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Item 9A. Controls and Procedures

2021-03-12 compared with 2020-03-16 · 481 added, 685 removed, 474 unchanged (71% of the section changed)

1 unchanged sentence

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 December 31, 2019.

In the Amendment to our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on

November 21, 2019, we disclosed that management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of December 31, 2018, due to material weaknesses in our internal control over financial reporting

as described below.

As of December 31, 2019, these material weaknesses were not fully remediated and our disclosure controls and procedures were not effective as of December 31, 2019.

Management has begun remediation efforts, which are described

Notwithstanding these material weaknesses, our management, including our CEO and CFO, has concluded that our consolidated financial

statements, included in this Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles, and that they can

still be relied upon.

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 December 31, 2020.

In the Amendment to our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on November 21, 2019, we disclosed that management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of December 31, 2018, due to material weaknesses in our internal control over financial reporting as described below.

As of December 31, 2020, one material weakness was not fully remediated and our disclosure controls and procedures were not effective as of December 31, 2020.

Management has begun remediation efforts, which are described below.

Notwithstanding these material weaknesses, our management, including our CEO and CFO, has concluded that our consolidated financial statements, included in this Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles, and that they can still be relied upon.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial

reporting, as defined in Rule 13a-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions

of the assets of the Company;

of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the

Company’s assets that could have a material effect on the financial statements.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management assessed our internal control over financial reporting as of December 31, 2020.

Our management

based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the

Treadway Commission (“2013 COSO”).

In the opinion of management, TransAct did not maintain effective internal control over financial reporting as of December 31, 2019 solely because of the material weaknesses in internal control over financial

reporting described below that existed as of December 31, 2018 and were not remediated as of December 31, 2019.

A material weakness is defined in Rule 12b-2 under the Exchange Act as a deficiency, or a combination of

deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We identified the following control deficiencies that constituted material weaknesses in our internal control

over financial reporting as of December 31, 2019 and 2018.

We did not design and maintain effective controls over user access within the Company’s ERP system,

Oracle, to ensure appropriate segregation of duties and to adequately restrict user access to appropriate personnel.

Specifically, the provisioning and user recertification controls are not designed to ensure users maintain proper

segregation of duties and therefore could have inappropriate access rights.

(the “Access Control Weakness”).

We did not design and maintain effective controls over the completeness and accuracy of information

included in key spreadsheets supporting our accounting records (the “Spreadsheet Control Weakness”).

The control deficiencies constituted material weaknesses but did not result in a material misstatement of our

annual or interim consolidated financial statements.

However, if these material weaknesses are 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.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been

audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on pages F-2 through F-3 of this Form 10-K.

Remediation Plan

During 2019, we commenced developing and implementing a plan to enhance the design and operating effectiveness

of our internal control over financial reporting, which includes taking the following steps to remediate the identified control deficiencies and material weaknesses:

To address the Access Control Weakness, we are utilizing the services of an Oracle consulting firm to

assist us in analyzing and reviewing Oracle access for all users.

During the first quarter of 2020, we completed the analysis and have developed an action plan to modify the designated Oracle responsibilities for each employee with respect

to whom a conflict was identified to remove any Oracle transactional responsibilities that we believe are conflicting and, in some instances, we will reassign those responsibilities to a different employee to ensure proper segregation of

We have begun the design and testing of the new Oracle responsibilities created.

In addition, we plan to enhance and implement provisioning and user certification controls to ensure we maintain the appropriate segregation of

duties within Oracle following the analysis.

To address the Spreadsheet Control Weakness, for each key spreadsheet using Oracle data, 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 other key spreadsheets, we plan to design and implement a new key control to validate completeness and accuracy of information

supporting our accounting records.

During the first quarter of 2020, we began the process of evaluating each key spreadsheet based on the above criteria, and for several key spreadsheets, we implemented a new key control to validate the

completeness and accuracy of the information contained within and supporting each such spreadsheet.

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

Our management based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO”).

In the opinion of management, TransAct did not maintain effective internal control over financial reporting as of December 31, 2020 solely because of the material weakness in internal control over financial reporting described below that existed as of December 31, 2018 and has not been remediated as of December 31, 2020.

A material weakness is defined in Rule 12b-2 under the Exchange Act as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material Weaknesses in Internal Control Over Financial Reporting

We identified the following 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 December 31, 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 December 31, 2020 and 2019.

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”).

These control deficiencies constituted material weaknesses, but did not result in a material misstatement to 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

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

To address the Access Control Weakness, we utilized the services of an Oracle consulting firm and an accounting firm unrelated to our Independent Registered Accounting Firm, to assist us in analyzing and reviewing Oracle access for all users.

During the first quarter of 2020, we completed the analysis and deployed an action plan.

Based on this analysis and action plan, during the second quarter of 2020, 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 the new Oracle responsibilities for all users in July 2020.

During the third quarter 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.

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 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 remaining material weakness described above.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2019

that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

Other Information.

2 unchanged sentences

Set forth in Item 1 of this Form 10-K is certain information regarding our executive officers.

The remaining information in response

to this item will be contained in our Proxy Statement for our 2020 Annual Meeting of Stockholders (the “Proxy Statement”) under the headings, “Delinquent Section 16(a) Reportings,” “Corporate Governance,” “Proposal 1:

Election of Directors,” “Audit

Committee Report,” “Executive Compensation – Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” “Stockholder Proposals for 2020 Annual Meeting,” “Procedures for Submitted Director Nominations and

Recommendations” and “Stockholder Communications with the Board of Directors Policy,” which will be filed within 120 days after the end of the year covered by this Form 10-K and is incorporated herein by reference.

The remaining information in response to this item will be contained in our Proxy Statement for our 2021 Annual Meeting of Stockholders (the “Proxy Statement”) under the headings, “Delinquent Section 16(a) Reports,” “Corporate Governance,” “Proposal 1:

Election of Directors,” “Audit Committee Report,” “Executive Compensation – Compensation Committee Report,” “Stockholder Proposals for 2022 Annual Meeting,” “Procedures for Submitted Director Nominations and Recommendations” and “Policy Regarding Stockholder Communications with the Board of Directors,” which will be filed within 120 days after the end of the year covered by this Form 10-K and is incorporated herein by reference.

Code of Ethics

We maintain a Code of Business Conduct that includes our code of ethics that is applicable to all employees, including our Chief

Executive Officer, Chief Financial Officer and Controller.

Our Code of Business Conduct, which requires continued observance of high ethical standards, such as honesty, integrity and compliance with the law in the conduct of our business, is

available for public access on our Internet website at https://transacttech.gcs-web.com/corporate-governance.

Any person may request a copy of our Code of Business Conduct free of charge by calling (203) 859-6800.

We maintain a Standards of Business Conduct and Code of Ethics that includes our code of ethics that is applicable to all employees, including our Chief Executive Officer, Chief Financial Officer and Controller.

Our Standards of Business Conduct, which requires continued observance of high ethical standards, such as honesty, integrity and compliance with the law in the conduct of our business, is available for public access on our Internet website at https://transacttech.gcs-web.com/corporate-governance.

Any person may request a copy of our Standards of Business Conduct free of charge by calling (203) 859-6800.

Executive Compensation.

The information in response to this item will be contained in the Proxy Statement under the heading “Executive Compensation,” and is

incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and

Management and Related Stockholder Matters.

The information in response to this item will be contained in the Proxy Statement under the heading “Executive Compensation,” and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Set forth below is certain information regarding our equity compensation plans.

The remaining information in response to this item

will be contained in the Proxy Statement under the heading, “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.

The remaining information in response to this item will be contained in the Proxy Statement under the heading, “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.

Equity Compensation Plan Information

3 unchanged sentences

issued upon exercise

of outstanding options,

warrants and rights

Weighted-average

exercise price of

of outstanding

options, warrants

exercise price

of outstanding

options, warrants

Number of securities

8 unchanged sentences

In May 2014, our stockholders approved the adoption of the 2014 Equity Incentive Plan.

In May 2017, our stockholders approved an

amendment to the 2014 Equity Incentive Plan to increase the number of shares of common stock which may be subject to awards granted under the plan from 600,000 to its current level of 1,400,000.

The Company also maintains the 2005 Equity Incentive

In May 2020, our stockholders approved an amendment to the 2014 Equity Incentive Plan to increase the number of common stock which may be subject to awards granted under the plan from 1,400,000 to its current level of 2,200,000.

The Company also maintains the 2005 Equity Incentive Plan;

however no new awards will be available for future issuance under this plan.

Both plans generally provide for award in the form of:

(i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock

units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights.

(i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights.

The Company does not have any equity plans that have not been approved by its stockholders.

Certain Relationships and Related Transactions, and

Director Independence.

The information in response to this item will be contained in the Proxy Statement under the headings “Certain Relationships and

Related Transactions” and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

The information in response to this item will be contained in the Proxy Statement under the headings “Certain Relationships and Related Transactions” and is incorporated herein by reference.

Principal Accountant Fees and Services.

The information in response to this item will be contained in the Proxy Statement under the headings, “Policy Regarding Pre-Approval

of Services Provided by the Independent Registered Public Accounting Firm” and “Independent Registered Public Accounting Firm’s Services and Fee’s” and is incorporated herein by reference.

The information in response to this item will be contained in the Proxy Statement under the headings, “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm” and “Independent Registered Public Accounting Firm’s Services and Fees” and is incorporated herein by reference.

Exhibits and Financial Statement Schedules.

