EDGAR 10-K Filing

Company CIK: 1090396
Filing Year: 2021
Filename: 1090396_10-K_2021_0001437749-21-007795.json

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ITEM 1. BUSINESS
Item 1. Business.
GENERAL
Table Trac, Inc. (the “Company” or “Table Trac”) is a Nevada corporation, formed on June 27, 1995, with principal offices in Minnetonka, Minnesota. The Company’s corporate website address is www.TableTrac.com.
The Company has developed and patented (U.S. patent # 5,957,776) a proprietary information and management system (called our “Table Trac” system) that automates and monitors the operations of casino table game operations. In addition to its table games management system, Table Trac has been adding functionality to related casino system modules for guest rewards and loyalty club, marketing analysis, guest service, promotions, administration / management, vault / cage management and audit / accounting tasks. Aggregated together, all of these modules have become the “Casino Trac” product, a full-featured Casino Management System (CMS) offering what we believe to be a powerful combination of value, efficiency and reliability for casinos seeking to add or upgrade their casino systems.
The Company sells systems and technical support to casinos. The open architecture of the Table Trac system is designed to provide operators with a scalable and flexible system that can interconnect and operate with most third-party software or hardware. Key products and services forming a part of the Table Trac system include modules designed to drive player tracking programs and kiosk promotions, as well as vault and cage controls. The company’s systems meet the strictest auditing, accounting and regulatory requirements. 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 and ancillary products installed with on-going support and maintenance contracts with 100 casino operators in over 180 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 table game interface units and 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.
TRADEMARKS AND PATENTS
The Company has a registered trademark (“TABLE TRAC”), which was originally issued on September 7, 2000.
In September of 2020 the Company was granted a Patent (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 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 which is pending.
EMPLOYEES
As of December 31, 2020, the Company had 24 full-time equivalents with an employee headcount of 24.
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 eight new customer contracts in 2020 and expanded the Company’s presence in Minnesota, Nevada, Oklahoma and South Dakota. At the end of 2020, the Company had casino management systems, table games management systems and ancillary products installed with on-going support and maintenance contracts with 100 casino operators in over 170 casinos worldwide.
At the Company’s annual shareholder meeting in October 2020, 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 founder, and now 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 2020, due to the COVID-19 pandemic the most of the industry's trade shows and conferences were cancelled. The company did participate in the Fantini virtual tradeshow and the Global Gaming Virtual Expo (G2E). The Company holds licenses in Colorado, Iowa, Maryland, Minnesota, Nevada and pending in California, which allows 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 2022.
On April 14, 2020, the Company entered into a Promissory Note with Alerus Financial, N.A. (the “Promissory Note”), which provides for an unsecured loan of $473,400 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”). Forgiveness of the Promissory Note will be determined in accordance with the provisions of the CARES Act and applicable regulations. The Company used the entire loan amount for designated qualifying expenses and to applied for forgiveness of the loan in accordance with the terms of the PPP on September 16, 2020. Notice of PPP forgiveness payment was received on December 21, 2020.
Impact of COVID-19 on Our Business.
The COVID-19 pandemic has and will continue to impact the economy and will likely continue to adversely affect our business. As of the date of this filing, uncertainty exists concerning the magnitude of the impact and duration of the pandemic. The company continues to operate while adhering to social distancing and state orders. Some of our customers have and will temporarily close or will be operating at a diminished capacity which may negatively impact revenue. The pandemic may shift industry demand for installing and replacing existing casino management systems, impact sales and gross margins in the future, limit our ability to secure products we sell due to supplier and manufacturer shortages, limit the ability of our employees to perform their work due to illness caused by the pandemic and local, state, or federal orders requiring employees to remain at home, limit the ability of carriers to deliver our products to customers, limit the ability of our customers to conduct their business and purchase our products and services, and limit the ability of our customers to pay us on a timely basis.
As described above, in April 2020 we applied and were approved for a Paycheck Protection Program (PPP) loan through the Small Business Administration. This loan was forgiven on December 21, 2020.
To ensure that our business can continue to operate during this uncertain time, in February 2021 we applied and were approved for a second draw of the Paycheck Protection Program (PPP) loan through the Small Business Administration. This loan will allow us to continue to employ all existing employees to service our client base.
With respect to liquidity, we continue to evaluate and take actions to reduce costs and spending across our organization. This includes reducing hiring activities, adjusting pay programs, and limiting discretionary spending.
While we are unable to predict the nature, scope or duration of the impact of the COVID-19 pandemic on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Risk Factors Relating to Our Business
Our business may be adversely impacted by the COVID-19 pandemic.
The COVID-19 pandemic has and will continue to impact the economy and will likely adversely affect our business. As of the date of this filing, uncertainty exists concerning the magnitude of the impact and duration of the pandemic. Some of our customers have temporarily closed or are operating at a diminished capacity which may negatively impact revenue. The pandemic may shift industry demand for installing and replacing existing casino management systems, impact sales and gross margins in the future, limit our ability to secure products we sell due to supplier and manufacturer shortages, limit the ability of our employees to perform their work due to illness caused by the pandemic and local, state, or federal orders requiring employees to remain at home, limit the ability of carriers to deliver our products to customers, limit the ability of our customers to conduct their business and purchase our products and services, and limit the ability of our customers to pay us on a timely basis.
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.
Risks that impact our customers may impact us.
If fewer players visit our customers’ facilities, if such players have less disposable income to spend at our customers’ facilities or if our customers are unable to devote resources to purchasing and leasing our products are forced to close their respective facilities, there could be an adverse effect on our business. Such risks that affect our customers include, but are not limited to:
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adverse economic and market conditions in gaming markets, including recession, economic slowdown, higher interest rates, higher airfares and higher energy and gasoline prices;
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global geopolitical events such as terrorist attacks and other acts of war or hostility;
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global health concerns, including 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.
We compete in a single industry and our business may suffer if our products become obsolete or demand for them decreases, including without limitation, as a result of the downturn in the gaming industry.
We derive substantially all of our revenues from leasing, licensing, selling and other financing arrangements of products for 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 manufacture 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. 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.
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 and operating results.
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. 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. 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, litigation, and increased cyber security protection and remediation costs. Such consequences could adversely affect our business, results of operations or financial condition.
