TRANSACT TECHNOLOGIES INC 10-Q

Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act as of March 31, 2021. In the Amendment to our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on November 21, 2019, we disclosed that management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of December 31, 2018, due to two material weaknesses in our internal control over financial reporting. As of March 31, 2021, one material weakness was not fully remediated and our disclosure controls and procedures were not effective as of March 31, 2021. Management has begun remediation efforts on the remaining material weakness, which are described below. Notwithstanding the material weakness, our management, including our CEO and CFO, has concluded that our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 and the condensed consolidated financial statements included in this Report for the three months ended March 31, 2021, 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. Material Weakness in Internal Control Over Financial Reporting We identified a control deficiency that constituted a material weakness in our internal control over financial reporting as of March 31, 2021 and December 31, 2020 and 2019. The material weakness was that we did not design and maintain effective controls over the completeness and accuracy of information included in key spreadsheets supporting our accounting records (the “Spreadsheet Control Weakness”). The control deficiency constituted a material weaknesses, but did not result in a material misstatement of our annual or interim consolidated financial statements. However, if the 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 Weakness Beginning December 31, 2019, we commenced developing and implementing a plan to enhance the design and operating effectiveness of our internal control over financial reporting. As of December 31, 2020 we have taken the following steps to remediate the identified control deficiency and material weakness: 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 and the first quarter of 2021, we completed the evaluation process for each key spreadsheet based on the above criteria, and we implemented a new key control for approximately 30% of our key spreadsheets to validate the completeness and accuracy of the information contained within and supporting each such spreadsheet. We expect to complete the remediation of the Spreadsheet Control Weakness during 2021. We believe these steps will address the material weaknesses described above. Changes in Internal Control Over Financial Reporting Other than the changes intended to remediate the material weakness noted above, no changes 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 fiscal quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 24 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. As of March 31, 2021, we are unaware of any material pending legal proceedings, or of any material legal proceedings contemplated by government authorities.