3 unchanged sentences

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Income for the years ended December 31, 2019, 2018, and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020 and 2019

1 unchanged sentence

Notes to Consolidated Financial Statements

All schedules are omitted because they are either inapplicable or not required, or because the information required therein is included

in the Consolidated Financial Statements and Notes thereto.

All schedules are omitted because they are either inapplicable or not required, or because the information required therein is included in the Consolidated Financial Statements and Notes thereto.

Exhibits Index

Certificate of Incorporation of TransAct Technologies Incorporated (conformed copy) (incorporated by reference to Exhibit 3(i) of the Company’s

Quarterly Report on Form 10-Q (SEC File No.

Certificate of Incorporation of TransAct Technologies Incorporated (conformed copy) (incorporated by reference to Exhibit 3(i) of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on August 9, 2019).

Certificate of Designation, Series A Preferred Stock, filed with the Secretary of State of Delaware on December 2, 1997 (incorporated by reference

to Exhibit C of the Company’s Current Report on Form 8-K (SEC File No.

Certificate of Designation, Series A Preferred Stock, filed with the Secretary of State of Delaware on December 2, 1997 (incorporated by reference to Exhibit C of the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed with the SEC on February 18, 1999).

Certificate of Designation, Series B Preferred Stock, filed with the Secretary of State of Delaware on April 6, 2000 (incorporated by reference to

Exhibit 3.1(c) of the Company’s Quarterly Report on Form 10-Q (SEC File No.

Certificate of Designation, Series B Preferred Stock, filed with the Secretary of State of Delaware on April 6, 2000 (incorporated by reference to Exhibit 3.1(c) of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on May 8, 2000).

3 unchanged sentences

333-06895) filed with the SEC on August 1, 1996).

Description of Securities.

2005 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed

with the SEC on June 1, 2005).

Description of Securities (incorporated by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2020).

2005 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed

with the SEC on May 19, 2014).

Amendment to 2014 Equity Incentive Plan approved by Shareholders on May 22, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s

Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on August 9, 2017).

2014 Equity Incentive Plan Time-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report

on Form 10-Q (SEC File No.

000-21121) filed with the SEC on June 1, 2005).

TransAct Technologies Incorporated 2014 Equity Incentive Plan, as Amended and Restated (incorporated by reference to Exhibit A to the Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2020, File No.

2014 Equity Incentive Plan Time-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on May 6, 2016).

2014 Equity Incentive Plan Performance-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of the Company's Quarterly

Report on Form 10-Q (SEC File No.

2014 Equity Incentive Plan Performance-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-211121) filed with the SEC on August 8, 2016).

Employment Agreement, dated July 31, 1996, by and between TransAct and Bart C.

Shuldman (incorporated by reference to Exhibit 10.20 of the

Company’s Registration Statement on Form S-1/A (No.

Shuldman (incorporated by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1/A (No.

333-06895) filed with the SEC on August 1, 1996).

Severance Agreement by and between TransAct and Steven A.

DeMartino, dated June 1, 2004 (incorporated by reference to Exhibit 10.8 of the Company’s

Annual Report on Form 10-K (SEC File No.

DeMartino, dated June 1, 2004 (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2005).

Severance Agreement by and between TransAct and Tracey S.

Chernay, dated July 29, 2005 (incorporated by reference to Exhibit 10.9 of the Company’s

Annual Report on Form 10-K (SEC File No.

Chernay, dated July 29, 2005 (incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 14, 2008).

Amendment to Employment Agreement, effective January 1, 2008, by and between TransAct and Bart C.

Shuldman (incorporated by reference to Exhibit

10.10 of the Company’s Annual Report on Form 10-K (SEC File No.

Shuldman (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2009).

Amendment to Severance Agreement by and between TransAct and Steven A.

DeMartino, effective January 1, 2008 (incorporated by reference to Exhibit

10.12 of the Company’s Annual Report on Form 10-K (SEC File No.

DeMartino, effective January 1, 2008 (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2009).

Amendment to Severance Agreement by and between TransAct and Tracey S.

Chernay, effective January 1, 2008 (incorporated by reference to Exhibit

10.14 of the Company’s Annual Report on Form 10-K (SEC File No.

Chernay, effective January 1, 2008 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2009).

Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, 1992 (incorporated by reference to Exhibit 10.14 of the Company’s

Registration Statement on Form S-1 (No.

Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, 1992 (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1 (No.

333-06895) filed with the SEC on June 26, 1996).

4 unchanged sentences

Amendment No.

1 to Lease Agreement between Bomax Properties, LLC and TransAct (incorporated by reference to Exhibit 10.16 of the Company’s

Quarterly Report on Form 10-Q (SEC File No.

1 to Lease Agreement between Bomax Properties, LLC and TransAct (incorporated by reference to Exhibit 10.16 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on May 10, 2012).

Amendment No.

2 to Lease Agreement between Bomax Properties, LLC and TransAct, dated January 14, 2016 (incorporated by reference to Exhibit 10.13

of the Company’s Annual Report on Form 10-K (SEC File No.

2 to Lease Agreement between Bomax Properties, LLC and TransAct, dated January 14, 2016 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 11, 2016).

Amendment No.

3 to Lease Agreement between Bomax Properties, LLC and TransAct, dated February 28, 2020 (incorporated by reference to Exhibit 10.1

to the Company’s Current Report on Form 8-K (SEC File No.

3 to Lease Agreement between Bomax Properties, LLC and TransAct, dated February 28, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed with the SEC on March 4, 2020).

Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated December 2, 2004 (incorporated by reference to Exhibit 10.13 of

the Company’s Annual Report on Form 10-K (SEC File No.

Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated December 2, 2004 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2005).

First Amendment to Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated August 31, 2009 (incorporated by reference to

Exhibit 10.19 of the Company’s Annual Report on Form 10-K (SEC File No.

First Amendment to Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated August 31, 2009 (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2010).

Second Amendment to Lease Agreement by and between The Realty Associates Fund IX LP and TransAct dated June 30, 2015 (incorporated by reference to

Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

Second Amendment to Lease Agreement by and between The Realty Associates Fund IX LP and TransAct dated June 30, 2015 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on August 7, 2015).

Lease Agreement by and between 2319 Hamden Center I, L.L.C.

and TransAct dated November 27, 2006 (incorporated by reference to Exhibit 10.14 of the

Company’s Annual Report on Form 10-K (SEC File No.

and TransAct dated November 27, 2006 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 15, 2007).

First Amendment to Lease by and between 2319 Hamden Center I, L.L.C.

and TransAct dated January 3, 2017 (incorporated by reference to Exhibit 10.20

of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2017).

Amended and Restated Revolving Credit and Security Agreement between TransAct and TD Banknorth, N.A.

dated November 28, 2006 (incorporated by

reference filed with the Company's Annual Report on Form 10-K (SEC File No.

000-21121)for the year ended December 31, 2006).

First Amendment to Amended and Restated Revolving Credit and Security Agreement between TransAct and TD Banknorth, N.A.

effective September 30,

2007 (incorporated by reference to Exhibit 10.20 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on November 9, 2007).

Second Amendment to Amended and Restated Revolving Credit and Security Agreement between TransAct and TD Bank, N.A.

effective November 22, 2011 (incorporated

by reference to Exhibit 10.25 of the Company’s Annual Report on Form 10-K (SEC File No.

and TransAct dated January 3, 2017 (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K (SEC File No.

000-21121) filed with the SEC on March 16, 2017).

Third Amendment to Amended and Restated Revolving Credit and Security Agreement effective September 7, 2012 (incorporated by reference to Exhibit

10.26 of the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed with the SEC on September 11, 2012).

Fourth Amendment to Amended and Restated Revolving Credit and Security Agreement effective November 26, 2014 (incorporated by reference to Exhibit

99.1 of the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed with the SEC on December 1, 2014).

Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement effective November 21, 2017 (incorporated by reference to Exhibit

99.1 to the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed with the SEC on November 22, 2017)..

Loan and Security Agreement, dated as of March 13, 2020, among Siena Lending Group LLC, TransAct Technologies Incorporated and the other Loan Parties from time to time party thereto (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No.

000-21121) filed with the SEC on May 22, 2020).

Note, dated May 1, 2020, by TransAct Technologies Incorporated in favor of Berkshire Bank (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No.

000-21121) filed with the SEC on May 5, 2020).

Master License Agreement dated February 22, 2019 and amendments thereto.

Master Development and License Agreement dated July 20, 2018.

Subsidiaries of the Company

Consent of PricewaterhouseCoopers LLP.

Consent of Marcum LLP

Consent of PricewaterhouseCoopers LLP (predecessor auditor).

Rule 13a-14(a) Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.

1 unchanged sentence

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.

Section 1350 as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

exhibits are filed herewith.

Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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).

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Management contract or compensatory plan or arrangement.

These exhibits are filed herewith.

Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Item (601)(b)(10) of Regulation S-K.

Furnished herewith.

The Exhibits required by Item 601 of Regulation S-K under the Exchange Act are included in the Exhibit Index above under a(3) of this Item 15.

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Not applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report

to be signed on its behalf by the undersigned, thereunto duly authorized.

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

TRANSACT TECHNOLOGIES INCORPORATED

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March 12, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on

behalf of the registrant and in the capacities and on the dates indicated.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Chairman of the Board and Chief Executive Officer

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March 12, 2021

/s/ Randall S.

March 12, 2021

/s/ Emanuel P.

