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, 2010 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)




15612 Highway 7, Suite 331,
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  ̈No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈  (Do
      not check if a smaller reporting company)
                Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈   No
x





As of May
12, 2010, the registrant had outstanding 4,162,234 shares of common stock, $.001
par value per share.








Table
Trac, Inc.




Index





PagePART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements
                
                2Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                11Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                
                15Item
      4T. Controls and Procedures
                
                15PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
                
                17Item
      1A. Risk Factors
                
                17Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                
                17Item
      3. Defaults Upon Senior Securities
                
                17Item
      4. Submission of Matters to a Vote of Security Holders
                
                17Item
      5. Other Information
                
                17Item
      6. Exhibits
                
                18SIGNATURES
                
                18


1





PART
I. FINANCIAL INFORMATION




Item 1. Financial
Statements





TABLE
TRAC, INC.





CONTENTS





PageCONDENSED
      FINANCIAL STATEMENTSCondensed
      Balance Sheets
                3Condensed
      Statements of Operations
                4Condensed
      Statements of Cash Flows
                5Notes
      to Condensed Financial Statements
                6


2





TABLE
TRAC, INC.


CONDENSED
BALANCE SHEETS (Unaudited)





March 31,
                  2010
                
                
                December 31,
                  2009ASSETSCURRENT
      ASSETS:Cash
                
                $
                1,543,051
                
                
                $
                1,320,946Accounts
      receivable, net of allowance for doubtful accounts of $182,054 at March
      31, 2010 and December 31, 2009
                
                
                780,031
                
                
                
                1,141,114Inventory
                
                
                213,801
                
                
                
                189,482Prepaid
      expenses
                
                
                47,224
                
                
                
                34,219Other
      current assets
                
                
                10,307
                
                
                
                5,039Income
      taxes receivable
                
                
                68,506
                
                
                
                172,434TOTAL
      CURRENT ASSETS
                
                
                2,662,920
                
                
                
                2,863,234Patent,
      net of accumulated amortization
                
                
                9,485
                
                
                
                9,826Property
      and equipment, net of accumulated depreciation
                
                
                32,671
                
                
                
                34,219Other
      long term assets
                
                
                2,060
                
                
                
                -Long-term
      accounts receivable – financed contracts
                
                
                149,248
                
                
                
                236,466TOTAL
      ASSETS
                
                $
                2,856,384
                
                
                $
                3,143,745LIABILITIES
      AND  STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                
                $
                80,666
                
                
                $
                139,697Accrued
      payroll and related withholdings
                
                
                90
                
                
                
                -Deferred
      tax liability
                
                
                419,000
                
                
                
                574,000TOTAL
      CURRENT LIABILITIES
                
                
                499,756
                
                
                
                713,697LONG-TERM
      LIABILITIES:Deferred
      tax liability
                
                
                9,000
                
                
                
                9,000TOTAL
      LIABILITIES
                
                
                508,756
                
                
                
                722,697STOCKHOLDERS'
      EQUITY:Common
      stock, 0.001 par value; 5,000,000 shares authorized: 4,162,234 shares
      issued and outstanding at March 31, 2010 and December 31,
    2009
                
                
                4,162
                
                
                
                4,162Additional
      paid-in capital
                
                
                1,404,619
                
                
                
                1,404,619Retained
      earnings
                
                
                940,269
                
                
                
                1,013,6892,349,050
                
                
                
                2,422,470Treasury
      stock, 1,000 shares (at cost) at March 31, 2010 and December 31,
      2009
                
                
                (1,422
                )
                
                
                (1,422
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                2,347,628
                
                
                
                2,421,048TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                2,856,384
                
                
                $
                3,143,745





See
notes to condensed financial statements.


3





TABLE
TRAC, INC.


