TRANSACT TECHNOLOGIES INCORPORATED Forward Looking Statements Certain statements included in this Quarterly Report on Form 10-Q for the period endedSeptember 30, 2021 (this "Report"), including without limitation, statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts are "forward-looking statements" within the meaning of theU.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "project", "plan" or "continue" or the negative thereof or other similar words. The Company cautions readers not to place undue reliance on any such forward-looking statements, each of which involves certain risks and uncertainties, including, but not limited to, those listed in Part 1, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 (our "2020 Form 10-K"), and in our other filings with theSecurities and Exchange Commission (the "SEC"). Such risks and uncertainties could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Any such risks and uncertainties may also be exacerbated by the ultimate impact of the COVID-19 pandemic and the emergence of virus variants, which is unknown at this time. In addition, statements made in this Report about the COVID-19 pandemic and the potential effects and impacts of the COVID-19 pandemic on the Company's business, financial condition, liquidity and results of operations may constitute forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic, actions taken by governmental authorities and businesses in response to the pandemic and any resurgences or variants, vaccination rates and the direct and indirect impact of the pandemic on our employees, customers and third parties with which we conduct business, including difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions. Although management has taken steps to mitigate any negative effect of such risks and uncertainties, including the impact of the COVID-19 pandemic, significant unfavorable changes could severely impact the assumptions used. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect the impact of subsequent events or circumstances, except as required by law. As used in this Report, unless the context otherwise requires, references to "we", "us", "our", the "Company" and "TransAct" refer to the consolidated operations ofTransAct Technologies Incorporated and its consolidated subsidiaries.
Overview
TransAct is a global leader in developing and selling software-driven technology
and printing solutions for high-growth markets including food service
technology, point of sale ("POS") automation, casino and gaming, and oil and
gas. Our world-class products are designed from the ground up based on market
and customer requirements and are sold under the BOHA!™, AccuDate™, Epic,
EPICENTRAL®, Ithaca®, and Printrex® brand names. During 2019, we launched a new
line of products for the food service technology market, the BOHA! branded suite
of cloud-based applications and companion hardware solutions. The BOHA!
software and hardware products help restaurants, convenience stores and food
service operators of all sizes automate the food production in the back-of-house
operations. Known and respected worldwide for innovative designs and real-world
service reliability, our thermal printers and terminals generate top-quality
labels, coupons and transaction records such as receipts, tickets and other
documents, as well as printed logging and plotting of data. We sell our
technology to original equipment manufacturers ("OEMs"), value-added resellers,
and select distributors, as well as directly to end-users. Our product
distribution spans across the Americas , Europe , the Middle East , Africa , Asia ,
Australia , New Zealand , the Caribbean Islands and the South Pacific . We also
offer world-class service, support, labels, spare parts, accessories and
printing supplies to our growing worldwide base of products currently in use by
our customers. Through our TransAct Services Group ("TSG"), we provide a
complete range of supplies and consumables used in the printing activities of
customers in the restaurant and hospitality, retail, casino and gaming,
government and oil and gas exploration markets. Through our webstore,
www.transactsupplies.com, and our direct selling team, we address the demand for
these products. We operate in one reportable segment, the design, development,
and marketing of software-driven technology and printing solutions for high
growth markets, and provide related services, supplies and spare parts.
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Impact of the COVID-19 Pandemic
Our business trends through the first two months of 2020 were in line with
internal expectations; however, the challenges posed by the COVID-19 pandemic on
the United States and global economy increased significantly as the first
quarter of 2020 progressed and continued throughout the remainder of 2020 and
into the first nine months of 2021. Though we have begun to experience some
recovery during the first nine months of 2021, unfortunately, the massive
economic and social disruptions across the world persist due to COVID-19,
including the emergence of virus variants, and the measures implemented to
mitigate its spread. The food service, casino and gaming, and oil and gas
industries have been particularly affected by the pandemic, and we expect such
disruptions to continue to negatively impact our overall business for the
foreseeable future.
As a result of the COVID-19 pandemic and measures implemented to mitigate its
spread, we experienced decreased demand for our products and lower than
anticipated sales beginning in the second half of March 2020 and continuing
through the first nine months of 2021, particularly in our food service
technology and casino and gaming markets. We experienced some improvement in
demand during the second half of 2020 through the first nine months of 2021
compared to the second quarter of 2020, as state and local governments lifted
certain measures implemented earlier in 2020 to mitigate the spread of the
virus, but demand remained lower than 2019, and while we expect this improvement
to continue during the remainder of 2021, the exact timing and pace of recovery
is unknown. Below is a discussion of the impact of COVID-19 that we have
experienced, and that we believe will continue to experience for the foreseeable
future in each of our markets.
Food service technology and POS automation. In both our food service technology
and POS automation markets, many restaurants and food service establishments
that were closed during much of the second quarter of 2020 started to reopen in
the third quarter of 2020 as state and local governments began to ease
restrictions put in place in response to the pandemic. Many of our customers
opened under restrictions that limit them to providing drive-through, take-out
or delivery service without dine-in options, as well as limiting the volume of
customers and employees on site at any one time. During the second half of 2020
and first nine months of 2021, we experienced sales improvement compared to the
second quarter of 2020, as these food service customers reopened for business.
However, during the fourth quarter of 2020 and early in 2021, restaurants were
again impacted by a resurgence of the pandemic. Notwithstanding the gradual
resumption of limited operations that began in the third quarter of 2020, our
food service technology and POS automation customers continue to recover from
the financial impact of being closed for several months and we expect new
capital expenditures to be a lower priority for them in the near term, which we
believe will continue to negatively impact sales of BOHA! hardware, software and
label products, as well as sales of POS printers. However, food service
providers have been and are likely to continue to be required to develop and
implement new or enhanced policies and operating procedures regarding cleaning,
sanitizing and social distancing to ensure the safety of their employees and
customers. We believe that our BOHA! hardware, software and label products
could prove to be helpful to our food service customers in efficiently and
effectively managing and complying with these new procedures, especially as many
establishments are and will likely continue to be operating with reduced staff
levels.