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Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Income for the years ended December 31, 2019,

2018, and 2017

Consolidated Statements of Comprehensive Income for the years ended

December 31, 2019, 2018 and 2017

Consolidated Statements of Changes in Shareholders' Equity for the years ended

December 31, 2019, 2018 and 2017

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

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Report of Independent Registered Publi c Accounting Firm

To the Shareholders and Board of Directors of Transact Technologies Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of TransAct Technologies Incorporated and its subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss , changes in shareholders’ equity and cash flows for the year in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit , we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition – Identification of Distinct Performance Obligations and Estimate of Standalone Selling Price

As described in Note 2 to the consolidated financial statements, some of the Company’s contracts with customers contain multiple performance obligations (most commonly when contracts include a hardware product, software and extended warranties).

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer.

For a majority of the Company’s revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes revenue as of a point of time;

the revenue is recognized upon shipment of the order when control of the goods is transferred to the customer and at the time the performance obligation is fulfilled.

Performance obligations are satisfied over time if the customer receives the benefits as the Company performs work.

The Company’s cloud-based BOHA!

software, provided on a subscription basis, allows customers to use hosted software over the contract period without taking possession of the software and is recognized ratably over the contract period.

For extended warranties, the transaction price is recognized ratably over the warranty period, using output methods, as control of the services is transferred to the customer.

When there is more than one performance obligation in a customer arrangement, the Company typically uses the “standalone selling price” method to determine the transaction price to allocate to each performance obligation.

In 2020, the Company launched a new service offering related to BOHA!

that bundled the BOHA!

products (cloud-based SaaS software applications, hardware and after-market service) in one price payable monthly over a three year period.

During the year ended December 31, 2020, the Company recognized revenue from contracts with customers related to this new service offering in the amount of approximately $928 thousand.

Judgement was required by management to identify the performance obligations in the contract and allocate the transaction price to each performance obligation.

The principal considerations for our determination that revenue recognition, specifically related to management’s identification of distinct performance obligations and the estimation of standalone selling prices related to this new service offering, is a critical audit matter are that there was significant judgment by management in (1) the identification of distinct performance obligations related to this new service offering, specifically the determination that one distinct performance obligation existed for point in time revenue recognition and three distinct performance obligations existed for over-time revenue recognition, (2) the estimation of the standalone selling price using market pricing conditions and other observable inputs, such as historical pricing practices, for each distinct performance obligation;

(3) the determination that a significant financing component existed in the arrangement with the customer, therefore, requiring deferral of a portion of the point in time revenue to be recognized as interest income over the contract period;

(4) management’s election of the accounting policy expedient to exclude sales taxes collected from customers from the transaction price in accordance with ASU 2016-12;

and (5) the identification of costs incurred to obtain the contract and management’s decision to defer such costs and recognize the expense on a straight-line basis over the life of the contract.

This in turn led to a high degree of auditor judgment and subjectivity in performing our audit procedures, which were designed to evaluate audit evidence related to management’s identification of distinct performance obligations within the contract with the customer related to this new service offering and the judgments made by management to estimate the standalone selling prices used to allocate the transaction price to those distinct performance obligations identified.

Due to this complexity, there was significant effort in performing our audit procedures to evaluate the reasonableness of management’s estimates used in the Company’s adoption of the accounting standard related to revenue recognition for this new service offering.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) evaluating the Company’s revenue recognition accounting policy resulting from its adoption of the accounting standard related to revenue recognition;

(ii) evaluating management’s identification of distinct performance obligations in its contract with the customer;

(iii) evaluating management’s process for estimating the standalone selling price which included testing the completeness and accuracy of input data used and evaluating the reasonableness of significant assumptions used by management, principally observable inputs such as historical pricing practices;

and (iv) evaluation of the accuracy of management’s allocation of the transaction price to the performance obligations contained within the related contract with the customer.

/s/ Marcum llp

We have served as the Company’s auditor since 2020.

Hartford, Connecticut

March 12, 2021

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Transact Technologies Incorporated

Opinions on the Financial Statements and Internal Control over Financial

We have audited the accompanying consolidated balance sheets of TransAct Technologies Incorporated and its

subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019,

including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,

the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted

in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to

the Company not designing and maintaining effective controls over (i) user access within the Company’s ERP system, Oracle, to ensure appropriate segregation of duties and to adequately restrict user access to appropriate personnel, and (ii) the

completeness and accuracy of information included in key spreadsheets supporting the Company’s accounting records.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial

reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in

Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated

financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it

accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective

internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s

consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are

required to be independent with respect to the Company in accordance with the U.S.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of TransAct Technologies Incorporated and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’ equity and cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and

perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in

all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of

material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness

of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those

policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are

recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and

directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect

misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

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March 16, 2020

We have served as the Company's auditor since 1996.

We served as the Company’s auditor from 1996 to 2020.

TRANSACT TECHNOLOGIES INCORPORATED

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Note receivable

Inventories, net

Prepaid income taxes

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Fixed assets, net

Notes receivable, net of current portion

Right-of-use asset

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Total current liabilities

Long-term debt

Deferred revenue, net of current portion

Lease liability, net of current portion

Deferred rent, net of current portion

Other liabilities

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Preferred stock, $ 0.01 value, 4,800,000 authorized, none issued and outstanding

Preferred stock, Series A, $0.01 par value, 200,000 authorized, none issued and

Preferred stock, Series A, $ 0.01 par value, 200,000 authorized, none issued and outstanding

Common stock, $ 0.01 par value, 20,000,000 authorized at December 31, 2020 and 2019;

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TRANSACT TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

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General and administrative

Operating income

Operating (loss) income

Interest and other income (expense):

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Interest income

Income before income taxes

Income tax (benefit) provision

Net income per common share:

(Loss) income before income taxes

Income tax benefit

Net (loss) income

Net (loss) income per common share:

Shares used in per-share calculation:

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TRANSACT TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share data)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

Year Ended December 31,

Net (loss) income

Foreign currency translation adjustment, net of tax

Comprehensive income

Comprehensive (loss) income

See accompanying notes to Consolidated Financial Statements.

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Income (Loss)

Balance, December 31, 2016

Issuance of shares from exercise of stock options

Balance, January 1, 2019

Issuance of common stock on restricted stock units

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Relinquishment of stock awards and deferred stock units to pay withholding taxes

Purchase of treasury stock

Dividends declared and paid on common stock

Share-based compensation expense

Adjustment upon adoptions of ASU 2016-09

Foreign currency translation adjustment, net of tax

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Issuance of common stock on restricted stock units

Issuance of common stock on deferred stock units

Relinquishment of stock awards and deferred stock units to pay withholding taxes

Purchase of treasury stock

Dividends declared and paid on common stock

Share-based compensation expense

Foreign currency translation adjustment, net of tax

Balance, December 31, 2018

Issuance of common stock on restricted stock units

Issuance of common stock on deferred stock units

Issuance of common stock, net of issuance cost

Relinquishment of stock awards and deferred stock units to pay withholding taxes

Dividends declared and paid on common stock

Share-based compensation expense

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Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Share-based compensation expense

Depreciation and amortization

Deferred income tax (benefit) provision

Provision for doubtful accounts

Foreign currency transaction losses

Deferred income tax benefit

(Recovery of) provision for doubtful accounts

Foreign currency transaction (gains) losses

Changes in operating assets and liabilities:

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Accrued liabilities and other liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

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Cash flows from financing activities:

Revolving credit line borrowings

Revolving credit line payments

Long-term debt borrowings

Proceeds from stock option exercises

Purchases of common stock for treasury

Payment of dividends on common stock

Withholding taxes paid on stock issuances

Net cash used in financing activities

Proceeds from the issuance of common stock

Payment of common stock issuance costs

Withholding taxes paid on stock issuance

Payment of bank financing costs

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

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Description of business

TransAct Technologies Incorporated (together with its subsidiaries, “TransAct,” the “Company,” "we,", "us,",

"our"), which has its headquarters in Hamden, Connecticut and its primary operating facility in Ithaca, New York, operates in one operating segment:

software-driven technology and printing solutions for high growth markets including food service

technology, casino and gaming, lottery, POS automation and banking, and oil and gas markets.

TransAct Technologies Incorporated (together with its subsidiaries, “TransAct,” the “Company,” “we,” “us,” or “our”), which has its headquarters in Hamden, Connecticut and its primary operating facility in Ithaca, New York, operates in one operating segment:

software-driven technology and printing solutions for high growth markets including food service technology, casino and gaming, POS automation, and oil and gas markets.

Our solutions are designed from the ground up based on market and customer requirements and are sold under the BOHA!

TM , AccuDate™ Ithaca®, Epic,

EPICENTRAL TM and Printrex® product brands.

TM , AccuDate™, Epic®, Ithaca®, EPICENTRAL TM and Printrex® product brands.

We sell our products to original equipment manufacturers, value-added resellers, select distributors, and directly to end-users.

Our product distribution spans across the Americas, Europe, the

Middle East, Africa, Asia, Australia, the Caribbean Islands and the South Pacific.

Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific.

TransAct also provides world-class service, spare parts, accessories and printing supplies to its growing worldwide installed base of products.

We also generate

revenue from the after-market side of the business, providing printer and terminal service, supplies and spare parts in addition to revenue from our two software solutions;

(i)the EPICENTRAL TM Print System (“EPICENTRAL TM ”), that

enables casino operators to create promotional coupons and marketing messages and print them in real-time at the slot machine and (ii) our newly-launched line of BOHA!

software applications used to automate the back-of-house operations of restaurants

and other food service establishments.

