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 June 30, 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
August 16, 2010, the registrant had outstanding 4,229,805 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
              10Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
              15Item
      4T. Controls and Procedures
              15PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
              16Item
      1A. Risk Factors
              16Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              16Item
      3. Defaults Upon Senior Securities
              16Item
      4. Submission of Matters to a Vote of Security Holders
              16Item
      5. Other Information
              16Item
      6. Exhibits
              17SIGNATURES
              17




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)





June 30, 2010
                
                
                December 31, 2009Cash
                
                $
                1,440,614
                
                
                $
                1,320,946Accounts
      receivable, net of allowance for doubtful accounts of $182,054 at June 30,
      2010 and December 31, 2009
                
                
                675,378
                
                
                
                1,141,114Inventory
                
                
                317,419
                
                
                
                189,482Prepaid
      expenses
                
                
                106,294
                
                
                
                34,219Other
      current assets
                
                
                610
                
                
                
                5,039Income
      taxes receivable
                
                
                146,675
                
                
                
                172,434TOTAL
      CURRENT ASSETS
                
                
                2,686,990
                
                
                
                2,863,234Patent,
      net of accumulated amortization
                
                
                9,144
                
                
                
                9,826Property
      and equipment, net of accumulated depreciation
                
                
                57,101
                
                
                
                34,219Other
      long term assets
                
                
                2,060
                
                
                
                -Long-term
      accounts receivable – financed contracts
                
                
                74,261
                
                
                
                236,466TOTAL
      ASSETS
                
                $
                2,829,556
                
                
                $
                3,143,745LIABILITIES
      AND  STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                73,481
                
                
                $
                139,697Accrued
      expenses
                
                
                2,180
                
                
                
                -Deferred
      revenue
                
                
                40,000
                
                
                
                -Deferred
      tax liability
                
                
                365,000
                
                
                
                574,000TOTAL
      CURRENT LIABILITIES
                
                
                480,661
                
                
                
                713,697LONG-TERM
      LIABILITIESDeferred
      tax liability
                
                
                9,000
                
                
                
                9,000TOTAL
      LIABILITIES
                
                
                489,661
                
                
                
                722,697STOCKHOLDERS'
      EQUITYCommon
      stock, 0.001 par value; 5,000,000 shares authorized: 4,229,805 and
      4,162,234 shares issued and outstanding at June 30, 2010 and December 31,
      2009, respectively
                
                
                4,230
                
                
                
                4,162Additional
      paid-in capital
                
                
                1,522,801
                
                
                
                1,404,619Retained
      earnings
                
                
                814,286
                
                
                
                1,013,6892,341,317
                
                
                
                2,422,470Treasury
      stock, 1,000 shares (at cost) at June 30, 2010 and December 31,
      2009
                
                
                (1,422
                )
                
                
                (1,422
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                2,339,895
                
                
                
                2,421,048TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                2,829,556
                
                
                $
                3,143,745





See
notes to condensed financial statements.


3





TABLE
TRAC, INC.


CONDENSED
STATEMENTS OF OPERATIONS (Unaudited)





Three Months Ended June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenues
                
                $
                456,822
                
                
                $
                1,045,449
                
                
                $
                824,987
                
                
                $
                2,190,295Cost
      of sales
                
                
                57,829
                
                
                
                378,882
                
                
                
                89,364
                
                
                
                514,479Gross
      profit
                
                
                398,993
                
                
                
                666,567
                
                
                
                735,623
                
                
                
                1,675,816Operating
      Expenses:Selling,
      general and administrative
                
                
                611,738
                
                
                
                646,853
                
                
                
                1,088,911
                
                
                
                1,078,800Income
      (loss) from operations
                
                
                (212,745
                )
                
                
                19,714
                
                
                
                (353,288
                )
                
                
                597,016Interest
      income
                
                
                13,338
                
                
                
                71,702
                
                
                
                35,470
                
                
                
                85,752Net
      income (loss) before taxes
                
                
                (199,407
                )
                
                
                91,416
                
                
                
                (317,818
                )
                
                
                682,768Income
      tax expense (benefit)
                
                
                (73,424
                )
                
                
                31,066
                
                
                
                (118,415
                )
                
                
                261,550Net
      (loss) income
                
                $
                (125,983
                )
                
                $
                60,350
                
                
                $
                (199,403
                )
                
