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: SeptemberJune 30, 20202021
or

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

For the transition period from _______________ to _______________.

Commission file number: 0-21121

graphic
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 growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☐
Accelerated Filerfiler ☒☐
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 accounting 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 OctoberJuly 31, 2020,2021, the number of shares outstanding of the Company’s common stock, $0.01 par value, was 8,928,885.8,991,504.




TRANSACT TECHNOLOGIES INCORPORATED

INDEX

PART I - Financial Information:Page
   
Item 1Financial Statements (unaudited) 
   
 
Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20202021 and December 31, 20192020
3
   
 
Condensed Consolidated Statements of Operations for the three and ninesix months endedSeptember June 30, 20202021 and 20192020
4
   
 
Condensed Consolidated Statements of Comprehensive (Loss) IncomeLoss for the three and ninesix months endedSeptember June 30, 20202021 and 20192020
5
   
 
Condensed Consolidated Statements of Cash Flows for the ninesix months endedSeptember June 30, 20202021 and 20192020
6
   
 
Condensed Consolidated StatementStatements of Changes in Shareholders’ Equity for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
7
   
 
Notes to Condensed Consolidated Financial Statements
8
   
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1614
   
Item 3
Quantitative and Qualitative Disclosures About Market Risk
3128
   
Item 4
Controls and Procedures
3129
  
PART II - Other Information: 
   
Item 1
Legal Proceedings
3330
   
Item 1A
Risk Factors
3330
   
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
3330
   
Item 3
DefaultDefaults Upon Senior Securities
3330
   
Item 4
Mine Safety Disclosures
3330
   
Item 5
Other Information
3330
   
Item 6
Exhibits
3330
  
SIGNATURES
3431

2
PART I - FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

 September 30, 2020  December 31, 2019  June 30, 2021  December 31, 2020 
Assets: (In thousands, except share data)  (In thousands, except share data) 
Current assets:            
Cash and cash equivalents
 
$
947
  
$
4,203
  
$
7,960
  
$
10,359
 
Accounts receivable, net
  
4,918
   
6,418
   
5,741
   
3,377
 
Note receivable
  
100
   
1,017
   
0
   
100
 
Inventories
  
12,503
   
12,099
   
8,734
   
11,286
 
Prepaid income taxes
  
88
   
180
   
2,499
   
2,409
 
Other current assets
  
1,213
   
998
   
864
   
644
 
Total current assets
  
19,769
   
24,915
   
25,798
   
28,175
 
                
Fixed assets, net of accumulated depreciation of $19,468 and $19,010, respectively
  
2,339
   
2,244
 
Fixed assets, net of accumulated depreciation of $20,282 and $19,979, respectively
  
1,843
   
1,950
 
Note receivable, net of current portion
  
1,566
   
0
   
0
   
1,584
 
Right-of-use asset
  
3,794
   
2,855
   
2,952
   
3,618
 
Goodwill
  
2,621
   
2,621
   
2,621
   
2,621
 
Deferred tax assets
  
4,574
   
2,565
   
4,147
   
2,939
 
Intangible assets, net of accumulated amortization of $3,953 and $3,771, respectively
  
634
   
817
 
Intangible assets, net of accumulated amortization of $4,107 and $4,005, respectively
  
481
   
583
 
Other assets
  
192
   
44
   
573
   
777
 
  
15,720
   
11,146
   
12,617
   
14,072
 
Total assets
 
$
35,489
  
$
36,061
  
$
38,415
  
$
42,247
 
                
Liabilities and Shareholders’ Equity:
                
Current liabilities:
                
Accounts payable
 
$
2,458
  
$
2,960
  
$
2,780
  
$
1,691
 
Accrued liabilities
  
3,053
   
3,041
   
2,466
   
3,665
 
Lease liability
  
857
   
945
   
809
   
837
 
Deferred revenue
  
479
   
700
   
742
   
504
 
Total current liabilities
  
6,847
   
7,646
   
6,797
   
6,697
 
                
Long-term debt
  
2,173
   
0
   
2,173
   
2,173
 
Deferred revenue, net of current portion
  
120
   
219
   
232
   
111
 
Lease liability, net of current portion
  
3,053
   
2,104
   
2,167
   
2,864
 
Other liabilities
  
128
   
166
   
173
   
166
 
  
5,474
   
2,489
   
4,745
   
5,314
 
Total liabilities
  
12,321
   
10,135
   
11,542
   
12,011
 
                
Shareholders’ equity:
                
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
 
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,035,321 and 12,976,227 shares issued, respectively; 8,990,479 and 8,931,385 shares outstanding, respectively
  
130
   
130
 
Additional paid-in capital
  
33,560
   
32,604
   
43,408
   
42,536
 
Retained earnings
  
21,636
   
25,348
   
15,398
   
19,718
 
Accumulated other comprehensive loss, net of tax
  
(34
)
  
(31
)
Accumulated other comprehensive income (loss), net of tax
  
47
   
(38
)
Treasury stock, at cost, 4,044,842 shares
  
(32,110
)
  
(32,110
)
  
(32,110
)
  
(32,110
)
Total shareholders’ equity
  
23,168
   
25,926
   
26,873
   
30,236
 
Total liabilities and shareholders’ equity
 
$
35,489
  
$
36,061
  
$
38,415
  
$
42,247
 
                

See notes to Condensed Consolidated Financial Statements.

3
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 Three Months Ended  Six Months Ended 
 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  June 30,  June 30, 
 2020  2019  2020  2019  2021  2020  2021  2020 
 (In thousands, except per share data)  (In thousands, except per share data) 
                        
Net sales
 
$
7,300
  
$
11,686
  
$
22,832
  
$
34,586
  
$
9,325
  
$
5,285
  
$
17,626
  
$
15,532
 
Cost of sales
  
3,951
   
6,140
   
12,275
   
17,250
   
6,000
   
2,995
   
11,112
   
8,324
 
                
Gross profit
  
3,349
   
5,546
   
10,557
   
17,336
   
3,325
   
2,290
   
6,514
   
7,208
 
                                
Operating expenses:
                                
Engineering, design and product development
  
1,445
   
1,048
   
4,197
   
3,328
   
1,804
   
1,367
   
3,607
   
2,752
 
Selling and marketing
  
1,258
   
1,947
   
4,885
   
5,890
   
1,767
   
1,419
   
3,210
   
3,627
 
General and administrative
  
2,125
   
2,239
   
6,987
   
6,720
   
2,509
   
2,242
   
5,118
   
4,862
 
  
4,828
   
5,234
   
16,069
   
15,938
   
6,080
   
5,028
   
11,935
   
11,241
 
                                
Operating (loss) income
  
(1,479
)
  
312
   
(5,512
)
  
1,398
 
Interest and other income (expense):
                
Operating loss
  
(2,755
)
  
(2,738
)
  
(5,421
)
  
(4,033
)
Interest and other expense:
                
Interest, net
  
(19
)
  
0
   
(41
)
  
(13
)
  
(29
)
  
(25
)
  
(42
)
  
(22
)
Other, net
  
116
   
(71
)
  
(60
)
  
(123
)
  
(17
)
  
(11
)
  
(100
)
  
(176
)
  
97
   
(71
)
  
(101
)
  
(136
)
  
(46
)
  
(36
)
  
(142
)
  
(198
)
                                
(Loss) income before income taxes
  
(1,382
)
  
241
   
(5,613
)
  
1,262
 
Loss before income taxes
  
(2,801
)
  
(2,774
)
  
(5,563
)
  
(4,231
)
Income tax benefit
  
(515
)
  
(143
)
  
(1,901
)
  
(54
)
  
687
   
921
   
1,243
   
1,386
 
Net (loss) income
 
$
(867
)
 
$
384
  
$
(3,712
)
 
$
1,316
 
Net loss
 
$
(2,114
)
 
$
(1,853
)
 
$
(4,320
)
 
$
(2,845
)
                                
Net (loss) income per common share:
                
Net loss per common share:
                
Basic
 
$
(0.11
)
 
$
0.05
  
$
(0.49
)
 
$
0.18
  
$
(0.24
)
 
$
(0.25
)
 
$
(0.48
)
 
$
(0.38
)
Diluted
 
$
(0.11
)
 
$
0.05
  
$
(0.49
)
 
$
0.17
  
$
(0.24
)
 
$
(0.25
)
 
$
(0.48
)
 
$
(0.38
)
                                
Shares used in per-share calculation:
                                
Basic
  
7,548
   
7,470
   
7,533
   
7,464
   
8,976
   
7,543
   
8,962
   
7,525
 
Diluted
  
7,548
   
7,753
   
7,533
   
7,658
   
8,976
   
7,543
   
8,962
   
7,525
 

See notes to Condensed Consolidated Financial Statements.

4
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(unaudited)

  
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
 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2021  2020  2021  2020 
  (In thousands) 
             
Net loss
 
$
(2,114
)
 
$
(1,853
)
 
$
(4,320
)
 
$
(2,845
)
Foreign currency translation adjustment, net of tax
  
32
   
10
   
85
   
81
 
Comprehensive loss
 
$
(2,082
)
 
$
(1,843
)
 
$
(4,235
)
 
$
(2,764
)

See notes to Condensed Consolidated Financial Statements.

5
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 Six Months Ended 
 
Nine Months Ended
September 30,
  June 30, 
 2020  2019  2021  2020 
 (In thousands)  (In thousands) 
Cash flows from operating activities:            
Net (loss) income $(3,712) $1,316 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:        
Net loss $(4,320) $(2,845)
Adjustments to reconcile net loss to net cash used in operating activities:        
Share-based compensation expense  644   559   695   413 
Depreciation and amortization  758   747   486   495 
Deferred income taxes  (2,008)  (104)  (1,209)  (1,485)
Gain on the sale of fixed assets  (8)  0 
Foreign currency transaction losses  59   153   107   215 
Changes in operating assets and liabilities:                
Accounts receivable  1,429   (367)  (2,350)  3,060 
Inventories  (446)  82   2,591   101 
Prepaid income taxes  87   11   (90)  49 
Other current and long-term assets  150   (576)  29   73 
Accounts payable  (685)  (853)  1,012   (1,660)
Accrued liabilities and other liabilities  (508)  (120)  (862)  (725)
Net cash (used in) provided by operating activities  (4,232)  848 
Net cash used in operating activities  (3,919)  (2,309)
                
Cash flows from investing activities:                
Capital expenditures  (634)  (796)  (159)  (489)
Additions to capitalized software  0   (304)
Issuance of note receivable  (600)  (1,000)
Net cash used in investing activities  (1,234)  (2,100)
Proceeds from the sale of fixed assets  8   0 
Collection (issuance) of note receivable  1,598   (600)
Net cash provided by (used in) investing activities  1,447   (1,089)
                
Cash flows from financing activities:                
Revolving credit line borrowings  2,756   0   0   2,756 
Revolving credit line payments  (2,756)  0   0   (2,750)
Long-term debt borrowings  2,173   0   0   2,173 
Payment of common stock issuance costs  (71)  0 
Payment of dividends on common stock  0   (2,011)
Proceeds from stock option exercises  353   0   277   353 
Withholding taxes paid on stock issuances  (41)  (214)  (100)  (41)
Payment of bank financing costs  (213)  0   (31)  (213)
Net cash provided by (used in) financing activities  2,201   (2,225)
Net cash provided by financing activities  146   2,278 
                
Effect of exchange rate changes on cash and cash equivalents  9   (7)  (73)  (1)
                
Decrease in cash and cash equivalents  (3,256)  (3,484)  (2,399)  (1,121)
Cash and cash equivalents, beginning of period  4,203   4,691   10,359   4,203 
Cash and cash equivalents, end of period $947  $1,207  $7,960  $3,082 
                
Supplemental schedule of non-cash investing activities:                
Capital expenditures included in accounts payable $15  $91  $100  $36 

See notes to Condensed Consolidated Financial Statements.

