10KSB 1 tt200210k.htm TABLE TRAC, INC. 2002 10KSB

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-KSB

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002
Commission File No. 0-28383

TABLE TRAC, INC.
(Exact name of registrant as specified in its charter)

Nevada -----------------------------------------------------88-0336568
(State or other jurisdiction --------------------------------(IRS Employer Identification No.)
of Incorporation or Organization) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

4625 County Road 101 Suite 202
Minnetonka, Minnesota --------------------------55345
(Address of principal executive office) ------------(Zip Code)

Registrant's telephone number: (952) 548-8877

Securities registered pursuant to Section 12(b) of the Act:
3,619,034 Shares Of Common Stock

Securities registered pursuant to Section 12(g) of the Act:
None

Common Stock, (no par value)
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X NO___

The aggregate market value of the voting stock held by non-affiliates of the Registrant on December 31, 2002, based on the average bid and asked prices of Common Stock in the over-the-counter market on that date was $412,846.

3,619,034 shares of Registrant's Common Stock, no par value were outstanding on December 31, 2002, prior to the effectiveness of the latest practicable date.

DOCUMENTS INCORPORATED BY REFERENCE
None.

CONTENTS

PART I

Item 1 BUSINESS

Item 2. PROPERTY

Item 3. LEGAL PROCEEDINGS

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Item 6. SELECTED FINANCIAL DATA

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Item 11. EXECUTIVE COMPENSATION

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

PART I

Item 1. - BUSINESS

Table Trac, Inc. (the "Company") is a Nevada Corporation, formed on June 27, 1995, with principal offices in Minnetonka, Minnesota. The Company has developed and is commencing the commercialization of a proprietary information and management system (Table Trac(tm)) that automates and monitors the operations of casino table games. The general intent of Table Trac is a system to acquire, evaluate, and provide immediate access to a new level of detailed Table Games Management and Player Tracking information.

The company has also developed related systems for casino management including promotions administration and delivery systems, self service customer kiosks, marketing analysis, vault operations module for chip banks, all of which are in use at its customers facilities.

Most departments in the casino industry are computerized, yet table games are still using methods for the confirmation of table game activity that were used over 50 years ago, and can only loosely tie manager's estimates to the actual table cash count. In today's business world all cash transactions are computer recorded and verified to the cash count. The Table Trac system brings this computer technology to the casinos gaming tables along with the convenience of simple player tracking.

Table Trac has ported all of its Unix-based systems to LINUX adding graphical user interfaces, ODBC database access for desktop applications, and a SQL database server for complex marketing analysis.

The heart of the system is the patented (U.S. patent # 5,957,776) table top hardware design which gathers table drop, inventories, dealer, floor manager, player, security and drop box information using a dealer-activated keypad, and on-table magnetic card reader. The dealer depresses various keys that each corresponds with the various denominations of bills being dropped into the Drop box, and swipes his or player's magnetic cards to verify and identify individuals involved in transactions to the central computer. The use and operation of Table Trac does not alter either the pace or routine of the game, which is important to both management and customers.

Many casinos currently try to monitor these numbers using manager's estimates with varying degrees of accuracy. The Table Trac system provides upper management, for the first time, with those real time win/loss and drop figures, and a verifiable check and balance for the count room. The system gives upper management access to not only the table numbers by shift, but to data on individual dealers and supervisors, which has game security value.

With over 7 years of on-table experience, Table Trac is a simple reliable solution for casinos looking to improve the accountability of their table games operations, and a key means to secure detailed transactional records to satisfy casinos regulators and investors.

TABLE TRAC INSTALLATIONS

Table Trac currently is installed and has contracts with 5 casinos in Minnesota and Wisconsin.

AVAILABILITY OF TABLE TRAC

Table Trac is available for an installation and monthly license fee from the Company for casinos with a minimum number of tables. Base License includes full installation, a custom casino system configuration, training, and technical support during the life of the License agreement. Custom screens and reports will be designed, if requested by the casino, at additional cost.

MANUFACTURING CAPABILITIES

Table Trac has historically secured the manufacturing resources of Micro Dynamics, Inc. of Eden Prairie MN. The president of Table Trac has worked with Micro Dynamics on various projects over the last 15 years. Micro Dynamics is one of many 3rd party manufacturers of sophisticated electronics, with both through hole and surface mount automated manufacturing technology capable of producing Table Trac units at the rate of over 500 a day.

TRADEMARKS AND PATENTS

Table Trac's management has actively pursued trademark and patent protection for the Company and its products. In the course of it existence, Table Trac has spent in excess of $24,000 to secure those protections.

