Annual Report for Fiscal Year Ending 12-31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this filing.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made in this report are "forward-looking statements," as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as "may," "will," "believe," "anticipate," "intend," "estimate," "expect" and similar expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings "Description of Business," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," but are found in other parts of this report as well. These statements are based upon management's current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other important factors, including those described in this report under Part I, Item 1A "Risk Factors" as well as in our other SEC filings. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Industry data and other statistical information used in this report are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.

BACKLOG

The Company's backlog generally consists of incomplete system installations and expansion of offerings for currently installed and supported systems.

The Company had five projects in its backlog as of December 31, 2024. The Company had three projects in its backlog at December 31, 2023. As of the filing date of this report, the Company has signed two new contracts with customers in 2025.

The Company is currently serving gaming establishments in seventeen states inthe U.S., as well as countries in Central and South America, the Caribbean and Australia. The Company aims to pursue further opportunities and strategic partnerships.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that the Company has adequate cash to meet its obligations and continue operations for both existing customer contracts and ongoing product development for at least the next twelve months from the date of this filing. The Company's primary sources of liquidity are cash, cash equivalents, short term investments, receivables, and future cash generated from operations.

In addition, the Company has a $500,000 line of credit with a lender. As of December 31, 2024, no amount was outstanding. The line of credit expires on February 1, 2026.

The Company's cash and cash equivalents position at December 31, 2024was $2,257,696, a decrease of $1,232,075from $3,489,771 at December 31, 2023. This decrease was primarily the result of the Company investing in certificates of deposit.

Net cash flows provided by operating activities during the year ended December 31, 2024was $2,018,053an increase of $1,623,113 from $394,940 for the year ended December 31, 2023. This increase was primarily due to a decrease in inventory and an increase in customer deposits.

Net cash used in investing activities was $3,111,075 during the year ended December 31, 2024, compared to $1,556,113 for the year ended December 31, 2023. This increase was a result of the Company's investing in certificates of deposit and the capital expenditures related to the opening of the Las Vegas office.

For the year ending December 31, 2024 net cash used in financing activities was $139,053, which was primarily the payment of dividends. For the year ended December 31, 2023 net cash used was $135,979.

On December 31, 2024, total stockholders' equity was $11,462,081 compared to $9,899,565 on December 31, 2023, an increase of $1,562,516or 15.8%, which was primarily due to 2024net income.

The Company did not have any off-balance sheet arrangements as of December 31, 2024.

RESULTS OF OPERATIONS, YEAR ENDED December 31, 2024 COMPARED TO YEAR ENDED December 31, 2023

The most significant events that affected the 2024results of operations were the Company's installation of eight casino management systems and expanding two existing customers systems.

Revenue

See Note 1: Revenue, disaggregated revenues by major product line table

Total revenues increased $1,677,174, a 17.7% increase, as a result of increases in system, maintenance and other sales. System sales increased $760,105, a 23% increase, due to an increase in the number and size of site installations in 2024 compared to 2023. Maintenance revenue increased $393,205, an 7.9% increase, due to the increase in our customer base from 2023 to 2024. Service and other revenue, which includes DataTrac, KioskTrac, KioskTrac Mobile, SlotSUITE, RePrintEnroll kiosksand licensing agreements increased $523,863, or approximately 45%, as a result of an increase in DataTrac services, SlotSUITE and promotional kiosk products sold.

During 2024, the Companydelivered a total of eight systems and expanded two systems in the United States. During 2023, the Company delivered thirteen systems.

Cost of Sales and Gross Profit

Cost of sales increased 34.2% to $3,270,733in 2024from $2,436,449in 2023. The increase of $834,284 was primarily due to an increase in volume and size of installations. The following table summarizes our cost of sales:

		Year Ended December 31,
		2024				2023				2024				2023
										(percent of revenues)				(percent of revenues)
System		$	1,209,320			$	820,936				10.8	%			8.7	%
Maintenance			1,042,247				929,177				9.3	%			9.8	%
Service and other			1,019,166				686,336				9.1	%			7.2	%
Total cost of sales		$	3,270,733			$	2,436,449				29.2	%			25.7	%
Gross profit		$	7,893,293			$	7,050,404				70.8	%			74.3	%

The gross profit in 2024 totaled $7,893,293 or 71% of sales compared with $7,050,404 or 74% of sales in 2023. This decrease of gross margin percentage in 2024 is primarily due to the Company recognizing variable consideration of $275,000 which resulted in a reduction of income related to the Company paying a one time cash consideration to a customer as a result of a Company installed promotional product which did not originally function as intended. The promotional product was subsequently corrected during 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 15%to $6,175,668in 2024from $5,374,687in 2023. This increase of $800,981was primarily due to an increase in the Company's sales and marketing efforts, an increase in sales commissions and an increase in gross wages.

Other Income

Other income totaled $2,587 in 2024 compared to $4,283 in 2023.

Interest Income

Interest income increased to $388,716 in 2024, compared to $330,005 in 2023, primarily due to the increase of interest income from cash being invested into multiple certificates of deposit.

