0001017303-21-000081.txt : 20211112 0001017303-21-000081.hdr.sgml : 20211112 20211112125017 ACCESSION NUMBER: 0001017303-21-000081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 52 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211112 DATE AS OF CHANGE: 20211112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSACT TECHNOLOGIES INC CENTRAL INDEX KEY: 0001017303 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 061456680 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21121 FILM NUMBER: 211402066 BUSINESS ADDRESS: STREET 1: ONE HAMDEN CENTER STREET 2: 2319 WHITNEY AVENUE, SUITE 3B CITY: HAMDEN STATE: CT ZIP: 06518 BUSINESS PHONE: 203-859-6800 MAIL ADDRESS: STREET 1: ONE HAMDEN CENTER STREET 2: 2319 WHITNEY AVENUE, SUITE 3B CITY: HAMDEN STATE: CT ZIP: 06518 10-Q 1 form10q.htm FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2021
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: September 30, 2021
or

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

For the transition period from _______________ to _______________.

Commission file number: 0-21121

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 (§232.405 of this chapter) 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 filer ☐
Non-accelerated filer ☒
Smaller reporting company  ☒
 
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial 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 October 31, 2021, the number of shares outstanding of the Company’s common stock, $0.01 par value, was 9,835,379.



TRANSACT TECHNOLOGIES INCORPORATED

INDEX

PART I - Financial Information:
Page
     
Item 1
Financial Statements (unaudited)
  
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
Item 2
14
     
Item 3
28
     
Item 4
29
   
PART II - Other Information:
  
     
Item 1
30
     
Item 1A
30
     
Item 2
30
     
Item 3
30
     
Item 4
30
     
Item 5
30
     
Item 6
30
   
31

2
PART I - FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

  
September 30, 2021
    
December 31, 2020
  
Assets:
  
(In thousands, except share data)
  
Current assets:
            
Cash and cash equivalents
  
$
18,658
    
$
10,359
  
Accounts receivable, net
    
6,501
      
3,377
  
Note receivable
    
–
      
100
  
Inventories
    
6,369
      
11,286
  
Prepaid income taxes
    
2,519
      
2,409
  
Other current assets
    
1,182
      
644
  
Total current assets
    
35,229
      
28,175
  
                 
Fixed assets, net of accumulated depreciation of $20,421 and $19,979, respectively
    
2,332
      
1,950
  
Note receivable, net of current portion
    
–
      
1,584
  
Right-of-use asset
    
2,750
      
3,618
  
Goodwill
    
2,621
      
2,621
  
Deferred tax assets
    
4,506
      
2,939
  
Intangible assets, net of accumulated amortization of $4,152 and $4,005, respectively
    
435
      
583
  
Other assets
    
476
      
777
  
     
13,120
      
14,072
  
Total assets
  
$
48,349
    
$
42,247
  
                 
Liabilities and Shareholders’ Equity:
                
Current liabilities:
                
Accounts payable
  
$
1,676
    
$
1,691
  
Accrued liabilities
    
3,511
      
3,665
  
Lease liability
    
816
      
837
  
Deferred revenue
    
768
      
504
  
Total current liabilities
    
6,771
      
6,697
  
                 
Long-term debt
    
–
      
2,173
  
Deferred revenue, net of current portion
    
207
      
111
  
Lease liability, net of current portion
    
1,956
      
2,864
  
Other liabilities
    
135
      
166
  
     
2,298
      
5,314
  
Total liabilities
    
9,069
      
12,011
  
                 
Shareholders’ equity:
                
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,880,221 and 12,976,227 shares issued, respectively; 9,835,379 and 8,931,385 shares outstanding, respectively
    
139
      
130
  
Additional paid-in capital
    
54,873
      
42,536
  
Retained earnings
    
16,308
      
19,718
  
Accumulated other comprehensive income (loss), net of tax
    
70
      
(38
)
Treasury stock, at cost, 4,044,842 shares
    
(32,110
)
    
(32,110
)
Total shareholders’ equity
    
39,280
      
30,236
  
Total liabilities and shareholders’ equity
  
$
48,349
    
$
42,247
  

See notes to Condensed Consolidated Financial Statements.