We also generate revenue from the after-market side of the business, providing printer and terminal service, consumables and spare parts in addition to revenue from our two software solutions;

(i) our line of BOHA!

software applications used to automate the back-of-house operations of restaurants, convenience stores and food service operators and (ii) the EPICENTRAL TM Print System (“EPICENTRAL TM ”), that enables casino operators to create promotional coupons and marketing messages and print them in real time at the slot machine.

Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of COVID-19 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 recent customer demand and disrupted portions of our supply chain, including delayed product shipments from our two manufacturers located in China and Thailand.

We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the 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.

While we began to experience a modest recovery during the second half of 2020 and expect this recovery to continue in 2021, the exact timing and pace of recovery is unknown given uncertainty surrounding responsive measures to 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 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 implemented the following cost saving initiatives during 2020:

a reduction of our workforce starting in July 2020 by approximately 20 % through a combination of employee terminations and temporary furloughs.

During the fourth quarter, we brought back all furloughed employees.

As of December 31, 2020 our overall headcount was reduced by approximately 16 % when compared to December 31, 2019;

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).

All employees’ full salaries were reinstated on January 1, 2021;

a reduction in sales commissions for all commissioned employees starting in March 2020 through the end of 2020;

a 10 % reduction of cash retainer fees for all non-employee directors starting in March 2020 through the end of 2020;

the elimination of discretionary spending wherever possible starting in March 2020 and continuing into the first quarter of 2021.

Balance Sheet, Cash Flow and Liquidity.

In addition to the expense management actions noted above, we took the following actions to increase liquidity 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.

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 facility 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 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.

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 Consolidated Financial Statements included in this Form 10-K (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, 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 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 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, due to the extended business closures and continuing capacity limitations.

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.

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 audited Consolidated 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.

Smaller Reporting Company

As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, we may choose to prepare our disclosures relying on certain scaled disclosure requirements for smaller reporting companies in Regulation S-K and in Article 8 of Regulation S-X.

The scaled disclosure requirements for smaller reporting companies permit us (i) to include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation and (ii) to provide audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three years.

We may lose our status as a smaller reporting company on the last day of the fiscal year in which (i) our public float exceeds $250 million or (ii) if we have more than $100 million in annual revenues and (a) have no public float or (b) have a public float more than $700 million.

Summary of significant accounting policies

Principles of

consolidation:

The accompanying Consolidated Financial Statements include the accounts of TransAct and its wholly-owned subsidiaries, which require consolidation, after the elimination of intercompany accounts, transactions and unrealized

Principles of consolidation:

Use of estimates :

The preparations of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America

(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements

and the reported amounts of sales and expenses during the reporting period.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of sales and expenses during the reporting period.

Actual results could differ from those estimates.

Segment reporting :

We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” We

view our operations and manage our business as one segment:

We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” We view our operations and manage our business as one segment:

the design, development and marketing of software-driven technology and printing solutions and providing printer and terminal related software, services, supplies and spare parts.

used to identify TransAct’s single operating segment include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources

and assess performance.

Cash and cash

equivalents :

We consider all highly liquid investments with a maturity date of three months or less at date of purchase to be cash

Allowance for

doubtful accounts :

Factors used to identify TransAct’s single operating segment include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance.

Cash and cash equivalents :

We consider all highly liquid investments with a maturity date of three months or less at date of purchase to be cash equivalents.

Allowance for doubtful accounts :

We establish an allowance for doubtful accounts to ensure trade receivables are valued appropriately.

We maintain an

allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience.

We record a specific allowance for individual accounts when we become aware

of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position.

If circumstances related to customers change, we would further adjust

estimates of the recoverability of receivables.

We maintain an allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience.

We record a specific allowance for individual accounts when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position.

If circumstances related to customers change, we further adjust estimates of the recoverability of receivables.

The following table summarizes the activity recorded in the valuation account for accounts receivable:

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Balance, end of period

are stated at the lower of cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) or net realizable value.

We review net realizable value based on estimated selling prices in the ordinary course of business

less estimated costs of completions, disposal and transportation, historical usage and estimates of future demand.

Based on these reviews, inventory write-downs are recorded, as necessary, to reflect estimated obsolescence, excess quantities and net

realizable value.

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) or net realizable value.

We review net realizable value based on estimated selling prices in the ordinary course of business less estimated costs of completions, disposal and transportation, historical usage and estimates of future demand.

Based on these reviews, inventory write-downs are recorded, as necessary, to reflect estimated obsolescence, excess quantities and net realizable value.

Fixed assets:

assets are stated at cost.

Fixed assets are stated at cost.

Depreciation is recorded using the straight-line method over the estimated useful lives.

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machinery and equipment is ten years ;

furniture and office equipment is five

years to ten years;

furniture and office equipment is five years to ten years ;

and computer software and equipment is three years to seven years .

Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset.

Costs related to repairs and maintenance are

expensed as incurred.

Costs related to repairs and maintenance are expensed as incurred.

The costs of sold or retired assets are removed from the related asset and accumulated depreciation accounts and any gain or loss is recognized.

Depreciation expense was $1.1 million, $0.9 million and $0.8 million in 2019,

2018, and 2017, respectively.

ASU 2016-02, “Leases” , which was codified in, and is referred to

in this Annual Report as, ASC 842, became effective for reporting periods beginning after December 15, 2018.

The adoption required a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial

An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application.

The Company has elected to adopt the standard

using the effective date, January 1, 2019, as its date of initial application.

Consequently, financial information for prior periods will not be updated, and the disclosures required under the new standard will not be provided for dates and periods

before January 1, 2019.

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the

principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the

lease, respectively.

Depreciation expense was $ 1.0 million and $ 1.1 million in 2020 and 2019, respectively.

We account for leases in accordance with ASC 842, “Leases” (“ASC 842”) which we adopted effective January 1, 2019.

The adoption required a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application.

An entity was allowed to choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application.

The Company elected to adopt the standard using the effective date, January 1, 2019, as its date of initial application.

The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification determines whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases.

A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of 12 months or less will be accounted for

based on existing guidance for operating leases.

Leases with a term of 12 months or less are accounted for based on existing guidance for operating leases.

If risks and rewards are conveyed without the transfer of control, the lease is treated as financing.

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We have elected certain practical expedients available under ASC 842 upon adoption.

We have applied the practical expedient which

allows prospective transition to ASC 842 on January 1, 2019.

We have applied the practical expedient which allows prospective transition to ASC 842 on January 1, 2019.

Under this transition practical expedient, we did not reassess lease classification, embedded leases or initial direct costs.

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We have lease agreements that include lease and non-lease components, and we have not elected the practical expedients to combine these components for any of our leases.

The adoption of ASC 842 had no effect on our Consolidated Statement of Income

or Consolidated Statement of Cash Flows.

Upon adoption of ASC 842, we recorded a $3.7 million right-of-use asset and a $3.9 million lease liability.

The adoption of ASC 842 had no effect on our Consolidated Statements of Operations.

Upon adoption of ASC 842 on January 1, 2019, we recorded a $ 3.7 million right-of-use asset and a $ 3.9 million lease liability.

The adoption of the new standard had no impact on retained earnings.

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We determine if an arrangement contains a lease at inception.

Our leases are included in Right of use assets and Lease

liabilities in our Condensed Consolidated Balance Sheet.

Right of use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation

to make lease payments arising from the lease.

Our leases are included in Right of use assets and Lease liabilities in our Condensed Consolidated Balance Sheet.

Right of use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Lease right of use assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.

As most of our leases do not provide an

implicit rate, the Company determines its incremental borrowing rate by using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic

Our right-of-use-asset and lease liability was higher at December 31, 2020 compared to December 31, 2019 due to the extension of one of our leases.

On February 28, 2020, we entered into an amendment to extend the lease on our facility in Ithaca, New York, which resulted in recording an additional right-of-use-asset and lease liability of $ 1.5 million.

The lease, which was last amended on January 14, 2016, was scheduled to expire on May 31, 2021.

The lease amendment provides for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025.

Lease expense is recognized on a straight-line basis over the lease term.

As most of our leases do not provide an implicit rate, the Company determines its incremental borrowing rate by using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

Our lease right of use assets exclude lease incentives.

Our leases have remaining lease terms of one year to eight years, some of which include options to extend.

The majority of our leases with options to extend provide for extensions

of up to five years with the ability to terminate the lease within one year.

The exercise of lease renewal options is at our sole discretion and our lease right of use assets and liabilities reflect only the options we are reasonably certain that we

will exercise.

Our leases have remaining lease terms of one year to seven years , some of which include options to extend.

The majority of our leases with options to extend provide for extensions of up to five years .

The exercise of lease renewal options is at our sole discretion and our lease right of use assets and liabilities reflect only the options we are reasonably certain that we will exercise.

Lease expense is recognized on a straight-line basis over the lease term.

Intangible assets :

Goodwill and Intangible assets :

We acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets.

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, that indicate it is more likely than not an impairment exists.

Factors considered that may trigger an impairment review of either acquired goodwill or intangible assets are:

significant underperformance relative

to expected historical or projected future operating results;

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 that indicate it is more likely than not an impairment exists.

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of December 31) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.

The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards.