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 exist 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 revocation of a license 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 the Securities Markets and Ownership of 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.
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 small trading volume will likely make it difficult for our stockholders to sell their shares as and when they choose. Furthermore, small trading volumes generally depress market prices. As a result, you may not always be able to resell shares of our common stock publicly at the time and prices that you feel are fair or appropriate.

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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, 2021, and includes over 4,400 square feet of office and warehouse space. The monthly rent payment is approximately $3,870 with periodic escalators to approximately $4,090 per month, excluding operating expenses.
Additionally, the Company has a lease on additional office space in Oklahoma City, Oklahoma which expires on August 31, 2022. The monthly rent payment is approximately $1,150 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. Prior to July 22, 2019, the Company’s common stock had been quoted for trading on the OTCQB over-the-counter quotation service under the symbol “TBTC.” Any quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions.
Holders: As of March 31, 2021, the Company had outstanding 4,506,788 shares of common stock held by approximately 62 holders of record.
Dividends: No dividends were declared or paid in 2020 or 2019, and the Company does not expect to pay dividends in the near future.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
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. These forward-looking statements are based upon our current expectations and projections about future events. Whenever used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or 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 forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.
Some, but not all, of the factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section of this report.
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 recent outbreak of the coronavirus in the U.S. and globally, our customers may 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 one project in its backlog at December 31, 2019. The Company had two projects in its backlog as of December 31, 2020.
Subsequent to December 31, 2020, the Company has three signed new contracts with customers.
The Company is currently serving gaming establishments in thirteen U.S. states, 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 12 months from the date of this filing. In February 2020, the Company obtained a $500,000 line of credit with a lender. The Company’s primary sources of liquidity are cash, receivables and potentially other current assets. In February 2021 we applied and were approved for a second draw in the amount of $473,400 of the Paycheck Protection Program (PPP) loan through the Small Business Administration. This loan will allow us to continue to employ all existing employees to service our client base. Management is not aware of any trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.
The Company’s cash position at December 31, 2020 was $1,731,869, an increase of $468,107 from $1,263,762 at December 31, 2019. Net cash flows used by operating activities during the year ended December 31, 2020 were approximately $5,293 compared to cash provided by operating activities of $55,131 for the same period in 2019. This decrease of $60,424 was primarily due to a decrease in income from operations and net changes in accounts receivable and payables.
Net cash used in investing activities was $0 during the year ended December 31, 2020, compared to $28,445 for the same period in 2019. This decrease of $28,445 was due to no capital expenditures during 2020.
Net cash provided in financing activities was $473,400 during the year ended December 31, 2020, compared to cash used of $53,721 for the same period in 2019. This increase of $527,121 was caused primarily by the company receiving funds from the PPP loan during 2020.
On December 31, 2020, total stockholders’ equity was $4,693,493 compared to $4,357,224 in 2019, an increase of $336,269 or 7.7%, which was primarily due to 2020 net income.
RESULTS OF OPERATIONS, YEAR ENDED December 31, 2020 COMPARED TO YEAR ENDED December 31, 2019
The most significant events that affected the 2020 results of operations were the Company’s (1) installation of ten casino management systems at nine operating entities; and (2) expansion in Minnesota, Nevada, Oklahoma and South Dakota.
See Note 1: Revenue, disaggregated revenues by major product line table
Total revenues decreased $3,507,020, a 44.3% decrease, due to fewer and smaller installations as a result of the COVID-19 pandemic in 2020 as compared to 2019. System sales decreased $2,048,180, a 56% decrease, due to the smaller amount of systems that were installed in 2020 compared to 2019. Maintenance revenue decreased $214,716, an 8% decrease, due to an increase in COVID-19 related customer credits issued during 2020. Service and other revenue, which includes promotional kiosk software sales and licensing agreements decreased $1,244,124, as a result of the one time licensing agreement with a customer in Japan that occurred in 2019.
During 2020, the Company delivered a total of ten systems in the United States. Some of the revenue for the installations did not meet our collectability criterion, and will be recognized upon receipt of customers payments. During 2019, the Company delivered 29 systems.
Cost of sales decreased to $1,073,523 in 2020 from $2,457,077 in 2019. The decrease of $1,383,554 was primarily due to fewer and smaller installations as a result of the COVID-19 pandemic. The following table summarizes our cost of sales:
Years ended December 31,
(As Restated)
(As Restated)
(percent of revenues)
(percent of revenues)
System
$ 460,540
$ 1,554,606
10.5 %
19.7 %
Maintenance
371,205
449,157
8.4 %
5.7 %
Service and other
241,778
453,314
5.5 %
5.7 %
Total cost of sales
$ 1,073,523
$ 2,457,077
24.3 %
31.1 %
Gross profit
$ 3,327,918
$ 5,451,384
75.7 %
68.9 %
The gross profit in 2020 was $3,327,918 or 76% of sales compared with $5,451,384 or 69% of sales in 2019. This decrease is primarily due to the number of smaller unit sales in 2020 verses 2019.
Total operating expenses decreased to $3,670,912 in 2020 from $4,528,567 in 2019. This 19% decrease of $857,655 was primarily due to the decrease in marketing and sales activities in 2020 compared to 2019 as a result of COVID-19.
The income tax benefit was $97,000 in 2020, for an effective rate of -46.21%, compared to income tax expense of $174,000 for an effective rate of 17.8% in 2019. The decrease in effective rates is primarily due to the nontaxability of the Paycheck Protection Program loan forgiveness.
Other income was $473,400 in 2020 as compared to $0 in 2019. This increase was comprised of the PPP loan forgiveness income.
The net income for 2020 was $ 306,893 compared to net income of $ 805,265 for 2019, which is a decrease of $498,372.
The basic and diluted earnings per share in 2020 were $ 0.07 compared to basic and diluted earnings per share of $ 0.18 in 2019.
OFF-BALANCE SHEET ARRANGEMENTS
None.
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, 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 with in 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.
Maintenance Revenue
Maintenance revenue is recognized ratably over the contract period. The SSP for maintenance is based upon the renewal rate for contracted services.
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.