CONDENSED
STATEMENTS OF OPERATIONS (Unaudited)





Three Months EndedMarch 31,
                  2010
                
                
                March 31,
                  2009Revenues
                
                $
                368,165
                
                
                $
                1,144,846Cost
      of sales
                
                
                31,535
                
                
                
                135,597Gross
      profit
                
                
                336,630
                
                
                
                1,009,249Operating
      Expenses:Selling,
      general and administrative
                
                
                477,173
                
                
                
                431,947Income
      (loss) from operations
                
                
                (140,543
                )
                
                
                577,302Interest
      income
                
                
                22,132
                
                
                
                14,050Net
      income (loss) before taxes
                
                
                (118,411
                )
                
                
                591,352Income
      tax expense (benefit)
                
                
                (44,991
                )
                
                
                230,484Net  income
      (loss)
                
                $
                (73,420
                )
                
                $
                360,868Basic
      earnings (loss) per common share
                
                $
                (0.018
                )
                
                $
                0.087Weighted-average
      basic shares outstanding
                
                
                4,162,234
                
                
                
                4,162,234Diluted
      earnings (loss) per common share
                
                $
                (0.018
                )
                
                $
                0.081Weighted-average
      diluted shares outstanding
                
                
                4,162,234
                
                
                
                4,479,645





See
notes to condensed financial statements.


4





TABLE
TRAC, INC.


CONDENSED
STATEMENTS OF CASH FLOW (Unaudited)





Three Months EndedMarch 31,
                  2010
                
                
                March 31,
                  2009OPERATING
      ACTIVITIES:Net
      income (loss)
                
                $
                (73,420
                )
                
                $
                360,868Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                4,417
                
                
                
                2,859Deferred
      income taxes
                
                
                (155,000
                )
                
                
                181,000Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                448,301
                
                
                
                92,826Other
      current assets
                
                
                (5,268
                )
                
                
                -Inventory
                
                
                (24,319
                )
                
                
                22,286Prepaid
      expenses
                
                
                (13,005
                )
                
                
                (8,100
                )Income
      taxes receivable
                
                
                103,928
                
                
                
                (2,000
                )Deferred
      system sales costs
                
                
                -
                
                
                
                (76,779
                )Accounts
      payable
                
                
                (59,031
                )
                
                
                (145,231
                )Accrued
      payroll and related withholding liabilities
                
                
                90
                
                
                
                6,025Deferred
      revenue
                
                
                -
                
                
                
                (389,297
                )Net
      cash provided by operating activities
                
                
                226,693
                
                
                
                44,457INVESTING
      ACTIVITIES:Purchase
      of domain name
                
                
                (2,060
                )
                
                
                -Purchase
      of equipment
                
                
                (2,528
                )
                
                
                -Issuance
      of note receivable
                
                
                -
                
                
                
                (250,000
                )Net
      cash used in investing activities
                
                
                (4,588
                )
                
                
                (250,000
                )FINANCING
      ACTIVITIES:Repurchase
      of Company stock
                
                
                -
                
                
                
                (942
                )Net
      cash used in financing activities
                
                
                -
                
                
                
                (942
                )NET
      INCREASE (DECREASE) IN CASH
                
                
                222,105
                
                
                
                (206,485
                )Cash
      - Beginning of period
                
                
                1,320,946
                
                
                
                1,212,953Cash
      - End of period
                
                $
                1,543,051
                
                
                $
                1,006,468





See
notes to condensed financial statements.





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, Inc. (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, 2010
and the statements of operations and cash flows for the three months ended March
31, 2010 and 2009 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,
2009.





Nature of
Business




Table
Trac, Inc. (the Company) was formed under the laws of the State of Nevada in
June 1995. The Corporation has its offices in Minnetonka, Minnesota. The Company
has developed and sells an information and management system that automates
various aspects of the operations of casino table games, Table
TracTM.




Table
Trac provides system sales and technical support to casinos. System sales
include installation, custom casino system configuration, and training. In
addition, license and technical support are provided under 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, services and participation-based agreements.