Income Tax Expense

The income tax expense was $532,500 in 2024, for an effective rate of 25.3%, compared to income tax expense of $397,000 for an effective rate of 20.1% in 2023. The change in the effective rate is primarily due to changes in non-taxable income, non-deductible expenses and generation/utilization of tax credits.

Net Income

The net income for 2024 was $1,576,428 compared to net income of $1,613,005 for 2023, which is a decrease of $36,577.

The basic and diluted earnings per share in 2024were $ 0.34, compared to basic and diluted earnings per share of $ 0.35 in 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition, bad debts, inventory valuation, intangible assets, and income taxes. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that the Company believes have the most effect on its reported financial position and results of operations are as follows:

Revenue Recognition

The Company derives revenues from the sales of systems, licenses and maintenance fees, hardware leasing and services.

System Sales

Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected, when applicable from customers, which are subsequently remitted to governmental authorities.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is a unit of account in ASC 606. A majority of the Company's systems sales have multiple performance obligations including an obligation to deliver a casino management system and another to provide maintenance services. For system sales with multiple performance obligations, the Company allocates revenue to each performance obligation based on its Standalone Selling Price ("SSP"). See discussion within the significant judgement paragraph regarding our determination of SSP. At contract inception, management assesses whether it is probable that the company will collect substantially all of the consideration to determine whether the contract meets the criterion for collectability. The revenue allocated to the casino management system is recognized upon installation. The Company occasionally enters into contracts that include multiple sites; management has determined that each site installation is a separate performance obligation. In these instances, the Company recognizes revenue upon completion of each performance obligation. In addition, the Company has a contract with a reseller who purchases and resells the Company's products; monthly the reseller notifies the Company of their successful installations and submits an invoice to the Company for those installations. The Company also analyzes its standard business practice of using long-term contracts and the history of collecting on extended payment term contracts which include a significant financing component which is usually a market interest rate. The associated interest income is reflected accordingly on the statement of operations.

Management's assessment of collectability at both contract inception and on an ongoing basis resulted in the determination that some of our contracts did not meet the criterion for collectability. The balance of these contracts are not included as part of accounts receivable on the balance sheet. Accordingly, for these contracts whereby the collectability criterion has not been met, revenue will be recognized as payments are received. During the years ended December 31, 2024 and 2023, the Company has determined that approximately $1,229,290 and $2,392,560 for these systems did not meet the revenue recognition collectability criterion. Management considered the following facts and circumstances in its determination: these installations are subject to different regulators than our current customer base; Payments have not been received for items invoiced; one customer has a large debtor in a senior position to Table Trac. Both contracts will continue to be recognized on a cash basis subject to ongoing collectability assessment. A change in the collectability assessment in a future period may allow the Company to recognize revenue prior to collecting cash. During the quarter ending September 30, 2024, a casino, previously included in this assessment, discontinued its business operations resulting in the noted decrease. The company has received substantially all of the site's inventory installed.

Maintenance Revenue

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

Lease Revenue

The Company derives a portion of its revenue from a sales type leasing arrangement in accordance with ASC 842. The Company leases hardware to a customer and receives monthly payments.

Service Revenue and Other Revenue

Service revenue is recognized upon completion of the services and are billed in arrears. The SSP for service revenue is established based upon actual selling prices for the services or prior similar arrangements.

Other revenue includes DataTrac, kiosks and related promotional programs and miscellaneous sales of equipment. Revenue is recognized upon completion of services or delivery of equipment and is billed in arrears. During 2024, the Company recognized variable consideration of $275,000 which resulted in a reduction of revenue in those periods related to the Company paying the one time cash consideration to a customer as a result of certain promotional software not performing in accordance with agreed upon specifications.

The Company offers qualified customers a licensing agreement. Licensing revenue is recognized after the intellectual property (CMS system), the performance obligation, is delivered and in its operational and functional state. The stand-alone selling price for licensing revenue is established based upon actual selling prices for the license.

See also Note 1.

Accounts Receivable / Allowance for Credit Losses

Accounts receivable are initially recorded at the invoiced amount and carried on the balance sheet at net realizable value as of each balance sheet date. The company offers customers extended payment terms for periods of 6 to 72 months and as amounts under these long-term accounts receivable become due within one year, they are reclassified to the current portion of accounts receivable. For receivables related to contracts that contain an interest rate, interest is recorded upon receipt to interest income on the statements of operations. An allowance for credit losses is recorded when the Company believes the amounts may not be collected. Management believes that receivables, net of the allowance for credit losses, are fully collectible. Accounts receivable are written off when management determines collection is no longer likely. While the ultimate result may differ, management believes that any write-off not allowed for will not have a material impact on the Company's financial position.

Inventory

Inventory, consisting of finished goods, is stated at the lower of cost or net realizable value. The average cost method is used to value inventory. Inventory is reviewed annually for the lower of cost or net realizable value and obsolescence. Any material cost found to be above market value or considered obsolete is written down accordingly. The Company had $7,697 and$8,768 of obsolescence reserves at December 31, 2024 and 2023, respectively.

Income Taxes

Income taxes are provided for using the asset and liability method of accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements, if any, is contained in Note 1 of the Notes to Consolidated Financial Statements.