TRANSACT TECHNOLOGIES INC 10-Q

Item 1. FINANCIAL STATEMENTS TRANSACT TECHNOLOGIES INCORPORATED C ONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) March 31, 2022 December 31, 2021 Assets: (In thousands, except share data) Current assets: Cash and cash equivalents $ 11,994 $ 19,457 Accounts receivable, net 6,882 7,593 Employee retention credit receivable 1,500 1,500 Inventories 9,048 7,720 Prepaid income taxes 142 137 Other current assets 1,579 738 Total current assets 31,145 37,145 Fixed assets, net of accumulated depreciation of $ 16,898 and $ 16,736 , respectively 3,100 2,684 Right-of-use asset 2,349 2,553 Goodwill 2,621 2,621 Deferred tax assets 6,402 5,141 Intangible assets, net of accumulated amortization of $ 1,248 and $ 1,209 , respectively 358 397 Other assets 308 400 15,138 13,796 Total assets $ 46,283 $ 50,941 Liabilities and Shareholders’ Equity: Current liabilities: Accounts payable $ 3,997 $ 4,308 Accrued liabilities 3,631 3,894 Lease liability 744 789 Deferred revenue 823 805 Total current liabilities 9,195 9,796 Deferred revenue, net of current portion 171 186 Lease liability, net of current portion 1,617 1,781 Other liabilities 187 187 1,975 2,154 Total liabilities 11,170 11,950 Shareholders’ equity: Common stock, $ 0.01 par value, 20,000,000 shares authorized; 13,954,850 and 13,917,731 shares issued, respectively; 9,910,008 and 9,872,889 shares outstanding, respectively 139 139 Additional paid-in capital 55,423 55,246 Retained earnings 11,560 15,573 Accumulated other comprehensive income, net of tax 101 143 Treasury stock, at cost, 4,044,842 shares ( 32,110 ) ( 32,110 ) Total shareholders’ equity 35,113 38,991 Total liabilities and shareholders’ equity $ 46,283 $ 50,941 See notes to Condensed Consolidated Financial Statements. 3 TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, 2022 2021 (In thousands, except per share data) Net sales $ 9,702 $ 8,301 Cost of sales 6,708 5,112 Gross profit 2,994 3,189 Operating expenses: Engineering, design and product development 2,283 1,803 Selling and marketing 2,683 1,443 General and administrative 3,204 2,609 8,170 5,855 Operating loss ( 5,176 ) ( 2,666 ) Interest and other expense: Interest, net ( 64 ) ( 13 ) Other, net ( 35 ) ( 83 ) ( 99 ) ( 96 ) Loss before income taxes ( 5,275 ) ( 2,762 ) Income tax benefit 1,262 556 Net loss $ ( 4,013 ) $ ( 2,206 ) Net loss per common share: Basic $ ( 0.41 ) $ ( 0.25 ) Diluted $ ( 0.41 ) $ ( 0.25 ) Shares used in per-share calculation: Basic 9,886 8,948 Diluted 9,886 8,948 See notes to Condensed Consolidated Financial Statements. 4 TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) Three Months Ended March 31, 2022 2021 (In thousands) Net loss $ ( 4,013 ) $ ( 2,206 ) Foreign currency translation adjustment, net of tax ( 42 ) 53 Comprehensive loss $ ( 4,055 ) $ ( 2,153 ) See notes to Condensed Consolidated Financial Statements. 5 TRANSACT TECHNOLOGIES INCORPORATED CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, 2022 2021 (In thousands) Cash flows from operating activities: Net loss $ ( 4,013 ) $ ( 2,206 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 296 264 Depreciation and amortization 228 240 Deferred income taxes ( 1,262 ) ( 555 ) Gain on the sale of fixed assets – ( 8 ) Foreign currency transaction losses 35 90 Changes in operating assets and liabilities: Accounts receivable 680 ( 1,330 ) Inventories ( 1,344 ) 1,309 Prepaid income taxes ( 5 ) ( 2 ) Other current and long-term assets ( 773 ) ( 103 ) Accounts payable ( 400 ) 227 Accrued liabilities and other liabilities ( 261 ) ( 1,020 ) Net cash used in operating activities ( 6,819 ) ( 3,094 ) Cash flows from investing activities: Capital expenditures ( 496 ) ( 68 ) Proceeds from the sale of fixed assets – 8 Collection of note receivable – 1,598 Net cash (used in) provided by investing activities ( 496 ) 1,538 Cash flows from financing activities: Proceeds from stock option exercises – 91 Withholding taxes paid on stock issuances ( 119 ) ( 75 ) Payment of bank financing costs – ( 31 ) Net cash used in financing activities ( 119 ) ( 15 ) Effect of exchange rate changes on cash and cash equivalents ( 29 ) ( 60 ) Decrease in cash and cash equivalents ( 7,463 ) ( 1,631 ) Cash and cash equivalents, beginning of period 19,457 10,359 Cash and cash equivalents, end of period $ 11,994 $ 8,728 Supplemental schedule of non-cash investing activities: Capital expenditures included in accounts payable $ 174 $ 27 See notes to Condensed Consolidated Financial Statements. 6 TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) Three Months Ended March 31, 2022 2021 (In thousands) Equity beginning balance $ 38,991 $ 30,236 Common stock Balance, beginning and end of period 139 130 Additional paid-in capital Balance, beginning of period 55,246 42,536 Share-based compensation expense 296 264 Issuance of shares from exercise of stock options – 91 Relinquishment of stock awards to pay for withholding taxes ( 119 ) ( 75 ) Balance, end of period 55,423 42,816 Retained earnings Balance, beginning of period 15,573 19,718 Net loss ( 4,013 ) ( 2,206 ) Balance, end of period 11,560 17,512 Treasury stock Balance, beginning and end of period ( 32,110 ) ( 32,110 ) Accumulated other comprehensive income (loss) Balance, beginning of period 143 ( 38 ) Foreign currency translation adjustment, net of tax ( 42 ) 53 Balance, end of period 101 15 Equity ending balance $ 35,113 $ 28,363 Supplemental share information Issuance of shares from stock awards 63 65 Relinquishment of stock awards to pay withholding taxes 26 31 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, 2021 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, 2021 . 