TRANSACT TECHNOLOGIES INC 10-Q

Item 1. FINANCIAL STATEMENTS TRANSACT TECHNOLOGIES INCORPORATED C ONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) March 31, 2021 December 31, 2020 Assets: (In thousands, except share data) Current assets: Cash and cash equivalents $ 8,728 $ 10,359 Accounts receivable, net 4,712 3,377 Note receivable – 100 Inventories 10,000 11,286 Prepaid income taxes 2,411 2,409 Other current assets 911 644 Total current assets 26,762 28,175 Fixed assets, net of accumulated depreciation of $ 20,124 and $ 19,979 , respectively 1,852 1,950 Note receivable, net of current portion – 1,584 Right-of-use asset 3,429 3,618 Goodwill 2,621 2,621 Deferred tax assets 3,489 2,939 Intangible assets, net of accumulated amortization of $ 4,056 and $ 4,005 , respectively 532 583 Other assets 678 777 12,601 14,072 Total assets $ 39,363 $ 42,247 Liabilities and Shareholders’ Equity: Current liabilities: Accounts payable $ 1,919 $ 1,691 Accrued liabilities 2,498 3,665 Lease liability 813 837 Deferred revenue 569 504 Total current liabilities 5,799 6,697 Long-term debt 2,173 2,173 Deferred revenue, net of current portion 202 111 Lease liability, net of current portion 2,666 2,864 Other liabilities 160 166 5,201 5,314 Total liabilities 11,000 12,011 Shareholders’ equity: Common stock, $ 0.01 par value, 20,000,000 shares authorized; 13,010,383 and 12,976,227 shares issued, respectively; 8,965,541 and 8,931,385 shares outstanding, respectively 130 130 Additional paid-in capital 42,816 42,536 Retained earnings 17,512 19,718 Accumulated other comprehensive income (loss), net of tax 15 ( 38 ) Treasury stock, at cost, 4,044,842 shares ( 32,110 ) ( 32,110 ) Total shareholders’ equity 28,363 30,236 Total liabilities and shareholders’ equity $ 39,363 $ 42,247 See notes to Condensed Consolidated Financial Statements. 3 TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, 2021 2020 (In thousands, except per share data) Net sales $ 8,301 $ 10,247 Cost of sales 5,112 5,329 Gross profit 3,189 4,918 Operating expenses: Engineering, design and product development 1,803 1,385 Selling and marketing 1,443 2,208 General and administrative 2,609 2,620 5,855 6,213 Operating loss ( 2,666 ) ( 1,295 ) Interest and other (expense) income: Interest, net ( 13 ) 3 Other, net ( 83 ) ( 165 ) ( 96 ) ( 162 ) Loss before income taxes ( 2,762 ) ( 1,457 ) Income tax benefit 556 465 Net loss $ ( 2,206 ) $ ( 992 ) Net loss per common share: Basic $ ( 0.25 ) $ ( 0.13 ) Diluted $ ( 0.25 ) $ ( 0.13 ) Shares used in per-share calculation: Basic 8,948 7,507 Diluted 8,948 7,507 See notes to Condensed Consolidated Financial Statements. 4 TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) Three Months Ended March 31, 2021 2020 (In thousands) Net loss $ ( 2,206 ) $ ( 992 ) Foreign currency translation adjustment, net of tax 53 71 Comprehensive loss $ ( 2,153 ) $ ( 921 ) See notes to Condensed Consolidated Financial Statements. 5 TRANSACT TECHNOLOGIES INCORPORATED CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, 2021 2020 (In thousands) Cash flows from operating activities: Net loss $ ( 2,206 ) $ ( 992 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 264 187 Depreciation and amortization 240 238 Deferred income taxes ( 555 ) ( 518 ) Gain on the sale of fixed assets ( 8 ) – Foreign currency transaction losses 90 194 Changes in operating assets and liabilities: Accounts receivable ( 1,330 ) 106 Inventories 1,309 ( 573 ) Prepaid income taxes ( 2 ) 51 Other current and long-term assets ( 103 ) ( 266 ) Accounts payable 227 ( 1,243 ) Accrued liabilities and other liabilities ( 1,020 ) ( 755 ) Net cash used in operating activities ( 3,094 ) ( 3,571 ) Cash flows from investing activities: Capital expenditures ( 68 ) ( 328 ) Proceeds from the sale of fixed assets 8 – Collection (issuance) of note receivable 1,598 ( 600 ) Net cash provided by (used in) investing activities 1,538 ( 928 ) Cash flows from financing activities: Revolving credit line borrowings – 1,000 Revolving credit line payments – ( 206 ) Proceeds from stock option exercises 91 353 Withholding taxes paid on stock issuances ( 75 ) ( 41 ) Payment of bank financing costs ( 31 ) ( 201 ) Net cash (used in) provided by financing activities ( 15 ) 905 Effect of exchange rate changes on cash and cash equivalents ( 60 ) 6 Decrease in cash and cash equivalents ( 1,631 ) ( 3,588 ) Cash and cash equivalents, beginning of period 10,359 4,203 Cash and cash equivalents, end of period $ 8,728 $ 615 Supplemental schedule of non-cash investing activities: Capital expenditures included in accounts payable $ 27 $ 38 See notes to Condensed Consolidated Financial Statements. 