Under the qualitative assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, Company performance and events directly affecting the Company.

If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach.

Factors considered that may trigger an interim period impairment review of either acquired goodwill or intangible assets are:

significant underperformance relative to expected historical or projected future operating results;

significant changes in the manner of use of acquired assets or the strategy for the overall business;

significant negative industry or economic trends;

and significant decline in market

capitalization relative to net book value.

and significant decline in market capitalization relative to net book value.

Finite lived intangible assets are amortized and are tested for impairment when appropriate.

We have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was

substantially higher than our carrying value based on our assessment as of December 31, 2019 when the impairment review is performed.

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 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 no goodwill or intangible asset impairment occurred and the fair value of goodwill was substantially higher than our carrying value.

As of December 31, 2020, we have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was substantially higher than our carrying value based on our assessment as of December 31, 2020 when our annual review for impairment was performed.

Revenue recognition:

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Revenue from Contracts with Customers.

We adopted ASC 606 effective January 1, 2018 and elected the modified retrospective approach.

The results for

periods before 2018 were not adjusted for the new standard and there was no cumulative effect for the change in accounting at the date of adoption.

In accordance with ASC 606, a performance obligation is a promise in a contract with a customer to

transfer a distinct good or service to the customer.

Some of our contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations (most commonly when contracts include a hardware

product, software and extended warranties).

In accordance with ASC 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer.

Some of our contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations (most commonly when contracts include a hardware product, software and extended warranties).

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring

services to the customer.

the transaction price utilizing either the “expected value” method or the “most likely amount” method depending on the nature of the variable consideration.

Variable consideration is included in the transaction price if, in the Company’s judgment,

it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

For a majority of our revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes

revenue as of a point of time.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer.

To the extent the transaction price includes variable consideration, such as price protection, reserves for returns and other allowances, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the “expected value” method or the “most likely amount” method depending on the nature of the variable consideration.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

For a majority of our revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes revenue as of a point of time.

The transaction price is recognized upon shipment of the order when control of the goods is transferred to the customer and at the time the performance obligation is fulfilled.

We also sell a software solution in our

casino and gaming market, EPICENTRAL™, that enables casino operators to create promotional coupons and marketing messages and to print them in real-time at the slot machine.

EPICENTRAL TM is primarily comprised of both a software

component, which is licensed to the customer, and a hardware component.

We also sell a software solution in our casino and gaming market, EPICENTRAL™, that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine.

EPICENTRAL TM is primarily comprised of both a software component, which is licensed to the customer, and a hardware component.

EPICENTRAL™ software and hardware are integrated to deliver the system’s full functionality.

The transaction prices from EPICENTRAL™ software license and hardware are

recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer.

For out-of-warranty repairs, the transaction price is recognized after the repair work is completed and the printer or

terminal is returned to the customer, as control of the product is transferred to the customer and our performance obligation is completed.

Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls

the asset as it is being produced, or if the product being produced for the customer has no alternative use and we have a contractual right to payment.

The transaction prices from EPICENTRAL™ software license and hardware are recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer.

For out-of-warranty repairs, the transaction price is recognized after the repair work is completed and the printer or terminal is returned to the customer, as control of the product is transferred to the customer and our performance obligation is completed.

Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and we have a contractual right to payment.

For our separately priced extended warranty, BOHA!

cloud-based software applications, technical

support for our food service technology terminals and maintenance agreements (including free one-year maintenance received by customers upon completion of EPICENTRAL™ installation) revenue is recognized over time as the customer receives the

cloud-based software applications, technical support for our food service technology terminals and maintenance agreements (including free one-year maintenance received by customers upon completion of EPICENTRAL™ installation) revenue is recognized over time as the customer receives the benefit.

The transaction price from the maintenance services is recognized ratably over time, using output methods, as control of the services is transferred to the customer.

Our cloud-based BOHA!

software allows customers to use hosted software

over the contract period without taking possession of the software and are provided on a subscription basis and is recognized ratably over the contract period.

For extended warranties, the transaction price is recognized ratably over the warranty

period, using output methods, as control of the services is transferred to the customer.

When there is more than one performance obligation in a customer arrangement, the Company typically uses the “standalone selling

price” method to determine the transaction price to allocate to each performance obligation.

software allows customers to use hosted software over the contract period on a subscription basis without taking possession of the software and the subscription price is recognized ratably over the contract period.

For extended warranties, the transaction price is recognized ratably over the warranty period, using output methods, as control of the services is transferred to the customer.

The Company sells the performance obligations separately and has established standalone selling prices for its products and services.

In the case of an

overall price discount, the discount is applied to each performance obligation proportionately based on standalone selling price.

To determine the standalone selling price for initial EPICENTRAL™ installations, the Company uses the adjusted market

assessment approach.

For contracts with terms of less than 12 months, the Company expenses sales commissions as they are incurred,

since the expected amortization period of the cost to obtain a contract is less than 12 months.

Prior to the adoption of ASC 606 in 2018, cost to obtain a contract were expensed as incurred regardless of the length of contract.

In the case of an overall price discount, the discount is applied to each performance obligation proportionately based on standalone selling price.

To determine the standalone selling price for initial EPICENTRAL™ installations, the Company uses the adjusted market assessment approach.

For contracts with terms of less than 12 months, the Company expenses sales commissions as they are incurred, since the expected amortization period of the cost to obtain a contract is less than 12 months.

Disaggregation of revenue

The following table disaggregates our revenue by market-type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue

and cash flows are affected by economic factors.

The following table disaggregates our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Sales and usage-based taxes are excluded from revenues.

December 31, 2019

United States

International

Year Ended December 31, 2020

(In thousands)

Food Service Technology

POS Automation and Banking

Casino and Gaming

TransAct Services Group

Total net sales

December 31, 2018

United States

International

(In thousands)

Food service technology

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Total net sales

December 31, 2017

Year Ended December 31, 2019

(In thousands)

United States

International

(In thousands)

Food service technology

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Contract balances

Our 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 is recognized as revenue when the

performance obligation is complete.

Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL™

maintenance contracts and testing service contracts and prepaid software subscriptions for our BOHA!

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” on the Consolidated Balance Sheets as of December 31, 2020.

We first recorded contract assets during 2020 upon the start of a long-term BOHA!

Contract liabilities consist of customer prepayments 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 is recognized as revenue when the performance obligation is complete.

software applications, and is recognized as revenue as (or when) we perform under the contract.

The increase in current and non-current deferred

revenue is primarily due to the sale of BOHA!

software subscriptions, extended warranties and technical support for our food service technology terminals.

We do not have any contract asset balances as of December 31, 2019 or 2018.

During the year

ended December 31, 2019, we recognized revenue of $0.4 million related to our contract liabilities as of December 31, 2018.

Total contract liabilities consist of the following:

December 31, 2019

December 31, 2018

The decrease in current deferred revenue in 2020 compared to 2019 is primarily due to delayed renewals of our EPICENTRAL™ maintenance contracts from COVID-19 related closures of casinos during 2020.

Non-current deferred revenue decreased primarily due to decreased sales of long-term extended warranties for a legacy POS printer.

During the year ended December 31, 2020, we recognized revenue of $ 1.3 million related to our contract liabilities as of December 31, 2019.

Net contract assets (liabilities) consist of the following:

(In thousands)

Unbilled receivables, current

Unbilled receivables, non-current

Customer pre-payments

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Deferred revenue, non-current

Total contract liabilities

Net contract assets (liabilities)

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.

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 December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 4.4 million.

The Company expects to recognize revenue on $5.5 million of our remaining performance

obligations within the next 12 months, $0.2 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months.

Concentration of

The Company expects to recognize revenue on $ 3.8 million of our remaining performance obligations within the next 12 months, $ 0.4 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months.

Concentration of credit risk:

Financial instruments that potentially expose us to concentrations of credit risk are limited to cash and cash equivalents held by our banks in excess of insured limits and accounts receivable.

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International Gaming Technology (“IGT”)

Bally Technologies

Scientific Games

Sales to customers representing 10% or more of total net sales were as follows:

Year Ended December 31,

generally warrant 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.

We generally warrant our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded.

Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs.

The following table summarizes the activity recorded in the accrued product warranty liability:

Year Ended December 31,

(In thousands)

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Balance, end of period

$174 thousand and $192 thousand of the accrued product warranty liability were classified as current in Accrued liabilities at

December 31, 2019 and 2018, respectively.

$ 112 thousand and $ 174 thousand of the accrued product warranty liability were classified as current in Accrued liabilities at December 31, 2020 and 2019, respectively.

The remaining $ 28 thousand and $ 41 thousand of the accrued product warranty liability as of December 31, 2020 and 2019, respectively, is classified as long-term in Other liabilities.

design and product development:

Engineering, design and product development expenses include expenses incurred in connection with specialized engineering and design to introduce new products and to customize existing products, and are

expensed as a component of operating expenses as incurred.

We recorded $4.4 million, $4.6 million and $4.3 million of research and development expenses in 2019, 2018, and 2017, respectively.

Costs incurred in the engineering, design and product development of a computer software product are charged to expense until

technological feasibility has been established, at which point all material software costs are capitalized within Intangible assets in our Consolidated Balance Sheet until the product is available for general release to customers.

While judgment is

required in determining when technological feasibility of a product is established, we have determined that it is reached after all high-risk development issues have been documented in a formal detailed plan design.

The amortization of these costs

have been included in cost of sales over the estimated life of the product.