Casino and gaming. In the casino and gaming market, most casinos and other
gaming establishments were closed worldwide during most of the second quarter of
2020. Many casinos began to reopen in late May and early June 2020 , but similar
to restaurants, casino openings were slow and measured, starting with reduced
capacity and limited gameplay based on social distancing guidelines. During the
fourth quarter of 2020, some casinos re-closed due to a resurgence of the
pandemic. However, many casinos in the U.S. reopened during the first quarter
of 2021 with limited capacity and during the second and third quarter of 2021
remained open and further expanded capacity. We anticipate that casinos will
continue to increase capacity over time, barring any new closures or reduced
capacity requirements in response to any new resurgence of the pandemic,
including the emergence of variants. As casinos gradually recover from the
financial impact of being closed for several months, we expect that casinos'
appetite for purchases of new slot machines may be diminished, which we believe
is likely to continue to negatively impact sales of casino and gaming printers
purchased by slot manufacturers for use in slot machines at casinos during 2021.
Lottery. We exited the lottery market at the end of 2019 and IGT made a final
purchase of our lottery printer during 2020. Therefore, COVID-19 has not had an
impact our lottery printer sales.
Printrex. The oil and gas market was negatively impacted by the decline in
worldwide oil prices attributable to the COVID-19 pandemic during 2020. During
the first nine months of 2021, oil and gas prices have begun to rise again
resulting in slowly improving sales to our oil and gas customers. However, due
to the uncertainty of current and future market conditions, we believe sales of
our Printrex oil and gas printers will continue to be negatively impacted. We
plan to exit the Printrex market at the end of 2021 and expect to have no future
sales in this market beyond 2021.
TSG. Due to closures and reduced operating capacity of restaurants, retail
establishments, casinos and other gaming establishments resulting from the
COVID-19 pandemic, sales of spare parts, service and consumable products have
declined, and we expect such sales to remain at reduced levels, due to lower
usage until these markets recover.
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Our gross margin has been negatively impacted and we expect our gross margin to
continue to be negatively impacted while the COVID-19 pandemic and its economic
effects on the markets we serve persists. As a result of an expected
significantly lower sales level as well as increased material and shipping costs
resulting from worldwide supply disruptions caused by the COVID-19 pandemic, we
believe our gross margin will remain lower than pre-pandemic levels due to fixed
manufacturing overhead expenses (such as facility costs, depreciation, etc.)
that cannot be reduced or eliminated even with the lower sales level.
We have also experienced supply chain disruptions, including delayed product
shipments from our two contract manufacturers located in China and Thailand that
conduct almost all of our printer and terminal manufacturing, due to reduced
operations and parts shortages at these facilities. To date, these disruptions
have only minimally impacted deliveries to customers due to our high inventory
levels and reduced demand for our products. However, our inventory levels have
decreased significantly during 2021 due to these supply chain disruptions and if
the delays are sustained or additional disruptions from the pandemic occur, we
may have insufficient inventory levels and our ability to deliver products to
our customers on time or at all may be impaired.
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,
vaccination rates, the emergence of virus variants 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.
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
net proceeds of
underwriters' overallotment option on
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
"PPP Loan") under the Paycheck Protection Program (the "PPP") administered by
the
of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"),
which enabled us to return employees we had furloughed earlier in 2020 to full
time employment and to restore employees to full pay following certain pay
cuts. On
as of
• New Credit Facility - On
with
revolving credit line of up to
• Reduced Capital Expenditures - We limited capital expenditures during 2020 and
gradually increased expenses during 2021 as our sales improved.
Since the onset of the pandemic, our top priority has been to ensure the health and safety of our employees while continuing to provide our customers with high-quality, personalized service. OnMarch 20, 2020 , we instituted work-from-home practices for the majority of our employees to reduce the spread of COVID-19 and to comply with government mandates. Because most of our employees already had laptop computers with remote access into our IT systems, we experienced only minor reductions in productivity and minimal costs related to the implementation of our work-from-home practices. In addition, even with the move to a work-from-home environment, our internal control structure remained operational and unchanged. As ofOctober 4, 2021 all of our employees were fully vaccinated against COVID-19 and, as a result, we implemented a return-to-work plan, reopening all of our facilities and ending our work-from-home practices. Our distribution centers, deemed an essential service, remained operational throughout the pandemic. During 2020, we implemented new COVID-19 policies, most of which were still in place during the first nine months of 2021, to specifically address health and safety guidelines for employees to adhere to and follow when at work. These policies are based on the COVID-19 safety guidelines recommended by theCenters for Disease Control and Prevention and implement the following operations procedures:
• staggered shifts and a rotational or flexible work schedule to minimize the
number of employees at any particular facility at a single time;
• mandated use of protective equipment, such as masks and gloves, when in common
areas, which is provided to employees;
• spaced seating in workspaces such as manufacturing cells, lunch/break rooms,
conference rooms and other common areas to comply with social distancing
guidelines;
• employees who (i) show symptoms of COVID-19 or (ii) have been exposed to
someone who shows symptoms or has tested positive for COVID-19 are prohibited
from reporting to work for 10 days;
• prior to
facilities; and
• cleaning and disinfecting protocols at all facilities.
