What changed in this filing

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Item 1. Financial Statements

2021-05-13 compared with 2020-11-09 · 94 added, 166 removed, 223 unchanged (54% of the section changed)

2 unchanged sentences

C ONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2020

March 31, 2021

December 31, 2020

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Retained earnings

Accumulated other comprehensive loss, net of tax

Accumulated other comprehensive income (loss), net of tax

Treasury stock, at cost, 4,044,842 shares

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TRANSACT TECHNOLOGIES INCORPORATED

CONDE NSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands, except per share data)

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General and administrative

Operating (loss) income

Interest and other income (expense):

Operating loss

Interest and other (expense) income:

Interest, net

(Loss) income before income taxes

Loss before income taxes

Income tax benefit

Net (loss) income

Net (loss) income per common share:

Net loss per common share:

Shares used in per-share calculation:

1 unchanged sentence

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLI DATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

Net (loss) income

Foreign currency translation adjustment, net of tax

Comprehensive (loss) income

Comprehensive loss

See notes to Condensed Consolidated Financial Statements.

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CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Cash flows from operating activities:

Net (loss) income

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

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation expense

1 unchanged sentence

Deferred income taxes

Gain on the sale of fixed assets

Foreign currency transaction losses

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Accrued liabilities and other liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Capital expenditures

Additions to capitalized software

Issuance of note receivable

Net cash used in investing activities

Proceeds from the sale of fixed assets

Collection (issuance) of note receivable

Net cash provided by (used in) investing activities

Cash flows from financing activities:

1 unchanged sentence

Revolving credit line payments

Long-term debt borrowings

Payment of common stock issuance costs

Payment of dividends on common stock

Proceeds from stock option exercises

1 unchanged sentence

Payment of bank financing costs

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

6 unchanged sentences

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSO LIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands, except per share data)

(In thousands)

Equity beginning balance

10 unchanged sentences

Balance, beginning of period

Net (loss) income

Dividends declared and paid on common stock

Balance, end of period

1 unchanged sentence

Balance, beginning and end of period

Accumulated other comprehensive income (loss), net of tax

Accumulated other comprehensive income (loss)

Balance, beginning of period

5 unchanged sentences

Relinquishment of stock awards to pay withholding taxes

Dividends per share of common stock

See notes to Condensed Consolidated Financial Statements.

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Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

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

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

Impact of the COVID-19 Pandemic

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.

In the first quarter of 2020, the COVID-19 pandemic and the resulting social distancing measures, including closures and restricted openings of restaurants and casinos implemented by federal, state and local authorities, negatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our two manufacturers located in China and Thailand.

While we began to experience a modest recovery starting in the second half of 2020 into 2021 and expect this recovery to continue during the remainder of 2021, the exact timing and pace of recovery is unknown given uncertainty surrounding responsive measures to potential future resurgences of the virus and the significant disruption that our customers have already experienced and may continue to experience.

In light of this uncertainty, we implemented a number of cost saving measures during 2020 to help mitigate the impact on our financial position and operations and continued to limit discretionary spending during the first quarter of 2021.

We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ultimate impact of the COVID-19 pandemic on our business;

however, the length and severity of the reduction in demand due to the pandemic remains uncertain.

Accordingly, we expect that the fourth quarter of 2020 will continue to be negatively impacted.

While we began to experience a modest recovery during the third quarter of 2020 and expect this recovery to continue in the fourth quarter of 2020, the exact timing and pace of recovery is unknown given uncertainty surrounding future responsive measures that may be implemented in the upcoming winter months and the significant disruption that our customers have already experienced and may continue to experience.

In light of this uncertainty, we have implemented measures to help mitigate the impact on our financial position and operations.

These measures include, but are not limited to, the following:

Expense Management.

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

a reduction of our workforce starting in July 2020 by approximately 20 % through a combination of employee terminations and temporary furloughs that we expect to continue through the end of 2020;

a 10 % reduction in the salaries of all salaried, non-commissioned employees, including executive officers, starting in March 2020.

From May 1, 2020 until early July 2020, employees below the vice president level were paid their full salary as a result of the receipt of the PPP Loan proceeds (defined below);

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

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

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

however, the length and ultimate severity of the reduction in demand due to the pandemic remains uncertain.

Balance Sheet, Cash Flow and Liquidity.

In addition to the expense management actions noted above, we have taken the following actions to increase liquidity and strengthen our financial position.

In addition to the expense management actions implemented during 2020 , we have taken 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.