                $
                421,218Basic
      earnings (loss) per common share
                
                
                (0.030
                )
                
                
                0.014
                
                
                
                (0.048
                )
                
                
                0.101Weighted-average
      basic shares outstanding
                
                
                4,212,727
                
                
                
                4,162,234
                
                
                
                4,187,620
                
                
                
                4,162,234Diluted
      earnings (loss) per common share
                
                
                (0.030
                )
                
                
                0.013
                
                
                
                (0.048
                )
                
                
                0.094Weighted-average
      diluted shares outstanding
                
                
                4,212,727
                
                
                
                4,477,530
                
                
                
                4,187,620
                
                
                
                4,478,587





See
notes to condensed financial statements.


4


TABLE
TRAC, INC.


CONDENSED
STATEMENTS OF CASH FLOW (Unaudited)


SixMonthsEndedJune30,2010
                        
                        
                        2009OPERATING
      ACTIVITIESNet
      income (loss)
                        
                        $
                        (199,403
                        )
                        
                        $
                        421,218Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        9,552
                        
                        
                        
                        5,717Deferred
      income taxes
                        
                        
                        (209,000
                        )
                        
                        
                        209,000Allowance
      for doubtful accounts receivable
                        
                        
                        -
                        
                        
                        
                        138,500Non-cash
      stock compensation expense
                        
                        
                        47,374
                        
                        
                        
                        51,632Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        627,941
                        
                        
                        
                        5,535Interest
      receivable
                        
                        
                        -
                        
                        
                        
                        (58,919
                        )Inventory
                        
                        
                        (127,937
                        )
                        
                        
                        66,197Prepaid
      expenses and other assets
                        
                        
                        3,230
                        
                        
                        
                        (29,098
                        )Deferred
      system sales costs
                        
                        
                        -
                        
                        
                        
                        (72,939
                        )Accounts
      payable
                        
                        
                        (66,216
                        )
                        
                        
                        (59,498
                        )Accrued
      expenses
                        
                        
                        2,180
                        
                        
                        
                        (21,434
                        )Deferred
      revenue
                        
                        
                        40,000
                        
                        
                        
                        (389,297
                        )Income
      taxes receivable / payable
                        
                        
                        25,759
                        
                        
                        
                        (115,000
                        )Net
      cash provided by operating activities
                        
                        
                        153,480
                        
                        
                        
                        151,614INVESTING
      ACTIVITIESIssuance
      of note receivable
                        
                        
                        -
                        
                        
                        
                        (250,000
                        )Purchase
      of domain name
                        
                        
                        (2,060
                        )
                        
                        
                        -Purchase
      of property & equipment
                        
                        
                        (31,752
                        )
                        
                        
                        -Net
      cash used in investing activities
                        
                        
                        (33,812
                        )
                        
                        
                        (250,000
                        )FINANCING
      ACTIVITIESRepurchase
      of Company stock
                        
                        
                        -
                        
                        
                        
                        (942
                        )Net
      cash used in financing activities
                        
                        
                        -
                        
                        
                        
                        (942
                        )NET
      INCREASE (DECREASE) IN CASH
                        
                        
                        119,668
                        
                        
                        
                        (99,328
                        )CASHBeginning
      of period
                        
                        
                        1,320,946
                        
                        
                        
                        1,212,953End
      of period
                        
                        $
                        1,440,614
                        
                        
                        $
                        1,113,625





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 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 June 30, 2010 and the statements of
operations and cash flows for the three and six months ended June 30, 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 estimated value 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 certain 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 and any future
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 six months
ended June 30, 2010 and 2009:




2010
                  
                  
                  2009% Sales
                  
                  
                  % AR
                  
                  
                  % Sales
                  
                  
                  % ARA
                  
                  
                  20.1
                  %
                  
                  
                  3.0
                  %
                  
                  
                  1.7
                  %
                  
                  
                  2.3
                  %B
                  
                  
                  19.6
                  %
                  
                  
                  11.9
                  %
                  
                  
                  34.0
                  %
                  
                  
                  9.0
                  %C
                  
                  
                  16.2
                  %
                  
                  
                  2.9
                  %
                  
                  
                  7.3
                  %
                  
                  
                  1.7
                  %D
                  
                  
                  13.7
                  %
                  
                  
                  4.0
                  %
                  
                  
                  8.0
                  %
                  
                  
                  4.3
                  %E
                  
                  
                  9.0
                  %
                  
                  
                  6.3
                  %
                  
                  
                  10.8
                  %
                  
                  
                  16.3
                  %F
                  
                  
                  6.3
                  %
                  
                  
                  41.3
                  %
                  
                  
                  28.9
                  %
                  
                  
                  25.8
                  %Total
                  
                  
                  84.9
                  %
                  
                  
                  69.4
                  %
                  
                  
                  90.7
                  %
                  
                  
                  59.4
                  %





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 June 30,
2010 and December 31, 2009.