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

   
Three Months Ended
    
Nine Months Ended
  
 
September 30,
    
September 30,
  
   
2021
    
2020
    
2021
    
2020
  
   
(In thousands, except per share data)
  
                         
Net sales
  
$
10,637
    
$
7,300
    
$
28,263
    
$
22,832
  
Cost of sales
    
6,320
      
3,951
      
17,432
      
12,275
  
Gross profit
    
4,317
      
3,349
      
10,831
      
10,557
  
                                 
Operating expenses:
                                
Engineering, design and product development
    
1,876
      
1,445
      
5,483
      
4,197
  
Selling and marketing
    
1,899
      
1,258
      
5,109
      
4,885
  
General and administrative
    
2,146
      
2,125
      
7,264
      
6,987
  
     
5,921
      
4,828
      
17,856
      
16,069
  
                                 
Operating loss
    
(1,604
)
    
(1,479
)
    
(7,025
)
    
(5,512
)
Interest and other income (expense):
                                
Interest, net
    
(29
)
    
(19
)
    
(71
)
    
(41
)
Other, net
    
(69
)
    
116
      
(169
)
    
(60
)
Gain on forgiveness of long-term debt
    
2,173
      
–
      
2,173
      
–
  
     
2,075
      
97
      
1,933
      
(101
)
                                 
Income (loss) before income taxes
    
471
      
(1,382
)
    
(5,092
)
    
(5,613
)
Income tax benefit
    
439
      
515
      
1,682
      
1,901
  
Net income (loss)
  
$
910
    
$
(867
)
  
$
(3,410
)
  
$
(3,712
)
                                 
Net income (loss) per common share:
                                
Basic
  
$
0.10
    
$
(0.11
)
  
$
(0.37
)
  
$
(0.49
)
Diluted
  
$
0.09
    
$
(0.11
)
  
$
(0.37
)
  
$
(0.49
)
                                 
Shares used in per-share calculation:
                                
Basic
    
9,408
      
7,548
      
9,112
      
7,533
  
Diluted
    
9,846
      
7,548
      
9,112
      
7,533
  

See notes to Condensed Consolidated Financial Statements.

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

   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2021
    
2020
    
2021
    
2020
  
   
(In thousands)
  
                         
Net income (loss)
  
$
910
    
$
(867
)
  
$
(3,410
)
  
$
(3,712
)
Foreign currency translation adjustment, net of tax
    
23
      
(84
)
    
108
      
(3
)
Comprehensive income (loss)
  
$
933
    
$
(951
)
  
$
(3,302
)
  
$
(3,715
)

See notes to Condensed Consolidated Financial Statements.

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

 
Nine Months Ended
  
 
September 30,
  
   
2021
    
2020
  
   
(In thousands)
  
Cash flows from operating activities:
            
Net loss
  
$
(3,410
)
  
$
(3,712
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Share-based compensation expense
    
952
      
644
  
Depreciation and amortization
    
721
      
758
  
Deferred income taxes
    
(1,573
)
    
(2,008
)
Gain on the sale of fixed assets
    
(8
)
    
–
  
Foreign currency transaction losses
    
175
      
59
  
Gain on the forgiveness of long-term debt
    
(2,173
)
    
–
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
(3,124
)
    
1,429
  
Inventories
    
4,922
      
(446
)
Prepaid income taxes
    
(110
)
    
87
  
Other current and long-term assets
    
(213
)
    
150
  
Accounts payable
    
(241
)
    
(685
)
Accrued liabilities and other liabilities
    
143
      
(508
)
Net cash used in operating activities
    
(3,939
)
    
(4,232
)
                 
Cash flows from investing activities:
                
Capital expenditures
    
(804
)
    
(634
)
Proceeds from the sale of fixed assets
    
8
      
–
  
Collection (issuance) of note receivable
    
1,598
      
(600
)
Net cash provided by (used in) investing activities
    
802
      
(1,234
)
                 
Cash flows from financing activities:
                
Revolving credit line borrowings
    
–
      
2,756
  
Revolving credit line payments
    
–
      
(2,756
)
Long-term debt borrowings
    
–
      
2,173
  
Proceeds from the issuance of common stock
    
12,214
      
–
  
Payment of common stock issuance costs
    
(867
)
    