See Note 11 for further details related to the Offering.

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

New Credit Facility – On March 13, 2020, we entered into a new credit with Siena Lending Group LLC that provides a revolving credit line of up to $ 10.0 million, subject to a borrowing base.

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

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

See Note 6 for further details regarding this facility.

Reduced Capital Expenditures – We limited capital expenditures during 2020.

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

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 Quarterly Report on Form 10-Q (this “Report”) were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents, 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.

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

Use of Assumptions and Estimates

Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs.

Our current assumptions are that casinos and restaurants remain open and continue to gradually increase capacity limitations during the fourth quarter of 2020 and into the first half of 2021, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA!

products, respectively, 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 well-positioned following the completion of the October 16, 2020 Offering to withstand the impact of lower-than anticipated sales and that we will be able to take additional financial and operations actions if necessary.

Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital expenditures and other operating costs.

Our current assumptions are that casinos and restaurants remain open and continue to gradually increase capacity limitations during 2021, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA!

products, respectively, as their businesses gradually return to pre-pandemic levels of capacity and operations.

Based on these assumptions, we anticipate that sales in casino and gaming and food service technology will continue to be negatively through at least 2021.

We have performed a sensitivity analysis on these assumptions to forecast the potential impact of a slower-than-anticipated recovery and believe that we are positioned to withstand the impact of lower-than-anticipated sales and that we will be able to take additional financial and operational actions to cut costs and/or increase liquidity if necessary.

These actions may include additional expense reductions and capital raising activities.

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We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

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

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

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

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

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

Our 2019 quantitative impairment test of goodwill and indefinite-lived intangible assets indicated that there was no indication of impairment as of December 31, 2019 because the fair value exceeded our carrying value.

During the three months ended March 31, 2020, our stock price declined to the lowest price since 2009.

We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event and an indicator that it was more likely than not that the carrying value of goodwill exceeded fair value.

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

We view our operations and manage our business as one operating unit .

We utilized an implied market value method under the market approach to calculate the fair value of the Company as of March 31, 2020, which we determined was the best approximation of fair value in the current social and economic environment.

Based on our interim impairment assessment as of March 31, 2020, we determined that no goodwill or intangible asset impairment occurred and the fair value of goodwill was substantially higher than our carrying value.

As of September 30, 2020, we determined that no new triggering events had occurred during the third quarter of 2020 and as a result an updated impairment review was not performed.

Based on our impairment assessment performed on March 31, 2020 and subsequent market performance of our stock we do not expect to record an impairment charge in the near future but many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods as a result of both Company-specific and overall economic conditions, including the impacts of COVID-19.

We will continue to monitor and evaluate the carrying value of goodwill.

We may be subject to impairments in the future depending on how long the economic and social disruptions resulting from COVID-19 pandemic persist.

Actual results could differ from those estimates used.

We account for revenue in accordance with ASC Topic 606:

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Sales and usage-based taxes are excluded from revenues.

We have reclassified sales of labels and other recurring revenue items, which includes extended warranty and service contracts, and technical support services related to our food service technology market, previously included in TSG, to food service technology for all periods presented.

Three Months Ended

September 30, 2020

September 30, 2019

(In thousands)

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Food service technology

POS automation and banking

Casino and gaming

TransAct Services Group

Total net sales

Nine Months Ended

September 30, 2020

September 30, 2019

(In thousands)

United States

International

United States

International

Food service technology

POS automation and banking

POS automation

Casino and gaming

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Contract balances

Our contract liabilities consist of customer pre-payments and deferred revenue.

Contract assets consist of unbilled receivables.

Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced.

An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer.

Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable” and “Other non-current assets” in the Condensed Consolidated Balance Sheets.

Contract liabilities consist of customer pre-payments and deferred revenue.

Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete.

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

We did not have any contract asset balances as of September 30, 2020 or December 31, 2019 .

For the first nine months of 2020, we recognized revenue of $ 1.0 million related to our contract liabilities at December 31, 2019 .

For the nine months ended September 30, 2019 , we recognized revenue of $ 0.5 million related to our contract liabilities at December 31, 2018.

Total contract liabilities consisted of the following:

September 30,

For the three months ended March 31, 2021, we recognized revenue of $ 0.4 million related to our contract assets at December 31, 2020 .

Total net contract (liabilities) assets consisted of the following:

March 31, 2021

December 31, 2020

(In thousands)

Unbilled receivables, current

Unbilled receivables, non-current

Customer pre-payments

1 unchanged sentence

Deferred revenue, non-current

Total contract liabilities

Total net contract (liabilities) assets

Remaining performance obligations

Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer.

