Item 1. Financial Statements
Item 1.
FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
C ONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, as adjusted – see Note 9)
September 30, 2022
December 31, 2021
Assets:
(In thousands, except share data)
Current assets:
Cash and cash equivalents
$
6,364
$
19,457
Accounts receivable, net
13,639
7,593
Employee retention credit receivable
1,500
1,500
Inventories
11,115
7,711
Prepaid income taxes
188
137
Other current assets
984
738
Total current assets
33,790
37,136
Fixed assets, net of accumulated depreciation of $ 17,499
and $ 16,736 , respectively
2,737
2,684
Right-of-use asset
2,693
2,553
Goodwill
2,621
2,621
Deferred tax assets
7,520
5,143
Intangible assets, net of accumulated amortization of $ 1,325 and $ 1,209 , respectively
281
397
Other assets
297
400
16,149
13,798
Total assets
$
49,939
$
50,934
Liabilities and Shareholders’ Equity:
Current liabilities:
Current portion of revolving loan payable
$
2,250
$
–
Accounts payable
6,156
4,308
Accrued liabilities
3,998
3,894
Lease liability
827
789
Deferred revenue
1,158
805
Total current liabilities
14,389
9,796
Deferred revenue, net of current portion
164
186
Lease liability, net of current portion
1,909
1,781
Other liabilities
195
187
2,268
2,154
Total liabilities
16,657
11,950
Shareholders’ equity:
Common stock, $ 0.01
par value, 20,000,000 shares authorized; 13,956,375 and 13,917,731 shares issued, respectively; 9,911,533 and 9,872,889 shares
outstanding, respectively
139
139
Additional paid-in capital
55,995
55,246
Retained earnings
9,370
15,566
Accumulated other comprehensive (loss) income, net of tax
( 112
)
143
Treasury stock, at cost, 4,044,842
shares
( 32,110
)
( 32,110
)
Total shareholders’ equity
33,282
38,984
Total liabilities and shareholders’ equity
$
49,939
$
50,934
See notes to Condensed Consolidated Financial Statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONDE NSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, as adjusted – see Note 9)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands, except per share data)
Net sales
$
17,856
$
10,637
$
40,181
$
28,263
Cost of sales
9,663
6,332
23,988
17,187
Gross profit
8,193
4,305
16,193
11,076
Operating expenses:
Engineering, design and product development
1,985
1,876
6,440
5,483
Selling and marketing
2,748
1,899
8,724
5,109
General and administrative
3,073
2,146
9,200
7,264
7,806
5,921
24,364
17,856
Operating income (loss)
387
( 1,616
)
( 8,171
)
( 6,780
)
Interest and other income (expense):
Interest, net
( 53
)
( 29
)
( 145
)
( 71
)
Other, net
132
( 69
)
( 167
)
( 169
)
Gain on forgiveness of long-term debt
–
2,173
–
2,173
79
2,075
( 312
)
1,933
Income (loss) before income taxes
466
459
( 8,483
)
( 4,847
)
Income tax benefit
62
442
2,287
1,629
Net income (loss)
$
528
$
901
$
( 6,196
)
$
( 3,218
)
Net income (loss) per common share:
Basic
$
0.05
$
0.10
$
( 0.63
)
$
( 0.35
)
Diluted
$
0.05
$
0.09
$
( 0.63
)
$
( 0.35
)
Shares used in per-share calculation:
Basic
9,911
9,408
9,902
9,112
Diluted
9,911
9,846
9,902
9,112
See notes to Condensed Consolidated Financial Statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLI DATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, as adjusted – see Note 9)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Net income (loss)
$
528
$
901
$
( 6,196
)
$
( 3,218
)
Foreign currency translation adjustment, net of tax
( 205
)
23
( 255
)
108
Comprehensive income (loss)
$
323
$
924
$
( 6,451
)
$
( 3,110
)
See notes to Condensed Consolidated Financial Statements.