During 2019 and 2018, we contracted several third-parties to develop software for our food service technology products.

Unamortized development costs for such software were

$704 thousand as of December 31, 2019.

The total amount charged to cost of sales for capitalized software development costs was $186 thousand, $30 thousand and $2 thousand in 2019, 2018, and 2017, respectively.

costs are expensed as incurred.

Advertising expenses, which are included in selling and marketing expense on the accompanying Consolidated Statements of Income, for 2019, 2018, and 2017 totaled $1.4 million, $1.0 million and $1.0 million,

respectively.

Engineering, design and product development:

We recorded $ 5.7 million and $ 4.4 million of research and development expenses in 2020 and 2019, respectively.

Costs incurred in the engineering, design and product development of a computer software product are charged to expense until technological feasibility has been established, at which point all material software costs are capitalized within Intangible assets in our Consolidated Balance Sheet until the product is available for general release to customers.

While judgment is required in determining when technological feasibility of a product is established, we have determined that it is reached after all high-risk development issues have been documented in a formal detailed plan design.

The amortization of these costs have been included in cost of sales over the estimated life of the product.

During 2019, we contracted several third-parties to develop software for our food service technology products, the cost for which we capitalized.

Unamortized development costs for such software were $ 551 thousand as of December 31, 2020.

The total amount charged to cost of sales for capitalized software development costs was $ 153 thousand and $ 186 thousand in 2020 and 2019, respectively.

Advertising costs are expensed as incurred.

Advertising expenses, which are included in selling and marketing expense on the accompanying Consolidated Statements of Operations, for 2020 and 2019 totaled $ 0.7 million and $ 1.4 million, respectively.

These expenses include items such as consulting and professional services, tradeshows, and print advertising.

Income taxes:

income tax amounts reflected in the accompanying Consolidated Financial Statements are accounted for under the liability method in accordance with ASC 740, “Income Taxes” (“ASC 740”).

Deferred tax assets and liabilities are recognized for the

estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and

liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

We assess the likelihood that net deferred tax assets will be realized from future taxable income,

and to the extent that we believe that realization is not likely, we establish a valuation allowance.

The income tax amounts reflected in the accompanying Consolidated Financial Statements are accounted for under the liability method in accordance with ASC 740, “Income Taxes” (“ASC 740”).

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

We assess the likelihood that net deferred tax assets will be realized from future taxable income, and to the extent that we believe that realization is not likely, we establish a valuation allowance.

In accordance with ASC 740, we identified, evaluated and measured the amount of benefits to be recognized for our tax return positions.

10 for information regarding our accounting for income taxes and additional provision items recorded in regard to the Tax Cuts and Job Act.

Foreign currency

Foreign currency translation:

The financial position and results of operations of our foreign subsidiary in the UK are measured using local currency as the functional currency.

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dollars at the year-end exchange rate, related sales and expenses have been translated at the exchange rate as of the date the transaction was recognized, and shareholders’ equity has been translated at historical exchange rates.

The resulting

translation gains or losses, net of tax, are recorded in shareholders’ equity as a cumulative translation adjustment, which is a component of accumulated other comprehensive income.

Foreign currency transaction gains and losses, including those

related to intercompany balances, are recognized in Other, net on the Consolidated Statements of Income.

At December 31, 2019, we have share-based employee compensation plans, which are described more fully in Note 9 - Stock

incentive plans.

We account for those plans under the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation” (“ASC 718”).

Share-based compensation expense is measured at the grant date, based on the estimated fair

value of the award, and is recognized as expense over the employee’s requisite service period.

The resulting translation gains or losses, net of tax, are recorded in shareholders’ equity as a cumulative translation adjustment, which is a component of accumulated other comprehensive income.

Foreign currency transaction gains and losses, including those related to intercompany balances, are recognized in Other, net on the Consolidated Statements of Operations.

Share-based payments:

At December 31, 2020, we have share-based employee compensation plans, which are described more fully in Note 10 - Stock incentive plans.

We account for those plans under the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation”.

Share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period.

We use the Black-Scholes option-pricing model to calculate the fair value of share-based awards.

The key assumptions for this

valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, market price of our underlying stock and exercise price.

Many of these assumptions are judgmental and highly sensitive in the

determination of compensation expense.

Beginning in the first quarter of 2017, we recognize forfeitures as they occur.

In May 2017, the FASB issued ASU No.

2017-09, "Compensation-Stock Compensation:

Scope of modification accounting".

provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718.

2017-09 was effective for fiscal years beginning after December 15, 2017.

amendments are applied prospectively to an award modified on or after the adoption date.

We adopted this guidance in the first quarter of 2018 and the adoption did not result in a change to our financial statements.

Net income and

loss per share:

We report net income or loss per share in accordance with ASC 260, “Earnings per Share (EPS).” Under this guidance, basic EPS, which excludes dilution, is computed by dividing income or loss available to common shareholders

by the weighted average number of common shares outstanding for the period.

The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, market price of our underlying stock and exercise price.

Many of these assumptions are require judgment and are highly sensitive in the determination of compensation expense.

Forfeitures are recognized as they occur.

Net income and loss per share:

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

EPS includes in-the-money stock options using the treasury stock method.

During a loss period, the assumed exercise of in-the-money stock options has an anti-dilutive effect, and therefore, these instruments are excluded from the computation of

dilutive EPS.

Diluted EPS includes in-the-money stock options using the treasury stock method.

During a loss period, the assumed exercise of in-the-money stock options has an anti-dilutive effect, and therefore, these instruments are excluded from the computation of diluted EPS.

See Note 12 - Earnings per share.

Note receivable

The note receivable balance relates to a loan given to a third party and repayment is expected to occur in 12 months or less of

original issuance.

The note receivable has an interest rate of 4.5% and is due in April 2020.

The note receivable balance relates to loans given to a third party software developer for whom we license our food service technology software with an interest rate of 4.5 % , which were due in April 2020.

We intend to collect the remaining principal and interest due under the note pursuant to a lender recourse provision that enables us to apply payments that would have been due to the third party under revenue sharing provisions of a previously signed license agreement towards the loan balance.

A $ 100 thousand royalty fee was scheduled to be paid to the third party in January 2021 that was instead applied towards the note receivable balance as it became 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 are stated at unpaid balances and interest income is recognized on the accrual method.

As of December 31, 2019, we have no allowances

for loan losses, unamortized deferred loan fees or unearned discounts.

Inventories, net

The components of inventories, net are:

As of December 31, 2020 , we have no allowances for loan losses, unamortized deferred loan fees or unearned discounts.

The components of inventories are:

(In thousands)

Raw materials and purchased component parts

Work-in-process

Finished goods

Fixed assets, net

The components of fixed assets, net are:

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Construction in-process

Intangible assets

Identifiable intangible assets are recorded in Intangible assets in the accompanying Consolidated Balance Sheets and are comprised of

the following:

Intangible assets, net

Identifiable intangible assets are recorded in Intangible assets in the accompanying Consolidated Balance Sheets and are comprised of the following:

(In thousands)

Accumulated Amortization

Purchased technology

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Covenant not to compete

Amortization expense was $284 thousand, $128 thousand and $237 thousand in 2019, 2018 and 2017, respectively.

Amortization expense

for each of the next five years ending December 31 is expected to be as follows:

$237 thousand in 2020;

Amortization expense was $ 234 thousand and $ 284 thousand in 2020 and 2019 , respectively.

Amortization expense for each of the next five years ending December 31 is expected to be as follows:

$ 188 thousand in 2021;

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Retirement savings plan

We maintain a 401(k) plan under which all full-time employees are eligible to participate at the beginning of each month immediately

following their date of hire.

We maintain a 401(k) plan under which all full-time employees are eligible to participate at the beginning of the month immediately following their date of hire.

We match employees’ contributions at a rate of 50 % of employees’ contributions up to the first 6 % of the employees’ compensation contributed to the 401(k) plan.

Our matching contributions were $305 thousand, $237

thousand and $264 thousand in 2019, 2018, and 2017, respectively.

During 2019, we maintained a credit facility (the “TD Bank Credit Facility”) with TD Bank N.A.

(“TD Bank) which provided for a $20

million revolving credit line.

On November 21, 2017, we signed an amendment to the TD Bank Credit Facility extending the term through November 28, 2022.

Borrowings under the revolving credit line bear a floating rate of interest at the prime rate

minus one percent and are secured by a lien on all our assets.

We also pay a fee of 0.125% on unused borrowings under the revolving credit line.

The amendment increased the amount of revolving credit loans we may use to fund future cash dividend

payments or treasury share buybacks to $12.5 million from $10 million.

The TD Bank Credit Facility imposes certain quarterly financial covenants on us and restricts, among other things, our ability to

incur additional indebtedness and the creation of other liens.

On November 6, 2019, we amended our TD Credit Facility to change the definition of interest expense to exclude fees paid on unused borrowings under the revolving credit line which is used

to calculate total debt service in the operating cash flow to total debt service financial covenant.

We were in compliance with all financial covenants of the TD Bank Credit Facility at December 31, 2019.

As of December 31, 2019, we had no outstanding borrowings under the TD Bank Credit facility.

On March 13, 2020, we terminated our TD Bank Credit Facility and signed a new credit facility with Siena Lending Group LLC.

16 – Subsequent Event.

Our matching contributions were $ 270 thousand and $ 305 thousand in 2020 and 2019, respectively.

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 facility.