System
Sales





Revenue
from systems that have been demonstrated to meet customer specifications during
installation is recognized when evidence of an arrangement exists, the product
has been installed, title and risk of loss have transferred to the customer and
collection of the resulting receivable is reasonably assured.





System
sales, which are accounted for as multiple-element arrangements, include
multiple products and/or services.  For multiple-element arrangements,
the Company allocates the revenue to each element based on their stand-alone
fair value (or in the absence of fair value, the residual method) and recognizes
the associated revenue when all revenue recognition criteria have been met for
each element.





The
Company does offer its customers contracts with extended payment terms. The
Company has established a history of successfully collecting on these contracts
under the original payment terms without making concessions. Based on past and
current collection history, all sales installment contracts are being recognized
in revenue following the "system sales" policy noted above.





Maintenance
revenue





Maintenance
revenue is recognized ratably over the contract period.


6





Service
revenue





Service
revenue is recognized after the services are performed and collection of the
resulting receivable is reasonably assured.





Participation
revenue





In 2009,
the Company began offering new customers a participation-based contract.
Revenues were originally determined and billed monthly based on a percentage of
the amount of money processed through the customer’s casino gaming system
utilizing the Table Trac software. After discussion with the SEC, the Company
changed its revenue recognition policy for these contracts to record revenue at
the time of cash collection.





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 coming due beyond 12 months are recorded as "Long-term
accounts receivable - financed contracts".  An allowance for doubtful
accounts is recorded when the Company believes the amounts will 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, 2010 and 2009:




2010
                  
                  
                  2009Customer
                  
                  % Sales
                  
                  
                  % AR
                  
                  
                  % Sales
                  
                  
                  % ARA
                  
                  
                  33.66
                  %
                  
                  
                  2.33
                  %
                  
                  
                  29.26
                  %
                  
                  
                  19.60
                  %B
                  
                  
                  12.68
                  %
                  
                  
                  12.01
                  %
                  
                  
                  19.15
                  %
                  
                  
                  13.80
                  %C
                  
                  
                  2.53
                  %
                  
                  
                  7.80
                  %
                  
                  
                  12.08
                  %
                  
                  
                  13.10
                  %D
                  
                  
                  10.27
                  %
                  
                  
                  13.56
                  %
                  
                  
                  13.83
                  %
                  
                  
                  13.40
                  %E
                  
                  
                  14.75
                  %
                  
                  
                  9.13
                  %
                  
                  
                  -
                  
                  
                  
                  -F
                  
                  
                  17.46
                  %
                  
                  
                  32.53
                  %
                  
                  
                  -
                  
                  
                  
                  -


7





Inventory





Inventory,
comprised of finished goods and work-in-process, is stated at the lower of cost
or market. The first-in, first-out 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,
2010 and December 31, 2009.





Recent Accounting
Pronouncements





In
October 2009, the FASB issued an update to existing guidance on revenue
recognition for arrangements with multiple deliverables and deliverables that
include software elements effective for fiscal years beginning on or after June
15, 2010.  This update will allow companies to allocate consideration
received for qualified separate deliverables using estimated selling price for
both delivered and undelivered items when vendor-specific objective evidence or
third-party evidence is unavailable.  Additional disclosures
discussing the nature of multiple element arrangements, the types of
deliverables under the arrangements, the general timing of their delivery, and
significant factors and estimates used to determine estimated selling prices are
required. The Company will adopt this update for new revenue arrangements
entered into or materially modified beginning January 1, 2011; there have been
no new arrangements for 2010. Our adoption of this update is not expected to
have a material impact on our financial statements.


.


