During the three months ended September 30, 2017, the Company delivered
seven systems. Most of the revenues for five of the installations were deferred to future periods, since a substantial amount is
not due within 12 months. During the same period in 2016, the Company delivered one system, of which the revenue for that system
sale was deferred to future periods. In the periods presented, the Company continues to recognize revenue as payments become due
for systems that were previously installed and for which revenue was deferred.
Cost of Sales
Cost of sales increased to $564,653 for the three months ended September
30, 2017 from $378,229 for the three months ended September 30, 2016 due to increased corresponding sales. The following
table summarizes our cost of sales for the three months ended September 30, 2017 and 2016, respectively:
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
523,667
|
|
|
$
|
330,301
|
|
|
|
28.1
|
%
|
|
|
28.5
|
%
|
License and maintenance fees
|
|
|
23,250
|
|
|
|
25,206
|
|
|
|
1.2
|
%
|
|
|
2.2
|
%
|
Other sales
|
|
|
17,736
|
|
|
|
23,322
|
|
|
|
1.0
|
%
|
|
|
2.0
|
%
|
Total cost of sales
|
|
$
|
564,653
|
|
|
$
|
378,829
|
|
|
|
30.3
|
%
|
|
|
32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
1,298,031
|
|
|
$
|
780,701
|
|
|
|
69.7
|
%
|
|
|
67.3
|
%
|
The Company's gross profit was 69.7% and 67.3% for the three months
ended September 30, 2017 and 2016, respectively.
Selling, General and Administrative Expenses
For the three months ended September 30,
2017, selling, general and administrative expenses were $888,105 compared to $882,201 for the same period in 2016.
These expenses held steady due to the fact they generally do not vary with the level of revenue.
Interest Income
For the three months ended September 30, 2017, interest income was
$24,718 compared to $29,324 for the same period in 2016. This decrease is primarily related to a larger amount of installment
payments collected during the third quarter in 2016.
Tax Provision
The income tax expense for the three months ended September 30,
2017 was $161,000, which was calculated at a 37.2% effective rate, compared to an income tax benefit of $844 for the same period
in 2016, which was calculated at a 1.1% effective rate.
Net Income (loss)
Income (loss) before taxes for the three months ended September
30, 2017, was $433,049 compared to a loss before taxes of $75,457 for the same period in 2016. Net income for the three months
ended September 30, 2017 was $272,049 compared to net loss of $74,613 for the same period in 2016. The basic income per share was
$0.06 compared to a loss per share of $0.02 for the three months ended September 30, 2017 and 2016, respectively. There were no
outstanding options or commons stock equivalents for the three months ended September 30, 2017 and 2016, respectively.
Results of Operations - Nine Months Ended September 30, 2017
Compared to Nine Months Ended September 30, 2016
During the nine months ended September 30, 2017, income from operations
was $426,500 compared to a loss from operations of $3,022 for the nine months ended September 30, 2016. The major components of
revenues, cost of sales and selling, general and administrative expenses, and the reasons for changes in each, are discussed below.
Revenues
Revenues totaled $5,147,103 for the nine months ended September
30, 2017 compared to $4,020,700 for the nine months ended September 30, 2016. The following table summarizes revenues
for the nine months ended September 30, 2017 and 2016, respectively:
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
3,329,144
|
|
|
$
|
2,436,074
|
|
|
|
64.7
|
%
|
|
|
60.6
|
%
|
License and maintenance fees
|
|
|
1,655,607
|
|
|
|
1,486,702
|
|
|
|
32.2
|
%
|
|
|
37.0
|
%
|
Other sales
|
|
|
162,352
|
|
|
|
97,924
|
|
|
|
3.1
|
%
|
|
|
2.4
|
%
|
Total revenues
|
|
$
|
5,147,103
|
|
|
$
|
4,020,700
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
During the nine months ended September 30, 2017, the Company delivered
ten systems and three existing customers purchased additional products from the Company. Most of the revenues from eight of these
installations was deferred to future periods. During the same period in 2016, the Company delivered nine systems, of which most
of the revenues from six of those installations were deferred to future periods.
Cost of Sales
Cost of sales for the nine months ended September 30, 2017 increased
to $1,639,650 from $1,137,314 for the nine months ended September 30, 2016. The following table summarizes our cost of sales
for the nine months ended September 30, 2017 and 2016, respectively:
|
|
Nine Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(percent of revenues)
|
|
System sales
|
|
$
|
1,494,517
|
|
|
$
|
1,018,087
|
|
|
|
29.0
|
%
|
|
|
25.3
|
%
|
License and maintenance fees
|
|
|
72,250
|
|
|
|
78,302
|
|
|
|
1.4
|
%
|
|
|
1.9
|
%
|
Other sales
|
|
|
72,883
|
|
|
|
40,925
|
|
|
|
1.4
|
%
|
|
|
1.0
|
%
|
Total cost of sales
|
|
$
|
1,639,650
|
|
|
$
|
1,137,314
|
|
|
|
31.8
|
%
|
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
3,507,453
|
|
|
$
|
2,883,386
|
|
|
|
68.2
|
%
|
|
|
71.8
|
%
|
The Company's gross profit was 68.2% and 71.8% for the nine months
ended September 30, 2017 and 2016, respectively. This decrease is primarily due to the higher mix of hardware sold with the systems
during the nine months ended September 30, 2017.
Selling, General and Administrative Expenses
For the nine months ended September 30, 2017, selling, general and
administrative expenses were $3,080,953 compared to $2,886,408 for the same period in 2016. The increase of $194,545
is primarily related to a bad debt expense during the second quarter and ongoing fees related to the acquisition of gaming licenses
in new jurisdictions in 2017.
Interest Income
For the nine months ended September 30, 2017, interest income was
$83,310 compared to $71,725 for the same period in 2016. This increase is primarily related to more signed contracts
that have financed payment plans in the current period.
Tax Provision
The income tax expense for the nine months ended September 30, 2017
was $191,000, which was calculated at a 37.9% effective rate, compared to an income tax expense of $44,983 for the same period
in 2016, which was calculated at a 92.4% effective rate.
Net Income
Income before taxes for the nine months ended September 30, 2017,
was $503,666 compared to income before taxes of $48,668 for the same period in 2016. Net income for the nine months ended September
30, 2017 was $312,666 compared to net income of $3,685 for the same period in 2016. The basic income per share was $0.07 compared
to income per share of $0.00 for the nine months ended September 30, 2017 and 2016, respectively. There were no outstanding options
or commons stock equivalents for the nine months ended September 30, 2017 and 2016, 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 one project in its backlog at September 30, 2017.
The Company had three projects in its backlog as of September 30, 2016.
The Company is currently serving gaming establishments in thirteen
U.S. states, as well as countries in Central and South America, and the Caribbean. The Company aims to pursue further opportunities
and strategic partnerships.
Liquidity and Capital Resources
The increase in cash flows for the nine months ended September 30,
2017, compared with the same period in 2016 is related primarily to the increase in net income, and collection of income tax receivable,
offset by changes in other working capital items, primarily work-in-process.
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, 2017.