The Company filed its provisional patent application in August of 1995, and filed its Final Application in August 1996. This application was approved and issued on September 28, 2000, as patent number 5,957,776.

The Company filed to register its Trademark ("TABLE TRAC") in September of 1996. The Trademark was issued on September 7, 2000, as Trademark number 2,275,137.

Environmental Compliance

The Company believes that it is in compliance with all current federal and state environmental laws.

Employees

As of December 31, 2002 the Company had five full-time employees and 1 part time employee.

Competition

The Company is unaware of any other systems that compete directly with the table games management and "on table" table player tracking that the Table Trac system offers. Others offer substancially the same functions for Player tracking in various forms, primarily as "off Table" functions performed at the pit podium. The Company is aware of other "players club' systems that compete. These companies have greater resources than the company.

RECENT DEVELOPMENTS

By the end of 2002, the company's operations had consumed the balance of cash reserves which were the result of previous public financing. The Board reorganized operations to reduce expenses through employee and benefit cuts, to a level which can be sustained by current contracts monthly revenues. Management believes that present sales opportunities are sufficient to justify sustaining operations despite the short-term sacrifices.

Development continues in hardware, firmware and software to enhance the product and to provide product functionality which adds value for departments outside of the table games arena. Self-service kiosks for customer promotions and players club services, vault and cage operation additions, and enhanced promotional capabilities make Table Trac a significant value when compared to other products in the industry.

Item 2. - PROPERTY

None

Item 3. - LEGAL PROCEEDINGS

None

Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

Item 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock has been traded since July 17, 2000 on the OTC Bulletin Board, before that time there was no activity. As of December 31, 2002 the following firms were making a market in the Company's common stock:

WM. V. Frankel & Co., Incorporated
Schwab Capital Markets, L. P.
Paragon Capital Markets
Hill, Thompson, Magid, L. P.
Knight Securities
Wein Securities
M.H. Meyerson & Co., Inc.

Price per Share Calendar Year 2001 High Low
First Quarter $1.50 $.75
Second Quarter $.75 $.45
Third Quarter $.85 $.30
Fourth Quarter $.50 $.15

Price per Share Calendar Year 2002 High Low
First Quarter $0.45 $0.10
Second Quarter $0.55 $0.30
Third Quarter $0.33 $0.16
Fourth Quarter $0.25 $0.14

There are more than 70 holders of record of the common stock of the Company. There have never been any dividends, cash or otherwise, paid on the common shares of the Company.

Item 6. - SELECTED FINANCIAL DATA

Fiscal Years Ended December 31,
Income Statement Data		 2002 2001
Net Sales $ 309,230 $ 103,748
Net Income (loss) $(220,570) $(360,893)
Per Share Data Net Income (loss) $(0.06) $(0.10)

As of December 31,
Balance Sheet Data		 2002 2001
Total Assets $ 36,519 $242,954
Total Liabilities $ 13,398 $ 7,783
Stockholders' Equity (Deficit) $ 23,120 $235,171

Item 7.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001.

Revenues increased in 2002 to $309,230 from $103,748 in 2001. In the year 2002 there were more systems sales accounting for the increase.

Costs of sales increased in 2002 to $40,342 from $17,995 in 2001 as a result of increased systems sales.

Operating expenses increased in 2002, at $490,178 from $449,937 in 2001. Bankruptcy of a customer contributed to this increase.

The result was that there was a net loss of $220,570 in 2002, compared to a net loss of $360,893 in 2001.

The net loss per share in 2002 was $.06 compared to a net loss per share of $.10 in 2001.

LIQUIDITY AND CAPITAL RESOURCES

Table Trac, Inc. has historically had more expenses than income in each year of its operations. The accumulated deficit from inception to December 31, 2002 was $1,258,917. It has been able to maintain a positive cash position in 2002 solely through reserves from financing activities.

The Company, however, is not capital intensive. The basic product of the Company is its computer software developed by its President. All manufacturing is done after an outside manufacturer receives an order, so there is little inventory held by the Company of its product. The Company's personnel do the installation, after an order is received.

There are no known trends, events or uncertainties that are likely to have a material impact on the short or long-term liquidity. The primary source of liquidity in both the short term and the long term will be sales. Management has dramatically reduced its expenses through cuts in benefits and personnel, and monthly obligations are now met by revenues from existing contracts. Management believes that with these cuts, the Company has adequate cash to meet its obligations and continue operations for both existing customer contracts and ongoing product development.

Item 8. -FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The 2002 audited financial statements and audit commentary are attached.