(71
)
Proceeds from stock option exercises
    
284
      
353
  
Withholding taxes paid on stock issuances
    
(100
)
    
(41
)
Payment of bank financing costs
    
(31
)
    
(213
)
Net cash provided by financing activities
    
11,500
      
2,201
  
                 
Effect of exchange rate changes on cash and cash equivalents
    
(64
)
    
9
  
                 
Increase (decrease) in cash and cash equivalents
    
8,299
      
(3,256
)
Cash and cash equivalents, beginning of period
    
10,359
      
4,203
  
Cash and cash equivalents, end of period
  
$
18,658
    
$
947
  
                 
Supplemental schedule of non-cash investing activities:
                
Capital expenditures included in accounts payable
  
$
115
    
$
15
  

See notes to Condensed Consolidated Financial Statements.

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

   
Three Months Ended
    
Nine Months Ended
  
 
September 30,
    
September 30,
  
   
2021
    
2020
    
2021
    
2020
  
   
(In thousands)
  
                         
Equity beginning balance
  
$
26,873
    
$
23,888
    
$
30,236
    
$
25,926
  
                                 
Common stock
                                
Balance, beginning of period
    
130
      
116
      
130
      
115
  
Issuance of common stock
    
9
      
–
      
9
      
–
  
Issuance of shares from stock awards
    
–
      
–
      
–
      
1
  
Balance, end of period
    
139
      
116
      
139
      
116
  
                                 
Additional paid-in capital
                                
Balance, beginning of period
    
43,408
      
33,329
      
42,536
      
32,604
  
Issuance of common stock, net of issuance cost
    
11,201
      
–
      
11,201
      
–
  
Share-based compensation expense
    
257
      
231
      
952
      
644
  
Issuance of shares from exercise of stock options
    
7
      
–
      
284
      
353
  
Relinquishment of stock awards and restricted stock units to pay for withholding taxes
    
–
      
–
      
(100
)
    
(41
)
Balance, end of period
    
54,873
      
33,560
      
54,873
      
33,560
  
                                 
Retained earnings
                                
Balance, beginning of period
    
15,398
      
22,503
      
19,718
      
25,348
  
Net income (loss)
    
910
      
(867
)
    
(3,410
)
    
(3,712
)
Balance, end of period
    
16,308
      
21,636
      
16,308
      
21,636
  
                                 
Treasury stock
                                
Balance, beginning and end of period
    
(32,110
)
    
(32,110
)
    
(32,110
)
    
(32,110
)
                                 
Accumulated other comprehensive income (loss), net of tax
                                
Balance, beginning of period
    
47
      
50
      
(38
)
    
(31
)
Foreign currency translation adjustment, net of tax
    
23
      
(84
)
    
108
      
(3
)
Balance, end of period
    
70
      
(34
)
    
70
      
(34
)
                                 
Equity ending balance
    
39,280
      
23,168
      
39,280
      
23,168
  
                                 
Supplemental share information
                                
Issuance of common stock
    
842
      
–
      
842
      
–
  
Issuance of shares from stock awards
    
3
      
2
      
94
      
93
  
Relinquishment of stock awards to pay withholding taxes
    
–
      
–
      
32
      
14
  

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, 2020 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 in our Annual Report on Form 10-K for the year ended December 31, 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-period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income (loss), net of tax” in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity.  Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.

Impact of the COVID-19 Pandemic
In 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, negatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our two 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 nine months 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.

Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions implemented during 2020, we took the following actions to increase liquidity and strengthen our financial position:
●
Public Offerings – On October 16, 2020 and August 16, 2021, the Company raised net proceeds of $8.7 million and $11.3 million (including the exercise of the underwriters overallotment option on August 20, 2021), respectively, after deducting underwriting discounts, commissions and offering expenses, through underwritten public offerings and sold an aggregate of 1,380,000 and 842,375 shares of common stock, respectively.
●
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 and gradually increased expenses during 2021 as our sale improved.

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 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 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 expenditures and other operating costs.  Our current assumptions are that casinos and restaurants remain open and continue to gradually increase capacity limitations during 2021, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, as their businesses gradually return to pre-pandemic levels of capacity and operations.  Based on these assumptions, we anticipate that sales in casino and gaming and food service technology will continue to be negatively impacted 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 positioned to withstand the impact of lower-than-anticipated sales and that we will be able to take additional financial and operational actions to cut costs and/or increase liquidity, if necessary.  These actions may include additional expense reductions and capital raising 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.  Actual results could differ from those estimates used.