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, net of tax” in the Condensed Consolidated Balance Sheets and “Accumulated other comprehensive income (loss)” in the Condensed Consolidated Statements of Changes in Shareholders’ Equity. Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. 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 Thailand and China. Our inventory levels decreased significantly during 2021 due to these supply chain disruptions, and although we have been able to increase inventory levels during the first quarter of 2022, continuing delays and further disruptions have led to an increased backlog, including increased freight costs, and have impacted our ability to deliver products to our customers on time or at all. While we began to experience a modest recovery starting in the second half of 2020 and continuing into 2021, the recovery slowed again in the first quarter of 2022 due to a resurgence of the Omicron variant. We again are beginning to see the recovery resume in the second quarter of 2022 which we expect to continue during the remainder of 2022, though the exact timing and pace of recovery are 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. 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. We have taken the following actions to increase liquidity and strengthen our financial position in an effort to mitigate the negative impacts from the COVID-19 pandemic: ● Public Offering – On October 16, 2020 and August 16, 2021, the Company raised net proceeds of $ 8.7 million and $ 11.2 million ( including the exercise of the underwriters’ overallotment options on October 16, 2020 and August 20, 2021 ), respectively, after deducting underwriting discounts, commissions and offering expenses, through underwritten public offerings in which we 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 (“CARES”) Act. On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021. See Note 5 for further details regarding the PPP Loan. ● Employee Retention Credit – Under the provisions of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria. In connection with the CARES Act, the Company recognized the employee retention credit during the fourth quarter of 2021 as a $1.5 million “Gain from employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and recorded a $1.5 million “Employee retention credit receivable” in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021. We expect to receive these funds during 2022 . ● Credit Facility – On March 13, 2020, we entered into a 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 5 for further details regarding this facility. ● Reduced Capital Expenditures – We limited capital expenditures during 2020 and gradually increased expenses during 2021 as our sales improved. We are planning to implement additional expense management measures starting in the second quarter of 2022 to those implemented in 2020 and 2021, but no definitive plans are yet finalized. In addition to the planned expense management actions, we may also further modify or supplement the actions we have taken to increase liquidity as the timing and extent of customer demand recovery develops and supply chains normalize. 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 consumer traffic continues to increase during 2022, but that casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, due to labor shortages and supply issues caused by the pandemic. Based on these assumptions, we anticipate that sales in casino and gaming and food service technology may continue to be negatively impacted for the foreseeable future. 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, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates used. 2. Revenue We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers. Disaggregation of revenue The following table disaggregates our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues. Three Months Ended March 31, 2022 2021 (In thousands) United States International Total United States International Total Food service technology $ 1,946 $ 184 $ 2,130 $ 2,564 $ 183 $ 2,747 POS automation 1,300 – 1,300 1,160 4 1,164 Casino and gaming 2,788 1,974 4,762 1,964 901 2,865 Printrex – – – 27 132 159 Transact Services Group 1,068 442 1,510 1,280 86 1,366 Total net sales $ 7,102 $ 2,600 $ 9,702 $ 6,995 $ 1,306 $ 8,301 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 three months ended March 31, 2022 , we recognized revenue of $ 0.4 million related to our contract liabilities at December 31, 2021 . Total net contract liabilities consisted of the following: March 31, 2022 December 31, 2021 (In thousands) Unbilled receivables, current $ 329 $ 314 Unbilled receivables, non-current 253 308 Customer pre-payments ( 253 ) ( 99 ) Deferred revenue, current ( 823 ) ( 805 ) Deferred revenue, non-current ( 171 ) ( 186 ) Total net contract liabilities $ ( 665 ) $ ( 468 ) Remaining performance obligations Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer. As of March 31, 2022, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 13.6 million. The Company expects to recognize revenue of $ 13.2 million of its remaining performance obligations within the next 12 months following March 31, 2022, $ 0.3 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months . 