Borrowings under the facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes a minimum EBITDA financial covenant on the Company and borrowings are subject to a borrowing base based on (i) 85 % of eligible accounts receivable plus the lesser of (a) $ 5.0 million and (b) 50 % of eligible raw material and 60 % of finished goods inventory.

As of December 31, 2020, we had $ 4.5 million of borrowing capacity available under the Siena Credit Facility and had no outstanding borrowings.

We were in compliance with all financial covenants of the Siena Credit Facility at December 31, 2020.

Prior to entering the Siena Credit Facility, we maintained a credit facility with TD Bank N.A.

(“TD Bank) which provided for a $ 20 million revolving credit line.

Borrowings under the revolving credit line bore a floating rate of interest at the prime rate minus one percent and were secured by a lien on all our assets.

We also paid a fee of 0.125 % on unused borrowings under the revolving credit line.

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.

The PPP Loan, which is evidenced by a Note dated the Loan Date issued by the Company (the “Note”) in favor of Berkshire Bank, as lender (the “PPP Lender”), 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 were due on the PPP Loan for six months from the date of first disbursement, and if a loan forgiveness application is submitted to the SBA within 10 months after the end of the covered period, no payments are due until the date on which the SBA remits the loan forgiveness amount to the PPP Lender (or notifies the PPP Lender that no loan forgiveness is allowed), but interest continues to accrue during the deferment period.

If no loan forgiveness is allowed, the Company will be required to pay the PPP Lender equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any.

The Note is unsecured and guaranteed by the SBA.

The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the Note or related documents, reorganizations, mergers, consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions.

The PPP Loan may be accelerated upon the occurrence of a default.

Under the terms of the PPP, the PPP Loan may be forgiven to the extent that funds from the PPP Loan are used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020, and interest on debt obligations incurred before February 15, 2020 (collectively, “qualifying expenses”), subject to conditions and limitations provided in the CARES Act.

At least 60% (as amended) of the proceeds from the PPP Loan must be used for eligible payroll costs for the PPP Loan to be forgiven.

The Company has maximized the use of PPP Loan proceeds for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act, as amended by the Paycheck Protection Flexibility Act of 2020.

Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt.

The PPP Loan is classified as “Long-term debt” in the Condensed Consolidated Balance Sheet until the forgiveness determination has been made by the SBA.

In the event that no portion of the PPP Loan is forgiven by the SBA, $1.5 million in principal and interest of the $2.2 million PPP Loan would be due in 2021 with the remaining balance due in 2022.

Stock incentive plans

Stock incentive

Stock incentive plans .

We currently have two primary stock incentive plans:

the 2005 Equity Incentive Plan and 2014 Equity Incentive Plan, which provide

for awards to executives, key employees, directors and consultants.

the 2005 Equity Incentive Plan and the 2014 Equity Incentive Plan, which provide for awards to executives, key employees, directors and consultants.

The plans generally provide for awards in the form of:

(i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may

include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights.

Awards granted under these plans have exercise prices equal to 100 % of the fair market value of the common stock at the date of grant.

Awards granted have a ten years-year term and generally vest over a two year- to five year period, unless automatically accelerated for certain defined events.

As of May 2014, no new awards were made under the 2005 Equity Incentive Plan.

2014 Equity Incentive Plan, we are authorized to grant awards of up to 1,400,000 shares of TransAct common stock.

Awards granted have a ten-year term and generally vest over a two-year to five-year period, unless automatically accelerated for certain defined events.

As of May 2014, no new awards may be made under the 2005 Equity Incentive Plan.

Under our 2014 Equity Incentive Plan, as amended in May 2020, we are authorized to grant awards of up to 2,200,000 shares of TransAct common stock.

At December 31, 2020, 837,204 shares of common stock remained available for issuance under the 2014 Equity Incentive Plan.

Under the assumptions indicated below, the weighted-average per share fair value of stock option grants for 2019, 2018, and 2017 was

$3.01, $4.38 and $1.95, respectively.

Under the assumptions indicated below, the weighted-average per share fair value of stock option grants for 2020 and 2019 was $ 3.19 and $ 3.01 , respectively.

We also issued restricted stock units for certain executives and directors that vest over a specified period of time, and in some instances require achieving certain performance metrics.

The weighted-average

per share fair value of these restricted stock units was $10.46, $12.91 and $7.53 in 2019, 2018 and 2017 respectively.

The table below indicates the key assumptions used in the option valuation calculations for options granted in 2019, 2018, and 2017

and a discussion of our methodology for developing each of the assumptions used in the valuation model:

Year Ended December 31,

The weighted-average per share fair value of these restricted stock units was $ 9.77 and $ 10.46 in 2020 and 2019, respectively.

The table below indicates the key assumptions used in the option valuation calculations for options granted in 2020 and 2019 and a discussion of our methodology for developing each of the assumptions used in the valuation model:

Expected option term (in years)

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Dividend yield

Expected Option

Term - This is the weighted average period of time over which the options granted are expected to remain outstanding giving consideration to our historical exercise patterns.

Options granted have a maximum term of ten years and an increase

in the expected term will increase compensation expense.

Volatility – The stock volatility for each grant is measured using the weighted average of historical daily price changes of our common stock over the most recent period approximately equal to the expected option term of the grant.

increase in the expected volatility factor will increase compensation expense.

Interest Rate - This is the U.S.

Expected Option Term - This is the weighted average period of time over which the options granted are expected to remain outstanding giving consideration to our historical exercise patterns.

Options granted have a maximum term of ten years and an increase in the expected term will increase compensation expense.

Expected Volatility – The stock volatility for each grant is measured using the weighted average of historical daily price changes of our common stock over the most recent period approximately equal to the expected option term of the grant.

An increase in the expected volatility factor will increase compensation expense.

Risk-Free Interest Rate - This is the U.S.

Treasury rate in effect at the time of grant having a term approximately equal to the expected term of the option.

An increase in the risk-free interest rate will increase compensation expense.

Dividend Yield

–The dividend yield is calculated by dividing the annual dividend declared per common share by the weighted average market value of our common stock on the date of grant.

Dividend Yield –The dividend yield is calculated by dividing the annual dividend declared per common share by the weighted average market value of our common stock on the date of grant.

An increase in the dividend yield will decrease compensation expense.

For 2019, 2018, and 2017, we recorded $692 thousand, $629 thousand, and $609 thousand of share-based compensation expense,

respectively, included primarily in general and administrative expense in our Consolidated Statements of Income.

We also recorded income tax benefits of $152 thousand, $138 thousand, and $134 thousand in 2019, 2018, and 2017 respectively, related to

such share-based compensation.

For 2020 and 2019, we recorded $ 876 thousand and $ 692 thousand of share-based compensation expense, respectively, included primarily in general and administrative expense in our Consolidated Statements of Operations.

We also recorded income tax benefits of $ 193 thousand and $ 152 thousand in 2020 and 2019, respectively, related to such share-based compensation.

At December 31, 2020, these benefits are recorded as a deferred tax asset in the Consolidated Balance Sheets.

Equity award activity in the 2005 Equity Incentive Plan and 2014 Equity Incentive Plan is summarized below:

Equity award activity in the 2005 Equity Incentive Plan and the 2014 Equity Incentive Plan is summarized below:

Stock Options

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weighted average grant stock price per share

The following summarizes information about equity awards outstanding that are vested and expect to vest and equity awards that are

exercisable at December 31, 2019:

The following summarizes information about equity awards outstanding that are vested and expect to vest and equity awards that are exercisable at December 31, 2020:

Equity Awards Vested and Expected to Vest

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Shares that are issued upon exercise of employee stock awards are newly issued shares and not issued from treasury stock.

December 31, 2019, unrecognized compensation cost related to non-vested equity awards granted under our stock incentive plans is approximately $1.5 million, which is expected to be recognized over a weighted average period of 2.1 years.

The total fair value of awards vested during the years ended December 31, 2019, 2018, and 2017 was $1.6 million, $1.1 million, and

$1.1 million, respectively.

The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options exercised during the years ended December 31, 2018, and 2017 was $280 thousand

and $958 thousand, respectively.

As of December 31, 2020, unrecognized compensation cost related to non-vested equity awards granted under our stock incentive plans is approximately $ 1.9 million, which is expected to be recognized over a weighted average period of 2.2 years.

The total fair value of awards vested during the years ended December 31, 2020 and 2019 was $ 1.7 million and $ 1.6 million, respectively.

No stock options were exercised during the year ended December 31, 2019.

Cash received from option exercises was $0.4 million and $1 million for 2018 and 2017, respectively.

We recorded a realized tax benefit in

2018 and 2017 from equity-based awards of $17 thousand and $150 thousand, respectively, related to options exercised.

Upon adoption of ASU 2016-09 in 2017 tax benefits realized on stock options exercises are included in income tax expense and are no

longer included as a component of cash flows.

The components of the income tax provision are as follows:

Year Ended December 31,

We recorded a realized tax provision in 2020 from equity-based awards of $ 14 thousand related to options exercised.

The components of the income tax benefit are as follows:

(In thousands)

Income tax provision (benefit)

On December 22, 2017, the United States enacted significant changes to U.S.

tax law following the passage and signing of the Tax

The legislation significantly changes U.S.

tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a one-time repatriation tax on undistributed foreign earnings.

Reform Act permanently reduces the U.S.

corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with

authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted.