5
TRANSACT TECHNOLOGIES INCORPORATED
CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, as adjusted – see Note 9)
Nine Months Ended
September 30,
2022
2021
(In thousands)
Cash flows from operating activities:
Net loss
$
( 6,196
)
$
( 3,218
)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense
868
952
Depreciation and amortization
984
721
Deferred income taxes
( 2,387
)
( 1,520
)
Gain on the sale of fixed assets
–
( 8
)
Foreign currency transaction losses
165
175
Gain on forgiveness of long-term debt
–
( 2,173
)
Changes in operating assets and liabilities:
Accounts receivable
( 6,343
)
( 3,124
)
Inventories
( 3,551
)
4,677
Prepaid income taxes
( 51
)
( 110
)
Other current and long-term assets
( 137
)
( 213
)
Accounts payable
1,926
( 241
)
Accrued liabilities and other liabilities
508
143
Net cash used in operating activities
( 14,214
)
( 3,939
)
Cash flows from investing activities:
Capital expenditures
( 955
)
( 804
)
Proceeds from the sale of fixed assets
–
8
Collection of note receivable
–
1,598
Net cash (used in) provided by investing activities
( 955
)
802
Cash flows from financing activities:
Proceeds from the issuance of common stock
–
12,214
Proceeds from bank borrowings
2,250
–
Payment of common stock issuance costs
–
( 867
)
Proceeds from stock option exercises
–
284
Withholding taxes paid on stock issuances
( 119
)
( 100
)
Payment of bank financing costs
( 69
)
( 31
)
Net cash provided by financing activities
2,062
11,500
Effect of exchange rate changes on cash and cash equivalents
14
( 64
)
(Decrease) increase in cash and cash equivalents
( 13,093
)
8,299
Cash and cash equivalents, beginning of period
19,457
10,359
Cash and cash equivalents, end of period
$
6,364
$
18,658
See notes to Condensed Consolidated Financial Statements.
6
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSO LIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited, as adjusted – see Note 9)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Equity beginning balance
$
32,672
$
26,963
$
38,984
$
30,125
Common Stock
Balance, beginning of period
139
130
139
130
Issuance of common stock
–
9
–
9
Balance, end of period
139
139
139
139
Additional paid-in capital
Balance, beginning of period
55,708
43,408
55,246
42,536
Issuance of common stock, net of issuance costs
–
11,201
–
11,201
Share-based compensation expense
287
257
868
952
Issuance of shares from exercise of stock options
–
7
–
284
Relinquishment of stock awards and restricted stock units to pay for withholding taxes
–
–
( 119
)
( 100
)
Balance, end of period
55,995
54,873
55,995
54,873
Retained earnings
Balance, beginning of period
8,842
15,488
15,566
19,607
Net income (loss)
528
901
( 6,196
)
( 3,218
)
Balance, end of period
9,370
16,389
9,370
16,389
Treasury stock
Balance, beginning and end of period
( 32,110
)
( 32,110
)
( 32,110
)
( 32,110
)
Accumulated other comprehensive income (loss), net of tax
Balance, beginning of period
93
47
143
( 38
)
Foreign currency translation adjustment, net of tax
( 205
)
23
( 255
)
108
Balance, end of period
( 112
)
70
( 112
)
70
Equity ending balance
$
33,282
$
39,361
$
33,282
$
39,361
Supplemental share information
Issuance of common stock
–
842
–
842
Issuance of shares from stock awards
2
3
65
94
Relinquishment of stock awards to pay withholding taxes
–
–
26
32
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 (“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 . 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 the local currency as the functional currency. Assets and liabilities of such
subsidiary have been translated at the end-of-period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in
“Accumulated other comprehensive income (loss), net of tax” in the Condensed Consolidated Balance Sheets and “Accumulated other comprehensive income (loss), net of tax” 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 and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31,
2022.
See Note 9 for a discussion of a change in accounting principle which occurred in the second quarter of 2022. TransAct changed its method of inventory
valuation from standard costing which approximates first-in first-out (“FIFO”) to the average costing methodology. All prior periods presented have been retrospectively adjusted to apply the new method of accounting.
Certain prior period amounts have been adjusted to conform with the current year presentation.
