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TBTC > SEC Filings for TBTC > Form 10-K on 26-Mar-2014All Recent SEC Filings

Show all filings for TABLE TRAC INC

Form 10-K for TABLE TRAC INC


26-Mar-2014

Annual Report


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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position at December 31, 2013 was $1,038,288, an increase of $428,598 from $609,690 at December 31, 2012. 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. The Company presently has no bank line of credit or other financing arrangements except for a note payable of $8,180, which is expected to be paid in full in 2014. As a result, its sole sources of liquidity are cash, receivables and potentially other current assets. 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.

Net cash flows provided by operating activities during the year ended December 31, 2013 was $439,505 compared with net cash flows used in operating activities of ($214,068) for the same period in 2012. This change of $650,846 was caused primarily by improved income from operations in 2013 compared to 2012.

Net cash used in financing activities was ($10,907) during the year ended December 31, 2013, and was the same amount for 2012.

On December 31, 2013, total stockholders' equity was $3,208,662. This compared to a stockholders' equity of $2,617,724 in 2012, which is an increase of $590,938 or 22.5%.

The Company's operations are not capital intensive. The basic product of the Company is computer software developed by its employees. Most manufacturing is done after the Company receives an order, so there is little product inventory held by the Company.

RESULTS OF OPERATIONS, YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED
DECEMBER 31, 2012

The most significant events that affected the 2013 results of operations were the Company's (1) installation of nine casino management systems at seven operating entities; (2) expansion into the California market and expansion efforts into several other U.S. markets; and (3) the completion of the R&D services contract early in 2013 in relation to the company's new content management system.

Inflation for the previous three years ended December 31, 2013 has been negligible, having no material effect on the Company's operations. Increased inflation may put the Company's cash holdings at risk for a loss of real value. As a result, the Company expects to periodically evaluate inflation pressure and take appropriate steps to place its available cash and cash equivalents into conservative and less inflation-sensitive investments.

A breakout of revenue by type is as follows:

                                            For the Years Ended December 31,
                                  2013            2012            2013             2012
                                                                 (percent of revenues)
System sales                   $ 3,394,306     $ 2,806,863            63.8 %         58.7 %
License and maintenance fees       994,776       1,118,120            18.7 %         23.4 %
Other sales                        933,282         857,635            17.5 %         17.9 %
Total revenues                 $ 5,322,364     $ 4,782,618           100.0 %        100.0 %

Revenues increased from $4,782,618 in 2012 to $5,322,364 in 2013. The increase of $539,746 was due to new installations which affected 2013 revenues as well as installations which occurred in 2012 and had recurring monthly revenue recognition in 2013. System sales revenues increased from $2,806,863 in 2012 to $3,394,306 in 2013, a 20.9% increase of $587,443, due to 2013 new system installations as well as 2012 financed contracts which had revenue recognition in 2013 of $899,429 due to receipt of payments. Ongoing maintenance revenue has decreased from $1,118,120 in 2012 to $994,776 in 2013, an 11.0% decrease of $123,344, due to the loss of one customer at the beginning of 2013. Other sales, which includes Cash IO kiosk sales, promotional kiosk software sales, and rental sales has increased from $857,635 in 2012 to $933,282 in 2013, an 8.8% increase of $75,647.

Cost of sales increased to $1,553,101 in 2013 from $1,204,726 in 2012. The increase of $348,375 was primarily due to more third party sales in 2013 compared to 2012, which have lower margins than system sales.

A breakout of cost of sales by type is as follows:

                                            For the Years Ended December 31,
                                  2013            2012            2013             2012
                                                                  (percent of revenues)
System sales                     1,076,801     $   800,249           20.2 %           16.7 %
License and maintenance fees       180,228         159,961            3.4 %            3.3 %
Other sales                        296,072         244,516            5.6 %            5.1 %
Total cost of sales            $ 1,553,101     $ 1,204,726           29.2 %           25.2 %

Deferred revenues - short-term increased to $44,950 in 2013 from $22,409 in 2012. The balance represents down payments received for system installations on order at year-end and annual payments of maintenance. The deferred revenue is non-refundable and is recognized as revenue when the system installations are completed or as invoices are due. As of December 31, 2013, the Company was not in the process of actively installing any new Table Trac systems.

Deferred revenues - long-term increased to $1,536,862 in 2013 from $1,457,793 in 2012. The balance represents contracts which have been signed and invoiced, but revenue will be recognized and cash collected monthly over multiple years. The amount in 2013 represents three contracts which were signed and installed during the year combined with the contracts installed in 2012 which had deferred revenue remaining as of December 31, 2013.