2.
            Accounts
      Receivable –




Accounts
receivable consisted of the following at March 31, 2010 and December 31,
2009:




2010
                  
                  
                  2009Accounts
      receivable under normal 30 day terms
                  
                  $
                  498,219
                  
                  
                  $
                  339,430Financed
      contracts:Short-term
                  
                  
                  224,071
                  
                  
                  
                  430,307Current
      portion of long-term
                  
                  
                  239,795
                  
                  
                  
                  553,431Long-term,
      net of current portion
                  
                  
                  149,248
                  
                  
                  
                  236,466Total
      accounts receivable
                  
                  
                  1,111,333
                  
                  
                  
                  1,559,634Less:
      allowance for doubtful accounts
                  
                  
                  (182,054
                  )
                  
                  
                  (182,054
                  )Accounts
      receivable, net
                  
                  $
                  929,279
                  
                  
                  $
                  1,377,580





The
entire allowance account at March 31, 2010 and December 31, 2009 consists of one
international customer’s contract balance. A roll-forward of the Company’s
allowance for doubtful accounts for the three months ended March 31, 2010 and
December 31, 2009 is as follows:





For the three
                    months ended
                    March 31,
                    2010
                  
                  
                  For the year
                    ended
                    December 31,
                    2009Accounts
      receivable allowance, beginning of period
                  
                  $
                  182,054
                  
                  
                  $
                  -Provision
      adjustment during period
                  
                  
                  -
                  
                  
                  
                  265,528Write-off
      of bad debt
                  
                  
                  -
                  
                  
                  
                  (83,474
                  )Accounts
      receivable allowance, end of period
                  
                  $
                  182,054
                  
                  
                  $
                  182,054





3.
            Inventory –





Company
inventories consisted of the following at:





March 31,
                    2010
                  
                  
                  December 31,
                    2009Raw
      materials
                  
                  $
                  -
                  
                  
                  $
                  -Work-in-process
                  
                  
                  -
                  
                  
                  
                  -Finished
      goods
                  
                  
                  213,801
                  
                  
                  
                  189,482Obsolescence
      reserve
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  213,801
                  
                  
                  $
                  189,482


8





4.
            Stockholders’
      Equity –




Stock
options




In
October 2001, the Company implemented an Employee Stock Incentive Plan. This
plan provides for the issuance of options to employees to purchase shares of the
Company's common stock at an exercise price at least equal to the fair value of
the stock at the grant date. These options are exercisable for a period of seven
years from the date of grant. Table Trac has reserved 1,000,000 shares of its
common stock for potential issuance under this plan. As of March 31, 2010,
370,000 stock options were available for grants.




Table
Trac uses the Black-Scholes-Merton option-pricing model as a method for
determining the estimated fair market value for employee stock awards.
Compensation expense for employee stock awards is recognized on a straight-line
basis over the vesting period of the award. The Company recorded $0 of related
compensation expense for the three months ended March 31, 2010 and 2009,
respectively.




There
were 337,500 options outstanding and exercisable at March 31, 2010 and December
31, 2009 with an average exercise price of $0.125, which expire October 10,
2010. The options had an aggregate intrinsic value of $430,313 at March 31, 2010
which is equal to the difference in the closing stock price on that date and the
exercise price multiplied by the number of in-the-money options that would have
been received had all options been exercised on March 31, 2010.





5.
            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 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
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, 2004 through 2009, the tax years that
remain subject to examination by major tax jurisdictions as of March 31, 2010.
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 a component of operating
expense.




6.
            Earnings
      (Loss) Per Share –





Earnings
(loss) per share is computed under two different methods, basic and diluted, and
is presented 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, 2010 and 2009:


9





Three Months Ended
                    March 312010
                  
                  
                  2009Basic
      earnings per share calculation:Net
      income (loss) to common stockholders
                  
                  $
                  (73,420
                  )
                  
                  $
                  360,868Weighted
      average number of common shares outstanding
                  
                  
                  4,162,234
                  
                  
                  
                  4,162,234Basic
      net income (loss) per share
                  
                  
                  (0.018
                  )
                  
                  
                  0.087Diluted
      earnings per share calculation:Net
      income (loss)
                  
                  $
                  (73,420
                  )
                  
                  $
                  360,868Weighted
      average number of common shares outstanding
                  
                  
                  4,162,234
                  
                  
                  
                  4,162,234Common
      stock equivalents:Stock
      options
                  
                  
                  (1)
                  
                  
                  
                  317,411Weighted
      average diluted shares outstanding
                  
                  
                  4,162,234
                  
                  
                  
                  4,479,645Diluted
      net income (loss) per share
                  
                  
                  (0.018
                  )
                  
                  
                  0.081





(1)Stock options
outstanding of 337,500 were not included in the calculation as they would have
been anti-dilutive.