As of September 30, 2020, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 2.2 million.

The Company expects to recognize revenue on $ 2.1 million of its remaining performance obligations within the next 12 months following September 30, 2020 and $ 0.1 million within the next 24 months following September 30, 2020.

As of March 31, 2021, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 3.3 million.

The Company expects to recognize revenue on $ 2.7 million of its remaining performance obligations within the next 12 months following March 31, 2021, $ 0.4 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months.

Note receivable

The note receivable balance relates to a loan given to a third party with an interest rate of 4.5 % , which was due in April 2020.

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 a previously signed long-term royalty agreement towards the loan balance.

A $ 100 thousand royalty fee is scheduled to be paid to the third party in January 2021 that will instead be applied towards the note receivable balance as it becomes due.

As a result, $ 100 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.

In March 2020, we loaned an additional $ 600 thousand to the third party.

For the three and nine months ended September 30, 2020 we recorded $ 18 thousand and $ 49 thousand of interest income, respectively.

As of September 30, 2020 , we have no allowances for loan losses, unamortized deferred loan fees or unearned discounts.

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 was originally due in April 2020.

In March 2021, we received payment in the amount of $ 1.6 million representing the remaining principal balance and interest due from the third-party.

Prior to the payment being received, notes receivable were stated at unpaid principal balances and interest income was recognized on the accrual method.

For the three months ended March 31, 2021 and 2020, we recorded $ 17 thousand and $ 13 thousand of interest income, respectively.

The components of inventories were:

September 30,

March 31, 2021

December 31, 2020

(In thousands)

Raw materials and purchased component parts

Work-in-process

Finished goods

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

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

Nine Months Ended

September 30,

The following table summarizes the activity recorded in the accrued product warranty liability during the three months ended March 31, 2021 and 2020:

Three Months Ended

(In thousands)

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Balance, end of period

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

As of March 31, 2021, $ 98 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $ 18 thousand was classified as non-current in “Other liabilities”.

On March 13, 2020, we entered into a new credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC.

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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 September 30, 2020, we had $ 6.6 million of additional borrowing capacity available under the Siena Credit Facility.

We were in compliance with all financial covenants of the Siena Credit Facility at September 30, 2020.

As of March 31, 2021, we had $ 3.6 million of borrowing capacity available under the Siena Credit Facility.

The agreement governing the Siena Credit Facility provides for the parties to update the financial covenant for periods ending after March 31, 2021 based on updated financial projections of the Company.

The Company does not anticipate a material change in the financial covenant, nor does it anticipate any other material change in the terms or covenants pertaining to its current credit facilities.

We were in compliance with all financial covenants of the Siena Credit Facility at March 31, 2021.

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”), matures on May 1, 2022 and bears interest at a fixed rate of 1.0 % per annum, accruing from the Loan Date and payable monthly.

No payments are due on the PPP Loan for six months from the date of first disbursement, but interest will continue to accrue during the deferment period.

The 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 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.

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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, $ 2.0 million in principal and interest of the $ 2.2 million PPP Loan would be due within the next twelve months as of March 31, 2021 .

Earnings per share

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands, except per share data)

Net (loss) income

Weighted average common shares outstanding

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Weighted average common and common equivalent shares outstanding

Net (loss) income per common share:

Net loss per common share:

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive.

For the three months ended September 30, 2020 and 2019 , there were 1.4 million and 0.3 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.

For the nine months ended September 30, 2020 and 2019 , there were 1.4 million and 0.5 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.

Regarding the three and nine months ended September 30, 2020, when a net loss is reported, basic and diluted net loss per common share are calculated using the same method.

For the three months ended March 31, 2021 and 2020, there were 705 thousand and 708 thousand, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.

Regarding the three months ended March 31, 2021 and 2020, when a net loss is reported, basic and diluted net loss per common share are calculated using the same method.

Shareholders’ equity

For the three months ended September 30, 2019 , dividends declared and paid totaled $ 0.7 million, or $ 0.09 per share.

Dividends declared and paid totaled $ 2.0 million, or $ 0.27 per share for the nine months ended September 30, 2019.

On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock.

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

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

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

The majority of our leases with options to extend provide for extensions of up to five years with the ability to terminate the lease within one year .

Our right-of-use-asset and lease liability was higher at September 30, 2020 compared to December 31, 2019 due to the extension of 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.