Item 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

PART III

Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The executive officers and directors of the Company, with a brief description, are as follows:

Name Age Position  
Chad B. Hoehne 40 Chairman, President Mr. Hoehne is the Chairman, President and founder of the Company. He has a BS degree in Business Administration from Mankato State University. Mr. Hoehne was employed by Micro Control Company from 1985 to 1993.
Joseph A. Nielsen 48 Treasurer, CFO Mr. Nielsen is the Treasurer/CFO. Mr. Nielsen was a securities broker for many years. Mr. Nielsen was self-employed as a financial consultant in 1993 until he joined with Mr. Hoehne to form the Company in 1994.
Robert R Siqveland 58 Secretary Mr. Siqveland is the Director of Marketing and the Corporate Secretary. He was an investment advisor and venture capitalist for twenty-five years. Mr. Siqveland has worked with Table Trac in various capacities for the past six years.
Vic Taucer 49 Director Mr. Taucer consults for over 200 gaming casinos, primarily in the area of table games, and has over 26 years of experience in the industry. He recently served as director of casino training for the new Paris resort in Las Vegas. Earlier, Taucer was the casino training director and the casino table pit manager at Caesars Palace, and was a casino floor supervisor at the MGM Grand Casino. He is also a Professor of Casino Management for the University & Community College Systems of Nevada.

The directors of the Company are elected annually by the shareholders for a term of one year or until their successors are elected and qualified. The officers serve at the pleasure of the Board of Directors.

Item 11. - EXECUTIVE COMPENSATION.

Chad Hoehne, the President of the Company received compensation of $84,784 in 2002.

Mr.Nielsen, the Chief Financial Officer of the Company, received compensation of $64,588 in 2002.

Mr. Siqveland, the Corporate Secretary of the Company, received compensation of $51,000 in 2002.

Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

There are presently 3,619,034 shares of the Company's common shares outstanding. The following table sets forth the information as to the ownership of each person who, as of this date, owns of record, or is known by the Company to own beneficially, more than five per cent of the Company's common stock, and the officers and directors of the Company.

Name Shares of Common Stock Percent of Ownership
Sally Hoehne (1) 1,229,100 34%
Joseph A. Nielsen 285,701 8%
Directors and Officers as a group 1,554,801 43%

(1) Sally Hoehne is the wife of the President of the Company Chad Hoehne.

Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None

PART IV

Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Attached are the Financial Statements and Independent Auditor's Report on Examination of Financial Statements for the years ended December 31, 2002 and December 31, 2001.

(b) Attached are the following Financial Statement Schedules and Auditors Report on Schedules, None All schedules are omitted because they are not required or not applicable or the information is shown in the financial statements or notes thereto.

(c) No report was filed on Form 8-K.

(d) There are no exhibits.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

Dated March 26, 2001

TABLE TRAC, INC.

Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.1

I, Chad B. Hoehne, certify that:

1. I have reviewed this annual report on Form 10-KSB for the year ended December 31, 2002 of Table Trac, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:

March 31st, 2003

TABLE TRAC, INC. CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned, Chad B. Hoehne, the Chairman and President of Table Trac, Inc. (the "Company") has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company's amended Annual Report on Form 10-KSB/A for the year ended December 31, 2002 (the "Report"). The undersigned hereby certifies that: · the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and · the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned has executed this Certification as of the 31st day of March, 2003.

TABLE TRAC, INC.
(A Development Company)

FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
PERIOD FROM INCEPTION (JUNE 27, 1995) TO
DECEMBER 31, 2002

Page Independent Auditors' Report Section 1
Financial Statements: Balance Sheets Section 2
Statements of Operations Section 3
Statements of Stockholders’ Equity (Deficit) Section 4
Statements of Cash Flows Section 5
Notes to Financial Statements Section 6

Section 1 Independent Auditors' Report

Callahan, Johnston & Associates, LLC
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders of Table Trac, Inc. Minnetonka, Minnesota

We have audited the accompanying balance sheets of Table Trac, Inc. (a development stage company) as of December 31, 2002 and 2001, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and for the period from June 27, 1995 (inception), to December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Table Trac, Inc. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the years then ended and from June 27, 1995 (inception), to December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the financial statements, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Callahan, Johnston & Associates, LLC

CALLAHAN, JOHNSTON & ASSOCIATES, LLC
Minneapolis, Minnesota
March 24, 2003

7400 Lyndale Avenue South, Suite 140, Richfield, MN 55423
Telephone: (612)861-0970 Fax: (612)861-5827
Email: cjacallahan@qwest.net

Section 2 Financial Statements: Balance Sheets

TABLE TRAC, INC.
(A Development Stage Company)

