TRANSACT TECHNOLOGIES INC 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2022. Our management, including our CEO and CFO, has concluded that our consolidated financial statements, included in this Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles, and that they can be relied upon. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Our management assessed our internal control over financial reporting as of December 31, 2022. Our management based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO”). In the opinion of management, TransAct maintained effective internal control over financial reporting as of December 31, 2022. Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection. Not applicable. 28 PART III Item 10. Directors, Executive Officers and Corporate Governance. Set forth in Item 1 of this Form 10-K under the heading “Information about our Executive Officers” is certain information regarding our executive officers, and information regarding our code of ethics is set forth below. The remaining information in response to this item is incorporated herein by reference to the disclosure that will be contained, as applicable, under the headings, “Delinquent Section 16(a) Reports,” “Corporate Governance,” “Proposal 1: Election of Directors,” “Audit Committee Report,” “Executive Compensation – Compensation Committee Report,” and “Procedures for Submitting Director Nominations and Recommendations” in our Proxy Statement for our 2023 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed within 120 days after the end of the year covered by this Form 10-K. Code of Ethics We maintain a Standards of Business Conduct and Code of Ethics (“Standards of Business Conduct”) that includes our code of ethics that is applicable to all employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller. Our Standards of Business Conduct, which require continued observance of high ethical standards, such as honesty, integrity and compliance with the law in the conduct of our business, are available for public access on our Internet website at https://transacttech.gcs-web.com/corporate-governance. Any person may request a copy of our Standards of Business Conduct free of charge by calling (203) 859-6800. We will disclose on our website at https://transacttech.gcs-web.com/corporate-governance any amendment to or waiver of a provision of the Standards of Business Conduct as may be required and within the time period specified under the applicable Securities and Exchange Commission and Nasdaq rules. Item 11. Executive Compensation. The information in response to this item will be contained in the Proxy Statement under the heading “Executive Compensation,” and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Set forth below is certain information regarding our equity compensation plans. The remaining information in response to this item will be contained in the Proxy Statement under the heading, “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference. Equity Compensation Plan Information Information regarding our equity compensation plans as of December 31, 2022 is as follows: Plan category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders: 2005 Equity Incentive Plan 156,000 $ 10.09 – 2014 Equity Incentive Plan 1,414,241 7.60 347,652 Total 1,570,241 $ 7.84 347,652 In May 2014, our stockholders approved the adoption of the 2014 Equity Incentive Plan. In May 2020, our stockholders approved an amendment to the 2014 Equity Incentive Plan to increase the number of shares of common stock which may be subject to awards granted under the plan from 1,400,000 to its current level of 2,200,000. The Company also maintains the 2005 Equity Incentive Plan; however no new awards will be available for future issuance under this plan. Both plans generally provide for awards in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights. The Company does not have any equity plans that have not been approved by its stockholders. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information in response to this item will be contained in the Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Corporate Governance-Board Leadership Structure and Independence” and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services. The information in response to this item will be contained in the Proxy Statement under the headings, “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm” and “Independent Registered Public Accounting Firm’s Services and Fees” and is incorporated herein by reference. 29 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2022 and 2021 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 Notes to Consolidated Financial Statements 2. Schedules. All schedules are omitted because they are either inapplicable or not required, or because the information required therein is included in the Consolidated Financial Statements and Notes thereto. 3. Exhibits Exhibit Index 3.1(a) Certificate of Incorporation of TransAct Technologies Incorporated (conformed copy) (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 18, 2022). 3.1(b) Certificate of Designation, Series A Preferred Stock, filed with the Secretary of State of Delaware on December 2, 1997 (incorporated by reference to Exhibit C of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on February 18, 1999). 3.1(c) Certificate of Designation, Series B Preferred Stock, filed with the Secretary of State of Delaware on April 6, 2000 (incorporated by reference to Exhibit 3.1(c) of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 8, 2000). 3.2 * Amended and Restated By-Laws of TransAct Technologies Incorporated. 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1/A (No. 333-06895) filed with the SEC on August 1, 1996). 4.2 Description of Securities (incorporated by reference   to Exhibit 4.2 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2020). 10.1 (x) 2005 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on June 1, 2005). 10.2 (x) TransAct Technologies Incorporated 2014 Equity Incentive Plan, as Amended and Restated (incorporated by reference to Exhibit I to the Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2020, File No. 000-21121). 10.3 (x) 2014 Equity Incentive Plan Time-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 6, 2016). 10.4 (x) 2014 Equity Incentive Plan Performance-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-211121) filed with the SEC on August 8, 2016). 10.5 (x) 2014 Equity Incentive Plan Non-statutory Stock Option Agreement (incorporated by reference to Exhibit 10.2 of the Company’s current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on May 19, 2014). 10.6 (x) Employment Agreement, dated July 31, 1996, by and between TransAct and Bart C. Shuldman (incorporated by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1/A (No. 333-06895) filed with the SEC on August 1, 1996). 10.7 (x) Severance Agreement by and between TransAct and Steven A. DeMartino, dated June 1, 2004 (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2005). 10.8 (x) Amendment to Employment Agreement, effective January 1, 2008, by and between TransAct and Bart C. Shuldman (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2009). 10.9 (x) Amendment to Severance Agreement by and between TransAct and Steven A. DeMartino, effective January 1, 2008 (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2009). 10.10 (x) Severance Agreement by and between TransAct and Andrew J. Hoffman (as amended), effective December 23, 2008 (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 24, 2022). 10.11 (x) Second Amendment to Severance Agreement by and between TransAct and Steven A. DeMartino, effective April 29, 2021 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 24, 2022). 10.12(x) Amended and Restated Employment Agreement, dated as of December 14, 2022, by and between TransAct Technologies Incorporated and Bart C. Shuldman (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on December 27, 2022). 30 10.13 Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, 1992 (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1 (No. 333-06895) filed with the SEC on June 26, 1996). 10.14 Second Amendment to Lease Agreement by and between Bomax Properties and Ithaca, dated December 2, 1996 ( incorporated by reference to Exhibit 10.27 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 31, 1998). 10.15 Agreement regarding the Continuation and Renewal of Lease by and between Bomax Properties, LLC and TransAct, dated July 18, 2001   (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 29, 2002). 10.16 Amendment No. 1 to Lease Agreement between Bomax Properties, LLC and TransAct (incorporated by reference to Exhibit 10.16 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 10, 2012). 10.17 Amendment No. 2 to Lease Agreement between Bomax Properties, LLC and TransAct, dated January 14, 2016 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 11, 2016). 10.18 Amendment No. 3 to Lease Agreement between Bomax Properties, LLC and TransAct, dated February 28, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on March 4, 2020). 10.19 Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated December 2, 2004 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2005). 10.20 First Amendment to Lease Agreement by and between CIP Hughes Center LLC and TransAct dated August 24, 2009 (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2010). 10.21 Second Amendment to Lease Agreement by and between The Realty Associates Fund IX LP and TransAct dated June 30, 2015 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 7, 2015). 10.22 Lease Agreement by and between 2319 Hamden Center I, L.L.C. and TransAct dated November 27, 2006 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 15, 2007). 10.23 First Amendment to Lease by and between 2319 Hamden Center I, L.L.C. and TransAct dated January 3, 2017 (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2017). 10.24 Second Amendment to Lease by and between 2319 Hamden Center I, L.L.C. and TransAct Technologies dated April 30, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 13, 2021). 10.25 Loan and Security Agreement, dated as of March 13, 2020, among Siena Lending Group LLC, TransAct Technologies Incorporated and the other Loan Parties from time to time party thereto (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 22, 2020). 10.26 Amendment No. 1 To Loan and Security Agreement, dated as of July 21, 2021, among Siena Lending Group and TransAct Technologies Incorporated (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on July 26, 2021) 10.27 Amendment No. 2 To Loan and Security Agreement, dated as of July 19, 2022, between Siena Lending Group LLC and TransAct Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on July 25, 2022). 10.28 Amended and Restated Fee Letter, dated as of July 19, 2022, between Siena Lending Group LLC and TransAct Technologies Incorporated (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on July 25, 2022). 10.29 † Master License Agreement dated February 22, 2019 and amendments thereto (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 12, 2021). 10.30 † Master Development and License Agreement dated July 20, 2018 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 12, 2021). 31 10.31 Cooperation Agreement, dated as of March 30, 2022, by and among TransAct Technologies Incorporated, 325 Capital Master Fund LP and Harbert Discovery Fund, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on March 31, 2022). 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 12, 2021) 23.1 * Consent of Marcum LLP 31.1 * Rule 13a-14(a) Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Rule 13a-14(a) Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. 32 ‡ Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (x) Management contract or compensatory plan or arrangement. * These exhibits are filed herewith. † Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Item (601)(b)(10) of Regulation S-K. ‡ These exhibits are furnished herewith. (b) Exhibits. The Exhibits required by Item 601 of Regulation S-K under the Exchange Act are included in the Exhibit Index above under a(3) of this Item 15. (c) Financial Statement Schedules. See the Notes to the Consolidated Financial Statements included in this Form 10-K. Item 16. Form 10-K Summary. Not applicable. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSACT TECHNOLOGIES INCORPORATED By: /s/ Bart C. Shuldman Name: Bart C. Shuldman Title: Chief Executive Officer Date: March 27, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Bart C. Shuldman Chief Executive Officer and Director March 27, 2023 Bart C. Shuldman (Principal Executive Officer) /s/ Steven A. DeMartino President, Chief Financial Officer, Treasurer and Secretary March 27, 2023 Steven A. DeMartino (Principal Financial Officer) /s/ William J. DeFrances Vice President and Chief Accounting Officer March 27, 2023 William J. DeFrances (Principal Accounting Officer) /s/ Haydee Ortiz Olinger Chair of the Board March 27, 2023 Haydee Ortiz Olinger /s/ John M. Dillon Director March 27, 2023 John M. Dillon /s/ Audrey P. Dunning Director March 27, 2023 Audrey P. Dunning /s/ Daniel M. Friedberg Director March 27, 2023 Daniel M. Friedberg /s/ Randall S. Friedman Director March 27, 2023 Randall S. Friedman / s/ Emanuel P. N. Hilario Director March 27, 2023 Emanuel P.N. Hilario 33 TRANSACT TECHNOLOGIES INCORPORATED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID 688 ) F-2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-4 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-5 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021 F-6 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-8 Notes to Consolidated Financial Statements F-9 F-1 Report of Independent Registered Publi c Accounting Firm To the Shareholders and Board of Directors of TransAct Technologies Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of TransAct Technologies Incorporated (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Change in Accounting Principle As described in Note 16 to the consolidated financial statements, effective April 1, 2022, the Company changed its method of inventory valuation from standard cost (which approximated actual cost on a “first-in, first-out” basis) to the average cost method of inventory accounting. Comparative financial statements of prior periods have been adjusted to apply the new method retrospectively. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. F-2 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Inventories - Change in Accounting Principle As described in Note 16 to the consolidated financial statements, effective April 1, 2022, the Company changed its method of inventory valuation from standard costing (which approximated the “first-in, first-out” costing methodology) to the average costing methodology, and comparative financial statements of prior periods were adjusted to apply the new method retrospectively. Management determined that this change in accounting principle was preferable because it reflects a better estimate of inventory cost. At December 31, 2022, the Company’s inventory balance was approximately $12.0 million. As discussed in Note 2 to the consolidated financial statements, inventories are stated at the lower of average cost or net realizable value. The principal considerations for our determination that the Company’s change in accounting principle related to inventory valuation was a critical audit matter included the following: (1) management identifies inventories as a critical accounting estimate, and this change in accounting principle was considered to be a significant transaction during the year; (2) there were significant judgments made by management with respect to the change, including the explanation of why the change in accounting principle was preferable and the estimation of the retrospective adjustment to apply the new method of inventory valuation; and (3) management’s calculation to estimate the adjustment was intricate, due to the complexities of the manual calculations involved and the magnitude of transactions flowing through the analysis. This complexity led to a high degree of auditor effort in performing our audit procedures, which were designed to evaluate the reasonableness of management’s calculation and application of the retrospective inventory valuation adjustment. Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) obtaining an understanding of why the Company changed its accounting principle to the average costing methodology; (ii) evaluating management’s methodology and process for estimating the retrospective average costing adjustment; (iii) testing management’s calculation of the retrospective adjustment, which included evaluating the completeness and accuracy of management’s input data used in the manual calculation, principally inputs such as historical purchases and sales transactions; (iv) and evaluating the reasonableness of significant judgments used by management, principally management’s determination that one year of historical costing data was sufficient to adjust the opening balance for the retrospective adjustment. /s/ Marcum LLP We have served as the Company’s auditor since 2020. Hartford, Connecticut March 27, 2023 F-3 TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED BALANCE SHEETS (As adjusted, in thousands, except share data) December 31, 2022 December 31, 2021 Assets: Current assets: Cash and cash equivalents $ 7,946 $ 19,457 Accounts receivable, net 13,927 7,593 Employee retention credit receivable 1,500 1,500 Inventories 12,028 7,711 Prepaid income taxes – 137 Other current assets 724 738 Total current assets 36,125 37,136 Fixed assets, net 2,781 2,684 Right-of-use asset 2,488 2,553 Goodwill 2,621 2,621 Deferred tax assets 7,327 5,143 Intangible assets, net 242 397 Other assets 248 400 15,707 13,798 Total assets $ 51,832 $ 50,934 Liabilities and Shareholders’ Equity: Current liabilities: Current portion of revolving loan payable $ 2,250 $ – Accounts payable 7,395 4,308 Accrued liabilities 4,077 3,894 Lease liability 875 789 Deferred revenue 1,329 805 Total current liabilities 15,926 9,796 Deferred revenue, net of current portion 143 186 Lease liability, net of current portion 1,683 1,781 Other liabilities 218 187 2,044 2,154 Total liabilities 17,970 11,950 Commitments and contingencies (see Notes 9 and 14) Shareholders’ equity: Preferred stock, $ 0.01 value, 4,800,000 authorized, none issued and outstanding – – Preferred stock, Series A, $ 0.01 par value, 200,000 authorized, none issued and outstanding – – Common stock, $ 0.01 par value, 20,000,000 authorized at December 31, 2022 and 2021 ; 13,956,725 and 13,917,731 shares issued; 9,911,883 and 9,872,889 shares outstanding, at December 31, 2022 and 2021 , respectively 139 139 Additional paid-in capital 56,282 55,246 Retained earnings 9,630 15,566 Accumulated other comprehensive (loss) income, net of tax ( 79 ) 143 Treasury stock, 4,044,842 shares, at cost ( 32,110 ) ( 32,110 ) Total shareholders’ equity 33,862 38,984 Total liabilities and shareholders’ equity $ 51,832 $ 50,934 See accompanying notes to Consolidated Financial Statements. F-4 TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (As adjusted, in thousands, except per share data) Years Ended December 31, 2022 2021 Net sales $ 58,139 $ 39,386 Cost of sales 33,727 24,004 Gross profit 24,412 15,382 Operating expenses: Engineering, design and product development 8,570 7,475 Selling and marketing 11,326 7,658 General and administrative 12,193 9,626 32,089 24,759 Operating loss ( 7,677 ) ( 9,377 ) Interest and other income (expense): Interest expense ( 208 ) ( 157 ) Interest income – 61 Other, net ( 16 ) ( 283 ) Gain from employee retention credit – 1,500 Gain on forgiveness of long-term debt – 2,173 ( 224 ) 3,294 Loss before income taxes ( 7,901 ) ( 6,083 ) Income tax benefit 1,965 2,042 Net loss $ ( 5,936 ) $ ( 4,041 ) Net loss per common share: Basic $ ( 0.60 ) $ ( 0.43 ) Diluted $ ( 0.60 ) $ ( 0.43 ) Shares used in per-share calculation: Basic 9,905 9,298 Diluted 9,905 9,298 See accompanying notes to Consolidated Financial Statements. F-5 TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (As adjusted, in thousands) Years Ended December 31, 2022 2021 Net loss $ ( 5,936 ) $ ( 4,041 ) Foreign currency translation adjustment, net of tax ( 222 ) 181 Comprehensive loss $ ( 6,158 ) $ ( 3,860 ) See accompanying notes to Consolidated Financial Statements. F-6 TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (As adjusted, in thousands, except share data) Common Stock Additional Paid-in Retained Treasury Accumulated Other Comprehensive Total Shares Amount Capital Earnings Stock (Loss) Income Equity Balance, January 1, 2021 8,931,385 $ 130 $ 42,536 $ 19,607 $ ( 32,110 ) $ ( 38 ) $ 30,125 Issuance of common stock from exercise of stock options 97,000 – 436 – – – 436 Issuance of common stock on restricted stock units 50,525 – – – – – – Issuance of common stock, net of issuance cost 842,375 9 11,201 – – – 11,210 Relinquishment of stock awards and deferred stock units to pay withholding taxes ( 48,396 ) – ( 133 ) – – – ( 133 ) Share-based compensation expense – – 1,206 – – – 1,206 Foreign currency translation adjustment, net of tax – – – – – 181 181 Net loss – – – ( 4,041 ) – – ( 4,041 ) Balance, December 31, 2021 9,872,889 139 55,246 15,566 ( 32,110 ) 143 38,984 Issuance of common stock from exercise of stock options 17,500 – – – – – – Issuance of common stock on restricted stock units 47,931 – – – – – – Relinquishment of stock awards and deferred stock units to pay withholding taxes ( 26,437 ) – ( 119 ) – – – ( 119 ) Share-based compensation expense – – 1,155 – – – 1,155 Foreign currency translation adjustment, net of tax – – – – – ( 222 ) ( 222 ) Net loss – – – ( 5,936 ) – – ( 5,936 ) Balance, December 31, 2022 9,911,883 $ 139 $ 56,282 $ 9,630 $ ( 32,110 ) $ ( 79 ) $ 33,862 See accompanying notes to Consolidated Financial Statements. F-7 TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (As adjusted, in thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 5,936 ) $ ( 4,041 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 1,155 1,206 Depreciation and amortization 1,332 957 Deferred income tax benefit ( 2,141 ) ( 2,121 ) Loss on the disposal of fixed assets 2 9 Foreign currency transaction losses 6 272 Gain on forgiveness of long-term debt – ( 2,173 ) Changes in operating assets and liabilities: Accounts receivable ( 6,421 ) ( 4,217 ) Employee retention credit receivable – ( 1,500 ) Inventories ( 4,378 ) 3,440 Prepaid income taxes 137 2,210 Other current and long-term assets 167 322 Accounts payable 3,103 2,534 Accrued liabilities and other liabilities 754 592 Net cash used in operating activities ( 12,220 ) ( 2,510 ) Cash flows from investing activities: Capital expenditures ( 1,299 ) ( 1,384 ) Proceeds from the sale of fixed assets – 8 Collection of note receivable – 1,598 Net cash (used in) provided by investing activities ( 1,299 ) 222 Cash flows from financing activities: Proceeds from bank borrowings 2,250 – Proceeds from stock option exercises – 436 Proceeds from the issuance of common stock – 12,214 Payment of common stock issuance costs – ( 1,014 ) Withholding taxes paid on stock issuance ( 119 ) ( 133 ) Payment of bank financing costs ( 69 ) ( 31 ) Net cash provided by financing activities 2,062 11,472 Effect of exchange rate changes on cash and cash equivalents ( 54 ) ( 86 ) (Decrease) increase in cash and cash equivalents ( 11,511 ) 9,098 Cash and cash equivalents, beginning of period 19,457 10,359 Cash and cash equivalents, end of period $ 7,946 $ 19,457 Supplemental cash flow information: Interest paid $ 129 $ 76 Income taxes paid 62 57 Non-cash capital expenditure items 54 82 See accompanying notes to Consolidated Financial Statements. F-8 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of business TransAct Technologies Incorporated (together with its subsidiaries, “TransAct,” the “Company,” “we,” “us,” or “our”), which has its headquarters in Hamden, Connecticut and its primary operating facility in Ithaca, New York, operates in one operating segment: software-driven technology and printing solutions for high growth markets including food service technology, casino and gaming and “point of sale” (“POS”) automation markets. Our solutions are designed from the ground up based on market and customer requirements and are sold under the BOHA! TM , AccuDate™, Epic, Ithaca®, and EPICENTRAL product brands. We sell our products to original equipment manufacturers, value-added resellers, select distributors, and 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. TransAct also provides world-class service, spare parts, accessories and printing supplies to its growing worldwide installed base of products. We also generate revenue from the after-market side of the business, providing printer and terminal service, consumables and spare parts in addition to revenue from our two software solutions; (i) our line of BOHA! software applications used to automate the back-of-house operations of restaurants, convenience stores and food service operators and (ii) the EPICENTRAL Print System (“EPICENTRAL”), that enables casino operators to create promotional coupons and marketing messages and print them in real time at the slot machine. 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. We have also been impacted by global supply chain issues, increased shipping costs and inflationary pressures, which have increased our costs and, in some instances, slowed our ability to deliver products to our customers. During 2021, our inventory levels decreased significantly as a result of these supply chain disruptions, and we experienced significantly lower sales levels. However, during 2022 we were 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. Although we were able to increase inventory levels during 2022 and expect to continue to do so in 2023, there can be no assurance that new or continuing 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 continued to experience demand recovery during the remainder of 2022. Based on our strong backlog position and continued market expansion, we expect this recovery to continue into 2023, though the exact timing and pace of recovery may be impacted by global economic conditions. 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 August 16, 2021, the Company raised net proceeds of $ 11.2 million (including the exercise of the underwriters overallotment option on August 20, 2021), after deducting underwriting discounts, commissions and offering expenses, through an underwritten public offering and sold an aggregate of 842,375 shares of common stock. ● 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, which enabled us to return employees we furloughed earlier in 2020 to full time employment and to restore employees to full pay following certain pay cuts. On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021. See Note 8 for further details regarding the PPP Loan. ● Employee Retention Credit – Under the provisions of the CARES Act, the Company is 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 and recorded $ 1.5 million as “Gain from employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and the related receivable as “Employee retention credit receivable” in the Consolidated Balance Sheet as of December 31, 2021 and 2022. We received these funds in the first quarter of 2023. ● 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 and on July 19, 2022, we entered into an amendment to extend the maturity of the facility to March 13, 2025. See Note 8 for further details regarding this facility. ● Reduced Capital Expenditures – We limited capital expenditures during 2020 and 2021 and gradually increased these expenditures during 2022 as sales improved. F-9 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 Consolidated Financial Statements included in this “Form 10-K” 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 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 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 2023. 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 significant backlog of orders as of December 31, 2022 and increasing market share during 2022, 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 audited Consolidated 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, 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. Smaller Reporting Company As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, we may choose to prepare our disclosures relying on certain scaled disclosure requirements for smaller reporting companies in Regulation S-K and in Article 8 of Regulation S-X. The scaled disclosure requirements for smaller reporting companies permit us (i) to include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation in our proxy statement and (ii) to provide audited financial statements for two fiscal years in our Form 10-K, in contrast to other reporting companies, which must provide audited financial statements for three years. We may lose our status as a smaller reporting company on the last day of the fiscal year in which we have (i) public float of at least $250 million as of the last day of the second fiscal quarter and (ii) if we have a public float that does not exceed $700 million as of the last day of the second fiscal quarter and at least $100 million in annual revenues. 2. Summary of significant accounting policies Principles of consolidation: The accompanying Consolidated Financial Statements include the audited Consolidated Financial Statements of TransAct and its wholly-owned subsidiaries, which require consolidation, after the elimination of intercompany accounts, transactions and unrealized profit. Use of estimates : The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Segment reporting : We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” We view our operations and manage our business as one segment: the design, development and marketing of software-driven technology and printing solutions and providing printer and terminal related software, services, supplies and spare parts. Factors used to identify TransAct’s single operating segment include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. Cash and cash equivalents : We consider all highly liquid investments with a maturity date of three months or less at date of purchase to be cash equivalents. Allowance for doubtful accounts : We establish an allowance for doubtful accounts to ensure trade receivables are valued appropriately. We maintain an allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience. We record a specific allowance for individual accounts when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, we further adjust estimates of the recoverability of receivables. F-10 The following table summarizes the activity recorded in the valuation account for accounts receivable: Years Ended December 31 , (In thousands) 2022 2021 Balance, beginning of period $ 219 $ 220 Additions charged to costs and expenses 140 – Deductions ( 8 ) ( 1 ) Balance, end of period $ 351 $ 219 Inventories: Inventories are stated at the lower of average cost or net realizable value. We review net realizable value based on estimated selling prices in the ordinary course of business less estimated costs of completions, disposal and transportation, historical usage and estimates of future demand. Based on these reviews, inventory write-downs are recorded, as necessary, to reflect estimated obsolescence, excess quantities and net realizable value. Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximated the “first-in, first-out” (“FIFO”) costing methodology to the average costing methodology. Comparative financial statements of prior periods have been adjusted to apply the new method retrospectively. See Note 16 for a discussion of the change in accounting principle during the second quarter of 2022. Fixed assets: Fixed assets are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives. The estimated useful life of tooling is five years ; machinery and equipment is ten years ; furniture and office equipment is five years to ten years ; and computer software and equipment is three years to seven years . Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset. Costs related to repairs and maintenance are expensed as incurred. The costs of sold or retired assets are removed from the related asset and accumulated depreciation accounts and any gain or loss is recognized. Depreciation expense was $ 1.1 million and $ 0.7 million in 2022 and 2021, respectively. Leases: We account for leases in accordance with ASC 842, “Leases” (“ASC 842”), which requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for based on existing guidance for operating leases. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risks and rewards or control, the lease is treated as operating. We have elected certain practical expedients available under ASC 842 upon adoption. We have applied the practical expedient for short-term leases. We have lease agreements that include lease and non-lease components, and we have not elected the practical expedients to combine these components for any of our 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. We determine if an arrangement contains a lease at inception. Our leases are included in “Right-of-use asset” and “Lease liability” in our Consolidated Balance Sheets. Right of use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease right of use assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. 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. On April 30, 2021, we entered into an amendment to modify the expiration date of our lease on our Hamden, CT facility. The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027. The lease amendment modified the expiration date to October 31, 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. As most of our leases do not provide an implicit rate, the Company determines its incremental borrowing rate by using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Our lease right of use asset excludes lease incentives. Our leases have remaining lease terms of one year to four years , some of which include options to extend. The exercise of lease renewal options is at our sole discretion and our lease right of use assets and liabilities reflect only the options we are reasonably certain that we will exercise. Lease expense is recognized on a straight-line basis over the lease term. F-11 Goodwill and intangible assets : We acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets. The determination of the value of intangible assets requires management to make estimates and assumptions. In accordance with ASC 350-20 “Goodwill,” acquired goodwill is not amortized but is subject to impairment testing at least annually and when an event occurs or circumstances change that indicate it is more likely than not an impairment exists. We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards. Under the qualitative assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, Company performance and events directly affecting the Company. If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach. Factors considered that may trigger an interim period impairment review of either acquired goodwill or intangible assets are: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of acquired assets or the strategy for the overall business; significant negative industry or economic trends; and significant decline in market capitalization relative to net book value. Finite lived intangible assets are amortized and are tested for impairment when appropriate. As of December 31, 2022, we have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was substantially higher than our carrying value based on our assessment as of December 31, 2022 when our annual review for impairment was performed. Revenue recognition: We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers. In accordance with ASC 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Some of our contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations (most commonly when contracts include a hardware product, software and extended warranties). A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, such as price protection, reserves for returns and other allowances, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the “expected value” method or the “most likely amount” method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. For a majority of our revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes revenue as of a point of time. The transaction price is recognized upon shipment of the order when control of the goods is transferred to the customer and at the time the performance obligation is fulfilled. We also sell a software solution in our casino and gaming market, EPICENTRAL, that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine. EPICENTRAL is primarily comprised of both a software component, which is licensed to the customer, and a hardware component. EPICENTRAL software and hardware are integrated to deliver the system’s full functionality. The transaction prices from EPICENTRAL software license and hardware are recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer. For out-of-warranty repairs, the transaction price is recognized after the repair work is completed and the printer or terminal is returned to the customer, as control of the product is transferred to the customer and our performance obligation is completed. Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and we have a contractual right to payment. For our separately priced extended warranty, BOHA! cloud-based software applications, technical support for our food service technology terminals and maintenance agreements (including free one-year maintenance received by customers upon completion of EPICENTRAL installation) revenue is recognized over time as the customer receives the benefit. The transaction price from the maintenance services is recognized ratably over time, using output methods, as control of the services is transferred to the customer. Our cloud-based BOHA! software allows customers to use hosted software over the contract period on a subscription basis without taking possession of the software and the subscription price is recognized ratably over the contract period. For extended warranties, the transaction price is recognized ratably over the warranty period, using output methods, as control of the services is transferred to the customer. When there is more than one performance obligation in a customer arrangement, the Company typically uses the “standalone selling price” method to determine the transaction price to allocate to each performance obligation. The Company sells the performance obligations separately and has established standalone selling prices for its products and services. In the case of an overall price discount, the discount is applied to each performance obligation proportionately based on standalone selling price. To determine the standalone selling price for initial EPICENTRAL installations, the Company uses the adjusted market assessment approach. For contracts with terms of less than 12 months, the Company expenses sales commissions as they are incurred, since the expected amortization period of the cost to obtain a contract is less than 12 months. F-12 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. Year Ended December 31, 2022 (In thousands) United States International Total Food service technology $ 11,602 $ 762 $ 12,364 POS automation 10,657 2 10,659 Casino and gaming 17,686 12,343 30,029 TransAct Services Group 4,089 998 5,087 Total net sales $ 44,034 $ 14,105 $ 58,139 Year Ended December 31, 2021 (In thousands) United States International Total Food service technology $ 11,738 $ 887 $ 12,625 POS automation 4,817 8 4,825 Casino and gaming 10,173 5,129 15,302 Printrex 171 460 631 TransAct Services Group 5,501 502 6,003 Total net sales $ 32,400 $ 6,986 $ 39,386 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” on the Consolidated Balance Sheets. We first recorded contract assets during 2020 upon the start of a long-term BOHA! contract. Contract liabilities consist of customer prepayments and deferred revenue. Customer prepayments are reported as “Accrued Liabilities” in current liabilities in the Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and is 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. During the year ended December 31, 2022, we recognized revenue of $ 1.1 million related to our contract liabilities as of December 31, 2021. Net contract (liabilities) assets consist of the following: December 31, (In thousands) 2022 2021 Unbilled receivables, current $ 392 $ 314 Unbilled receivables, non-current 163 308 Customer pre-payments ( 101 ) ( 99 ) Deferred revenue, current ( 1,329 ) ( 805 ) Deferred revenue, non-current ( 143 ) ( 186 ) Net contract (liabilities) assets $ ( 1,018 ) $ ( 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 December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 29.0 million. The Company expects to recognize revenue on $ 28.7 million of its remaining performance obligations within the next 12 months following December 31, 2022, $ 0.2 million within the next 24 months following December 31, 2022 and the balance of these remaining performance obligations within the next 36 months following December 31, 2022. F-13 Concentration of credit risk: Financial instruments that potentially expose us to concentrations of credit risk are limited to cash and cash equivalents held by our banks in excess of insured limits and accounts receivable. Accounts receivable from customers representing 10% or more of total accounts receivable, net were as follows: December 31, 2022 2021 Chain Link Services – 10 % International Gaming Technology (“IGT”) 12 % 3 % NCR Corporation 3 % 11 % The Bright Group 11 % – Sales to customers representing 10% or more of total net sales were as follows: December 31, 2022 2021 IGT 10 % 9 % Engineering, design and product development: Engineering, design and product development expenses include expenses incurred in connection with specialized engineering and design to introduce new products and to customize existing products, and are expensed as a component of operating expenses as incurred. We recorded $ 8.6 million and $ 7.5 million of research and development expenses in 2022 and 2021, respectively. Costs incurred in the engineering, design and product development of a computer software product are charged to expense until technological feasibility has been established, at which point all material software costs are capitalized within Intangible assets in our Consolidated Balance Sheet until the product is available for general release to customers. While judgment is required in determining when technological feasibility of a product is established, we have determined that it is reached after all high-risk development issues have been documented in a formal detailed plan design. The amortization of these costs has been included in cost of sales over the estimated life of the product. During 2019, we contracted several third-parties to develop software for our food service technology products, the cost for which we capitalized. Unamortized development costs for such software was $ 242 thousand and $ 396 thousand as of December 31, 2022 and 2021, respectively. The total amount charged to cost of sales for capitalized software development costs was $ 154 thousand in both 2022 and 2021. Advertising: Advertising costs are expensed as incurred. Advertising expenses, which are included in selling and marketing expense on the accompanying Consolidated Statements of Operations for 2022 and 2021 totaled $ 3.1 million and $ 1.8 million, respectively. These expenses include items such as consulting, professional services, tradeshows, and print advertising. Income taxes: The income tax amounts reflected in the accompanying Consolidated Financial Statements are accounted for under the liability method in accordance with ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We assess the likelihood that net deferred tax assets will be realized from future taxable income, and to the extent that we believe that realization is not likely, we establish a valuation allowance. In accordance with ASC 740, we identified, evaluated and measured the amount of benefits to be recognized for our tax return positions. Foreign currency translation: The financial position and results of operations of our foreign subsidiary in the UK are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated into U.S. dollars at the year-end exchange rate, related sales and expenses have been translated at the weighted average rate for the period, and shareholders’ equity has been translated at historical exchange rates. The resulting translation gains or losses, net of tax, are recorded in shareholders’ equity as a cumulative translation adjustment, which is a component of accumulated other comprehensive income and loss. Foreign currency transaction gains and losses, including those related to intercompany balances, are recognized in Other, net on the Consolidated Statements of Operations. F-14 Share-based payments:   At December 31, 2022, we have share-based employee compensation plans, which are described more fully in Note 9 - Stock incentive plans. We account for those plans under the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation.” Share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period. We use the Black-Scholes option-pricing model to calculate the fair value of share-based awards. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, market price of our underlying stock and exercise price. Many of these assumptions require judgment and are highly sensitive in the determination of compensation expense. Forfeitures are recognized as they occur. Net loss per share: We report net income or loss per share in accordance with ASC 260, “Earnings per Share (EPS).” Under this guidance, basic EPS, which excludes dilution, is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS includes in-the-money stock options using the treasury stock method. During a loss period, the assumed exercise of in-the-money stock options has an anti-dilutive effect, and therefore, these instruments are excluded from the computation of diluted EPS. See Note 11 - Earnings per share. Change in accounting principle:   See Note 16 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 . Reclassifications:   Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. 3. Inventories The components of inventories are: December 31, (In thousands) 2022 2021 * Raw materials and purchased component parts $ 8,884 $ 5,499 Work-in-process – 11 Finished goods 3,144 2,201 $ 12,028 $ 7,711 * see Note 16, Change in Accounting Principle 4. Fixed assets, net The components of fixed assets, net are: December 31, (In thousands) 2022 2021 Tooling, machinery and equipment $ 6,859 $ 6,694 Furniture and office equipment 1,882 1,660 Computer software and equipment 8,348 6,973 Leasehold improvements 2,883 2,872 19,972 18,199 Less: Accumulated depreciation and amortization ( 17,656 ) ( 16,736 ) 2,316 1,463 Construction in-process 465 1,221 $ 2,781 $ 2,684 F-15 5. Intangible assets, net Identifiable intangible assets are recorded in Intangible assets, net in the accompanying Consolidated Balance Sheets and are comprised of the following: December 31, 2022 2021 (In thousands) Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Purchased technology $ 1,591 $ ( 1,349 ) $ 1,591 $ ( 1,195 ) Patents 15 ( 15 ) 15 ( 14 ) Total $ 1,606 $ ( 1,364 ) $ 1,606 $ ( 1,209 ) Amortization expense was $ 155 thousand and $ 186 thousand in 2022 and 2021, respectively. Amortization expense for each of the next five years ending December 31 is expected to be as follows: $ 154 thousand in 2023 and $ 88 thousand in 2024; and none thereafter. 6. Accrued liabilities The components of accrued liabilities are: December 31, (In thousands) 2022 2021 Salaries and compensation related $ 2,744 $ 2,854 Taxes 530 79 Professional and consulting 371 285 Other 432 676 $ 4,077 $ 3,894 7. Retirement savings plan We maintain a 401(k) plan under which all full-time employees are eligible to participate at the beginning of the month immediately following their date of hire. We match employees’ contributions at a rate of 50 % of employees’ contributions up to the first 6 % of the employees’ compensation contributed to the 401(k) plan. Our matching contributions were $ 355 thousand and $ 312 thousand in 2022 and 2021, respectively. 8. Borrowings Credit Facility On March 13, 2020, we entered into a credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC (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 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 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 through December 31, 2022, we remained in compliance with our excess availability covenant. As of December 31, 2022, we had $ 2.3 million of outstanding borrowings under the Siena Credit Facility and $ 3.9 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. F-16 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. 9. Stock incentive plans Stock incentive plans . We currently have two stock incentive plans: the 2005 Equity Incentive Plan and the 2014 Equity Incentive Plan, which provide for awards to executives, key employees, directors and consultants. The plans generally provide for awards in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights. Awards granted under these plans have exercise prices equal to 100 % of the fair market value of the common stock at the date of grant. Awards granted have a ten-year term and generally vest over a two-year to four-year period, unless automatically accelerated for certain defined events. As of May 2014, no new awards may be made under the 2005 Equity Incentive Plan. Under our 2014 Equity Incentive Plan, as amended in May 2020, we are authorized to grant awards of up to 2,200,000 shares of TransAct common stock. At December 31, 2022, 347,652 shares of common stock remained available for issuance under the 2014 Equity Incentive Plan. Under the assumptions indicated below, the weighted-average per share fair value of stock option grants for 2022 and 2021 was $ 4.39 and $ 5.41 , respectively. We also issued restricted stock units for certain executives and directors that vest over a specified period of time, and in some instances require achieving certain performance metrics. The weighted-average per share fair value of these restricted stock units was $ 8.43 and $ 10.27 in 2022 and 2021, respectively. The table below indicates the key assumptions (on a weighted-average basis) used in the option valuation calculations for options granted in 2022 and 2021 and a discussion of our methodology for developing each of the assumptions used in the valuation model: Year Ended December 31, 2022 2021 Expected option term (in years) 7.1 6.9 Expected volatility 51.3 % 50.5 % Risk-free interest rate 2.2 % 1.2 % Dividend yield 0.0 % 0.0 % Expected Option Term - This is the weighted average period of time over which the options granted are expected to remain outstanding giving consideration to our historical exercise patterns. Options granted have a maximum term of ten years and an increase in the expected term will increase compensation expense. Expected Volatility – The stock volatility for each grant is measured using the weighted average of historical daily price changes of our common stock over the most recent period approximately equal to the expected option term of the grant. An increase in the expected volatility factor will increase compensation expense. Risk-Free Interest Rate - This is the U.S. Treasury rate in effect at the time of grant having a term approximately equal to the expected term of the option. An increase in the risk-free interest rate will increase compensation expense. F-17 Dividend Yield –The dividend yield is calculated by dividing the annual dividend declared per common share by the weighted average market value of our common stock on the date of grant. An increase in the dividend yield will decrease compensation expense. For both 2022 and 2021, we recorded $ 1.2 million of share-based compensation expense included primarily in general and administrative expense in our Consolidated Statements of Operations. We also recorded income tax benefits of $ 0.3 million in both 2022 and 2021, related to such share-based compensation. At December 31, 2022, these benefits are recorded as a deferred tax asset in the Consolidated Balance Sheets. Equity award activity in the 2005 Equity Incentive Plan and the 2014 Equity Incentive Plan is summarized below: Stock Options Restricted Stock Units Number of Shares Average Price* Number of Units Average Price** Outstanding at December 31, 2021 1,269,355 $ 9.18 155,225 $ 10.28 Granted 181,100 8.16 129,700 8.78 Exercised ( 17,500 ) 6.70 ( 47,931 ) 10.22 Forfeited ( 49,250 ) 9.38 ( 22,708 ) 10.27 Expired ( 27,750 ) 8.51 – – Outstanding at December 31, 2022 1,355,955 $ 9.08 214,286 $ 9.28 * weighted average exercise price per share ** weighted average grant stock price per share The following summarizes information about equity awards outstanding that are vested and expect to vest and equity awards that are exercisable at December 31, 2022: Equity Awards Vested and Expected to Vest Equity Awards That Are Exercisable Awards Average Price* Aggregate Intrinsic Value Remaining Term** Awards Average Price* Aggregate Intrinsic Value Remaining Term** Stock Options 1,355,955 $ 9.08 $ 224 5.0 971,865 $ 9.23 $ 93 3.7 Restricted stock units 145,687 – 921 2.1 – – – – * weighted average exercise price per share ** weighted-average contractual remaining term in years Shares that are issued upon exercise of employee stock awards are newly issued shares and not issued from treasury stock. As of December 31, 2022, unrecognized compensation cost related to non-vested equity awards granted under our stock incentive plans is approximately $ 2.1 million, which is expected to be recognized over a weighted average period of 2.6 years. The total fair value of awards vested was $ 1.6 million and $ 1.7 million during the years ended December 31, 2022 and 2021, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options exercised during the years ended December 31, 2022 and 2021 was $ 40 thousand and $ 268 thousand, respectively, and cash received from option exercises was zero and $ 436 thousand in 2022 and 2021, respectively. 17,500 and 97,000 stock options were exercised during the year ended December 31, 2022 and 2021, respectively. We recorded a realized tax provision in 2022 and 2021 from equity-based awards of $ 13 thousand and $ 35 thousand, respectively, related to options exercised. 10. Income taxes The components of the income tax benefit are as follows: December 31, (In thousands) 2022 2021 Current: Federal $ 149 $ 26 State 110 51 Foreign ( 83 ) 2 176 79 Deferred: Federal ( 1,924 ) ( 2,057 ) State ( 217 ) ( 62 ) Foreign – ( 2 ) ( 2,141 ) ( 2,121 ) Income tax benefit $ ( 1,965 ) $ ( 2,042 ) F-18 Our effective tax rates were ( 24.9 % ) and ( 33.6 % ) for 2022 and 2021 , respectively. The tax benefit recorded for 2022 includes the recognition of stock option cancellations for which no benefit was realized and the benefit recorded for 2021 included the recognition of the gain on the forgiveness of the PPP Loan which was not taxable . At December 31, 2022, we have $ 10.9 million of federal net operating loss carryforwards (with an unlimited carryforward), $ 0.2 million of tax-effected state net operating loss carryforwards (which have varying lives), $ 1.2 million in R&D credit carryforwards (which generally have a twenty year life), and no state tax credit carryforwards. Foreign income (loss) before taxes was $ 24 thousand and ($ 404 ) thousand in 2022 and 2021, respectively. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. Our deferred tax assets and liabilities were comprised of the following: December 31, (In thousands) 2022 2021 Deferred tax assets: Federal net operating losses $ 2,297 $ 1,978 Foreign net operating losses 676 624 State net operating losses 149 – Depreciation – 306 Capitalized R&D expenses 1,708 – Inventory reserves 648 710 Deferred revenue 41 24 Warranty reserve 17 22 Stock compensation expense 769 796 Other accrued compensation 222 308 R&D credit carryforward 1,238 901 Other liabilities and reserves 463 250 Gross deferred tax assets 8,228 5,919 Valuation allowance ( 656 ) ( 733 ) Net deferred tax assets 7,572 5,186 Deferred tax liabilities: Depreciation 196 – Other 49 43 Net deferred tax liabilities 245 43 Total net deferred tax assets $ 7,327 $ 5,143 As of December 31, 2022 and 2021, we had a $ 656 thousand and $ 733 thousand, respectively, of valuation allowances on our net operating loss carryforwards. The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets: Year Ended December 31, (In thousands) 2022 2021 Balance, beginning of period $ 733 $ 659 Subtractions released to income tax provisions ( 77 ) – Additions charged to income tax provision – 74 Balance, end of period $ 656 $ 733 Differences between the U.S. statutory federal income tax rate and our effective income tax rate are analyzed below: Year Ended December 31, 2022 2021 Federal statutory rate 21.0 % 21.0 % PPP loan forgiveness – 7.4 R&D credit 4.3 7.1 Stock award excess tax benefit – 0.3 State income taxes, net of federal income taxes 1.1 0.1 Business meals and entertainment – ( 0.2 ) Miscellaneous permanent items – ( 0.3 ) Uncertain tax positions ( 0.5 ) ( 0.4 ) Stock option cancellations ( 1.9 ) ( 0.6 ) Valuation allowance and tax accruals 1.0 ( 1.2 ) Other ( 0.1 ) 0.4 Effective tax rate 24.9 % 33.6 % F-19 We had $ 142 thousand and $ 144 thousand of total gross unrecognized tax benefits at December 31, 2022 and 2021, respectively that, if recognized, would favorably affect the effective income tax rate in any future periods. We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits. A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows: December 31, (In thousands) 2022 2021 Balance, beginning of period $ 144 $ 121 Tax positions taken during the current period 26 47 Lapse of statute of limitations ( 28 ) ( 24 ) Balance, end of period $ 142 $ 144 We expect $ 28 thousand of the $ 142 thousand of unrecognized tax benefits will reverse in 2023 upon the expiration of the statute of limitations. We recognize interest and penalties related to uncertain tax positions in the income tax provision. We have accrued interest and penalties related to uncertain tax positions of $ 34 thousand and $ 20 thousand as of December 31, 2022 and 2021, respectively. We are subject to U.S. federal income tax as well as income tax of certain state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax, state and local, and foreign tax matters through 2018. However, our federal tax returns for the years 2019 through 2022 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 Consolidated Financial Statements. 11. Earnings per share Earnings per share was computed as follows (in thousands, except per share amounts): Years Ended December 31, 2022 2021 Net loss $ ( 5,936 ) $ ( 4,041 ) Shares: Basic: Weighted average common shares outstanding 9,905 9,298 Add: Dilutive effect of outstanding equity awards as determined by the treasury stock method – – Diluted: Weighted average common and common equivalent shares outstanding 9,905 9,298 Net loss per common share: Basic $ ( 0.60 ) $ ( 0.43 ) Diluted ( 0.60 ) ( 0.43 ) The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, restricted stock units and performance stock awards, when the average market price of the common stock is lower than the exercise price of the related stock award during the period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would be anti-dilutive. Furthermore, in periods when a net loss is reported, such as 2022 and 2021, basic and diluted net loss per common share are calculated using the same method. Anti-dilutive stock awards excluded from the computation of earnings per dilutive share were 1,463,000 and 391,000 at December 31, 2022 and 2021, respectively. 12. Stock repurchase program We use the cost method to account for treasury stock purchases, under which the price paid for the stock is charged to the treasury stock account. Repurchases of our common stock are accounted for as of the settlement date. During 2022 and 2021, we did no t repurchase any shares of our common stock. From January 1, 2005 through December 31, 2019, we repurchased a total of 4,044,842 shares of common stock for $ 32.1 million, at an average price of $ 7.94 per share. F-20 13. Geographic area information Information regarding our operations by geographic area is contained in the following table. These amounts in the geographic area table are based on the location of the customer and asset. Years Ended December 31, (In thousands) 2022 2021 Net sales: United States $ 44,034 $ 32,400 International 14,105 6,986 Total $ 58,139 $ 39,386 Fixed assets, net: United States $ 2,252 $ 1,770 International 529 914 Total $ 2,781 $ 2,684 Sales to international customers were 24 % and 18 % of total sales in 2022 and 2021, respectively. Sales to Europe represented 68 % and 53 %, sales to the Pacific Rim (which includes Australia and Asia) represented 28 % and 35 %, and sales to Canada represented 4 % and 11 % of total international sales in 2022 and 2021, respectively. International long-lived assets consist of net fixed assets located at our foreign subsidiary in the UK, as well as our contract manufacturer in Thailand. 14. Leases Operating lease expense was $ 1.0 million for both years ended December 31, 2022 and 2021 and is reported as “Cost of sales,” “Engineering, design and product development expense,” “Selling and marketing expense,” and “General and administrative expense” in the Consolidated Statements of Operations. Operating costs include short-term lease costs, which were immaterial during the period. The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands): Years Ended December 31, 2022 2021 Operating cash outflows from leases $ 967 $ 982 The following summarizes additional information related to our leases: Years Ended December 31, 2022 2021 Weighted average remaining lease term (in years) 2.7 3.5 Weighted average discount rate 4.5 % 4.4 % The maturity of the Company’s operating lease liabilities are as follows (in thousands): December 31, 2022 2023 $ 972 2024 1,022 2025 710 2026 20 Total undiscounted lease payments 2,724 Less imputed interest 166 Total lease liabilities $ 2,558 F-21 15. Quarterly results of operations (unaudited) Our quarterly results of operations for 2022 and 2021 are as follows: Quarter Ended (In thousands, except per share amounts) March 31 June 30 September 30 December 31 2022: Net sales $ 9,702 $ 12,623 $ 17,856 $ 17,958 Gross profit 2,566 5,434 8,193 8,219 Net (loss) income ( 4,348 ) ( 2,376 ) 528 260 Net (loss) income per common share: Basic ( 0.44 ) ( 0.24 ) 0.05 0.03 Diluted ( 0.44 ) ( 0.24 ) 0.05 0.03 2021: Net sales $ 8,301 $ 9,325 $ 10,637 $ 11,123 Gross profit 3,339 3,432 4,305 4,306 Net (loss) income ( 2,089 ) ( 2,030 ) 901 ( 823 ) Net (loss) income per common share: Basic ( 0.23 ) ( 0.23 ) 0.10 ( 0.08 ) Diluted ( 0.23 ) ( 0.23 ) 0.09 ( 0.08 ) 16. Change in accounting principle Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximated the FIFO costing methodology 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 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 Consolidated Statements of Operations for the periods presented are as follows: Three months ended December 31, 2021 Year ended December 31, 2021 Under FIFO Cost Under Average Cost Effect of Change Under FIFO Cost Under Average Cost Effect of Change Cost of sales $ 6,705 $ 6,817 $ 112 $ 24,137 $ 24,004 $ ( 133 ) Gross profit 4,418 4,306 ( 112 ) 15,249 15,382 133 Operating loss ( 2,485 ) ( 2,597 ) ( 112 ) ( 9,510 ) ( 9,377 ) 133 Loss before income taxes ( 1,124 ) ( 1,236 ) ( 112 ) ( 6,216 ) ( 6,083 ) 133 Income tax benefit 389 413 24 2,071 2,042 ( 29 ) Net loss ( 735 ) ( 823 ) ( 88 ) ( 4,145 ) ( 4,041 ) 104 Net loss per common share: Basic $ ( 0.07 ) $ ( 0.08 ) $ ( 0.01 ) $ ( 0.45 ) $ ( 0.43 ) $ 0.02 Diluted $ ( 0.07 ) $ ( 0.08 ) $ ( 0.01 ) $ ( 0.45 ) $ ( 0.43 ) $ 0.02 Shares used in per-share calculation: Basic 9,848 9,848 9,298 9,298 Diluted 9,848 9,848 9,298 9,298 F-22 The effect of the changes made to the Company’s Consolidated Statements of Comprehensive Loss for the periods presented are as follows: Three months ended December 31, 2021 Year ended December 31, 2021 Under FIFO Cost Under Average Cost Effect of Change Under FIFO Cost Under Average Cost Effect of Change Net loss $ ( 735 ) $ ( 823 ) $ ( 88 ) $ ( 4,145 ) $ ( 4,041 ) $ 104 Comprehensive loss ( 662 ) ( 750 ) ( 88 ) ( 3,964 ) ( 3,860 ) 104 The effect of the changes made to the Company’s Consolidated Statements of Cash Flows for the periods presented are as follows: Year ended December 31, 2021 Under FIFO Cost Under Average Cost Effect of Change Net loss $ ( 4,145 ) $ ( 4,041 ) $ 104 Deferred income tax benefit ( 2,150 ) ( 2,121 ) 29 Inventories 3,573 3,440 ( 133 ) The effect of the changes made to the Company’s Consolidated Statements of Changes in Shareholders’ Equity for the periods presented are as follows: Three months ended December 31, 2021 Year ended December 31, 2021 Under FIFO Cost Under Average Cost Effect of Change Under FIFO Cost Under Average Cost Effect of Change Equity beginning balance $ 39,280 $ 39,361 $ 81 $ 30,236 $ 30,125 $ ( 111 ) Retained earnings - beginning of period 16,308 16,389 81 19,718 19,607 ( 111 ) Net loss ( 735 ) ( 823 ) ( 88 ) ( 4,145 ) ( 4,041 ) 104 Retained earnings - end of period 15,573 15,566 ( 7 ) 15,573 15,566 ( 7 ) Equity ending balance 38,991 38,984 ( 7 ) 38,991 38,984 ( 7 ) 17. Subsequent events In the first quarter of 2023, we collected the $ 1.5 million employee retention credit receivable from the U.S. Government. The Company has evaluated all other events or transactions that occurred up to the date the consolidated financial statements were available to issue. Based upon this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the consolidated financial statements. F-23