Item 1. Financial Statements
Item 1.
FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
C ONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, 2021
December 31, 2020
Assets:
(In thousands, except share data)
Current assets:
Cash and cash equivalents
$
18,658
$
10,359
Accounts receivable, net
6,501
3,377
Note receivable
–
100
Inventories
6,369
11,286
Prepaid income taxes
2,519
2,409
Other current assets
1,182
644
Total current assets
35,229
28,175
Fixed assets, net of accumulated depreciation of $ 20,421 and $ 19,979 , respectively
2,332
1,950
Note receivable, net of current portion
–
1,584
Right-of-use asset
2,750
3,618
Goodwill
2,621
2,621
Deferred tax assets
4,506
2,939
Intangible assets, net of accumulated amortization of $ 4,152 and $ 4,005 , respectively
435
583
Other assets
476
777
13,120
14,072
Total assets
$
48,349
$
42,247
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable
$
1,676
$
1,691
Accrued liabilities
3,511
3,665
Lease liability
816
837
Deferred revenue
768
504
Total current liabilities
6,771
6,697
Long-term debt
–
2,173
Deferred revenue, net of current portion
207
111
Lease liability, net of current portion
1,956
2,864
Other liabilities
135
166
2,298
5,314
Total liabilities
9,069
12,011
Shareholders’ equity:
Common stock, $ 0.01 par value, 20,000,000 shares authorized; 13,880,221 and 12,976,227 shares issued, respectively; 9,835,379 and 8,931,385 shares outstanding, respectively
139
130
Additional paid-in capital
54,873
42,536
Retained earnings
16,308
19,718
Accumulated other comprehensive income (loss), net of tax
70
( 38
)
Treasury stock, at cost, 4,044,842 shares
( 32,110
)
( 32,110
)
Total shareholders’ equity
39,280
30,236
Total liabilities and shareholders’ equity
$
48,349
$
42,247
See notes to Condensed Consolidated Financial Statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONDE NSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(In thousands, except per share data)
Net sales
$
10,637
$
7,300
$
28,263
$
22,832
Cost of sales
6,320
3,951
17,432
12,275
Gross profit
4,317
3,349
10,831
10,557
Operating expenses:
Engineering, design and product development
1,876
1,445
5,483
4,197
Selling and marketing
1,899
1,258
5,109
4,885
General and administrative
2,146
2,125
7,264
6,987
5,921
4,828
17,856
16,069
Operating loss
( 1,604
)
( 1,479
)
( 7,025
)
( 5,512
)
Interest and other income (expense):
Interest, net
( 29
)
( 19
)
( 71
)
( 41
)
Other, net
( 69
)
116
( 169
)
( 60
)
Gain on forgiveness of long-term debt
2,173
–
2,173
–
2,075
97
1,933
( 101
)
Income (loss) before income taxes
471
( 1,382
)
( 5,092
)
( 5,613
)
Income tax benefit
439
515
1,682
1,901
Net income (loss)
$
910
$
( 867
)
$
( 3,410
)
$
( 3,712
)
Net income (loss) per common share:
Basic
$
0.10
$
( 0.11
)
$
( 0.37
)
$
( 0.49
)
Diluted
$
0.09
$
( 0.11
)
$
( 0.37
)
$
( 0.49
)
Shares used in per-share calculation:
Basic
9,408
7,548
9,112
7,533
Diluted
9,846
7,548
9,112
7,533
See notes to Condensed Consolidated Financial Statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLI DATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(In thousands)
Net income (loss)
$
910
$
( 867
)
$
( 3,410
)
$
( 3,712
)
Foreign currency translation adjustment, net of tax
23
( 84
)
108
( 3
)
Comprehensive income (loss)
$
933
$
( 951
)
$
( 3,302
)
$
( 3,715
)
See notes to Condensed Consolidated Financial Statements.