BALANCE SHEETS

  December 31,
2002		 December 31,
2001
ASSETS    
Current assets:    
Cash $ 139 $ 46,163
Certificates of deposit 5,637 113,974
Accounts receivable, less allowance for doubtful accounts of $-0- in 2002 and $5,723 in 2001 9,966 7,955
Prepaid expenses - 280
Total current assets 15,742 168,372
     
Furniture and equipment 22,731 22,731
Less accumulated depreciation 22,731 22,731
Net fixed assets - -
     
Other assets:    
Accounts receivable - stockholders, less allowance for doubtful accounts of $26,359 in 2002 and $-0- in 2001 1,000 38,419
Inventory, less valuation allowance of $15,000 in 2002 and 2001 674 11,323
Patent, net of accumulated amortization of $4,094 in 2002 and $2,729 in 2001 19,103 20,468
Investment - joint venture - 4,372
Total other assets 20,777 74,582
     
Total assets $ 36,519 $ 242,954
     
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)    
Current liabilities:    
Accounts payable $ 5,773 $ 30
Accrued payroll and related 7,625 7,753
Total current liabilities 13,398 7,783
     
Stockholders’ equity (deficit):    
Preferred stock, no par value; authorized 1,000,000 shares, issued: 5,000 in 2002 and $-0- in 2001 3,320 -
Common stock, no par value; authorized 5,000,000 shares, issued: 3,619,034 in 2002 and 3,596,425 in 2001 1,278,718 1,273,518
Deficit accumulated during the development stage (1,258,917) (1,038,347)
Total stockholders’ equity (deficit) 23,121 235,171
     
Total liabilities and stockholders’ equity (deficit) $ 36,519 $ 242,954

Section 3 Financial Statements: Statement of Operations

TABLE TRAC, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS

      Inception
(June 27, 1995)
  Years Ended To
  December 31, December 31, December 31,
  2002 2001 2002
Total revenues $ 309,231 $ 103,748 $ 914,215
Cost of goods sold 40,342 17,995 132,133
Gross profit 268,889 85,753 782,082
       
Expense:      
Sales and marketing 55,458 64,905 246,200
Depreciation and amortization 1,365 1,365 32,351
Automobile 5,443 4,891 26,675
Bad debt expense 26,359 5,723 32,082
Computer 1,102 11,446 30,753
Insurance 32,503 17,896 50,747
Office and related 37,265 46,714 130,605
Payroll and related 292,192 221,624 889,488
Professional fees 14,965 31,695 336,049
Research and development 1,136 9,960 29,688
Telephone 16,356 20,738 96,772
Travel and entertainment 6,012 12,980 55,654
Total expense 490,156 449,937 1,957,064
       
Income (loss) before other expense (221,267) (364,184) (1,174,982)
       
Other income (expense):      
Interest income 1,937 28,091 44,063
Interest expense (21) (6,672) (96,575)
Loss on investment in joint venture (1,219) (628) (1,847)
Loss on investment - (2,500) (2,500)
Inventory write down - (15,000) (27,076)
Total other income (expense) 697 3,291 (83,935)
       
Income (loss) before income taxes (220,570) (360,893) (1,258,917)
Income tax benefit (expense) - - -
Net income (loss) before comprehensive income (loss) (220,570) (360,893) (1,258,917)
Comprehensive income (loss) - - -
Comprehensive income (loss) $ (220,570) $ (360,893) $(1,258,917)
Basic earnings (loss) per share $ (.06) $ (.10) $ (.45)
Weighted average number of shares outstanding 3,601,690 3,545,653 2,815,025
       

Section 4 Statement of Stockholders Equity (Deficit)

TABLE TRAC, INC.
(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

  Preferred
Stock
Number
of Shares		 Preferred
Stock
Amount		 Common
Stock
Number
of Shares		 Common
Stock
Amount		 Subscriptions
Receivable		 Deficit During
Development
Stage		 Total
Founders stock - $ - 1,660,500 $ 1,070 $ (170) $ - $ 900
Shares issued for technology rights - - 82,000 40 - - 40
Shares issued to debenture holders - - 205,000 100 - - 100
Stock issued for legal services and organization costs - - 102,500 2,050 - - 2,050
1995 net loss - - - - - (70,942) (70,942)
               
Balance at December 31, 1995 - - 2,050,000 3,260 (170) (70,942) (67,852)
Collection of subscription receivable - - - - 170 - 170
Shares issued to promissory note holders - - 2,500 5,000 - - 5,000
Proceeds from stock sales in 1996 - - 353,999 146,894 - - 146,894
1996 net loss - - - - - (130,850) (130,850)
  - - 2,406,499 155,154 - (201,792) (46,638)
               