6
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)

 Three Months Ended  Six Months Ended 
 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  June 30,  June 30, 
 2020  2019  2020  2019  2021  2020  2021  2020 
 (In thousands, except per share data)  (In thousands) 
                        
Equity beginning balance $23,888  $27,431  $25,926  $27,567  $28,363  $25,505  $30,236  $25,926 
                                
Common stock                                
Balance, beginning of period  116   115   115   115   130   116   130   115 
Issuance of shares from stock awards  0   0   1   0   0   0   0   1 
Balance, end of period  116   115   116   115   130   116   130   116 
                                
Additional paid-in capital                                
Balance, beginning of period  33,329   32,301   32,604   32,129   42,816   33,103   42,536   32,604 
Share-based compensation expense  231   173   644   559   431   226   695   413 
Issuance of shares from exercise of stock options  0   0   353   0   186   0   277   353 
Relinquishment of stock awards and deferred stock units to pay for withholding taxes  0   0   (41)  (214)
Relinquishment of stock awards and restricted stock units to pay for withholding taxes  (25)  0   (100)  (41)
Balance, end of period  33,560   32,474   33,560   32,474   43,408   33,329   43,408   33,329 
                                
Retained earnings                                
Balance, beginning of period  22,503   27,108   25,348   27,515   17,512   24,356   19,718   25,348 
Net (loss) income  (867)  384   (3,712)  1,316 
Dividends declared and paid on common stock  0   (672)  0   (2,011)
Net loss  (2,114)  (1,853)  (4,320)  (2,845)
Balance, end of period  21,636   26,820   21,636   26,820   15,398   22,503   15,398   22,503 
                                
Treasury stock                                
Balance, beginning and end of period  (32,110)  (32,110)  (32,110)  (32,110)  (32,110)  (32,110)  (32,110)  (32,110)
                                
Accumulated other comprehensive income (loss), net of tax                                
Balance, beginning of period  50   17   (31)  (82)  15   40   (38)  (31)
Foreign currency translation adjustment, net of tax  (84)  (33)  (3)  66   32   10   85   81 
Balance, end of period  (34)  (16)  (34)  (16)  47   50   47   50 
                                
Equity ending balance  23,168   27,283   23,168   27,283   26,873   23,888   26,873   23,888 
                                
Supplemental share information                                
Issuance of shares from stock awards  2   1   93   73   27   9   92   91 
Relinquishment of stock awards to pay withholding taxes  0   0   14   21   1   0   32   14 
Dividends per share of common stock $0  $0.09  $0  $0.27 

See notes to Condensed Consolidated Financial Statements.

7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES 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, 20192020 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 year ended December 31, 2019.2020.

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 periodend-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 ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.2021.

Impact of the COVID-19 Pandemic
The unprecedented and rapid spreadIn the first quarter of 2020, the COVID-19 pandemic and the resulting social distancing measures, including closures and restricted openings of restaurants and casinos implemented by federal, state and local authorities, have significantly reduced recentnegatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our 2 manufacturers located in China and Thailand.  While we began to experience a modest recovery starting in the second half of 2020 into 2021 and expect this recovery to continue during the remainder of 2021, the exact timing and pace of recovery is unknown given uncertainty surrounding responsive measures to the spread of virus variants or any potential future resurgences of the virus and the significant disruption that our customers have already experienced and may continue to experience.  In light of this uncertainty, we implemented a number of cost saving measures during 2020 to help mitigate the impact on our financial position and operations and continued to limit discretionary spending during the first half of 2021.  We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ultimate impact of the COVID-19 pandemic on our business; however, the length and ultimate 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 unknown given uncertainty surrounding future responsive measures that may be implemented in the upcoming winter months and the significant disruption that our customers have already experienced and may continue to experience.  In light of this uncertainty, we have implemented measures to help mitigate the impact 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 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 proceeds (defined below);
a reduction in sales commissions for all commissioned employees starting in March 2020;
a 10% reduction of cash retainer fees for all non-employee directors starting in March 2020; and
the elimination of discretionary spending wherever possible starting in March 2020.

8
Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions noted above,implemented during 2020, we have takentook 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”) 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 – On March 13, 2020, we entered into a new credit with Siena Lending Group LLC that provides a revolving credit line of up to $10.0 million, subject to a borrowing base.
Reduced Capital Expenditures – We have limited capital expenditures until market conditions improve.
●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.
●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”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act"), which enabled us to return employees we furloughed earlier in 2020 to full time employment and to restore employees to full pay following certain pay cuts.  On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021.  See Note 6 for further details regarding the PPP Loan.
●New Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC that provides a revolving credit line of up to $10.0 million, subject to a borrowing base.  See Note 6 for further details regarding this facility.
●Reduced Capital Expenditures – We limited capital expenditures during 2020.

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.
8

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Report”) were issued, including consideration of the actions taken to manage expenses and liquidity, we 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 net proceeds from the Offering will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued.

Use of Assumptions and Estimates

Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital spendexpenditures and other operating costs.  Our current assumptions are that casinos and restaurants remain open and continue to gradually increase capacity limitations during the fourth quarter of 2020 and into the first half of 2021, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, dueas their businesses gradually return to the extended business closurespre-pandemic levels of capacity and continuing capacity limitations.operations.  Based on these assumptions, we anticipate that sales in casino and gaming and food service technology will continue to be negatively impacted for the foreseeable future.through at least 2021.  We have performed a sensitivity analysis on these assumptions to forecast the potential impact of a slower-than-anticipated recovery and believe that we are well-positioned following the completion of the October 16, 2020 Offeringpositioned to withstand the impact of lower-than anticipatedlower-than-anticipated sales and that we will be able to take additional financial and operationsoperational actions to cut costs and/or increase liquidity, if necessary.  These actions may include additional expense reductions and capital raising activities.activities.

In addition, the presentation of 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 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  Actual results could differ from those 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 2019 quantitative impairment 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.

9
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 exceeded fair value. Therefore, we concluded that quantitative analyses were required to be performed due to the triggering event occurring during the first quarter of 2020.

We view our operations and manage our business as 1 operating 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 determined that 0 goodwill or intangible asset impairment occurred and the fair value of goodwill 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 disruptions resulting from COVID-19 pandemic persist. used.

2. Revenue

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

Disaggregation of revenue

The following tabletables 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  June 30, 
 September 30, 2020  September 30, 2019  2021  2020 
 
(In thousands)
  
(In thousands)
 
 
United States
  
International
  
Total
  
United States
  
International
  
Total
  
United States
  
International
  
Total
  
United States
  
International
  
Total
 
Food service technology
 
$
2,081
  
$
268
  
$
2,349
  
$
1,730
  
$
221
  
$
1,951
  
$
2,987
  
$
87
  
$
3,074
  
$
1,056
  
$
148
  
$
1,204
 
POS automation and banking
  
739
   
3
   
742
   
1,494
   
20
   
1,514
 
POS automation
  
1,252
   
4
   
1,256
   
481
   
0
   
481
 
Casino and gaming
  
1,552
   
457
   
2,009
   
2,849
   
2,225
   
5,074
   
2,438
   
1,029
   
3,467
   
970
   
390
   
1,360
 
Lottery
  
0
   
0
   
0
   
95
   
0
   
95
   
0
   
0
   
0
   
817
   
0
   
817
 
Printrex
  
5
   
102
   
107
   
213
   
83
   
296
   
25
   
87
   
112
   
6
   
2
   
8
 
TransAct Services Group
  
1,910
   
183
   
2,093
   
2,490
   
266
   
2,756
   
1,252
   
164
   
1,416
   
1,271
   
144
   
1,415
 
Total net sales
 
$
6,287
  
$
1,013
  
$
7,300
  
$
8,871
  
$
2,815
  
$
11,686
  
$
7,954
  
$
1,371
  
$
9,325
  
$
4,601
  
$
684
  
$
5,285
 

 Six Months Ended 
 Nine Months Ended  Nine Months Ended  June 30, 
 September 30, 2020  September 30, 2019  2021  2020 
 
(In thousands)
  
(In thousands)
 
 
United States
  
International
  
Total
  
United States
  
International
  
Total
  
United States
  
International
  
Total
  
United States
  
International
  
Total
 
Food service technology
 
$
4,376
  
$
548
  
$
4,924
  
$
3,825
  
$
462
  
$
4,287
  
$
5,551
  
$
270
  
$
5,821
  
$
2,295
  
$
280
  
$
2,575
 
POS automation and banking
  
2,774
   
7
   
2,781
   
4,392
   
43
   
4,435
 
POS automation
  
2,412
   
8
   
2,420
   
2,035
   
4
   
2,039
 
Casino and gaming
  
5,080
   
3,220
   
8,300
   
9,765
   
6,423
   
16,188
   
4,402
   
1,930
   
6,332
   
3,528
   
2,763
   
6,291
 
Lottery
  
817
   
0
   
817
   
924
   
2
   
926
   
0
   
0
   
0
   
817
   
0
   
817
 
Printrex
  
72
   
160
   
232
   
740
   
183
   
923
   
52
   
219
   
271
   
67
   
58
   
125
 
TransAct Services Group
  
5,184
   
594
   
5,778
   
6,947
   
880
   
7,827
   
2,532
   
250
   
2,782
   
3,274
   
411
   
3,685
 
Total net sales
 
$
18,303
  
$
4,529
  
$
22,832
  
$
26,593
  
$
7,993
  
$
34,586
  
$
14,949
  
$
2,677
  
$
17,626
  
$
12,016
  
$
3,516
  
$
15,532
 

109

Contract balances

Our contractContract assets consist of unbilled receivables.  Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced.  An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable” and “Other non-current assets” in the Condensed Consolidated Balance Sheets. 

Contract liabilities consist of customer pre-payments and deferred revenue.  Customer prepayments are reported as “Accrued 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™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 did not have any contract asset balances as of September 30, 2020 or December 31, 2019.  For the first ninesix months of 2020, we recognized revenue of $1.0 million related to our contract liabilities at December 31, 2019.  For the nine months endedSeptember June 30, 2019,2021, we recognized revenue of $0.5 million related to our contract liabilities at December 31, 2018.2020. Total net contract liabilities(liabilities) assets consisted of the following:

 
September 30,
2020
  
December 31,
2019
  June 30, 2021  December 31, 2020 
 (In thousands)  (In thousands) 
      
Unbilled receivables, current $296  $290 
Unbilled receivables, non-current  441   591 
Customer pre-payments $126  $232   (87)  (216)
Deferred revenue, current  479   700   (742)  (504)
Deferred revenue, non-current  120   219   (232)  (111)
Total contract liabilities $725  $1,151 
Total net contract (liabilities) assets $(324) $50 

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 SeptemberJune 30, 2020,2021, the aggregate amount of transaction prices allocated to remaining performance obligations was $2.2$5.0 million.  The Company expects to recognize revenue on $2.1$4.4 million of its remaining performance obligations within the next 12 months following SeptemberJune 30, 2020 and $0.12021, $0.4 million within the next 24 months following September 30, 2020.and the balance of these remaining performance obligations recognized within the next 36 months.

3. Note receivable

The note receivable balance relates to a loanloans given to a third partythird-party software developer from whom we license our food service technology software with an interest rate of 4.5%, which waswere originally due in April 2020.  We intend to collectIn March 2021, we received payment in the amount of $1.6 million representing the remaining principal balance and interest due underfrom the note pursuant tothird-party.  a lender recourse provision that enables us to apply payments that would have been duePrior 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 notepayment being received, notes receivable balance as it becomes due.  As a result, $100 thousand of the balance was classified as current and the remaining $1.6 million is expected to be reduced thereafter using the lender recourse provision.  Notes receivable arewere stated at unpaid principal balances and interest income iswas recognized on the accrual method.  In MarchInterest income for the three months ended June 30, 2020 we loaned an additional $600 thousand towas $18 thousand.  There was no interest income for the third party.three months ended June 30, 2021.  For the threesix months ended June 30, 2021 and nine months endedSeptember 30, 2020, we recorded $1817 thousand and $4931 thousand of interest income, respectively.  As of September 30, 2020, we have 0 allowances for loan losses, unamortized deferred loan fees or unearned discounts.