3. Inventories The components of inventories were: March 31, 2022 December 31, 2021 (In thousands) Raw materials and purchased component parts $ 7,456 $ 6,479 Work-in-process – 11 Finished goods 1,592 1,230 $ 9,048 $ 7,720 4. Accrued product warranty liability We generally provide warranties on our hardware products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded. Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs. 10 The following table summarizes the activity recorded in the accrued product warranty liability during the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 (In thousands) Balance, beginning of period $ 101 $ 140 Warranties issued 6 5 Warranty settlements ( 17 ) ( 29 ) Balance, end of period $ 90 $ 116 As of March 31, 2022, $ 72 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $ 18 thousand was classified as non-current in “Other liabilities”. 5. Debt On March 13, 2020, we entered into a 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 first quarter of 2022, we have been in compliance with our excess availability covenant, and as of March 31, 2022, we had no outstanding borrowings under the Siena Credit Facility and $ 3.5 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 were required to be 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 forgiveness of the PPP Loan was reported as “Gain on forgiveness of long-term debt” in the Consolidated Statement of Operations during the year ended December 31, 2021. 11 6. Earnings per share The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding: Three Months Ended March 31, 2022 2021 (In thousands, except per share data) Net loss $ ( 4,013 ) $ ( 2,206 ) Shares: Basic: Weighted average common shares outstanding 9,886 8,948 Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method – – Diluted: Weighted average common and common equivalent shares outstanding 9,886 8,948 Net loss per common share: Basic $ ( 0.41 ) $ ( 0.25 ) Diluted $ ( 0.41 ) $ ( 0.25 ) The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive. For the three months ended March 31, 2022 and 2021, there were 943 thousand and 705 thousand, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share. Furthermore, in periods when a net loss is reported, such as the three months ended March 31, 2022 and 2021, basic and diluted net loss per common share are calculated using the same method. 7. 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 four 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 April 30, 2021, we entered into an amendment to modify the expiration date of our lease on our Hamden, Connecticut 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 March 31, 2022 and 2021 was $ 237 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 expenses include short-term lease costs, which were immaterial during the periods presented. The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands): Three Months Ended March 31, 2022 2021 Operating cash outflows from leases $ 230 $ 262 The following summarizes additional information related to our leases as of March 31, 2022 and December 31, 2021: March 31, 2022 December 31, 2021 Weighted average remaining lease term (in years) 3.3 3.5 Weighted average discount rate 4.4 % 4.4 % 12 The maturity of the Company’s operating lease liabilities as of March 31, 2022 and December 31, 2021 were as follows (in thousands): March 31, 2022 December 31, 2021 2022 $ 654 $ 886 2023 719 721 2024 720 721 2025 425 426 2026 22 23 Total undiscounted lease payments 2,540 2,777 Less imputed interest 179 207 Total lease liabilities $ 2,361 $ 2,570 8. Income taxes We recorded an income tax benefit for the first quarter of 2022 of $ 1.3 million at an effective tax rate of 23.9 %, compared to an income tax benefit during the first quarter of 2021 of $ 0.6 million at an effective tax rate of 20.1 %. The effective tax rate for the first quarter of 2022 is higher than the effective tax rate for the first quarter of 2021 as we are estimating an increase in the R&D credit in 2022 compared to 2021 due to expected investment spending for our BOHA! products. We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2017. However, our federal tax returns for the years 2018 through 2020 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements. As of March 31, 2022, we had $ 144 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. We expect that $ 28 thousand of the $ 144 thousand of unrecognized tax benefits will reverse in 2022 upon the expiration of the statute of limitations. We recognize interest and penalties related to uncertain tax positions in the income tax provision reported as “Deferred tax assets” in the Condensed Consolidated Balance Sheet. As of March 31, 2022 , we had $ 24 thousand of accrued interest and penalties related to uncertain tax positions. The Company maintains a valuation allowance against certain deferred tax assets where realization is not certain. 9. Subsequent events The Company has evaluated all events or transactions that occurred up to the date the Condensed 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. 13