Proceeds from stock sales in January 1997 and February 1997 - - 40,000 80,000 - - 80,000
Shares issued for services in May 1997 - - 91,500 56,250 - - 56,250
Shares issued in lieu of interest on notes payable - stockholders in May 1997 - - 25,000 50,000 - - 50,000
1997 net loss - - - - - (159,681) (159,681)
               
Balance at December 31, 1997 - - 2,562,999 341,404 - (361,473) (20,069)
               
Shares issued part of bridge financing in December 1998 - - 18,000 18,000 - - 18,000
1998 net loss - - - - - (30,195) (30,195)
               
Balance at December 31, 1998 - - 2,580,999 359,404 - (391,668) (32,264)
               
Common stock issued part of bridge financing in January 1999 - - 12,000 6,000 - - 6,000
Common stock issued under 504D offering April 1999 to August 1999, net of offering expenses of $63,745 - - 269,363 209,299 - - 209,299
1999 net loss - - - - - (139,197) (139,197)
               
Balance at December 31, 1999 - - 2,862,362 574,703 - (530,865) 43,838
               
Conversion of notes payable - stockholders to common stock at $.50 per share - - 145,000 72,500 - - 72,500
Issuance of common stock for services at $.625 to $1.00 per share - - 9,790 7,806 - - 7,806
Conversion of notes payable and debentures to common stock at $1.00 per share, net of loan costs of $9,833 - - 175,000 165,167 - - 165,167
Issuance of common stock at $1.50 per share, net of offering costs of $81,121 - - 341,667 431,379 - - 431,379
2000 net loss - - - - - (146,589) (146,589)
               
Balance at December 31, 2000 - - 3,533,819 1,251,555 - (677,454) 574,101
Issuance of common stock for services at $.33 to $.45 per share - - 62,606 21,963 - - 21,963
2001 net loss - - - - - (360,893) (360,893)
               
Balance at December 31, 2001 - - 3,596,425 1,273,518 - (1,038,347) 235,171
Issuance of common stock for services at $.23 per share - - 22,609 5,200 - - 5,200
Issuance of preferred stock at $1 per share less offering costs of $1,680 5,000 3,320 - - - - 3,320
2002 net loss - - - - - (220,570) (220,570)
               
Balance at December 31, 2002 5,000 $ 3,320 3,619,034 $1,278,718 $ - $(1,258,917) $ 23,121
               

Section 5 Statements of Cash Flows


TABLE TRAC, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash

  Year Ended
December 31, 2002		 Year Ended
December 31, 2001		 Inception
(June 27, 1995)
To
December 31, 2002
Cash flows from operating activities:      
Net loss $(220,570) $(360,893) $(1,258,917)
Adjustments to reconcile net loss to cash flows from operating activities:      
Depreciation and amortization 1,365 1,365 32,351
Allowance for doubtful accounts 26,359 - 26,359
Inventory valuation allowance - 15,000 15,000
Losses on investments 1,219 3,128 4,347
Stock issued for services 5,200 21,963 92,329
Stock issued for interest - - 55,000
Accounts receivable 9,049 (4,269) (37,325)
Prepaid expenses 280 (280) -
Inventory 10,649 (9,324) (15,674)
Accounts payable 5,743 (21,031) 5,773
Accrued payroll and related (128) 3,220 7,625
Net cash flows from operating activities (160,834) (351,121) (1,073,132)
       
Cash flows from investing activities:      
Purchases of furniture and equipment - - (22,731)
Purchases of certificates of deposit, net 108,337 295,173 (5,637)
Incurrence of patent costs - - (23,971)
Incurrence of loan costs - - (3,772)
Purchase of investment, net 3,153 (5,000) (4,347)
Net cash flows from investing activities 111,490 290,173 (60,458)
       
Cash flows from financing activities:      
Proceeds from common stock, net - - 892,742
Proceeds from preferred stock, net 3,320 - 3,320
Proceeds from notes payable - stockholders - - 50,000
Proceeds from debentures payable - stockholders, net - - 215,167
Repayments on debentures payable - stockholders - - (27,500)
Net cash flows from financing activities 3,320 - 1,133,729`
       
Increase (decrease) in cash (46,024) (60,948) 139
       
Cash - beginning of period 46,163 107,111 -
       
Cash - end of period $ 139 $ 46,163 $ 139
       



Section 6 Notes to Financial Statements


1. Summary of Significant Accounting Policies and Other Information

Company

Table Trac, Inc. was formed under the laws of the State of Nevada in June 1995. The Corporation has its offices in Minnetonka, Minnesota. The Company has developed and is beginning the commercialization of an information and management system that automates various aspects of the operations of casino table games, Table Trac™.