5
TRANSACT TECHNOLOGIES INCORPORATED
CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
2021
2020
(In thousands)
Cash flows from operating activities:
Net loss
$
( 3,410
)
$
( 3,712
)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense
952
644
Depreciation and amortization
721
758
Deferred income taxes
( 1,573
)
( 2,008
)
Gain on the sale of fixed assets
( 8
)
–
Foreign currency transaction losses
175
59
Gain on the forgiveness of long-term debt
( 2,173
)
–
Changes in operating assets and liabilities:
Accounts receivable
( 3,124
)
1,429
Inventories
4,922
( 446
)
Prepaid income taxes
( 110
)
87
Other current and long-term assets
( 213
)
150
Accounts payable
( 241
)
( 685
)
Accrued liabilities and other liabilities
143
( 508
)
Net cash used in operating activities
( 3,939
)
( 4,232
)
Cash flows from investing activities:
Capital expenditures
( 804
)
( 634
)
Proceeds from the sale of fixed assets
8
–
Collection (issuance) of note receivable
1,598
( 600
)
Net cash provided by (used in) investing activities
802
( 1,234
)
Cash flows from financing activities:
Revolving credit line borrowings
–
2,756
Revolving credit line payments
–
( 2,756
)
Long-term debt borrowings
–
2,173
Proceeds from the issuance of common stock
12,214
–
Payment of common stock issuance costs
( 867
)
( 71
)
Proceeds from stock option exercises
284
353
Withholding taxes paid on stock issuances
( 100
)
( 41
)
Payment of bank financing costs
( 31
)
( 213
)
Net cash provided by financing activities
11,500
2,201
Effect of exchange rate changes on cash and cash equivalents
( 64
)
9
Increase (decrease) in cash and cash equivalents
8,299
( 3,256
)
Cash and cash equivalents, beginning of period
10,359
4,203
Cash and cash equivalents, end of period
$
18,658
$
947
Supplemental schedule of non-cash investing activities:
Capital expenditures included in accounts payable
$
115
$
15
See notes to Condensed Consolidated Financial Statements.
6
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSO LIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(In thousands)
Equity beginning balance
$
26,873
$
23,888
$
30,236
$
25,926
Common stock
Balance, beginning of period
130
116
130
115
Issuance of common stock
9
–
9
–
Issuance of shares from stock awards
–
–
–
1
Balance, end of period
139
116
139
116
Additional paid-in capital
Balance, beginning of period
43,408
33,329
42,536
32,604
Issuance of common stock, net of issuance cost
11,201
–
11,201
–
Share-based compensation expense
257
231
952
644
Issuance of shares from exercise of stock options
7
–
284
353
Relinquishment of stock awards and restricted stock units to pay for withholding taxes
–
–
( 100
)
( 41
)
Balance, end of period
54,873
33,560
54,873
33,560
Retained earnings
Balance, beginning of period
15,398
22,503
19,718
25,348
Net income (loss)
910
( 867
)
( 3,410
)
( 3,712
)
Balance, end of period
16,308
21,636
16,308
21,636
Treasury stock
Balance, beginning and end of period
( 32,110
)
( 32,110
)
( 32,110
)
( 32,110
)
Accumulated other comprehensive income (loss), net of tax
Balance, beginning of period
47
50
( 38
)
( 31
)
Foreign currency translation adjustment, net of tax
23
( 84
)
108
( 3
)
Balance, end of period
70
( 34
)
70
( 34
)
Equity ending balance
39,280
23,168
39,280
23,168
Supplemental share information
Issuance of common stock
842
–
842
–
Issuance of shares from stock awards
3
2
94
93
Relinquishment of stock awards to pay withholding taxes
–
–
32
14
See notes to Condensed Consolidated Financial Statements.
7
TRANSACT TECHNOLOGIES INCORPORATED
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 in our Annual Report on Form 10-K for the year ended December 31, 2020.
The financial position and results of operations of our U.K. subsidiary are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated at the end-of-period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income (loss), net of tax” in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity. Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.
The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.
Impact of the COVID-19 Pandemic
In the first quarter of 2020, the COVID-19 pandemic and the resulting social distancing measures, including closures and restricted openings of restaurants and casinos implemented by federal, state and local authorities, negatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our two manufacturers located in China and Thailand. While we began to experience a modest recovery starting in the second half of 2020 into 2021 and expect this recovery to continue during the remainder of 2021, the exact timing and pace of recovery is unknown given uncertainty surrounding responsive measures to the spread of virus variants or any potential future resurgences of the virus and the significant disruption that our customers have already experienced and may continue to experience. In light of this uncertainty, we implemented a number of cost saving measures during 2020 to help mitigate the impact on our financial position and operations and continued to limit discretionary spending during the first nine months of 2021. We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ultimate impact of the COVID-19 pandemic on our business; however, the length and ultimate severity of the reduction in demand due to the pandemic remains uncertain.
Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions implemented during 2020 , we took the following actions to increase liquidity and strengthen our financial position:
●
Public Offerings – On October 16, 2020 and August 16, 2021, the Company raised net proceeds of $ 8.7 million and $11.3 million (including the exercise of the underwriters overallotment option on August 20, 2021), respectively, after deducting underwriting discounts, commissions and offering expenses, through underwritten public offerings and sold an aggregate of 1,380,000 and 842,375 shares of common stock, respectively.
●
PPP Loan – On May 1, 2020, the Company was granted a $ 2.2 million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act"), which enabled us to return employees we furloughed earlier in 2020 to full time employment and to restore employees to full pay following certain pay cuts. On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021. See Note 6 for further details regarding the PPP Loan.
●
New Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC that provides a revolving credit line of up to $ 10.0 million, subject to a borrowing base. See Note 6 for further details regarding this facility.
●
Reduced Capital Expenditures – We limited capital expenditures during 2020 and gradually increased expenses during 2021 as our sale improved.
We may further modify or supplement the expense management measures we have implemented and the actions we have taken to increase liquidity as the timing and extent of customer demand recovery develops.
8
After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued.
Use of Assumptions and Estimates
Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital expenditures and other operating costs. Our current assumptions are that casinos and restaurants remain open and continue to gradually increase capacity limitations during 2021, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, as their businesses gradually return to pre-pandemic levels of capacity and operations. Based on these assumptions, we anticipate that sales in casino and gaming and food service technology will continue to be negatively impacted through at least 2021. We have performed a sensitivity analysis on these assumptions to forecast the potential impact of a slower-than-anticipated recovery and believe that we are positioned to withstand the impact of lower-than-anticipated sales and that we will be able to take additional financial and operational actions to cut costs and/or increase liquidity, if necessary. These actions may include additional expense reductions and capital raising activities.
In addition, the presentation of the accompanying unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, inventory obsolescence, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates used.
2. Revenue
We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers.
Disaggregation of revenue
The following tables disaggregate our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues.
Three Months Ended
September 30,
2021
2020
(In thousands)
United States
International
Total
United States
International
Total
Food service technology
$
3,065
$
217
$
3,282
$
2,081
$
268
$
2,349
POS automation
1,188
–
1,188
739
3
742
Casino and gaming
2,656
1,380
4,036
1,552
457
2,009
Printrex
–
160
160
5
102
107
TransAct Services Group
1,856
115
1,971
1,910
183
2,093
Total net sales
$
8,765
$
1,872
$
10,637
$
6,287
$
1,013
$
7,300
Nine Months Ended
September 30,
2021
2020
(In thousands)
United States
International
Total
United States
International
Total
Food service technology
$
8,616
$
487
$
9,103
$
4,376
$
548
$
4,924
POS automation
3,600
8
3,608
2,774
7
2,781
Casino and gaming
7,058
3,310
10,368
5,080
3,220
8,300
Lottery
–
–
–
817
–
817
Printrex
52
379
431
72
160
232
TransAct Services Group
4,388
365
4,753
5,184
594
5,778
Total net sales
$
23,714
$
4,549
$
28,263
$
18,303
$
4,529
$
22,832
9
Contract balances
Contract assets consist of unbilled receivables. Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable” and “Other non-current assets” in the Condensed Consolidated Balance Sheets.
Contract liabilities consist of customer pre-payments and deferred revenue. Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete. Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL® maintenance contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract. For the nine months ended September 30, 2021 , we recognized revenue of $ 0.6 million related to our contract liabilities at December 31, 2020 . Total net contract (liabilities) assets consisted of the following:
September 30, 2021
December 31, 2020
(In thousands)
Unbilled receivables, current
$
306
$
290
Unbilled receivables, non-current
376
591
Customer pre-payments
( 49
)
( 216
)
Deferred revenue, current
( 768
)
( 504
)
Deferred revenue, non-current
( 207
)
( 111
)
Total net contract (liabilities) assets
$
( 342
)
$
50
Remaining performance obligations
Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer. As of September 30, 2021, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 4.6 million. The Company expects to recognize revenue on $ 4.1 million of its remaining performance obligations within the next 12 months following September 30, 2021, $ 0.4 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months .
3. Note receivable
The note receivable balance relates to loans given to a third-party software developer from whom we license our food service technology software with an interest rate of 4.5 % , which were originally due in April 2020. In March 2021, we received payment in the amount of $ 1.6 million representing the remaining principal balance and interest due from the third party. Prior to the payment being received, notes receivable were stated at unpaid principal balances and interest income was recognized on the accrual method. Interest income for the three months ended September 30, 2020 was $ 18 thousand. There was no interest income for the three months ended September 30, 2021. For the nine months ended September 30, 2021 and 2020 , we recorded $ 17 thousand and $ 49 thousand of interest income, respectively.