4. Inventories

The components of inventories were:

 
September 30,
2020
  
December 31,
2019
  June 30, 2021  December 31, 2020 
 
(In thousands)
  
(In thousands)
 
            
Raw materials and purchased component parts
 
$
4,561
  
$
7,724
  
$
5,373
  
$
5,467
 
Work-in-process
  
8
   
0
 
Finished goods
  
7,934
   
4,375
   
3,361
   
5,819
 
 
$
12,503
  
$
12,099
  
$
8,734
  
$
11,286
 

11
5. Accrued product warranty liability

We generally provide hardware 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.
10


The following table summarizes the activity recorded in the accrued product warranty liability during the ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:

 Six Months Ended 
 
Nine Months Ended
September 30,
  June 30, 
 
2020
  
2019
  
2021
  
2020
 
 
(In thousands)
  
(In thousands)
 
            
Balance, beginning of period
 
$
215
  
$
273
  
$
140
  
$
215
 
Warranties issued
  
53
   
138
   
19
   
55
 
Warranty settlements
  
(107
)
  
(190
)
  
(45
)
  
(78
)
Balance, end of period
 
$
161
  
$
221
  
$
114
  
$
192
 

As of SeptemberJune 30, 2020, $1282021, $87 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $33$27 thousand was classified as non-current in “Other liabilities”.

6. 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 $10.0 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 $245 thousand, which were reported as “other“Other current assets” in current assets and “other“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.Siena Credit Facility.  Borrowings under the facilitySiena Credit 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) $5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory.  The three month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant which required the Company to maintain a minimum EBITDA and continued through the 12-month period from April 1, 2020 to March 31, 2021.  On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility.  The Credit Facility Amendment changed the financial covenant under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $750,000 under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021.  As of SeptemberJune 30, 2020,2021, we had $6.6$4.7 million of additional borrowing capacity available under the Siena Credit Facility.  We were in compliance with all financial covenants of the Siena Credit Facility at September 30, 2020.

On May 1, 2020 (the “Loan Date”), the Company was granted the PPP Loan from Berkshire Bank in the aggregate amount of $2.2$2.2 million, pursuant to the 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 maywould be forgiven to the extent that funds from the PPP Loan arewere 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 60% (as(under the PPP terms, as amended) of the proceeds from the PPP Loan must beneeded to have been used for eligible payroll costs for the PPP Loan to be forgiven. The Company has maximized the use ofsubmitted its PPP Loan proceeds for qualifying expensesforgiveness application in May 2021 to the SBA through Berkshire Bank and intends to apply for forgiveness ofsubmitted the related loan necessity questionnaire in June 2021.  On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP Loan in accordance with the terms(including all interest accrued thereon) of the CARES 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$2.2 million had been fully forgiven by the SBA and may also be subjectthat the forgiveness payment date was July 1, 2021. 

The PPP Loan, which was evidenced by a Note dated the Loan Date issued by the Company (the “Note”) in favor of Berkshire Bank, as lender (the “PPP Lender”), was scheduled to further requirements in any regulationsmature on May 1, 2022 and guidelineshad a fixed interest rate of 1.0%per annum, accruing from the Loan Date and payable monthly.  No payments were due on the PPP Loan for six months from the date of first disbursement, and because a loan forgiveness application was submitted to the SBA may adopt.within 10 months after the end of the covered period, no payments were due until the date on which the SBA remitted the loan forgiveness amount to the PPP Lender and interest that accrued during the deferment period was included in the forgiveness amount.  The Note was unsecured and guaranteed by the SBA.  The PPP Loan is classified as “Long-term debt” in the Condensed Consolidated Balance Sheet untilSheet.  The forgiveness of the forgiveness determination has been made byPPP loan will be recognized  under “Interest and other expense” section in the SBA.Condensed Consolidated Statement of Operations during the quarter ending September 30, 2021.

1211
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,
  Three Months Ended  Six Months Ended 
 2020  2019  2020  2019  June 30,  June 30, 
 (In thousands, except per share data)  2021  2020  2021  2020 
Net (loss) income
 
$
(867
)
 
$
384
  
$
(3,712
)
 
$
1,316
 
 (In thousands, except per share data) 
Net loss
 
$
(2,114
)
 
$
(1,853
)
 
$
(4,320
)
 
$
(2,845
)
                                
Shares:
                                
Basic: Weighted average common shares outstanding
  
7,548
   
7,470
   
7,533
   
7,464
   
8,976
   
7,543
   
8,962
   
7,525
 
Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method
  
0
   
283
   
0
   
194
   
0
   
0
   
0
   
0
 
Diluted: Weighted average common and common equivalent shares outstanding
  
7,548
   
7,753
   
7,533
   
7,658
   
8,976
   
7,543
   
8,962
   
7,525
 
                                
Net (loss) income per common share:
                
Net loss per common share:
                
Basic
 
$
(0.11
)
 
$
0.05
  
$
(0.49
)
 
$
0.18
  
$
(0.24
)
 
$
(0.25
)
 
$
(0.48
)
 
$
(0.38
)
Diluted
 
$
(0.11
)
 
$
0.05
  
$
(0.49
)
 
$
0.17
  
$
(0.24
)
 
$
(0.25
)
 
$
(0.48
)
 
$
(0.38
)

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 SeptemberJune 30, 20202021 and 20192020, there were 1.40.3 million and 0.31.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.  For the ninesix months ended SeptemberJune 30, 20202021 and 20192020, there were 1.40.7 million and 0.51.3 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 ninesix months ended SeptemberJune 30, 2021 and 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“Right-of-use-assets” and Lease liabilities“Lease liabilities” in our Condensed Consolidated Balance Sheet.  Our leases have remaining lease terms of one year to sevenfive years, some of which include options to extend. The majority of ourOur leases with options to extend provide for extensions of uptwo 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 providesprovided for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025.  On April 30, 2021, we entered into an amendment to modify the expiration date of our lease on our Hamden, CT facility.  The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027.  The lease amendment modified the expiration date to October 31, 2023 with an option to extend the lease for an additional two-year period extending the expiration date to October 31, 2025.  The modification resulted in reducing the right-of-use-asset and lease liability by $0.3 million. Lease expense is recognized on a straight-line basis over the lease term.

Operating lease expense for the three months ended SeptemberJune 30, 2021 and 2020 and 2019 was $243$239 thousand and $256$241 thousand, respectively, and areis 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 ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 was $735$482 thousand and $764$492 thousand, respectively.  Operating lease expenses include short-term lease costs, which were immaterial during the period.periods presented.

1312
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 
 
Six Months Ended
 
 
June 30,
 
  
2021
  
2020
 
Operating cash outflows from leases
 
$
522
  $519 

The following summarizes additional information related to our leases as of SeptemberJune 30, 2021 and December 31, 2020:

 
September 30, 2020
  
December 31, 2019
  
June 30, 2021
  
December 31, 2020
 
Weighted average remaining lease term (in years)
  
5.1
   
5.0
   
3.9
   
4.9
 
Weighted average discount rate
  
4.1
%
  
3.7
%
  
4.4
%
  
4.1
%

The maturity of the Company’s operating lease liabilities as of SeptemberJune 30, 20202021 and December 31, 20192020 were as follows (in thousands):

 
September 30, 2020
  
December 31, 2019
  
June 30, 2021
  
December 31, 2020
 
2020
 
$
261
  
$
1,042
 
2021
  
969
   
711
  
$
463
  
$
971
 
2022
  
876
   
434
   
887
   
879
 
2023
  
711
   
268
   
722
   
713
 
2024
  
715
   
273
   
722
   
718
 
2025
  
427
   
464
 
Thereafter
  
800
   
616
   
24
   
180
 
Total undiscounted lease payments
  
4,332
   
3,344
   
3,245
   
3,925
 
Less imputed interest
  
422
   
295
   
269
   
224
 
Total lease liabilities
 
$
3,910
  $3,049  
$
2,976
  $3,701 

10. Income taxes

We recorded an income tax benefit for the thirdsecond quarter of 20202021 of $515687 thousand at an effective tax rate of 37.3%24.5%, compared to an income tax benefit for the second quarter of 2020 of $921 thousand at an effective tax rate of 33.2%.  For the six months endedJune 30, 2021,  we recorded an income tax benefit of $1.2 million at an effective tax rate of 22.3%, compared to an income tax benefit for the thirdsix months ended quarter of 2019June 30, 2020 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 $1.91.4 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%)32.8%.  The effective tax ratesrate for the threesecond quarter and ninefirst six months ended September 30,of 2020 werewas higher than usualthe comparable 2021 periods as it included the impact of theour net operating loss (“NOL”) that we expect toincurred during 2020 and will carry back to prior years.  The CARES Act enacted on March 27, 2020 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 agenerated an NOL forin 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. statestates 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 SeptemberJune 30, 2020,2021, we had $80$121 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.  ForWe expect $24 thousand of the $121 thousand of unrecognized tax benefits will reverse in the third quarter of 2020, we recognized $27 thousand2021 upon the expiration of previously unrecognized tax benefits as the applicable statute of limitations on the use of our 2016 resarch and development credit expired during the third quarter of 2020.limitations.

14
We recognize interest and penalties related to uncertain tax positions asin the income tax (benefit) provision.  As of SeptemberJune 30, 2020,2021, we had $15$25 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.where realization is not certain.

11. Subsequent events

The Company has evaluated all events andor transactions subsequentthat occurred up to September 30, 2020 and through the date these Condensed Consolidated Financial Statementsthe consolidated financial statements were includedavailable to be issued.  Based upon this review, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in this Form 10-Qthe consolidated financial statements, other than receiving notifications from Berkshire Bank and filed with the SEC.SBA regarding forgiveness of the PPP Loan on July 8, 2021, and the Credit Facility Amendment to the Siena Credit Facility signed on July 21, 2021, both of which are disclosed in Note 6.

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.
1513
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 SeptemberJune 30, 2020(this2021 (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 the 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”, “plan” or “continue” or the negative thereof or other similar words.  The Company cautions readers not to place undue reliance on any such forward-looking statements, 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, 20192020 (our “2019“2020 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 and in our other filings with the Securities and Exchange Commission (the “SEC”).  Such risks and uncertainties could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements.  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 any resurgences or variants, vaccination rates 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 impact of the COVID-19 pandemic, significant unfavorable changes could severely impact the assumptions used.  Forward-looking statements speak only as of the date of they are made, and we do not undertake any obligation to update 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 growthhigh-growth markets including food service technology, point of sale (“POS”) automation, casino and gaming, 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™Epic, EPICENTRAL®, Ithaca®, and Printrex® brand names.  In MarchDuring 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 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, and 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, 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.
1614

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 year2020 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 and continued throughout the secondremainder of 2020 and third quartersinto the first six months of 2020.  Unfortunately,2021.  Though we have begun to see some recovery in the first half of 2021, unfortunately, the massive economic and social disruptions across the world persist due to COVID-19, including the emergence of virus variants, and the measures implemented to mitigate its spread.  The food service, casino and gaming, and 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 its spread, we have experienced decreased demand for our products and lower than anticipated sales beginning in the second half of March 2020 and continuing through the third quarterfirst six months of 2020,2021, particularly in our food service technology and casino and gaming markets.  We sawexperienced some improvement in demand during the third quartersecond half of 2020 through the first six months of 2021 compared to the second quarter of 2020, as some state and local governments lifted certain measures implemented earlier in 2020 to mitigate the spread of the virus, but demand remainsremained lower than 2019, and while we expect this trendimprovement to continue throughduring the remainder of 2020.2021, the exact timing and pace of recovery is unknown.  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 that were closed during much of the second quarter of 2020 started to reopen in the third quarter of 2020 as state and local governments began to ease restrictions put in place in response to the pandemic.  Many of our customers have opened under restrictions that limit them to providing drive through, take outtake-out or delivery service without dine-in options, as well as limiting the volume of customers and employees on site at any one time.  During the third quartersecond half of 2020 and first six months of 2021, we experienced sales improvement compared to the second quarter of 2020, as these food service customers reopened for business.  However, during the fourth quarter of 2020 and early in 2021, restaurants were again impacted by a resurgence of the pandemic.  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 will continue to negatively impact sales of BOHA! hardware, software and label products, as well as sales of POS printers.  However, food service providers will alsohave been and are likely to continue to 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.  We believe that our BOHA! hardware, software and label products 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 are and will likely continue to be operating with reduced staff levels.