10





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 31, 2010 relating to our year ended
December 31, 2009.




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.





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
loyalty club, marketing analysis, guest service, promotion
administration/management, vault/cage management and audit/accounting to its
existing table games management program. These modules all use Table Trac's
simple to learn browser-based interface.




Recently,
we expanded our product offerings in the areas of gaming machine on-line
accounting and management, customer mailing for tiered pre-encoded promotional
marketing, touch screen customer service kiosks, guest service paging and
wireless handheld communication devices. The addition of these modalities has
transformed Table Trac from a "niche" supplier of peripheral products to one of
a full line single source supplier.




We are
able to offer our customers systems with functionality comparable to our larger
competitors at a significantly lower price point by utilizing innovative
technology and programming resources. We have over twelve years of on-table
experience, more than eight years of customer reward and loyalty program
experience, and tens of millions of continuous gaming machine operation
monitoring hours. We are favorably positioned to compete for a broader cross
section of casinos seeking to reduce their systems cost while improving the
reliability and accountability of their operations.




Discussion of Critical
Accounting Policies




Our
discussion and analysis of financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We evaluate these
estimates on an on-going basis, including those related to revenue recognition,
bad debts, inventory valuation, intangible assets, and income taxes. We base
these estimates on historical experience and on various other assumptions that
we believe 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 accounting
policies, estimates and judgments that we believe have the most effect on the
reported financial position and results of operations are as listed below. This
section should also be read in conjunction with Note 1 in our financial
statements in our Annual Report on Form 10-K for the year ended December 31,
2009.




Revenue
Recognition




We derive
revenues from the sales of systems, licenses and maintenance fees, services and
participation-based agreements.


11





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,
we allocate the revenue to each element based on their stand-alone fair value
(or in the absence of fair value, the residual method) and recognize the
associated revenue when all revenue recognition criteria have been met for each
element.





The
Company does offer its customers contracts with extended payment terms. The
Company has established a history of successfully collecting on these contracts
under the original payment terms without making concessions. Based on past and
current collection history, all sales installment contracts are being recognized
in revenue following the "system sales" policy noted above.





Maintenance
Revenue





Maintenance
revenue is recognized ratably over the contract period.





Service
Revenue





Service
revenue is recognized after the services are performed and collection of the
resulting receivable is reasonably assured.





Participation
Revenue





In 2009,
the Company began offering new customers a participation-based contract.
Revenues were originally determined and billed monthly based on a percentage of
the amount of money processed through the customer’s casino gaming system
utilizing the Table Trac software. After discussion with the SEC, the Company
changed its revenue recognition policy for these contracts to record revenue at
the time of cash collection.




Inventory




Inventory
comprised of finished goods and work in process is stated at the lower of cost
or market. The first-in, first-out 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.




Accounts
Receivable




Accounts
receivable includes regular customer receivables and amounts from financed
contracts coming due within 12 months. Amounts from financed contracts coming
due beyond 12 months are recorded as "Long-term accounts receivable - financed
contracts ".  Our accounts receivable also includes an allowance for
doubtful accounts.





Results
of Operations - Three Months Ended March 31, 2010 Compared to Three Months Ended
March 31, 2009





For the
three months ended March 31, 2010, the loss from operations was ($73,420)
compared to income from operations of $360,868 for  2009. The major
components of revenues, cost of sales, and selling, general and administrative
expenses are discussed below.