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 Doubtful Accounts
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 is recorded upon receipt to interest income on the statements of operations. An allowance for doubtful accounts is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for doubtful accounts, 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 (which approximates first in, first out 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 $45,045 and $0 of obsolescence reserves at December 31, 2020 and 2019, respectively.
Income Taxes
Income taxes are provided for using the 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.

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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, 2020 and 2019, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Correction of Misstatements
As discussed in Note 2 to the financial statements, the 2019 financial statements have been restated to correct misstatements.
Basis for Opinion
These 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 separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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, 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, 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
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 31, 2021
TABLE TRAC, INC.
BALANCE SHEETS
December 31,
December 31,
ASSETS
(As Restated)
CURRENT ASSETS
Cash and cash equivalents
$ 1,731,869
$ 1,263,762
Accounts receivable, net of allowance for doubtful accounts of $77,623 and $42,623 at December 31, 2020 and December 31, 2019, respectively.
1,303,724
2,251,619
Inventory, net
1,748,414
1,263,589
Prepaid expenses
311,170
379,982
Income tax receivable
97,273
167,673
TOTAL CURRENT ASSETS
5,192,450
5,326,625
LONG-TERM ASSETS
Accounts receivable - Long-term
33,783
90,870
Property and equipment, net
30,843
74,149
Operating lease right-of-use assets
46,810
77,922
TOTAL LONG-TERM ASSETS
111,436
242,941
TOTAL ASSETS
$ 5,303,886
$ 5,569,566
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 104,362
$ 367,730
Payroll liabilities
41,641
44,498
Customers deposits
163,709
253,709
Current portion of operating lease liabilities
40,742
53,538
TOTAL CURRENT LIABILITIES
350,454
719,475
LONG-TERM LIABILITIES
Operating lease liabilities
8,939
27,867
Deferred tax liability
251,000
465,000
TOTAL LIABILITIES
610,393
1,212,342
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 25,000,000 shares authorized: 4,656,734 shares issued; and 4,506,788 shares outstanding at December 31, 2020 and 2019.
4,507
4,507
Additional paid-in capital
1,876,970
1,847,594
Retained earnings
3,057,647
2,750,754
4,939,124
4,602,855
Treasury stock, 149,946 shares (at cost) at December 31, 2020 and 2019.
(245,631 )
(245,631 )
TOTAL STOCKHOLDERS’ EQUITY
4,693,493
4,357,224
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 5,303,886
$ 5,569,566
See Note 2 for impact of restatement
The accompanying notes are an integral part of these financial statements.
TABLE TRAC, INC.
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
(As Restated)
Revenues
$ 4,401,441
$ 7,908,461
Cost of sales
1,073,523
2,457,077
Gross profit
3,327,918
5,451,384
Operating expenses:
Selling, general and administrative
3,670,912
4,528,567
Income (loss) from operations
(342,994 )
922,817
Other income
473,400
Interest income
79,487
56,448
Income before taxes
209,893
979,265
Income tax expense (benefit)
(97,000 )
174,000
Net income
$ 306,893
$ 805,265
Net income per share - basic
$ 0.07
$ 0.18
Net income per share - diluted
$ 0.07
$ 0.18
Weighted-average shares outstanding - basic
4,486,788
4,491,135
Weighted-average shares outstanding - diluted
4,497,599
4,500,027
See Note 2 for impact of restatement
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, 2018 (As Restated)
4,528,669
$ 4,529
$ 1,795,955
$ 1,945,489
$ (196,526 )
$ 3,549,447
Stock compensation expense
44,562
44,562
Stock issued for service
9,450
9,450
2019 Shares repurchased into treasury
(25,000 )
(25 )
(51,475 )
(51,500 )
Common stock issued to non-employee and employees and board member from treasury
3,119
(2,373 )
2,370
2019 Net income (As Restated)
805,265
805,265
BALANCE, December 31, 2019 (As Restated)
4,506,788
$ 4,507
$ 1,847,594
$ 2,750,754
$ (245,631 )
$ 4,357,224
Stock compensation expense
29,376
29,376
2020 Net income
306,893
306,893
BALANCE, December 31, 2020
4,506,788
$ 4,507
$ 1,876,970
$ 3,057,647
$ (245,631 )
$ 4,693,493
See Note 2 for impact of restatement
The accompanying notes are an integral part of these financial statements.
TABLE TRAC, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
OPERATING ACTIVITIES
(As Restated)
Net income
$ 306,893
$ 805,265
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation
43,306
47,952
Gain on sale of asset
(25,713 )
Deferred income taxes
(214,000 )
(15,000 )
Bad debt expense
64,378
20,800
Stock issued for services
9,450
Stock compensation expense
29,376
44,562
Inventory obsolescence reserve
45,045
Paycheck Protection Program (PPP) loan forgiveness income
(473,400 )
Changes in operating assets and liabilities:
Accounts receivable
940,604
33,257
Inventory
(529,870 )
(501,424 )
Prepaid expenses
68,812
(43,921 )
Income taxes receivable
70,400
(220,700 )
Accounts payable, accrued expenses and other
(263,980 )
(74,304 )
Payroll liabilities
(2,857 )
10,112
Customer deposits
(90,000 )
(35,205 )
Net cash provided by (used in) operating activities
(5,293 )
55,131
INVESTING ACTIVITIES
Proceeds from sale of Colombian receivables
7,000
Capital expenditures
(35,445 )
Net cash used in investing activities
(28,445 )
FINANCING ACTIVITIES
Payments on notes payable
(2,221 )
Repurchase of common stock
(51,500 )
Proceeds from Paycheck Protection Program loan
473,400
Net cash provided by (used) in financing activities
473,400
(53,721 )
NET INCREASE (DECREASE) IN CASH
468,107
(27,035 )
CASH
Beginning of period
1,263,762
1,290,797
End of period
$ 1,731,869
$ 1,263,762
Non-cash investing and financing activities:
Treasury stock cost related to compensation
$
$ 2,370
Note from sale of Colombian receivables
$
$
Supplemental cash flow information:
Operating cash outflow for operating leases
$ 62,571
$ 65,166
See Note 2 for impact of restatement
The accompanying notes are an integral part of these financial statements.
TABLE TRAC INC.