Impact of the COVID-19 pandemic and Global Supply Chain Disruptions
Since early 2020, the COVID-19 pandemic has continued to cause uncertainty and disruption in the global economy and financial markets, such as increased shipping and
logistics costs and supply chain disruptions. We have also been impacted by global supply chain issues and inflationary pressures, which have increased our costs and, in some instances, slowed our ability to deliver products to customers. During
2021, our inventory levels decreased significantly as a result of these supply chain disruptions and we experienced significantly lower sales levels because of the global economic slowdown. However, during the first nine months of 2022, we have been
able to increase our inventory levels and minimize the impact to our customers by successfully modifying our products that were affected by supply chain disruptions as well as sourcing component parts from alternate suppliers. This strategy allowed us
to meet expanding customer demands and significantly grow our sales after the first quarter of 2022 as the pandemic eased. Although we have been able to increase inventory levels during the first nine months of 2022, there can be no assurance that new
supply chain disruptions will not affect our products or that we will be able to make timely modifications to address any future supply chain issues that arise. Further, while we have offset most of our cost increases by increasing prices of our
products, there can be no guarantee that we will be able to offset any future cost increases should they arise. After a slowdown in the first quarter of 2022 resulting from the Omicron and other variants of COVID-19, we have continued to experience
demand recovery in the second and third quarters of 2022. We expect this recovery to continue during the remainder of 2022.
8
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, supply chain disruptions and inflationary pressures:
●
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 September 30, 2022 and December 31,
2021. We expect to receive these funds within the next twelve months.
●
Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC (the “Lender”) that provides a revolving credit line of up to $ 10.0 million, subject to a borrowing base, and on July 19, 2022, we entered into an amendment to extend the maturity of the facility to March 13,
2025. See Note 5 for further details regarding this facility.
●
Reduced Capital Expenditures – We limited capital expenditures during 2020 and 2021 and are gradually increasing expenditures during 2022 as sales improve.
After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months
following the issuance date of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), 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 such issuance date.
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, inflation, rising interest rates, capital expenditures and other operating costs. Our current assumptions are that casinos and
restaurants will remain open and consumer traffic will continue to increase during the balance of 2022. Though demand for our products at casinos has increased substantially in 2022, and we expect this trend to continue, we cannot predict the ultimate
impact of the current economic environment, including inflation, rising interest rates and supply chain disruptions on our customers, which may impact sales. We believe that we are positioned to withstand the impact of any potential economic downturn
or slower than anticipated economic recovery. However, despite our recent large backlog of orders and increasing market share, should such conditions arise, we believe we will be able to take additional financial and operational actions to cut costs
and/or increase liquidity.
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.
For a discussion of our significant accounting policies, see Note 2, Summary of
Significant Accounting Policies within Part II, Item 8, “Financial Statements and Supplementary Data” in the Annual Report on Form 10-K for the year ended December 31, 2021. Other than as described in Note 9 of this Form 10Q, there have been
no changes to our significant accounting policies since our Annual Report on Form 10K for the year ended December 31, 2021.
9
2. Revenue
We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers.
Disaggregation of revenue
The following tables disaggregate our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are
affected by economic factors. Sales and usage-based taxes are excluded from revenues.
Three Months Ended
September 30,
2022
2021
(In thousands)
United States
International
Total
United States
International
Total
Food service technology
$
3,496
$
252
$
3,748
$
3,065
$
217
$
3,282
POS automation
5,228
–
5,228
1,188
–
1,188
Casino and gaming
3,758
3,985
7,743
2,656
1,380
4,036
Printrex
–
–
–
–
160
160
TransAct Services Group
983
154
1,137
1,856
115
1,971
Total net sales
$
13,465
$
4,391
$
17,856
$
8,765
$
1,872
$
10,637
Nine Months Ended
September 30,
2022
2021
(In thousands)
United States
International
Total
United States
International
Total
Food service technology
$
8,723
$
587
$
9,310
$
8,616
$
487
$
9,103
POS automation
7,700
–
7,700
3,600
8
3,608
Casino and gaming
10,475
8,555
19,030
7,058
3,310
10,368
Printrex
–
–
–
52
379
431
TransAct Services Group
3,396
745
4,141
4,388
365
4,753
Total net sales
$
30,294
$
9,887
$
40,181
$
23,714
$
4,549
$
28,263
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, net”
and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.