Casino and gaming.   In the casino and gaming market, most casinos and other gaming establishments were closed worldwide during most of the second quarter of 2020.  Many casinos began to reopen in late May and early June 2020, but similar to restaurants, casino openings were slow and measured, starting with reduced capacity withand limited game playgameplay based on social distancing guidelines.  During the fourth quarter of 2020, some casinos re-closed due to a resurgence of the pandemic.  However, many casinos in the U.S. reopened during the first quarter of 2021 with limited capacity and during the second quarter of 2021 remained open and further expanded capacity.  We anticipate that casinos will continue to limit capacity in the near term and will progressively increase capacity over time.time, barring any new closures or reduced capacity requirements in response to any new resurgence of the pandemic, including the emergence of variants.  As casinos 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 willis likely to continue to negatively impact sales of casino and gaming printers purchased by slot manufacturers for use in slot machines at casinos.casinos during 2021.

Lottery.  We exited the lottery market at the end of 2019 and IGT made a final purchase of our lottery printer during the second quarter of 2020.  Therefore, we doCOVID-19 has not anticipate that COVID-19 willhad an 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.  Duepandemic during 2020.  During the first half of 2021, oil and gas prices have begun to rise again resulting in slowly improving sales to our oil and gas customers.  However, due to the uncertainty of current and future market conditions, we believe sales of our Printrex oil and gas printers will continue to be negatively impacted until oil and gas prices recover.

TSG.  Due to closures and reduced operating capacity of restaurants, food serviceretail establishments, casinos and other gaming establishments resulting from the COVID-19 pandemic, we expect sales of spare parts, service and consumable products have declined, and we expect such sales to also decline correspondinglyremain at reduced levels, due to lower usage while the pandemic persists.until these markets recover.
15

Our gross margin has been negatively impacted and we expect our gross margin to continue to be negatively impacted bywhile the COVID-19 pandemic.pandemic and its economic effects on the markets we serve persists.  As a result of an expected significantly lower sales level, we believe our gross margin will declineremain lower than pre-pandemic levels due to fixed manufacturing overhead expenses (such as facility costs, depreciation, etc.) that cannot be reduced or eliminated even with the lower sales level.
17

We have also experienced supply chain disruptions, including delayed product shipments from our two contract manufacturers located in China and Thailand that conduct almost all of our printer and terminal manufacturing, due to reduced operations and parts shortages at these 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 or additional disruptions from the pandemic occur, we may have insufficient inventory levels and our ability to deliver products to our customers on time or at all may be impaired.

While itwe began to experience a modest recovery starting in the second half of 2020 into 2021 and expect this recovery to continue during the remainder of 2021, the exact timing and pace of recovery is difficultunknown given uncertainty surrounding responsive measures to predict the magnitudepotential future resurgences of the impact thatvirus, vaccination rates, the pandemicemergence of virus variants and the responsivesignificant disruption that our customers have already experienced and may continue to experience.  In light of this uncertainty, we implemented a number of cost saving measures will haveduring 2020 to help mitigate the impact on our customersfinancial position and our business, we have taken several actionsoperations and continued to manage our expenses during these turbulent and uncertain times.  Such steps include:

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 starting in March 2020;
a 10% reduction of cash retainer fees for all non-employee director starting in March 2020; and
the elimination oflimit discretionary spending wherever possible starting in March 2020.
during the first half of 2021.

In addition to the expense management actions implemented during 2020, we have taken further measurestook the following actions to increase liquidity including the following:and strengthen our financial 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 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.
•
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”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which enabled us to return employees we had furloughed earlier in 2020 to full time employment and to restore employees to full pay following certain pay cuts.  On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021.
New Credit Facility –- On March 13, 2020, we also entered into a new credit facility (the "Siena Credit Facility") with Siena Lending Group LLC (the “Siena Credit Facility”) that provides a revolving credit line of up to $10.0$10 million, subject to a borrowing base.
Reduced Capital Expenditures –- We have limited capital expenditures until market conditions improve.during 2020.

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. Because most of our employees already had laptop computers with remote access into our IT systems, we have experienced only minor reductions in productivity and minimal costs related to the implementation of our work-from-home practices.  In addition, even with the move to a work-from-home environment, our existing internal control structure remained operational and unchanged.

With a majority of our employees now fully vaccinated against COVID-19, we are beginning to prepare a return-to-work plan that we expect to implement in the second half of 2021.

Our distribution centers, deemed an essential service, have remained operational throughout the pandemic.  WeDuring 2020, we implemented a new COVID-19 policy, which was still in place during the first six months of 2021, to specifically address health and safety guidelines for employees to adhere to and follow when at work or returning to work.  This policy wasis based on the COVID-19 safety guidelines recommended fromby the Centers for Disease Control and Prevention and implements the following operations procedures:

staggered shifts and a rotational or flexible work schedule to minimize the number of employees at any particular facility at a single time;
mandated use of protective equipment, such as masks and gloves, when in common areas, which is provided to employees;
spaced seating in workspaces such as manufacturing cells, lunch/break rooms, conference rooms and other common areas to comply with social distancing guidelines;
•
spaced seating in workspaces such as manufacturing cells, lunch/break rooms, conference rooms and other common areas to comply with social distancing guidelines;
employees who (i) show symptoms of COVID-19 or (ii) have been exposed to someone who shows symptoms or has tested positive for COVID-19 are prohibited from reporting to work for 1410 days;
all visitors are prohibited from entering all facilities; and
daily cleaning and disinfecting protocols at all facilities; and
daily temperature checks of all employees before entering all facilities.
1816

We have evaluated the recoverability of the assets on our unaudited Condensed Consolidated Balance Sheetcondensed consolidated balance sheet as of SeptemberJune 30, 20202021 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, Risk Factors, of the 2019 Form 10-K Part II, Item 1A of our Q1for the year ended December 31, 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 (“U.S. GAAP”).America.  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. 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.  As of March 31, 2020, when the impairment review was performed, we determined that no goodwill or intangible asset impairment had occurred and the fair value of goodwill was higher than our carrying value.  As of June 30, 2020 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 2019 Form 10-K.  We have reviewed those policies and determined that they remain our critical accounting policies for the nine months ended September 30, 2020.

Results of Operations: Three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 20192020

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 SeptemberJune 30, 2021 and 2020 and 2019 are reflected in the table below (in thousands, except percentages).were as follows:

 Three Months Ended  Three Months Ended     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
%)
(In thousands, except percentages) June 30, 2021  June 30, 2020  $ Change  % Change 
Food service technology (“FST”)
 
$
3,074
   
33.0
%
 
$
1,204
   
22.8
%
 
$
1,870
   
155.3
%
POS automation
  
1,256
   
13.4
%
  
481
   
9.1
%
  
775
   
161.1
%
Casino and gaming
  
2,009
   
27.5
%
  
5,074
   
43.4
%
  
(3,065
)
  
(60.4
%)
  
3,467
   
37.2
%
  
1,360
   
25.7
%
  
2,107
   
154.9
%
Lottery
  
–
   
0.0
%
  
95
   
0.8
%
  
(95
)
  
(100.0
%)
  
–
   
0.0
%
  
817
   
15.5
%
  
(817
)
  
(100.0
%)
Printrex
  
107
   
1.4
%
  
296
   
2.5
%
  
(189
)
  
(63.9
%)
  
112
   
1.2
%
  
8
   
0.1
%
  
104
   
1,300.0
%
TSG
  
2,093
   
28.7
%
  
2,756
   
23.6
%
  
(663
)
  
(24.1
%)
  
1,416
   
15.2
%
  
1,415
   
26.8
%
  
1
   
0.1
%
 
$
7,300
   
100.0
%
 
$
11,686
   
100.0
%
 
$
(4,386
)
  
(37.5
%)
 
$
9,325
   
100.0
%
 
$
5,285
   
100.0
%
 
$
4,040
   
76.4
%
                                                
International *
 
$
1,013
   
13.9
%
 
$
2,815
   
24.1
%
 
$
(1,802
)
  
(64.0
%)
 
$
1,371
   
14.7
%
 
$
684
   
12.9
%
 
$
687
   
100.4
%
1917

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

Net sales for the thirdsecond quarter of 2020 decreased $4.42021 increased $4 million, or 38%76%, from the same period in 2019.2020.  Printer, terminal and other hardware sales volume decreased 58%increased 93% year-over-year to approximately 11,00020,000 units for the thirdsecond quarter of 20202021 due to volume decreasesincreases in all our markets butexcept our lottery market.  The increase was driven primarily by a 64% decrease182% increase in unit volume from the casino and gaming market and, to a lesser extent, a 45% decrease103% increase in the POS automation market and bankinga 130% increase in the FST market.  The average selling price of our printers, terminals and other hardware increased 3%decreased 4% for the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 20192020, primarily due to a lowerhigher level of POS automation and banking printer sales, which sell at a lower price than our other products.  TheAdditionally, sales volume decreases were partially offset by a $1 million, or 157% increase inof our software, labels and other recurring revenue from our food service technology market.FST market increased $1.4 million, or 214%, in the second quarter of 2021 compared to the second quarter of 2020.

International sales for the thirdsecond quarter of 2020 decreased $1.82021 increased $0.7 million, or 64%100%, from the same period in 20192020, primarily due to an 80% decreasea 164% increase in sales in the international casino and gaming market.

Food service technology. Our primary offering in the food service technology market is our BOHA! ecosystem, which combines our latest generation terminal,terminal/workstation, 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 for both Android and iOS, including applications for inventory management, temperature monitoring of food and equipment, timers, food safety labeling, food recalls,media libraries, checklists and procedures,task lists, and equipment service management, and delivery management.  These applications are combined into a single platform with the associated hardware, which includes the BOHA! terminal,terminal/workstation, 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 gograb-and-go labels for prepared foods, and “enjoy by” date labels.  The BOHA! workstation uses an iPad instead of an integrated touchscreen.  Both the BOHA! terminal isand workstation are 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 typically charged to customers upfrontannually 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 endedSeptember  June 30, 20202021 and 20192020 were as follows (in thousands, except percentages):

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
2,081
   
88.6
%
 
$
1,730
   
88.7
%
 
$
351
   
20.3
%
 
$
2,987
   
97.2
%
 
$
1,056
   
87.7
%
 
$
1,931
   
182.9
%
International
  
268
   
11.4
%
  
221
   
11.3
%
  
47
   
21.3
%
  
87
   
2.8
%
  
148
   
12.3
%
  
(61
)
  
(41.2
%)
 
$
2,349
   
100.0
%
 
$
1,951
   
100.0
%
 
$
398
   
20.4
%
 
$
3,074
   
100.0
%
 
$
1,204
   
100.0
%
 
$
1,870
   
155.3
%

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Hardware
 
$
771
   
32.8
%
 
$
1,338
   
68.6
%
 
$
(567
)
  
(42.4
%)
 
$
1,008
   
32.8
%
 
$
545
   
45.3
%
 
$
463
   
85.0
%
Software, labels and other recurring revenue
  
1,578
   
67.2
%
  
613
   
31.4
%
  
965
   
157.4
%
  
2,066
   
67.2
%
  
659
   
54.7
%
  
1,407
   
213.5
%
 
$
2,349
   
100.0
%
 
$
1,951
   
100.0
%
 
$
398
   
20.4
%
 
$
3,074
   
100.0
%
 
$
1,204
   
100.0
%
 
$
1,870
   
155.3
%

The increase in food service technology sales for the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 was driven primarily by an increase in sales of ourboth hardware and BOHA! software, labels and other recurring revenue.  Hardware sales increased 85% in the second quarter of 2021 compared to 2020 due largely to sales to an existing national convenience store customer and continued sales to a national travel center customer that started implementing BOHA! in the first quarter of 2021.  Sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue increased by 157%214%, primarily due to increased label sales and, to a lesser extent, increased software sales, compared to the prior year period despite the impact from the COVID-19 pandemic.  The increase of label sales for the third quarter of 2020 was primarily due to an initial stocking order to a distributor of a large convenience store chain as well as increased usage by existing customers.  Hardware sales for the third quarter of 2020 decreased 42% compared to the third quarter of 2019 primarily due to the impact fromgrowth of the COVID-19 pandemic that resulted in substantially reduced customer operations.installed base of our BOHA! terminals and workstations. 
2018

POS automation and banking.automation. 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 2018.  SalesSales of our worldwide POS automation and banking products for the three months ended SeptemberJune 30, 20202021 and 20192020 were as follows (in thousands, except percentages):

 Three Months Ended  Three Months Ended     Three Months Ended  Three Months Ended    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
739
   
99.6
%
 
$
1,494
   
98.7
%
 
$
(755
)
  
(50.5
%)
 
$
1,252
   
99.7
%
 
$
481
   
100.0
%
 
$
771
   
160.3
%
International
  
3
   
0.4
%
  
20
   
1.3
%
  
(17
)
  
(85.0
%)
  
4
   
0.3
%
  
–
   
0.0
%
  
4
   
100.0
%
 
$
742
   
100.0
%
 
$
1,514
   
100.0
%
 
$
(772
)
  
(51.0
%)
 
$
1,256
   
100.0
%
 
$
481
   
100.0
%
 
$
775
   
161.1
%

The decreaseincrease in both domestic and international POS automation and banking product revenue for the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 was primarily driven by a 47% decrease161% increase in domestic and international sales of our Ithaca® 9000 printer, largely attributable to fewer salesprimarily to McDonald’s, which we believe resulted fromas POS automation sales improved during the second quarter of 2021 compared to the significant negative impact of the COVID-19 pandemic.pandemic had on sales during the second quarter of 2020.

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™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-timereal time at the slot machine.  Sales of our worldwide casino and gaming products for the three months endedSeptember June 30, 20202021 and 20192020 were as follows (in thousands, except percentages):

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
1,552
   
77.3
%
 
$
2,849
   
56.1
%
 
$
(1,297
)
  
(45.5
%)
 
$
2,438
   
70.3
%
 
$
970
   
71.3
%
 
$
1,468
   
151.3
%
International
  
457
   
22.7
%
  
2,225
   
43.9
%
  
(1,768
)
  
(79.5
%)
  
1,029
   
29.7
%
  
390
   
28.7
%
  
639
   
163.8
%
 
$
2,009
   
100.0
%
 
$
5,074
   
100.0
%
 
$
(3,065
)
  
(60.4
%)
 
$
3,467
   
100.0
%
 
$
1,360
   
100.0
%
 
$
2,107
   
154.9
%

The decreaseincrease in domestic sales of our casino and gaming products for the second quarter of 2021 compared to the second quarter of 2020 was primarily due to a 46% decline168% increase in domestic sales of our thermal casino printers, in the third quarter of 2020 compared to the third quarter of 2019, driven by industry-wide weakness resulting in lower sales to our OEMs as they were negatively impacted by the COVID-19 pandemic.  Many casinos reopened during the third quarter of 2020, although at reduced capacities, which resulted in improved sales in the third quarter of 2020we have experienced some recovery compared to the second quarter of 2020.  2020 when the casino and gaming market was most severely impacted by the COVID-19 pandemic.  We had no new EPICENTRAL™ software installationscontinue to experience recovery in the domestic casino and gaming market during the thirdfirst half of 2021 as sales have increased 24% in the second quarter of 2020 or 2019.  Sales2021 compared to the first quarter of domestic EPICENTRALTM are project based and, as a result, may fluctuate significantly quarter-to-quarter and year-to-year.2021.

The decrease inSimilar to the domestic sales increase, international sales of our casino and gaming products increased in the thirdsecond quarter of 2021 compared to the second quarter of 2020, compared to the third quarter of 2019 was primarily due to an 81% decreasea 205% increase in sales of our thermal casino printers and a 76% decrease in sales of our off-premise gaming printers attributabledue to the sales recovery experienced in the second quarter of 2021 compared to the second quarter of 2020 when the casino and gaming market was most severely impacted by the COVID-19 pandemic.   We continued to experience some recovery from the negative impactsimpact of the COVID-19 pandemic on theas international casino and gaming industry.sales in the second quarter of 2021 increased 14% compared to the first quarter of 2021.

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 SeptemberJune 30, 20202021 and 20192020 were as follows (in thousands, except percentages):follows:

 Three Months Ended  Three Months Ended     Three Months Ended  Three Months Ended    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
–
   
0.0
%
 
$
95
   
100.0
%
 
$
(95
)
  
(100.0
%)
 
$
–
   
0.0
%
 
$
817
   
100.0
%
 
$
(817
)
  
(100.0
%)
International
  
–
   
0.0
%
  
–
   
0.0
%
  
–
   
0.0
%
  
–
   
0.0
%
  
–
   
0.0
%
  
–
   
0.0
%
 
$
–
   
0.0
%
 
$
95
   
100.0
%
 
$
(95
)
  
(100.0
%)
 
$
–
   
0.0
%
 
$
817
   
100.0
%
 
$
(817
)
  
(100.0
%)
2119

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. 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 endedSeptember June 30, 20202021 and 20192020 were as follows (in thousands, except percentages):

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
5
   
4.7
%
 
$
213
   
72.0
%
 
$
(208
)
  
(97.7
%)
 
$
25
   
22.3
%
 
$
6
   
75.0
%
 
$
19
   
316.7
%
International
  
102
   
95.3
%
  
83
   
28.0
%
  
19
   
22.9
%
  
87
   
77.7
%
  
2
   
25.0
%
  
85
   
4,250.0
%
 
$
107
   
100.0
%
 
$
296
   
100.0
%
 
$
(189
)
  
(63.9
%)
 
$
112
   
100.0
%
 
$
8
   
100.0
%
 
$
104
   
1,300.0
%

The decreaseincrease in sales of Printrex printers for the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 resulted primarily from lowerhigher domestic and international sales in the oil and gas market which was negatively impacted during the second quarter of 2020 by the decline in worldwide oil prices largely attributable to the COVID-19 pandemic.  Due toThough our overall Printrex sales increased in the uncertaintysecond quarter of current2021 and future market conditions, which maywe continue to be negatively impacted by the COVID-19 pandemic,fulfill orders from existing customers, we are unableno longer focused on this market and expect sales 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.decline over time.

TSG. Revenue generated by our TSG includes sales of consumable products (inkjet(POS receipt paper, inkjet cartridges, ribbons POS receipt paper, and other printing supplies)supplies for legacy products), replacement parts, maintenance and repair services, testing services, refurbished printers, and shipping and handling charges.  Sales in our worldwide TSG market for the three months endedSeptember June 30, 20202021 and 20192020 were as follows (in thousands, except percentages):

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
1,910
   
91.3
%
 
$
2,490
   
90.3
%
 
$
(580
)
  
(23.3
%)
 
$
1,252
   
88.4
%
 
$
1,271
   
89.8
%
 
$
(19
)
  
(1.5
%)
International
  
183
   
8.7
%
  
266
   
9.7
%
  
(83
)
  
(31.2
%)
  
164
   
11.6
%
  
144
   
10.2
%
  
20
   
13.9
%
 
$
2,093
   
100.0
%
 
$
2,756
   
100.0
%
 
$
(663
)
  
(24.1
%)
 
$
1,416
   
100.0
%
 
$
1,415
   
100.0
%
 
$
1
   
0.1
%

The decrease in domesticDomestic revenue from TSG for the thirdsecond quarter of 2020 as2021 decreased slightly by 2% compared to the thirdsecond quarter of 20192020.  The decrease was primarily due to a 77% 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 a 45%27% decrease in service sales primarily related to a service contract with a banking customer that is expected to end in 2020.2021 and a 12% decline from lower lottery printer spare part sales to IGT, which can vary significantly from quarter to quarter.  These decreases were partially offset by a 15%78% increase in consumable sales resulting from higher sales of replacement parts, primarilylegacy POS paper when compared to the second quarter of 2020 when many of these customers were negatively impacted by the COVID-19 pandemic.  We expect TSG sales to decrease in 2021 compared to 2020 due to higherlower expected sales volume of legacy 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 the legacy HP inkjet cartridges and lower service sales related to the banking service contract with a banking customer that is expected to end in 2020.noted above.

Internationally, TSG revenue decreased forincreased in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 20192020, primarily due to a 52% decrease35% increase in sales of replacement parts and accessories to international casino and gaming 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.customers.
2220

Gross Profit.  Gross profit for the three months ended SeptemberJune 30, 20202021 and 20192020 is summarized below (in thousands, except percentages):

Three Months Ended
September 30,
  
Percent
  
Percent of
  
Percent of
 
2020
  
2019
  
Change
  
Total Sales - 2020
  
Total Sales - 2019
 
$
3,349
  
$
5,546
   
(39.6
%)
  
45.9
%
  
47.5
%
Three Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
3,325
  
$
2,290
   
45.2
%
  
35.7
%
  
43.3
%

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 EPICENTRALTMEPICENTRAL® print system and BOHA! ecosystem.  ecosystem and royalty payments to third parties, including to the third-party licensor of our food service technology software products.  For the thirdsecond quarter of 2020,2021, gross profit decreased $2.2increased $1.0 million, or 40%45%, as compared to the third quarter of 2019 due largely to a 38% declinesales increase of 76% for the second quarter in worldwide sales.  Gross2021 compared to the second quarter of 2020.  Additionally, our gross margin decreased 160760 basis points, to 45.9%35.7%, for the thirdsecond quarter of 2021 compared to 43.3% for the second quarter of 2020.  The decrease in gross margin resulted largely from lower margin on our BOHA! hardware sales in the second quarter of 2021 compared to the second quarter of 2020, comparedas we have reduced prices to 47.5% foraccelerate the third quartergrowth 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 saving measures taken in earlier in the year in response to the COVID-19 pandemic.our BOHA! installed base.

Operating Expenses - Engineering, Design and Product Development.  Engineering, design and product development expense for the three months ended SeptemberJune 30, 20202021 and 20192020 is summarized below (in thousands, except percentages):

Three Months Ended
September 30,
  
Percent
  
Percent of
  
Percent of
 
2020
  
2019
  
Change
  
Total Sales - 2020
  
Total Sales - 2019
 
$
1,445
  
$
1,048
   
37.9
%
  
19.8
%
  
9.0
%
Three Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
1,804
  
$
1,367
   
32.0
%
  
19.3
%
  
25.9
%

Engineering, design and product development expenseexpenses primarily includesinclude 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)expenses including those to the third-party licensor of our food service technology software products).  Such expenses increased $0.4 million, or 38%32% for the thirdsecond quarter of 2021 compared to the second quarter of 2020, comparedas we gradually return to the third quarter of 2019, primarily due to continuedmore normalized pre-COVID spending levels and expandedcontinue development of our food service technology products.products.  We expect engineering, design and product development expense to increase for the full year 20202021 compared to be slightly higher than the full year 2019, as we expect2020 due to continue our strategicthe accelerated investments planned in our food service technology products despite the COVID-19 pandemic.products.

Operating Expenses - Selling and Marketing. Selling and marketing expense for the three months ended SeptemberJune 30, 20202021 and 20192020 is summarized below (in thousands, except percentages):

Three Months Ended
September 30,
  
Percent
  
Percent of
  
Percent of
 
2020
  
2019
  
Change
  
Total Sales - 2020
  
Total Sales - 2019
 
$
1,258
  
$
1,947
   
(35.4
%)
  
17.2
%
  
16.7
%
Three Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
1,767
  
$
1,419
   
24.5
%
  
18.9
%
  
26.8
%

Selling and marketing expenseexpenses primarily includesinclude 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.  Such expenses decreased $0.7increased $0.3 million, or 35%25%, for the thirdsecond quarter of 2021 compared to the second quarter of 2020, compared to the third quarter of 2019 primarily due to continuedincreased travel expense, marketing programs and new sales staff.  Our level of spending was unusually low during the second quarter of 2020, as we implemented a number of significant cost saving measures implemented during the third quarter of 2020 in response to the expected impact of the COVID-19 pandemic.  The Company expectsWe expect selling and marketing expenses to maintain these cost saving measurescontinue to increase for the remainder of 2020.full year 2021, as we gradually return to more normalized pre-COVID-19 spending levels, as well as make substantial strategic investments in our food service technology sales and marketing groups including resumed and expanded print advertising and marketing promotions that were deferred from 2020 due to the pandemic.
2321

Operating Expenses - General and Administrative. General and administrative expense for the three months ended SeptemberJune 30, 20202021 and 20192020 is summarized below (in thousands, except percentages):

Three Months Ended
September 30,
  
Percent
  
Percent of
  
Percent of
 
2020
  
2019
  
Change
  
Total Sales - 2020
  
Total Sales - 2019
 
$
2,125
  
$
2,239
   
(5.1
%)
  
29.1
%
  
19.2
%
Three Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
2,509
  
$
2,242
   
11.9
%
  
26.9
%
  
42.4
%

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, telecommunicationinformation technology expenses, and other expenses related to being a publicly-traded company.  General and administrative expenses decreased $0.1increased $0.3 million, or 5%12%, infor the thirdsecond quarter of 2021 compared to the second quarter of 2020 due to higher recruiting fees and employee compensation, as well as higher consulting fees related to a planned implementation of a new ERP system to be completed in 2022.  These increases were partially offset by lower legal and professional fees during the second quarter of 2021 compared to the thirdsecond quarter of 2019 primarily due2020.  We expect general and administrative expenses to lower professional and legal expenses and lower discretionarycontinue to increase in 2021 as we gradually return to more normalized pre-COVID-19 spending resulting from the cost saving initiatives implemented in response to the COVID-19 pandemic.levels.

Operating (Loss) Income.Loss. Operating incomeloss for the three months ended SeptemberJune 30, 20202021 and 20192020 is summarized below (in thousands, except percentages):

Three Months Ended
September 30,
  
Percent
  
Percent of
  
Percent of
 
2020
  
2019
  
Change
  
Total Sales - 2020
  
Total Sales - 2019
 
$
(1,479
)
 
$
312
   
(574.0
%)
  
(20.3
%)
  
2.7
%
Three Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
(2,755
)
 
$
(2,738
)
  
0.6
%
  
(29.5
%)
  
(51.8
%)

Operating income decreased $1.8 millionOur operating loss increased less than 1% for the thirdsecond quarter of 2021 compared to the second quarter of 2020 as increased sales of 76% were almost entirely offset by a decrease in our gross margin of 760 basis points and an increase in operating expenses of $1.1 million during the second quarter of 2021 compared to the 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 the COVID-19 pandemic.  The decrease in operating income was partially offset by an 8% decrease in operating expenses due to the cost saving initiatives in place during the thirdsecond quarter of 2020.

Interest, net. We recorded net interest expense of $19$29 thousand for the thirdsecond quarter of 20202021 compared to nonet interest income or expense of $25 thousand for the thirdsecond quarter of 2019.2020.  The increase in net interest expense was primarily due to lower interest income earned on our cash balances during the second quarter of 2021 compared to the second quarter of 2020.  We expect interest expense to increase for the full year 2021 compared to the full year 2020 due to the full year impact of unused borrowing fees incurred for unused borrowings underfrom the Siena Credit Facility which has a higher unused borrowing rate thanand lower interest income due to the TD Bank revolving linecollection of credit that wasthe note receivable in place during the thirdfirst quarter of 2019.  We expect net interest expense for the fourth quarter of 2020 to be lower than the third quarter of 2020 due to expected interest income earned on the $8.7 million of net proceeds received from the Offering.2021.

Other, net. We recorded other incomeexpense of $116$17 thousand for the thirdsecond quarter of 20202021 compared to other expense of $71$11 thousand for the thirdsecond quarter of 20192020, primarily due to foreign currency exchange gainslosses recorded by our U.K. subsidiary for the third quarter of 2020 compared to foreign exchanges losses recorded for the third quarter of 2019.subsidiary.  Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our U.K. subsidiary and the fluctuation in exchange rates of the Euro and Pound Sterling against the U.S. 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 thirdsecond quarter of 20202021 of $515$687 thousand at an effective tax rate of 37.3%24.5%, compared to an income tax benefit forduring the thirdsecond quarter of 20192020 of $143$921 thousand at an effective tax rate of (59.3%)33.2%.  The effective tax rate for the thirdsecond quarter of 2020 was higher becausethan the comparable 2021 period as it included the impact of theour net operating loss (“NOL”) that we expect toincurred during 2020 and will carry back to prior years.  The CARES Act enacted on March 27, 2020 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 agenerated an NOL forin 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) IncomeLoss. We reported a net loss for the thirdsecond quarter of 20202021 of $0.9$2.1 million, or $(0.11)$0.24 per diluted share, compared to net incomeloss of $0.4$1.9 million, or $0.05$0.25 per diluted share, for the thirdsecond quarter of 2019.2020.
2422

Results of Operations:  NineSix months ended SeptemberJune 30, 20202021 compared to ninesix months ended SeptemberJune 30, 20192020

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 ninesix months ended SeptemberJune 30, 20202021 and 20192020 are reflected in the table below (in thousands, except percentages).were as follows: 

 Nine Months Ended  Nine Months Ended     Six Months Ended  Six 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
%)
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
FST
 
$
5,821
   
33.0
%
 
$
2,575
   
16.6
%
 
$
3,246
   
126.1
%
POS automation
  
2,420
   
13.7
%
  
2,039
   
13.1
%
  
381
   
18.7
%
Casino and gaming
  
8,300
   
36.3
%
  
16,188
   
46.8
%
  
(7,888
)
  
(48.7
%)
  
6,332
   
35.9
%
  
6,291
   
40.5
%
  
41
   
0.7
%
Lottery
  
817
   
3.6
%
  
926
   
2.7
%
  
(109
)
  
(11.8
%)
  
–
   
0.0
%
  
817
   
5.3
%
  
(817
)
  
(100.0
%)
Printrex
  
232
   
1.0
%
  
923
   
2.7
%
  
(691
)
  
(74.9
%)
  
271
   
1.6
%
  
125
   
0.8
%
  
146
   
116.8
%
TSG
  
5,778
   
25.3
%
  
7,827
   
22.6
%
  
(2,049
)
  
(26.2
%)
  
2,782
   
15.8
%
  
3,685
   
23.7
%
  
(903
)
  
(24.5
%)
 
$
22,832
   
100.0
%
 
$
34,586
   
100.0
%
 
$
(11,754
)
  
(34.0
%)
 
$
17,626
   
100.0
%
 
$
15,532
   
100.0
%
 
$
2,094
   
13.5
%
                                                
International *
 
$
4,529
   
19.8
%
 
$
7,993
   
23.1
%
 
$
(3,464
)
  
(43.3
%)
 
$
2,677
   
15.2
%
 
$
3,516
   
22.6
%
 
$
(839
)
  
(23.9
%)

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

Net sales for the first ninesix months of 2020 decreased $11.82021 increased $2.1 million, or 34%14%, from the same period in 2019.2020. Printer, terminal and other hardware sales volume decreasedincreased by 45%8% to approximately 46,00038,000 units for the first ninesix months of 20202021 driven by decreases acrossvolume increases in all our markets.  Thesemarkets except our lottery market.  The primary volume decreasesincreases were primarily due to a 51% decrease129% increase in unit volume from the casino and gamingFST market and to a lesser extent, a 30%20% unit decreasevolume increase in our POS automation and banking market.  The average selling price of our printers, terminals and other hardware remained consistentincreased 2% for the first ninesix months of 20202021 compared to the first ninesix months of 2019.  The2020, primarily due to a higher level of sales volume decreases were partially offset by a $1.6 million, or 129% increase inof FST hardware, which sell at higher prices than our other products.  Additionally, sales of our software, labels and other recurring revenue from our food service technology market.FST market increased $2.0 million, or 157%, in the first six months of 2021 compared to the first six months of 2020.

International sales decreased $3.5$0.8 million, or 43%24%, primarily driven by a 50%30% decrease ofin international casino and gaming sales.

Food service technology. Sales of our worldwide food service technology products for the ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 are reflected in the tables below (in thousands, except percentages).were as follows:

 
Nine Months Ended
  
Nine Months Ended
     
Six Months Ended
  
Six Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
4,376
   
88.9
%
 
$
3,825
   
89.2
%
 
$
551
   
14.4
%
 
$
5,551
   
95.4
%
 
$
2,295
   
89.1
%
 
$
3,256
   
141.9
%
International
  
548
   
11.1
%
  
462
   
10.8
%
  
86
   
18.6
%
  
270
   
4.6
%
  
280
   
10.9
%
  
(10
)
  
(3.6
%)
 
$
4,924
   
100.0
%
 
$
4,287
   
100.0
%
 
$
637
   
14.9
%
 
$
5,821
   
100.0
%
 
$
2,575
   
100.0
%
 
$
3,246
   
126.1
%

 
Nine Months Ended
  
Nine Months Ended
     
Six Months Ended
  
Six Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Hardware
 
$
2,071
   
42.1
%
 
$
3,040
   
71.0
%
 
$
(969
)
  
(31.9
%)
 
$
2,550
   
43.8
%
 
$
1,300
   
50.5
%
 
$
1,250
   
96.2
%
Software, labels and other recurring revenue
  
2,853
   
57.9
%
  
1,247
   
29.0
%
  
1,606
   
128.8
%
  
3,271
   
56.2
%
  
1,275
   
49.5
%
  
1,996
   
156.5
%
 
$
4,924
   
100.0
%
 
$
4,287
   
100.0
%
 
$
637
   
14.9
%
 
$
5,821
   
100.0
%
 
$
2,575
   
100.0
%
 
$
3,246
   
126.1
%

The increase in food service technology sales in the first nine monthshalf of 20202021 compared to the first nine monthshalf of 20192020 was driven primarily by an increase in sales of ourboth hardware and BOHA! software, labels and other recurring revenue.  Hardware sales increased 96% in the first half of 2021 compared to the first half of 2020 due largely to sales to an existing national convenience store customer and a new national travel center customer.  Sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue increased by 129%157%, 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 principally to the launchgrowth of the installed base of our 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.terminals and workstations. 
2523

POS automation and banking.automation. Sales of our worldwide POS automation and banking products for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows (in thousands, except percentages):follows:

 
Nine Months Ended
  
Nine Months Ended
     
Six Months Ended
  
Six Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
2,774
   
99.7
%
 
$
4,392
   
99.0
%
 
$
(1,618
)
  
(36.8
%)
 
$
2,412
   
99.7
%
 
$
2,035
   
99.8
%
 
$
377
   
18.5
%
International
  
7
   
0.3
%
  
43
   
1.0
%
  
(36
)
  
(83.7
%)
  
8
   
0.3
%
  
4
   
0.2
%
  
4
   
100.0
%
 
$
2,781
   
100.0
%
 
$
4,435
   
100.0
%
 
$
(1,654
)
  
(37.3
%)
 
$
2,420
   
100.0
%
 
$
2,039
   
100.0
%
 
$
381
   
18.7
%

The decreaseincrease in both domestic and international POS automation and banking salesproduct revenue for the first nine monthshalf of 20202021 compared to the first nine monthshalf of 20192020 was primarily driven by a 35% decrease19% increase in domestic and international sales of our Ithaca® 9000 printer, largely attributable to fewer salesprimarily to McDonald’s, which we believe resulted fromas POS automation sales began to improve in the first half of 2021 compared to the significant negative impact of the COVID-19 pandemic.pandemic on POS automation sales during the second quarter 2020.

Casino and gaming. Sales of our worldwide casino and gaming products for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows (in thousands, except percentages):follows:

 
Nine Months Ended
  
Nine Months Ended
     
Six Months Ended
  
Six Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
5,080
   
61.2
%
 
$
9,765
   
60.3
%
 
$
(4,685
)
  
(48.0
%)
 
$
4,402
   
69.5
%
 
$
3,528
   
56.1
%
 
$
874
   
24.8
%
International
  
3,220
   
38.8
%
  
6,423
   
39.7
%
  
(3,203
)
  
(49.9
%)
  
1,930
   
30.5
%
  
2,763
   
43.9
%
  
(833
)
  
(30.1
%)
 
$
8,300
   
100.0
%
 
$
16,188
   
100.0
%
 
$
(7,888
)
  
(48.7
%)
 
$
6,332
   
100.0
%
 
$
6,291
   
100.0
%
 
$
41
   
0.7
%

The decreaseincrease in domestic sales of our casino and gaming products for the first ninesix months of 20202021 compared to the first ninesix months of 20192020 was primarily due to a 48% decrease28% increase 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 responseprinters, as we have experienced some recovery during the first six months of 2021 compared to the COVID-19 pandemic, which were in place for mostfirst six months of 2020, and particularly the second quarter of 2020, before gradually reopening at reduced capacities duringwhen the third quarter of 2020.  We had no new EPICENTRAL™ software installations during the first nine months of 2020 or 2019.  Sales of domestic EPICENTRALTM are project based, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

The decrease in international casino and gaming market was most severely impacted by the COVID-19 pandemic.

International sales forof our casino and gaming products decreased in the first ninesix months of 20202021 compared to the first ninesix months of 2019 was2020, primarily due to a 43% decline31% decrease in sales of our thermal casino printers and a 74% decline21% decrease in international sales of our off-premise gaming printers attributabledue to the continued negative impactsimpact of the COVID-19 pandemic on the international casino and gaming industry.industry which is recovering at a slower pace than the domestic casino and gaming market.

Lottery. Sales of our worldwide lottery printers for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows (in thousands, except percentages):follows:

 
Nine Months Ended
  
Nine Months Ended
     
Six Months Ended
  
Six Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
817
   
100.0
%
 
$
924
   
99.8
%
 
$
(107
)
  
(11.6
%)
 
$
–
   
0.0
%
 
$
817
   
100.0
%
 
$
(817
)
  
(100.0
%)
International
  
–
   
0.0
%
  
2
   
0.2
%
  
(2
)
  
(100.0
%)
  
–
   
0.0
%
  
–
   
0.0
%
  
–
   
0.0
%
 
$
817
   
100.0
%
 
$
926
   
100.0
%
 
$
(109
)
  
(11.8
%)
 
$
–
   
0.0
%
 
$
817
   
100.0
%
 
$
(817
)
  
(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, 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 ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows (in thousands, except percentages):follows: 

 
Nine Months Ended
  
Nine Months Ended
     
Six Months Ended
  
Six Months Ended
    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
72
   
31.0
%
 
$
740
   
80.2
%
 
$
(668
)
  
(90.3
%)
 
$
52
   
19.2
%
 
$
67
   
53.6
%
 
$
(15
)
  
(22.4
%)
International
  
160
   
69.0
%
  
183
   
19.8
%
  
(23
)
  
(12.6
%)
  
219
   
80.8
%
  
58
   
46.4
%
  
161
   
277.6
%
 
$
232
   
100.0
%
 
$
923
   
100.0
%
 
$
(691
)
  
(74.9
%)
 
$
271
   
100.0
%
 
$
125
   
100.0
%
 
$
146
   
116.8
%
2624

The decreaseincrease in sales of Printrex printers for the first nine monthshalf of 20202021 compared to the first nine monthshalf of 20192020 resulted primarily from lower domesticincreased international sales in the oil and gas market whichmarket.  This increase was negatively impactedpartially offset by a decrease in domestic Printrex printer sales during the decline in worldwide oil prices largely attributablefirst half of 2021 compared to the COVID-19 pandemic.first half of 2020.  Though our overall Printrex sales increased and we continue to fulfill orders from existing customers, we are no longer focused on this market and expect sales to decline over time.

TSG. Sales in our worldwide TSG market for the ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 are reflected in the table below (in thousands, except percentages).were as follows:

 Nine Months Ended  Nine Months Ended     Six Months Ended  Six Months Ended    
 
September 30, 2020
  
September 30, 2019
  
$ Change
  
% Change
 
(In thousands, except percentages)
 
June 30, 2021
  
June 30, 2020
  
$ Change
  
% Change
 
Domestic
 
$
5,184
   
89.7
%
 
$
6,947
   
88.8
%
 
$
(1,763
)
  
(25.4
%)
 
$
2,532
   
91.0
%
 
$
3,274
   
88.8
%
 
$
(742
)
  
(22.7
%)
International
  
594
   
10.3
%
  
880
   
11.2
%
  
(286
)
  
(32.5
%)
  
250
   
9.0
%
  
411
   
11.2
%
  
(161
)
  
(39.2
%)
 
$
5,778
   
100.0
%
 
$
7,827
   
100.0
%
 
$
(2,049
)
  
(26.2
%)
 
$
2,782
   
100.0
%
 
$
3,685
   
100.0
%
 
$
(903
)
  
(24.5
%)

The decrease in domestic revenue from TSG sales for the first ninesix months of 20202021 as compared to the first ninesix months of 20192020 was due primarily due to a 71% decline in consumable sales resulting largely from lower sales of legacyreplacement parts, consumable products and service revenue.  Replacement part sales decreased 24% primarily from lower lottery printer spare part sales to IGT, which can vary significantly from quarter to quarter.  Consumable sales declined 20%, due primarily to lower sales of 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 sales2018.  Service revenue declined 36%, primarily related to a service contract with a banking customer that is expected to end later 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.2021.  

Internationally, TSG salesrevenue decreased for the first ninesix months of 20202021 compared to the first ninesix months of 20192020, primarily due to a 46%33% decrease in sales of replacement parts and accessories to international casino and gaming customers.customers and a 79% decrease in international consumable sales due to the negative impact from the COVID-19 pandemic.

Gross Profit.  Gross profit for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 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
%
Six Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
6,514
  
$
7,208
   
(9.6
%)
  
37.0
%
  
46.4
%

Gross profit decreased $6.8$0.7 million, or 39%10%, for the first ninesix months of 20202021 compared to the first ninesix months of 20192020, primarily due to a 34% declinedecrease in sales as compared the prior year period. Grossgross margin decreased 390of 940 basis points, to 46.2%37.0% for the first ninesix months of 2021 compared to 46.4% for the first six months of 2020.  The decrease in gross margin resulted largely from lower margin on our BOHA! hardware sales during the first six months of 2021 compared to the six months of 2020 comparedas we have reduced prices to 50.1% foraccelerate the first nine monthsgrowth 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.our BOHA! installed base.

Operating Expenses - Engineering, Design and Product Development.  Engineering, design and product development expense for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 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
%
Six Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
3,607
  
$
2,752
   
31.1
%
  
20.5
%
  
17.7
%

Engineering, design and product development expenses increased $0.9 million, or 26%31%, forduring the first ninesix months of 2021 compared to first six months of 2020, comparedas we gradually return to the first nine months of 2019 primarily due to continuedmore normalized pre-COVID spending levels and expandedcontinue development for our food service technology products.products. 

Operating Expenses - Selling and Marketing. Selling and marketing expense for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 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
%
Six Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
3,210
  
$
3,627
   
(11.5
%)
  
18.2
%
  
23.4
%
2725

Selling and marketing expenses decreased $1$0.4 million, or 17%12%, for the first ninesix months of 20202021 compared to the first ninesix months of 2019 2020 primarily due to cost saving measures implementedlower expenses from travel, trade shows and marketing programs in late March 2020 and maintained through the thirdfirst six months of 2021.  The first quarter of 2020 in response to the COVID-19 pandemic, which more than offset the increase inreflected pre-COVID-19 levels of sales and marketing expenses resulting from the new and expanded marketing programs and promotions to support our food service technology products thatbefore costs saving measures were implemented duringonce we were impacted by the pandemic late in the first quarter of 2020 prior to the COVID-19 outbreak.2020. 

Operating Expenses - General and Administrative. General and administrative expense for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 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
%
Six Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
5,118
  
$
4,862
   
5.3
%
  
29.0
%
  
31.3
%

General and administrative expenses increased $0.3 million, or 4%5%, for the first ninehalf of 2021 compared to first half of 2020 due to higher recruiting fees and employee compensation, as well as higher consulting fees related to a planned implementation of a new ERP system to be completed in 2022.  These increases were partially offset by lower legal and professional fees during the first six months of 20202021 compared to the first ninesix 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.2020. 

Operating (Loss) Income.Loss. Operating (loss) incomeloss for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 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
%
Six Months Ended June 30,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
(5,421
)
 
$
(4,033
)
  
34.4
%
  
(30.8
%)
  
(26.0
%)

Our operating income decreased $6.9loss increased $1.4 million, or 34%, for the first ninesix months of 20202021 compared to the first ninesix months of 2019 primarily2020 on 14% higher sales due to the 34%a decrease in sales and the 390 basis point decrease inour gross margin forof 940 basis points and an increase in operating expenses of $0.7 million during the first ninesix months of 20202021 compared to the first ninesix months of 2019.2020.

Interest, net. We recorded net interest expense of $41$42 thousand for the first ninesix months of 20202021 compared to $13net interest expense of $22 thousand for the first ninesix months of 2019.2020.  The increase in net interest expense was primarily due to interest on borrowingsa full six months of unused borrowing fees 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.that was entered into on March 13, 2020. 

Other, net. We recorded other expense of $60$100 thousand for the first ninesix months of 20202021 compared to $123other expense of $176 thousand for the first ninesix months of 20192020 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 ninesix months of 20202021 of $1.9$1.2 million at an effective tax rate of 33.9%22.3%, compared to an income tax benefit forduring the first ninesix months of 20192020 of $54 thousand$1.4 million at an effective tax rate of (4.3%)32.8%.  The effective tax rate for the first ninesix months of 2020 was higher becausethan the comparable 2021 period as it included the impact of the net operating loss (“NOL”)our NOL that we expect toincurred during 2020 and will carry back to prior years.  The CARES Act enacted on March 27, 2020 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 agenerated an NOL forin 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) IncomeLoss. We reported a net loss for the first ninesix months of 20202021 of $3.7$4.3 million, or $(0.49)$0.48 per diluted share, compared to net incomeloss of $1.3$2.8 million, or $0.17$0.38 per diluted share, for the first ninesix months of 2019.2020.

Liquidity and Capital Resources

Cash Flow
For the first ninesix months of 2020,2021, our cash and cash equivalents balance decreased $3.3$2.4 million, or 77%23%, from December 31, 2019.2020. We ended the thirdsecond quarter of 20202021 with $0.9$8.0 million in cash and cash equivalents, of which $0.1$0.3 million was held by our U.K. subsidiary, and outstanding borrowings of $2.2 million fromunder the PPP Loan.
2826


Operating activities: The following significant factors affected our cash used in operating activities of $4.2$3.9 million for the first ninesix months of 20202021 as compared to cash provided byused in operating activities of $0.8$2.3 million for the first ninesix months of 2019:2020:

During the first ninesix months of 2021:
●We reported a net loss of $4.3 million.
●We recorded depreciation and amortization of $0.5 million and share-based compensation expense of $0.7 million.
●
Accounts receivable increased $2.4 million, or 70%, primarily due to increased sales volume during the second quarter of 2021.
●
Inventories decreased $2.6 million, or 23%, due to the utilization of inventory on hand to fulfill sales.
●
Accounts payable increased $1.0 million, or 60%, due primarily to the timing of payments during the second quarter of 2021.
●
Accrued liabilities and other liabilities decreased $0.9 million, or 11%, due primarily to the payment of 2020 annual bonuses in March 2021.

During the first six months of 2020:
●We reported a net loss of $3.7$2.8 million.
●
We recorded depreciation and amortization of $0.8$0.5 million, and share-based compensation expense of $0.6 million.$0.4 million.
●
Accounts receivable decreased $1.4$3.1 million, or 22%48%, due primarily due to lower sales volume during the thirdsecond quarter of 2020.
●Inventories decreased by less than 1% due primarily to the utilization of inventory on hand to fulfill sales and delaying inventory purchases to the second half of 2020.
●Inventories increased $0.4
Accounts payable decreased $1.7 million, or 4%56%, primarily due to the buildup of inventory from non-cancellable purchase orders that were placed before the onset of the COVID-19 pandemic.
●
Accounts payable decreased $0.7 million, or 23%, primarilydue to inventory purchases made towards the end of the fourth quarter of 2019 that were subsequently paid in the first quarter of 2020.
●Accrued liabilities and other liabilities decreased $0.5 million, or 7%, primarily due to decreased deferred revenue.

During the first nine months of 2019:
●We reported net income of $1.3 million.
●
We recorded depreciation and amortization of $0.7 million, and share-based compensation expense of $0.6 million.
●
Accounts receivable increased $0.4 million, or 5%, primarily due to sales for the third quarter 2019 occurring late in the quarter.
●Inventories decreased by less than 1% duedelaying inventory purchases to the utilizationsecond half of inventory on hand2020 to fulfill sales.
●
Other current and long term assets increased $0.6 million, or 81% primarily due to an advanced payment of royalty fees to a technology partner for software solutions used inimprove our food service technology market.liquidity.
●Accounts payable decreased $0.9 million, or 24%, primarily due to the utilization of inventory on hand to fulfill sales, which in turn resulted in a lower level of inventory purchases during the third quarter of 2019.
●
Accrued liabilities and other liabilities decreased $0.1$0.7 million, or 3%10%, due primarily to the payment of 2019 annual bonuses in March 2020.

Investing activities:  Our capital expenditures including capitalized software costs, were $0.6 million and $1.1$0.2 million for the first ninesix months of 2020 and 2019, respectively.  Expenditures2021 compared to $0.5 million for the first ninesix months of 2020.  Expenditures in 2021 were primarily for computer and networking equipment and new product tooling equipment.  Expenditures in 2020 were primarily for new product tooling equipment, leasehold improvements at our Las Vegas facility and computer and networking equipment.  ExpendituresInvesting activities also provided $1.6 million for the first ninesix months of 2019 were primarily for new product tooling equipment and, to a lesser extent, computer and networking equipment.  Additionally,2021 upon the collection of the remaining $1.6 million note receivable balance from an unaffiliated third-party during the first quarter of 2021, compared to $0.6 million of cash used in investing activities during the first six months of 2020, prior to widespread shutdowns in the United States in responsefor a loan to the COVID-19 pandemic, we loaned an additional $0.6 million to ansame unaffiliated third party.third-party.

Capital expenditures and additions to capitalized software for 2020 were2021 are expected to be approximately $1.1$1.2 million, primarily for new product tooling, new computer software and equipment purchasescomputer and leasehold improvementsnetworking equipment to support our food service technology market.  In responsemarket and to the COVID-19 pandemic, we have curtailed portions of our planned capital expenditures until market conditions improve.
a lesser extent, new product tooling.

Financing activities:  Financing activities provided $2.2$0.1 million of cash for the first ninesix months of 2021 from proceeds from stock option exercises of $0.3 million, partially offset by $0.1 million for the payment of withholding taxes on stock issued from our stock compensation plans and $31 thousand on the final payment of financing costs associated with our Siena Credit Facility.  During the first six months of 2020, financing activities provided $2.3 million of cash primarily from the $2.2 million in funds received from 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.  DuringAdditionally, during the first ninesix 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 $2.2 million of cash from financing activities to pay dividends of $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 entered into the Siena Credit Facility with Siena Lending Group LLC and terminated our credit facility with TD Bank N.A..N.A.  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 were $245 thousand.  We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility.  Borrowings under the 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$5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory.
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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 monththree-month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant, which required the Company to maintain a minimum EBITDA.EBITDA and continued through the 12-month period from April 1, 2020 to March 31, 2021.  On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility.  The Credit Facility Amendment changed the financial covenant under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $750,000 under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021.  As of SeptemberJune 30, 2020,2021, we had no outstanding borrowings under the Siena Credit Facility and were in compliance with our financial covenant.  The following table demonstrates our compliance with$4.7 million of available borrowing capacity under 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)

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

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 maywould be forgiven to the extent that funds from the PPP Loan arewere 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 payments under lease agreements in effect before February 15, 2020, utilitiesutilized 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 60% (as(under the PPP terms, as amended) of the proceeds of the PPP Loan must beneeded to have been used for eligible payroll costs for the PPP Loan to be forgivable.forgiven.   The Company has maximizedsubmitted its PPP loan forgiveness application in May 2021 to the use ofSBA through Berkshire Bank and submitted the related loan necessity questionnaire in June 2021.  On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its 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, 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 approvalloan (including all interest accrued thereon) had been fully forgiven by the SBA and may also be subjectthat the forgiveness payment date was July 1, 2021. 

The PPP Loan, which was evidenced by a Note dated the Loan Date issued by the Company (the “Note”) in favor of Berkshire Bank as a lender, was scheduled to further requirements in any regulationsmature on May 1, 2022 and guidelineshad a fixed interest rate of 1.0% per annum, accruing from the Loan Date and payable monthly. No payments were due on the PPP Loan for six months from the date of first disbursement, and because a loan forgiveness application was submitted to the SBA may adopt.within 10 months after the end of the covered period, no payments were due until the date on which the SBA remitted the loan forgiveness amount to the PPP Lender, and interest that accrued during the deferment period was included in the forgiveness amount.  The Note was unsecured and guaranteed by the SBA.  The PPP Loan is classified as “Long-term debt” in the Condensed Consolidated Balance Sheet untilSheet.  The forgiveness of the forgiveness determination has been made byPPP loan will be recognized under “Interest and other expense” section in the SBA.Condensed Consolidated Statement of Operations during the quarter ending September 30, 2021.

Shareholder Dividend Payments
In 2012, our Board of Directors initiated a quarterly cash dividend program whichthat was subject to the Board’s approval each quarter.  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 theour 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 Stock Repurchase 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 nine months ended September 30, 2020 and 2019, we did not repurchase any shares of our common stock.  As of September 30, 2020, we did not have an authorized stock repurchase program.

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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 areis 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.above. 

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,and borrowings available under our Siena Credit Facility 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 is unknown.  As a result, we are currently evaluatingcontinue to evaluate 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 Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” of our 2019 Form 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 SeptemberJune 30, 2020,2021, 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
TransAct is a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, and is not required to provide information under this item.

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 2019 Form 10-K.  There has been no material change in our exposure to market risk during the nine months ended September 30, 2020.
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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 SeptemberJune 30, 2020.2021.  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 two material weaknesses in our internal control over financial reporting as described below.reporting.  As of SeptemberJune 30, 2020, we have fully remediated one of the material weaknesses, while2021, one material weakness was not fully remediated;remediated and as a result, our disclosure controls and procedures were not effective as of SeptemberJune 30, 2020.2021.  Management is undertaking effortshas completed the implementation of new controls to remediate the remaining material weakness whichbut is required to allow sufficient time to pass to validate that the implemented controls are operating effectively.  The details of our remediation efforts are described below.

Notwithstanding the material weakness, our management, including our CEO and CFO, has concluded that our Consolidated Financial Statementsconsolidated financial statements included in our 2019Annual Report on Form 10-K for the year ended December 31, 2020 and the Condensed Consolidated Financial Statementscondensed consolidated financial statements included in this Report arefor the six months ended June 30, 2021, fairly statedpresent, in all material respects, in accordance with GAAPour financial condition, results of operations and cash flows for each of the periods presented in conformity with generally accepted accounting principles, and that they can still be relied upon.
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Material WeaknessesWeakness in Internal Control Over Financial Reporting

We identified the followinga control deficiency that constituted a material weakness in our internal control over financial reporting as of December 31, 2019 and 2018 which has been fully remediated as of SeptemberJune 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 were not designed to ensure that users maintain proper segregation of duties and, 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, 20202021 and December 31, 20192020 and 2018.

We2019.  The material weakness was that 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”).

TheseThe control deficienciesdeficiency constituted a material weaknesses,weakness, but did not result in a material misstatement toof our annual or interim consolidated financial statements.  However, if the remaining material 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 Efforts to Address Material Weaknesses

Weakness
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 takingreporting.  As of June 30, 2021, we have taken the following steps to remediate the identified control deficienciesdeficiency and material weaknesses:weakness:

To address the AccessSpreadsheet Control Weakness, for each key spreadsheet, we evaluated and determined (1) if a standard Oracle report exists containing the same information as the spreadsheet, and if so, we utilized the servicesstandard Oracle report (without modification) instead of the spreadsheet to support our accounting records and (2) if a standard Oracle report cannot be used, we implemented a new key control whereby an employee performs a formal validation that the information from Oracle consulting firmis completely and anaccurately transferred (automatically or manually) to a spreadsheet by verifying totals and other information on a test basis.  For all key spreadsheets, we have designed and implemented a new key control to validate the completeness and accuracy of information supporting our accounting firm unrelated to our Independent Registered Accounting Firm, to assist us in analyzingrecords.  During 2020 and reviewing Oracle access for all users.  During the first quarter of 2020,2021, we completed the analysisevaluation process for each key spreadsheet based on the above criteria, and deployed an action plan.  Based on this analysis and action plan, during the second quarter of 2020,2021, we created new Oracle responsibilities for each employee for which a conflict was identified to remove Oracle transactional responsibilities that we believed to be conflicting and reassigned those responsibilities to a different employee to ensure proper segregation of duties.  We completed the implementation of new key controls for all of our key spreadsheets to validate the completeness and accuracy of the information contained within and supporting each such spreadsheet.  We expect to complete the remediation of the Spreadsheet Control Weakness by the end of 2021, as the new Oracle responsibilitiescontrols are evaluated for all users in July 2020.  Duringeffectiveness during the third quarterremainder of 2020, we completed the enhancement and implementation provisioning and user certification controls to ensure we maintain the appropriate segregation of duties within Oracle.  The Access Control Weakness was deemed to be remediated as of September 30, 2020.
2021.

•
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 weakness described above.

Changes in Internal Control Over Financial Reporting

Other than the changes intended to remediate the material weakness noted above, no changechanges 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 three monthsfiscal quarter ended SeptemberJune 30, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 SeptemberJune 30, 2020,2021, we are unaware of any material pending legal proceedings, pending or threatened, against the Company that management believes are likely to have aof any material adverse effect on our business, financial condition or results of operations.legal proceedings contemplated by government authorities.

Item 1A.RISK FACTORS

AsInformation regarding risk factors appears under Part I, Item 1A, “Risk Factors,” of September 30, 2020, there hasour Annual Report on Form 10-K for the year ended December 31, 2020.  There have been no material change inchanges from the risk factors previously disclosed under Part I, Item 1A of the 2019in that Annual Report on Form 10-K. The risks factors described in our Annual Report on Form 10-K as supplemented byare not the risk factors included in Part II, Item 1A ofonly risks facing our 1Q 2020 Form 10-QCompany.  Additional risks and uncertainties, not currently known to us or that we currently deem to be immaterial, also may materially adversely affect our 2Q 2020 Form 10-Q.business, financial condition or future results.

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

10.1
Underwriting Agreement between TransAct Technologies Incorporated and Roth Capital Partners, LLC, as representative, dated October 14, 2020 (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on form 8-K (SEC File No. 000-21121) filed with the SEC on October 16, 2020).
31.1 *
 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *
 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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 (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.


33
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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: November 9, 2020August 11, 2021     Steven A. DeMartino
      President, Chief Financial Officer, Treasurer and Secretary
      (Principal Financial Officer)
  
  
 By: /s/ David B. Peters
Dated: November 9, 2020August 11, 2021     David B. Peters
      Vice President and Chief Accounting Officer
      (Principal Accounting Officer)

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