Revenues





For the
three months ended March 31, 2010, revenues totaled $368,165 compared to
$1,144,846 for 2009.  The following table summarizes our revenues for
the three months ended March 31, 2010 and 2009, respectively:


12





ThreeMonthsEnded
                    March31,2010
                  
                  
                  2009System
      sales
                  
                  $
                  -
                  
                  
                  $
                  916,687License
      and maintenance fees
                  
                  
                  235,271
                  
                  
                  
                  214,030Other
      sales
                  
                  
                  132,894
                  
                  
                  
                  14,129Total
      revenues
                  
                  $
                  368,165
                  
                  
                  $
                  1,144,846





For the
three months ended March 31, 2010, we generated $0 in system sales compared to
$916,687 for 2009.  The decrease was due to the absence of any new
installation work, in the current period.  In comparison, the
corresponding period from the prior year involved a significant amount of system
installation work.  Conversely, for the three months ended March 31,
revenues from license and maintenance fees increased from $214,030 for 2009 to
$235,271 for 2010 due to more of our systems being in
service.  Lastly, for the three months ended March 31, other sales,
which includes sales of printers, kiosk software, mailing services, and
consulting services generated $132,894, 2010 compared to $14,129 for
2009.





Cost of
Sales




For the
three months ended March 31, cost of sales decreased from $135,597 for 2009 to
$31,535 for 2010.  This is consistent with completion of system
installations during the three months ended March 31, 2009 compared to the
absence of any installations for 2010. For the three months ended March 31, the
Company's gross profit was 91.4% and 88.2% for 2010 and 2009, respectively. This
increase is primarily due to the absence of system installations completed
during the current period compared to the larger system installation completed a
year ago; system sales will have a lower gross profit compared to our license
and maintenance fee revenue. The following table summarizes our cost of sales
for the three months ended March 31, 2010 and 2009, respectively:





ThreeMonthsEnded
                    March31,2010
                  
                  
                  2009System
      sales
                  
                  $
                  -
                  
                  
                  $
                  135,597Other
      sales
                  
                  
                  31,535
                  
                  
                  
                  -Total
      cost of sales
                  
                  $
                  31,535
                  
                  
                  $
                  135,597




Selling, General and
Administrative Expenses





For the
three months ended March 31, 2010, selling, general and administrative expenses
were $477,173 compared to $431,947 for 2009.  Our most significant
changes in operating expenses related to professional fees, sales and marketing,
insurance, research and development, and salaries and benefits expenses. A
discussion of the various components of our operating expenses for the three
months ended March 31, 2010 appears below:





Professional
Fees.  Professional fees for accounting services, legal services and
product support aggregated to $85,274 for the three months ended March 31, 2010
versus $48,557 for 2009. We have realized an increase in professional fees for
accounting related to our status as a public reporting company and our efforts
to prepare for the internal control attestation requirement.  We
expect professional fees to increase throughout the remainder of 2010 as we
concentrate our Sarbanes-Oxley compliance efforts on remediating previously
disclosed deficiencies.





Sales and
Marketing. Our expenses related to sales and marketing efforts increased from
$20,373 for the three months ended March 31, 2009 to $29,096 for 2010 due to
increased marketing efforts related to the sale of our systems and expansion of
our service offerings to existing customers.





Insurance.
For the three months ended March 31, 2010, our insurance expenses increased to
$27,285 compared to $15,864 for 2009.  Included are several new
insurances for 2010 – dental, directors & officers, employment practices and
fiduciary liability. Our health insurance and worker comp insurance premiums
also increased for 2010.





Research
and Development.  Our research and development costs for the three
months ended March 31, 2010 increased to $39,326 compared to $34,746 for the
same period in 2009.





Salaries
and Benefits. Payroll and related costs were $252,489 compared to $266,243 for
the three months ended March 31, 2010 and 2009, respectively. Decreased salaries
and benefits expense of $13,754 resulted primarily from the $16,128 decrease in
bonuses paid. We expect that, with anticipated growth in our service offerings
as well as an increase in the number of customers, these salaries and benefits
will increase.