4. Inventories
The components of inventories were:
September 30, 2021
December 31, 2020
(In thousands)
Raw materials and purchased component parts
$
4,213
$
5,467
Finished goods
2,156
5,819
$
6,369
$
11,286
5. Accrued product warranty liability
We generally provide hardware warranties on our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded. Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs.
10
The following table summarizes the activity recorded in the accrued product warranty liability during the nine months ended September 30, 2021 and 2020:
Nine Months Ended
September 30,
2021
2020
(In thousands)
Balance, beginning of period
$
140
$
215
Warranties issued
39
53
Warranty settlements
( 70
)
( 107
)
Balance, end of period
$
109
$
161
As of September 30, 2021, $ 88 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $ 21 thousand was classified as non-current in “Other liabilities”.
6. Debt
On March 13, 2020, we entered into a new credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC. The Siena Credit Facility provides for a revolving credit line of up to $ 10.0 million expiring on March 13, 2023 . Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75 %, (ii) the federal funds rate plus 2.25 %, and (iii) 6.50 %. The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility was $ 245 thousand, which were reported as “Other current assets” in current assets and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets. We also pay a fee of 0.50 % on unused borrowings under the Siena Credit Facility. Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.
The Siena Credit Facility imposes a financial covenant on the Company and borrowings are subject to a borrowing base based on (i) 85 % of eligible accounts receivable plus the lesser of (a) $ 5.0 million and (b) 50 % of eligible raw material and 60 % of finished goods inventory. The three-month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant, which required the Company to maintain a minimum EBITDA and continued through the 12-month period from April 1, 2020 to March 31, 2021. On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility. The Credit Facility Amendment changed the financial covenant under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $ 750 thousand under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021. During the third quarter of 2021, we have been in compliance with our excess availability covenant, and as of September 30, 2021, we had no outstanding borrowings under the Siena Credit Facility and $ 4.2 million of borrowing capacity available under the Siena Credit Facility.
On May 1, 2020 (the “Loan Date”), the Company was granted the PPP Loan from Berkshire Bank in the aggregate amount of $ 2.2 million, pursuant to the PPP. Under the terms of the PPP, the PPP Loan would be forgiven to the extent that funds from the PPP Loan were used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020, and interest on debt obligations incurred before February 15, 2020, subject to conditions and limitations provided in the CARES Act. At least 60% (under the PPP terms, as amended) of the proceeds from the PPP Loan needed to have been used for eligible payroll costs for the PPP Loan to be forgiven.
The PPP Loan, which was evidenced by a Note dated the Loan Date issued by the Company (the “Note”) in favor of Berkshire Bank, as lender (the “PPP Lender”), was scheduled to mature on May 1, 2022 and had a fixed interest rate of 1.0 % per annum, accruing from the Loan Date and payable monthly. The Company submitted its PPP Loan forgiveness application in May 2021 to the SBA through Berkshire Bank and submitted the related loan necessity questionnaire in June 2021. On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP Loan (including all interest accrued thereon) of $ 2.2 million had been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021. No payments were due on the PPP Loan for six months from the date of first disbursement, and because a loan forgiveness application was submitted to the SBA within 10 months after the end of the covered period, no payments were due until the date on which the SBA remitted the loan forgiveness amount to the PPP Lender and interest that accrued during the deferment period was included in the forgiveness amount. The Note was unsecured and guaranteed by the SBA. The forgiveness of the PPP Loan was reported as “Gain on forgiveness on long-term debt” in the Condensed Consolidated Statement of Operations during the quarter ending September 30, 2021.
11
7. Earnings per share
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(In thousands, except per share data)
Net income (loss)
$
910
$
( 867
)
$
( 3,410
)
$
( 3,712
)
Shares:
Basic: Weighted average common shares outstanding
9,408
7,548
9,112
7,533
Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method
438
–
–
–
Diluted: Weighted average common and common equivalent shares outstanding
9,846
7,548
9,112
7,533
Net income (loss) per common share:
Basic
$
0.10
$
( 0.11
)
$
( 0.37
)
$
( 0.49
)
Diluted
$
0.09
$
( 0.11
)
$
( 0.37
)
$
( 0.49
)
The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive. For the three months ended September 30, 2021 and 2020 , there were 0.3 million and 1.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share. For the nine months ended September 30, 2021 and 2020 , there were 0.4 million and 1.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share. Regarding the three months ended September, 31, 2020 and the nine months ended September 30, 2021 and 2020, when a net loss is reported, basic and diluted net loss per common share are calculated using the same method.