Table Trac is available for an installation and monthly license fee from the Company for casinos with a minimum number of tables. Base license includes all installation, a custom casino system configuration, training, and technical support during the life of the License agreement. Custom screens and reports will be designed, if requested by the casino, at additional cost.

Revenue Recognition

Revenues are recorded at the time of shipment of products or performance of services. Monthly license fees are recorded over the lives of the respective contracts or as earned.

Research and Development

Research and development costs are charged to expense as incurred.

Furniture and Equipment

Furniture and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of two to five years. Expenditures for maintenance and repairs are charged to operations when incurred. Deduction is made for retirements resulting from renewals or betterments.

Depreciation expense was $-0- in 2002 and 2001 and $22,731 from inception to December 31, 2002.

Cash Equivalents

Investment instruments purchased with a maturity of three months or less are considered to be cash equivalents. Certificates of deposit and other securities with original maturities over three months are classified as short term investments. At December 31, 2002 and 2001 there were no cash equivalents.

Investments

Certificates of Deposit

Certificates of deposit are classified as held-to-maturity securities. These securities are reflected at cost plus accrued interest in the accompanying financial statements. Cost plus accrued interest approximates fair market value. This certificate matures in February 2003.

Investment - Joint Venture

The Company accounted for its 50% interest in Globaltrac, LLC using the equity method. Although a market value is not readily determinable, management believed the carrying value of this investment exceeded its fair value. Accordingly, management wrote-down this investment at December 31, 2002. See Note 3.

Investment - Limited Liability Company

The investment was a .645% interest in a limited liability company and was recorded at historical cost of $2,500. Although a market value is not readily determinable, management believed the carrying value of this investment exceeded its fair value. Accordingly, management wrote-down this investment at December 31, 2001.

Intangible Asset

In March 1999, the Company received patent number 5,957,776 relating to its table game control system. Management feels strongly that the extent of the patent will enable the Company to adequately protect its technology. Expenses incurred in obtaining this patent are carried at cost and are being amortized over seventeen years using the straight-line method.

Stock-Based Consideration

The Company has applied the fair value-based method of accounting for employee and nonemployee stock-based consideration and/or compensation in accordance with FASB Statement 123 (based on quoted market prices at the date of grant and/or as earned).

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which requires the use of the "liability method" of accounting for income taxes. Accordingly, deferred tax liabilities and assets are determined based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company’s net operating loss carryforwards are fully allowed for at December 31, 2002 and 2001. See Note 10.

Prior to 1999 the Company was treated as a Subchapter S corporation whereby revenues and expenses flow through to stockholders for inclusion on their individual returns. Accordingly, no income tax provision was provided in the Company’s financial statements through December 31, 1998.

Concentrations, Risks and Uncertainties

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Concentration

The Company maintains its cash balances at two financial institutions. At times, the balances may exceed federally insured limits of $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash balances.

Customer Concentrations and Receivables

The Company sells to domestic companies and grants limited uncollateralized credit to customers based on credit worthiness.

Three major customers comprise 98% of the Company’s revenues from installation and licensing fees from installations of the Company’s Table Trac™ system in 2002. Two major customers comprise 87% of the Company’s revenues from installation and licensing fees from installations of the Company’s Table Trac™ system in 2001. From inception, three major customers have accounted for 90% of the Company’s revenues.

The estimated loss that management believes is probable is included in the allowance for doubtful accounts. While the ultimate loss may differ, management believes that any additional loss will not have a material impact on the Company’s financial position. Due to uncertainties in the collection process, however, it is at least reasonably possible that management’s estimate of the outcome will change during the next year. That amount cannot be estimated.

Accounts Receivable - Stockholders

Accounts receivable - stockholders consists of amounts advanced to the Company’s President, its chief financial officer (CFO), and its sales manager. These amounts are non interest bearing, unsecured, and due on demand. The Company has been receiving regular repayments through both direct repayment and payroll deductions. In 2003, the Company was forced to terminate its CFO and suspend commission advances to its sales manager. In addition, in 2002 the President’s salary is being accrued, but he is currently not being paid (See Note 2). For these reasons the Company allowed for $26,359 of these receivables at December 31, 2002. While the ultimate amount collectible may differ, management believes that any variance will not have a material impact on the Company’s financial position. Due to uncertainties in the collection process, however, it is at least reasonably possible that management’s estimate of the collectibility will change during the next year. That amount cannot be estimated.

Inventory

Inventory is recorded at the lower of cost (determined on a first-in, first-out basis) or market. Inventory levels significantly exceed the Company’s current requirements. In 2001 the estimated loss that management believes is probable was included in the inventory valuation allowance. Due to uncertainties, however, it is at least reasonably possible that management’s estimate will change during the next year. That amount cannot be estimated.

