UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~March 31,~~September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 0-21121

TRANSACT TECHNOLOGIES INC

(Exact name of registrant as specified in its charter)

Delaware		06-1456680
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT		06518
(Address of Principal Executive Offices)		(Zip Code)

(203) 859-6800

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01 per share		TACT		NASDAQ Global Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated ~~filer~~ Filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April 30,~~October 31, 2020, the number of shares outstanding of the Company’s common stock, $0.01 par value, was ~~7,539,685.~~8,928,885.

~~EXPLANATORY NOTE~~

As previously disclosed in the Current Report on Form 8-K filed by TransAct Technologies Incorporated (the “Company”) with the U.S. Securities and Exchange Commission (the “SEC”) on May 6, 2020, the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (this “Form 10-Q”) was delayed in reliance on the March 25, 2020 order issued by the SEC in SEC Release No. 34-88465, which, subject to certain conditions, provides the Company with an additional 45 days to file this Form 10-Q (the “Order”). The Order was issued pursuant to the SEC’s authority under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), granting exemptions from certain provisions of the Exchange Act and the rules thereunder related to public company reporting requirements. The original due date of this Form 10-Q was May 11, 2020.

The filing of this Form 10-Q was delayed due to circumstances related to COVID-19 and its impact on the Company’s business and accounting operations. The majority of the Company’s finance and accounting personnel is working remotely. In connection with the preparation of this Form 10-Q, the Company experienced disruptions in its normal processes and interactions with its accounting personnel and advisors, legal advisors and others responsible for preparation of this Form 10-Q. The impact of COVID-19 has also necessitated additional analysis in connection with the preparation and review of this Form 10-Q, including financial and liquidity projections and analysis and an assessment of the impact of the COVID-19 crisis on goodwill and intangible asset impairment. Further, the attention of certain personnel involved in the preparation of this Form 10-Q has been diverted by measures being taken to mitigate the impact of the COVID-19 pandemic on the Company, including the work required to apply for relief under the Paycheck Protection Program established under the Coronavirus Aid, Relief and Economic Security Act, and work associated with carrying out our previously announced furlough of employees.

TRANSACT TECHNOLOGIES INCORPORATED

INDEX

PART I - Financial Information:		Page

Item 1	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2020 and December 31, 2019	4 3

	Condensed Consolidated Statements of Operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	5 4

	Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~ for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	6 5

	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019	7 6

	Condensed Consolidated Statement of Changes in ~~Shareholders'~~Shareholders’ Equity for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	8 7

	Notes to Condensed Consolidated Financial Statements	9 8

Item 2	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 16

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2431

Item 4	Controls and Procedures	2531

PART II - Other Information:

Item 1	Legal Proceedings	2633

Item 1A	Risk Factors	2633

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2833

Item 3	Default Upon Senior Securities	2833

Item 4	Mine Safety Disclosures	2833

Item 5	Other Information	2833

Item 6	Exhibits	2833

SIGNATURES		2934

PART I - FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

TRANSACT TECHNOLOGIES INCORPORATED

C~~CONDENSED~~ONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	March 31, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Assets:	(In thousands, except share data)						(In thousands, except share data)
Current assets:
Cash and cash equivalents	$	615		$	4,203		$	947		$	4,203
Accounts receivable, net		6,261			6,418			4,918			6,418
Note receivable		100			1,017			100			1,017
Inventories, net		12,586			12,099
Inventories								12,503			12,099
Prepaid income taxes		124			180			88			180
Other current assets		1,300			998			1,213			998
Total current assets		20,986			24,915			19,769			24,915

Fixed assets, net of accumulated depreciation of $19,160 and $19,010, respectively		2,414			2,244
Fixed assets, net of accumulated depreciation of $19,468 and $19,010, respectively								2,339			2,244
Note receivable, net of current portion		1,530			–			1,566			0
Right-of-use asset		4,159			2,855			3,794			2,855
Goodwill		2,621			2,621			2,621			2,621
Deferred tax assets		3,086			2,565			4,574			2,565
Intangible assets, net of accumulated amortization of $3,833 and $3,771, respectively		754			817
Intangible assets, net of accumulated amortization of $3,953 and $3,771, respectively								634			817
Other assets		237			44			192			44
		14,801			11,146			15,720			11,146
Total assets	$	35,787		$	36,061		$	35,489		$	36,061

Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable	$	1,737		$	2,960		$	2,458		$	2,960
Accrued liabilities		2,419			3,041			3,053			3,041
Revolving bank loan payable		794			–
Lease liability		880			945			857			945
Deferred revenue		643			700			479			700
Total current liabilities		6,473			7,646			6,847			7,646

Long-term debt								2,173			0
Deferred revenue, net of current portion		183			219			120			219
Lease liability, net of current portion		3,456			2,104			3,053			2,104
Other liabilities		170			166			128			166
		3,809			2,489			5,474			2,489
Total liabilities		10,282			10,135			12,321			10,135

Shareholders’ equity:
Common stock, $0.01 par value, 20,000,000 shares authorized; 11,583,527 and 11,515,090 shares issued, respectively; 7,538,685 and 7,470,248 shares outstanding, respectively		116			115
Common stock, $0.01 par value, 20,000,000 shares authorized; 11,593,727 and 11,515,090 shares issued, respectively; 7,548,885 and 7,470,248 shares outstanding, respectively								116			115
Additional paid-in capital		33,103			32,604			33,560			32,604
Retained earnings		24,356			25,348			21,636			25,348
Accumulated other comprehensive income (loss), net of tax		40			(31	)
Accumulated other comprehensive loss, net of tax								(34	)		(31	)
Treasury stock, at cost, 4,044,842 shares		(32,110	)		(32,110	)		(32,110	)		(32,110	)
Total shareholders’ equity		25,505			25,926			23,168			25,926
Total liabilities and shareholders’ equity	$	35,787		$	36,061		$	35,489		$	36,061

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDE~~CONDENSED~~NSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2020			2019
	(In thousands, except per share data)						(In thousands, except per share data)

Net sales	$	10,247		$	11,550		$	7,300		$	11,686		$	22,832		$	34,586
Cost of sales		5,329			5,464			3,951			6,140			12,275			17,250

Gross profit		4,918			6,086			3,349			5,546			10,557			17,336

Operating expenses:
Engineering, design and product development		1,385			1,165			1,445			1,048			4,197			3,328
Selling and marketing		2,208			1,854			1,258			1,947			4,885			5,890
General and administrative		2,620			2,290			2,125			2,239			6,987			6,720
		6,213			5,309			4,828			5,234			16,069			15,938

Operating income (loss)		(1,295	)		777

Operating (loss) income								(1,479	)		312			(5,512	)		1,398
Interest and other income (expense):
Interest, net		3			(6	)		(19	)		0			(41	)		(13	)
Other, net		(165	)		90			116			(71	)		(60	)		(123	)
		(162	)		84			97			(71	)		(101	)		(136	)

Income (loss) before income taxes		(1,457	)		861
Income tax (benefit) provision		(465	)		115
Net income (loss)	$	(992	)	$	746
(Loss) income before income taxes								(1,382	)		241			(5,613	)		1,262
Income tax benefit								(515	)		(143	)		(1,901	)		(54	)
Net (loss) income							$	(867	)	$	384		$	(3,712	)	$	1,316

Net income (loss) per common share:
Net (loss) income per common share:
Basic	$	(0.13	)	$	0.10		$	(0.11	)	$	0.05		$	(0.49	)	$	0.18
Diluted	$	(0.13	)	$	0.10		$	(0.11	)	$	0.05		$	(0.49	)	$	0.17

Shares used in per-share calculation:
Basic		7,507			7,461			7,548			7,470			7,533			7,464
Diluted		7,507			7,619			7,548			7,753			7,533			7,658

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLI~~CONDENSED CONSOLIDATED~~DATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

(unaudited)

Three Months Ended
March 31,

2020 2019
(In thousands)

Net income (loss)

$
(992
)

$
746

Foreign currency translation adjustment, net of tax

71

9

Comprehensive income (loss)

$
(921
)

$
755

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands)

Net (loss) income	$	(867	)	$	384		$	(3,712	)	$	1,316
Foreign currency translation adjustment, net of tax		(84	)		(33	)		(3	)		66
Comprehensive (loss) income	$	(951	)	$	351		$	(3,715	)	$	1,382

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDE~~CONDENSED~~NSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended March 31,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(992	)	$	746
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net (loss) income							$	(3,712	)	$	1,316
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Share-based compensation expense		187			173			644			559
Depreciation and amortization		238			252			758			747
Deferred income taxes		(518	)		(35	)		(2,008	)		(104	)
Foreign currency transaction (gains) losses		194			(66	)
Foreign currency transaction losses								59			153
Changes in operating assets and liabilities:
Accounts receivable		106			1,210			1,429			(367	)
Inventories		(573	)		(1,484	)		(446	)		82
Prepaid income taxes		51			147			87			11
Other current and long-term assets		(266	)		(437	)		150			(576	)
Accounts payable		(1,243	)		(1,254	)		(685	)		(853	)
Accrued liabilities and other liabilities		(755	)		(806	)		(508	)		(120	)
Net cash used in operating activities		(3,571	)		(1,554	)
Net cash (used in) provided by operating activities								(4,232	)		848

Cash flows from investing activities:
Capital expenditures		(328	)		(298	)		(634	)		(796	)
Additions to capitalized software		–			(4	)		0			(304	)
Issuance of note receivable		(600	)		–			(600	)		(1,000	)
Net cash used in investing activities		(928	)		(302	)		(1,234	)		(2,100	)

Cash flows from financing activities:
Revolving credit line borrowings		1,000			–			2,756			0
Revolving credit line payments		(206	)		–			(2,756	)		0
Long-term debt borrowings								2,173			0
Payment of common stock issuance costs								(71	)		0
Payment of dividends on common stock		–			(668	)		0			(2,011	)
Proceeds from stock option exercises		353			–			353			0
Withholding taxes paid on stock issuances		(41	)		(199	)		(41	)		(214	)
Payment of bank financing costs		(201	)		–			(213	)		0
Net cash provided by (used in) financing activities		905			(867	)		2,201			(2,225	)

Effect of exchange rate changes on cash and cash equivalents		6			(24	)		9			(7	)

Decrease in cash and cash equivalents		(3,588	)		(2,747	)		(3,256	)		(3,484	)
Cash and cash equivalents, beginning of period		4,203			4,691			4,203			4,691
Cash and cash equivalents, end of period	$	615		$	1,944		$	947		$	1,207

Supplemental schedule of non-cash investing activities:
Capital expenditures included in accounts payable	$	38		$	59		$	15		$	91

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSO~~CONDENSED CONSOLIDATED~~LIDATED STATEMENTS OF CHANGES IN ~~SHAREHOLDERS'~~SHAREHOLDERS’ EQUITY

(unaudited)

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2020			2019
	(In thousands, except share and per share data)						(In thousands, except per share data)

Equity beginning balance	$	25,926		$	27,567		$	23,888		$	27,431		$	25,926		$	27,567

Common stock
Balance, beginning of period		115			115			116			115			115			115
Issuance of shares from stock awards		1			–			0			0			1			0
Balance, end of period		116			115			116			115			116			115

Additional paid-in capital
Balance, beginning of period		32,604			32,129			33,329			32,301			32,604			32,129
Share-based compensation expense		187			173			231			173			644			559
Issuance of shares from exercise of stock options		353			–			0			0			353			0
Relinquishment of stock awards and deferred stock units to pay for withholding taxes		(41	)		(199	)		0			0			(41	)		(214	)
Balance, end of period		33,103			32,103			33,560			32,474			33,560			32,474

Retained earnings
Balance, beginning of period		25,348			27,515			22,503			27,108			25,348			27,515
Net income (loss)		(992	)		746
Net (loss) income								(867	)		384			(3,712	)		1,316
Dividends declared and paid on common stock		–			(668	)		0			(672	)		0			(2,011	)
Balance, end of period		24,356			27,593			21,636			26,820			21,636			26,820

Treasury stock
Balance, beginning and end of period		(32,110	)		(32,110	)		(32,110	)		(32,110	)		(32,110	)		(32,110	)

Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss), net of tax
Balance, beginning of period		(31	)		(82	)		50			17			(31	)		(82	)
Foreign currency translation adjustment, net of tax		71			9			(84	)		(33	)		(3	)		66
Balance, end of period		40			(73	)		(34	)		(16	)		(34	)		(16	)

Equity ending balance		25,505			27,628			23,168			27,283			23,168			27,283

Supplemental share information
Issuance of shares from stock awards		82,525			56,998			2			1			93			73
Relinquishment of stock awards to pay withholding taxes		14,088			19,637			0			0			14			21
Dividends per share of common stock	$	–		$	0.09		$	0		$	0.09		$	0		$	0.27

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

N~~NOTES~~OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of presentation

The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature. The December 31, 2019 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the ~~full~~ year ended December 31, 2019.

The financial position and results of operations of our U.K. subsidiary are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated at the end of period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income (loss), net of tax”, in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity. Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

The results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results to be expected for the full ~~year.~~year ending December 31, 2020.

Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of ~~a novel strain of coronavirus, commonly known as~~ COVID-19 and the resulting social distancing measures, ~~implemented to mitigate its spread have caused widespread business, government~~including closures and ~~school closures that have particularly affected the food service~~restricted openings of restaurants and casinos implemented by federal, state and ~~gaming industries. Such disruptions~~local authorities, have ~~also negatively impacted our business. As a result of the COVID-19 pandemic and the protective measures instituted to contain its spread, we have experienced decreased~~significantly reduced recent customer demand ~~lower than anticipated sales in the second half~~and disrupted portions of ~~March 2020 and~~our supply chain, ~~disruptions,~~ including delayed product shipments from our ~~two contract~~2 manufacturers located in China and Thailand. We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ~~full-year impact;~~ultimate impact of the COVID-19 pandemic on our business; however, the length and severity of the reduction in demand due to the pandemic remains uncertain. Accordingly, we expect that the fourth quarter of 2020 will continue to be negatively impacted.

While we began to experience a modest recovery during the third quarter of 2020 and expect this recovery to continue in the fourth quarter of 2020, the exact timing and pace of recovery is ~~uncertain. We assessed certain accounting matters~~unknown given uncertainty surrounding future responsive measures that ~~generally require consideration of forecasted financial information~~may be implemented in ~~context with~~ the ~~information reasonably available to us~~upcoming winter months and the ~~unknown future impacts COVID-19 as of March 31, 2020~~significant disruption that our customers have already experienced and ~~through the date~~may continue to experience. In light of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, inventory obsolescence, stock based compensation, the value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the quarter ended March 31, 2020, resulting from our assessments, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Our expense management and liquidity measures described below may be modified as we obtain additional clarity on the timing of customer demand recovery. Given the unpredictability of the future operations of our customers, as well as of any economic or business recovery,uncertainty, we have implemented ~~certain~~ measures to help mitigate the impact ~~of the pandemic~~ on our financial position and operations. These measures include, but are not limited to, the following:

Expense Management.With the reduction in net sales, we have implemented, and will continue to implement cost saving initiatives through at least the end of 2020, including:

a reduction of our workforce starting in July 2020 by approximately 20% through a combination of employee terminations and temporary furloughs that we expect to continue ~~to implement to~~through the ~~extent necessary or advisable cost saving initiatives including:~~

~~the temporary furlough~~end of ~~approximately 10% of our workforce prior to receiving PPP loan proceeds;~~2020;

a 10% reduction in the salaries of all salaried, non-commissioned employees, including executive officers, starting in March 2020. From May 1, 2020 until early July 2020, employees below the vice president level were paid their full salary as a result of the receipt of the PPP Loan proceeds (defined below);

a reduction in sales commissions for all commissioned ~~employees;~~employees starting in March 2020;

a 10% reduction of cash retainer fees for all non-employee ~~director;~~directors starting in March 2020; and

the elimination of discretionary spending wherever ~~possible.~~

possible starting in March 2020.

Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions noted above, we have taken the following actions to increase liquidity and strengthen our financial ~~position:~~position.

Public Offering – On October 16, 2020, the Company raised net proceeds of $8.7 million, after deducting underwriting discounts, commissions and offering expenses, through an underwritten public offering (the “Offering”) and sold an aggregate of 1,380,000 shares of common stock. See Note 11 for further details related to the Offering.

PPP Loan -– On May 1, 2020, the Company was granted a $2.2 million loan (the “PPP Loan”) under the Paycheck Protection Program (the ~~“PPP Loan”~~“PPP”) administered by the ~~United States~~ Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which ~~has~~ enabled us to return our furloughed employees to full time ~~employment.~~employment and to restore certain pay cuts until the PPP Loan proceeds were exhausted.

New Credit Facility ~~- We also secured~~– On March 13, 2020, we entered into a new ~~revolving~~ credit ~~facility~~ with Siena Lending Group LLC that provides a revolving credit line of up to ~~$10~~$10.0 million, subject to a borrowing ~~base; and~~
base.

Reduced Capital Expenditures -– We ~~also~~ have limited capital expenditures until market conditions improve.

We may further modify or supplement the expense management measures we have implemented and the actions we have taken to increase liquidity as the timing and extent of customer demand recovery develops.

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the ~~next twelve~~12 months following the date on which the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Report”) were issued, including consideration of ~~our recent~~the actions ~~in response~~taken to ~~the pandemic~~manage expenses and ~~the assumptions discussed below,~~liquidity, we ~~have concluded~~believe that our net cash to be provided by operations combined with our cash and cash equivalents, ~~and~~ borrowing availability under our revolving credit facility and the ~~PPP Loan and savings~~net proceeds from the ~~cost reduction actions described below~~ Offering will provide sufficient liquidity to fund our current obligations, capital spending, and working capital ~~requirements. We expect~~requirements and to comply with the financial covenants of our credit ~~facility’s minimum EBITDA financial covenant~~facility over at least 12 months following the ~~next twelve months.~~

date that the Consolidated Financial Statements were issued.

9Use of Assumptions and Estimates

~~Our conclusion regarding the ability of~~Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. Our current assumptions are that casinos and restaurants ~~will reopen, although in a limited~~remain open and continue to gradually increase capacity limitations during the ~~second~~fourth quarter of 2020 inand into the first half of 2021, but that many casinos and restaurants may delay purchases of new slot machines and our ~~primary market areas but~~BOHA! products, respectively, due to the extended business closures and continuing capacity limitations. Based on these assumptions we anticipate that ~~demand for our~~sales in casino and gaming ~~printers, as well as, POS printers~~ and ~~BOHA! products~~food service technology will ~~remain low due~~continue to be negatively impacted for the foreseeable future. We have performed a ~~decline in capital expenditures likely~~sensitivity analysis on these assumptions to ~~result from months~~forecast the potential impact of ~~ceased or reduced operations. If~~a slower-than-anticipated recovery and believe that we ~~experience a slower than expected recovery,~~are well-positioned following the completion of the October 16, 2020 Offering to withstand the impact of lower-than anticipated sales and that we ~~believe we can~~will be able to take additional financial and ~~operational~~operations actions ~~to mitigate the impact of lower sales than our current plans assume.~~if necessary. These actions may include additional expense reductions and capital raising activities ~~including~~ ~~utilization~~.

In addition, the presentation of ~~opportunities provided~~the accompanying unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, inventory obsolescence, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the ~~CARES Act.~~

circumstances.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of December 31) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards. Under the qualitative assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, Company performance and events directly affecting the Company. If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach. Our ~~fourth quarter~~ 2019 quantitative impairment ~~tests~~test of goodwill and indefinite-lived intangible assets indicated that there was no indication of impairment as of December 31, 2019 because the fair value exceeded our carrying value.

During the three months ended March 31, 2020, our stock price declined to the lowest price since 2009. We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event and an indicator that it was more likely than not that the carrying value of goodwill ~~could have been reduced below its~~exceeded fair value. Therefore, we concluded that quantitative analyses were required to be performed due to the triggering event occurring during the ~~quarter.~~first quarter of 2020.

We view our operations and manage our business as ~~one~~1 operating ~~unit~~.unit. We utilized an implied market value method under the market approach to calculate the fair value of the Company as of March 31, 2020, which we determined was the best approximation of fair value in the current social and economic environment. Based on our interim impairment assessment as of March 31, 2020, we ~~have~~ determined that no0 goodwill or intangible asset impairment ~~has~~ occurred and the fair value of goodwill ~~exceeded~~was substantially higher than our carrying value.

As of September 30, 2020, we determined that no new triggering events had occurred during the third quarter of 2020 and as a result an updated impairment review was not performed. Based on our impairment assessment performed on March 31, 2020 and subsequent market performance of our stock we do not expect to record an impairment charge in the near future but many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods as a result of both Company-specific and overall economic conditions, including the impacts of COVID-19. We will continue to monitor and evaluate the carrying value of goodwill. We may be subject to impairments in the future depending on how long the economic and social ~~conditions~~disruptions resulting from COVID-19 ~~exist and its future impact on the broader economy.~~
pandemic persist.

2. Revenue

We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers.

Disaggregation of revenue

The following table disaggregates our revenue by market-type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues.We have reclassified sales of labels and other recurring revenue items, which includes extended warranty and service contracts, and technical support services related to our food service technology market, previously included in TSG, to food service technology for all periods presented.

	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	March 31, 2020						March 31, 2019						September 30, 2020						September 30, 2019
	(In thousands)												(In thousands)
	United States		International		Total		United States		International		Total		United States		International		Total		United States		International		Total
Food service technology	$	1,239	$	132	$	1,371	$	1,117	$	96	$	1,213	$	2,081	$	268	$	2,349	$	1,730	$	221	$	1,951
POS automation and banking		1,554		4		1,558		1,259		18		1,277		739		3		742		1,494		20		1,514
Casino and gaming		2,558		2,373		4,931		3,424		2,059		5,483		1,552		457		2,009		2,849		2,225		5,074
Lottery		–		–		–		697		–		697		0		0		0		95		0		95
Printrex		61		56		117		297		45		342		5		102		107		213		83		296
Transact Services Group		2,003		267		2,270		2,213		325		2,538
TransAct Services Group														1,910		183		2,093		2,490		266		2,756
Total net sales	$	7,415	$	2,832	$	10,247	$	9,007	$	2,543	$	11,550	$	6,287	$	1,013	$	7,300	$	8,871	$	2,815	$	11,686

	Nine Months Ended						Nine Months Ended
	September 30, 2020						September 30, 2019
	(In thousands)
	United States		International		Total		United States		International		Total
Food service technology	$	4,376	$	548	$	4,924	$	3,825	$	462	$	4,287
POS automation and banking		2,774		7		2,781		4,392		43		4,435
Casino and gaming		5,080		3,220		8,300		9,765		6,423		16,188
Lottery		817		0		817		924		2		926
Printrex		72		160		232		740		183		923
TransAct Services Group		5,184		594		5,778		6,947		880		7,827
Total net sales	$	18,303	$	4,529	$	22,832	$	26,593	$	7,993	$	34,586

Contract balances

Our contract liabilities consist of customer pre-payments and deferred revenue. Customer prepayments are reported as “Accrued ~~Liabilities”~~liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete. Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL™ maintenance contracts and testing service contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract. We dodid not have any contract asset balances as of ~~March 31,~~September 30, 2020 or December 31, ~~2019.~~2019. For the first ~~three~~nine months of 2020, we recognized revenue of ~~$406 thousand~~$1.0 million related to our contract liabilities at December 31, 2019. For the nine months endedSeptember 30, 2019, we recognized revenue of $0.5 million related to our contract liabilities at December 31, ~~2019.~~2018. Total contract liabilities ~~consist~~consisted of the following:

	March 31, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(In thousands)				(In thousands)

Customer pre-payments	$	82	$	232	$	126	$	232
Deferred revenue, current		643		700		479		700
Deferred revenue, non-current		183		219		120		219
Total contract liabilities	$	908	$	1,151	$	725	$	1,151

Remaining performance obligations

Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer. As of ~~March 31,~~September 30, 2020, the aggregate amount of transaction prices allocated to remaining performance obligations was ~~$4.4~~$2.2 million. The Company expects to recognize revenue on ~~$4.2~~$2.1 million of its remaining performance obligations within the next 12 months following September 30, 2020 and $0.1 million within the next 24 months ~~and the balance of these remaining performance obligations within the next 36 months.~~following September 30, 2020.

3. Note receivable

The note receivable balance relates to a loan given to a third party with an interest rate of 4.5%, which was due in April 2020. ~~The~~We intend to collect the remaining principal and interest due under the note ~~includes~~pursuant to a lender recourse provision that enables us to apply payments that would have been due to the third party under a previously signed long-term royalty agreement towards the loan balance. A $100 thousand royalty fee is scheduled to be paid to the third party in January 2021 that will instead be applied towards the note receivable balance as it becomes due. As a result, ~~$100~~$100 thousand of the balance was classified as current and the remaining ~~$1.5~~$1.6 million is expected to be reduced thereafter using the lender recourse provision. Notes receivable are stated at unpaid balances and interest income is recognized on the accrual method. In March 2020, we loaned an additional $600 thousand to the third party. For the three and nine months ended ~~March 31,~~September 30, 2020 we recorded ~~$13~~$18 thousand and $49 thousand of interest ~~income.~~income, respectively. As of ~~March 31,~~September 30, 2020, we have no0 allowances for loan losses, unamortized deferred loan fees or unearned discounts.

4. Inventories ~~net~~

The components of inventories ~~net~~ were:

	March 31, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(In thousands)				(In thousands)

Raw materials and purchased component parts	$	9,071	$	7,724	$	4,561	$	7,724
Work-in-process		7		–		8		0
Finished goods		3,508		4,375		7,934		4,375
	$	12,586	$	12,099	$	12,503	$	12,099

5. Accrued product warranty liability

We generally provide warranties on our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded. Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs.

The following table summarizes the activity recorded in the accrued product warranty liability during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019:

	Three Months Ended March 31,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands)						(In thousands)

Balance, beginning of period	$	215		$	273		$	215		$	273
Warranties issued		45			40			53			138
Warranty settlements		(47	)	��	(60	)		(107	)		(190	)
Balance, end of period	$	213		$	253		$	161		$	221

As of ~~March 31,~~September 30, 2020, ~~$171~~$128 thousand of the accrued product warranty liability was classified as current in ~~"Accrued liabilities"~~“Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining ~~$42~~$33 thousand was classified as non-current in ~~"Other liabilities"~~“Other liabilities”.

6. ~~Credit Facility~~Debt

On March 13, 2020, we entered into a new credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC. The Siena Credit Facility provides for a revolving credit line of up to ~~$10~~$10.0 million expiring on March 13, 2023. Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%. The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility was ~~$234 thousand.~~$245 thousand, which were reported as “other current assets” in current assets and “other assets” in non-current assets in the Condensed Consolidated Balance Sheets. We also pay a fee of 0.50% on unused borrowings under the facility. Borrowings under the facility are secured by a lien on substantially all the assets of the Company. The Siena Credit Facility imposes a minimum EBITDA financial covenant on the Company and borrowings are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5$5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory. As of ~~March 31,~~September 30, 2020, we had ~~$6.8~~$6.6 million of additional borrowing capacity available under the Siena Credit Facility. We were in compliance with ~~the~~all financial ~~covenant~~covenants of the Siena Credit Facility at ~~March 31,~~September 30, 2020.

~~7. Earnings per share~~

~~The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding:~~

Three Months Ended
March 31,

2020

2019

(In thousands, except per share data)

Net income (loss)

$
(992
)

$
746

Shares:

Basic:  Weighted average common shares outstanding

7,507

7,461

Add:  Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method

–

158

Diluted:  Weighted average common and common equivalent shares outstanding

7,507

7,619

Net income (loss) per common share:

Basic

$
(0.13
)

$
0.10

Diluted

$
(0.13
)

$
0.10

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive. For the three months ended March 31, 2020 and 2019, there were 708 thousand and 540 thousand, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share. ~~Regarding the three months ended March 31, 2020, when a net loss is reported, basic and diluted net loss per common share are calculated using the same method.~~

~~8. Shareholders’ equity~~

~~For the three months ended March 31, 2019, dividends declared and paid totaled $668 thousand, or $0.09 per share.~~ ~~On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock. The final dividend payment was made in December 2019.~~

~~9. Leases~~

~~We account for leases in accordance with ASC Topic 842: Leases.~~

We enter into lease agreements for the use of real estate space and certain other equipment under operating leases and we have no financing leases. Our leases are included in Right of use assets and Lease liabilities in our Condensed Consolidated Balance Sheet. Our leases have remaining lease terms of one year to seven years, some of which include options to extend. The majority of our leases with options to extend provide for extensions of up to five years with the ability to terminate the lease within one year. Our right of use asset and lease liability was higher on March 31, 2020 compared to December 31, 2019, million, respectively due to the extension of one of our leases. On February 28, 2020, we entered into an amendment to extend the lease on our facility in Ithaca, New York which resulted in recording an additional right of use asset and lease liability of $1.5 million. The lease, which was last amended on January 14, 2016, was scheduled to expire on May 31, 2021. The lease amendment provides for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025. ~~Lease expense is recognized on a straight-line basis over the lease term.~~

Operating lease expense for the three months ending March 31, 2020 and December 31, 2019 was $251 thousand and $237 thousand, respectively, and was included within Cost of sales, Engineering, design and product development expense, Selling and marketing expense, and General and administrative expense. Operating costs include short-term lease costs which were immaterial during the period.

~~The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):~~

Three Months Ended
March 31,

2020

2019

Operating cash outflows from leases

$
259
$ 257

~~The following summarizes additional information related to our leases as of March 31, 2020 and December 31, 2019:~~

March 31, 2020

December 31, 2019

Weighted average remaining lease term (in years)

5.6

5.0

Weighted average discount rate

4.1
%

3.7
%

~~The maturity of the Company’s operating lease liabilities as of March 31, 2020 and 2019 are as follows (in thousands):~~

March 31, 2020

December 31, 2019

2020

$
780

$
1,042

2021

967

711

2022

875

434

2023

709

268

2024

714

273

Thereafter

797

616

Total undiscounted lease payments

4,842

3,344

Less imputed interest

506

295

Total lease liabilities

$
4,336
$ 3,049

~~10. Income taxes~~

We recorded an income tax benefit for the first quarter of 2020 of $465 thousand at an effective tax rate of 31.9%, compared to an income tax provision during the first quarter of 2019 of $115 thousand at an effective tax rate of 13.4%. The effective tax rate for the first quarter of 2020 was higher as it included the impact of our anticipated net operating loss (“NOL”) that we expect to incur during 2020 and to carry back to prior years, which was recorded discretely. The CARES Act was enacted on March 27, 2020 and permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We expect to generate a NOL in 2020 which we will carry back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020.

We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2015. However, our federal tax returns for the years 2016 through 2018 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of March 31, 2020, we had $107 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. We expect that $27 thousand of the $107 thousand of unrecognized tax benefits will reverse in 2020 upon the expiration of the statute of limitations.

We recognize interest and penalties related to uncertain tax positions in the income tax provision reported as "Deferred tax assets" in the Condensed Consolidated Balance Sheet. As of March 31, 2020, we had $21 thousand of accrued interest and penalties related to uncertain tax positions. The Company ~~maintains a valuation allowance against certain deferred tax assets where realization is not certain.~~

~~11. Subsequent Events~~

On May 1, 2020 (the “Loan Date”), the Company was granted athe PPP Loan from Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the ~~PPP administered by the SBA and established under Division A, Title I of the CARES Act.~~PPP.

The PPP Loan, which is evidenced by a Note dated the Loan Date issued by the Company (the “Note”), matures on May 1, 2022 and bears interest at a fixed rate of 1.0% per annum, accruing from the Loan Date and payable monthly. No payments are due on the PPP Loan for six months from the date of first disbursement, but interest will continue to accrue during the deferment period. The Note is unsecured and guaranteed by the SBA. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the Note or related documents, reorganizations, mergers, consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions. The PPP Loan may be accelerated upon the occurrence of a default.

Under the terms of the PPP, the PPP Loan may be forgiven to the extent that funds from the PPP Loan are used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020, and interest on debt obligations incurred before February 15, 2020 (collectively, “qualifying expenses”), subject to conditions and limitations provided in the CARES Act. At least ~~75%~~60% (as amended) of ~~such forgiven amounts~~the proceeds from the PPP Loan must be used for eligible payroll ~~costs.~~costs for the PPP Loan to be forgiven. The Company ~~intends to maximize~~has maximized the use of PPP Loan proceeds for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES ~~Act.~~Act, as amended by the Paycheck Protection Flexibility Act of 2020. Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt. The PPP Loan is classified as “Long-term debt” in the Condensed Consolidated Balance Sheet until the forgiveness determination has been made by the SBA.

7. Earnings per share

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
	(In thousands, except per share data)
Net (loss) income	$	(867	)	$	384	$	(3,712	)	$	1,316

Shares:
Basic: Weighted average common shares outstanding		7,548			7,470		7,533			7,464
Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method		0			283		0			194
Diluted: Weighted average common and common equivalent shares outstanding		7,548			7,753		7,533			7,658

Net (loss) income per common share:
Basic	$	(0.11	)	$	0.05	$	(0.49	)	$	0.18
Diluted	$	(0.11	)	$	0.05	$	(0.49	)	$	0.17

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive. For the three months ended September 30, 2020 and 2019, there were 1.4 million and 0.3 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share. For the nine months endedSeptember 30, 2020 and 2019, there were 1.4 million and 0.5 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share. Regarding the three and nine months ended September 30, 2020, when a net loss is reported, basic and diluted net loss per common share are calculated using the same method.

8. Shareholders’ equity

For the three months endedSeptember 30, 2019, dividends declared and paid totaled $0.7 million, or $0.09 per share. Dividends declared and paid totaled $2.0 million, or $0.27 per share for the nine months ended September 30, 2019. On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock. The final dividend payment was made in December 2019.

9. Leases

We account for leases in accordance with ASC Topic 842: Leases.

We enter into lease agreements for the use of real estate space and certain otherequipment under operating leases and we have no financing leases. Our leases are included in Right-of-use-assets and Lease liabilities in our Condensed Consolidated Balance Sheet. Our leases have remaining lease terms of one year to seven years, some of which include options to extend. The majority of our leases with options to extend provide for extensions of up to five years with the ability to terminate the lease within one year. Our right-of-use-asset and lease liability was higher at September 30, 2020 compared to December 31, 2019 due to the extension of 1 of our leases. On February 28, 2020, we entered into an amendment to extend the lease on our facility in Ithaca, New York, which resulted in recording an additional right-of-use-asset and lease liability of $1.5 million. The lease, which was last amended on January 14, 2016, was scheduled to expire on May 31, 2021. The lease amendment provides for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025. Lease expense is recognized on a straight-line basis over the lease term.

Operating lease expense for the three months ended September 30, 2020 and 2019 was $243 thousand and $256 thousand, respectively, and are reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations. Operating lease expense for the nine months ended September 30, 2020 and 2019 was $735 thousand and $764 thousand, respectively. Operating expenses include short-term lease costs which were immaterial during the period.

1413

The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):

	Nine Months Ended September 30,
	2020		2019
Operating cash outflows from leases	$	779	$	772

The following summarizes additional information related to our leases as of September 30, 2020:

	September 30, 2020			December 31, 2019
Weighted average remaining lease term (in years)		5.1			5.0
Weighted average discount rate		4.1	%		3.7	%

The maturity of the Company’s operating lease liabilities as of September 30, 2020 and December 31, 2019 were as follows (in thousands):

	September 30, 2020		December 31, 2019
2020	$	261	$	1,042
2021		969		711
2022		876		434
2023		711		268
2024		715		273
Thereafter		800		616
Total undiscounted lease payments		4,332		3,344
Less imputed interest		422		295
Total lease liabilities	$	3,910	$	3,049

10. Income taxes

We recorded an income tax benefit for the third quarter of 2020 of $515 thousand at an effective tax rate of 37.3%, compared to an income tax benefit for the third quarter of 2019 of $143 thousand at an effective tax rate of (59.3%). For the nine months endedSeptember 30, 2020, we recorded an income tax benefit of $1.9 million at an effective tax rate of 33.9%, compared to an income tax benefit for the nine months endedSeptember 30, 2019 of $54 thousand at an effective tax rate of (4.3%). The effective tax rates for the three and nine months ended September 30, 2020 were higher than usual as it included the impact of the net operating loss (“NOL”) that we expect to carry back to prior years. The CARES Act permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We expect to generate a NOL for 2020 which we will carry back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020. The effective tax rate for the three and nine months ended September 30, 2019 were lower than usual as it included the foreign-derived intangible income (“FDII”) deduction under the Tax Cuts and Jobs Act of 2017 as well as near breakeven pre-tax income in the third quarter of 2019.

We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2016. However, our federal tax returns for the years 2017 through 2019 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of September 30, 2020, we had $80 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. For the third quarter of 2020, we recognized $27 thousand of previously unrecognized tax benefits as the statute of limitations on the use of our 2016 resarch and development credit expired during the third quarter of 2020.

We recognize interest and penalties related to uncertain tax positions as income tax (benefit) provision. As of September 30, 2020, we had $15 thousand of accrued interest and penalties related to uncertain tax positions. The Company maintains a valuation allowance against certain deferred tax assets to reduce the future income tax benefits to expected realizable amounts.

11. Subsequent events

The Company has evaluated events and transactions subsequent to September 30, 2020 and through the date these Condensed Consolidated Financial Statements were included in this Form 10-Q and filed with the SEC.

On October 13, 2020, the Company announced the commencement of an underwritten public offering of the Company’s common stock, $0.01 par value per share. On October 16, 2020, the Company closed the Offering and sold an aggregate of 1,380,000 shares of common stock (the “Shares”), including 180,000 Shares sold as a result of the exercise in full of the overallotment option granted to the Underwriters (as defined below), at a public offering price of $7.10 per Share. The Shares were issued and sold pursuant to an underwriting agreement, dated October 14, 2020 (the “Underwriting Agreement”) between the Company and Roth Capital Partners, LLC, as representative of the several underwriters named therein (the “Underwriters”). Pursuant to the Underwriting Agreement, the Shares were sold to the Underwriters at a discount of 6% to the public offering price, and the Company agreed to reimburse the Underwriters for certain fees and expenses. After deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the net proceeds of approximately $8.7 million are expected to be used for working capital and other general corporate purposes, which may include funding the further development of the food service technology business and related sales, marketing and product development efforts, technology improvements and personnel costs in support of the Company’s growth strategy.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Forward Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q for the period ended ~~March 31,~~September 30, 2020 ~~(this~~(this “Report”), including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts are “forward-looking statements” within the meaning of ~~Section 27A of~~ the ~~Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and~~U.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “project” or “continue” or the negative thereof or other similar words. ~~All~~The Company cautions readers not to place undue reliance on any such forward-looking statements, ~~involve~~each of which involves certain risks and uncertainties, including, but not limited to those listed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Form 10-K”), in Part II, Item 1A of our Quarterly Report on Form 10-Q for the periods ended September 30, 2020 (our “1Q 2020 Form 10-Q”) and June 30, 2020 (our “2Q 2020 Form 10-Q”), in Part II, Item 1A of this ~~report~~Report and in our other filings with the ~~SEC. Actual~~Securities and Exchange Commission (the “SEC”). Such risks and uncertainties could cause actual results ~~may~~to differ materially from those discussed in, or implied by, the forward-looking statements. ~~The~~Any of such risks and uncertainties may also be exacerbated by the ultimate impact of the COVID-19 pandemic, which is unknown at this time. In addition, statements made in this Report about the COVID-19 pandemic and the potential effects and impacts of the COVID-19 pandemic on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic, actions taken by governmental authorities and businesses in response to the pandemic and the direct and indirect impact of the pandemic on our employees, customers and third parties with which we conduct business. Although management has taken steps to mitigate any negative effect of such risks and uncertainties, including the COVID-19 pandemic, significant unfavorable changes could severely impact the assumptions used. Forward-looking statements speak only as of the date of ~~this Report~~they are made, and we ~~assume no duty~~do not undertake any obligation to update ~~them.~~them to reflect the impact of subsequent events or circumstances, except as required by law. As used in this Report, unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” and “TransAct” refer to the consolidated operations of TransAct Technologies Incorporated, and its consolidated subsidiaries.

Overview

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high growth markets including food service technology, point of sale (“POS”) automation, ~~and banking,~~ casino and gaming, ~~lottery,~~ and oil and gas. Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic®, EPICENTRAL™, Ithaca®, and Printrex® brand names. In March 2019, we launched a new line of products for the food service technology market, the BOHA! branded suite of cloud-based applications and companion hardware solutions. The new BOHA! software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production operations in the back-of-house operations.Known and respected worldwide for innovative designs and real-world service reliability, our thermal ~~and inkjet~~ printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents, as well as printed logging and plotting of data. We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, select distributors, as well as directly to end-users. Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, ~~Latin America,~~ the Caribbean Islands and the South Pacific. We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers. Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing and scanning activities of customers in the restaurant and hospitality, banking, retail, casino and gaming, government and oil and gas exploration markets. Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products. We operate in one reportable segment, the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.

Recent Developments

On September 29, 2020, the Company announced the launch of its BOHA! Restaurant Operations Platform and that the Company will begin working with the Apple sales team and their eco-system partners to offer the platform to the restaurant market. The platform pairs the new BOHA! Work Station and iPad with native iOS BOHA! applications that can be downloaded and installed directly from the Apple Business App Store.

Impact of the COVID-19 Pandemic

In December 2019, a novel strain of coronavirus and the disease it causes, commonly known as COVID-19, was first reported in China and has since widely impacted the global public health and economic environment. In March 2020, the World Health Organization declared COVID-19, including all additional variations and strains thereof, a global pandemic. Our business trends through the first two months of the year were in line with internal expectations; however, the challenges posed by the COVID-19 pandemic on the United States and global economy increased significantly as the first quarter of 2020 progressed ~~in March~~and continued throughout the second and third quarters of 2020. Unfortunately, the massive economic and social disruptions across the world persist ~~as of the date of this Report~~ due to COVID-19 and the measures implemented to mitigate its ~~spread continue to cause widespread business, government and school closures that especially affect the~~spread. The food service, casino and gaming and ~~food service industries. We~~oil and gas industries have been particularly affected by the pandemic, and we expect such disruptions to continue to negatively impact our overall business for the foreseeable future.

As a result of the COVID-19 pandemic and measures implemented to mitigate ~~the~~its spread, ~~of COVID-19,~~ we have experienced decreased demand for our products and lower than anticipated sales beginning in the second half of March 2020 through the third quarter of 2020, particularly ~~from~~in our food service technology and casino ~~customers. This trend has continued through April~~ and ~~into May~~gaming markets. We saw some improvement in demand during the third quarter of 2020 ~~and we expect it~~compared to ~~continue for the remainder of~~ the second quarter of 2020 as some state and ~~likely~~local governments lifted certain measures implemented earlier in 2020 to mitigate the spread of the virus, but demand remains lower than 2019, and we expect this trend to continue through the ~~end of 2020. Based on sales orders booked for the second quarter to date, we expect that sales for the second quarter of 2020 will be significantly lower compared to the first quarter~~remainder of 2020. Below is a discussion of the impact of COVID-19 that we have experienced, and that we believe we will continue to experience for the foreseeable future in each of our markets.

Food service technology and POS automation. In both our food service technology and POS automation markets, many restaurants and food service establishments ~~are currently~~that were closed during much of the second quarter of 2020 started to reopen as state and ~~those that remain open are doing so~~local governments began to ease restrictions put in place in response to the pandemic. Many customers have opened under restrictions that limit them to providing drive through, take out or delivery service without dine-in options, as well as limiting the volume of customers and employees on site at any one time. ~~Though some are considering re-opening dine-in~~During the third quarter of 2020, we experienced sales improvement compared to the second quarter of 2020, as these food service customers reopened for business. Notwithstanding the gradual resumption of limited operations that began in the third quarter of 2020, our food service technology and POS automation customers continue to recover from the financial impact of being closed for several months and we expect new capital expenditures to be a lower priority for them in the near term, which we believe ~~such service offerings~~ will, ~~be gradual, beginning with outdoor seating only,~~continue to negatively impact sales of BOHA! hardware, software and ~~progressing to indoor dining with seating limitations based on social distancing guidelines. In addition, many~~label products, as well as sales of POS printers. However, food service providers will ~~need~~also be required to develop and implement new or enhanced policies and operating procedures regarding cleaning, sanitizing and social distancing to ensure the safety of their employees and customers. AsWe believe that our customers begin to reopen and recover from the financial impact of being closed for several months, we expect new capital expenditures to be a lower priority for them in the near term, which we believe will negatively impact sales of BOHA! hardware, software and label products ~~as well as sales of POS printers. However, we believe we have an opportunity in the long run as our BOHA! software solutions~~ could prove to be helpful to our food service customers in efficiently and effectively managing and complying with these new procedures, especially as many establishments will likely be operating with reduced staff levels.

Casino and gaming. In the casino and gaming market, most casinos and other gaming establishments ~~have~~were closed worldwide during most of the second quarter of 2020. Many casinos began to reopen in late May and ~~remain shut down. However, casinos in Macau have recently begun to open and a small number of U.S. casinos have announced plans to begin to open later in May. Similar~~early June 2020, but similar to restaurants, ~~we believe~~ casino openings ~~when they begin, will be~~were slow and measured, starting atwith reduced capacity with limited game play based on social distancing ~~guidelines,~~guidelines. We anticipate that casinos will continue to limit capacity in the near term and will progressively ~~increasing~~increase capacity over time. As casinos ~~begin to reopen and~~gradually recover from the financial impact of being closed for several months, we expect that casinos’ appetite for purchases of new slot machines will be diminished, which we believe will negatively impact sales of casino and gaming printers purchased by slot manufacturers for use in slot machines at casinos. ~~We believe these effects will continue even after operating restrictions are lifted in the event that the downturn in economic conditions persists.~~

Lottery. We exited the lottery market at the end of 2019 and ~~expect~~ IGT ~~to make~~made a final purchase of our lottery printer during the second quarter of 2020. Therefore, we do not anticipate that COVID-19 will impact our lottery printer sales.

Printrex. The oil and gas market has been negatively impacted by the decline in worldwide oil prices attributable to the COVID-19 pandemic. Due to the uncertainty of current and future market conditions, we believe sales of our Printrex oil and gas printers will be negatively impacted until oil and gas prices recover.

TSG. Due to closures and reduced operating capacity of restaurants, food service establishments, casinos and other gaming establishments resulting from the COVID-19 pandemic, we expect sales of spare parts, service and consumable products to also decline correspondingly due to lower usage while the pandemic persists.

~~We also~~Our gross margin has been negatively impacted and we expect our gross margin to continue to be negatively impacted by the COVID-19 pandemic. As a result of an expected significantly lower sales level, we believe our gross margin will decline due to fixed manufacturing overhead expenses (such as facility costs, depreciation, etc.) that cannot be reduced or eliminated even with the lower sales level.

We have also experienced supply chain disruptions, including delayed product shipments from our two contract manufacturers located in China and Thailand that conduct ~~approximately 80% and 19%, respectively,~~almost all of our printer and terminal manufacturing, due to reduced operations at these ~~facilities, which are not yet operating at full capacity.~~facilities. To date, these disruptions have only minimally impacted deliveries to customers due to our high inventory levels and reduced demand for our products. However, if the delays are sustained ~~they could lead to~~or additional disruptions from the pandemic occur, we may have insufficient inventory levels and ~~impair~~ our ability to deliver products to our customers on time or at ~~all.~~all may be impaired.

While it is difficult to predict the magnitude of the impact that the pandemic and the responsive measures will have on our customers and our business, we have taken several actions to manage our expenses during these turbulent and uncertain times. Such steps include:

•	~~the temporary furlough of approximately 10% of our workforce prior to receiving PPP loan proceeds;~~ a reduction of our workforce starting in July 2020 by approximately 20% through a combination of employee terminations and temporary furloughs that we expect to continue through the end of 2020;

a 10% reduction in the salaries of all salaried, non-commissioned employees, including executive officers starting in March 2020. From May 1, 2020 until early July 2020, employees below the vice president level were paid their full salary as a result of the receipt of the PPP Loan (defined below);

a reduction in sales commissions for all commissioned ~~employees;~~employees starting in March 2020;

a 10% reduction of cash retainer fees for all non-employee ~~director;~~director starting in March 2020; and

the elimination of discretionary spending wherever ~~possible.~~possible starting in March 2020.

In addition, we have taken further measures to increase liquidity, including the following:

•

PPP Loan - On May 1, 2020, the Company was granted a $2.2 million loan under the Paycheck Protection Program (the “PPP Loan”) administered by the Small Business Administration (“SBA”) established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which has enabled us to return our furloughed employees to full time employment.

Public Offering – On October 16, 2020, the Company raised net proceeds of $8.7 million, after deducting underwriting discounts, commissions and offering expenses, through an underwritten public offering (the “Offering”) and sold an aggregate of 1,380,000 shares of common stock. See Part I, Item 1, Note 11 of this Report for further details related to the Offering.

PPP Loan – On May 1, 2020, the Company was granted a $2.2 million loan (the “PPP Loan”) under the Paycheck Protections Program (the “PPP”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which enabled us to return our furloughed employees to full time employment and to restore certain pay cuts until the PPP Loan proceeds were exhausted.

New Credit Facility ~~- We also secured~~– On March 13, 2020, we entered into a new ~~revolving~~ credit facility (the "Siena Credit Facility") with Siena Lending Group LLC that provides a revolving credit line of up to ~~$10~~$10.0 million, subject to a borrowing ~~base~~base.

Reduced Capital Expenditures -– We ~~also~~ have limited capital expenditures until market conditions improve.

Since the onset of the pandemic, our top priority has been to ensure the health and safety of our employees while continuing to provide our customers with high-quality, personalized service. On March 20, 2020, we instituted work-from-home practices for the majority of our employees to reduce the spread of COVID-19 and to comply with government mandates. ~~Our existing remote work capabilities, which include providing~~Because most of our employees ~~with~~already had laptop computers ~~and~~with remote access tointo our IT systems, ~~mitigated~~we have experienced only minor reductions in ~~employee~~ productivity and minimal costs related to the implementation of our work-from-home ~~practices in connection with the COVID-19 pandemic.~~practices. In addition, even with the move to a work-from-home environment, our existing internal control structure remained operational and unchanged.

Our distribution centers, deemed an essential service, ~~remain operational.~~have remained operational throughout the pandemic. We implemented a new COVID-19 policy to specifically address health and safety guidelines for employees to adhere to and follow when at work or returning to work. This policy was based on the COVID-19 safety guidelines recommended from the Centers for Disease Control and Prevention and ~~includes:~~implements the following operations procedures:

staggered shifts and a ~~rotational/~~rotational or flexible work schedule to ~~keep~~minimize the number of employees at any particular facility at a ~~facility to a minimum;~~single time;

~~providing and requiring the~~mandated use of protective equipment, such as masks and gloves, when in common ~~areas;~~areas, which is provided to employees;

~~spacing~~spaced seating in workspaces such as manufacturing cells, lunch/break rooms, conference rooms and other common areas to comply with social distancing guidelines;

~~requiring any employee~~employees who (i) ~~shows~~show symptoms of COVID-19 or (ii) ~~has~~have been exposed to someone ~~else~~ who shows symptoms or has tested positive for COVID-19 ~~not to return~~are prohibited from reporting to work for ~~fourteen~~14 days;

~~prohibiting any~~all visitors are prohibited from entering ~~any facility;~~all facilities;

~~implementing~~ daily cleaning and disinfecting protocols at all facilities; and

daily temperature ~~taking~~checks of all employees before entering all facilities.

We have evaluated the recoverability of the assets on our unaudited ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet as of ~~March 31,~~September 30, 2020 in accordance with relevant authoritative accounting literature. We considered the disruptions caused by the COVID-19 pandemic, including lower than previously forecasted sales and customer demand, a decline in the price of our common stock and macroeconomic factors potentially impacting accounts receivable, inventory, investments, intangible assets, goodwill and other assets and liabilities. Where forward-looking estimates are required, we made a good-faith estimate based on information available as of the balance sheet date. We have continued to monitor for indicators of impairment through the date of this Report and reflected accordingly in the accompanying condensed consolidated financial statements.

Notwithstanding the foregoing, there is no assurance that the actions we have taken in response to the pandemic are sufficient or adequate, and we may be required to take additional preventive or responsive measures, as the ultimate extent of the effects of the COVID-19 pandemic on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time. See the risk factors contained in Part I, Item 1A of the 2019 Form 10-K, Part II, Item 1A ~~‘Risk Factors”~~of our Q1 2020 Form 10-Q and our Q2 2020 Form 10-Q, and Part II, Item 1A, of this Report for further discussion of risks related to COVID-19.

Critical Accounting Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of ~~America.~~America (“U.S. GAAP”). The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, inventory obsolescence, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

Goodwill and Intangible ~~Assets~~ –Assets. We acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets. The determination of the value of intangible assets requires management to make estimates and assumptions. In accordance with ASC 350-20 “Goodwill”, acquired goodwill is not amortized, but is subject to impairment testing at least annually and when an event occurs or circumstances change, which indicates it is more likely than not an impairment exists. As a result of the effect of COVID-19 on overall economic trends, the Company's operating results and the decrease in the Company’s share price as of March 31, 2020, management determined that potential impairment triggers had occurred and performed impairment testing as of March 31, 2020. ~~We have~~As of March 31, 2020, when the impairment review was performed, we determined that no goodwill or intangible asset impairment ~~has~~had occurred and the fair value of goodwill was higher than our carrying ~~value based on our assessment as~~value. As of ~~March 31,~~June 30, 2020 ~~when~~and September 30, 2020, we determined that no new triggering events had occurred during the second quarter or the third quarter of 2020 and, in accordance with ASC 350-20, an updated impairment review was not performed. Refer to Note 1 to the Consolidated Financial Statements included in Part I, Item 1 of this Report for additional information about the valuation of goodwill, indefinite-lived intangible assets and long-lived assets.

For a complete description of our accounting policies other than goodwill and intangible assets, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” of our ~~Annual Report on~~2019 Form 10-K ~~for the year ended December 31, 2019.~~. We have reviewed those policies and determined that they remain our critical accounting policies for the ~~three~~nine months ended ~~March 31, 2020.~~September 30, 2020.

Results of Operations: Three months ended ~~March 31,~~September 30, 2020 compared to three months ended ~~March 31,~~September 30, 2019

Net Sales. Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the three months ended ~~March 31,~~September 30, 2020 and 2019 ~~were as follows~~are reflected in the table below (in thousands, except percentages). We have reclassified sales of labels and other recurring revenue items, which includes extended warranty and service contracts, and technical support services related to our food service technology market, previously included in TSG, to Food service technology for all periods presented in this Report.

	Three Months Ended				Three Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Food service technology	$	2,349	32.2	%	$	1,951	16.7	%	$	398			20.4	%
POS automation and banking		742	10.2	%		1,514	13.0	%		(772	)		(51.0	%)
Casino and gaming		2,009	27.5	%		5,074	43.4	%		(3,065	)		(60.4	%)
Lottery		–	0.0	%		95	0.8	%		(95	)		(100.0	%)
Printrex		107	1.4	%		296	2.5	%		(189	)		(63.9	%)
TSG		2,093	28.7	%		2,756	23.6	%		(663	)		(24.1	%)
	$	7,300	100.0	%	$	11,686	100.0	%	$	(4,386	)		(37.5	%)

International *	$	1,013	13.9	%	$	2,815	24.1	%	$	(1,802	)		(64.0	%)

Three Months Ended Three Months Ended
March 31, 2020 March 31, 2019 $ Change % Change
Food service technology

$
1,371

13.4
%

$
1,213

10.5
%

$
158

13.0
%
POS automation and banking

1,558

15.2
%

1,277

11.1
%

281

22.0
%
Casino and gaming

4,931

48.1
%

5,483

47.4
%

(552
)

(10.1
%)
Lottery

-

0.0
%

697

6.0
%

(697
)

(100.0
%)
Printrex

117

1.1
%

342

3.0
%

(225
)

(65.8
%)
TSG

2,270

22.2
%

2,538

22.0
%

(268
)

(10.6
%)

$
10,247

100.0
%

$
11,550

100.0
%

$
(1,303
)

(11.3
%)

International *

$
2,832

27.6
%

$
2,543

22.0
%

$
289

11.4
%

*	International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers who may, in turn, ship those printers and terminals to international destinations.

Net sales for the ~~first~~third quarter of 2020 decreased ~~$1.3~~$4.4 million, or ~~11%~~38%, from the same period in 2019. Printer, terminal and other hardware sales volume decreased ~~12%~~58% to approximately ~~25,000~~11,000 units for the third quarter of 2020 due to volume decreases in all our markets, but driven primarily by ~~no sales volume of lottery printers due to our decision to exit the lottery market at the end of 2019 and~~ a ~~10%~~64% decrease in unit volume infrom the casino and gaming market ~~partially offset by~~and, to a ~~22% increase~~lesser extent, a 45% decrease in ~~unit volume from~~ the POS automation and banking ~~market for the first quarter of 2020 compared to the first quarter of 2019.~~market. The average selling price of our printers, terminals and other hardware ~~decreased 4%~~increased 3% for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due ~~primarily~~ to ~~higher~~a lower level of POS automation and banking printer sales, which sell at a lower price than our other products. The sales volume decreases were partially offset by a $1 million, or 157% increase in software, labels and other recurring revenue from our food service technology market.

International sales for the ~~first~~third quarter of 2020 ~~increased $0.3~~decreased $1.8 million, or ~~11%~~64%, from the same period in 2019 primarily due to ~~increased~~an 80% decrease in sales in the international casino and gaming market.

Food service technology. ~~The~~Our primary offering in the food service technology market is our BOHA! ecosystem, which combines our latest generation terminal, cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The software component of BOHA! consists of a suite of software-as-a-service (“SaaS”)-based applications, including applications for inventory management, temperature monitoring of food and equipment, timers, food safety labeling, food recalls, checklists and procedures, equipment service management, and delivery management. These applications are combined into a single platform with the associated hardware, which includes the BOHA! terminal, handheld devices, tablets, temperature probes and temperature sensors. The BOHA! terminal combines the software and hardware components in a device that includes an operating system, touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels, grab and go labels for prepared foods, and “enjoy by” date labels. The BOHA! terminal is equipped with the TransAct Enterprise Management System to ensure that only approved applications and functions are available on the device and allows over-the-air updates to the applications and operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-serve restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations. Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are charged to customers upfront on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services. Sales of our worldwide food service technology products for the three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Three Months Ended				Three Months Ended									Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019				$ Change		% Change			September 30, 2020				September 30, 2019				$ Change		% Change
Domestic	$	1,239	90.4	%	$	1,117	92.1	%	$	122		10.9	%	$	2,081	88.6	%	$	1,730	88.7	%	$	351		20.3	%
International		132	9.6	%		96	7.9	%		36		37.5	%		268	11.4	%		221	11.3	%		47		21.3	%
	$	1,371	100.0	%	$	1,213	100.0	%	$	158		13.0	%	$	2,349	100.0	%	$	1,951	100.0	%	$	398		20.4	%

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019				$ Change			% Change			September 30, 2020				September 30, 2019				$ Change			% Change
Hardware	$	755	55.1	%	$	903	74.4	%	$	(148	)		(16.4	%)	$	771	32.8	%	$	1,338	68.6	%	$	(567	)		(42.4	%)
Software, labels and other recurring revenue		616	44.9	%		310	25.6	%		306			98.7	%		1,578	67.2	%		613	31.4	%		965			157.4	%
	$	1,371	100.0	%	$	1,213	100.0	%	$	158			13.0	%	$	2,349	100.0	%	$	1,951	100.0	%	$	398			20.4	%

The increase in food service technology sales for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 was driven primarily by sales of our BOHA! software, labels and other recurring revenue. Sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue increased by ~~99%~~157%, ~~including an 88% increase in~~primarily due to increased label sales and, to a ~~385% increase in~~lesser extent, increased software sales, compared to the prior year period, ~~though such~~despite the impact from the COVID-19 pandemic. The increase of label sales ~~had~~for the third quarter of 2020 was primarily due to an initial stocking order to a ~~low base~~distributor of a large convenience store chain as well as increased usage by existing customers. Hardware sales for ~~first~~the third quarter of 2020 decreased 42% compared to the third quarter of 2019 ~~following the launch of BOHA! in March 2019. Hardware sales declined approximately 16%~~ primarily due to the ~~initial~~ impact from the COVID-19 pandemic that resulted in ~~widespread store closings and/or~~ substantially reduced customer operations.

POS automation and banking. Revenue from the POS automation and banking market includes sales of thermal printers used primarily by quick serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or print on linerless labels. Prior to 2020, revenue included sales of inkjet printers used by banks, credit unions and other financial institutions to print deposit or withdrawal receipts and/or validate checks at bank teller stations. We exited the banking market during ~~2019. Sales~~2018. Sales of our worldwide POS automation and banking products for the three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019				$ Change			% Change			September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	1,554	99.7	%	$	1,259	98.6	%	$	295			23.4	%	$	739	99.6	%	$	1,494	98.7	%	$	(755	)		(50.5	%)
International		4	0.3	%		18	1.4	%		(14	)		(77.8	%)		3	0.4	%		20	1.3	%		(17	)		(85.0	%)
	$	1,558	100.0	%	$	1,277	100.0	%	$	281			22.0	%	$	742	100.0	%	$	1,514	100.0	%	$	(772	)		(51.0	%)

The ~~increase~~decrease in both domestic and international POS automation and banking product revenue for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 was primarily driven ~~primarily~~ by a ~~25% increase~~47% decrease in domestic and international sales of our Ithaca® 9000 printer ~~in large part from increased~~largely attributable to fewer sales to ~~McDonald’s.~~McDonald’s which we believe resulted from the impact of the COVID-19 pandemic.

Casino and gaming. Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos and racetracks and other gaming venues worldwide. Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals at non-casino gaming and sports betting establishments. Revenue from this market also includes royalties related to our patented casino and gaming technology. In addition, casino and gaming market revenue includes sales of the EPICENTRAL™ print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real-time at the slot machine. Sales of our worldwide casino and gaming products for the three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019				$ Change			% Change			September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	2,558	51.9	%	$	3,424	62.4	%	$	(866	)		(25.3	%)	$	1,552	77.3	%	$	2,849	56.1	%	$	(1,297	)		(45.5	%)
International		2,373	48.1	%		2,059	37.6	%		314			15.3	%		457	22.7	%		2,225	43.9	%		(1,768	)		(79.5	%)
	$	4,931	100.0	%	$	5,483	100.0	%	$	(552	)		(10.1	%)	$	2,009	100.0	%	$	5,074	100.0	%	$	(3,065	)		(60.4	%)

The decrease in domestic sales of our casino and gaming products ~~for~~was primarily due to a 46% decline in domestic sales of our thermal casino printers in the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019, ~~was primarily due to a 24% decrease in domestic sales of our thermal gaming printers~~ driven ~~primarily~~ by industry-wide weakness resulting in lower sales to our OEMs as they ~~began to experience~~were negatively impacted by the ~~impact~~COVID-19 pandemic. Many casinos reopened during the third quarter of ~~casino closures due~~2020, although at reduced capacities, which resulted in improved sales in the third quarter of 2020 compared to the ~~COVID-19 pandemic in late March.~~ second quarter of 2020. We had no new EPICENTRAL™ software installations during the ~~first~~third quarter of 2020 or 2019. Sales of domestic EPICENTRAL^TM are project based and, as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

~~International~~The decrease in international sales of our casino and gaming ~~product sales increased for~~products in the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 was primarily due to ~~a 17% increase~~an 81% decrease in sales of our thermal casino printers ~~largely from resumed~~and a 76% decrease in sales of our off-premise gaming printers attributable to ~~a large OEM in Europe who had substantially reduced sales during 2019. This increase was somewhat offset by lower sales to an Asian OEM.~~the negative impacts of the COVID-19 pandemic on the international casino and gaming industry.

Lottery. Revenue from the lottery market includes sales of thermal on-line and other lottery printers primarily to International Game Technology and its subsidiaries (“IGT”). and, to a lesser extent, other lottery system companies for various lottery applications. Sales of our worldwide lottery printers for the three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows (in thousands, except percentages):

Three Months Ended Three Months Ended

March 31, 2020

March 31, 2019
$ Change
% Change

Domestic

$
-

0.0
%

$
697

100.0
%

$
(697
)

(100.0
%)
International

-

0.0
%

-

0.0
%

-

0.0
%

$
-

0.0
%

$
697

100.0
%

$
(697
)

(100.0
%)

	Three Months Ended				Three Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	–	0.0	%	$	95	100.0	%	$	(95	)		(100.0	%)
International		–	0.0	%		–	0.0	%		–			0.0	%
	$	–	0.0	%	$	95	100.0	%	$	(95	)		(100.0	%)

Our sales to IGT are directly dependent on the timing and number of new and upgraded lottery terminal installations that IGT performs, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year. Our sales to IGT are not indicative of IGT’s overall business or revenue. On December 31, 2019, we allowed our non-exclusive agreement to provide lottery terminal printers to IGT to expire, as we have decided to exit the lottery market and to shift our focus towards our higher-value, technology enabled food service technology and casino and gaming products. As a result, ~~we expect~~ IGT ~~to make~~made a final purchase of our lottery printers during the second quarter of 2020 and we do not expect ~~full year 2020~~any further lottery printer sales ~~to be less than 2019 full year lottery sales.~~in the future.

Printrex. Printrex branded printers are sold into markets that include wide format, desktop and rack mounted and vehicle mounted black/white thermal printers used by customers to log and plot oil field, seismic and down hole well drilling data in the oil and gas exploration industry. It also includes high-speed color inkjet desktop printers used to print logs at the data centers of the oil and gas field service companies. Sales of our worldwide Printrex printers for the three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019				$ Change			% Change			September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	61	52.1	%	$	297	86.8	%	$	(236	)		(79.5	%)	$	5	4.7	%	$	213	72.0	%	$	(208	)		(97.7	%)
International		56	47.9	%		45	13.2	%		11			24.4	%		102	95.3	%		83	28.0	%		19			22.9	%
	$	117	100.0	%	$	342	100.0	%	$	(225	)		(65.8	%)	$	107	100.0	%	$	296	100.0	%	$	(189	)		(63.9	%)

The decrease in sales of Printrex printers for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 resulted primarily from lower domestic sales in the oil and gas market which was negatively impacted by the decline in worldwide oil prices largely attributable to the COVID-19 pandemic. Due to the uncertainty of current and future market conditions, ~~attributable~~which may continue to be negatively impacted by the COVID-19 pandemic, we are unable to reasonably estimate the ultimate impact to our Printrex market, but we expect Printrex sales in fiscal year 2020 to be less than Printrex sales in fiscal year 2019.

TSG. Revenue generated by our TSG includes sales of consumable products (inkjet cartridges, ribbons, POS receipt paper, and other printing supplies), replacement parts, maintenance and repair services, testing services, refurbished printers, and shipping and handling charges. TSG sales for all periods presented in this Report exclude the sales of labels, extended warranty and service contracts, and technical support services related to our food service technology market, which have been reclassified to Food Service Technology. Sales in our worldwide TSG market for the three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019				$ Change			% Change			September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	2,003	88.2	%	$	2,213	87.2	%	$	(210	)		(9.5	%)	$	1,910	91.3	%	$	2,490	90.3	%	$	(580	)		(23.3	%)
International		267	11.8	%		325	12.8	%		(58	)		(17.8	%)		183	8.7	%		266	9.7	%		(83	)		(31.2	%)
	$	2,270	100.0	%	$	2,538	100.0	%	$	(268	)		(10.6	%)	$	2,093	100.0	%	$	2,756	100.0	%	$	(663	)		(24.1	%)

The decrease in domestic revenue from TSG for the ~~first~~third quarter of 2020 as compared to the ~~first~~third quarter of 2019 was primarily due to a ~~58%~~77% decline in consumable sales ~~due~~resulting largely tofrom lower sales of legacy HP inkjet cartridges used in our banking printers, as we exited the banking market at the end of 2018, and to a lesser extent, lower sales of legacy POS ~~printer~~receipt paper. ~~This~~In addition, we experienced a 45% decrease ~~was~~in service sales primarily related to a service contract with a banking customer that is expected to end in 2020. These decreases were partially offset by ~~42% higher~~a 15% increase in sales of replacement parts, primarily ~~from~~due to higher sales volume of lottery printer spare parts to IGT, which sales can vary significantly from quarter to quarter. We expect TSG sales to decrease for the full year 2020 compared to the full year 2019 due to lower expected sales of ~~lottery printer spare parts to IGT as we exited~~ the ~~lottery market at the end of 2019~~legacy HP inkjet cartridges and lower service sales related to athe service contract with a banking customer that is expected to end in 2020.

Internationally, TSG revenue decreased for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to a ~~30%~~52% decrease in sales of replacement parts and accessories to international casino and gaming ~~customers.~~customers attributable to the negative impacts of the COVID-19 pandemic and the resulting closures of many casinos and other gaming establishments, which gradually began to reopen during the third quarter of 2020.

Gross Profit. Gross profit ~~information~~ for the three months ended ~~March 31,~~September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Three Months Ended March 31,				Percent			Percent of			Percent of
Three Months Ended September 30,													Three Months Ended September 30,			Percent			Percent of			Percent of
2020	2020	2019		Change			Total Sales - 2020			Total Sales - 2019			2020	2019		Change			Total Sales - 2020			Total Sales - 2019
$	4,918	$	6,086		(19.2	%)		48.0	%		52.7	%	3,349	$	5,546		(39.6	%)		45.9	%		47.5	%

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers and expenses associated with installations and support of our EPICENTRAL^TM print system and BOHA! ecosystem. For the ~~first~~third quarter of 2020, gross profit decreased ~~$1.2~~$2.2 million, or ~~19%~~40%, as compared to the third quarter of 2019 due largely to a ~~sales decrease of 11% for the first quarter~~38% decline in ~~2020 compared to the first quarter of 2019 and tariffs on imports from our contract manufacturers located in China. Our gross~~worldwide sales. Gross margin decreased ~~470~~160 basis points to ~~48%~~45.9% for the ~~first~~third quarter of 2020 compared to ~~52.7%~~47.5% for the ~~first~~third quarter of ~~2019. The decreased gross margin resulted from higher sales of POS printers, which carry lower margins than our other products, higher tariff expense incurred during the first quarter of 2020 and~~2019 primarily due to the impact of fixed manufacturing overhead expenses on lower sales volume as a result of the ~~initial~~ effects of the COVID-19 pandemic, partially offset by cost saving measures taken in earlier in the year in response to the COVID-19 pandemic.

Operating Expenses - Engineering, Design and Product Development. Engineering, design and product development ~~information~~expense for the three months ended ~~March 31,~~September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Three Months Ended March 31,				Percent			Percent of			Percent of
Three Months Ended September 30,													Three Months Ended September 30,			Percent			Percent of			Percent of
2020	2020	2019		Change			Total Sales - 2020			Total Sales - 2019			2020	2019		Change			Total Sales - 2020			Total Sales - 2019
$	1,385	$	1,165		18.9	%		13.5	%		10.1	%	1,445	$	1,048		37.9	%		19.8	%		9.0	%

Engineering, design and product development ~~expenses~~expense primarily includes salary and payroll related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses). ~~Engineering, design and product development~~Such expenses increased ~~$220 thousand,~~$0.4 million, or ~~19%,~~38% for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019, primarily due to continued and expanded development ~~for~~of our food service technology ~~products.~~products. We expect engineering, design and product development expense for the full year 2020 to be slightly higher than the full year 2019, as we expect to continue our strategic investments in our food service technology products despite the COVID-19 pandemic.

Operating Expenses - Selling and Marketing. Selling and marketing ~~information~~expense for the three months ended ~~March 31,~~September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Three Months Ended March 31,				Percent			Percent of			Percent of
Three Months Ended September 30,													Three Months Ended September 30,			Percent			Percent of			Percent of
2020	2020	2019		Change			Total Sales - 2020			Total Sales - 2019			2020	2019		Change			Total Sales - 2020			Total Sales - 2019
$	2,208	$	1,854		19.1	%		21.5	%		16.1	%	1,258	$	1,947		(35.4	%)		17.2	%		16.7	%

Selling and marketing ~~expenses~~expense primarily ~~include~~includes salaries and payroll related expenses for our sales and marketing staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses. ~~Selling and marketing~~Such expenses ~~increased by $354 thousand,~~decreased $0.7 million, or ~~19%~~35%, for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to continued cost saving measures implemented during the ~~impact from the hiring~~third quarter of food service technology positions during 2019 and new and expanded marketing programs and promotions to support our food service technology products that were implemented prior to the COVID-19 outbreak. In2020 in response to the expected impact of the COVID-19 ~~pandemic, we have postponed further increases in spending and have implemented a number~~pandemic. The Company expects to maintain these cost saving measures for the remainder of ~~cost reduction initiatives that will reduce selling and marketing expenses in the near term.~~2020.

Operating Expenses - General and Administrative. General and administrative ~~information~~expense for the three months ended ~~March 31,~~September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Three Months Ended March 31,				Percent			Percent of			Percent of
Three Months Ended September 30,													Three Months Ended September 30,			Percent			Percent of			Percent of
2020	2020	2019		Change			Total Sales - 2020			Total Sales - 2019			2020	2019		Change			Total Sales - 2020			Total Sales - 2019
$	2,620	$	2,290		14.4	%		25.6	%		19.8	%	2,125	$	2,239		(5.1	%)		29.1	%		19.2	%

General and administrative expenses primarily include salaries, incentive compensation, and other payroll related expenses for our executive, accounting, human resources, business development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, telecommunication expenses, and other expenses related to being a publicly-traded company. General and administrative expenses ~~increased $330 thousand,~~decreased $0.1 million, or ~~14%~~5%, ~~for~~in the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due ~~primarily~~ to ~~higher~~lower professional and legal ~~expenses.~~expenses and lower discretionary spending resulting from the cost saving initiatives implemented in response to the COVID-19 pandemic.

Operating ~~Income~~ (Loss). Income. Operating income ~~(loss) information~~ for the three months ended ~~March 31,~~September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Three Months Ended March 31,					Percent			Percent of			Percent of
Three Months Ended September 30,														Three Months Ended September 30,				Percent			Percent of			Percent of
2020	2020		2019		Change			Total Sales - 2020			Total Sales - 2019			2020		2019		Change			Total Sales - 2020			Total Sales - 2019
$	(1,295	)	$	777		(266.7	%)		(12.6	%)		6.7	%	(1,479	)	$	312		(574.0	%)		(20.3	%)		2.7	%

~~Our operating~~Operating income decreased ~~$2.1~~$1.8 million ~~or 267%, in~~for the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to a 38% decrease in sales and a 160 basis point decline in gross margin resulting from the negative impacts of ~~11%, increase~~the COVID-19 pandemic. The decrease in operating income was partially offset by an 8% decrease in operating expenses ~~of 17% related to investments made in our food service technology market during 2020 prior~~due to the ~~COVID-19 outbreak, and a decrease~~cost saving initiatives in ~~our gross margin~~place during the third quarter of ~~470 basis points.~~2020.

~~Interest.~~Interest, net. We recorded net interest ~~income~~expense of $3$19 thousand for the ~~first~~third quarter of 2020 compared to no interest income or expense for the third quarter of 2019. The increase in interest expense was primarily due to fees incurred for unused borrowings under the Siena Credit Facility, which has a higher unused borrowing rate than the TD Bank revolving line of credit that was in place during the third quarter of 2019. We expect net interest expense ~~of $6 thousand~~ for the ~~first~~fourth quarter of ~~2019~~2020 to be lower than the third quarter of 2020 due to expected interest income earned on the note receivable during the 2020 period partially offsetting interest expense. We expect interest expense to increase in the full year 2020 compared to the full year 2019 due to anticipated borrowings from our revolving line$8.7 million of ~~credit in 2020 resulting~~net proceeds received from the ~~COVID-19 pandemic and the ramping up of investment in our food service technology market compared to no borrowings during 2019.~~Offering.

Other, net. We recorded other ~~expense~~income of ~~$165~~$116 thousand for the ~~first~~third quarter of 2020 compared to other ~~income~~expense of ~~$90~~$71 thousand for the ~~first~~third quarter of ~~2019. We incurred other expense in the 2020 period primarily~~2019 due to foreign currency exchange ~~losses~~gains recorded by our U.K. subsidiary for the ~~first~~third quarter of 2020 compared to foreign ~~currency exchange gains in~~exchanges losses recorded for the ~~first~~third quarter of 2019. Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to ~~Europe~~European customers through our U.K. subsidiary and the fluctuation in exchange rates of the Euro and Pound Sterling against the U.S. ~~dollar,~~Dollar, which may be impacted by volatility in global economic conditions due to the COVID-19 pandemic.

Income Taxes. We recorded an income tax benefit for the ~~first~~third quarter of 2020 of ~~$465~~$515 thousand at an effective tax rate of ~~31.9%~~37.3%, compared to an income tax ~~provision during~~benefit for the ~~first~~third quarter of 2019 of ~~$115~~$143 thousand at an effective tax rate of ~~13.4%~~(59.3%). The effective tax rate for the ~~first~~third quarter of 2020 was higher asbecause it included the impact of the net operating loss (“NOL”) that we expect to carry back to prior years. The CARES Act ~~was enacted on March 27, 2020 and~~ permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We expect to generate a NOL for 2020 which we will carry back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020. The effective tax rate for the third quarter of 2019 was lower because it included the foreign-derived intangible income (“FDII”) deduction under the Tax Cuts and Jobs Act of 2017, as well as near breakeven pre-tax income in the third quarter of 2019.

Net (Loss) Income. We reported a net loss for the third quarter of 2020 of $0.9 million, or $(0.11) per diluted share, compared to net income of $0.4 million, or $0.05 per diluted share, for the third quarter of 2019.

Results of Operations: Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Food service technology	$	4,924	21.6	%	$	4,287	12.4	%	$	637			14.9	%
POS automation and banking		2,781	12.2	%		4,435	12.8	%		(1,654	)		(37.3	%)
Casino and gaming		8,300	36.3	%		16,188	46.8	%		(7,888	)		(48.7	%)
Lottery		817	3.6	%		926	2.7	%		(109	)		(11.8	%)
Printrex		232	1.0	%		923	2.7	%		(691	)		(74.9	%)
TSG		5,778	25.3	%		7,827	22.6	%		(2,049	)		(26.2	%)
	$	22,832	100.0	%	$	34,586	100.0	%	$	(11,754	)		(34.0	%)

International *	$	4,529	19.8	%	$	7,993	23.1	%	$	(3,464	)		(43.3	%)

*	International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers who may, in turn, ship those printers and terminals to international destinations.

Net sales for the first nine months of 2020 decreased $11.8 million, or 34%, from the same period in 2019. Printer, terminal and other hardware sales volume decreased by 45% to approximately 46,000 units for the first nine months of 2020 driven by decreases across all our markets. These volume decreases were primarily due to a 51% decrease in unit volume from the casino and gaming market and, to a lesser extent, a 30% unit decrease in our POS automation and banking market. The average selling price of our printers, terminals and other hardware remained consistent for the first nine months of 2020 compared to the first nine months of 2019. The sales volume decreases were partially offset by a $1.6 million, or 129% increase in software, labels and other recurring revenue from our food service technology market.

International sales decreased $3.5 million, or 43%, primarily driven by a 50% decrease of international casino and gaming sales.

Food service technology. Sales of our worldwide food service technology products for the nine months ended September 30, 2020 and 2019 are reflected in the tables below (in thousands, except percentages).

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change		% Change
Domestic	$	4,376	88.9	%	$	3,825	89.2	%	$	551		14.4	%
International		548	11.1	%		462	10.8	%		86		18.6	%
	$	4,924	100.0	%	$	4,287	100.0	%	$	637		14.9	%

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Hardware	$	2,071	42.1	%	$	3,040	71.0	%	$	(969	)		(31.9	%)
Software, labels and other recurring revenue		2,853	57.9	%		1,247	29.0	%		1,606			128.8	%
	$	4,924	100.0	%	$	4,287	100.0	%	$	637			14.9	%

The increase in food service technology sales in the first nine months of 2020 compared to the first nine months of 2019 was driven primarily by sales of our BOHA! software, labels and other recurring revenue. Sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue increased by 129%, primarily due to increased label sales and, to a lesser extent, increased software sales, compared to the prior year period. Sales for the prior year period were significantly lower due to the launch of BOHA! not occurring until March 2019. The large increase of label sales for the first nine months of 2020 was primarily due to an initial stocking order to a distributor of a large convenience store chain for the third quarter of 2020 as well as increased usage by existing customers. Hardware sales for the first nine month of 2020 decreased 32% compared to the first nine months of 2019 primarily due to the impact from the COVID-19 pandemic that resulted in widespread store closings and/or substantially reduced customer operations.

POS automation and banking. Sales of our worldwide POS automation and banking products for the nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	2,774	99.7	%	$	4,392	99.0	%	$	(1,618	)		(36.8	%)
International		7	0.3	%		43	1.0	%		(36	)		(83.7	%)
	$	2,781	100.0	%	$	4,435	100.0	%	$	(1,654	)		(37.3	%)

The decrease in both domestic and international POS automation and banking sales for the first nine months of 2020 compared to the first nine months of 2019 was primarily driven by a 35% decrease in domestic and international sales of our Ithaca® 9000 printer largely attributable to fewer sales to McDonald’s which we believe resulted from the COVID-19 pandemic.

Casino and gaming. Sales of our worldwide casino and gaming products for the nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	5,080	61.2	%	$	9,765	60.3	%	$	(4,685	)		(48.0	%)
International		3,220	38.8	%		6,423	39.7	%		(3,203	)		(49.9	%)
	$	8,300	100.0	%	$	16,188	100.0	%	$	(7,888	)		(48.7	%)

The decrease in domestic sales of our casino and gaming products for the first nine months of 2020 compared to the first nine months of 2019 was primarily due to a 48% decrease in domestic sales of our thermal casino printer, driven by industry-wide weakness resulting in lower sales to our OEMs that were impacted by casino closures in response to the COVID-19 pandemic, which were in place for most of the second quarter of 2020 before gradually reopening at reduced capacities during the third quarter of 2020. We had no new EPICENTRAL™ software installations during the first nine months of 2020 or 2019. Sales of domestic EPICENTRAL^TM are project based, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

The decrease in international casino and gaming sales for the first nine months of 2020 compared to the first nine months of 2019 was primarily due to a 43% decline in sales of our thermal casino printers and a 74% decline in international sales of our off-premise gaming printers attributable to the negative impacts of the COVID-19 pandemic on the international casino and gaming industry.

Lottery. Sales of our worldwide lottery printers for the nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	817	100.0	%	$	924	99.8	%	$	(107	)		(11.6	%)
International		–	0.0	%		2	0.2	%		(2	)		(100.0	%)
	$	817	100.0	%	$	926	100.0	%	$	(109	)		(11.8	%)

Our sales to IGT are directly dependent on the timing and number of new and upgraded lottery terminal installations that IGT performs, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year. Our sales to IGT are not indicative of IGT’s overall business or revenue. On December 31, 2019, we allowed our non-exclusive agreement to provide lottery terminal printers to IGT to expire, as we have decided to exit the lottery market and to shift our focus towards our higher-value, technology enabled food service technology and casino and gaming products. As a result, IGT made a final purchase of our lottery printers during the second quarter of 2020 and we do not expect any further lottery printer sales in the future.

Printrex. Sales of our worldwide Printrex printers for the nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	72	31.0	%	$	740	80.2	%	$	(668	)		(90.3	%)
International		160	69.0	%		183	19.8	%		(23	)		(12.6	%)
	$	232	100.0	%	$	923	100.0	%	$	(691	)		(74.9	%)

The decrease in sales of Printrex printers for the first nine months of 2020 compared to the first nine months of 2019 resulted primarily from lower domestic sales in the oil and gas market which was negatively impacted by the decline in worldwide oil prices largely attributable to the COVID-19 pandemic.

TSG. Sales in our worldwide TSG market for the nine months ended September 30, 2020 and 2019 are reflected in the table below (in thousands, except percentages).

	Nine Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2019				$ Change			% Change
Domestic	$	5,184	89.7	%	$	6,947	88.8	%	$	(1,763	)		(25.4	%)
International		594	10.3	%		880	11.2	%		(286	)		(32.5	%)
	$	5,778	100.0	%	$	7,827	100.0	%	$	(2,049	)		(26.2	%)

The decrease in domestic TSG sales for the first nine months of 2020 as compared to the first nine months of 2019 was primarily due to a 71% decline in consumable sales resulting largely from lower sales of legacy HP inkjet cartridges used in our banking printers, as we exited the banking market at the end of 2018, and to a lesser extent, lower sales of legacy POS receipt paper. In addition, we experienced 33% lower service sales primarily related to a service contract with a banking customer that is expected to end in 2020. This decrease was partially offset by a 10% increase in sales of replacement parts, related to an increase in sales of lottery printer spare parts to IGT, which can vary significantly from quarter to quarter.

Internationally, TSG sales decreased for the first nine months of 2020 compared to the first nine months of 2019 primarily due to a 46% decrease in sales of replacement parts and accessories to international casino and gaming customers.

Gross Profit. Gross profit for the nine months ended September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,				Percent			Percent of			Percent of
2020		2019		Change			Total Sales - 2020			Total Sales - 2019
$	10,557	$	17,336		(39.1	%)		46.2	%		50.1	%

Gross profit decreased $6.8 million, or 39%, for the first nine months of 2020 compared to the first nine months of 2019 primarily due to a 34% decline in sales as compared the prior year period. Gross margin decreased 390 basis points to 46.2% for the first nine months of 2020 compared to 50.1% for the first nine months of 2019 primarily due to the impact of fixed manufacturing overhead expenses on lower sales volume as a result of the effects of the COVID-19 pandemic, partially offset by cost savings measures implemented in late March 2020 and maintained through the third quarter of 2020 in response to the COVID-19 pandemic.

Operating Expenses - Engineering, Design and Product Development. Engineering, design and product development expense for the nine months ended September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,				Percent			Percent of			Percent of
2020		2019		Change			Total Sales - 2020			Total Sales - 2019
$	4,197	$	3,328		26.1	%		18.4	%		9.6	%

Engineering, design and product development expenses increased $0.9 million, or 26%, for the first nine months of 2020 compared to the first nine months of 2019 primarily due to continued and expanded development for our food service technology products.

Operating Expenses - Selling and Marketing. Selling and marketing expense for the nine months ended September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,				Percent			Percent of			Percent of
2020		2019		Change			Total Sales - 2020			Total Sales - 2019
$	4,885	$	5,890		(17.1	%)		21.4	%		17.0	%

Selling and marketing expenses decreased $1 million, or 17%, for the first nine months of 2020 compared to the first nine months of 2019 primarily due to cost saving measures implemented in late March 2020 and maintained through the third quarter of 2020 in response to the COVID-19 pandemic, which more than offset the increase in sales and marketing expenses resulting from the new and expanded marketing programs and promotions to support our food service technology products that were implemented during the first quarter of 2020 prior to the COVID-19 outbreak.

Operating Expenses - General and Administrative. General and administrative expense for the nine months ended September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,				Percent			Percent of			Percent of
2020		2019		Change			Total Sales - 2020			Total Sales - 2019
$	6,987	$	6,720		4.0	%		30.6	%		19.4	%

General and administrative expenses increased $0.3 million, or 4%, for the first nine months of 2020 compared to the first nine months of 2019 primarily due to higher compensation expense and professional and legal expenses partially offset by a decrease in discretionary spending resulting from cost saving initiatives implemented in the first quarter of 2020 in response to the COVID-19 pandemic.

Operating (Loss) Income. Operating (loss) income for the nine months ended September 30, 2020 and 2019 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,					Percent			Percent of			Percent of
2020			2019		Change			Total Sales - 2020			Total Sales - 2019
$	(5,512	)	$	1,398		(494.3	%)		(24.1	%)		4.0	%

Our operating income decreased $6.9 million for the first nine months of 2020 compared to the first nine months of 2019 primarily due to the 34% decrease in sales and the 390 basis point decrease in gross margin for the first nine months of 2020 compared to the first nine months of 2019.

Interest, net. We recorded net interest expense of $41 thousand for the first nine months of 2020 compared to $13 thousand for the first nine months of 2019. The increase in interest expense was primarily due to interest on borrowings under the Siena Credit Facility in the second quarter of 2020 and higher fees for unused borrowings under the Siena Credit Facility as compared to no borrowings and lower fees for unused borrowings under the TD Bank revolving line of credit for the first nine months of 2019.

Other, net. We recorded other expense of $60 thousand for the first nine months of 2020 compared to $123 thousand for the first nine months of 2019 primarily due to lower foreign currency exchange losses recorded by our U.K. subsidiary.

Income Taxes. We recorded an income tax benefit for the first nine months of 2020 of $1.9 million at an effective tax rate of 33.9%, compared to an income tax benefit for the first nine months of 2019 of $54 thousand at an effective tax rate of (4.3%). The effective tax rate for the first nine months of 2020 was higher because it included the impact of the net operating loss (“NOL”) that we expect to carry back to prior years. The CARES Act permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We expect to generate a NOL for 2020 which we will carry back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020. The effective tax rate for the first nine months of 2019 was unusually low because it included the FDII deduction and the impact of the tax rate on lower pre-tax income.

Net (Loss) Income. We reported a net loss for the first ~~quarter~~nine months of 2020 of ~~$992 thousand,~~$3.7 million, or ~~$(0.13)~~$(0.49) per diluted share, compared to net income of ~~$746 thousand,~~$1.3 million, or ~~$0.10~~$0.17 per diluted share, for the first ~~quarter~~nine months of 2019.

Liquidity and Capital Resources

Cash Flow

For the first ~~three~~nine months of 2020, our cash and cash equivalents balance decreased ~~$3.6~~$3.3 million, or ~~85%~~77%, from December 31, 2019. We ended the ~~first~~third quarter of 2020 with ~~$0.6~~$0.9 million in cash and cash equivalents, of which $0.1 million was held by our U.K. subsidiary, and ~~$0.8 million of~~ outstanding borrowings ~~under our revolving line~~ of ~~credit.~~$2.2 million from the PPP Loan.

Operating activities: The following significant factors affected our cash used in operating activities of ~~$3.6~~$4.2 million for the first ~~three~~nine months of 2020 as compared to cash ~~used in~~provided by operating activities of ~~$1.6~~$0.8 million for the first ~~three~~nine months of 2019:

During the first ~~three~~nine months of 2020:

●

We reported a net loss of ~~$1.0~~$3.7 million.

●

We recorded depreciation and amortization of ~~$0.2~~$0.8 million and share-based compensation expense of ~~$0.2~~$0.6 million.

●

Accounts receivable decreased ~~$0.1~~$1.4 million, or 1%22%, primarily due to lower sales volume during the ~~first three months~~third quarter of 2020.

●

~~Inventory~~Inventories increased ~~$0.6~~$0.4 million, or 5%4%, primarily due to the ~~purchase~~buildup of inventory ~~during~~from non-cancellable purchase orders that were placed before the ~~first quarter of 2020 to support anticipated sales that did not occur due to the impact~~onset of the COVID-19 ~~pandemic on our sales in March.~~pandemic.

●

~~Other current and long-term assets increased $0.3 million, or 26%, due largely to advance payments made in the first quarter of 2020 for annual ERP software maintenance.~~

●

Accounts payable decreased ~~$1.2~~$0.7 million, or ~~42%~~23%, primarily due ~~primarily~~ to inventory purchases made towards the end of the fourth quarter of 2019 that were subsequently paid in the first quarter of ~~2020.~~2020.

●

Accrued liabilities and other liabilities decreased ~~$0.8~~$0.5 million, or ~~11%~~7%, primarily due ~~primarily~~ to ~~the payment of 2019 annual bonuses in March 2020.~~decreased deferred revenue.

During the first ~~three~~nine months of 2019:

●

We reported net income of ~~$0.7~~$1.3 million.

●

We recorded depreciation and amortization of ~~$0.3~~$0.7 million, and share-based compensation expense of ~~$0.2 million.~~$0.6 million.

●

Accounts receivable ~~decreased $1.2~~increased $0.4 million, or ~~15%~~5%, primarily due to sales for the ~~collection of receivables for 2018 sales.~~third quarter 2019 occurring late in the quarter.

●

~~Inventory increased $1.5 million, or 12%,~~Inventories decreased by less than 1% due to the ~~buildup~~utilization of inventory on hand to ~~support future anticipated sales of BOHA! hardware product for the food service technology market.~~fulfill sales.

●

~~Prepaid income taxes decreased $0.1 million during the first quarter of 2019.~~

●

Other current and ~~long-term~~long term assets increased ~~$0.4~~$0.6 million, or ~~65%,~~81% primarily due ~~primarily~~ to an advanced payment of royalty ~~fees.~~fees to a technology partner for software solutions used in our food service technology market.

●

Accounts payable decreased ~~$1.3~~$0.9 million, or ~~36%~~24%, primarily due ~~primarily~~ to the utilization of inventory on hand to fulfill sales, which in turn resulted in a lower level of inventory purchases ~~made towards~~during the ~~end of the fourth quarter of 2018 that were subsequently paid in the first~~third quarter of 2019.

●

Accrued liabilities and other liabilities decreased $1$0.1 million, or ~~27%, due primarily to the payment of 2018 annual bonuses in March 2019.~~3%.

Investing activities: Our capital expenditures, including capitalized software costs, were ~~$0.3~~$0.6 million and $1.1 million for the first ~~three~~nine months of ~~both~~ 2020 and ~~2019.~~ 2019, respectively. Expenditures infor the first nine months of 2020 were primarily for ~~computer and networking equipment,~~ new product tooling equipment, ~~and~~ leasehold improvements at our Las Vegas ~~facility.~~facility and computer and networking equipment. Expenditures infor the first nine months of 2019 were primarily for new product tooling equipment and, to a lesser extent, computer and networking ~~equipment and leasehold improvements at our Ithaca facility.~~equipment. Additionally, during the first quarter of 2020, prior to widespread shutdowns in the United States in response to the COVID-19 pandemic, we loaned an additional $0.6 million to an unaffiliated third party.

Capital expenditures and additions to capitalized software for 2020 were expected to be approximately $1.1 million, primarily for new product tooling, new computer software and equipment purchases and leasehold improvements to support our food service technology market. In response to the COVID-19 pandemic, we have curtailed portions of our planned capital expenditures until market conditions improve.

Financing activities: Financing activities provided ~~$0.9~~$2.2 million of cash ~~during~~for the first ~~three~~nine months of 2020 primarily from ~~net borrowings of $0.8~~the $2.2 million in funds received from ~~our Siena Credit Facility (defined below)~~the PPP Loan and proceeds of $0.4 million from stock option exercises, partially offset by the payment of financing costs associated with signing our Siena Credit Facility. During the first ~~three~~nine months of 2020, we borrowed and subsequently repaid $2.8 million from our Siena Credit Facility. During the first nine months of 2019, we used ~~$0.9~~$2.2 million of cash from financing activities to pay dividends of ~~$0.7~~$2 million and $0.2 million related to the relinquishment of shares to pay for withholding taxes on stock issued from our stock compensation plan.

Credit Facility and ~~Borrowings~~Borrowings.

On March 13, 2020, we ~~signed a new credit facility (the “Siena~~entered into the Siena Credit ~~Facility”)~~Facility with Siena Lending Group LLC and terminated our credit facility with TD Bank ~~Credit Facility.~~N.A.. The Siena Credit Facility provides for a revolving credit line of up to $10 million expiring on March 13, 2023. Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%. The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility ~~was $234~~were $245 thousand. We also pay a fee of 0.50% on unused borrowings under the ~~facility.~~Siena Credit Facility. Borrowings under the ~~facility~~Siena Credit Facility are secured by a lien on substantially all the assets of the Company. Borrowings under the Siena Credit Facility are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5 million and (b) 50% of eligible raw material and 60% of finished goods inventory.

The Siena Credit Facility imposes a quarterly financial covenant on the Company and restricts, among other things, our ability to incur additional indebtedness and the creation of other liens. The three month period from April 1, 2020 to June 30, 2020 was the first period we ~~will be~~were subject to the financial covenant, which ~~require~~required the Company to maintain a minimum ~~EBITDA, is the three months ending June 30, 2020.~~EBITDA. As of ~~March 31,~~September 30, 2020, we had ~~$0.8 million of~~no outstanding borrowings under the Siena Credit ~~Facility.~~

Facility and were in compliance with our financial covenant. The following table demonstrates our compliance with the financial covenant at September 30, 2020.

Financial Covenant	Requirement	Calculation for the period from April 1, 2020 to September 30, 2020
EBITDA	Minimum of $(5,279)	$(3,170)

On May 1, 2020 (the “Loan Date”), the Company ~~was granted a loan (the “PPP Loan”) from~~entered into the PPP Loan with Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the ~~PPP~~Paycheck Protection Program (the “PPP”) which is administered by the SBA and was established under Division A, Title I of the CARES Act, ~~which was~~ enacted March 27, 2020.

Under the terms of the PPP, the PPP Loan may be forgiven to the extent that funds from the PPP Loan are used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020, and interest on debt obligations incurred before February 15, 2020 (collectively, “qualifying expenses”), subject to conditions and limitations provided in the CARES Act. At least ~~75%~~60% (as amended) of ~~such forgiven amounts~~the proceeds of the PPP Loan must be used for eligible payroll ~~costs.~~costs for the PPP Loan to be forgivable. The Company ~~intends to maximize~~has maximized the use of the PPP Loan proceeds for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES ~~Act.~~Act, as amended by the Paycheck Protection Program Flexibility Act of 2020. Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt. The PPP Loan is classified as “Long-term debt” in the Condensed Consolidated Balance Sheet until the forgiveness determination has been made by the SBA.

Shareholder Dividend Payments

In 2012, our Board of Directors initiated a quarterly cash dividend program which was subject to the Board’s approval each quarter. Our Board of Directors declared an increase to the quarterly cash dividend from $0.06 to $0.07 per share in May 2013, from $0.07 to $0.08 per share in May 2014, and from $0.08 to $0.09 per share in May 2017. Dividends declared and paid on our common stock totaled $0.7 million or $0.09 per in the three months ended September 30, 2019. On January 23, 2020, our Board of Directors announced the cessation of the quarterly cash dividend on the Company’s common stock to accelerate the investment in sales and marketing, continued product development and infrastructure of the BOHA! ecosystem. The final dividend payment was made in December 2019.

Stock Repurchase Program

Prior to its expiration on December 31, 2019, we maintained a stock repurchase program (the ~~"2018~~“2018 Stock Repurchase ~~Program"~~Program”) whereby we were authorized to repurchase up to $5 million of our outstanding shares of common stock from time to time in the open market at prevailing market prices based on market conditions, share price and other factors. We use the cost method to account for treasury stock purchases, under which the price paid for the stock is charged to the treasury stock account. Repurchases of our common stock are accounted for as of the settlement date. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, we did not repurchase any shares of our common stock. As of ~~March 31,~~September 30, 2020, we did not have an authorized stock repurchase program.

Resource Sufficiency

Given the unprecedented uncertainty related to the impact of the COVID-19 pandemic on the food service and casino industries, the Company is closely monitoring its cash generation, usage and preservation including the management of working capital to generate cash. The Company does not currently anticipate requiring any additional credit facilities within the next twelve months beyond our Siena Credit Facility and the PPP Loan, which are discussed above, nor does it anticipate a material change in the terms or covenants pertaining to its current facilities. To better align costs with the current business environment, on March 24, 2020 the Company announced several cost reduction actions. Such actions included the furlough of approximately 10% of the Company’s workforce, a 10% reduction in the salaries of all salaried, non-commissioned employees, including the executive officers, a reduction in sales commissions for all commissioned employees, a 10% reduction of cash retainer fees for all non-employee directors and the elimination of discretionary spending wherever possible. Upon receipt of the PPP Loan, management was able to bring back the furloughed employees and intends to apply for forgiveness by maximizing the use of the PPP Loan proceeds for qualifying expenses. However, after fully using the proceeds of the PPP Loan by June 30, 2020, we took additional cost saving actions in July 2020 that included reducing our workforce by approximately 20% through a combination of temporary furloughs and permanent headcount reductions.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, proceeds raised through the Offering on October 16, 2020, borrowings available under our Siena Credit Facility, ~~and PPP Loan,~~ and savings from the cost reduction actions discussed above will provide sufficient resources to meet our working capital needs, finance our capital expenditures and meet our liquidity requirements through at least the next twelve months. Notwithstanding this belief, the duration and extent of the pandemic remain uncertain and its ultimate impact unknown. As a result, we are currently evaluating several different strategies to enhance our liquidity position as a result of the significant financial and operational impacts due to the COVID-19 pandemic. These strategies may include, but are not limited to, seeking to raise additional capital through an equity or debt financing and applying for additional relief through other programs established under the CARES Act.

Contractual Obligations / Off-Balance Sheet Arrangements

The disclosure of payments we have committed to make under our contractual obligations is set forth under Part II, Item 7, ~~“Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” of our ~~Annual Report on~~2019 Form ~~10-K for the year ended December 31, 2019.~~ 10-K.

On February 28, 2020, we entered into an amendment to extend the lease on our facility in Ithaca, New York. The lease, which was last amended on January 14, 2016, was scheduled to expire on May 31, 2021. The lease amendment provides for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025. Other than the extension of the Ithaca facility lease, there have been no material changes in our contractual obligations since December 31, 2019.

As of September 30, 2020, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Item 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosure of our exposure to market risk is set forth under Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, of our ~~Annual Report on~~2019 Form ~~10-K for the year ended December 31, 2019.~~10-K. There has been no material change in our exposure to market risk during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act as of ~~March 31,~~September 30, 2020. In the Amendment to our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on November 21, 2019, we disclosed that management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of December 31, 2018, due to material weaknesses in our internal control over financial reporting as described below. As of ~~March 31,~~September 30, 2020, ~~these~~we have fully remediated one of the material weaknesses, ~~were~~while one material weakness was not fully ~~remediated and~~remediated; as a result, our disclosure controls and procedures were not effective as of ~~March 31,~~September 30, 2020. Management is undertaking ~~remediation~~ efforts to remediate the remaining material weakness, which ~~are~~is described below.

Notwithstanding ~~these~~the material ~~weaknesses,~~weakness, our management, including our CEO and CFO, has concluded that our ~~consolidated financial statements~~Consolidated Financial Statements included in our ~~Annual Report on~~2019 Form 10-K ~~for the year ended December 31, 2019~~ and the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included in this Report ~~for the three months ended March 31, 2020~~ are fairly stated in all material respects in accordance with GAAP for each of the periods presented, and that they can still be relied upon.

Material Weaknesses in Internal Control Over Financial Reporting

We identified the following control ~~deficiencies~~deficiency that constituted a material ~~weaknesses~~weakness in our internal control over financial reporting as of ~~March 31, 2020 and~~ December 31, 2019 and ~~2018.~~2018 which has been fully remediated as of September 30, 2020.

We did not design and maintain effective controls over user access within the Company’s ERP system, Oracle, to ensure appropriate segregation of duties and to adequately restrict user access to appropriate personnel. Specifically, the provisioning and user recertification controls ~~are~~were not designed to ensure that users maintain proper segregation of duties and, ~~therefore~~as a result, users could have had inappropriate access rights (the “Access Control Weakness”).

We identified the following control deficiency that constituted a material weakness in our internal control over financial reporting as of September 30, 2020 and December 31, 2019 and 2018.

We did not design and maintain effective controls over the completeness and accuracy of information included in key spreadsheets supporting our accounting records (the “Spreadsheet Control Weakness”).

~~The~~These control deficiencies constituted material weaknesses, but did not result in a material misstatement ofto our annual or interim consolidated financial statements. However, if ~~these~~the remaining material ~~weaknesses are~~weakness is not remediated, a material misstatement of account balances or disclosures may not be prevented, and may go undetected, which could result in a material misstatement of future annual or interim consolidated financial statements.

Remediation ~~Plan~~Efforts to Address Material Weaknesses

Beginning December 31, 2019, we commenced developing and implementing a plan to enhance the design and operating effectiveness of our internal control over financial reporting, which includes taking the following steps to remediate the identified control deficiencies and material weaknesses:

To address the Access Control Weakness, we ~~are utilizing~~utilized the services of an Oracle consulting firm and an accounting firm unrelated to our Independent Registered Accounting Firm, to assist us in analyzing and reviewing Oracle access for all users. During the first quarter of 2020, we completed the analysis and ~~have developed~~deployed an action plan. Based on this analysis and action plan, ~~to modify~~during the ~~designated~~second quarter of 2020, we created new Oracle responsibilities for each employee ~~with respect to whom~~for which a conflict was identified to remove ~~any~~ Oracle transactional responsibilities that we ~~believe are~~believed to be conflicting and ~~in some instances, to reassign~~reassigned those responsibilities to a different employee to ensure proper segregation of duties. ~~As of March 31, 2020 we have~~We completed the ~~design and are in the process of the testing~~implementation of the new Oracle responsibilities ~~created. In addition,~~for all users in July 2020. During the third quarter of 2020, we ~~plan to enhance~~completed the enhancement and ~~implement~~implementation provisioning and user certification controls to ensure we maintain the appropriate segregation of duties within ~~Oracle following the analysis.~~

~~To address the Spreadsheet~~Oracle. The Access Control Weakness ~~for each key spreadsheet using Oracle data, we are evaluating and determining (1) if a standard Oracle report exists containing the same information~~was deemed to be remediated as ~~the spreadsheet, and if so, we would utilize the standard Oracle report (without modification) instead~~ of the spreadsheet to support our accounting records and (2) if a standard Oracle report cannot be used, we will implement a new key control whereby an employee performs a formal validation that the information from Oracle is completely and accurately transferred (automatically or manually) to a spreadsheet by verifying totals and other information on a test basis. For all other key spreadsheets, we plan to design and implement a new key control to validate completeness and accuracy of information supporting our accounting records. During the first quarter of 2020, we began the process of evaluating each key spreadsheet based on the above criteria, and for several key spreadsheets, we implemented a new key control to validate the completeness and accuracy of the information contained within and supporting each such spreadsheet.

September 30, 2020.

•

To address the Spreadsheet Control Weakness, for each key spreadsheet we plan to evaluate and determine (1) if a standard Oracle report exists containing the same information as the spreadsheet, and if so, we would utilize the standard Oracle report (without modification) instead of the spreadsheet to support our accounting records and (2) if a standard Oracle report cannot be used, we will implement a new key control whereby an employee performs a formal validation that the information from Oracle is completely and accurately transferred (automatically or manually) to a spreadsheet by verifying totals and other information on a test basis. For all key spreadsheets, we plan to design and implement a new key control to validate the completeness and accuracy of information supporting our accounting records. During the first nine months of 2020, we began the process of evaluating each key spreadsheet based on the above criteria, and for several key spreadsheets, we implemented a new key control to validate the completeness and accuracy of the information contained within and supporting each such spreadsheet.

~~We believe these steps will address the material weaknesses described above.~~

Changes in Internal Control Over Financial Reporting

Other than the changes intended to remediate the material weakness noted above, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the ~~fiscal quarter~~three months ended ~~March 31,~~September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. As of ~~March 31,~~September 30, 2020, we are unaware of any ~~material~~legal proceedings, pending ~~legal proceedings.~~

~~Item 1A.~~

~~RISK FACTORS~~

~~In light of recent developments related to the COVID-19 pandemic,~~or threatened, against the Company ~~is supplementing the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 to include the following risk factors.~~

~~The COVID-19 pandemic has had, and is likely to continue to have, an adverse impact on our business, operations, financial condition, results of operations and capital resources,~~ as well as on the operations and financial performance of many of our suppliers and customers. We are unable to predict the ultimate extent to which the pandemic and related effects will adversely impact our business, operations, financial condition, results of operations, capital resources and the achievement of our strategic objectives.

As a result of the COVID-19 pandemic and the numerous disease control measures being taken to limit the spread of COVID-19, we have experienced, and can be expected to continue to experience, disruptions to our business, our operations, the delivery of our products and customer demand for our products, including the following:

~~supply chain disruptions, including delayed product shipments from two contract manufacturers located in China and Thailand~~ that conduct approximately 80% and 19%, respectively, of our printer and terminal manufacturing, which, if sustained, could lead to insufficient inventory levels and harm our ability to deliver products to our customers on time or at all;

~~continuing shutdowns of operations of our customers in the casino industry and restrictions on the operations of our customers in the food service industry, which have resulted in, and~~management believes are likely to ~~continue to result in, reduced demand for our products in the two primary markets that we serve;~~

an inability of our customers to make payments in a timely fashion or at all, which may continue even after operating restrictions are lifted in the event that the downturn in economic conditions persists;

devotion of significant time, management attention and resources to monitoring the COVID-19 pandemic and its impacts, and anticipated impacts, on our business, and seeking to mitigate the effects of the pandemic on our business and workforce, which diverts management’s attention and resources away from strategic initiatives, new business opportunities, the transition of our business toward the food service and casino and gaming markets, and the overall profitability of our business;

necessary modifications to our business practices and operations, including suspension of employee travel, cancellation of physical participation in meetings, events and conferences and social distancing measures, including work-from-home policies, and such further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and suppliers, which may adversely impact efficiency and productivity and may increase operational risks, including cybersecurity risks, and have affected the way that we conduct our product development, marketing, customer support and other activities;

a furlough of workers and an across-the-board 10% salary reduction, as well as other cost-cutting measures we have taken to help mitigate the impact of the COVID-19 crisis on our business, which may, along with any additional such measures that may be taken in the future, impair our ability to operate and have a negative effect on employee loyalty and our reputation and, if furloughed employees do not return following the crisis, or if employees seek higher-paying jobs, may limit our ability to restart operations following the crisis and to grow our food service technology business as planned;

a possible future reduction in the value of goodwill or other intangible assets causing the carrying value of such assets to exceed their fair value, which could require us to recognize asset impairment;

difficulty predicting our manufacturing requirements accurately due to volatile economic conditions and uncertainty as to when our customers may resume operations, which could result, in the case of an underestimate, in inadequate manufacturing capacity or inventory, interruptions in production and delayed deliveries to customers (with resulting losses in orders or customers lowering our net sales), or in the case of an overestimate, in an excess inventory of component parts or manufactured products;

~~increases in prices and/or decreases in availability of component parts and raw materials needed to produce our products;~~

foreign exchange rate fluctuations due to volatile global economic conditions, which could negatively affect earnings and the value of our assets held outside the United States, and if we increase prices to absorb a portion of the currency impact, could cause demand to decrease;

~~volatility of, and decreases in, trading prices of our common stock; and~~

the possibility that we may need to raise additional capital through an equity or debt financing to support operations but are unable to do so due to, among other things, global economic conditions, conditions in the global financing markets, trading prices of our common stock and the outlook for the industries that we serve, all of which could be negatively impacted by the COVID-19 pandemic, such that there can be no assurance that such financing would be available to us.

The COVID-19 pandemic continues to evolve rapidly, and additional material impacts and disruptions are likely to occur. The factors described above, which may worsen, have had and, along with other factors that we cannot predict, can be expected to continue to have, a material adverse impact on our business, operations, financial condition, results of operations and capital resources. The ultimate impact of the COVID-19 pandemic on the Company is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including the duration of the pandemic, additional or modified government actions, new information that may emerge concerning the severity and impact of the COVID-19 and the actions taken to contain COVID-19 or address its impact in the short and long-term, among others. We do not yet know and cannot predict the full extent of potential impacts on our business, operations, financial condition, results of operations and capital resources.

In addition, any of the risks and uncertainties set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 can be expected to be further heightened by the COVID-19 pandemic and have a material adverse effect on ~~the Company’s~~our business, ~~prospects,~~ financial condition ~~results of operations and capital resources and the achievement of our strategic objectives.~~

~~The agreement governing our credit facility contains restrictions and limitations that could significantly affect our ability to operate our business, as well as significantly affect our liquidity.~~

The loan and security agreement (the “Loan Agreement”) governing the Siena Credit Facility contains a number of significant covenants that could adversely affect our ability to operate our business, our liquidity, and ouror results of operations. ~~These covenants restrict, among other things, our ability, and~~

Item 1A.

RISK FACTORS

As of September 30, 2020, there has been no material change in the ~~ability~~risk factors previously disclosed under Part I, Item 1A of ~~any future domestic subsidiary, to:~~

~~merge, consolidate, form subsidiaries or dispose of assets;~~

~~acquire assets outside~~ the ~~ordinary course of business;~~

~~enter into other transactions outside~~2019 Form 10-K as supplemented by the ~~ordinary course of business;~~

~~sell, transfer, return or dispose of collateral;~~

~~make loans to or investments~~risk factors included in ~~or enter into transactions with, affiliates;~~

~~incur or guarantee indebtedness, incur liens;~~

~~redeem equity interests while borrowings are outstanding under the credit facility;~~

~~change our capital structure; or~~

~~dissolve, divide, change our line of business or cease or suffer a disruption to all or a material portion~~Part II, Item 1A of our ~~business.~~

1Q 2020 Form 10-Q and our 2Q 2020 Form 10-Q.

Additionally, the Loan Agreement requires us to comply with a minimum EBITDA covenant, the amount of which is based on financial forecasts provided to the lender. The breach of any covenants or obligations in the Loan Agreement, if not otherwise waived or amended, could result in a default under the Loan Agreement and could trigger acceleration of our obligations thereunder and permit the lender to foreclose on the collateral securing our obligations under the Loan Agreement and exercise other rights of secured creditors.

Availability under the Siena Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable and inventory. To the extent that our eligible accounts receivable and inventory decline in value, our borrowing base will decrease, and the availability under the Siena Credit Facility currently is and may continue to be less than its stated amount and may decrease. In addition, if at any time the amount of outstanding borrowings and letters of credit under that facility exceeds the borrowing base, we are required to prepay borrowings and/or cash collateralize letters of credit sufficient to eliminate the excess.

Our ability to comply with the covenants under the Loan Agreement or to maintain our borrowing base may be affected by events beyond our control, including deteriorating economic conditions and consequences of the COVID-19 crisis. For example, reductions in the value of accounts receivable and inventory have occurred and are likely to continue to occur due to decreases in sales and production that have occurred as a result of the COVID-19 pandemic. Further, certain slow-moving inventory and accounts receivable that remain unpaid for a specified period of time are excluded from the borrowing base calculation. Thus, a decline in economic conditions and/or a decline in the financial condition of customers in the industries we serve, such as the decline that has occurred in the casino and food service industries in connection with the COVID-19 pandemic, has impacted and may continue to negatively impact the borrowing base both by decreasing the value of existing accounts and reducing the number and amount of new accounts. If we overestimate our inventory needs due to the uncertainty surrounding the COVID-19 pandemic and the duration of its impact on customer closures and economic conditions, we may have inventory that is considered slow-moving and thus excluded from the borrowing base calculation, and any reduction in production in response to decreased demand would also result in a lower inventory value and thus a lower borrowing base.

Any of these events could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We cannot assure you that such waivers, amendments or alternative financing could be obtained, or if obtained, would be on terms acceptable to us, or that we would be able to reduce expenditures enough to offset any decrease in the borrowing base, or that we could make such reductions without a material negative impact on our business.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

Item 5.

OTHER INFORMATION

None.

Item 6.

EXHIBITS

~~Item 6.~~ ~~EXHIBITS~~

10.1		~~Amendment No. 3 to Lease~~ Underwriting Agreement between ~~Bomax Properties, LLC and~~ TransAct Technologies Incorporated and Roth Capital Partners, LLC, as representative, dated ~~as of February 28,~~October 14, 2020 (incorporated by reference to Exhibit ~~10.1~~1.1 of the Company’s Current Report on ~~Form~~form 8-K (SEC File No. 000-21121) filed with the SEC on ~~March 4,~~October 16, 2020).
~~10.2~~		Loan and Security Agreement, dated as of March 13, 2020, between Siena Lending Group LLC, as lender, TransAct Technologies Incorporated, as borrower, and the other loan parties from time to time party thereto.
~~10.3~~		Note, dated May 1, 2020, by TransAct Technologies Incorporated in favor of Berkshire Bank (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on May 5, 2020).
~~Exhibit~~ 31.1 *		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~Exhibit~~ 31.2 *		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~Exhibit~~ 32.1 **		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance ~~Document.~~Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*	Filed herewith.

**	Furnished herewith.

2833

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TRANSACT TECHNOLOGIES INCORPORATED
	(Registrant)

	By: /s/ Steven A. DeMartino
Dated: ~~May 22,~~November 9, 2020	Steven A. DeMartino
	President, Chief Financial Officer, Treasurer and Secretary
	(Principal Financial Officer)


	By: /s/ David B. Peters
Dated: ~~May 22,~~November 9, 2020	David B. Peters
	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)