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We have evaluated the recoverability of the assets on our unaudited condensed
consolidated balance sheet as of September 30, 2021 in accordance with relevant
authoritative accounting literature. We considered the disruptions caused by the
COVID-19 pandemic, including lower than previously forecasted sales and customer
demand and macroeconomic factors potentially impacting accounts receivable,
inventory, investments, intangible assets, goodwill and other assets and
liabilities. Where forward-looking estimates are required, we made a good-faith
estimate based on information available as of the balance sheet date. We have
continued to monitor for indicators of impairment through the date of this
Report and reflected accordingly in the accompanying condensed consolidated
financial statements.
Notwithstanding the foregoing, there is no assurance that the actions we have
taken in response to the pandemic are sufficient or adequate, and we may be
required to take additional preventive or responsive measures, as the ultimate
extent of the effects of the COVID-19 pandemic on the Company, our financial
condition, results of operations, liquidity, and cash flows are uncertain and
are dependent on evolving developments which cannot be predicted at this time.
See Part I, Item 1A, Risk Factors, of Form 10-K for the year ended December 31,
2020 for further discussion of risks related to COVID-19.
Critical Accounting Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our Condensed Consolidated Financial Statements, which have been
prepared by us in accordance with accounting principles generally accepted in
the United States of America . The presentation of these 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.
Results of Operations: Three months ended
Net Sales . Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Three Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Food service technology ("FST")$ 3,282 30.9 %$ 2,349 32.2 %$ 933 39.7 % POS automation 1,188 11.2 % 742 10.2 % 446 60.1 % Casino and gaming 4,036 37.9 % 2,009 27.5 % 2,027 100.9 % Printrex 160 1.5 % 107 1.4 % 53 49.5 % TSG 1,971 18.5 % 2,093 28.7 % (122 ) (5.8 %)$ 10,637 100.0 %$ 7,300 100.0 %$ 3,337 45.7 % International *$ 1,872 17.6 %$ 1,013 13.9 %$ 859 84.8 %
* International sales do not include sales of printers and terminals made to
domestic distributors or other domestic customers that may, in turn, ship those
printers and terminals to international destinations.
17-------------------------------------------------------------------------------- Net sales for the third quarter of 2021 increased$3.3 million , or 46%, from the same period in 2020. Printer, terminal and other hardware sales volume increased 91% year-over-year to approximately 22,000 units for the third quarter of 2021 due to volume increases in all our markets except our lottery market. The increase was driven primarily by a 111% increase in unit volume from the casino and gaming market and, to a lesser extent, a 64% increase in the POS automation market and a 74% increase in the FST market. The average selling price of our printers, terminals and other hardware decreased 3% for the third quarter of 2021 compared to the third quarter of 2020, primarily due to a higher level of POS automation printer sales, which sell at a lower price than our other products. Additionally, sales of our software, labels and other recurring revenue from our FST market increased$0.4 million , or 28%, in the third quarter of 2021 compared to the third quarter of 2020. International sales for the third quarter of 2021 increased$0.9 million , or 85%, from the same period in 2020, primarily due to a 202% increase in sales in the international casino and gaming market. Food service technology. Our primary offering in the food service technology market is our BOHA! ecosystem, which combines our latest generation terminal/workstation, cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The software component of BOHA! consists of a suite of software-as-a-service ("SaaS")-based applications for both Android and iOS, including applications for temperature monitoring of food and equipment, timers, food safety labeling, media libraries, checklists and task lists, and equipment service management. These applications are combined into a single platform with the associated hardware, which includes the BOHA! terminal/workstation, handheld devices, tablets, temperature probes and temperature sensors. The BOHA! terminal combines the software and hardware components in a device that includes an operating system, touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels for prepared foods, and "enjoy by" date labels. The BOHA! workstation uses an iPad instead of an integrated touchscreen. Both the BOHA! terminal and workstation are equipped with the TransAct Enterprise Management System to ensure that only approved applications and functions are available on the device and allows over-the-air updates to the applications and operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-serve restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations. Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are typically charged to customers annually on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services. Sales of our worldwide food service technology products for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Three Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Domestic$ 3,065 93.4 %$ 2,081 88.6 %$ 984 47.3 % International 217 6.6 % 268 11.4 % (51 ) (19.0 %)$ 3,282 100.0 %$ 2,349 100.0 %$ 933 39.7 % Three Months Ended Three Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Hardware$ 1,265 38.5 %$ 771 32.8 %$ 494 64.1 % Software, labels and other recurring revenue 2,017 61.5 % 1,578 67.2 % 439 27.8 %$ 3,282 100.0 %$ 2,349 100.0 %$ 933 39.7 % The increase in food service technology sales for the third quarter of 2021 compared to the third quarter of 2020 was driven by an increase in sales of both hardware and BOHA! software, labels and other recurring revenue. Hardware sales increased 64% in the third quarter of 2021 compared to 2020 due largely to sales of BOHA! terminals to an existing national convenience store customer and sales of our AccuDate 9700 terminal to McDonald's. Sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue increased by 28%, primarily due to increased label sales and software sales, compared to the prior year period due to the growth of the installed base of our BOHA! terminals and workstations. 18 -------------------------------------------------------------------------------- POS automation. Revenue from the POS automation market includes sales of thermal printers used primarily by quick serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or print on linerless labels. Sales of our worldwide POS automation products for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Three Months
Ended