Deferred System Sales
Costs





Deferred
system sales costs consist of installed system costs incurred on
participation-based contracts. These costs are recognized on a straight-line
basis over the term of the contract which is generally 60 months beginning when
revenues are generated. At the end of the contract period, the customer will
typically receive title to the system.





Amortization
of deferred system sales costs for the three and six months ended June 30, 2010
and 2009 was $0 and $3,840, respectively, as the Company’s one system
installation was completed late in March 2009 and revenues commenced during
April 2009. Subsequently, the Casino was shut down by legislative changes to
gaming regulations in late 2009 so there is no participation revenue in 2010 nor
any remaining deferred system sales costs.


7


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 June 30, 2010 and December 31,
2009





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Accounts
      receivable under normal 30 day terms
                    
                    $
                    193,944
                    
                    
                    $
                    339,430Financed
      contracts:Short-term
                    
                    
                    162,880
                    
                    
                    
                    430,307Current
      portion of long-term
                    
                    
                    500,608
                    
                    
                    
                    553,431Long-term,
      net of current portion
                    
                    
                    74,261
                    
                    
                    
                    236,466Total
      accounts receivable
                    
                    
                    931,693
                    
                    
                    
                    1,559,634Less
      allowance for doubtful accounts
                    
                    
                    (182,054
                    )
                    
                    
                    (182,054
                    )Accounts
      receivable, net
                    
                    $
                    749,639
                    
                    
                    $
                    1,377,580





The
entire allowance account at June 30, 2010 and December 31, 2009 consists of one
international customer’s contract balance. A roll-forward of the Company’s
allowance for doubtful is as follows:





For the Six
                    Months Ended
                    June 30, 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:


June 30, 2010
                  
                  
                  December 31, 2009Raw
      materials
                  
                  $
                  -
                  
                  
                  $
                  -Work-in-process
                  
                  
                  100,732
                  
                  
                  
                  -Finished
      goods
                  
                  
                  216,687
                  
                  
                  
                  189,482Total
                  
                  $
                  317,419
                  
                  
                  $
                  189,482





4.
            Shareholders’
      Equity –





In April
2010, the Company issued 67,571 shares, at $1.75 per share for a total cost of
$118,250 to the Board of Directors for annual compensation for the period from
April 1, 2010 to March 31, 2011. A total of $47,374 was recognized as stock
compensation expense for the quarter ended June 30, 2010, of which $17,500 was
for an outgoing independent director, $6,249 was payment for quarter ended March
31, 2010 in lieu of cash and $23,625 was one fourth of the annual stock award to
the remaining directors.





As of
June 30, 2010, the Company holds 1,000 common stock shares in treasury at a
total cost of $1,422 for future employee incentives under the bonus
program.





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 June 30, 2010,
370,000 stock options were available for grants.





The
Company 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 and six months ended June 30, 2010 and 2009,
respectively.





There
were 337,500 options outstanding and exercisable at June 30, 2010 and December
31, 2009 with an exercise price of $0.125, which expire October 10, 2010. The
options had an aggregate intrinsic value of $717,188 at June 30, 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 June 30, 2010.


8




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 tax liabilities are recognized for taxable temporary
differences. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The impact of the tax rate
changes on deferred tax assets and liabilities is recognized in the year that
the change is enacted.





The
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, 2006 through 2009, the tax years that
remain subject to examination by major tax jurisdictions as of June 30, 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 –





The
Company computes earnings (loss) per share under two different methods, basic
and diluted, and presents per share data for all periods in which statements of
operations are presented. Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common stock and
common stock equivalents outstanding.




The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the:




Three Months Ended
                          June 30,
                        
                        
                        Six Months Ended
                          June 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Basic
      earnings per share calculation:Net
      income (loss) to common stockholders
                        
                        $
                        (125,983
                        )
                        
                        $
                        60,350
                        
                        
                        $
                        (199,403
                        )
                        
                        $
                        421,218Weighted
      average number of common shares outstanding
                        
                        
                        4,212,727
                        
                        
                        
                        4,162,234
                        
                        
                        
                        4,187,620
                        
                        
                        
                        4,162,234Basic
      net income (loss) per share
                        
                        
                        (0.030
                        )
                        
                        
                        0.014
                        
                        
                        
                        (0.048
                        )
                        
                        
                        0.101Diluted
      earnings per share calculation:Net
      income (loss)
                        
                        $
                        (125,983
                        )
                        
                        $
                        60,350
                        
                        
                        $
                        (199,403
                        )
                        
                        $
                        421,218Weighted
      average number of common shares outstanding
                        
                        
                        4,212,727
                        
                        
                        
                        4,162,234
                        
                        
                        
                        4,187,620
                        
                        
                        
                        4,162,234Common
      stock equivalents:Stock
      options
                        
                        
                        (1
                        )
                        
                        
                        315,296
                        
                        
                        
                        (1
                        )
                        
                        
                        316,353Weighted
      average diluted shares outstanding
                        
                        
                        4,212,727
                        
                        
                        
                        4,477,530
                        
                        
                        
                        4,187,620
                        
                        
                        
                        4,478,587Diluted
      net income (loss) per share
                        
                        
                        (0.030
                        )
                        
                        
                        0.013
                        
                        
                        
                        (0.048
                        )
                        
                        
                        0.094





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


9





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.


10





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 estimated value 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 certain 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, and any future
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.





Deferred
System Sales Costs





Deferred
system sales costs consist of installed system costs incurred on
participation-based contracts. These costs are recognized on a straight-line
basis over the term of the contract which is generally 60 months beginning when
revenues are generated. At the end of the contract period, the customer will
typically receive title to the system.




Accounts
Receivable





Accounts
receivable includes regular customer receivables and amounts from financed
contracts coming due within 12 months. Amounts from these 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 June 30, 2010 Compared to Three Months Ended
June 30, 2009





During
the three months ended June 30, 2010, income (loss) from operations was
($212,745) compared to $19,714 for the three months ended June 30, 2009. The
major components of revenues, cost of sales and selling, general and
administrative expenses are discussed below.





Revenues





Revenues
totaled $456,822 for the three months ended June 30, 2010 compared to $1,045,449
for the three months ended June 30, 2009.  The following table
summarizes our revenues for the three months ended June 30, 2010 and 2009,
respectively:


11





Three Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(percent
      of revenues)System
      sales
                    
                    $
                    153,226
                    
                    
                    $
                    683,978
                    
                    
                    
                    33.5
                    %
                    
                    
                    65.4
                    %License
      and maintenance fees
                    
                    
                    248,285
                    
                    
                    
                    307,368
                    
                    
                    
                    54.4
                    %
                    
                    
                    29.4
                    %Other
      sales
                    
                    
                    55,311
                    
                    
                    
                    54,103
                    
                    
                    
                    12.1
                    %
                    
                    
                    5.2
                    %Total
      revenues
                    
                    $
                    456,822
                    
                    
                    $
                    1,045,449
                    
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %




During
the three months ended June 30, 2010, we generated less systems sales revenue
than 2009 because no large system installations were completed in 2010 as was
the case in 2009.  Revenues from license and maintenance fees
decreased for 2010 mainly due to the one-time IGT license fees of $61,000 on the
Company’s one system sale in 2009.  Lastly, other sales, which include
sales of printers, kiosk software, mailing services, and consulting services
remained relatively constant.





Cost of
Sales





Cost of
sales for the three months ended June 30, 2010 decreased to $57,829 from
$378,882 for the three months ended June 30, 2009.  The following table
summarizes our revenues for the three months ended June 30, 2010 and 2009,
respectively:




Three Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(percent
      of revenues)System
      sales
                    
                    $
                    23,988
                    
                    
                    $
                    369,969
                    
                    
                    
                    5.3
                    %
                    
                    
                    35.4
                    %Other
      sales
                    
                    
                    33,841
                    
                    
                    
                    8,913
                    
                    
                    
                    7.4
                    %
                    
                    
                    0.8
                    %Total
      cost of sales
                    
                    $
                    57,829
                    
                    
                    $
                    378,882
                    
                    
                    
                    12.7
                    %
                    
                    
                    36.2
                    %Gross
      profit
                    
                    $
                    398,993
                    
                    
                    $
                    666,567
                    
                    
                    
                    87.3
                    %
                    
                    
                    63.8
                    %





The
Company's gross profit was 87% and 64% for the three months ended June 30, 2010
and 2009, respectively. This increase is primarily due to a decrease in system
installations completed during the current period compared to the larger system
installation completed a year ago. Generally, system sales have a lower gross
profit compared to our license and maintenance fee revenue, which has very
little associated costs.





Selling, General and
Administrative Expenses





For the
three months ended June 30, 2010, selling, general and administrative expenses
were $611,738 compared to $646,853 for the same period in 2009.  Our
most significant changes in operating expenses from the two three-month interim
periods related to insurance, sales and marketing, research and development,
professional fees, stock compensation and bad debt expense. A discussion of the
various components of our operating expenses for the three months ended June 30,
2010 and 2009 appears below:




Sales and
Marketing. Our expenses related to sales and marketing efforts increased
significantly for the three months ended June 30, 2010, to $83,499 compared to
$41,329 for the same period in 2009 primarily due to increased marketing efforts
(trade shows, etc.) related to the sale of our systems.





Research
and Development.  Our research and development costs increased
significantly for the three months ended June 30, 2010, to $41,559 compared to
$20,849 for the same period in 2009 primarily due to our HTML programming
effort.





Professional
Fees. Professional fees for accounting services, legal services and product
support for the three months ended June 30, 2010 aggregated to $65,052 versus
$18,800 for the same period in 2009 primarily due to increase in accounting
services and investor relation services.  We expect professional fees
to increase throughout the remainder of 2010 as we concentrate on our
Sarbanes-Oxley compliance efforts. Although with the exemption from 404(b)
compliance, they should not increase as drastically as anticipated since we will
not be subjected to an audit of our internal controls by our outside
auditors.





Stock
Compensation.  Expense related to stock compensation for the three
months ended June 30, 2010 compared to the same period in 2009 was $47,374 and
$51,632 respectively.  For 2010, the Company issued shares for board
of director service while in 2009 the Company issued shares through the employee
bonus program.




Bad
Debt.  Bad debt expense for the three months ended June 30, 2010 was
$0 compared to $138,500 for the same period in 2009.  This decrease is
due to the economic slowdown and the resulting negative impacts to the gaming
industry in 2009, which is the only industry served by the Company’s products
and services.





Insurance.
Our insurance costs increased for the three months ended June 30, 2010 to
$25,548 compared to $15,512 for the same period in 2009.  Included are
several new insurances for 2010 – dental, directors & officers, employment
practices and fiduciary liability. Our health insurance and worker compensation
insurance premiums also increased for 2010.




12




Interest
Income





For the
three months ended June 30, 2010, interest income was $13,338 compared to
$71,702 for 2009.  This decrease is primarily related to the $58,919
of interest income accrued on our $250,000 note receivable in 2009. The note was
written off at September 30, 2009.





Tax
Provision





The
provision for income taxes (benefit) for the three months ended June 30, 2010
was ($73,424), which was calculated at a (36%) effective rate, compared to the
tax provision of $31,066 for the same period in 2009, which was calculated at a
34% effective rate.





Net Income
(Loss)





Net
income (loss) before taxes for the three months ended June 30, 2010, was
($199,407) compared to $91,416 for same period in 2009. Net income (loss) for
the three months ended June 30, 2010 ($125,983) was down from $60,350 for the
same period in 2009. The decrease is primarily due to a lack of completed
installations during the three months ended June 30, 2010. The basic
earnings (loss) per share were ($0.030) compared to $0.014 for the three months
ended June 30, 2010 and 2009, respectively.





Results
of Operations - Six Months Ended June 30, 2010 Compared to Six Months Ended June
30, 2009





During
the six months ended June 30, 2010, income (loss) from operations was ($353,288)
compared to $597,016 for the six months ended June 30, 2009. The major
components of revenues, cost of sales and selling, general and administrative
expenses are discussed below.





Revenues





For the
six months ended June 30, 2010, revenues totaled $824,987 compared to $2,190,295
for 2009.  The following table summarizes our revenues for the six
months ended June 30, 2010 and 2009, respectively:




Six Months Ended June 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009(percent
      of revenues)System
      sales
                            
                            $
                            223,301
                            
                            
                            $
                            1,600,665
                            
                            
                            
                            27.1
                            %
                            
                            
                            73.1
                            %License
      and maintenance fees
                            
                            
                            483,556
                            
                            
                            
                            521,398
                            
                            
                            
                            58.6
                            %
                            
                            
                            23.8
                            %Other
      sales
                            
                            
                            118,130
                            
                            
                            
                            68,232
                            
                            
                            
                            14.3
                            %
                            
                            
                            3.1
                            %Total
      revenues
                            
                            $
                            824,987
                            
                            
                            $
                            2,190,295
                            
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %





During
the six months ended June 30, 2010, we generated less systems sales revenue than
in 2009 because no large system installations were completed in 2010 as was the
case in 2009.  Revenues from license and maintenance fees decreased
for 2010 mainly due to a one-time ticket license fees of $61,000 in
2009.  Lastly, other sales, which include sales of printers, kiosk
software, mailing services, and consulting services increased over 2009 as we
began those sales in the 2nd quarter
of 2009.





Cost of
Sales





Cost of
sales for the six months ended June 30, 2010 decreased to $89,364 from $514,479
for 2009.





Six Months Ended June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(percent
      of revenues)System
      sales
                      
                      $
                      40,673
                      
                      
                      $
                      505,680
                      
                      
                      
                      4.9
                      %
                      
                      
                      23.1
                      %Other
      sales
                      
                      
                      48,691
                      
                      
                      
                      8,799
                      
                      
                      
                      5.9
                      %
                      
                      
                      0.4
                      %Total
      cost of sales
                      
                      $
                      89,364
                      
                      
                      $
                      514,479
                      
                      
                      
                      10.8
                      %
                      
                      
                      23.5
                      %Gross
      profit
                      
                      $
                      735,623
                      
                      
                      $
                      1,675,816
                      
                      
                      
                      89.2
                      %
                      
                      
                      76.5
                      %





The
Company's gross profit was 89% and 77% for the six months ended June 30, 2010
and 2009, respectively. This increase is primarily due to a decrease in system
installations completed during the current year compared to the larger system
installations completed a year ago. Generally, system sales have a lower gross
profit compared to our license and maintenance fee revenue, which has very
little associated costs.





Selling, General and
Administrative Expenses





Selling,
general and administrative expenses for the six months ended June 30, 2010 were
$1,088,911 compared to $1,078,800 for, 2009.  Our most significant
changes in operating expenses from the two interim periods related to insurance,
sales and marketing, professional fees, stock compensation and bad debt. A
discussion of the various components of our operating expenses for the six
months ended June 30, 2010 appears below.


13





Sales and
Marketing. For the six months ended June 30, 2010, our expenses related to sales
and marketing efforts increased significantly to $109,430 from $61,703 for 2009
due to increased marketing efforts (trade shows, etc.) related to the sale of
our systems.





Professional
Fees. For the six months ended June 30, 2010, our professional fees for
accounting services, legal services and product support aggregated to $150,326
versus $67,358 for 2009. The increase in professional fees related to an
increase for accounting related services.  We expect professional fees
to increase throughout the remainder of 2010 as we concentrate on our
Sarbanes-Oxley compliance efforts. And although with the exemption from 404(b)
compliance, they should not increase as drastically as anticipated since we will
not be subjected to an audit of our internal controls by our outside auditors;
the Company has, as noted in Item 4T below, hired an outside internal control
consulting firm to help with our internal control processes.





Insurance.
For the six months ended June 30, 2010 our insurance costs increased to $52,833
from $31,376 for 2009.  Included are several new insurances for 2010 –
dental, directors & officers, employment practices and fiduciary liability.
Our health insurance and worker compensation insurance premiums also increased
for 2010





Stock
Compensation.  Expense related to stock compensation for the six
months ended June 30, 2010 compared to the six months ended June 30, 2010 was
$47,374 and $51,632 respectively. For 2010, the Company issued shares for board
of director service while in 2009 the Company issued shares through the employee
bonus program.




Bad
Debt.  Bad debt expense for the six months ended June 30, 2010 was
$126 compared to $138,500 for the six months ended June 30,
2010.  This decrease is due to the 2009 economic slowdown and the
resulting negative impacts to the gaming industry, which is the only industry
served by the Company’s products and services.




Interest
Income





For the
six months ended June 30, 2010, interest income was $35,470 compared to $85,752
for 2009.  This decrease is primarily related to the $58,919 of
interest income accrued on our $250,000 note receivable in 2009. The note was
written off at September 30, 2009.





Income Tax
Expense





For the
six-month period ended June 30, 2010, our income tax benefit was ($118,415)
compared to income tax expense of $261,550 for 2009, which resulted because our
loss before taxes for the 2010 period was ($317,818) compared to income before
taxes for the 2009 period of $682,768.  The overall effective rate for
2010 was (37%) compared to 38% for 2009.





Net Income
(Loss)





For the
six-month period ended June 30, 2010, net loss before taxes was ($317,818)
compared to net income before taxes of $682,768 for 2009. Net loss was
($199,403) for the six months ended June 30, 2010 compared to net income of
$421,218 for 2009. The decrease in net income is due to fewer system
installations generating revenue in 2010.  The basic earnings (loss)
per share was ($0.048) compared to $0.101 for the six months ended June 30, 2010
and 2009, respectively.





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 has four Casino Trac Systems in its backlog; two were in process at June
30, 2010.





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.




Liquidity
and Capital Resources





Summary
cash flow data is as follows:


Six Months EndedJune
      30,2010
                    
                    
                    2009Cash
      flows provided (used) by :Operating
      activities
                    
                    $
                    153,480
                    
                    
                    $
                    151,614Investing
      activities
                    
                    
                    (33,812
                    )
                    
                    
                    (250,000
                    )Financing
      activities
                    
                    
                    -
                    
                    
                    
                    (942
                    )Net
      increase (decrease) in cash
                    
                    
                    119,668
                    
                    
                    
                    (99,328
                    )Cash,
      beginning of period
                    
                    
                    1,320,946
                    
                    
                    
                    1,212,953Cash,
      end of period
                    
                    $
                    1,440,614
                    
                    
                    $
                    1,113,625




14





At June
30, 2010, we had cash of $1,440,614 compared to cash of $1,113,625 on June 30,
2009. The increase results mainly from an increase in accounts receivable
collections.  Changes in cash flows provided by operating activities
related primarily to deferred income taxes, stock compensation expense, and
changes in operating assets and liabilities, including accounts receivable,
interest receivable, inventory, income taxes receivable, deferred system sales
costs, accrued payroll and related withholding liabilities and deferred
revenue.  Changes in cash flows from investing activities relate to
vehicle and equipment purchases in 2010 and a $250,000 loan to one of our
customers in 2009.





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 and the resulting license and
maintenance fees from existing systems. We anticipate the ability to manage
expenses and cash flow so monthly obligations will be satisfied by cash flow
from operations. We believe the Company has adequate cash to meet its
obligations and continue operations for both existing and future customers as
well as ongoing sales efforts and product development.





Off-Balance
Sheet Arrangements




The
Company had no off-balance sheet arrangements as of June 30, 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.





Evaluation of Disclosure
Controls and Procedures





Our Chief
Executive Officer/Principal Financial Officer (CEO/PFO) 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/PFO 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/PFO, 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 June 30, 2010, CEO/PFO 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:





The
Company continues to work on and enhance its internal control processes and
procedures put in place during last quarter and 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 the KMAS CPA
expertise for the six months ended June 30, 2010.





In May
2010, the Company engaged Milo Belle Consultants LLC (MBC), who is providing
internal audit control personnel for testing assistance in streamlining
processes and procedures. Testing of our processes and procedures began July 26,
2010.





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 June 30, 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). However, we believe that we have mitigated those weaknesses with the
steps outlined above – our actual testing of our processes and procedures by an
independent party began on July 26, 2010.


15





PART
II. OTHER INFORMATION





Item 1. Legal
Proceedings




None.





Item 1A. Risk
Factors





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.


16


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:
      August 16, 2010
              Table
      Trac, Inc.(Registrant)By:
              /s/ Chad HoehneChad
      HoehnePresident,
      Chief Executive Officer and Principal Financial
  Officer




17