13





Interest
Income




Interest
income for the three months ended March 31, 2010 was $22,132 compared to $14,050
for 2009.  This increase is due somewhat to a higher and more
consistent cash balance, but primarily is related to the financed contracts
interest earned.




Income Tax Expense /
Benefit




The
income tax benefit for the first quarter of 2010 of $44,991 which was calculated
at a 38.0% effective rate compared to the first quarter of 2009 income tax
expense of $230,484 which was calculated at a 38.9% effective rate.




Net Income
(Loss)




For the
three months ended March 31 the net loss before taxes was ($118,411) for 2010,
compared to net income before taxes of $591,352 for 2009. The decrease is due to
a reduction in revenue stemming from the absence of installations during the
first quarter 2010.  The basic earnings (loss) per share was ($0.018)
and $0.087 for the three months ended March 31, 2010 and 2009,
respectively.


14





Backlog




The
Company’s backlog generally consists of future system installations and
expansion of offerings for currently installed and supported
systems.  These expanded offerings can include kiosks, in-casino
broadcast advertising, and electronic marketing to casino patrons.




The
Company is currently working with gaming establishments in eight US states, as
well as countries in Central and South America to purchase new systems and
expand service offerings for existing customers.  Currently, we have
two system installation contracts in our backlog that we anticipate completing
in June 2010.




Liquidity
and Capital Resources





Summary
cash flow data is as follows:




Three Months Ended
                      March 31,2010
                    
                    
                    2009Cash
      flows provided (used) by :Operating
      activities
                    
                    $
                    226,693
                    
                    
                    $
                    44,457Investing
      activities
                    
                    
                    (4,588
                    )
                    
                    
                    (250,000
                    )Financing
      activities
                    
                    
                    -
                    
                    
                    
                    (942
                    )Net
      increase (decrease) in cash
                    
                    
                    222,105
                    
                    
                    
                    (206,485
                    )Cash,
      beginning of period
                    
                    
                    1,320,946
                    
                    
                    
                    1,212,953Cash,
      end of period
                    
                    $
                    1,543,051
                    
                    
                    $
                    1,006,468





At March
31, 2010, we had cash of $1,543,051 compared to cash of $1,320,946 on December
31, 2009. The $222,105 increase in cash stems primarily from collections of
accounts receivable in 2010, offset partially by the loss from operations,
purchase of inventory and paying down some accounts payable. Changes in cash
flows from operating activities primarily stem from the decrease in accounts
receivable, which is attributable to both collections and a lower sales volume
for 2010. Changes in cash flows in investing activities relate to a $250,000
loan to one of our customers during the three months ended March 31, 2009
compared to some small asset purchases totaling $4,588 for 2010.





There are
no known trends, events or uncertainties that are likely to have a material
impact on our short or long-term liquidity. The primary source of liquidity in
both the short and long-term will be system sales, the resulting license and
maintenance fees from existing systems, sales of printers, kiosk software,
mailing services, and consulting services. 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, 2010.





Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Not
applicable.




Item 4T. Controls and
Procedures




Material Weaknesses
Previously Disclosed




As
discussed in Item 9A of our 2009 Annual Report on Form 10-K, as of December 31,
2009, we identified certain material weaknesses relating to our accounting
policies and procedures, board of director financial oversight, lack of
segregation of duties, financial close and reporting and internal financial
expertise.


15





Evaluation of Disclosure
Controls and Procedures




Our Chief
Executive Officer/Chief Financial Officer (CEO/CFO) evaluated the effectiveness
of the Company's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered in this
report. Taking into account the material weaknesses previously disclosed, which
have not been remediated as of the end of the period covered by this Quarterly
Report, our CEO/CFO concluded that our disclosure controls and procedures were
not effective in providing reasonable assurance that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act was recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission's rules and forms
and did not ensure that information required to be disclosed in the reports that
we file or submit under the Exchange Act was accumulated and communicated to our
management, including our CEO/CFO, as appropriate, to allow timely decisions
regarding required disclosure.