(In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Domestic$ 1,188 100.0 %$ 739 99.6 %$ 449 60.8 % International - 0.0 % 3 0.4 % (3 ) (100.0 %)$ 1,188 100.0 %$ 742 100.0 %$ 446 60.1 % The increase in POS automation product revenue for the third quarter of 2021 compared to the third quarter of 2020 was driven by a 60% increase in sales of our Ithaca® 9000 printer, primarily to McDonald's, as POS automation sales improved during the third quarter of 2021 as business began to return to pre-pandemic normalcy compared to the significant negative impact the COVID-19 pandemic had on sales during the third quarter of 2020. Casino and gaming. Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos and racetracks and other gaming venues worldwide. Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals at non-casino gaming and sports betting establishments. Revenue from this market also includes royalties related to our patented casino and gaming technology. In addition, casino and gaming market revenue includes sales of the EPICENTRAL® print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine. Sales of our worldwide casino and gaming products for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Three Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Domestic$ 2,656 65.8 %$ 1,552 77.3 %$ 1,104 71.1 % International 1,380 34.2 % 457 22.7 % 923 202.0 %$ 4,036 100.0 %$ 2,009 100.0 %$ 2,027 100.9 % The increase in domestic sales of our casino and gaming products for the third quarter of 2021 compared to the third quarter of 2020 was primarily due to a 75% increase in domestic sales of our thermal casino printers, as we continue to experience continued recovery compared to the third quarter of 2020 when the casino and gaming market was negatively impacted by the COVID-19 pandemic. In addition to the year-over-year growth, the domestic casino and gaming market sales increased 9% in the third quarter of 2021 compared to the second quarter of 2021. Similar to the domestic sales increase, international sales of our casino and gaming products increased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to a 256% increase in sales of our thermal casino printers. Though sales inAsia remain weak, we experienced a sales recovery primarily inEurope during the third quarter of 2021 compared to the third quarter of 2020 when the international casino and gaming market was negatively impacted by the COVID-19 pandemic. In addition to the year-over-year growth, international casino sales in the third quarter of 2021 increased 34% compared to the second quarter of 2021. Printrex. Printrex branded printers are sold into markets that include wide format, desktop and rack mounted and vehicle mounted black/white thermal printers used by customers to log and plot oil field, seismic and down hole well drilling data in the oil and gas exploration industry. Sales of our worldwide Printrex printers for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Three Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Domestic $ - 0.0 %$ 5 4.7 %$ (5 ) (100.0 %) International 160 100.0 % 102 95.3 % 58 56.9 %$ 160 100.0 %$ 107 100.0 %$ 53 49.5 % The increase in sales of Printrex printers for the third quarter of 2021 compared to the third quarter of 2020 resulted from higher international sales in the oil and gas market which was negatively impacted during the third quarter of 2020 by the decline in worldwide oil prices attributable to the COVID-19 pandemic. Though our overall Printrex sales increased in the third quarter of 2021 and we continue to fulfill orders from existing customers, we are no longer focused on this market. We plan to exit this market at the end of the year and expect no future Printrex sales beyond 2021. 19 -------------------------------------------------------------------------------- TSG. Revenue generated by TSG includes sales of consumable products (POS receipt paper, inkjet cartridges, ribbons and other printing supplies for legacy products), replacement parts, maintenance and repair services, refurbished printers, and shipping and handling charges. Sales in our worldwide TSG market for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Three Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change Domestic$ 1,856 94.2 %$ 1,910 91.3 %$ (54 ) (2.8 %) International 115 5.8 % 183 8.7 % (68 ) (37.2 %)$ 1,971 100.0 %$ 2,093 100.0 %$ (122 ) (5.8 %) Domestic revenue from TSG for the third quarter of 2021 decreased slightly by 3% compared to the third quarter of 2020. The decrease was primarily due to a 57% decrease in service sales largely related to a service contract with a legacy banking customer that is expected to end in the first half of 2022 and a 55% decline from lower consumable sales resulting from decreased legacy POS printer paper sales. These decreases were partially offset by a 13% increase from higher lottery printer spare part sales to IGT, which can vary significantly from quarter to quarter. We expect TSG sales to decrease in 2021 compared to 2020 due to lower expected sales of legacy lottery printer spare parts to IGT and lower service sales related to the banking service contract noted above. Internationally, TSG revenue decreased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to an 83% decrease in service sales to international customers.
Gross Profit. Gross profit for the three months ended
Three Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 4,317 $ 3,349 28.9 % 40.6 % 45.9 %
Gross profit is measured as revenue less cost of sales, which includes primarily
the cost of all raw materials and component parts, direct labor, manufacturing
overhead expenses, cost of finished products purchased directly from our
contract manufacturers, expenses associated with installations and support of
our EPICENTRAL® print system and BOHA! ecosystem and royalty payments to third
parties, including to the third-party licensor of our food service technology
software products. For the third quarter of 2021, gross profit increased $1.0
million , or 29%, due largely to a sales increase of 46% for the third quarter of
2021 compared to the third quarter of 2020. During the third quarter of 2021,
our gross margin decreased 530 basis points, to 40.6%, compared to 45.9% for the
third quarter of 2020. The decrease in gross margin resulted largely from lower
margin on our BOHA! hardware sales in the third quarter of 2021 compared to the
third quarter of 2020, as we have reduced prices to accelerate the growth of our
BOHA! installed base, as well as higher material and shipping costs resulting
from worldwide supply disruptions caused by the COVID-19 pandemic.
Operating Expenses - Engineering, Design and Product Development. Engineering,
design and product development expense for the three months ended September 30,
2021 and 2020 is summarized below (in thousands, except percentages):
Three Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 1,876 $ 1,445 29.8 % 17.6 % 19.8 %
Engineering, design and product development expenses primarily include salary
and payroll related expenses for our hardware and software engineering staff,
depreciation and design expenses (including prototype printer expenses, outside
design, development and testing services, supplies and contract software
development expenses including those to the third-party licensor of our food
service technology software products). Such expenses increased $0.4 million , or
30%, for the third quarter of 2021 compared to the third quarter of 2020, as we
gradually return to more normalized pre-COVID spending levels and continue
development of our food service technology products. We expect engineering,
design and product development expense to increase for the full year 2021
compared to the full year 2020 due to the accelerated investments planned in our
food service technology products.