Competition

The Company is unaware of any other companies actively pursuing a competing table top system for table games management/accounting. Table Trac’s system performs management/accounting functions as well as other valuable functions for the casino, including table games Player Rating functions. The Company is aware of several competitors offering automation solutions for table games Player Rating. The Company is confident that its Player Rating solution is equal to any currently being offered by its competitors; however, some of the Company’s competitors may have substantially greater resources than the Company.

Supplier Concentration

The Company maintains one relationship for manufacture of Table Trac units. The Company is aware of other local electronic manufacturers offering equivalent manufacturing capability whose services the Company could readily hire if this primary supplier fails.

Long-Lives Assets

In accordance with SFAS 121, Accounting For The Impairment Of Long- Lived Assets And For Long-Lived Assets To Be Disposed Of, the Company reviews its long-lived assets and intangibles related to those assets periodically to determine potential impairment by comparing the carrying value of the long-lived assets outstanding with estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles. To date, management has determined that no impairment of long-lived assets exists.

Comprehensive Income

SFAS No. 130 establishes standards for the reporting and disclosure of comprehensive income and its components which will be presented in association with the company’s financial statements. Comprehensive income is defined as the change in a business enterprise’s equity during a period arising from transactions, events or circumstances relating to nonowner sources, such as foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. It includes all changes in equity during a period except those resulting from investments by or distributions to owners. For the years ended December 31, 2002, 2001 and inception to December 31, 2002 and 2001, net income and comprehensive income were equivalent.

Earnings Per Share

The Company has implemented FASB 128: Earnings Per Share. FASB 128 replaces the presentation of primary EPS with basic EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution from stock options and warrants and is computed using the treasury stock method. Under the treasury stock method stock options are assumed to have been exercised at the beginning of the period if the exercise price exceeds the average market price during the period. Stock options and warrants are excluded in the EPS calculation due to their antidulitive effect.

Reclassification

Certain reclassifications have been made to 2001 and the inception to date information to conform to the 2002 presentation. These reclassifications had no income effect.

2. Going Concern/Development Stage Company

From inception to December 31, 2002, the Company is deemed to be in the development stage. To date the Company has devoted the majority of its efforts to: raising capital; research and development and patenting of its Table Trac™ system; establishing sources of supply; and developing markets. Planned principal operations have commenced, but there have not been significant revenues from installation and licensing fees from the Table Trac™ system to date.

The Company incurred a net loss of $220,570 in 2002, $360,893 in 2001 and has incurred net losses of $1,258,917 inception to date. These losses raise substantial doubts about the Company’s ability to continue as a going concern without additional debt or equity financing. At December 31, 2002, the Company had $139 in cash. The certificate of deposit at December 31, 2002, has been assigned as security on the Company’s office lease and is not available for working capital needs (see Note 4). In January 2003, the Company terminated three employees and implemented other cost cutting measures. These cost savings allow the Company to breakeven at its current revenue levels. Although not actively pursuing debt or equity financing at this time, the Company may need additional monies in the future. Ultimately the Company feels it will be able to: expand its casino customer base; install and license its Table Trac™ system; and achieve profitable operations and thereby realize assets and settle obligations in the normal course of operations. No estimate can be made of the range of loss that is reasonably possible should the Company be unsuccessful

3. Related Party Transactions

Common Stock Issued for Contributed Assets

A designate of the Company's founder and President received 1,230,000 shares of common stock upon formation of the Company in exchange for $570 and the President's assignment of the software for the Table Trac system which he had developed to date and all design work and concept development, including all future rights, title and interest to inventions, improvements and application of and to certain Letters of Patent to be obtained. Assets received were valued at their fair value of $30 at the date of assignment.

Investment - Joint Venture

In July 2001, the Company and Global Payment Technologies, Inc. (Global) (NASDAQ:GPTX) formed a 50:50 joint venture, Globaltrac, LLC (Globaltrac). Globaltrac was to manufacture a new product, Centurion. The Company and Global were each to have the right to distribute and sell Centurion. These agreements also gave Global the exclusive right to sell the Company’s casino management system product outside of the United States and Canada, subject to minimum sales requirements.

The Company had sales of $2,852 in 2002 and $1,265 in 2001 to Globaltrac.

At December 31, 2002, Globaltrac was all but inactive. At December 31, 2002, the Company wrote off its remaining investment of $1,219 in Globaltrac.

In 2003, the Company has had conversations with Global about resuscitating Globaltrac. These conversations have been very preliminary and their ultimate success can not be determined at this time.