Notes to Financial Statements
December 31, 2020 and 2019
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 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, and other obligations, realizability of accounts receivable, 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 may exceed amounts insured by the FDIC. The Company doesn’t believe it is exposed to any significant credit risk on its cash balances.
Major Customers
The following table summarizes major customer’s information for the years ended December 31, 2020 and 2019:
For the Years ended December 31,
% Revenues
% AR
% Revenues
% AR
(As Restated)
(As Restated)
Major
10.2 %
40.5 %
30.6 %
49.4 %
All Others
89.8 %
59.5 %
69.4 %
50.6 %
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.
Revenue Recognition
The Company derives revenues from the sales 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 with in 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.
Maintenance Revenue
Maintenance revenue is recognized ratably over the contract period. The SSP for maintenance is based upon the renewal rate for contracted services.
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.
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.
The following table summarizes disaggregated revenues by major product line for the years ended December 31, 2020 and 2019, respectively:
Years ended December 31,
(As Restated)
(As Restated)
(percent of revenues)
System revenue
$ 1,614,594
$ 3,662,774
36.7 %
46.3 %
Maintenance revenue
2,615,024
2,829,740
59.4 %
35.8 %
Service and other revenue
171,823
1,415,947
3.9 %
17.9 %
Total revenues
$ 4,401,441
$ 7,908,461
100.0 %
100.0 %
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. 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.
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 6% 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 2020 and 2019, 94% and 73% of the Company’s revenues were from the United States, 0% and 16% from Japan and 1% and 5% from Australia, respectively.
As of December 31, 2020 and 2019, 86% and 88% of the Company’s accounts receivable were from the United States and 9% and 3% from Australia, respectively.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and debt. 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.
Accounts Receivable / Allowance for Doubtful Accounts
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 is recorded upon receipt to interest income on the statements of operations. An allowance for doubtful accounts is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for doubtful accounts, 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 (which approximates the first in, first out 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. Based on that evaluation, the Company had $45,045 and $0 of obsolescence reserve at December 31, 2020 and 2019. The total inventory value was $1,748,414 and $1,263,589 as of December 31, 2020 and 2019, respectively, which included work-in-process of $140,022 and $7,442 as of December 31, 2020 and 2019, respectively, and the remaining amount is comprised of finished goods. At December 31, 2020 and 2019 the Company had $0 and $102,000 of prepaid inventory as a component of prepaid expenses and other current assets, respectively.
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.
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 and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of the tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted. 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, 2016 through 2019, which are the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2020. 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 are expensed as incurred. Research and development expenses were $283,421 and $272,156 for the years ended December 31, 2020 and 2019, respectively, and is included in selling, general and administrative expenses on the statements of operations.
Stock-based Compensation
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.
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 dilutive shares as of the beginning of the period in which the vesting conditions are satisfied. (See Note 9).
Note 2. Restatement of Previously Issued Financial Statements
The Company has restated the accompanying financial statements for the year ended December 31, 2019 and the unaudited financial statements for the three months ended and year-to-date periods ended March 31, 2020, June 30, 2020 and September 30, 2020.
The restatement reflects adjustments to correct misstatements related to the accounting treatment of the following items:
●
The costs of delivered systems related to customer contracts whereby it was determined not probable that we would collect substantially all of the consideration to which we were entitled to from the contract were previously deferred and amortized over the contract life. The Company determined these costs are not eligible for deferral and accordingly, these costs are now reflected as an expense when the customer obtains control of the related deliverables.
●
Certain customer contracts with extended payment terms were previously determined to not qualify as a contract for accounting purposes based on an assessment of collectability performed at contract inception. The Company determined it was improperly performing the assessment of collectability of customer contracts in accordance with the revenue recognition accounting guidance under Topic 606. In addition, the Company determined that it had improperly recorded accounts receivable and deferred revenue related to these contracts. Management’s reassessment of collectability at both contract inception and on an ongoing basis resulted in the determination that more contracts met the criteria for collectability at contract inception an on an ongoing basis than previously determined, resulting in adjustments to revenue, accounts receivable and deferred revenue to correct these misstatements.
The impact of this correction to the applicable reporting periods for the financial statement line items impacted is as follows:
December 31, 2019
March 31, 2020 (unaudited)
June 30, 2020 (unaudited)
September 30, 2020 (unaudited)
As Reported
As Restated
As Reported
As Restated
As Reported
As Restated
As Reported
As Restated
Balance Sheets
Accounts Receivable (including long term)
$ 4,791,559
$ 2,342,489
$ 3,882,850
$ 1,615,474
$ 3,757,362
$ 1,989,344
$ 3,420,732
$ 1,669,570
Contract assets
$ 1,037,364
$
$ 862,624
$
$ 776,373
$
$ 740,774
$
Contract liabilities
$ 3,148,410
$
$ 2,628,972
$
$ 2,281,383
$
$ 2,164,580
$
Deferred tax liability
$ 543,000
$ 465,000
$ 438,000
$ 357,000
$ 433,000
$ 373,000
$ 387,000
$ 312,000
Stockholders' Equity
$ 4,617,246
$ 4,357,224
$ 4,623,402
$ 4,354,374
$ 4,664,320
$ 4,461,312
$ 4,750,525
$ 4,498,169
Year ended
Three Months Ended
Three Months Ended
December 31, 2019
March 31, 2020 (unaudited)
June 30, 2020 (unaudited)
Statements of Operations
As Reported
As Restated
As Reported
As Restated
As Reported
As Restated
Revenues
$ 7,505,371
$ 7,908,461
$ 1,307,376
$ 1,125,630
$ 1,212,551
$ 1,133,071
Cost of sales
$ 1,715,054
$ 2,457,077
$ 401,888
$ 227,148
$ 183,536
$ 97,285
Gross profit
$ 5,790,317
$ 5,451,384
$ 905,488
$ 898,482
$ 1,029,015
$ 1,035,786
Selling, general and administrative expenses
$ 4,853,767
$ 4,528,567
$ 932,790
$ 937,790
$ 1,037,504
$ 975,254
Income (loss) from operations
$ 936,550
$ 922,817
$ (27,302 )
$ (39,308 )
$ (8,489 )
$ 60,532
Net income (loss)
$ 815,998
$ 805,265
$ (1,188 )
$ (10,194 )
$ 33,574
$ 81,595
Earnings (loss) per Share:
Basic
$ 0.18
$ 0.18
$ (0.00 )
$ (0.00 )
$ 0.01
$ 0.02
Diluted
$ 0.18
$ 0.18
$ (0.00 )
$ (0.00 )
$ 0.01
$ 0.02
Six Months Ended
Three Months Ended
Nine Months Ended
June 30, 2020 (unaudited)
September 30, 2020 (unaudited)
September 30, 2020 (unaudited)
Statements of Operations
As Reported
As Restated
As Reported
As Restated
As Reported
As Restated
Revenues
$ 2,519,927
$ 2,258,701
$ 1,288,559
$ 1,188,612
$ 3,808,486
$ 3,447,313
Cost of sales
$ 585,424
$ 324,433
$ 349,998
$ 314,399
$ 935,422
$ 638,832
Gross profit
$ 1,934,503
$ 1,934,268
$ 938,561
$ 874,213
$ 2,873,064
$ 2,808,481
Selling, general and administrative expenses
$ 1,970,294
$ 1,913,044
$ 843,781
$ 843,781
$ 2,814,075
$ 2,756,825
Income (loss) from operations
$ (35,791 )
$ 21,224
$ 94,780
$ 30,432
$ 58,989
$ 51,656
Net income (loss)
$ 32,386
$ 71,401
$ 78,861
$ 29,513
$ 111,247
$ 100,914
Earnings (loss) per Share:
Basic
$ 0.01
$ 0.02
$ 0.02
$ 0.01
$ 0.02
$ 0.02
Diluted
$ 0.01
$ 0.02
$ 0.02
$ 0.01
$ 0.02
$ 0.02
There was no impact on cash as a result of these misstatements, and as such, the statement of cash flows for the corresponding adjustments reflects an adjustment to net income and to the balance sheet items, resulting in no change to cash flows from operations for all periods impacted.
We have also corrected 2018 for these misstatements, which resulted in an approximate decrease of $249,000 to stockholders' equity as of December 31, 2018.
NOTE 3. ACCOUNTS RECEIVABLE
December 31,
December 31,
(As Restated)
Accounts receivable - Current
$ 1,381,347
$ 2,294,242
Less allowance for doubtful accounts
(77,623 )
(42,623 )
Accounts receivable current - net
$ 1,303,724
$ 2,251,619
Accounts receivable - Long-term
$ 33,783
$ 90,870
The allowance for accounts receivable represents management’s best estimate of probable losses in our receivables as of the date of the financial statements. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in receivables, but that have not been specifically identified.
A roll-forward of the Company’s allowance for doubtful accounts for the years ended is as follows:
December 31,
December 31,
(As Restated)
Accounts receivable allowance, beginning of year
$ 42,623
$ 104,040
Provision adjustment
64,378
20,800
Write-off
(29,378 )
(82,217 )
Accounts receivable allowance, end of year
$ 77,623
$ 42,623
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
December 31,
December 31,
Office equipment
$ 49,294
$ 49,294
Vehicles
211,465
211,465
Total
260,759
260,759
Less: accumulated depreciation
(229,916 )
(186,610 )
Property and equipment, net
$ 30,843
$ 74,149
Depreciation expense totaled $43,306 and $47,952 for the years ended December 31, 2020 and 2019, respectively.
NOTE 5. 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, 2021, which was subsequently extended through February 1, 2022. 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, 2020. Interest on outstanding borrowing is payable monthly and charged at the Prime Rate, subject to a floor of 3.75%, at December 31, 2020.
On April 14, 2020, the Company entered into a Promissory Note with Alerus Financial, N.A. (the “Promissory Note”), which provides for an unsecured loan of $473,400 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”). Forgiveness of the Promissory Note will be determined in accordance with the provisions of the CARES Act and applicable regulations. The Company used the entire loan amount for designated qualifying expenses and to applied for forgiveness of the loan in accordance with the terms of the PPP on September 16, 2020. Notice of PPP forgiveness payment was received on December 21, 2020, and accordingly, the Company recognized forgiveness income of $473,400 as other income on the statement of operations.
On February 8, 2021, the Company entered into a Promissory Note with Alerus Financial, N.A. (the “Promissory Note”), which provides for an unsecured loan of $473,400 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”). The Promissory Note has a term of 2 years with a 1% per annum interest rate. Payments are deferred for 6 months from the date of the Promissory Note and the Company can apply for forgiveness of the Promissory Note after 60 days. Forgiveness of the Promissory Note will be determined in accordance with the provisions of the CARES Act and applicable regulations. Any principal and interest amounts outstanding after the determination of amounts forgiven will be repaid on a monthly basis. The Company intends to use the entire loan amount for designated qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the PPP. No assurance can be given that the Company will obtain forgiveness of the loan in whole or in part.
NOTE 6. OPERATING LEASES
We lease space under non-cancelable operating leases for our two 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; we use our incremental borrowing rate of 5% which is based on the information available at the date of adoption in determining the present value of the lease payments.
The cost components of our operating leases were $62,271 and $65,166 for the year ended December 31, 2020 and 2019, respectively.
Maturities of our lease liabilities for all operating leases are as follows as of December 31, 2020:
Leased Facilities
$ 42,432
9,200
Total Lease Payments
51,632
Less: Interest
(1,951 )
Present value of lease liabilities
$ 49,681
The weighted average remaining lease terms equals 1.08 years as of December 31, 2020.
NOTE 7. STOCKHOLDERS’ EQUITY
Common Stock
As of December 31, 2020, and 2019, the Company holds 149,946 common stock shares in treasury at a total cost of $245,631 for future employee and professional service provider’s issuances under the bonus program which was part of both 2018 and 2014 repurchase of shares.
Stock Repurchase Program
On January 7, 2018, the Company’s Board of Directors approved the repurchase of its outstanding shares, using management’s discretion, of its common stock from private unsolicited sellers in the open market. On May 10, 2018, the Company’s Board of Directors approved the repurchase of its outstanding common shares in an aggregate amount of up to 200,000 shares not to exceed $600,000, in both private unsolicited and open market transactions, until December 31, 2020. Company insiders are prohibited from participating in the stock repurchase program.
The Company did not repurchase any shares for its treasury during 2020.
Stock 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 will be recognized over the vesting period as stock compensation expense as a component of selling, general and administration expense.
The Company awarded 0 and 3,000 shares approximating $0 and $9,500 to a non-employee in exchanges for services during 2020 and 2019, respectively.
The unvested stock compensation expense is expected to be recognized over a weighted average period of approximately one year. As of December 31, 2020, the remaining unrecognized stock compensation expense approximated $29,400.
The Company has no stock options outstanding as of December 31, 2020 and 2019.
The Company has 20,000 shares of restricted stock outstanding as of December 31, 2020, 10,000 of which vested on January 8, 2021. There were 30,000 shares of restricted stock outstanding at December 31, 2019.
NOTE 8. INCOME TAXES
The income tax provision (benefit) consists of the following for the years ended December 31:
(As Restated)
Current tax expense
$ 117,000
$ 189,000
Deferred tax (benefit)
(214,000 )
(15,000 )
Total income tax expense (benefit)
$ (97,000 )
$ 174,000
The reconciliation between expected federal income tax rates and the Company’s effective federal tax rates is as follows for the year ended December 31:
Amount
Percent
Amount
Percent
(As Restated)
(As Restated)
Expected federal tax
$ 44,100
21.0 %
$ 205,600
21.0 %
Permanent differences
2,900
1.4 %
(5,400 )
(0.6 )%
State income tax, net of federal tax benefit
4,500
2.1 %
22,600
2.3 %
Research and Development tax credit
(48,000 )
(22.9 )%
(29,000 )
0.0 %
Paycheck Protection Program loan forgiven
(99,400 )
(47.4 )%
0.0 %
Other
(1,100 )
(0.5 )%
(19,800 )
(2.0 )%
Total
$ (97,000 )
(46.3 )%
$ 174,000
20.7 %
The following table summarizes the Company’s deferred tax assets and liabilities at December 31:
Current deferred tax asset (liabilities):
(As Restated)
Accounts payable and accrued expenses
$ 20,000
$ 74,000
Accounts receivable
(328,000 )
(553,000 )
Allowance for doubtful accounts
18,000
10,000
Inventory obsolescence
10,000
Prepaid expenses
(72,000 )
(89,000 )
Customer deposits
38,000
59,000
Net current deferred tax liability
(314,000 )
(499,000 )
Long-term deferred tax asset (liabilities):
NOL - State
6,000
7,000
Foreign tax credit
43,000
40,000
R&D tax credit
17,000
Book - Tax depreciation
(7,000 )
(13,000 )
Stock compensation
4,000
Net long-term deferred tax asset
63,000
34,000
Net deferred tax liability
$ (251,000 )
$ (465,000 )
The company has various state net operating loss carryforwards of approximately $77,000 and other Federal and state tax credit carryforwards of approximately $64,000 that expire between 2021 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.
NOTE 9. 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:
(As Restated)
Net income to common stockholders
$ 306,893
$ 805,265
Weighted average number of common shares outstanding - basic
4,486,788
4,491,135
Basic net income per share
$ 0.07
$ 0.18
Weighted average number of common shares outstanding - diluted
4,497,599
4,500,027
Diluted net income per share
$ 0.07
$ 0.18
For the year ended December 31, 2020 there were common stock equivalents that had a dilutive effect of approximately 10,800 shares.

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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 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 management, including the 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, 2020, the Company’s management 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 that evaluation, it was concluded the disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting, as discussed further below.
(b) REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, the Company used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework (2013).” These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The Company’s assessment included extensive documenting, evaluating and testing the design and operating effectiveness of its internal control over financial reporting. Based on this evaluation, the persons serving as the Company’s principal executive officer and principal financial officer have concluded that the Company’s internal controls were not effective as of December 31, 2020 due to a material weakness in our controls over revenue recognition, primarily related to the application of the collectability criterion and recognition of contract costs. Remediation efforts have already been implemented which primarily consists of new policies and procedures to assist management in recording transactions appropriately, particularly related to revenue and cost recognition. We plan to retain the assistance of an accounting expert to assist in the adoption of any significant new accounting pronouncements and/or the accounting for any complex transactions. We will consider this material weakness to be fully remediated once the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively, which management expects to be completed by June 30, 2021.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(c) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
Other than the material weakness and remediation efforts mentioned above, there were no changes in our internal control over financial reporting during the fourth quarter of our 2020 fiscal year, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
On February 8, 2021, the Company entered into a Promissory Note with Alerus Financial, N.A. (the “Promissory Note”), which provides for an unsecured loan of $473,400 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”). The Promissory Note has a term of 2 years with a 1% per annum interest rate. Payments are deferred for 6 months from the date of the Promissory Note and the Company can apply for forgiveness of the Promissory Note after 60 days. Forgiveness of the Promissory Note will be determined in accordance with the provisions of the CARES Act and applicable regulations. Any principal and interest amounts outstanding after the determination of amounts forgiven will be repaid on a monthly basis. The Company intends to use the entire loan amount for designated qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the PPP. No assurance can be given that the Company will obtain forgiveness of the loan in whole or in part.
The foregoing summary description of the terms and conditions of the Promissory Note does not purport to be complete and is qualified in its entirety by reference to the Promissory Note, a copy of which is filed as Exhibit 10.2 to this Annual Report on Form 10-K and is incorporated herein by reference.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
MANAGEMENT
The executive officers and directors of the Company, with a brief description, are as follows:
Chad B. Hoehne
Chief Executive Officer,
President,
Chief Technology Officer,
Director,
Chairman of the Board
Mr. Hoehne is the Chief Executive Officer, President, founder and Chief Technology Officer of the Company. He was appointed as the Company’s Chief Executive Officer on November 20, 2017. From November 20, 2017 until January 8, 2018, he also served as the interim Chief Financial Officer of the Company. He has a B.S. degree in Business Administration, Finance and computer minor from Minnesota State University. Mr. Hoehne founded Table Trac, Inc. in 1994 after working nine years for a successful Minneapolis electronics manufacturer and software company.
Mr. Hoehne has been on the board since the Company’s founding.
Randy W. Gilbert
Chief Financial Officer
Mr. Gilbert was appointed as the Company’s Chief Financial Officer on January 8, 2018. Previously and since September 2015, Mr. Gilbert served as a Principal with Assurance Consulting 3 (AC3) a division of Boeckermann, Grafstrom and Mayer, which provides Sarbanes Oxley and internal audit services. Prior to that and since 2006, he was a manager with AC3. Additionally, Mr. Gilbert served as the Chief Financial Officer for EVO Transportation & Energy Services, Inc. (formerly called Minn Shares Inc.) from May 2016 to December 2017. Mr. Gilbert has a Bachelor of Accounting B.ACC degree from the University of Minnesota - Duluth and began his Accounting career with KPMG.
Robert R. Siqveland
Corporate Secretary
Mr. Siqveland is employed by Table Trac, Inc. as Director of Professional Services. Mr. Siqveland has served as Corporate Secretary since 1999. Prior to joining Table Trac, Mr. Siqveland was an investment advisor with Summit Investment and venture capitalist with Property Growth Company for 25 years, providing “seed capital” and management to over 30 companies.
Mr. Siqveland was a director at Table Trac from 1999 through 2011.
William Martinez
Director,
Chair of the Compliance Committee
Mr. Martinez has been private contractor for the Department of Justice for the past three years, serving as an expert in homicide investigations and Use of Force. From 2012 to 2016, Mr. Martinez was the Assistant Chief of Police-Chief of Detectives/Major Crimes, for the city of St. Paul. Prior to that, he was the Senior Commander of St. Paul’s Homicide and Robbery Unit. Bill has also been committed to numerous Community Building Initiatives over the years. In addition to his extensive experience in multiple facets of law enforcement, Bill is a skilled leader with strong communication and teaching skills and will be highly effective in developing the Company’s organizational and ongoing development vision
Mr. Martinez was elected a director at Table Trac in October 2018.
Thomas J. Mertens
Director,
Chair of the Audit and Compensation Committee
Mr. Mertens is a graduate of St. John’s University with a degree in accounting. He became a Certified Public Accountant in 1990 and a Master Graduate of Rapport Leadership International in 2002. Since 2013, Tom has been the Chief Financial Officer for the Archdiocese of St. Paul and Minneapolis where he developed, implemented and provided oversight of processes, procedures and best practices. Tom was the CFO and Controller for Macquarie Air-Serv Holding Inc. for eight years where he provided expertise and leadership in growing the company’s revenues from $60M to $130M mainly through acquisitions. Tom began his career as an auditor for KPMG Peat Marwick in Minneapolis. Tom is a proven leader and will bring that skill and decades of experience to the Company’s Board of Directors.
Mr. Mertens was elected a director at Table Trac in October 2018.
When considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board of Directors focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes associated with a director. With regard to Mr. Hoehne, the Company’s founder and chief technology architect of the Company’s technology products and overall system architecture, his technical expertise and knowledge represents a significant asset in terms of positioning the products for the future. With regard to Mr. Mertens, the Board of Directors considered his extensive background in corporate governance and finance. Finally, In regard to Mr. Martinez, the Board of Directors was most impressed with his extensive leadership, management experience and language skills. In addition, his network within the field of law enforcement was an added asset whereas the Compliance requirements of Nevada licensure are not only more demanding than ever before, but reach to all jurisdictions within which Table Trac operates and that presently encompasses eleven countries.
The directors of the Company are elected annually by the stockholders for a term of one year or until their successors are elected and qualified. The board officially meets at least once a year following the annual stockholders meeting.
NO INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, no officer, or director of the Company has been:
●
involved in any petition under the federal bankruptcy laws or any state insolvency law that was filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years, or any corporation or business association of which he was an executive officer at or within two years within the date of this report;
●
convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
●
the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities: (1) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; (2) engaging in any type of business practice; or (3) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
●
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in subsection (3) of the immediately preceding item listed above, or to be associated with persons engaged in any such activity;
●
found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
●
found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
●
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (1) any federal or state securities or commodities law or regulation; or (2) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (3) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
●
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that at least one member of the Audit Committee, Mr. Thomas Mertens, is an “audit committee financial expert” as that term is defined in Regulation S-K promulgated under the Exchange Act. Mr. Mertens’ relevant experience is detailed above. Mr. Mertens qualifies as an “independent director,” as such term is defined in Section 5605(a)(2) of the Nasdaq Listing Rules, and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. The Board of Directors has determined each member of the Audit Committee is able to read and understand fundamental financial statements and that at least one member of the Audit Committee, Mr. Mertens, has past experience in finance or accounting matters.
CODE OF ETHICS
We have adopted a Code of Ethics that governs the conduct of our officers, directors and employees in order to promote honesty, integrity, loyalty and the accuracy of our financial statements. You may obtain a copy of the Code of Ethics without charge by writing us and requesting a copy, attention: Chad Hoehne, 6101 Baker Road, Suite 206, Minnetonka, Minnesota 55345. You may also request a copy by calling us at (952) 548-8877.
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers, directors and persons considered to be beneficial owners of more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission and NASDAQ. Officers, directors and greater-than-ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company by its officers and directors, or the Company’s actual knowledge of transactions involving such officers and directors, the Company believes that all such filings were filed on a timely basis for fiscal year 2020

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation awarded to or earned by: (i) each individual who served as the principal executive officer and principal financial officer of Table Trac during the year ended December 31, 2020; and (ii) each other individual that served as an executive officer of Table Trac at the conclusion of the year ended December 31, 2020 and who received more than $100,000 in the form of salary and bonus during such fiscal year. For purposes of this report, these individuals are collectively the “named executives” of the Company.
Name, Principal Position
Salary and Bonus
Stock Awards
Stock Option Awards
Total
Chad Hoehne,
$ 353,325
$
$
$ 353,325
President, CTO and CEO(1)
353,586
353,586
Robert Siqveland, Secretary
130,135
130,135
150,093
150,093
Randy Gilbert, CFO(2)
215,353
215,353
197,083
197,083
(1)
Chad Hoehne was appointed as the Company’s Chief Executive Officer on November 20, 2017. From November 20, 2017 until January 8, 2018, he also served as the interim Chief Financial Officer of the Company.
(2)
Randy Gilbert was hired as the Company’ CFO on January 8, 2018. See below regarding stock award vesting terms.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The Company had no options outstanding at December 31, 2020 for any named executives. As of December 31, 2020 Randy Gilbert, the Company’s Chief Financial Officer, has 20,000 Restricted Stock shares with a market value of $55,000. These shares are subject to vest on January 8th over three years as follows: 10,000 shares in years 2021 and 2022.
EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
The Company does not currently have any employment or change-in-control agreements with any named executives or any other current members of our executive management.
As of the date of this Annual Report, Table Trac Inc. does not offer its executive employees any pension, annuity, profit sharing or similar benefit plans other than our insurance plan. Executive compensation is subject to change from time to time concurrent with our requirements and policies as established by the Board of Directors and its Compensation Committee.
COMPENSATION OF DIRECTORS
Name
Compensation
Stock Awards
Stock Option Awards
Total
Chad Hoehne
$
$
$
$
William Martinez(1)
20,000
20,000
Thomas Mertens(2)
22,000
22,000
(1)
Mr. Martinez joined the Board of Directors on October 29, 2018.
(2)
Mr. Mertens joined the Board of Directors on October 29, 2018.
Company directors are compensated on an annual award approved by the board and reimbursed for their actual expenses incurred in connection with attending board meetings or discharging their duties as directors.

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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.
As of the close of business on March 24, 2020, we had outstanding one class of voting securities-common stock-of which there were 4,506,788 shares issued and outstanding. Each share of common stock is currently entitled to one vote on all matters put to a vote of our shareholders. The following table sets forth the number of common shares, and percentage of outstanding common shares, beneficially owned as of March 24, 2020, by:
●
each person known by the Company to be the beneficial owner of more than five percent of the Company’s outstanding common stock
●
each current director
●
each executive officer of the Company and other persons identified as a named executive in Item 11 above, and
●
all current executive officers and directors as a group.
Unless otherwise indicated, the address of each of the following persons is 6101 Baker Road, Suite 206, Minnetonka, Minnesota 55345, and each such person has sole voting and investment power with respect to the shares set forth opposite his, her or its name.
Common Shares
Percentage of
Beneficially
Common
Name and Address
Owned(1)
Shares(1)
Chad Hoehne(2)
1,171,600
26.00 %
Randy Gilbert(3)
45,225
1.00 %
Robert Siqveland(4)
206,500
4.58 %
William Martinez(5)
2,000
*
Thomas Mertens(6)
2,000
*
All directors and officers as a group(7)
1,427,325
31.67 %
Zeff Capital, LP(8) 1601 Broadway, 12th floor New York, NY 10019
446,863
9.92 %
*
denotes less than one percent.
(1)
Beneficial ownership is determined in accordance with the rules of the SEC, and includes general voting power and/or investment power with respect to securities. Under the applicable SEC rules, each person’s beneficial ownership is calculated by dividing the total number of shares with respect to which they possess beneficial ownership by the total number of outstanding shares of the Company. In any case where an individual has beneficial ownership over securities that are not outstanding, but are issuable upon the exercise of options or warrants or similar rights within the next 60 days, that same number of shares is added to the denominator in the calculation described above. Because the calculation of each person’s beneficial ownership set forth in the “Percentage of Common Shares” column of the table may include shares that are not presently outstanding, the sum total of the percentages set forth in such column may exceed 100%.
(2)
Mr. Hoehne is the President, CEO and a director of the Company.
(3)
Mr. Gilbert is the Chief Financial Officer of the Company.
(4)
Mr. Siqveland is the Company’s secretary.
(5)
Mr. Martinez is a director of the Company.
(6)
Mr. Mertens is a director of the Company.
(7)
Consists of five persons: Messrs. Hoehne, Gilbert, Siqveland, Martinez and Mertens.
(8)
Share figures reflected in the table are based on a December 31, 2020 Schedule 13G filing by Zeff Capital, LP, which is the Company’s most recent and best available information relating to Zeff Capital’s ownership of Company common stock. Based on the referenced communication, voting and dispositive power with respect to these shares is exercised by Zeff Capital, LP.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
None.
DIRECTOR INDEPENDENCE
The Company does not have a standing nominating committee. Instead, the entire Board of Directors shares the responsibility of identifying potential director-nominees to serve on the Board of Directors.
The Board of Directors does have a standing Compensation Committee, Compliance Committee and Audit Committee. The Compensation Committee is composed of Messrs. Martinez and Mertens (with Mr. Mertens serving as chairperson). The Compliance Committee is composed of Messrs. Martinez, Mertens and Hoehne (with Mr. Martinez serving as chairperson).The Audit Committee is composed of Messrs. Mertens, Martinez and Hoehne (with Mr. Mertens serving as chairperson). The Board of Directors has determined that Messrs. Martinez and Mertens are “independent,” as such term is defined in Section 5605(a)(2) of the Nasdaq Listing Rules, and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. The preceding disclosure respecting director independence is required under applicable SEC rules. However, as a corporation whose shares are listed for trading on the OTCQB, the Company is not required to have any independent directors at all on its Board of Directors, or any independent directors serving on any particular committees of the Board of Directors.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm, during 2020 and 2019, Boulay PLLP, billed for the following services:
Audit fees, including quarterly review of Form 10-Q
$ 95,000
$ 90,000
Tax fees
12,916
11,620
Audit-related fees (1)
15,010
24,205
All other fees
$ 122,926
$ 125,825
The audit fees consisted of fees for the annual audit of the Company’s financial statements and the reviews of financial statements in quarterly reports on Form 10-Q.
(1)
Audit-related fees were billed for other financial, tax and operational related consulting.
Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and permissible non-audit services. All services provided by the independent auditors during 2020 and 2019 have been approved by the Audit Committee or Board of Directors.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
FINANCIAL STATEMENTS
Included herein at Part II, Item 8, are the Financial Statements and the Report of the Independent Registered Public Accounting Firm.
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
Promissory Note dated February 8, 2021 between Table Trac Inc. and Alerus Financial, N.A. (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
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document