Contract liabilities consist of customer pre-payments and deferred revenue. Customer prepayments are reported as “Accrued liabilities” in current liabilities in the
Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete. Deferred
revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL® maintenance contracts and prepaid software
subscriptions for our BOHA! software applications and is recognized as revenue as (or when) we perform under the contract. For the nine months ended September 30, 2022 , we recognized revenue of $ 0.8 million related to our contract liabilities at December 31, 2021 . Total net
contract liabilities consisted of the following:
September 30, 2022
December 31, 2021
(In thousands)
Unbilled receivables, current
$
393
$
314
Unbilled receivables, non-current
196
308
Customer pre-payments
( 221
)
( 99
)
Deferred revenue, current
( 1,158
)
( 805
)
Deferred revenue, non-current
( 164
)
( 186
)
Total net contract liabilities
$
( 954
)
$
( 468
)
10
Remaining performance obligations
Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer. As of
September 30, 2022, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 19.0 million. The Company expects to recognize revenue of $ 18.5
million of its remaining performance obligations within the next 12 months following September 30, 2022, $ 0.4 million within the next 24 months following September 30, 2022 and the balance of these remaining performance obligations within the next 36 months following September 30, 2022.
3. Inventories
The components of inventories were:
September 30, 2022
December 31, 2021
(In thousands)
Raw materials and purchased component parts
$
10,183
$
6,470
Work-in-process
–
11
Finished goods
932
1,230
$
11,115
$
7,711
4. Accrued product warranty liability
We generally provide hardware warranties on our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded. Estimated warranty costs are based upon actual past experience of product repairs and the
related estimated cost of labor and material to make the necessary repairs.
The following table summarizes the activity recorded in the accrued product warranty liability during the nine months ended September 30, 2022 and 2021:
Nine Months Ended
September 30,
2022
2021
(In thousands)
Balance, beginning of period
$
101
$
140
Warranties issued
40
39
Warranty settlements
( 64
)
( 70
)
Balance, end of period
$
77
$
109
As of September 30, 2022, $ 57 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheet and the
remaining $ 20 thousand was classified as non-current in “Other liabilities”.
5. Debt
Credit Facility
On March 13, 2020, we entered into a credit facility (the “Siena Credit Facility”) with the Lender and terminated our credit facility with TD Bank, N.A. The Siena Credit
Facility provides for a revolving credit line of up to $ 10.0 million and was originally scheduled to expire 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.
11
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 and restricts, among other things, our ability to incur additional indebtedness and create other liens. The three-month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the original
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 (“Siena Credit Facility Amendment No.
1”) to the Siena Credit Facility. Siena Credit Facility Amendment No. 1 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. From July 31, 2021 to September 30, 2022, we remained in compliance with our excess availability covenant. As of
September 30, 2022, we had $ 2.3
million of outstanding borrowings under the Siena Credit Facility and $ 2.5 million of net borrowing capacity available under the Siena Credit
Facility.
On July 19, 2022, the Company and the Lender entered into Amendment No. 2 (“Siena Credit Facility Amendment No. 2”) to the Siena Credit Facility, as amended by Siena
Credit Facility Amendment No. 1. Also on July 19, 2022, the Company and the Lender entered into an Amended and Restated Fee Letter (the “Amended Fee Letter”) in connection with the Siena Credit Facility Amendment No. 2. The Siena Credit Facility
Amendment No. 2 did not modify the aggregate amount of the revolving commitment or the interest rate applicable to the loans .
The changes to the Siena Credit Facility provided for in Siena Credit Facility Amendment No. 2 include, among other things, the following:
(i) The extension of the maturity date from March 13, 2023 to March 13, 2025; and
(ii) The termination of the existing blocked account control agreement and entry into a new “springing” deposit account control agreement, permitting
the Company to direct the use of funds in its deposit account until such time as (a) the sum of excess availability under Siena Credit Facility (as amended) and unrestricted cash is less than $ 5 million for 3 consecutive business days or (b) an event of default occurs and is
continuing.
In addition, the Amended Fee Letter requires the Company, while it retains the ability to direct the use of funds in the deposit account, to maintain outstanding
borrowings of at least $ 2,250,000 in principal amount. If the Company does not have the ability to direct the use of funds in the deposit
account, then the Amended Fee Letter requires the Company to pay interest on at least $ 2,250,000 principal amount of loans, whether or not such
amount of loans is actually outstanding.
PPP Loan
On May 1, 2020, 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.
On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that the 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. 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.