2. Revenue

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

Disaggregation of revenue

The following tables disaggregate 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.

   
Three Months Ended
  
 
September 30,
  
   
2021
    
2020
  
   
(In thousands)
  
   
United States
    
International
    
Total
    
United States
    
International
    
Total
  
Food service technology
  
$
3,065
    
$
217
    
$
3,282
    
$
2,081
    
$
268
    
$
2,349
  
POS automation
    
1,188
      
–
      
1,188
      
739
      
3
      
742
  
Casino and gaming
    
2,656
      
1,380
      
4,036
      
1,552
      
457
      
2,009
  
Printrex
    
–
      
160
      
160
      
5
      
102
      
107
  
TransAct Services Group
    
1,856
      
115
      
1,971
      
1,910
      
183
      
2,093
  
Total net sales
  
$
8,765
    
$
1,872
    
$
10,637
    
$
6,287
    
$
1,013
    
$
7,300
  

   
Nine Months Ended
  
 
September 30,
  
   
2021
    
2020
  
   
(In thousands)
  
   
United States
    
International
    
Total
    
United States
    
International
    
Total
  
Food service technology
  
$
8,616
    
$
487
    
$
9,103
    
$
4,376
    
$
548
    
$
4,924
  
POS automation
    
3,600
      
8
      
3,608
      
2,774
      
7
      
2,781
  
Casino and gaming
    
7,058
      
3,310
      
10,368
      
5,080
      
3,220
      
8,300
  
Lottery
    
–
      
–
      
–
      
817
      
–
      
817
  
Printrex
    
52
      
379
      
431
      
72
      
160
      
232
  
TransAct Services Group
    
4,388
      
365
      
4,753
      
5,184
      
594
      
5,778
  
Total net sales
  
$
23,714
    
$
4,549
    
$
28,263
    
$
18,303
    
$
4,529
    
$
22,832
  

9
Contract balances

Contract 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® maintenance contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract.  For the nine months ended September 30, 2021, we recognized revenue of $0.6 million related to our contract liabilities at December 31, 2020. Total net contract (liabilities) assets consisted of the following:

 
September 30, 2021
    
December 31, 2020
  
   
(In thousands)
  
Unbilled receivables, current
  
$
306
    
$
290
  
Unbilled receivables, non-current
    
376
      
591
  
Customer pre-payments
    
(49
)
    
(216
)
Deferred revenue, current
    
(768
)
    
(504
)
Deferred revenue, non-current
    
(207
)
    
(111
)
Total net contract (liabilities) assets
  
$
(342
)
  
$
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 September 30, 2021, the aggregate amount of transaction prices allocated to remaining performance obligations was $4.6 million.  The Company expects to recognize revenue on $4.1 million of its remaining performance obligations within the next 12 months following September 30, 2021, $0.4 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months.

3. Note receivable

The note receivable balance relates to loans given to a third-party software developer from whom we license our food service technology software with an interest rate of 4.5%, which were originally due in April 2020.  In March 2021, we received payment in the amount of $1.6 million representing the remaining principal balance and interest due from the third party.  Prior to the payment being received, notes receivable were stated at unpaid principal balances and interest income was recognized on the accrual method.  Interest income for the three months ended September 30, 2020 was $18 thousand.  There was no interest income for the three months ended September 30, 2021.  For the nine months ended September 30, 2021 and 2020, we recorded $17 thousand and $49 thousand of interest income, respectively.

4. Inventories

The components of inventories were:

 
September 30, 2021
    
December 31, 2020
  
   
(In thousands)
  
             
Raw materials and purchased component parts
  
$
4,213
    
$
5,467
  
Finished goods
    
2,156
      
5,819
  
   
$
6,369
    
$
11,286
  

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 nine months ended September 30, 2021 and 2020:

 
Nine Months Ended
  
 
September 30,
  
   
2021
    
2020
  
   
(In thousands)
  
             
Balance, beginning of period
  
$
140
    
$
215
  
Warranties issued
    
39
      
53
  
Warranty settlements
    
(70
)
    
(107
)
Balance, end of period
  
$
109
    
$
161
  

As of September 30, 2021, $88 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $21 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 current assets” in current assets and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.  We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility.  Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes a 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 thousand under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021.  During the third quarter of 2021, we have been in compliance with our excess availability covenant, and as of September 30, 2021, we had no outstanding borrowings under the Siena Credit Facility and $4.2 million of borrowing capacity available under the Siena Credit Facility.