6 TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) Three Months Ended March 31, 2021 2020 (In thousands) Equity beginning balance $ 30,236 $ 25,926 Common stock Balance, beginning of period 130 115 Issuance of shares from stock awards – 1 Balance, end of period 130 116 Additional paid-in capital Balance, beginning of period 42,536 32,604 Share-based compensation expense 264 187 Issuance of shares from exercise of stock options 91 353 Relinquishment of stock awards and deferred stock units to pay for withholding taxes ( 75 ) ( 41 ) Balance, end of period 42,816 33,103 Retained earnings Balance, beginning of period 19,718 25,348 Net loss ( 2,206 ) ( 992 ) Balance, end of period 17,512 24,356 Treasury stock Balance, beginning and end of period ( 32,110 ) ( 32,110 ) Accumulated other comprehensive income (loss) Balance, beginning of period ( 38 ) ( 31 ) Foreign currency translation adjustment, net of tax 53 71 Balance, end of period 15 40 Equity ending balance 28,363 25,505 Supplemental share information Issuance of shares from stock awards 65 83 Relinquishment of stock awards to pay withholding taxes 31 14 See notes to Condensed Consolidated Financial Statements. 7 TRANSACT TECHNOLOGIES INCORPORATED N OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of presentation The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature. The December 31, 2020 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020. The financial position and results of operations of our U.K. subsidiary are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated at the end of period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income (loss), net of tax”, in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity. Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations. The results of operations for the three 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 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 ultimate severity of the reduction in demand due to the pandemic remains uncertain. Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions implemented during 2020 , we 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. ● 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. 8 After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Report”) were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued. Use of Assumptions and Estimates Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital expenditures and other operating costs. Our current assumptions are that casinos and restaurants remain open and continue to gradually increase capacity limitations during 2021, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, as their businesses gradually return to pre-pandemic levels of capacity and operations. Based on these assumptions, we anticipate that sales in casino and gaming and food service technology will continue to be negatively through at least 2021. We have performed a sensitivity analysis on these assumptions to forecast the potential impact of a slower-than-anticipated recovery and believe that we are positioned to withstand the impact of lower-than-anticipated sales and that we will be able to take additional financial and operational actions to cut costs and/or increase liquidity if necessary. These actions may include additional expense reductions and capital raising activities. In addition, the presentation of the accompanying unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, inventory obsolescence, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates used. 2. Revenue We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers. Disaggregation of revenue The following 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. Three Months Ended March 31, 2021 2020 (In thousands) United States International Total United States International Total Food service technology $ 2,564 $ 183 $ 2,747 $ 1,239 $ 132 $ 1,371 POS automation 1,160 4 1,164 1,554 4 1,558 Casino and gaming 1,964 901 2,865 2,558 2,373 4,931 Printrex 27 132 159 61 56 117 Transact Services Group 1,280 86 1,366 2,003 267 2,270 Total net sales $ 6,995 $ 1,306 $ 8,301 $ 7,415 $ 2,832 $ 10,247 Contract balances Contract assets consist of unbilled receivables. Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable” and “Other non-current assets” in the Condensed Consolidated Balance Sheets. 9 Contract liabilities consist of customer pre-payments and deferred revenue. Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete. Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL™ maintenance contracts and testing service contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract. 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 $ 293 $ 290 Unbilled receivables, non-current 516 591 Customer pre-payments ( 146 ) ( 216 ) Deferred revenue, current ( 569 ) ( 504 ) Deferred revenue, non-current ( 202 ) ( 111 ) Total net contract (liabilities) assets $ ( 108 ) $ 50 Remaining performance obligations Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer. As of 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. 3. Note receivable 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. 4. Inventories The components of inventories were: March 31, 2021 December 31, 2020 (In thousands) Raw materials and purchased component parts $ 4,672 $ 5,467 Finished goods 5,328 5,819 $ 10,000 $ 11,286 5. Accrued product warranty liability We generally provide warranties on our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded. Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs. 10 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 March 31, 2021 2020 (In thousands) Balance, beginning of period $ 140 $ 215 Warranties issued 5 45 Warranty settlements ( 29 ) ( 47 ) Balance, end of period $ 116 $ 213 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”. 6. Debt On March 13, 2020, we entered into a new credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC. The Siena Credit Facility provides for a revolving credit line of up to $ 10.0 million expiring on March 13, 2023 . Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75 %, (ii) the federal funds rate plus 2.25 %, and (iii) 6.50 %. The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility was $ 245 thousand, which were reported as “other current assets” in current assets and “other assets” in non-current assets in the Condensed Consolidated Balance Sheets. We also pay a fee of 0.50 % on unused borrowings under the 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 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”) 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. 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, $ 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 . 11 7. Earnings per share The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding: Three Months Ended March 31, 2021 2020 (In thousands, except per share data) Net loss $ ( 2,206 ) $ ( 992 ) Shares: Basic: Weighted average common shares outstanding 8,948 7,507 Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method – – Diluted: Weighted average common and common equivalent shares outstanding 8,948 7,507 Net loss per common share: Basic $ ( 0.25 ) $ ( 0.13 ) Diluted $ ( 0.25 ) $ ( 0.13 ) The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive. For the three months ended March 31, 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. 8. Shareholders’ equity On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock. The final dividend payment was made in December 2019. 9. Leases We account for leases in accordance with ASC Topic 842: Leases. We enter into lease agreements for the use of real estate space and certain other equipment under operating leases and we have no financing leases. Our leases are included in Right-of-use-assets and Lease liabilities in our Condensed Consolidated Balance Sheet. Our leases have remaining lease terms of one year to 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 . On February 28, 2020, we entered into an amendment to extend the lease on our facility in Ithaca, New York, which resulted in recording an additional right-of-use-asset and lease liability of $ 1.5 million . The lease, which was last amended on January 14, 2016, was scheduled to expire on May 31, 2021. The lease amendment provided for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025. Lease expense is recognized on a straight-line basis over the lease term. 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. 12 The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands): Three Months Ended March 31, 2021 2020 Operating cash outflows from leases $ 262 $ 259 The following summarizes additional information related to our leases as of March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 Weighted average remaining lease term (in years) 4.7 4.9 Weighted average discount rate 4.1 % 4.1 % 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 2021 $ 709 $ 971 2022 880 879 2023 713 713 2024 718 718 2025 463 464 Thereafter 340 180 Total undiscounted lease payments 3,823 3,925 Less imputed interest 344 224 Total lease liabilities $ 3,479 $ 3,701 10. Income taxes 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. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2016. However, our federal tax returns for the years 2017 through 2019 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements. As of March 31, 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. 11. Subsequent events 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. 13