12
6. Earnings per share
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (as adjusted, See Note 9):
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands, except per share data)
Net income (loss)
$
528
$
901
$
( 6,196
)
$
( 3,218
)
Shares:
Basic: Weighted average common shares outstanding
9,911
9,408
9,902
9,112
Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method
–
438
–
–
Diluted: Weighted average common and common equivalent shares outstanding
9,911
9,846
9,902
9,112
Net income (loss) per common share:
Basic
$
0.05
$
0.10
$
( 0.63
)
$
( 0.35
)
Diluted
$
0.05
$
0.09
$
( 0.63
)
$
( 0.35
)
The computation of diluted earnings per share excludes the effect of the potential exercise
of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the
computation of diluted earnings would be anti-dilutive. For the three months ended September 30, 2022 and 2021 , there were 0.3 million and 0.3 million, respectively, of potentially dilutive shares consisting of stock
awards that were excluded from the calculation of earnings per diluted share. For the nine months ended September 30, 2022 and 2021 , there were 1.6 million and 0.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the
calculation of earnings per diluted share. In periods for which a net loss is reported, such as the nine months ended September 30, 2022 and 2021, basic and
diluted net loss per common share are calculated using the same method.
For the three months ended September 30, 2022, the d ilutive effect of outstanding options
and restricted stock units, as determined by the treasury stock method, was less than one thousand shares and thus did not impact the
rounded shares presented above.
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 Sheets. Our leases have remaining lease terms of two to four years , some of which include options to extend. Lease expense is recognized on a straight-line basis over the lease term.
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 .
On April 26, 2022, we entered into an amendment to modify the expiration date of our lease on our Las Vegas, Nevada facility. The lease was set to expire on November 1,
2022 and the amendment extended the lease term to November 30, 2025. The lease amendment resulted in an increase to the right-of-use-asset and lease liability of $ 0.8 million . The lease amendment modified the base rent and extended the lease term from October 31, 2022 to
November 30, 2025.
Operating lease expense for the three months ended September 30, 2022
and 2021 was $ 261 thousand and $ 235 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and
“General and administrative expense” in the Condensed Consolidated Statements of Operations. Operating lease expense for the nine months ended September 30, 2022 and 2021 was $ 748
thousand and $ 717 thousand, respectively. Operating lease expenses include short-term lease costs, which were immaterial during the periods
presented.
13
The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):
Nine Months Ended
September 30,
2022
2021
Operating cash outflows from leases
$
617
$
750
The following summarizes additional information related to our leases as of September 30, 2022 and December 31, 2021:
September 30, 2022
December 31, 2021
Weighted average remaining lease term (in years)
3.0
3.5
Weighted average discount rate
4.5
%
4.4
%
The maturity of the Company’s operating lease liabilities as of September 30, 2022
and December 31, 2021 were as follows (in thousands):
September 30, 2022
December 31, 2021
2022
$
218
$
886
2023
968
721
2024
1,019
721
2025
707
426
2026
19
23
Total undiscounted lease payments
2,931
2,777
Less imputed interest
195
207
Total lease liabilities
$
2,736
$
2,570
8. Income taxes
We recorded an income tax benefit for the third
quarter of 2022 of $ 62 thousand at
an effective tax rate of ( 13.3 %), compared to an income tax benefit for the third quarter of 2021 of $ 442 thousand at an effective tax rate of ( 96.3 %). For the nine months ended September 30, 2022, we
recorded an income tax benefit of $ 2.3 million at an effective tax rate of ( 27.0 %), compared to an income tax benefit for the nine months ended September 30, 2021 of $ 1.6 million at an
effective tax rate of ( 33.6 %).
We are subject to U.S. federal income tax, as well as income tax in certain U.S. states and foreign jurisdictions. We have substantially concluded all
U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2018. However, our federal tax returns from 2019 through 2021 remain open to examination. Various state and foreign tax jurisdiction tax years remain open
to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.
As of September 30, 2022 , we had $ 116 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective
income tax rate in future periods. For the third quarter of 2022, we recognized $ 28 thousand of previously unrecognized tax benefits
as the statute of limitations on the use of our 2018 research and development credit expired during the third quarter of 2022.