On May 1, 2020 (the “Loan Date”), the Company was granted the PPP Loan from Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP.  Under the terms of the PPP, the PPP Loan would be forgiven to the extent that funds from the PPP Loan were 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, subject to conditions and limitations provided in the CARES Act.  At least 60% (under the PPP terms, as amended) of the proceeds from the PPP Loan needed to have been used for eligible payroll costs for the PPP Loan to be forgiven.

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 mature on May 1, 2022 and had a fixed interest rate of 1.0% per annum, accruing from the Loan Date and payable monthly.  The Company submitted its PPP Loan forgiveness application in May 2021 to the SBA 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 (including all interest accrued thereon) of $2.2 million had been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021.  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 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 forgiveness of the PPP Loan was reported as “Gain on forgiveness on long-term debt” in the Condensed Consolidated Statement of Operations during the quarter ending September 30, 2021.

11
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
    
Nine Months Ended
  
 
September 30,
    
September 30,
  
   
2021
    
2020
    
2021
    
2020
  
   
(In thousands, except per share data)
  
Net income (loss)
  
$
910
    
$
(867
)
  
$
(3,410
)
  
$
(3,712
)
                                 
Shares:
                                
Basic:  Weighted average common shares outstanding
    
9,408
      
7,548
      
9,112
      
7,533
  
Add:  Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method
    
438
      
–
      
–
      
–
  
Diluted:  Weighted average common and common equivalent shares outstanding
    
9,846
      
7,548
      
9,112
      
7,533
  
                                 
Net income (loss) per common share:
                                
Basic
  
$
0.10
    
$
(0.11
)
  
$
(0.37
)
  
$
(0.49
)
Diluted
  
$
0.09
    
$
(0.11
)
  
$
(0.37
)
  
$
(0.49
)

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive.  For the three months ended September 30, 2021 and 2020, there were 0.3 million and 1.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.  For the nine months ended September 30, 2021 and 2020, there were 0.4 million and 1.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.  Regarding the three months ended September, 31, 2020 and the nine months ended September 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

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 equipment under operating leases and we have no financing leases. Our leases are included in “Right-of-use-assets” and “Lease liabilities” in our Condensed Consolidated Balance Sheet.  Our leases have remaining lease terms of one year to five years, some of which include options to extend. Our leases with options to extend provide for extensions of two to five years with the ability to terminate the lease within one year.  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 provided 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 September 30, 2021 and 2020 was $235 thousand and $243 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations.  Operating lease expense for the nine months ended September 30, 2021 and 2020 was $717 thousand and $735 thousand, respectively.  Operating lease expenses include short-term lease costs, which were immaterial during the periods presented.

12
The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):

 
Nine Months Ended
  
 
September 30,
  
   
2021
    
2020
  
Operating cash outflows from leases
  
$
750
    
$
779
  

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

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

The maturity of the Company’s operating lease liabilities as of September 30, 2021 and December 31, 2020 were as follows (in thousands):

 
September 30, 2021
    
December 31, 2020
  
2021
  
$
232
    
$
971
  
2022
    
886
      
879
  
2023
    
720
      
713
  
2024
    
721
      
718
  
2025
    
426
      
464
  
Thereafter
    
23
      
180
  
Total undiscounted lease payments
    
3,008
      
3,925
  
Less imputed interest
    
236
      
224
  
Total lease liabilities
  
$
2,772
    
$
3,701
  

10. Income taxes

We recorded an income tax benefit for the third quarter of 2021 of $439 thousand at an effective tax rate of -93.2%, compared to an income tax benefit for the third quarter of 2020 of $515 thousand at an effective tax rate of 37.3%.  For the nine months ended September 30, 2021,  we recorded an income tax benefit of $1.7 million at an effective tax rate of 33.0%, compared to an income tax benefit for the nine months ended September 30, 2020 of $1.9 million at an effective tax rate of 33.9%.  A tax benefit was recorded for the third quarter of 2021 on pre-tax income due to recognition of the gain on the forgiveness of the PPP Loan which is not taxable.  The effective tax rate for the third quarter of 2020 and first nine months of 2020 included the impact of our net operating loss (“NOL”) that we incurred during 2020 and was carried 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 generated an NOL in 2020, which we carried back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020.

We are subject to U.S. federal income tax, as well as income tax in certain U.S. states and foreign jurisdictions.  We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2017.  However, our federal tax returns for the years 2018 through 2020 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of September 30, 2021, we had $97 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.  For the third quarter of 2021, we recognized $24 thousand of previously unrecognized tax benefits as the statute of limitations on the use of our 2017 research and development credit expired during the third quarter of 2021.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.  As of September 30, 2021, we had $17 thousand of accrued interest and penalties related to uncertain tax positions.  The Company maintains a valuation allowance against certain deferred tax assets where realization is not likely.

11. Subsequent events

The Company has evaluated all events or transactions that occurred up to the date the consolidated financial statements were available to be issued.  Based upon this review, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

13
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 September 30, 2021 (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, 2020 (our “2020 Form 10-K”), 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 such risks and uncertainties may also be exacerbated by the ultimate impact of the COVID-19 pandemic and the emergence of virus variants, 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, including difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions.  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 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-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®, Ithaca®, and Printrex® brand names.  During 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 BOHA! software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production 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 activities of customers in the restaurant and hospitality, 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.
14

Impact of the COVID-19 Pandemic
Our business trends through the first two months of 2020 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 remainder of 2020 and into the first nine months of 2021.  Though we have begun to experience some recovery during the first nine months 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 experienced decreased demand for our products and lower than anticipated sales beginning in the second half of March 2020 and continuing through the first nine months of 2021, particularly in our food service technology and casino and gaming markets.  We experienced some improvement in demand during the second half of 2020 through the first nine months of 2021 compared to the second quarter of 2020, as state and local governments lifted certain measures implemented earlier in 2020 to mitigate the spread of the virus, but demand remained lower than 2019, and while we expect this improvement to continue during the remainder of 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 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 opened under restrictions that limit them to providing drive-through, take-out or delivery service without dine-in options, as well as limiting the volume of customers and employees on site at any one time.  During the second half of 2020 and first nine 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 have 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 and limited gameplay 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 and third quarter of 2021 remained open and further expanded capacity.  We anticipate that casinos will continue to increase capacity over 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 may be diminished, which we believe is likely to continue to negatively impact sales of casino and gaming printers purchased by slot manufacturers for use in slot machines at 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 2020.  Therefore, COVID-19 has not had an impact our lottery printer sales.

Printrex.  The oil and gas market was negatively impacted by the decline in worldwide oil prices attributable to the COVID-19 pandemic during 2020.  During the first nine months 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.  We plan to exit the Printrex market at the end of 2021 and expect to have no future sales in this market beyond 2021.

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

Our gross margin has been negatively impacted and we expect our gross margin to continue to be negatively impacted while the COVID-19 pandemic and its economic effects on the markets we serve persists.  As a result of an expected significantly lower sales level as well as increased material and shipping costs resulting from worldwide supply disruptions caused by the COVID-19 pandemic, we believe our gross margin will remain 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.

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, our inventory levels have decreased significantly during 2021 due to these supply chain disruptions and 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 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 potential future resurgences of the virus, vaccination rates, the emergence of virus variants 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 nine months of 2021.

In addition to the expense management actions implemented during 2020, we took the following actions to increase liquidity and strengthen our financial position:

•
Public Offerings – On October 16, 2020 and August 16, 2021, the Company raised net proceeds of $8.7 million and $11.3 million (including the exercise of the underwriters’ overallotment option on August 20, 2021), respectively, after deducting underwriting discounts, commissions and offering expenses, through underwritten public offerings and sold an aggregate of 1,380,000 and 842,375 shares of common stock, respectively.
•
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 entered into a new credit facility with Siena Lending Group LLC (the “Siena Credit Facility”) that provides a revolving credit line of up to $10 million, subject to a borrowing base.
•
Reduced Capital Expenditures - We limited capital expenditures during 2020 and gradually increased expenses during 2021 as our sales improved.

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 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 internal control structure remained operational and unchanged.

As of October 4, 2021 all of our employees were fully vaccinated against COVID-19 and, as a result, we implemented a return-to-work plan, reopening all of our facilities and ending our work-from-home practices.  Our distribution centers, deemed an essential service, remained operational throughout the pandemic.  During 2020, we implemented new COVID-19 policies, most of which were still in place during the first nine months of 2021, to specifically address health and safety guidelines for employees to adhere to and follow when at work.  These policies are based on the COVID-19 safety guidelines recommended by the Centers for Disease Control and Prevention and implement 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;
•
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 10 days;
•
prior to October 4, 2021, visitors were prohibited from entering all facilities; and
•
cleaning and disinfecting protocols at all facilities.
16

We have evaluated the recoverability of the assets on our unaudited condensed consolidated balance sheet as of September 30, 2021 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 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 Part I, Item 1A, Risk Factors, of Form 10-K for the year ended December 31, 2020 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.  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.

Results of Operations: Three months ended September 30, 2021 compared to the three months ended September 30, 2020

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 September 30, 2021 and 2020 were as follows:

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Food service technology (“FST”)
  
$
3,282
      
30.9
%
  
$
2,349
      
32.2
%
  
$
933
      
39.7
%
POS automation
    
1,188
      
11.2
%
    
742
      
10.2
%
    
446
      
60.1
%
Casino and gaming
    
4,036
      
37.9
%
    
2,009
      
27.5
%
    
2,027
      
100.9
%
Printrex
    
160
      
1.5
%
    
107
      
1.4
%
    
53
      
49.5
%
TSG
    
1,971
      
18.5
%
    
2,093
      
28.7
%
    
(122
)
    
(5.8
%)
   
$
10,637
      
100.0
%
  
$
7,300
      
100.0
%
  
$
3,337
      
45.7
%
                                                 
International *
  
$
1,872
      
17.6
%
  
$
1,013
      
13.9
%
  
$
859
      
84.8
%

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

17
Net sales for the third quarter of 2021 increased $3.3 million, or 46%, from the same period in 2020.  Printer, terminal and other hardware sales volume increased 91% year-over-year to approximately 22,000 units for the third quarter of 2021 due to volume increases in all our markets except our lottery market.  The increase was driven primarily by a 111% increase in unit volume from the casino and gaming market and, to a lesser extent, a 64% increase in the POS automation market and a 74% increase in the FST market.  The average selling price of our printers, terminals and other hardware decreased 3% for the third quarter of 2021 compared to the third quarter of 2020, primarily due to a higher level of POS automation printer sales, which sell at a lower price than our other products.  Additionally, sales of our software, labels and other recurring revenue from our FST market increased $0.4 million, or 28%, in the third quarter of 2021 compared to the third quarter of 2020.

International sales for the third quarter of 2021 increased $0.9 million, or 85%, from the same period in 2020, primarily due to a 202% 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/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 temperature monitoring of food and equipment, timers, food safety labeling, media libraries, checklists and task lists, and equipment service management.  These applications are combined into a single platform with the associated hardware, which includes the BOHA! 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-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 and 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 annually on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services.  Sales of our worldwide food service technology products for the three months ended  September 30, 2021 and 2020 were as follows:

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Domestic
  
$
3,065
      
93.4
%
  
$
2,081
      
88.6
%
  
$
984
      
47.3
%
International
    
217
      
6.6
%
    
268
      
11.4
%
    
(51
)
    
(19.0
%)
   
$
3,282
      
100.0
%
  
$
2,349
      
100.0
%
  
$
933
      
39.7
%

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Hardware
  
$
1,265
      
38.5
%
  
$
771
      
32.8
%
  
$
494
      
64.1
%
Software, labels and other recurring revenue
    
2,017
      
61.5
%
    
1,578
      
67.2
%
    
439
      
27.8
%
   
$
3,282
      
100.0
%
  
$
2,349
      
100.0
%
  
$
933
      
39.7
%

The increase in food service technology sales for the third quarter of 2021 compared to the third quarter of 2020 was driven by an increase in sales of both hardware and BOHA! software, labels and other recurring revenue.  Hardware sales increased 64% in the third quarter of 2021 compared to 2020 due largely to sales of BOHA! terminals to an existing national convenience store customer and sales of our AccuDate 9700 terminal to McDonald's.  Sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue increased by 28%, primarily due to increased label sales and software sales, compared to the prior year period due to the growth of the installed base of our BOHA! terminals and workstations.
18

