TransAct Technologies rporated(TACT) - 2020 Q4 - Annual Report

PART I Business TransAct develops software-driven technology and printing solutions for food service, casino, and POS markets, strategically focusing on its BOHA! ecosystem amidst 2020 COVID-19 impacts - TransAct is a global leader in software-driven technology and printing solutions for high-growth markets, including food service technology, POS automation, casino and gaming, and oil and gas[16] - The COVID-19 pandemic significantly impacted the business in 2020, causing decreased product demand, particularly in the food service, casino, and gaming markets, leading to various cost-cutting and liquidity-enhancing measures[17][18][26] - The company is strategically focused on its BOHA!™ ecosystem, a suite of cloud-based SaaS applications and hardware designed to automate back-of-house operations for restaurants and food service operators[16][33] - Manufacturing of almost all printers and terminals is outsourced to two third-party manufacturers in China and Thailand[41] - Sales to its most significant customer, IGT, represented 15% of total net sales for the year ended December 31, 2020[49][50] - The company's backlog of firm orders was approximately $3.4 million as of February 28, 2021, a decrease from $5.7 million as of February 29, 2020[51] Risk Factors The company faces significant risks including potential unprofitability from BOHA! investments, ongoing COVID-19 impacts, reliance on a single software developer and two Asian manufacturers, and a material weakness in internal financial controls - The company incurred a net loss of $5.6 million in 2020 and anticipates increasing expenses to grow its food service technology business, which may prevent it from achieving or maintaining profitability[74] - The COVID-19 pandemic has had, and is likely to continue to have, an adverse impact on business operations, financial condition, and customer demand, particularly in the casino and food service industries[78] - The company relies on a third-party developer to develop, maintain, and host critical software for its BOHA! food service technology solution, creating significant dependency risk[85] - A material weakness in internal control over financial reporting related to key spreadsheets existed as of December 31, 2020, which could result in a material misstatement of financial statements if not remediated[90] - The company is dependent on two contract manufacturers in China and Thailand for substantially all of its printer and terminal manufacturing, exposing it to supply chain, geopolitical, and public health risks[97] - Sales to IGT represent a material percentage of net sales, and a reduction in orders from this customer could materially affect results[92] Unresolved Staff Comments This section is not applicable as the company has no unresolved staff comments - Not applicable[134] Properties The company leases all principal facilities, with key operations spanning executive offices, hardware design, software development, and sales across multiple global locations Principal Facilities | Location | Operations Conducted | Size (Approx. Sq. Ft.) | Lease Expiration Date | | :--- | :--- | :--- | :--- | | Hamden, Connecticut | Executive offices and sales office | 11,100 | April 30, 2027 | | Ithaca, New York | Hardware design, development, assembly, service | 73,900 | May 31, 2025 | | Las Vegas, Nevada | Software design, development, casino/gaming sales | 19,600 | October 31, 2022 | | Doncaster, UK | Sales office and service center | 6,000 | August 26, 2026 | | Macau, China | Sales office | 180 | June 30, 2021 | Legal Proceedings As of December 31, 2020, the company is unaware of any material legal proceedings pending or threatened against it - The company is unaware of any material legal proceedings pending or threatened against it as of December 31, 2020[137] Mine Safety Disclosures This section is not applicable to the company - Not applicable[138] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under TACT, with dividends ceased in January 2020 to fund BOHA! ecosystem investments, and no share repurchases in Q4 2020 - The company's common stock is traded on the Nasdaq Global Market under the symbol TACT[140] - The quarterly cash dividend was ceased in January 2020 to accelerate investment in the BOHA! ecosystem, with the final dividend paid in December 2019[142] - No shares of common stock were repurchased during the fourth quarter of 2020[141] Selected Financial Data This section is not required as the company is a smaller reporting company - Not required[144] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, TransAct's net sales decreased by 33% to $30.6 million due to COVID-19, resulting in a $5.6 million net loss, while food service technology sales grew 27% and cash increased to $10.4 million from financing activities Financial Highlights | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $30.6M | $45.7M | -33.1% | | Gross Profit | $12.9M | $21.9M | -41.1% | | Gross Margin | 42.3% | 47.9% | -560 bps | | Operating (Loss) Income | ($8.2M) | $0.3M | -2482.8% | | Net (Loss) Income | ($5.6M) | $0.5M | N/A | | Diluted EPS | ($0.72) | $0.07 | N/A | Sales by Market | Market | 2020 Sales ($M) | 2019 Sales ($M) | % Change | | :--- | :--- | :--- | :--- | | Food service technology | $7.7 | $6.1 | +26.7% | | POS automation and banking | $3.8 | $5.8 | -34.5% | | Casino and gaming | $11.0 | $21.5 | -49.0% | | Lottery | $0.8 | $1.3 | -36.7% | | Printrex | $0.3 | $1.2 | -74.3% | | TSG | $7.0 | $9.9 | -29.3% | - Food service technology sales increased 27%, driven by a 96% increase in recurring revenue (software, labels, services) from the BOHA! solution[148][178] - Cash and cash equivalents increased to $10.4 million at year-end 2020 from $4.2 million at year-end 2019, primarily due to an $8.7 million public offering and a $2.2 million PPP loan[156][199][203] - The company entered into a new $10 million revolving credit facility with Siena Lending Group in March 2020 and received a $2.2 million PPP loan in May 2020[208][210] Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company is a smaller reporting company - As a smaller reporting company, TransAct is not required to provide information under this item[217] Financial Statements and Supplementary Data This section refers to the company's financial statements, the Independent Registered Public Accounting Firm's Report, and related index, annexed to the Annual Report - The company's financial statements are annexed to the Annual Report, starting on page F-1[218] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section is not applicable - Not applicable[219] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2020, due to a material weakness in spreadsheet controls, while a prior ERP access control weakness was remediated - Management concluded that disclosure controls and procedures were not effective as of December 31, 2020[219] - A material weakness in internal control over financial reporting related to the completeness and accuracy of information in key spreadsheets (the "Spreadsheet Control Weakness") was identified and has not been fully remediated as of December 31, 2020[222][225] - A previously identified material weakness related to user access controls within the Oracle ERP system (the "Access Control Weakness") was fully remediated as of September 30, 2020[224][226] Other Information This section is not applicable - Not applicable[228] PART III Directors, Executive Officers and Corporate Governance Information for this item, including executive officers and corporate governance, is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information required by this item will be contained in the company's Proxy Statement for its 2021 Annual Meeting of Stockholders and is incorporated by reference[231] Executive Compensation Executive compensation information is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information required by this item will be contained in the Proxy Statement under the heading "Executive Compensation" and is incorporated by reference[233] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans, showing 1,398,155 securities for outstanding options and 837,204 available for future issuance, with further details in the 2021 Proxy Statement Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise | Weighted average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,398,155 | $8.27 | 837,204 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement - Information required by this item will be contained in the Proxy Statement under the heading "Certain Relationships and Related Transactions" and is incorporated by reference[236] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information required by this item will be contained in the Proxy Statement and is incorporated by reference[237] PART IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and an index of all exhibits filed with the Form 10-K, with most schedules omitted as inapplicable - This item lists the financial statements, schedules, and exhibits filed with the Form 10-K[239][240][241] Form 10-K Summary This section is not applicable - Not applicable[246] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Marcum LLP issued an unqualified opinion on the 2020 financial statements, highlighting a critical audit matter regarding BOHA! revenue recognition, while PricewaterhouseCoopers LLP audited 2019 - Marcum LLP issued an unqualified opinion on the 2020 consolidated financial statements[255] - A critical audit matter was identified related to revenue recognition for a new BOHA! bundled service offering, which involved significant management judgment in identifying performance obligations and estimating standalone selling prices[262][263] - PricewaterhouseCoopers LLP served as the company's auditor from 1996 to 2020 and audited the 2019 financial statements[271] Financial Statements The consolidated financial statements for 2020 show $42.2 million in total assets, a $5.6 million net loss on $30.6 million net sales, and $11.0 million cash provided by financing activities Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,359 | $4,203 | | Total current assets | $28,175 | $24,915 | | Total assets | $42,247 | $36,061 | | Total current liabilities | $6,697 | $7,646 | | Total liabilities | $12,011 | $10,135 | | Total shareholders' equity | $30,236 | $25,926 | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net sales | $30,595 | $45,748 | | Gross profit | $12,929 | $21,935 | | Operating (loss) income | $(8,173) | $343 | | Net (loss) income | $(5,630) | $516 | | Diluted (loss) income per share | $(0.72) | $0.07 | Consolidated Statement of Cash Flows Highlights (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(3,510) | $4,846 | | Net cash used in investing activities | $(1,344) | $(2,366) | | Net cash provided by (used in) financing activities | $11,031 | $(2,897) |