We recognize interest and penalties related to uncertain tax positions in the income tax provision. As of September 30, 2022, we had $ 20 thousand of accrued interest and penalties related to
uncertain tax positions.
Management evaluates all jurisdictions based on historical pre-tax earnings and taxable income to determine the need for valuation allowances on a quarterly basis. The
three months ended September 30, 2022 benefitted from the remeasurement of our deferred tax asset valuation allowance associated with our operations in the United Kingdom. Based on this analysis, we currently have no valuation allowances recorded for
any jurisdiction.
14
9. Change in accounting principle
Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximates FIFO to the average costing methodology. We believe
this methodology is preferable because it reflects a better estimate of inventory cost as we do not typically perform intensive manufacturing of our finished products, which are therefore better measured under average cost. In addition, our business
is projected to include an increasing sales volume of software going forward, which better aligns with average costing. Comparative financial statements of prior periods have been adjusted to apply the new method retrospectively. Tax effects are
calculated at the Company’s marginal tax rate, or the tax impact of incremental income changes rather than the average tax rate applied to our total net loss before income taxes. The following financial statement line items for the periods presented
were impacted by the change in accounting principle.
The effect of the changes made to the Company’s Condensed Consolidated Balance Sheets for the periods presented are as
follows:
December 31, 2021
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Inventories
$
7,720
$
7,711
$
( 9
)
Deferred tax assets
5,141
5,143
2
Retained earnings
15,573
15,566
( 7
)
The ending balance in retained earnings as of December 31, 2020 was adjusted from $ 19,718 to $ 19,607 .
The effect of the changes made to the Company’s Condensed Consolidated Statements of Operations for the periods presented are as follows:
Three months ended September 30, 2021
Nine months ended September 30, 2021
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Cost of sales
$
6,320
$
6,332
$
12
$
17,432
$
17,187
$
( 245
)
Gross profit
4,317
4,305
( 12
)
10,831
11,076
245
Operating loss
( 1,604
)
( 1,616
)
( 12
)
( 7,025
)
( 6,780
)
245
Income (loss) before income taxes
471
459
( 12
)
( 5,092
)
( 4,847
)
245
Income tax benefit
439
442
3
1,682
1,629
( 53
)
Net income (loss)
910
901
( 9
)
( 3,410
)
( 3,218
)
192
Net income (loss) per common share:
Basic
$
0.10
$
0.10
$
–
$
( 0.37
)
$
( 0.35
)
$
0.02
Diluted
$
0.09
$
0.09
$
–
$
( 0.37
)
$
( 0.35
)
$
0.02
Shares used in per-share calculation:
Basic
9,408
9,408
9,112
9,112
Diluted
9,846
9,846
9,112
9,112
The effect of the changes made to the Company’s Condensed Consolidated Statements of Comprehensive Income (loss) for the periods presented are as follows:
Three months ended September 30, 2021
Nine months ended September 30, 2021
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Net income (loss)
$
910
$
901
$
( 9
)
$
( 3,410
)
$
( 3,218
)
$
192
Comprehensive income (loss)
933
924
( 9
)
( 3,302
)
( 3,110
)
192
15
The effect of the changes made to the Company’s Condensed Consolidated Statements of Cash Flows for the periods presented are as follows:
Nine months ended September 30, 2021
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Net loss
$
( 3,410
)
$
( 3,218
)
$
192
Deferred income taxes
( 1,573
)
( 1,520
)
53
Inventories
4,922
4,677
( 245
)
The effect of the changes made to the Company’s Condensed Consolidated Statements of Changes in Shareholders’ Equity for the periods presented are as follows:
Three months ended September 30, 2021
Nine months ended September 30, 2021
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Under
FIFO Cost
Under
Average Cost
Effect
of Change
Equity beginning balance
$
26,873
$
26,963
$
90
$
30,236
$
30,125
$
( 111
)
Retained earnings -- beginning of period
15,398
15,488
90
19,718
19,607
( 111
)
Net income (loss)
910
901
( 9
)
( 3,410
)
( 3,218
)
192
Retained earnings -- end of period
16,308
16,389
81
16,308
16,389
81
Equity ending balance
39,280
39,361
81
39,280
39,361
81
10. Subsequent events
The Company has evaluated all events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were issued. Based upon this review, the
Company did not identify subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.
16
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.