4. Lease

The Company leases its office facilities under an operating lease expiring in November 2003. This lease is secured by a pledge of the Company’s certificate of deposit ($5,637 at December 31, 2002). Future minimum lease payments are as follows: 2003 $ 26,400

Rent expense was $28,050 in 2002 and $27,858 in 2001, and $58,326 from inception to December 31, 2002.

5. Stockholders’ Equity

Preferred Stock

In 2002, the Company attempted to raise monies through the sale of preferred stock. Only one unit of $5,000 was sold under this offering. These proceeds are presented net of offering costs of $1,680 in the accompanying financial statements.

The preferred stock is convertible to capital stock. One share of common stock for one share of preferred stock. The preferred shares have preference over capital stock only in the liquidation of the corporation. The preferred shares get a stock dividend of one share of capital stock for every 5 shares of preferred stock.

Stock Options and Warrants

In October 2001 the Company implemented an Employee Stock Incentive Plan. This plan provides for the issuance of options to employees to purchase shares of the Company’s common stock at an exercise price at least equal to the fair value of the Company’s common stock at the grant date. These options are exercisable for a period of six years from the date of grant. The Company has reserved 1,000,000 shares of its common stock for potential issuance under this plan.

The Company has issued options and warrants to various parties as follows:

Nature of Grant Number of Shares Exercise Price Per Share Option Period
Employee stock incentive plan 25,000 $.22 5/02 to 5/07
Bridge financing incentive 6,000 $1.25 12/98 to 12/03
Underwriter compensation 28,186 $1.25 7/99 to 7/04
Underwriter compensation 34,167 $1.65 11/00 to 11/03
Severance package 50,000 $ .30 9/01 to 9/04
Balance December 31, 2002 118,353 $ .30 to $1.65 12/98 to 5/07

The Company has reserved shares of its common stock in the event these options and warrants are exercised.

6. Marketing Rights

In February 1999, the Company entered into an agreement granting individual exclusive world wide marketing rights to the Company’s products provided this individual met performance goals as outlined in the agreement. In Septemer 2001, the Company entered into an agreement to terminate these marketing rights. As a part of this termination agreement the Company did agree to pay this individual a 5% commission on gross sales from a particular potential customer through July 31, 2005. No sales have occurred to date and no commissions have been earned.

7. Supplemental Cash Flow Information

Cash paid during the year for:

Inception 2002 2001
To Date Interest $ - $ 6,672 $ 41,554
Income taxes $ - $ - $ -

Summary of Non Cash Activity:

The Company issued 82,000 shares of additional founders’ common stock for technology valued at $40.

The Company issued 102,500 shares of common stock for legal fees and organizational fees valued at $2,050.

Inception to December 31, 2001, the Company has issued 27,500 shares of common stock in lieu of interest on the notes payable stockholders. Interest expense of $55,000 was recorded relating to these issuances.

Inception to December 31, 2002, the Company has issued 289,005 shares of common stock in lieu of compensation for salaries and services. Expense of $92,329 was recorded relating to these issuances. $1,025 was capitalized and subsequently amortized.

$247,500 in indebtedness was converted to common stock in 2000. These conversions are reflected net of unamortized loan costs of $9,833 in the accompanying financial statements.

8. Income Taxes

The Company was treated as a subchapter S corporation from inception through December 31, 1998. Income taxes for 2002 and 2001 consisted of the following:

  2002 2001
Current:    
Federal $ - $ -
State - -
State minimum fee - -
  - -
Deferred:    
Federal - -
State - -
  - -
  ----------------- --------------
Income tax benefit (expense) $ - $ -
     

The reconciliation between expected federal income tax rates is as follows:

  2002 2001
  Amount Percent Amount Percent
Expected federal tax $ (75,000) (34)% $(122,700) (34%)
Surtax exemption 5,800 3 12,500 3
State income tax, net of federal tax benefit (14,300) (6) (23,300) (6)
Valuation and utilization of net operating loss carryforwards 83,500 37 133,500 37
State minimum fee - - - -
  $ - - % $ - - %
         

The Company has fully allowed for its net operating carryforwards as follows:

  2002 2001
Allowance for doubtful accounts $ 10,000 $ 2,500
Inventory valuation allowance 6,000 6,500
Deferred tax asset relating to net operating loss carryforwards 325,000 335,000
  341,000 344,000
Valuation allowance (341,000) (344,000)
Deferred tax asset $ - $ -

At December 31, 2002, the Company has carryforwards available to offset future taxable income as follows:

  Federal State
2014 $ 137,000 $ 137,000
2015 141,000 141,000
2016 340,000 340,000
2017 194,000 194,000
  $ 812,000 $ 812,000