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Operating Expenses - Selling and Marketing. Selling and marketing expense for
the three months ended
Three Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 1,899 $ 1,258 51.0 % 17.9 % 17.2 %
Selling and marketing expenses primarily include salaries and payroll related
expenses for our sales and marketing staff, sales commissions, travel expenses,
expenses associated with the lease of sales offices, advertising, trade show
expenses, public relations, e-commerce and other promotional marketing
expenses. Such expenses increased $0.6 million , or 51%, for the third quarter
of 2021 compared to the third quarter of 2020, primarily due to increased
marketing programs and new sales staff to support our BOHA! products, as well as
higher sales commissions and travel expenses. Our level of spending was
unusually low during the third quarter of 2020, as we continued a number of
significant cost saving measures that were implemented during the second quarter
of 2020 in response to the COVID-19 pandemic. We expect selling and marketing
expenses to continue to increase for the remainder 2021, as we return to more
normalized pre-COVID-19 spending levels, as well as continue the strategic
investments in our food service technology sales and marketing groups including
expanding our staff and the resumption and expansion of print advertising and
marketing promotions started in second quarter of 2021.
Operating Expenses - General and Administrative. General and administrative
expense for the three months ended
Three Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 2,146 $ 2,125 1.0 % 20.2 % 29.1 %
General and administrative expenses primarily include salaries, incentive
compensation, and other payroll related expenses for our executive, accounting,
human resources, business development and information technology staff, expenses
for our corporate headquarters, professional and legal expenses, information
technology expenses, and other expenses related to being a publicly-traded
company. General and administrative expenses remained relatively consistent,
increasing 1%, for the third quarter of 2021 compared to the third quarter of
2020 as higher recruiting fees and employee compensation were almost entirely
offset by lower severance expense which was higher in the 2020 period due to
cost saving initiatives completed during the third quarter of 2020. We expect
general and administrative expenses to increase for the full year 2021 as we
gradually return to more normalized pre-COVID-19 spending levels.
Operating Loss. Operating loss for the three months ended
Three Months Ended September 30, Percent Percent of Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ (1,604 ) $ (1,479 ) 8.5 % (15.1 %) (20.3 %)
Our operating loss increased $0.1 million , or 9%, for the third quarter of 2021
compared to the third quarter of 2020 as increased sales of 46% were almost
entirely offset by a decrease in our gross margin of 530 basis points and an
increase in operating expenses of $1.1 million during the third quarter of 2021
compared to the third quarter of 2020.
Interest, net. We recorded net interest expense of $29 thousand for the third
quarter of 2021 compared to net interest expense of $19 thousand for the third
quarter of 2020. The increase in net interest expense was primarily due to
lower interest income earned from the note receivable to a third-party software
developer that was collected in March 2021 . We expect interest expense to
increase for the full year 2021 compared to the full year 2020 due to the full
year impact of unused borrowing fees incurred from the Siena Credit Facility
that was entered into on March 13, 2020 and lower interest income due to the
collection of the note receivable during the first quarter of 2021.
Other, net. We recorded other expense of $69 thousand for the third quarter of
2021 compared to other income of $116 thousand for the third quarter of 2020,
primarily due to foreign exchange losses recorded by our U.K. subsidiary in the
third quarter of 2021 compared to foreign exchange gains recorded in the third
quarter of 2020. Going forward, we may continue to experience more foreign
exchange gains or losses depending on the level of sales to European customers
through our U.K. subsidiary and the fluctuation in exchange rates of the Euro
and Pound Sterling against the U.S. Dollar, which may be impacted by volatility
in global economic conditions due to the COVID-19 pandemic.
21
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Gain on Forgiveness of Long-Term Debt. We recorded a $2.2 million gain in the
third quarter of 2021 resulting from the forgiveness of the PPP Loan in July
2021 .
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%. 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 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.
Net Income (Loss). We reported net income for the third quarter of 2021 of $0.9
million , or $0.09 per diluted share, compared to a net loss of $0.9 million , or
$0.11 per diluted share, for the third quarter of 2020.
22
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Results of Operations: Nine months ended
Net Sales . Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the nine months endedSeptember 30, 2021 and 2020 were as follows: Nine Months Ended Nine Months Ended (In thousands, except percentages) September 30, 2021 September 30, 2020 $ Change % Change FST$ 9,103 32.2 %$ 4,924 21.6 %$ 4,179 84.9 % POS automation 3,608 12.8 % 2,781 12.2 % 827 29.7 % Casino and gaming 10,368 36.7 % 8,300 36.3 % 2,068 24.9 % Lottery - 0.0 % 817 3.6 % (817 ) (100.0 %) Printrex 431 1.5 % 232 1.0 % 199 85.8 % TSG 4,753 16.8 % 5,778 25.3 % (1,025 ) (17.7 %)$ 28,263 100.0 %$ 22,832 100.0 %$ 5,431 23.8 %
International *
0.4 %
* International sales do not include sales of printers and terminals made to
domestic distributors or other domestic customers that may, in turn, ship those
printers and terminals to international destinations.
Net sales for the first nine months of 2021 increased$5.4 million , or 24%, from the same period in 2020. Printer, terminal and other hardware sales volume increased by 28% to approximately 59,000 units for the first nine months of 2021 driven by volume increases in all our markets except our lottery market. The primary volume increases were a 28% increase in unit volume from the casino and gaming market and, to a lesser extent, a 32% unit volume increase in our POS automation market and a 108% increase in unit volume from the FST market. The average selling price of our printers, terminals and other hardware increased 1% for the first nine months of 2021 compared to the first nine months of 2020. Additionally, sales of our software, labels and other recurring revenue from our FST market increased$2.4 million , or 85%, in the first nine months of 2021 compared to the first nine months of 2020. International sales for the first nine months of 2021 increased by less than 1% compared to the first nine months of 2020, due to a 137% increase in the international Printrex market and a 3% increase in the international casino and gaming market which were mostly offset by a 39% decrease in the international TSG market.
Food service technology. Sales of our worldwide food service technology products
for the nine months ended
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Domestic $ 8,616 94.7 % $ 4,376 88.9 % $ 4,240 96.9 %
International 487 5.3 % 548 11.1 % (61 ) (11.1 %)
$ 9,103 100.0 % $ 4,924 100.0 % $ 4,179 84.9 %
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Hardware $ 3,815 41.9 % $ 2,071 42.1 % $ 1,744 84.2 %
Software, labels and
other recurring
revenue 5,288 58.1 % 2,853 57.9 % 2,435 85.3 %
$ 9,103 100.0 % $ 4,924 100.0 % $ 4,179 84.9 %
The increase in food service technology sales in the first nine months of 2021
compared to the first nine months of 2020 was driven by an increase in sales of
both hardware and BOHA! software, labels and other recurring revenue. Hardware
sales increased 84% in the first nine months of 2021 compared to the first nine
months of 2020 due largely to sales to an existing national convenience store
customer and a new national travel center customer as well as higher sales of
our AccuDate 9700 terminal to McDonald's. Sales of BOHA! software recognized on
a SaaS subscription basis, labels and other recurring revenue increased by 85%,
primarily due to increased label sales and, to a lesser extent, increased
software sales, compared to the prior year period due principally to the growth
of the installed base of our BOHA! terminals and workstations.
23
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POS automation. Sales of our worldwide POS automation products for the nine
months ended
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Domestic $ 3,600 99.8 % $ 2,774 99.7 % $ 826 29.8 %
International 8 0.2 % 7 0.3 % 1 14.3 %
$ 3,608 100.0 % $ 2,781 100.0 % $ 827 29.7 %
The increase in POS automation product revenue for the first nine months of 2021
compared to the first nine months of 2020 was driven by a 30% increase in sales
of our Ithaca® 9000 printer, primarily to McDonald's, as POS automation sales
began to improve in the first nine months of 2021 compared to the significant
negative impact of the COVID-19 pandemic on POS automation sales during the
second and third quarter of 2020.
Casino and gaming. Sales of our worldwide casino and gaming products for the
nine months ended
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Domestic $ 7,058 68.1 % $ 5,080 61.2 % $ 1,978 38.9 %
International 3,310 31.9 % 3,220 38.8 % 90 2.8 %
$ 10,368 100.0 % $ 8,300 100.0 % $ 2,068 24.9 %
The increase in domestic sales of our casino and gaming products for the first
nine months of 2021 compared to the first nine months of 2020 was primarily due
to a 42% increase in domestic sales of our thermal casino printers, as we have
experienced some recovery during the first nine months of 2021 compared to the
first nine months of 2020, and particularly the second quarter of 2020, when the
casino and gaming market was most severely impacted by the COVID-19 pandemic.
International sales of our casino and gaming products increased in the first
nine months of 2021 compared to the first nine months of 2020, primarily due to
a 5% increase in sales of our thermal casino printers as we experienced modest
recovery during the first nine months of 2021 after the significant negative
impact of the COVID-19 pandemic on the international casino and gaming industry,
which is recovering at a slower pace than the domestic casino and gaming market.
Lottery. Sales of our worldwide lottery printers for the nine months ended
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Domestic $ - 0.0 % $ 817 100.0 % $ (817 ) (100.0 %)
International - 0.0 % - 0.0 % - 0.0 %
$ - 0.0 % $ 817 100.0 % $ (817 ) (100.0 %)
On December 31, 2019 , we allowed our non-exclusive agreement to provide lottery
terminal printers to IGT to expire as we decided to exit the lottery market and
shift our focus towards our higher-value, technology enabled food service
technology and casino and gaming products. As a result, IGT made a final
purchase of our lottery printers during the second quarter of 2020 and we do not
expect any further lottery printer sales in the future.
Printrex. Sales of our worldwide Printrex printers for the nine months ended
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Domestic $ 52 12.1 % $ 72 31.0 % $ (20 ) (27.8 %)
International 379 87.9 % 160 69.0 % 219 136.9 %
$ 431 100.0 % $ 232 100.0 % $ 199 85.8 %
24-------------------------------------------------------------------------------- The increase in sales of Printrex printers for the first nine months of 2021 compared to the first nine months of 2020 resulted from increased international sales in the oil and gas market. This increase was partially offset by a decrease in domestic Printrex printer sales during the first nine months of 2021 compared to the first nine months of 2020. Though our overall Printrex sales increased in the third quarter of 2021 and we continue to fulfill orders from existing customers, we are no longer focused on this market. We plan to exit this market at the end of the year and expect no future Printrex sales beyond 2021.
TSG. Sales in our worldwide TSG market for the nine months ended
Nine Months Ended Nine Months Ended
(In thousands, except
percentages) September 30, 2021 September 30, 2020 $ Change % Change
Domestic $ 4,388 92.3 % $ 5,184 89.7 % $ (796 ) (15.4 %)
International 365 7.7 % 594 10.3 % (229 ) (38.6 %)
$ 4,753 100.0 % $ 5,778 100.0 % $ (1,025 ) (17.7 %)
The decrease in domestic revenue from TSG for the first nine months of 2021 as
compared to the first nine months of 2020 was due primarily to lower service
revenue, lower sales of replacement parts, and consumable products. Service
revenue declined 42%, primarily related to a service contract with a legacy
banking customer that is expected to end in the first half of 2022. Replacement
part sales decreased 8% primarily from lower lottery printer spare part sales to
IGT, which can vary significantly from quarter to quarter. Consumable sales
declined 28%, due primarily to lower sales of HP inkjet cartridges used in our
banking printers, as we exited the banking market at the end of 2018.
Internationally, TSG revenue decreased for the first nine months of 2021
compared to the first nine months of 2020, primarily due to a 28% decrease in
sales of replacement parts and accessories to international casino and gaming
customers and, to a lesser extent, a 71% decrease in international consumable
sales and 50% lower service revenue due to the negative impact from the COVID-19
pandemic.
Gross Profit. Gross profit for the nine months ended
Nine Months Ended September 30, Percent Percent of Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 10,831 $ 10,557 2.6 % 38.3 % 46.2 %
Gross profit increased $0.3 million , or 3%, for the first nine months of 2021
compared to the first nine months of 2020, primarily due to the 24% sales
increase, which was largely offset by a decrease in gross margin of 790 basis
points during the first nine months of 2021 compared the first nine months of
2020. Gross margin decreased to 38.3% compared to 46.2% for the first nine
months of 2021 compared to the first nine months of 2020. The decrease in gross
margin resulted largely from lower margin on our BOHA! hardware sales during the
first nine months of 2021 compared to the nine months of 2020, as we have
reduced prices to accelerate the growth of our BOHA! installed base, as well as
higher material and shipping costs resulting from worldwide supply disruptions
caused by the COVID-19 pandemic.
Operating Expenses - Engineering, Design and Product Development. Engineering,
design and product development expense for the nine months ended September 30,
2021 and 2020 is summarized below (in thousands, except percentages):
Nine Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 5,483 $ 4,197 30.6 % 19.4 % 18.4 %
Engineering, design and product development expenses increased $1.3 million , or
31%, during the first nine months of 2021 compared to first nine months of 2020,
as we gradually return to more normalized pre-COVID spending levels and
continued development for our food service technology products.
Operating Expenses - Selling and Marketing. Selling and marketing expense for
the nine months ended
Nine Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 5,109 $ 4,885 4.6 % 18.1 % 21.4 %
25-------------------------------------------------------------------------------- Selling and marketing expenses increased$0.2 million , or 5%, for the first nine months of 2021 compared to the first nine months of 2020 primarily due to returning to more normalized pre-COVID-19 levels of sales and marketing expense during the first nine months of 2021 compared to reduced costs during the first nine months of 2020 due to cost saving measures implemented during the second and third quarters of 2020.
Operating Expenses - General and Administrative. General and administrative
expense for the nine months ended
Nine Months Ended September 30, Percent Percent of
Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ 7,264 $ 6,987 4.0 % 25.7 % 30.6 %
General and administrative expenses increased $0.3 million , or 4%, for the first
nine months of 2021 compared to first nine months of 2020 due to higher
recruiting fees and employee compensation, as well as higher consulting fees
related to a planned implementation of a new ERP system expected to be completed
in 2022. These increases were partially offset by lower legal and professional
fees and lower severance expense during the first nine months of 2021 compared
to the first nine months of 2020.
Operating Loss. Operating loss for the nine months ended
Nine Months Ended September 30, Percent Percent of Percent of
Total Sales Total Sales
2021 2020 Change - 2021 - 2020
$ (7,025 ) $ (5,512 ) 27.4 % (24.9 %) (24.1 %)
Our operating loss increased $1.5 million , or 27%, for the first nine months of
2021 compared to the first nine months of 2020 on 24% higher sales due to a
decrease in our gross margin of 790 basis points and an increase in operating
expenses of $1.8 million during the first nine months of 2021 compared to the
first nine months of 2020.
Interest, net. We recorded net interest expense of $71 thousand for the first
nine months of 2021 compared to net interest expense of $41 thousand for the
first nine months of 2020. The increase in net interest expense was primarily
due to lower interest income earned from the note receivable to a third-party
software developer that was collected in March 2021 and a full nine months of
unused borrowing fees under the Siena Credit Facility that was entered into on
March 13, 2020 .
Other, net. We recorded other expense of $169 thousand for the first nine months
of 2021 compared to other expense of $60 thousand for the first nine months of
2020 primarily due to foreign exchange losses recorded by our U.K. subsidiary.
Gain on Forgiveness of Long-Term Debt. We recorded a $2.2 million gain in the
third quarter of 2021 resulting from the forgiveness of the PPP Loan in July
2021 .
Income Taxes. We recorded an income tax benefit for the first nine months of
2021 of $1.7 million at an effective tax rate of 33.0%, compared to an income
tax benefit for the first nine months of 2020 of $1.9 million at an effective
tax rate of 33.9%. The tax benefit recorded for the nine months ended September
30, 2021 was unusually high as it included the recognition of the gain on the
forgiveness of the PPP Loan which is not taxable. The effective tax rate for
the first nine months of 2020 included the impact of our 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.
Net Loss. We reported a net loss for the first nine months of 2021 of
Liquidity and Capital Resources
Cash Flow For the first nine months of 2021, our cash and cash equivalents balance increased$8.3 million , or 80%, fromDecember 31, 2020 due primarily to financing activities providing$11.5 million of cash largely from the completion of an underwritten public offering during the third quarter of 2021. We ended the third quarter of 2021 with$18.7 million in cash and cash equivalents, of which$1 million was held by ourU.K. subsidiary, and no outstanding borrowings. 26 -------------------------------------------------------------------------------- Operating activities: The following significant factors affected our cash used in operating activities of$3.9 million for the first nine months of 2021 as compared to cash used in operating activities of$4.2 million for the first nine months of 2020:
During the first nine months of 2021:
? We reported a net loss of
? We recorded depreciation and amortization of
compensation expense of
? We recorded a gain of
? Accounts receivable increased
sales volume during the third quarter of 2021.
? Inventories decreased
on hand to fulfill sales and significantly reduced inventory purchases
resulting from the supply chain disruptions caused by the COVID-19 pandemic.
? Other current and long-term assets increased
primarily to prepaid expenses related to tradeshows that will be held in the
fourth quarter of 2021.
? Accounts payable decreased
inventory purchases made during the third quarter of 2021.
? Accrued liabilities and other liabilities increased slightly by
or 2%, due primarily to increased deferred revenue.
During the first nine months of 2020:
? We reported a net loss of
? We recorded depreciation and amortization of
compensation expense of
? Accounts receivable decreased
sales volume during the third quarter of 2020.
? Inventories increased
inventory from non-cancellable purchase orders that were placed before the
onset of the COVID-19 pandemic.
? Accounts payable decreased
purchases made towards the end of the fourth quarter of 2019 that were
subsequently paid in the first quarter of 2020.
? Accrued liabilities and other liabilities decreased
primarily due to lower deferred revenue.
Investing activities: Our capital expenditures were$0.8 million for the first nine months of 2021 compared to$0.6 million for the first nine months of 2020. Expenditures in 2021 were primarily related to the implementation of a new ERP system expected to be completed in the first quarter of 2022, computer and networking equipment and new product tooling equipment. Expenditures in 2020 were primarily for new product tooling equipment, leasehold improvements at ourLas Vegas facility and computer and networking equipment. Investing activities also provided$1.6 million for the first nine months of 2021 upon the collection of the remaining$1.6 million note receivable balance from an unaffiliated third party during the first quarter of 2021, compared to$0.6 million of cash used in investing activities during the first nine months of 2020, for the issuance of a loan to the same unaffiliated third party. Capital expenditures for 2021 are expected to be approximately$1.2 million , primarily for product tooling, a new ERP system, new computer software and computer and networking equipment to support our food service technology market and to a lesser extent, new product tooling. Financing activities: Financing activities provided$11.5 million of cash for the first nine months of 2021 primarily from the completion of an underwritten public offering which raised net proceeds of$11.3 million , after deducting cash outflows from underwriting discounts and commissions and offering expenses and, to a lesser extent, proceeds of$0.3 million from stock option exercises. These increases were partially offset by$0.1 million for the payment of withholding taxes on stock issued from our stock compensation plans and$31 thousand on the final payment of financing costs associated with our Siena Credit Facility. During the first nine months of 2020, financing activities provided$2.2 million of cash primarily from the$2.2 million in funds received from the PPP Loan and proceeds of$0.4 million from stock option exercises, partially offset by the payment of financing costs associated with signing our Siena Credit Facility. Additionally, during the first nine months of 2020, we borrowed and subsequently repaid$2.8 million from our Siena Credit Facility. Credit Facility and Borrowings OnMarch 13, 2020 , we entered into the Siena Credit Facility withSiena Lending Group LLC and terminated our credit facility withTD Bank N.A . The Siena Credit Facility provides for a revolving credit line of up to$10.0 million expiring onMarch 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 were$245 thousand . 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. Borrowings under the Siena Credit Facility 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. 27
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The Siena Credit Facility imposes a financial covenant on the Company and restricts, among other things, our ability to incur additional indebtedness and the creation of other liens. The three-month period fromApril 1, 2020 toJune 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 fromApril 1, 2020 toMarch 31, 2021 . OnJuly 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 endingJuly 31, 2021 . During the third quarter of 2021, we have been in compliance with our excess availability covenant. As ofSeptember 30, 2021 , we had no outstanding borrowings under the Siena Credit Facility and$4.2 million of available borrowing capacity under the Siena Credit Facility. OnMay 1, 2020 (the "Loan Date"), the Company was granted the PPP Loan fromBerkshire Bank in the aggregate amount of$2.2 million , pursuant to the PPP which is administered by the SBA and was established under Division A, Title I of the CARES Act, enactedMarch 27, 2020 . 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 beforeFebruary 15, 2020 , rent payments under lease agreements in effect beforeFebruary 15, 2020 , utilities for which service began beforeFebruary 15, 2020 and interest on debt obligations incurred beforeFebruary 15, 2020 , subject to conditions and limitations provided in the CARES Act. At least 60% (under the PPP terms, as amended) of the proceeds of 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 ofBerkshire Bank as a lender, was scheduled to mature onMay 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 inMay 2021 to the SBA throughBerkshire Bank and submitted the related loan necessity questionnaire inJune 2021 . OnJuly 8, 2021 , the Company received notifications fromBerkshire 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 wasJuly 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 endingSeptember 30, 2021 . Shareholder Dividend Payments In 2012, our Board of Directors initiated a quarterly cash dividend program that was subject to the Board's approval each quarter. OnJanuary 23, 2020 , our Board of Directors announced the cessation of our quarterly cash dividend on the Company's common stock to accelerate the investment in sales and marketing, continued product development and infrastructure of the BOHA! ecosystem. The final dividend payment was made inDecember 2019 . Resource Sufficiency Given the unprecedented uncertainty related to the impact of the COVID-19 pandemic on the food service and casino industries, the Company is closely monitoring its cash generation, usage and preservation including the management of working capital to generate cash. The Company does not currently anticipate requiring any additional credit facilities within the next twelve months beyond our Siena Credit Facility which is discussed above. We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, the proceeds raised through the underwritten public offerings duringAugust 2021 , and borrowings available under our Siena Credit Facility will provide sufficient resources to meet our working capital needs, finance our capital expenditures and meet our liquidity requirements through at least the next twelve months. Notwithstanding this belief, the duration and extent of the pandemic remain uncertain and its ultimate impact is unknown. As a result, we continue to evaluate several different strategies to enhance our liquidity position as a result of the significant financial and operational impacts due to the COVID-19 pandemic. These strategies may include, but are not limited to, seeking to raise additional capital through an equity or debt financing and applying for additional relief through other programs established under the CARES Act. Off-Balance Sheet Arrangements As ofSeptember 30, 2021 , we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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