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

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

Operating lease expense for the three months ended September 30, 2020 and 2019 was $ 243 thousand and $ 256 thousand, respectively, and are reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations.

Operating lease expense for the nine months ended September 30, 2020 and 2019 was $ 735 thousand and $ 764 thousand, respectively.

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

Operating lease expense for the three months ended March 31, 2021 and 2020 was $ 243 thousand and $ 251 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations.

Operating lease expenses include short-term lease costs which were immaterial during the periods presented.

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

Nine Months Ended

September 30,

Three Months Ended

Operating cash outflows from leases

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

September 30, 2020

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

March 31, 2021

December 31, 2020

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Weighted average discount rate

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

September 30, 2020

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

March 31, 2021

December 31, 2020

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Total lease liabilities

We recorded an income tax benefit for the third quarter of 2020 of $ 515 thousand at an effective tax rate of 37.3 % , compared to an income tax benefit for the third quarter of 2019 of $ 143 thousand at an effective tax rate of ( 59.3 %) .

For the nine months ended September 30, 2020 , we recorded an income tax benefit of $ 1.9 million at an effective tax rate of 33.9 % , compared to an income tax benefit for the nine months ended September 30, 2019 of $ 54 thousand at an effective tax rate of ( 4.3 %) .

The effective tax rates for the three and nine months ended September 30, 2020 were higher than usual as it included the impact of the net operating loss (“NOL”) that we expect to carry back to prior years.

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

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

The effective tax rate for the three and nine months ended September 30, 2019 were lower than usual as it included the foreign-derived intangible income (“FDII”) deduction under the Tax Cuts and Jobs Act of 2017 as well as near breakeven pre-tax income in the third quarter of 2019.

We recorded an income tax benefit for the first quarter of 2021 of $ 556 thousand at an effective tax rate of 20.1 %, compared to an income tax benefit during the first quarter of 2020 of $ 465 thousand at an effective tax rate of 31.9 %.

The effective tax rate for the first quarter of 2020 was higher as it included the impact of our net operating loss (“NOL”) that we incurred during 2020 and will carry back to prior years.

The CARES Act enacted on March 27, 2020 permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

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

We are subject to U.S.

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However, our federal tax returns for the years 2017 through 2019 remain open to examination.

Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of September 30, 2020, we had $ 80 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

For the third quarter of 2020, we recognized $ 27 thousand of previously unrecognized tax benefits as the statute of limitations on the use of our 2016 resarch and development credit expired during the third quarter of 2020.

We recognize interest and penalties related to uncertain tax positions as income tax (benefit) provision.

As of September 30, 2020, we had $ 15 thousand of accrued interest and penalties related to uncertain tax positions.

The Company maintains a valuation allowance against certain deferred tax assets to reduce the future income tax benefits to expected realizable amounts.

state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of March 31, 2021, we had $ 121 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

We expect that $ 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 reported as “Deferred tax assets” in the Condensed Consolidated Balance Sheet.

As of March 31, 2021 , we had $ 21 thousand of accrued interest and penalties related to uncertain tax positions.

The Company maintains a valuation allowance against certain deferred tax assets where realization is not certain.

Subsequent events

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

On October 13, 2020, the Company announced the commencement of an underwritten public offering of the Company’s common stock, $ 0.01 par value per share.

On October 16, 2020, the Company closed the Offering and sold an aggregate of 1,380,000 shares of common stock (the “Shares”), including 180,000 Shares sold as a result of the exercise in full of the overallotment option granted to the Underwriters (as defined below), at a public offering price of $ 7.10 per Share.

The Shares were issued and sold pursuant to an underwriting agreement, dated October 14, 2020 (the “Underwriting Agreement”) between the Company and Roth Capital Partners, LLC, as representative of the several underwriters named therein (the “Underwriters”).

Pursuant to the Underwriting Agreement, the Shares were sold to the Underwriters at a discount of 6 % to the public offering price, and the Company agreed to reimburse the Underwriters for certain fees and expenses.

After deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the net proceeds of approximately $ 8.7 million are expected to be used for working capital and other general corporate purposes, which may include funding the further development of the food service technology business and related sales, marketing and product development efforts, technology improvements and personnel costs in support of the Company’s growth strategy.

On April 30, 2021, we entered into an agreement to modify the term of the lease on our facility in Hamden, CT.

The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027.

The lease amendment modified the expiration date to October 31, 2023 with an option to extend the lease for an additional two year period extending the expiration date to October 31, 2025.

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-Q

Item 1. Financial Statements