POS automation. Revenue from the POS automation 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.  Sales of our worldwide POS automation products for the three months ended September 30, 2021 and 2020 were as follows:

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Domestic
  
$
1,188
      
100.0
%
  
$
739
      
99.6
%
  
$
449
      
60.8
%
International
    
–
      
0.0
%
    
3
      
0.4
%
    
(3
)
    
(100.0
%)
   
$
1,188
      
100.0
%
  
$
742
      
100.0
%
  
$
446
      
60.1
%

The increase in POS automation product revenue for the third quarter of 2021 compared to the third quarter of 2020 was driven by a 60% increase in sales of our Ithaca® 9000 printer, primarily to McDonald’s, as POS automation sales improved during the third quarter of 2021 as business began to return to pre-pandemic normalcy compared to the significant negative impact the COVID-19 pandemic had on sales during the third 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® print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine.  Sales of our worldwide casino and gaming products for the three months ended September 30, 2021 and 2020 were as follows:

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Domestic
  
$
2,656
      
65.8
%
  
$
1,552
      
77.3
%
  
$
1,104
      
71.1
%
International
    
1,380
      
34.2
%
    
457
      
22.7
%
    
923
      
202.0
%
   
$
4,036
      
100.0
%
  
$
2,009
      
100.0
%
  
$
2,027
      
100.9
%

The increase in domestic sales of our casino and gaming products for the third quarter of 2021 compared to the third quarter of 2020 was primarily due to a 75% increase in domestic sales of our thermal casino printers, as we continue to experience continued recovery compared to the third quarter of 2020 when the casino and gaming market was negatively impacted by the COVID-19 pandemic.  In addition to the year-over-year growth, the domestic casino and gaming market sales increased 9% in the third quarter of 2021 compared to the second quarter of 2021.

Similar to the domestic sales increase, international sales of our casino and gaming products increased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to a 256% increase in sales of our thermal casino printers.  Though sales in Asia remain weak, we experienced a sales recovery primarily in Europe during the third quarter of 2021 compared to the third quarter of 2020 when the international casino and gaming market was negatively impacted by the COVID-19 pandemic.  In addition to the year-over-year growth, international casino sales in the third quarter of 2021 increased 34% compared to the second quarter of 2021.

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.  Sales of our worldwide Printrex printers for the three months ended September 30, 2021 and 2020 were as follows:

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Domestic
  
$
–
      
0.0
%
  
$
5
      
4.7
%
  
$
(5
)
    
(100.0
%)
International
    
160
      
100.0
%
    
102
      
95.3
%
    
58
      
56.9
%
   
$
160
      
100.0
%
  
$
107
      
100.0
%
  
$
53
      
49.5
%

The increase in sales of Printrex printers for the third quarter of 2021 compared to the third quarter of 2020 resulted from higher international sales in the oil and gas market which was negatively impacted during the third quarter of 2020 by the decline in worldwide oil prices attributable to the COVID-19 pandemic.  Though our overall Printrex sales increased in the third quarter of 2021 and we continue to fulfill orders from existing customers, we are no longer focused on this market.  We plan to exit this market at the end of the year and expect no future Printrex sales beyond 2021.
19

TSG. Revenue generated by TSG includes sales of consumable products (POS receipt paper, inkjet cartridges, ribbons and other printing supplies for legacy products), replacement parts, maintenance and repair services, refurbished printers, and shipping and handling charges.  Sales in our worldwide TSG market for the three months ended September 30, 2021 and 2020 were as follows:

   
Three Months Ended
    
Three Months Ended
        
(In thousands, except percentages)
  
September 30, 2021
    
September 30, 2020
    
$ Change
    
% Change
  
Domestic
  
$
1,856
      
94.2
%
  
$
1,910
      
91.3
%
  
$
(54
)
    
(2.8
%)
International
    
115
      
5.8