As a
result of this conclusion, the financial statements for the period covered by
this report were prepared with particular attention to the material weaknesses
previously disclosed. Notwithstanding the material weaknesses in internal
controls which continue to exist as of March 31, 2010, our CEO/CFO concluded
that the financial statements included in this Form 10-Q present fairly, the
financial position, results of operations and cash flows of the Company as
required for interim financial statements.





Changes in Internal Control
over Financial Reporting




Management
has made the following steps to help improve the Company’s control
structure:





In
February 2010, the Company engaged KMAS Consulting LLC (KMAS), who is providing
a permanent part-time CPA to perform the daily accounting tasks and to ensure
proper separation of duties and procedures are carried out as we implement
remediation of areas that represent material weaknesses. The majority of the
preparation of the financial statements was carried out by the KMAS CPA along
with the Company's CEO/CFO. The KMAS CPA prepared routine and non-routine
journal entries, processed certain transactions, prepared certain account
reconciliations, and prepared interim financial statements (including report
combinations and footnote disclosures) in accordance with generally accepted
accounting principles with review and approval by the CEO/CFO. The Company
believes it has sufficient personnel resources and technical accounting and
reporting expertise within the Company's financial closing and reporting
functions at the time of the preparation of this form 10-Q, having had the full
benefit of this expertise for the quarter of operations ended March 31,
2010.





During
the quarter covered by this report, we developed and began implementing our
remediation plans to address the material weaknesses in internal control over
financial reporting described in 2009. To date, we have made progress towards
remediation, including taking steps to:





·
            added
      a financial expert to our board of directors, who has subsequently
      resigned in April 2010, as reported in our 8K filed April 23,
      2010;


·
            established
      committees of our board of directors, including an audit
      committee,  responsible for oversight of our internal controls
      and accounting transactions;


·
            increased
      the frequency of our board of directors meetings and actively engaged our
      directors in the provision of oversight of our internal controls and the
      review of complex or unusual accounting
  transactions;


·
            provided
      a mechanism for the submission of anonymous reports, relating to
      accounting or audit irregularities, directly to an independent director
      and legal counsel;


·
            provided
      our internal audit consultant with direct access to our independent
      directors and legal counsel;


·
            executed
      timely preparation of balance sheet account reconciliations accompanied by
      sufficient supporting documentation and review and approval for validity,
      completeness and accuracy performed by a competent accounting
      professional;


·
            formalized
      journal entry preparation and review process to include sufficient
      supporting documentation and proper review and approval prior to
      recording; and


·
            implemented
      a formal financial reporting process that includes review of the financial
      statements by the full board of directors prior to filing with the
      SEC.





We were
unable to conclude that the material weaknesses described in our Annual Report
on Form 10-K for the year ended December 31, 2009 were effectively remediated as
of March 31, 2010 due to the fact that (i) less than the entire remediation plan
has been developed and implemented and (ii) an insufficient period of time has
passed for management to test and document the effectiveness of those controls
which have been newly created as part of the remediation plan (as summarized
above).


16





PART
II. OTHER INFORMATION




Item 1.
Legal Proceedings





None.




Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds




None.




Item 3. Defaults upon
Senior Securities





None.




Item 4.
Submission of Matters to a Vote of Security Holders





None.





Item 5.
Other Information





None.


17





Item 6.
Exhibits




Exhibit
              
              Description31.1
              
              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).




SIGNATURES




Pursuant
to the requirements of the Securities and Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Dated:
      May 14, 2010
                Table
      Trac, Inc.(Registrant)By:
                /s/ Chad HoehneChad
      HoehnePresident,
      Chief Executive Officer and Chief Financial
  Officer


18