8. Shareholders’ equity
On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock. The final dividend payment was made in December 2019.
9. Leases
We account for leases in accordance with ASC Topic 842: Leases.
We enter into lease agreements for the use of real estate space and certain equipment under operating leases and we have no financing leases. Our leases are included in “Right-of-use-assets” and “Lease liabilities” in our Condensed Consolidated Balance Sheet. Our leases have remaining lease terms of one year to five years , some of which include options to extend. Our leases with options to extend provide for extensions of two to five years with the ability to terminate the lease within one year . On February 28, 2020, we entered into an amendment to extend the lease on our facility in Ithaca, New York, which resulted in recording an additional right-of-use-asset and lease liability of $ 1.5 million . The lease, which was last amended on January 14, 2016, was scheduled to expire on May 31, 2021. The lease amendment provided for an extension of the lease for four additional years from June 1, 2021 to May 31, 2025. On April 30, 2021, we entered into an amendment to modify the expiration date of our lease on our Hamden, CT facility. The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027. The lease amendment modified the expiration date to October 31, 2023 with an option to extend the lease for an additional two-year period, extending the expiration date to October 31, 2025. The modification resulted in reducing the right-of-use-asset and lease liability by $ 0.3 million . Lease expense is recognized on a straight-line basis over the lease term.
Operating lease expense for the three months ended September 30, 2021 and 2020 was $ 235 thousand and $ 243 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations. Operating lease expense for the nine months ended September 30, 2021 and 2020 was $ 717 thousand and $ 735 thousand, respectively. Operating lease expenses include short-term lease costs, which were immaterial during the periods presented.
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The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):
Nine Months Ended
September 30,
2021
2020
Operating cash outflows from leases
$
750
$
779
The following summarizes additional information related to our leases as of September 30, 2021 and December 31, 2020:
September 30, 2021
December 31, 2020
Weighted average remaining lease term (in years)
3.7
4.9
Weighted average discount rate
4.4
%
4.1
%
The maturity of the Company’s operating lease liabilities as of September 30, 2021 and December 31, 2020 were as follows (in thousands):
September 30, 2021
December 31, 2020
2021
$
232
$
971
2022
886
879
2023
720
713
2024
721
718
2025
426
464
Thereafter
23
180
Total undiscounted lease payments
3,008
3,925
Less imputed interest
236
224
Total lease liabilities
$
2,772
$
3,701
10. Income taxes
We recorded an income tax benefit for the third quarter of 2021 of $ 439 thousand at an effective tax rate of - 93.2 % , compared to an income tax benefit for the third quarter of 2020 of $ 515 thousand at an effective tax rate of 37.3 % . For the nine months ended September 30, 2021 , we recorded an income tax benefit of $ 1.7 million at an effective tax rate of 33.0 % , compared to an income tax benefit for the nine months ended September 30, 2020 of $ 1.9 million at an effective tax rate of 33.9 % . A tax benefit was recorded for the third quarter of 2021 on pre-tax income due to recognition of the gain on the forgiveness of the PPP Loan which is not taxable. The effective tax rate for the third quarter of 2020 and first nine months of 2020 included the impact of our net operating loss (“NOL”) that we incurred during 2020 and was carried back to prior years. The CARES Act enacted on March 27, 2020 permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We generated an NOL in 2020, which we carried back to tax years that had a federal statutory tax rate of 34 % compared to 21 % in 2020.
We are subject to U.S. federal income tax, as well as income tax in certain U.S. states and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2017. However, our federal tax returns for the years 2018 through 2020 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.
As of September 30, 2021, we had $ 97 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. For the third quarter of 2021, we recognized $ 24 thousand of previously unrecognized tax benefits as the statute of limitations on the use of our 2017 research and development credit expired during the third quarter of 2021.
We recognize interest and penalties related to uncertain tax positions in the income tax provision. As of September 30, 2021, we had $ 17 thousand of accrued interest and penalties related to uncertain tax positions. The Company maintains a valuation allowance against certain deferred tax assets where realization is not likely.
11. Subsequent events
The Company has evaluated all events or transactions that occurred up to the date the consolidated financial statements were available to be issued. Based upon this review, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
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