The gross margin in 2013 was $3,769,263 or 70.8% of sales compared with $3,577,892 or 74.8% of sales in 2012. The decrease of gross margin was primarily due to higher other sales noted above in 2013 compared to 2012 which generally have a lower margin.

Total operating expenses decreased from $3,616,539 in 2012 to $2,965,006 in 2013. This 18.0% decrease of $651,533 was primarily due the decrease of subcontracted research and development costs compared to 2012 as a result of the successful completion of the project at the end of 2012.

Interest / Other income decreased in 2013 to a net amount of $95,561 from $116,796 in 2012; the 18.2% decrease of $21,235 is due to a lower amount of long-term financed contracts in 2013 compared to 2012.

The provision for income taxes was $319,455 in 2013, for an effective rate of 35.5%, compared to a provision for income taxes of $53,475 for an effective rate of 68.4% in 2012. The change in rates is primarily due to a 2012 profit for financial results and a loss for tax purposes that was carried forward to offset tax profits for 2013.

The net income for 2013 was $580,363 compared to $24,674 for 2012, which is an improvement of $555,689.

The basic and diluted earnings per share in 2013 was $0.12 compared to $0.01 in 2012.

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 from systems that have been demonstrated to meet customer specifications during installation is recognized when evidence of an arrangement exists, the product has been installed, title and risk of loss have transferred to the customer and collection of the resulting receivable is reasonably assured. System sales, which are accounted for as multiple-element arrangements, include multiple products and/or services. For multiple-element arrangements, the Company allocates the revenue to each element based on their relative fair estimated value based on vendor specific objective evidence (VSOE) and recognizes the associated revenue when all revenue recognition criteria have been met for each element. If there are contracts the Company does not have VSOE of fair value of all elements, revenue is deferred until the earlier of VSOE being determined or when all elements have been delivered.

The Company does offer its customers contracts with extended payment terms. The Company must evaluate if any extended payment terms in the contract is an indicator of the revenue not being fixed or determinable. Provided all other revenue recognition criteria have been satisfied, the Company recognizes the revenue if payment of a significant portion of the systems sales is due within 12 months of the delivery of the product. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts without making concessions for determining if revenue should be recognized. Revenue and associated set-up costs are deferred if contract terms exceed historical collection results or if a substantial portion of the contract is not due within 12 months after delivery of the product. The Company analyzes each contract for proper revenue recognition based on that contracts facts and circumstances. Interest is recorded upon receipt to "other income" on the statements of operations.

Maintenance revenue

Maintenance revenue is recognized ratably over the contract period. The VSOE for maintenance is based upon the renewal rate for contracted services.

Service revenue

Service revenue is recognized after the services are performed and collection of the resulting receivable is reasonably assured. The VSOE for service revenue is established based upon prices for the services.

Rental revenue

The Company offers certain new customers a rental contract. Revenues are billed monthly based on a per-game per-day basis. There is an option to purchase the system after the rental agreement at a pre-determined residual value.

Accounts Receivable / Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount. Accounts receivable include regular customer receivables and amounts from financed contracts coming due within 12 months. Amounts from financed contracts due beyond 12 months are recorded as "Long-term accounts receivable - financed contracts." Interest is recorded upon receipt to other 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. 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.

Accounts receivable consisted of the following at December 31, 2013 and 2012:

                                                              December 31, 2013       December 31, 2012

Accounts receivable under normal 30 day terms                $         1,322,680     $         2,047,563
Financed contracts:
Short-term                                                               332,209                 266,375
Current portion of long-term                                           1,697,577               1,296,041
Long-term, net of current portion                                        904,410                 732,376
Total accounts receivable                                              4,256,876               4,342,355
Less allowance for doubtful accounts                                    (112,054 )              (663,511 )
Accounts receivable, net                                     $         4,144,822     $         3,678,844

Inventory

Inventory, consisting of finished goods, is stated at the lower of cost or market. The average cost method is used to value inventory. Inventory is reviewed annually for the lower of cost or market and obsolescence. Any material cost found to be above market value or considered obsolete is written down accordingly. The Company had no obsolescence reserve at December 31, 2013 and 2012.

Long-lived Assets

The Company periodically assesses the recoverability of long-lived assets and certain identifiable intangible assets by reviewing for 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 un-discounted 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Stock-based Compensation

The Company recognizes the cost of stock-based compensation plans and awards in operations on a straight-line basis over the vesting period of the awards. The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors. The compensation expense for the Company's stock-based payments is based on estimated fair values using the Black-Scholes pricing model at the time of the grant.

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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