The Company uses the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and

liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured

using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

As a result of the reduction of TransAct's U.S.

corporate income tax rate from 34% to 21% under the Tax Reform Act,

the Company revalued its ending net deferred tax assets at December 31, 2017 and recognized a provisional $1.3 million charge to income tax expense in the Company's consolidated statement of income for the year ended December 31, 2017.

The Tax Reform Act also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings

and profits ("E&P") through the year ended December 31, 2017.

The Company had no undistributed foreign E&P subject to the one-time mandatory repatriation and, therefore, did not recognize any income tax expense related to undistributed

foreign subsidiary E&P for the year ended December 31, 2017.

While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S.

tax base erosion

provisions, the global intangible low-taxed income ("GILTI") provisions and the base-erosion and anti-abuse tax ("BEAT") provisions.

The GILTI provisions require the Company to include in its U.S.

income tax return foreign subsidiary earnings in

excess of an allowable return on the foreign subsidiary's tangible assets.

The BEAT provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater

than regular tax.

The Company is not currently subject to these taxes and therefore has not included any tax impacts of GILTI or BEAT in its consolidated financial statements for the year ended December 31, 2019 or 2018.

At December 31, 2019, we have no federal or state net operating loss carryforwards, $111 thousand in R&D credit carryforwards,

and no state tax credit carryforwards.

Foreign loss before taxes was $515 thousand, $286 thousand, and $563 thousand in 2019, 2018, and 2017, respectively.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in

the Consolidated Financial Statements.

Income tax benefit

Our effective tax rates were 31.1 % and ( 40.6 )% for 2020 and 2019 , respectively.

The effective tax rate for 2020 included the impact of the net operating loss (“NOL”) that we expect to carry back to prior years.

The CARES Act permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

We generated a NOL for 2020 which we will carry back to tax years that had a federal statutory tax rate of 34% compared to 21 % in 2020.

We recorded an unusually high tax benefit in 2019 due to the impact of R&D credits on a near break-even level of income before income tax.

At December 31, 2020, we have no federal net operating loss carryforwards and $ 33 thousand of state net operating loss carryforwards, $ 460 thousand in R&D credit carryforwards, and no state tax credit carryforwards.

Foreign loss before taxes was $ 468 thousand and $ 515 thousand in 2020 and 2019, respectively.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements.

Our deferred tax assets and liabilities were comprised of the following:

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Total net deferred tax assets

As of December 31, 2019 a valuation allowance of $444 thousand has been established for foreign net operating loss carryforwards that

are not expected to be used.

As of December 31, 2020 a valuation allowance of $ 659 thousand has been established for foreign net operating loss carryforwards that are not expected to be used.

The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets:

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Additions charged to income tax provision

Reductions credited to income tax provision

Balance, end of period

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Federal statutory tax rate

Valuation allowance and tax accruals

corporate tax rate change

State income taxes, net of federal income taxes

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Uncertain tax positions

Stock option cancellations

corporate tax rate change

Foreign-derived intangible income deduction

Stock award excess tax benefit

Stock option cancellations

Valuation allowance and tax accruals

Effective tax rate

Our effective tax rates were -40.6%, 16.1%, and 52.6% for 2019, 2018, and 2017, respectively.

We recorded a tax

benefit in 2019 due to the impact of R&D credits on a near break-even level of income before income tax.

We had $107 thousand and $104 thousand of total gross unrecognized tax benefits at December 31, 2019 and 2018, respectively that, if

recognized, would favorably affect the effective income tax rate in any future periods.

We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax

We had $ 121 thousand and $ 107 thousand of total gross unrecognized tax benefits at December 31, 2020 and 2019, respectively that, if recognized, would favorably affect the effective income tax rate in any future periods.

We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits.

A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows:

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Unrecognized tax benefits as of December 31

We expect $27 thousand of the $107 thousand of unrecognized tax benefits will reverse in 2020 upon the expiration of the statute of

We expect $ 24 thousand of the $ 121 thousand of unrecognized tax benefits will reverse in 2021 upon the expiration of the statute of limitations.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.

We have accrued interest and

penalties related to uncertain tax positions of $18 thousand and $17 thousand as of December 31, 2019 and 2018, respectively.

We have accrued interest and penalties related to uncertain tax positions of $ 19 thousand and $ 18 thousand as of December 31, 2020 and 2019, respectively.

We are subject to U.S.

federal income tax as well as income tax of certain state and foreign jurisdictions.

We have substantially

concluded all U.S.

We have substantially concluded all U.S.

federal income tax, state and local, and foreign tax 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 Consolidated Financial Statements.

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 Consolidated Financial Statements.

Earnings per share

For 2019, 2018, and 2017, earnings per share was computed as follows (in thousands, except per share amounts):

Earnings per share was computed as follows (in thousands, except per share amounts):

Year Ended December 31,

Net (loss) income

Weighted average common shares outstanding

Dilutive effect of outstanding equity awards as determined by the treasury stock

Dilutive effect of outstanding equity awards as determined by the treasury stock method

Weighted average common and common equivalent shares outstanding

Net income per common share:

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options,

restricted stock units and performance stock awards, when the average market price of the common stock is lower than the exercise price of the related stock award during the period.

These outstanding stock awards are not included in the computation

of diluted earnings per share because the effect would be anti-dilutive.

Net (loss) income per common share:

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, restricted stock units and performance stock awards, when the average market price of the common stock is lower than the exercise price of the related stock award during the period.

These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would be anti-dilutive.

Anti-dilutive stock awards excluded from the computation of earnings per dilutive share were 1,284,000 and 447,000 , at December 31, 2020 and 2019, respectively.

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.

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 2019 we did not repurchase any shares of our common

From the start of the 2018 Stock Repurchase Program on March 1, 2018 through December 31, 2018, we repurchased 156,410 shares of our common stock for approximately $2.0 million at an average price per share of $12.79.

In 2017, under a prior repurchase program that was in place from February 25, 2016 through December 31, 2017, we purchased 36,465

shares of our common stock for $0.4 million at an average price of $9.84 per share.

During 2020 and 2019 we did no t repurchase any shares of our common stock.

From January 1, 2005 through December 31, 2020, we repurchased a total of 4,044,842 shares of common stock for $ 32.1 million, at an average price of $ 7.94 per share.

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Information regarding our operations by geographic area is contained in the following table.

These amounts in the geographic area

table are based on the location of the customer and asset.

These amounts in the geographic area table are based on the location of the customer and asset.

Year Ended December 31,

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Sales to international customers were 19 % and 23 % of total sales in 2020 and 2019, respectively.

Sales to Europe

represented 44%, 56%, and 44%, sales to the Pacific Rim (which includes Australia and Asia) represented 46%, 36%, and 32%, and sales to Canada represented 8%, 6%, and 18% of total international sales in 2019, 2018, and 2017

respectively.

Sales to Europe represented 45 % and 44 %, sales to the Pacific Rim (which includes Australia and Asia) represented 45 % and 46 %, and sales to Canada represented 8 % of total international sales in both 2020 and 2019.

International long-lived assets consist of net fixed assets located at our foreign subsidiary in the UK as well as our contract manufacturers in China, Thailand, Malaysia and Mexico.

Operating lease expense for the year ended December 31, 2019, 2018 and 2017 was $1.0 million, $1.1 million and $1.1 million,

respectively, and was included within Cost of sales, Engineering, design and product development expense, Selling and marketing expense, and General and administrative expense.

Operating costs include short-term lease costs which were immaterial

during the period.

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

December 31, 2019

Operating lease expense for the years ended December 31, 2020 and 2019 was $ 1.0 million and $ 1.0 million, respectively, and are reported as “Cost of sales,” “Engineering, design and product development expense,” “Selling and marketing expense,” and “General and administrative expense” in the Consolidated Statements of Operations.

Operating costs include short-term lease costs which were immaterial during the period.

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

Year Ended December 31,

Operating cash outflows from leases

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

December 31, 2019

Year Ended December 31,

Weighted average remaining lease term (in years)

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Total lease liabilities

Prior to the adoption of ASC 842, rental commitments on an undiscounted basis were approximately $4.3 million at December 31, 2018

under non-cancelable operating leases and were payable as follows:

$1.0 million in 2019;

$1.0 million in 2020;

$0.7 million in 2021;

$0.4 million in 2022, $0.3 million in 2023 and $0.9 million thereafter.

Quarterly results of operations (unaudited)

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(In thousands, except per share amounts)

Net loss per common share:

Net income (loss)

Net income (loss) per common share:

Net income per common share:

Subsequent events

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.

On March 13, 2020, we entered into a new $10 million credit facility (the “Siena Credit Facility”) with Siena

Lending Group LLC.

The Siena Credit Facility replaced our TD Bank Credit Facility.

The Siena Credit Facility provides for a $10 million revolving credit line 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%.

We incurred a closing fee of $63 thousand payable 50% on the closing date and 50% on the first anniversary of the

closing date.

We also pay a fee of 0.50% on unused borrowings under the facility.

Borrowings under the facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes certain financial covenants on

the Company and borrowings are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5,000,000 and (b) 50% of eligible raw material and 60% of finished good inventory.

On March 13, 2020 we loaned an additional $0.6 million to a third party increasing the total note receivable principal balance to

$1.6 million.

Repayment is expected to occur in 12 months or less of original issuance and the terms of the loan are the same as the original loan disclosed in Note 3-Note receivable above.

The Company has evaluated all events or transactions that occurred up to the date the consolidated financial statements were available to issue.

Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures