EDGAR 10-K Filing

Company CIK: 1090396
Filing Year: 2024
Filename: 1090396_10-K_2024_0001437749-24-010085.json

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ITEM 1. BUSINESS
Item 1. Business.
GENERAL
Table Trac, Inc. (the “Company”, “Table Trac”, "we" or "our") is a Nevada corporation, formed on June 27, 1995, with principal offices in Minnetonka, Minnesota. The Company’s corporate website address is www.casinotrac.com. The Company makes available free of charge, on or through the Company’s website https://www.casinotrac.com/investors/, its annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission.
The Company has developed and patented (U.S. patent # 5,957,776) a proprietary information and management system (called our “Table Trac” system) that automates and monitors the operations of casino table game operations. In addition to its table games management system, Table Trac has been adding functionality to related casino system modules for guest rewards and loyalty club, marketing analysis, guest service, promotions, administration / management, vault / cage management and audit / accounting tasks. Aggregated together, all of these modules have become the “Casino Trac” product, a full-featured Casino Management System (CMS) offering what we believe to be a powerful combination of value, efficiency and reliability for casinos seeking to add or upgrade their casino management systems.
The Company sells and leases systems and technical support to casinos. The open architecture of the Table Trac system is designed to provide operators with a scalable and flexible system that can interconnect and operate with most third-party software or hardware. Key products and services include modules designed to drive player tracking programs and kiosk promotions, as well as vault and cage controls. The Company’s systems are designed to meet strict auditing, accounting and regulatory requirements applicable to the gaming industry. The Company has developed a patented, real-time system that automates and monitors the operations of casino gaming tables. The Company continues to increase its market share by expanding its product offerings to include new system features, and ancillary products.
TABLE TRAC INSTALLATIONS
Table Trac currently has casino management systems, table games management systems, DataTrac, KioskTrac and ancillary products installed with on-going support and maintenance contracts with 115 casino operators in over 300 casinos worldwide in the U.S., Australia, Caribbean, Central and South America.
AVAILABILITY OF TABLE TRAC
Table Trac systems are available for purchase from the Company by any legal gambling casino in the U.S. and legal casinos operating outside the USA. Table Trac’s systems are purchased, installed and sold with a monthly license and maintenance contract whereby Table Trac performs required maintenance on its systems to assure trouble-free operations.
MANUFACTURING CAPABILITIES
The Company designs and manufactures its own slot machine gaming machine interface boards using the services of third-party electronics assembly firms. The Company has relationships with a host of third-party electronic and gaming equipment manufacturers that can be readily available for hire, as needed. The Company believes it has an adequate supply of component parts and raw materials used in manufacturing its casino management systems.
TRADEMARKS AND PATENTS
The Company has a registered trademark (“TABLE TRAC”), which was originally issued on September 7, 2000.
In August of 2022 and September of 2020, the Company was granted Patents (U.S. patent #11,417,169) on its April 2017 application 16/984755 “SYSTEMS AND METHODS OF FACILITATING INTERACTIONS BETWEEN AN ELECTRONIC GAMING MACHINE, GAME PLAYER, AND A CONTROL SYSTEM” and (U.S. patent #10,769,885 B2) on its April 2017 application 15/946,227 “SYSTEMS AND METHODS OF FACILITATING INTERACTIONS BETWEEN AN ELECTRONIC GAMING MACHINE, GAME PLAYER, AND A CONTROL SYSTEM”.
In June of 2021, the Company was granted a Patent (U.S. patent #11,024,116) on its May 2020 application 16/884731 “DYNAMIC AUTOMATED SOCIAL DISTANCING ON ELECTRONIC GAMING MACHINES”. In addition, the Company renewed its Trademark claim for “Table Trac” which was granted July 31, 2018 Reg. No. 5,529,779 and made a new Trademark claim on its “CasinoTrac” brand.
HUMAN CAPITAL
As of December 31, 2023, the Company had 37 full-time equivalents with an employee headcount of 37.
COMPETITION
There is intense competition in the gaming management and gaming products industry which is characterized by dynamic customer demand and rapid technological advances. Today, there are many systems providers in the U.S. and abroad offering casinos and gaming operators “total solution” casino management and table games management systems. As a result, the Company must continually adapt its approach and its products to meet this demand and match technological advances and, if it cannot do so, the Company’s business, results of operations or financial condition may be adversely impacted.
GOVERNMENT REGULATIONS
The gaming and lottery industries are generally subject to extensive and evolving regulation that customarily includes some form of licensing or regulatory screening of suppliers, manufacturers and distributors and their applicable affiliates, their major shareholders, officers, directors and key employees. In addition, certain of our gaming products and technologies must be certified or approved in certain jurisdictions in which we operate. Regulators review many facets of an applicant or holder of a license, including its financial stability, integrity and business experience. Any failure to receive a license or the loss of a license that we currently hold could have a material adverse effect on us or on our results of operations, cash flow or financial condition.
While we believe that we are in compliance with all material gaming and lottery laws and regulatory requirements applicable to us, we cannot assure that our activities or the activities of our customers will not become the subject of any regulatory or law enforcement proceeding or that any such proceeding would not have a material adverse impact on us or our results of operations, cash flow or financial condition.
RECENT DEVELOPMENTS
The Company signed thirteen new customer contracts in 2023 and expanded the Company’s presence in Alabama, California, Oklahoma, Nevada, Texas, West Virginia, Wisconsin, Costa Rica, Panama and Australia. At the end of 2023, the Company had casino management systems, table games management systems and ancillary products installed with on-going support and maintenance contracts with 115 casino operators in over 300 casinos worldwide.
At the Company’s annual shareholder meeting in May 2023, the Company’s shareholders re-elected Thomas Mertens and William Martinez as its independent board members; along with one of the Company’s current officers, Chad Hoehne, Table Trac’s, President, Chief Technical Officer and its Chief Executive Officer. The board elected Mr. Hoehne as Chairman of the Board, while Mr. Mertens was elected to serve as chairman of the audit and compensation committees. Mr. Martinez was elected to serve as chairman of the compliance committee.
During 2023, the Company participated in several key industry trade shows and conferences, including, the Indian Gaming Association Trade Show and Conference, the Oklahoma Indian Gaming Association Trade Show and Conference, and Global Gaming Expo (G2E), the industry’s premier event. The Company holds licenses for the following states: California, Iowa, Louisiana, Maryland, Minnesota, Mississippi, Nevada, West Virginia and Wisconsin which will allow the Company to pursue sales in these territories.
In February 2020, the Company obtained a $500,000 line of credit with a lender. The Company has renewed this line of credit through February 2025.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Risk Factors Relating to Our Business
The Company’s business is subject to unpredictable order flows, which might cause its results to fluctuate significantly from period to period.
Individual system sales can have a long sales cycle, resulting in unpredictable revenue from such sales. Other revenue is derived from expansion opportunities at existing customer facilities and, although existing customers have in the past engaged us to provide expanded services and systems, there is no contractual agreement to provide us with any minimum volume or the ability to expand our services and systems. For these reasons, the Company can experience unpredictable order flows for system expansions.
Our growth and ability to access capital markets are subject to a number of economic risks.
Financial markets worldwide can experience disruption, including, among other things, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations. Financial market conditions affect our business in a number of ways. For example, the tightening of credit in financial markets adversely affects the ability of our customers to obtain financing for purchases and operations and could result in a decrease in or cancellation of lease and sale orders for our products and services. In addition, poor financial market conditions could also affect our ability to raise funds in the capital and lending markets.
Unfavorable economic, social and political conditions, public health crises and other events beyond our control may have a negative effect on our business, results of operations and financial conditions.
If fewer players visit our customers’ facilities or, if such players have less disposable income to spend at our customers’ facilities or if our customers are unable to make timely payments to us or to devote resources to purchasing and leasing our products are/or forced to close their facilities, there could be an adverse effect on our business, results of operations and financial conditions. Such risks that may affect our customers and suppliers and consumers behavior include, but are not limited to:
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adverse economic and market conditions in gaming markets, including recession, inflation, economic slowdown, high rates of unemployment, higher interest rates, higher airfares, higher energy and gasoline prices and rising food and healthcare costs;
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global geopolitical events such as terrorist attacks and other acts of war or hostility, including the war in Ukraine;
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global health concerns, including pandemics, epidemics, or outbreaks of infectious or contagious diseases such as COVID-19;
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natural disasters such as major fires, floods, hurricanes and earthquakes; and
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inability of our customers to operate due to regulatory disputes, or inability to meet their debt obligations.
We have agreements with casinos in Native American and foreign jurisdictions, which may subject us to sovereign immunity risks.
We may have a difficult time enforcing our contracts with Central America, South America, the Caribbean and Native American tribes and the casinos they operate. These customers may enjoy significant immunity or impracticality from suit. For instance, in order to sue a Native American tribe (or an agency or instrumentality of a Native American tribe); the Native American tribe must have effectively waived its sovereign immunity with respect to the matter in dispute. While we always seek the waivers of immunity initially, they may not always become a part of our final contracts with Native American tribes. Without a waiver, limited or otherwise, of the tribe’s sovereign immunity, our ordinary rights and remedies (such as our right to enter Native American lands to retrieve our property in the event of a breach of contract by the tribal party to that contract, or our right to enforce any outside judgment against such tribal party) will not likely be enforceable.
Our business may suffer if our products become obsolete or demand for them decreases, including without limitation, as a result of our inability to develop innovative products or respond to technological changes.
We derive substantially all of our revenues from leasing, licensing, selling and other financing arrangements of products within the gaming industry. Consistent demand for and satisfaction with our products by our customers is critical to our financial condition and future success. Problems, issues, defects or dissatisfaction with our products could cause us to lose customers or revenues from leases with minimal notices. Additionally, our success depends on our ability to keep pace with technological advances in our industry and to adapt and improve our products in response to evolving customer needs and industry trends. If demand for our products weakens due to lack of market acceptance, technological change, increased competition, regulatory changes, or other factors, it could have a material adverse effect on our business, results of operations or financial condition.
Any disruption in our manufacturing processes, any significant increase in manufacturing costs or any inability to manufacture our products to meet demand could adversely affect our business and operating results.
We create our software and many related products ourselves. Should any of these manufacturing processes be disrupted we may be unable to timely remedy such disruption. In such a case, we may be unable to produce a sufficient quantity of our products to meet the demand of our customers. In addition, manufacturing costs may increase significantly and we may not be able to successfully recover these cost increases with increased pricing to our customers. Either case could have an adverse impact on our business, results of operations or financial condition.
We operate in a very competitive business environment and if we do not adapt our approach and our products to meet this competitive environment, our business, results of operations or financial condition could be adversely impacted.
There is intense competition in the gaming management and gaming products industry which is characterized by dynamic customer demand and rapid technological advances. Today, there are many systems providers in the U.S. and abroad offering casinos and gaming operators “total solution” casino management and table games management systems. As a result, we must continually adapt our approach and our products to meet this demand and match technological advances and if we cannot do so, our business results of operations or financial condition may be adversely impacted. Conversely, the development of new competitive products or the enhancement of existing competitive products in any market in which we operate could have an adverse impact on our business, results of operations or financial condition. Several of our competitors are larger, have greater name recognition, longer operating histories, larger marketing budgets and significantly greater resources than we do, and are able to devote greater resources to the development, promotion and sale of their products and services. If we are unable to remain dynamic in the face of changes in the market, it could have a material adverse effect on our business, results of operations or financial condition.
We are dependent on the success of our customers and their decisions to upgrade or replace their current casino management systems.
Our success depends on our customers leasing or buying our products to expand their existing operations, replace existing gaming management products or equip a new casino. Any slowdown in the replacement cycle on the part of our customers may negatively impact our operations.
The opening of new casinos, expansion of existing casinos and replacement of existing gaming management systems in existing casinos fluctuate with demand, economic conditions, regulatory approvals and the availability of financing and have been negatively affected by the recent COVID-19 pandemic. While the negative effects of the COVID-19 pandemic have abated, there is still potential for negative effects of future pandemics or contagious disease outbreaks. In addition, the expansion of gaming into new jurisdictions can be a protracted process, usually requiring a public referendum and/or legislative action before establishing or expanding gaming. Any of these factors could delay, restrict or prohibit the expansion of our business and negatively impact our results of operations, cash flows and financial condition.
If our products contain defects, our reputation could be harmed and our operating results and financial results could be adversely affected.
Some of our products and our anticipated future products are complex and may contain defects that we do not detect. The occurrence of defects or malfunctions in one or more of our products could result in financial losses for our customers and in turn the termination of leases, cancellation of orders, product returns and diversion of our resources, and could additionally result in lost revenues, civil damages and regulatory penalties, as well as possible rescission of product approvals. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and loss of placements.
We may not be able to attract, retain, or motivate the management or employees necessary to remain competitive in our industry.
The competition for qualified personnel in the gaming industry is intense. Our future success depends on the retention and continued contributions of our key management, finance, marketing, development, technical and staff personnel, many of whom would be difficult or impossible to replace. Our success is also tied to our ability to recruit additional key personnel in the future. We may not be able to retain our current personnel or recruit any additional key personnel required. The loss of services of any of our personnel or our inability to recruit additional necessary key personnel could have a material adverse effect on our business, financial condition, results of operations and prospects.
Any disruption in our software and related information technology systems due to a cyber incident could adversely affect our business, operating results and financial conditions.
We rely on our software and related information technology systems to operate our business. We are also exposed to the risk of cyber incidents in the ordinary course of business, to date, we have not experienced a cyber breach or incident. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional actions or events. We have information technology security initiatives and recovery plans in place to mitigate our risk to these vulnerabilities, but these measures may not be adequate, or implemented properly, or executed timely to ensure that our operations are not disrupted. Cyber-attacks are becoming increasingly more difficult to anticipate, prevent and detect due to their rapidly evolving nature and, as a result, the technology we use to protect our systems from being breached or compromised could become outdated due to advances in computer capabilities or other technological developments. Potential risks associated with a material cyber incident include loss of intellectual property, impairment of our ability to conduct our operations, disruption of our customers’ operations, damage to our reputation and our relationships with existing or potential customers, litigation, significant fines, penalties and liability, and increased cyber security protection and remediation costs. Such consequences could adversely affect our business, results of operations or financial condition.
If we are unable to maintain and implement effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our reported financial information and the market price of our common stock may be negatively affected.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. We will need to maintain and enhance these processes and controls as we grow, and we may require additional management and staff resources to do so. Additionally, even if we conclude our internal controls are effective for a given period, we may in the future identify one or more material weaknesses in our internal controls, in which case our management will be unable to conclude that our internal control over financial reporting is effective.
If we are unable to conclude that our internal control over financial reporting is effective, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our common stock to decline. Any failure of our internal control over financial reporting could have a material adverse effect on our reported operating results and harm our reputation. Internal control deficiencies could also result in a restatement of our financial results.
Risk Factors Relating to Intellectual Property
We are dependent on our intellectual property and we may be unable to protect our intellectual property from infringement, or misappropriation.
The gaming industry and the software industry are in general characterized by the use of various forms of intellectual property. We are dependent upon patented technologies, trademarked brands and proprietary information for our business. We endeavor to protect our intellectual property rights and our products through a combination of patent, trademark, trade dress, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. We cannot, however, be certain that any trademark, copyright, issued patent or other types of intellectual property will provide competitive advantages for us. Furthermore, we cannot be certain that our efforts to protect our intellectual property rights or products will be successful.
Our existing patents may be found invalid or unenforceable and any current or future patent applications may not be approved.
We have patents and we utilize patent protection in the United States relating to certain processes and products. We cannot assure you that all of our existing patents would be found valid or enforceable or will continue to be valid or enforceable, or that any pending patent applications will be approved. Our competitors may in the future challenge the validity or enforceability of certain of our patents. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Competitors may infringe our patents and we may not have adequate resources or there may be other reasons we do not enforce our patents. Our patents may not adequately cover a competitor’s products in such a way as to provide us with a competitive advantage. Furthermore, the future interpretation by courts of United States laws regarding the validity of patents could negatively affect the validity or enforceability of our current or future patents.
Our efforts to protect our unpatented proprietary technology may not be successful.
We rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and other collaborators to enter into confidentiality agreements. We cannot assure you that these agreements are fully enforceable or will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Furthermore, we may not have adequate resources to enforce these agreements in a meaningful way. If we are unable to maintain the proprietary nature of our technologies or enforce the agreements, we use to protect those technologies, it could have a material adverse effect on our business.
We may not be able to establish or maintain our trademarks.
We rely on our trademarks, trade names, trade dress, copyrights and brand names to distinguish our products from the products of our competitors. We have registered or applied to register many of these trademarks. Our trademarks may not remain valid or enforceable. We may not be able to build and maintain goodwill in our trademarks or other intellectual property. Third parties may oppose our trademark applications or challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources towards advertising and marketing new brands. Further, our competitors may infringe our trademarks or other intellectual property and we may not have adequate resources or there may be other reasons we do not enforce our trademarks or other types of intellectual property.
We may not be able to adequately protect our foreign intellectual property rights.
Because of the differences in foreign patent, trademark, trade dress, copyright and other laws concerning proprietary rights, our intellectual property frequently does not receive the same degree of protection in foreign countries as it would in the United States. Our failure to possess, obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
The intellectual property rights of others may limit our ability to make and sell our products.
The gaming industry is characterized by the rapid development of new technology which requires us to continuously introduce new products using these technologies and innovations, as well as to expand into new markets that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate new technologies and to expand into markets that may be created by new technologies. However, to the extent technologies are protected by the intellectual property rights of others, including our competitors, we may be prevented from introducing products based on these technologies or expanding into markets created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies, our financial condition, operating results or prospects may be harmed.
We have many competitors in both the United States and foreign countries, some of which have substantially greater resources and have made substantial investments in competing technologies. Some competitors have applied for and obtained and may in the future apply for and obtain, patents that may prevent, limit or otherwise interfere with our ability to make and sell our products. Any royalty, licensing or settlement agreements, if required, may not be available to us on acceptable terms or at all.
Significant litigation regarding intellectual property rights exists in our industry.
There is a significant amount of litigation that occurs in the gaming and technology industry. A successful challenge to or invalidation of one of our patents or trademarks, a successful claim of infringement by a third party against us, our products, or one of our licensees in connection with the use of our technology, or an unsuccessful claim of infringement made by us against a third party or its products, could adversely affect our business or cause us financial harm. Any such litigation - whether with or without merit - could:
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be expensive and time consuming to defend;
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cause one or more of our patents to be ruled or rendered unenforceable or invalid;
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cause us to cease making, licensing or using products that incorporate the challenged intellectual property;
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require us to redesign, reengineer or rebrand our products;
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divert management’s attention and resources;
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require us to pay significant amounts in damages;
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require us to enter into royalty, licensing or settlement agreements in order to obtain the right to use a necessary product, process or component;
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limit our ability to bring new products to the market in the future; or
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cause us, by way of injunction to remove products on lease and/or stop selling or leasing new products.
Risks Factors Relating to Regulation
The gaming industry is highly regulated and we must adhere to various regulations and maintain applicable licenses to continue our operations. Failure to abide by regulations or maintain applicable licenses could be disruptive to our business and could adversely affect our operations.
We and our products are subject to extensive regulation under federal, state, local and foreign laws, rules and regulations of the jurisdictions in which we do business and our products are used. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. Licenses, approvals or findings of suitability may be revoked, suspended or conditioned. In sum, we may not be able to obtain or maintain all necessary registrations, licenses, permits or approvals. The licensing process may result in delays or adversely affect our operations and our ability to maintain key personnel, and our efforts to comply with any new licensing regulations will increase our costs.
We may be unable to obtain licenses in new jurisdictions where our customers operate.
We will become subject to regulation in any jurisdiction where our customers operate in the future. To expand into any such jurisdiction, we may need to be licensed, or obtain approvals of our products or services. If we do not receive, or receive a license, or our license is revoked in a particular jurisdiction for our products, we would not be able to sell or place our products in that jurisdiction. Any such outcome could materially and adversely affect our results of operations and any growth plans for our business.
Legislative and regulatory changes could negatively affect our business and the business of our customers.
Legislative and regulatory changes may affect demand for or place limitations on the placement of our products. Such changes could affect us in a variety of ways. Legislation or regulation may introduce limitations on our products or opportunities for the use of our products and could foster competitive products or solutions at our or our customers’ expense. Our business will likely also suffer if our products became obsolete due to changes in laws or the regulatory framework.
Legislative or regulatory changes negatively impacting the gaming industry as a whole or our customers in particular could also decrease the demand for our products. Opposition to gaming could result in restrictions or even prohibitions of gaming operations in any jurisdiction or could result in increased taxes on gaming revenues. Tax matters, including changes in state, federal or other tax legislation or assessments by tax authorities could have a negative impact on our business. A reduction in growth of the gaming industry or in the number of gaming jurisdictions or delays in the opening of new or expanded casinos could reduce demand for our products. Changes in current or future laws or regulations or future judicial intervention in any particular jurisdiction may have a material adverse effect on our existing and proposed foreign and domestic operations. Any such adverse change in the legislative or regulatory environment could have a material adverse effect on our business, results of operations or financial condition.
Risk Factors Related to Our Common Stock
The limited liquidity for our common stock could affect your ability to sell your shares at a satisfactory price.
Trading of our common stock is conducted on the over-the-counter markets-specifically on the OTCQX, the top-tier quotation marketplace administered by OTC Markets. Our common stock is relatively illiquid. A more active public market for our common stock may not develop, which could adversely affect the trading price and liquidity of our common stock. Moreover, a thin trading market for our stock could cause the market price for our common stock to fluctuate significantly more than the stock market as a whole. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.
The payment and amount of future dividends is subject to Board of Director discretion and to various risks and uncertainties.
The payment and amount of future quarterly dividends is within the discretion of the Board of Directors and will depend on factors the Board deems relevant at each time it considers declaring a dividend. These factors include, but are not limited to: available cash; management’s expectations regarding future performance and free cash flow; alternative uses of cash to fund capital expenditures; and the effect of various risks and uncertainties described in this “Risk Factors” section.
There is currently little trading volume in our common stock, which may make it difficult to sell shares of our common stock.
In general, there has been very little trading activity in our common stock. The relatively low trading volume will likely make it difficult for our stockholders to sell their shares as and when they choose. Furthermore, low trading volumes generally depress market prices. As a result, you may not always be able to resell shares of our common stock publicly at or near their original purchase price or at any price.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties.
The Company has a lease on corporate office space in Minnetonka, Minnesota which expires on June 30, 2025, and includes over 4,400 square feet of office and warehouse space. The monthly rent payment is approximately $4,200 with periodic escalators to approximately $4,340 per month, excluding operating expenses.
Additionally, the Company has leases two additional offices space. One location is in Oklahoma City, Oklahoma which expires on August 31, 2025. The monthly rent payment is approximately $1,200 excluding operating expenses. The other is in Las Vegas, Nevada which expires on August 31, 2026. The monthly rent payment is approximately $4,500 with periodic escalators to approximately $5,000 per month, excluding operating expenses.
The Company believes these spaces are adequate for its current business needs.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
None.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information: The Company’s common stock is quoted for trading on the OTCQX over-the-counter quotation service under the symbol “TBTC.” The OTCQX is a top-tier quotation marketplace administered by OTC Markets. Any quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions.
Holders: As of March 29, 2024, the Company had outstanding 4,634,865 shares of common stock held by approximately 550 holders of record.
Dividends: Dividends totaling $0.03 were declared and paid in 2023. A $0.02 dividend was declared and paid in 2022. The Company may continue to pay dividends in the future.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved].
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The following discussion should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this filing.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this report are “forward-looking statements,” as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “believe,” “anticipate,” “intend,” “estimate,” “expect” and similar expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings “Description of Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are found in other parts of this report as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other important factors, including those described in this report under Part I, Item 1A “Risk Factors” as well as in our other SEC filings. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.
Industry data and other statistical information used in this report are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.
Due to the length of the pandemic caused by the coronavirus in the U.S. and globally, our customers have been and may continue to be impacted. The impact of the coronavirus on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, the success of actions taken to contain or treat the coronavirus, and reactions by consumers, companies, governmental entities and capital markets. It is possible we will have collection issues or customer concessions as a result.
BACKLOG
The Company’s backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.
The Company had three projects in its backlog as of December 31, 2023. The Company had six projects in its backlog at December 31, 2022. As of the filing date of this report, the Company has signed one new contract with a customer in 2024.
The Company is currently serving gaming establishments in seventeen states in the U.S., as well as countries in Central and South America, the Caribbean and Australia. The Company aims to pursue further opportunities and strategic partnerships.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company has adequate cash to meet its obligations and continue operations for both existing customer contracts and ongoing product development for at least the next twelve months from the date of this filing. The Company’s primary sources of liquidity are cash, receivables, and future cash generated from operations.
In addition, the Company has a $500,000 line of credit with a lender. As of December 31, 2023, no amount was outstanding. The line of credit expires on February 1, 2025.
The Company’s cash position at December 31, 2023 was $3,489,771, a decrease of $1,297,152 from $4,786,923 at December 31, 2022. This decrease was primarily the result of the Company investing in a certificate of deposit.
Net cash flows provided in operating activities during the year ended December 31, 2023 was $394,940 compared to net cash used by operating activities of $63,878 for the same period in 2022. This increase of $458,818 was primarily due to a decrease in accounts receivable and a decrease in customer deposits.
Net cash used in investing activities was $1,556,113 during the year ended December 31, 2023, compared to $0 for the same period in 2022. This increase was a result of the Company investing in a certificate of deposit and the capital expenditures related to the opening of the Las Vegas office.
For the year ending December 31, 2023 net cash used in financing activities was $135,979, which was primarily the payment of dividends. For the year ended December 31, 2022 net cash used was $95,112.
On December 31, 2023, total stockholders’ equity was $9,899,565 compared to $8,275,692 in 2022, an increase of $1,623,873 or 19.6%, which was primarily due to 2023 net income.
The Company did not have any off-balance sheet arrangements as of December 31, 2023.
RESULTS OF OPERATIONS, YEAR ENDED December 31, 2023 COMPARED TO YEAR ENDED December 31, 2022
The most significant events that affected the 2023 results of operations were the Company’s installation of seventeen casino management systems, expanded one existing customer and our exclusive supplier installed our system in multiple new locations in Australia.
Revenue
See Note 1: Revenue, disaggregated revenues by major product line table
Total revenues decreased $1,569,733, a 14.2% decrease, primarily due to a decrease in system sales. System sales decreased $2,915,129, a 47% decrease, due to a decrease in the number and size of site installations in 2023 compared to 2022. Maintenance revenue increased $1,477,491, a 42% increase, due to the increase in in our customer base from 2022 to 2023 and the addition of maintenance coverage by one of our larger customers. Service and other revenue, which includes DataTrac, promotional kiosk software sales and licensing agreements increased $96,790, or 9%, as a result of an increase in DataTrac services and promotional kiosk products being sold.
During 2023, the Company delivered a total of thirteen systems and expanded one system in the United States. Our exclusive supplier installed our system in multiple new locations in Australia. During 2022, the Company delivered seventeen systems. As of December 31, 2023 and 2022, approximately $2,392,560 and $2,781,800 for systems installed under contract have not been recorded as revenue or included in accounts receivable based on the collectability assessment performed by the Company.
Cost of Sales and Gross Profit
Cost of sales decreased 40.7% to $2,436,449 in 2023 from $4,106,303 in 2022. The decrease of $1,669,854 was primarily due to a decrease in volume and size of installations during 2023. The following table summarizes our cost of sales:
Years ended December 31,
(percent of revenues)
(percent of revenues)
System
$ 820,936
$ 2,756,651
8.7 %
24.9 %
Maintenance
929,177
686,337
9.8 %
6.2 %
Lease
46,533
0.0 %
0.4 %
Service and other
686,336
616,782
7.2 %
5.6 %
Total cost of sales
$ 2,436,449
$ 4,106,303
25.7 %
37.1 %
Gross profit
$ 7,050,404
$ 6,950,284
74.3 %
62.9 %
The gross profit in 2023 totaled $7,050,404 or 74% of sales compared with $6,950,284 or 63% of sales in 2022. This increase of gross profit is a result of the Company recognizing all revenue for installations during the year in addition to recognizing only the revenue on a cash basis on two sales from 2022, for which revenue recognition collectability criterion was not met.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 9% to $5,374,687 in 2023 from $4,930,333 in 2022. This increase of $444,354 was primarily due to an increase in the Company's sales and marketing efforts, an increase in sales commissions and an increase in gross wages.
Other Income
Other income was comprised of an award from a class action settlement totaling $4,282 in 2023 compared to $7,525 in 2022.
Interest Income
Interest income increased to $330,005 in 2023, compared to $145,891 in 2022, primarily due to the increase of interest income from our investments in money market instruments.
Income Tax Expense
The income tax expense was $397,000 in 2023, for an effective rate of 20.1%, compared to income tax expense of $552,000 for an effective rate of 25.4% in 2022. The change in the effective rate is primarily due to changes in non-taxable income, non-deductible expenses and generation/utilization of tax credits.
Net Income
The net income for 2023 was $ 1,613,005 compared to net income of $ 1,624,453 for 2022, which is a decrease of $15,497.
The basic and diluted earnings per share in 2023 were $ 0.35 and $ 0.35, respectively, compared to basic and diluted earnings per share of $ 0.36 and $ 0.35 in 2022, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s discussion and analysis of financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition, bad debts, inventory valuation, intangible assets, and income taxes. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that the Company believes have the most effect on its reported financial position and results of operations are as follows:
Revenue Recognition
The Company derives revenues from the sales of systems, licenses and maintenance fees, hardware leasing and services.
System Sales
Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected, when applicable from customers, which are subsequently remitted to governmental authorities.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company’s systems sales have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation based on its Standalone Selling Price ("SSP"). See discussion within the significant judgement paragraph regarding our determination of SSP. At contract inception, management assesses whether it is probable that the company will collect substantially all of the consideration to determine whether the contract meets the criterion for collectability. The revenue allocated to the casino management system is recognized upon installation. The Company occasionally enters into contracts that include multiple sites; management has determined that each site installation is a separate performance obligation. In these instances, the Company recognizes revenue upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells the Company’s products; monthly the reseller notifies the Company of their successful installations and submits an invoice to the Company for those installations. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts which include a significant financing component which is usually a market interest rate. The associated interest income is reflected accordingly on the statement of operations.
Management’s assessment of collectability at both contract inception and on an ongoing basis resulted in the determination that some of our contracts did not meet the criterion for collectability. The balance of these contracts are not included as part of accounts receivable on the balance sheet. Accordingly, for these contracts whereby the collectability criterion has not been met, revenue will be recognized as payments are received. During the years ended December 31, 2023 and 2022, the Company has accessed that approximately $2,392,560 and $2,781,800 for these systems did not meet the revenue recognition collectability criterion. Management considered the following facts and circumstances in its determination: these installations are subject to different regulators than our current customer base; Payments have not been received for items invoiced; one customer has a large debtor in a senior position to Table Trac. Both contracts will continue to be recognized on a cash basis subject to ongoing collectability assessment. A change in the collectability assessment in a future period may allow the Company to recognize revenue prior to collecting cash.
Maintenance Revenue
Maintenance revenue is recognized ratably over the contract period. The SSP for maintenance is based upon the renewal rate for contracted services.
Lease Revenue
The Company derives a portion of its revenue from a sales type leasing arrangement in accordance with ASC 842. The Company leases hardware to a customer, and receives monthly payments.
Service Revenue and Other Revenue
Service revenue is recognized upon completion of the services and are billed in arrears. The SSP for service revenue is established based upon actual selling prices for the services or prior similar arrangements.
Other revenue includes DataTrac, kiosks and related promotional programs and miscellaneous sales of equipment. Revenue is recognized upon completion of services or delivery of equipment and is billed in arrears.
The Company offers qualified customers a licensing agreement. Licensing revenue is recognized after the intellectual property (CMS system), the performance obligation, is delivered and in its operational and functional state. The stand-alone selling price for licensing revenue is established based upon actual selling prices for the license.
See also Note 1.
Accounts Receivable / Allowance for Credit Losses
Accounts receivable are initially recorded at the invoiced amount and carried on the balance sheet at net realizable value as of each balance sheet date. The company offers customers extended payment terms for periods of 6 to 72 months and as amounts under these long-term accounts receivable become due within one year, they are reclassified to the current portion of accounts receivable. For receivables related to contracts that contain an interest rate, interest is recorded upon receipt to interest income on the statements of operations. An allowance for credit losses is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for credit losses, are fully collectible. Accounts receivable are written off when management determines collection is no longer likely. While the ultimate result may differ, management believes that any write-off not allowed for will not have a material impact on the Company’s financial position.
Inventory
Inventory, consisting of finished goods, is stated at the lower of cost or net realizable value. The average cost method is used to value inventory. Inventory is reviewed annually for the lower of cost or net realizable value and obsolescence. Any material cost found to be above market value or considered obsolete is written down accordingly. The Company had $8,768 and $2,273 of obsolescence reserves at December 31, 2023 and 2022, respectively.
Income Taxes
Income taxes are provided for using the asset and liability method of accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements, if any, is contained in Note 1 of the Notes to Consolidated Financial Statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Table Trac, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Table Trac, Inc. (the Company) as of December 31, 2023 and 2022, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.
Revenue Recognition
Description of the Matter
As described in Note 1 to the financial statements, the Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company enters into contracts with its customers that may contain multiple performance obligations including hardware, software, lease, installation services, training, and maintenance. Significant judgment may be required by the Company in determining revenue recognition specific to these contracts with multiple performance obligations, and includes the following:
●
Assessing collectability of contracts with customers.
●
Determination of whether hardware, software, lease, installation services, training, and maintenance are considered distinct performance obligations that should be accounted for separately or combined as one unit of accounting.
●
Determination of stand-alone selling prices for each distinct performance obligation, particularly for performance obligations not sold separately.
Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.
How We Addressed the Matter in Our Audit
Our audit procedures related to revenue recognition included the following, among others:
●
We evaluated the Company’s accounting policies and related disclosures for compliance with applicable revenue recognition accounting guidance.
●
We obtained an understanding of the design and implementation of internal controls related to the Company’s revenue recognition process, including the assessment of collectability, identification of performance obligations and allocation of transaction price.
●
We selected a sample of transactions and performed the following procedures:
o
Tested the existence and accuracy of the transaction by obtaining and agreeing terms to the underlying source documents.
o
Evaluated management’s identification of distinct performance obligations and management’s determination of the standalone selling prices.
o
We tested management’s assessment of collectability by obtaining an understanding of the facts and circumstances considered, and judgments applied.
o We tested significant cash receipts to verify the corresponding revenue.
o
Evaluated whether the transaction was accounted for in accordance with the Company’s revenue and related costs policies.
/s/ Boulay PLLP
We have served as the Company’s auditor since 2015.
Minneapolis, Minnesota
March 29, 2024
PCAOB ID:542
TABLE TRAC, INC.
BALANCE SHEETS
December 31,
December 31,
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 3,489,771 $ 4,786,923
Short-term investments
1,502,805 0
Accounts receivable, net
2,109,193 1,868,488
Inventory, net
2,904,158 1,560,175
Prepaid expenses
364,886 417,254
Net investment in sales type leases - current
64,310 59,173
Income tax receivable
0 124,198
TOTAL CURRENT ASSETS
10,435,123 8,816,211
LONG-TERM ASSETS
Accounts receivable - long-term
891,351 1,523,793
Property and equipment, net
38,357 0
Net investment in sales type leases - long term
113,621 176,444
Software development cost
16,691 0
Operating lease right-of-use assets
243,171 157,802
TOTAL LONG-TERM ASSETS
1,303,191 1,858,039
TOTAL ASSETS
$ 11,738,314 $ 10,674,250
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 305,664 $ 417,853
Payroll liabilities
0 10,665
Customer deposits
785,805 1,485,622
Current portion of operating lease liabilities
114,294 55,942
Income tax payable
165,226 0
TOTAL CURRENT LIABILITIES
1,370,989 1,970,082
LONG-TERM LIABILITIES
Operating lease liabilities
126,760 97,476
Deferred tax liability
341,000 331,000
TOTAL LIABILITIES
1,838,749 2,398,558
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 25,000,000 shares authorized: 4,756,734 and 4,756,734 shares issued; and 4,634,865 and 4,621,988 shares outstanding at December 31, 2023 and December 31, 2022, respectively.
4,635 4,622
Additional paid-in capital
2,346,483 2,207,030
Retained earnings
7,771,655 6,297,639
10,122,773 8,509,291
Treasury stock, 121,869 and 134,746 shares (at cost) at December 31, 2023 and December 31, 2022, respectively.
(223,208 ) (233,599 )
TOTAL STOCKHOLDERS’ EQUITY
9,899,565 8,275,692
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 11,738,314 $ 10,674,250
The accompanying notes are an integral part of these financial statements.
TABLE TRAC, INC.
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
Revenues
$ 9,486,853
$ 11,056,587
Cost of sales
2,436,449
4,106,303
Gross profit
7,050,404
6,950,284
Operating expenses:
Selling, general and administrative
5,374,687
4,930,333
Income from operations
1,675,717
2,019,951
Other income
4,283
10,611
Interest income
330,005
145,891
Income before taxes
2,010,005
2,176,453
Income tax expense
397,000
552,000
Net income
$ 1,613,005
$ 1,624,453
Net income per share - basic
$ 0.35
$ 0.36
Net income per share - diluted
$ 0.35
$ 0.35
Weighted-average shares outstanding - basic
4,553,080
4,522,536
Weighted-average shares outstanding - diluted
4,619,046
4,583,115
The accompanying notes are an integral part of these financial statements.
TABLE TRAC, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock Outstanding
Additional
Number of
Par
Paid-in
Retained
Treasury
Shares
Amount
Capital
Earnings
Stock
Total
BALANCE, December 31, 2021
4,521,988
$ 4,522
$ 1,988,137
$ 4,768,298
$ (233,599 )
$ 6,527,358
Stock compensation expense
100,000
218,893
218,993
Cash dividend
(95,112 )
(95,112 )
Net income
1,624,453
1,624,453
BALANCE, December 31, 2022
4,621,988
$ 4,622
$ 2,207,030
$ 6,297,639
$ (233,599 )
$ 8,275,692
Stock compensation expense
139,226
139,226
Cash dividend
(138,989 )
(138,989 )
Exercise of employee stock options
1,000
2,019
3,010
Stock issued to employees from treasury
10,000
(7,552 )
7,542
Stock issued for service from treasury
1,877
5,760
1,859
7,621
Net income
1,613,005
1,613,005
BALANCE, December 31, 2023
4,634,865
$ 4,635
$ 2,346,483
$ 7,771,655
$ (223,208 )
$ 9,899,565
The accompanying notes are an integral part of these financial statements.
TABLE TRAC, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
OPERATING ACTIVITIES
Net income
$ 1,613,005
$ 1,624,453
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation
1,065
7,879
Deferred income taxes
10,000
340,000
Provision for credit losses
46,934
87,627
Stock issued for services to non-employee
7,621
Stock compensation expense
139,226
218,993
Accrued interest on short-term investment
(2,805 )
Changes in operating assets and liabilities:
Accounts receivable
344,803
(2,173,710 )
Inventory
(1,343,983 )
22,183
Prepaid expenses
52,368
382,270
Net investment in sales type leases
57,686
(58,911 )
Accounts payable, accrued expenses and other
(109,922 )
153,641
Payroll liabilities
(10,665 )
(15,705 )
Customer deposits
(699,817 )
(90,378 )
Income tax receivable and payable
289,424
(562,220 )
Net cash provided by (used) in operating activities
394,940
(63,878 )
INVESTING ACTIVITIES
Capital expenditures
(39,422 )
Purchase of short-term investment
(1,500,000 )
Capitalized software development costs
(16,691 )
Net cash used in investing activities
(1,556,113 )
FINANCING ACTIVITIES
Proceeds from employee stock options
3,010
Payment of dividends
(138,989 )
(95,112 )
Net cash used in financing activities
(135,979 )
(95,112 )
NET DECREASE IN CASH AND CASH EQUIVALENTS
(1,297,152 )
(158,990 )
CASH AND CASH EQUIVALENTS
Beginning of year
4,786,923
4,945,913
End of year
$ 3,489,771
$ 4,786,923
Non-cash investing and financing activities:
Treasury stock cost related to compensation
$ 10,391
$
The accompanying notes are an integral part of these financial statements.
TABLE TRAC INC.
Notes to Financial Statements
December 31, 2023 and 2022
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company
Table Trac was formed under the laws of the State of Nevada in June 1995. The Company has offices in Minnetonka, Minnesota, Las Vegas, Nevada and Oklahoma City, Oklahoma. The Company has developed and sells an information and management system that automates and monitors various aspects of the operations of casinos.
The Company 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 (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. The Company’s use of estimates and assumptions include: for revenue recognition, determining collectability, the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (SSP) of performance obligations, realizability of accounts receivable, and the valuation of allowance for credit losses, the valuation of deferred tax assets and liabilities and inventory valuation. Actual results could differ from those estimates and the difference could be significant.
Concentrations of Risk
Cash Deposits in Excess of Federally Insured Limits
The Company maintains its cash balances at two financial institutions. Accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At times throughout the year, the Company’s cash balances exceeded amounts insured by the FDIC. The Company doesn’t believe it is exposed to any significant credit risk on its cash balances. Cash equivalents represent money market funds or short-term investments with maturities of three months or less from the date of purchase.
Major Customers
The following table summarizes major customers' information for the years ended December 31, 2023 and 2022:
For the Years ended December 31,
% Revenues
% AR
% Revenues
% AR
Major
19.2 % 0.0 % 31.7 % 33.7 %
All Others
80.8 % 100.0 % 68.3 % 66.3 %
Total
100.0 % 100.0 % 100.0 % 100.0 %
A major customer is defined as any customer that represents at least 10% of revenue or outstanding account receivable for a given period.
F-
Revenue Recognition
The Company derives revenues from the sales or leasing of systems, licenses and maintenance fees, and services, and rental agreements.
System Sales
Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected, when applicable from customers, which are subsequently remitted to governmental authorities.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company’s systems sales have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation based on its SSP. See discussion within the significant judgement paragraph regarding our determination of SSP. At contract inception, management assesses whether it is probable that the company will collect substantially all of the consideration to determine whether the contract meets the criterion for collectability. The revenue allocated to the casino management system is recognized upon installation. The Company occasionally enters into contracts that include multiple sites; management has determined that each site installation is a separate performance obligation. In these instances, the Company recognizes revenue upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells the Company’s products; monthly the reseller notifies the Company of their successful installations and submits an invoice to the Company for those installations. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts which include a significant financing component which is usually a market interest rate. The associated interest income is reflected accordingly in the statement of operations.
Management’s assessment of collectability at both contract inception and on an ongoing basis resulted in the determination that some of our contracts did not meet the criterion for collectability. The balance of these contracts is not included as part of accounts receivable on the balance sheet. Accordingly, for these contracts whereby the collectability criterion has not been met, revenue will be recognized as payments are received.
Maintenance Revenue
Maintenance revenue is recognized ratably over the contract period. The SSP for maintenance is based upon the renewal rate for contracted services.
Lease Revenue
The Company derives a portion of its revenue from a sales type leasing arrangement in accordance with ASC 842. The Company leases hardware to a customer, and receives monthly payments.
Service Revenue and Other Revenue
Service revenue is recognized upon completion of the services and are billed in arrears. The SSP for service revenue is established based upon actual selling prices for the services or prior similar arrangements.
Other revenue includes DataTrac, a visual analysis platform to make casino performance decisions apparent & readily available on a daily basis, KioskTrac and Kiosks and related promotional programs and miscellaneous sales of equipment. Revenue is recognized upon completion of services or delivery of equipment and is billed in arrears.
The Company offers qualified customers a licensing agreement. Licensing revenue is recognized after the intellectual property (CMS system), the performance obligation, is delivered and in its operational and functional state. The SSP selling price for licensing revenue is established based upon actual selling prices for the license.
F-
The following table summarizes disaggregated revenues by major product line for the years ended December 31, 2023 and 2022, respectively:
Years ended December 31,
(percent of revenues)
System revenue
$ 3,330,158 $ 6,245,287 35.1 % 56.6 %
Maintenance revenue
4,985,415 3,507,924 52.6 % 31.7 %
Lease revenue
0 228,886 0.0 % 2.1 %
Service and other revenue
1,171,280 1,074,490 12.3 % 9.6 %
Total revenues
$ 9,486,853 $ 11,056,587 100.0 % 100.0 %
System, sales-type lease, and certain other revenue is recorded at a point in time. Maintenance and service revenue is recorded over time.
Significant Judgments
Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine the SSP for each distinct performance obligation, including lease and non-lease components. We use a single amount to estimate SSP when we sell a product or service separately.
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we perform a gross margin analysis using information such as the size of the customer and geographic region in determining the SSP.
We recognize a contract asset when our performance under a contract precedes our receipt of consideration from a customer, or before payment is due, and our receipt of consideration is conditional upon factors other than the passage of time. A contract asset is recognized when we have an unconditional right to payment for our performance. Our contract asset consists of our in-process installations, for which we have an enforceable right to collect consideration (including a reasonable profit) in the event the services are cancelled by customers. As of December 31, 2023 and 2022, we recorded a contract asset of approximately $0 and $34,800 respectively as a component of accounts receivable.
As of January 1, 2022, the balance of accounts receivable, net and customer deposits were $1,306,198 and $1,576,000, respectively.
The collectability assessment requires the company to use judgement and consider all relevant facts and circumstances. Management exercises judgment in its assessment of collectability of customer funds by considering payment history, current credit status, and available information about the financial condition of the customer, among other factors. As of December 31, 2023 and 2022, approximately $2,392,560 and $2,781,800 for systems installed under contract have not been recorded as revenue or included in accounts receivable based on the collectability assessment performed by the Company. In accordance with this assessment, the contracts will be assessed in subsequent quarters at which time they may be deemed collectable and the outstanding remaining system revenue will be recognized accordingly.
The collectability assessment requires the company to use judgement and consider all relevant facts and circumstances.
We evaluate the interest rates in customer contracts with extended payment terms, representing a significant financing component. These rates range from approximately 1% to 8% and we believe those to be appropriate market interest rates for the financing component.
Geographic Concentrations
The Company sells its technologies and services to casinos in the United States, Australia, Japan, the Caribbean and countries in both Central and South America. For 2023 and 2022, 91.1% and 95% of the Company’s revenues were from the United States all other locations were less than 10%.
As of December 31, 2023 and 2022, 88.4% and 92% of the Company’s accounts receivable were from the United States, all other locations were less than 10%.
F-
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, certificate of deposit, accounts receivable, accounts payable and accrued expenses. Fair value estimates are at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and matters of significant judgment and therefore cannot be determined with precision. The Company considers the carrying values of its financial instruments to approximate fair value due to their short-term nature.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Short-term Investments
The Company currently has one certificate of deposit being held at a bank which has a term of seven months with an interest rate of 5.25%. Certificates of deposit held for investment with an original maturity greater than three months are carried at cost plus accrued interest and reported as short-term investments on the balance sheet. At times, certain certificates may exceed amounts insured by the FDIC. The Company determines the appropriate classification as short-term or long-term at the time of purchase based on original maturities and management's reasonable expectation redemption. The Company reevaluates such classification at each balance sheet date. The total short-term investment was $1,502,805 and $0 as of December 31, 2023 and 2022, respectively.
Accounts Receivable / Allowance for Credit Losses
Accounts receivable are initially recorded at the invoiced amount and carried on the balance sheet at net realizable value as of each balance sheet date. For receivables related to contracts that contain an interest rate, interest income is recorded upon receipt on the statements of operations. We maintain an allowance for credit losses for accounts receivable, which is recorded as an offset to accounts receivable, and changes in such are classified as general and administrative expense in the Condensed Statements of Operations. We assess collectibility by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectibility issues. In determining the amount of the allowance for credit losses, we consider historical collectibility based on past due status and make judgments about the creditworthiness of customers based on ongoing credit evaluations. We also consider customer-specific information, current market conditions, and reasonable and supportable forecasts of future economic conditions. Management believes that receivables, net of the allowance for credit losses, are fully collectable. Accounts receivable are written off when management determines collection is no longer likely. While the ultimate result may differ, management believes that any write-off not allowed for will not have a material impact on the Company’s financial position.
Inventory
Inventory, consisting of finished goods, is stated at the lower of cost or net realizable value. The average cost method is used to value inventory. Inventory is reviewed quarterly for the lower of cost or net realizable value and obsolescence. Any material cost found to be above net realizable value or considered obsolete is written down accordingly. The Company had $8,768 and $2,273 of obsolescence reserve at December 31, 2023 and 2022. The total inventory value was $2,904,158 and $1,560,175 as of December 31, 2023 and 2022, respectively, which included work-in-process of $117,218 and $396,880 as of December 31, 2023 and 2022, respectively, and the remaining amount is comprised of finished goods. At December 31, 2023 and 2022, the Company had $2,348 and $54,520 of prepaid inventory as a component of prepaid expenses, respectively.
Net Investment in Sales Type Lease
Net investment in leases are recognized when the Company's leases qualify as sales-type leases. The net investment in leases is initially measured at the present value of the fixed lease payments, discounted at the rate implicit in the lease.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets which range from two to five years. Repair and maintenance costs are expensed as incurred; major renewals and improvements are capitalized. As items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.
Long-lived Assets
The Company periodically assesses the recoverability of long-lived assets and certain identifiable intangible assets by reviewing for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Leases
The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company has elected to use the incremental borrowing rate in determining the present value of lease payments for all asset classes. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For lease agreements that contain both lease and non-lease components, the Company has elected to account for the lease and non-lease components as a single lease component. The Company has elected to not apply the requirements of ASC 842 for short-term leases. Short-term leases are defined as leases that, at the commencement date, have lease terms of twelve months or less.
Rent expense, including the effects of lease incentives, is recognized on a straight-line basis over the term of the lease.
F-
Income Taxes
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, 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. Management believes that any write-off not allowed will not have a material impact on the Company’s financial position.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Based on its evaluation, the Company believes that it has no significant unrecognized tax positions. The Company’s evaluation was performed for the tax years ended December 31, 2020 through 2023, which are the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2023. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 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 income tax expense as incurred.
Research and Development
Expenditures for research and product development costs, before technological feasibility is reached are expensed as incurred. Research and development expenses were $208,313 and $190,713 for the years ended December 31, 2023 and 2022, respectively, and are included in selling, general and administrative expenses on the statements of operations.
Software Development Costs
We expense software development costs, including cost to develop software products to be sold, licensed or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products. As a result, approximately $17,000 and $0 of development costs met these criteria and was capitalized as of December 31, 2023 and 2022, respectively. These cost will be amortized equally over the next five years begining in 2024.
Stock-based Compensation
The Company's stock-based compensation consists of stock options and restricted stock issued to certain company employees. The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, directors and non-employees. The compensation expense for the Company’s stock-based payments is based on estimated fair values at the time of the grant.
The Company estimates the fair value of restricted stock awards on the date of grant using the closing traded price on that date. The Company’s restricted stock awards are subject to vesting requirements and the corresponding compensation is recorded ratably over the service period.
For stock options, the Company recognizes compensation expense based on an estimated grant date fair value using the Black-Scholes option-pricing model. The Company has elected to account for forfeitures as they occur and to use the simplified method to determine the expected life of stock options.
Basic and Diluted Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options and restricted stock shares subject to vesting. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from the exercise were used to acquire shares of common stock at the average market price during the reporting period. Restricted stock shares are included in basic shares as of the beginning of the period in which the vesting conditions are satisfied. (See Note 10).
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which requires measurement and recognition of expected versus incurred credit losses for financial assets held. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance is effective for annual reporting periods beginning after December 15, 2022, and interim periods within those annual periods. The Company adopted ASU 2016-13 in 2023, using the modified retrospective approach with an immaterial impact to the Company's financial statements as of January 1, 2023.
NOTE 2. ACCOUNTS RECEIVABLE
December 31,
December 31,
Accounts receivable - current
$ 2,177,813 $ 1,930,488
Less allowance for credit losses
(68,620 ) (62,000 )
Accounts receivable current - net
$ 2,109,193 $ 1,868,488
Accounts receivable - long-term
$ 891,351 $ 1,523,793
A roll-forward of the Company’s allowance for credit losses for the years ended is as follows:
December 31,
December 31,
Allowance for credit losses, beginning of year
$ 62,000 $ 61,376
Additions
46,934 87,627
Write-off
(40,314 ) (87,003 )
Accounts receivable allowance for credit losses, end of year
68,620 62,000
F-
NOTE 3. NET INVESTMENT IN SALES TYPE LEASE
In January 2021, the Company entered into a five year lease with a customer for hardware which had an implied interest rate of 6%.
At inception, the Company recorded a total $210,782 in "Net investment in sales type leases" and derecognized $139,521 from “Inventory" on its balance sheet. The Company recognized $41,797 and $39,369 in profit from sales type leases in its statements of operations for the years ended December 31, 2023 and 2022, respectively, as a result of the transaction. For the years ended December 31, 2023 and 2022, the Company recognized $7,103 and $9,531, respectively, of interest income in the Company's statements of operations.
In December 2022, the Company entered into a five year lease with a customer for hardware which had an implied interest rate of 6%.
At inception, the Company recorded a total $98,279 in "Net investment in sales type leases" and derecognized $46,533 from “Inventory" on its balance sheet. The Company recognized $15,588 and $51,746 in profit from sales type leases in its statements of operations for the years ended December 31, 2023 and 2022, respectively, as a result of the transaction. For the years ended December 31, 2023 and 2022, the Company recognized $5,012 and $11,673, respectively. of interest income in the Company's statements of operations.
The future minimum lease payments receivable for sales type leases are as follows:
Amount
71,700
71,700
26,875
22,800
Total undiscounted cash flows
193,075
Present value discount
15,144
Net investment in lease as of December 31, 2023
$ 177,931
The current portion of $64,310 is included in Current Assets on the balance sheet as of December 31, 2023, and the long term portion of $113,621 is included in Long-Term Assets on the balance sheet as of December 31, 2023. The lease contains a purchase option at the conclusion of the lease, which the Company has determined does not meet the probability criterion. The Company has not recorded an unguaranteed residual asset.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
December 31,
December 31,
Office equipment
$ 136,266
$ 139,338
Vehicles
196,465
211,465
Total
332,731
350,803
Less: accumulated depreciation
(294,374 )
(350,803 )
Property and equipment, net
$ 38,357
$
Depreciation expense totaled $1,065 and $7,879 for the years ended December 31, 2023 and 2022, respectively.
NOTE 5. INTANGIBLE ASSETS
During the fourth quarter of 2023 the Company determined that approximately $17,000 of development cost were deemed technologically feasible and have been capitalized. All of these development cost will be classified as software development cost and will have a useful life of five years. As of December 31, 2023 none of these costs have been amortized. Beginning in fiscal year 2024 approximately $850 will be amortized quarterly. There were no projects for the year ending December 31, 2022 that were deemed technologically feasible.
NOTE 6. DEBT
In February 2020, the Company obtained a general credit and security agreement with a lender, which provides a revolving credit line of up to $500,000 and expires on February 1, 2024, which was subsequently extended through February 1, 2025. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had no borrowings under the credit line during the year ending December 31, 2023 and 2022. Interest on outstanding borrowings is payable monthly and charged at the Prime Rate, subject to a floor of 3.75%, at December 31, 2023.
NOTE 7. OPERATING LEASES
We lease space under non-cancelable operating leases for our three office locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions.
Our leases include one or more options to renew. The exercise of lease renewal options are included in our ROU assets and lease liabilities if they are reasonably certain of exercise.
Our leases do not provide an implicit rate and therefore; we use our incremental borrowing rate in determining the present value of the lease payments. The weighted average discount rate was approximately 5% as of December 31, 2023 and 2022.
ROU assets obtained in exchange for new lease liabilities was $160,915 and $39,648 for the years ended December 31, 2023 and 2022, respectively.
The cost components of our operating leases were non-variable lease expense of $85,228 and $63,100 for the years ended December 31, 2023 and 2022, respectively, along with $33,555 and $30,972 of variable lease expense for the years ended December 31, 2023 and 2022, respectively. Cash paid for the operating leases was approximately $87,000 and $64,000 for the year ended December 31, 2023 and 2022, respectively
Maturities of our lease liabilities for all operating leases are as follows as of December 31, 2023:
Leased Facilities
121,351
95,030
40,496
Total Lease Payments
256,877
Less: Interest
15,823
Present value of lease liabilities
$ 241,054
The weighted average remaining lease terms equals 2.16 and 2.62 for the years ended December 31, 2023 and 2022, respectively.
NOTE 8. STOCKHOLDERS’ EQUITY
Common Stock
As of December 31, 2023, and 2022, the Company holds 121,869 and 134,746 common stock shares in treasury at a total cost of $223,208 and $233,599, respectively, for future employee and professional service provider’s issuances under the bonus program which was part of both 2018 and 2014 repurchase of shares.
F-
Stock Based Compensation
On January 8, 2018, the Board of Directors of Table Trac, Inc. appointed Randy Gilbert as the Company’s Chief Financial Officer and awarded him 50,000 Restricted Stock shares. These shares are subject to a four year vesting schedule as follows: 20,000 shares in year one and 10,000 shares in each subsequent year. Grant date fair value of $117,500 was recognized over the vesting period as stock compensation expense as a component of selling, general and administration expense.
Additionally, on March 8, 2021, the Company awarded 15,200 Restricted Stock shares to employees out of treasury stock. These shares are subject to a two year vesting period. Grant date fair value of $45,300 was recognized over the vesting period as stock compensation expense as a component of selling, general and administrative expense.
On May 14, 2021, the Board of Directors of Table Trac, Inc. approved the 2021 Stock Incentive Plan (the "Plan"). The Plan provides for the issuance of incentive and other equity-based awards to its employees. Options issued under the Plan are exercisable for periods not to exceed ten years, and vest and contain such other terms and conditions as specified in the applicable award document. Options to buy common stock are issued under the Plan, with exercise prices equal to the closing price of shares of the Company’s common stock on the OTCQX Exchange at closing on the trading day of the date of award. The Company had 500,000 shares initially available for grant.
On May 14, 2021, the Board of Directors of Table Trac, Inc. awarded 70,000 stock options as follows: 20,000 to Chad Hoehne; 20,000 to Robert Siqveland and 30,000 to Randy Gilbert. These shares are subject to a vesting schedule as follows: 25% immediately upon grant and 25% in each subsequent year. Grant date fair value of $128,726 will be recognized over the vesting period as stock compensation expense as a component of selling, general and administration expense.
On March 25, 2022, the Board of Directors of Table Trac, Inc. awarded Randy Gilbert 87,500 Restricted Stock shares and Robert Siqveland 12,500 Restricted Stock shares. These shares are subject to a five-year vesting schedule as follows: 20,000 shares vest annually beginning on March 25, 2023. Grant date fair value of $349,000 will be recognized ratably over the vesting period as stock compensation expense as a component of selling, general and administration expense.
On December 15, 2022, Robert Siqveland agreed to and accepted a separation agreement from the Company. Included in this agreement were terms which immediately vested the remaining unvested 12,500 Restricted Stock shares from the March 25, 2022 grant and the unvested stock options to purchase 20,000 shares that were awarded to him on May 14, 2021. In addition, this agreement modified the exercise period of the stock options which now expire on March 31, 2024. This was determined to be a modification under ASC 718 and the incremental compensation costs of $39,000 and $37,000, respectively, for the restricted stock and options were recognized immediately in 2022 as a component of SG&A. Lastly, Mr. Siqveland will receive twelve months of severance in two payments. $100,500 on April 15, 2023 and $33,500 on January 15, 2024. An accrual for these payments including the employer's payroll taxes totaling $141,500 was recorded and expensed as a component of SG&A as of December 31, 2022.
On December 16, 2022, management of Table Trac, Inc. awarded 16,500 stock options to be distributed to most of its current employees. These options vested immediately. Grant date fair value of $37,969 was recognized during 2022 as stock compensation expense as a component of selling, general and administration expense.
On March 12, 2023, the Company awarded 10,000 Restricted Stock shares to an employee out of treasury stock. These shares are subject to a three year vesting period. Grant date fair value of $50,500 will be recognized over the vesting period as stock compensation expense as a component of selling, general and administrative expense.
On September 30 2023, the Company awarded 1,877 Restricted Stock shares to a non-employee out of treasury stock. These shares are not subject to a vesting period. Grant date fair value of $7,620 was recognized during 2023 as legal expense as a component of selling, general and administrative expense.
On December 19, 2023, management of Table Trac, Inc. awarded 19,500 stock options to be distributed to most of its current employees. These options vested immediately. Grant date fair value of $38,331 was recognized during 2023 as stock compensation expense as a component of selling, general and administration expense.
The Company has approximately 78,000 shares of restricted stock outstanding as of December 31, 2023. There were approximately 102,700 shares of restricted stock outstanding at December 31, 2022.
For the years ended December 31, 2023 and 2022, the Company recorded compensation expense related to restricted stock granted of $77,909 and $112,079, respectively as a component of selling, general and administrative expenses.
For the years ended December 31, 2023 and 2022, the Company recorded compensation expense related to stock options granted of $61,317 and $106,914, respectively as a component of selling, general and administrative expenses.
The fair value of the Company’s stock options issued during 2023 was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions:
Expected volatility
83.1 %
Expected life (years)
2.5
Risk-free interest rate
5.51 %
Expected dividend yield
1.04 %
The expected volatility was estimated based on the Company's calculated historical volatility.
1,000 and 0 options were exercised during the years ended December 31, 2023 and 2022, respectively
The unvested stock compensation expense is expected to be recognized over a weighted average period of approximately three years. As of December 31, 2023, the remaining unrecognized stock compensation expense for stock options and restricted stock was approximated $232,160 and $394,049, respectively.
The following table summarizes additional information about stock options outstanding and exercisable at December 31, 2023:
Options Outstanding
Options Exercisable
Options Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
Aggregate Intrinsic Value
Options Exercisable
Weighted Average Exercise Price
Aggregate Intrinsic Value
119,750 4.81 $ 3.11 $ 109,340 107,250 $ 3.20 $ 91,840
The Company has 119,750 and 101,500 stock options outstanding as of December 31, 2023 and 2022, respectively.
The following table summarizes the activity of all stock options outstanding for the years ending December 31, 2023 and 2022.
Shares
Weighted Average Exercise Price
Shares
Weighted Average Exercise Price
Options outstanding at beginning of year
101,500 $ 2.97 85,000 $ 2.52
Granted
19,750 3.85 16,500 5.29
Exercised
(1,000 ) 3.01 0 0
Forfeited
(500 ) 5.29 0 0
Balance at December 31:
119,750 $ 3.11 101,500 $ 2.97
Options Exercisable at December 31:
107,250 $ 3.20 76,500 $ 3.15
Dividends
The Company's common stock contains rights to participate in earnings, dividends, and voting. In May, 2023 the Company declared a dividend of $0.01 per share, which was paid in June, 2023 and totaled $46,325. In August, 2023 the Company declared a dividend of $0.01 per share, which was paid in September, 2023 and totaled $46,330. In November, the Company declared a dividend of $0.01 per share, which was paid in December, 2023 and totaled $46,334. In November 2022, the Company declared a dividend of $0.02 per share, which was paid in December 2022 and totaled $95,112. Total dividends paid equaled $138,989 and $95,112 as of December 31, 2023 and 2022, respectively. The Company may continue to pay dividends in the future.
NOTE 9. INCOME TAXES
The income tax provision consists of the following for the years ended December 31:
Current tax expense
$ 387,000 $ 212,000
Deferred tax
10,000 340,000
Total income tax expense
$ 397,000 $ 552,000
The reconciliation between expected federal income tax rates and the Company’s effective federal tax rates is as follows for the years ended December 31:
Amount
Percent
Amount
Percent
Expected federal tax
$ 421,000 21.0 % $ 457,000 21.0 %
Permanent differences
2,000 0.1 % 2,000 0.1 %
State income tax, net of federal tax benefit
37,000 1.9 % 54,000 2.5 %
Foreign tax credit
(4,000 ) (0.2 )% 8,000 0.4 %
Research and Development tax credit
(52,000 ) (2.6 )% (1,000 ) 0.0 %
Other
(7,000 ) (0.1 )% 32,000 1.4 %
Total
$ 397,000 20.1 % $ 552,000 25.4 %
The following table summarizes the Company’s deferred tax assets and liabilities at December 31:
Current deferred tax asset (liabilities):
Accounts payable and accrued expenses
$ 57,000 83,000
Accounts receivable, net
(727,000 ) (851,000 )
Inventory obsolescence
2,000 1,000
Prepaid expenses
(83,000 ) (85,000 )
Customer deposits
180,000 348,000
Net current deferred tax liability
(571,000 ) (504,000 )
Long-term deferred tax asset (liabilities):
NOL - State
4,000 4,000
Foreign tax credit
14,000 21,000
R&D tax credit
75,000 30,000
Book - Tax depreciation
(9,000 ) 0
Section 174 capitalization
73,000 36,000
Stock compensation
60,000 69,000
Investment impairment
13,000 13,000
Net long-term deferred tax asset
230,000 173,000
Net deferred tax liability
$ (341,000 ) $ (331,000 )
The company has various state net operating loss carryforwards of approximately $52,600 and other Federal and state tax credit carryforwards of approximately $110,900 that expire between 2026 and 2035 if not used. An allowance for net operating loss carryforward is recorded when the Company believes the amount may not be collected or fully utilized. Management believes the state net operating loss carryforward is fully collectible or will be fully utilized.
F-
NOTE 10. EARNINGS PER SHARE
Earnings 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 per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income 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 Years Ended
December 31,
Basic and diluted earnings per share calculation:
Net income to common stockholders
$ 1,613,005 $ 1,624,453
Weighted average number of common shares outstanding - basic
4,553,080 4,522,536
Basic net income per share
$ 0.35 $ 0.36
Weighted average number of common shares outstanding - diluted
4,619,046 4,583,115
Diluted net income per share
$ 0.35 $ 0.35
For the years ended December 31, 2023 and 2022, there were common stock equivalents related to stock options and restricted stock that had a dilutive effect of 65,966 and 60,579 shares, respectively.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Evaluation of Disclosure Controls and Procedures.
(a) DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
As of December 31, 2023, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934.
Based on the evaluation of our disclosure controls and procedures, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are not effective as of December 31, 2023, due to the material weaknesses assessed during 2022 of our internal control over financial reporting and that 2023 did not present enough instances to properly test our remediation plan, as further described below. Notwithstanding, our President and Chief Executive Officer and our Chief Financial Officer believe the consolidated financial statements for the periods covered by and including this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows at and for the periods presented in conformity with U.S. GAAP.
(b) REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(e) and 15d-15(f) of the Exchange Act. The Company has designed internal controls to provide reasonable, but not absolute, assurance that financial statements are prepared in accordance with U.S. GAAP. The Company assesses the effectiveness of internal controls based on the criteria set forth in the 2013 Internal Control - Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission.
As a result of this evaluation, management has concluded that, as of December 31, 2023, our internal control over financial reporting was not effective due to the material weaknesses in internal control over financial reporting described below and because management does not believe it has adequately retested its internal controls as of such date.
(c) REMEDIATION PLAN
As of December 31, 2022, the company identified a material weakness in its design of controls over accounting and reporting of significant, non-recurring events, and complex transactions. This material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.
During 2023, the Company designed and implemented a remediation plan for the identified material weakness, which includes engaging accounting experts to assist with the accounting for significant, non-recurring events and complex transactions, when needed. While management believes the designed and implemented remediation plan will be sufficient to remediate the risk of a misstatement related to accounting for significant, non-recuing events and complex transactions, the material weakness cannot be considered to be remedied in 2023 as there were not enough significant, non-recurring or complex transactions to test the effectiveness of the remediation plan.
The remediation actions are subject to ongoing senior management review, as well as Audit Committee oversight. The Company will not be able to conclude whether the steps taken will fully remediate the material weaknesses in internal controls over financial reporting until remediation efforts are completed, tested, and evaluated for effectiveness.
(d) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
Except for the matters discussed above, there were no other changes in the Company’s internal control over financial reporting that occurred during our most recently completed fiscal quarter ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The Information required by this Item is incorporated by reference to the Proxy Statement to be filed in connection with the Company’s 2024 Annual Meeting of Stockholders.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION.
The Information required by this Item is incorporated by reference to the Proxy Statement to be filed in connection with the Company’s 2024 Annual Meeting of Stockholders.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The Information required by this Item is incorporated by reference to the Proxy Statement to be filed in connection with the Company’s 2024 Annual Meeting of Stockholders.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The Information required by this Item is incorporated by reference to the Proxy Statement to be filed in connection with the Company’s 2024 Annual Meeting of Stockholders.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Information required by this Item is incorporated by reference to the Proxy Statement to be filed in connection with the Company’s 2024 Annual Meeting of Stockholders.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
FINANCIAL STATEMENTS
The Financial Statements and the Report of the Independent Registered Public Accounting Firm (PCAOB ID # 542) are included in Part II, Item 8 of the 10-K.
EXHIBITS
Exhibit No.
Description
3.1
Articles of Incorporation, filed with the Nevada Secretary of State on June 2, 1995 (incorporated by reference to Exhibit 3 to the registrant’s registration statement on Form 10SB-12G filed on December 6, 1999).
3.2
Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on January 26, 2013 (incorporated by reference to Exhibit 3.2 to the registrant’s annual report on Form 10-K filed on March 31, 2011).
3.3
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to the registrant’s annual report on Form 10-K filed on March 31, 2011).
3.4
Amendment No. 1 to Bylaws dated March 9, 2016 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on March 15, 2016).
4.1
Description of Table Trac, Inc. Common Stock (incorporated by reference to Exhibit 4.1 to the registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2019).
10.1
Offer Letter by and between Table Trac Inc. and Randy W. Gilbert (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on January 12, 2018).
10.2
Table Trac, Inc. 2021 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to registrant’s current report on Form 8-K filed on May 20, 2021
10.3
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to registrant’s quarterly report on Form 10-Q filed on August 12, 2021).
10.4
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.5 to registrant's annual report on Form 10-K for the fiscal year end December 31. 2022.
10.5
Letter Agreement between Table Trac Inc. and Robert Siqveland, dated December 15, 2022 (incorporated by reference to Exhibit 10.1 to registrant’s current report on Form 8-K filed on December 20, 2022
23.1
Consent of Boulay PLLP (filed herewith)
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)