What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 181 added, 253 removed, 251 unchanged (63% of the section changed)

2 unchanged sentences

C ONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, as adjusted – see Note 9)

September 30, 2022

March 31, 2023

December 31, 2022

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Employee retention credit receivable

Prepaid income taxes

Other current assets

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and $ 17,656 , respectively

Right-of-use asset

Right-of-use asset, net

Deferred tax assets

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Total liabilities

Commitments and contingencies (see Notes 5 and 7)

Shareholders’ equity:

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Retained earnings

Accumulated other comprehensive (loss) income, net of tax

Accumulated other comprehensive loss, net of tax

Treasury stock, at cost ( 4,044,842

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TRANSACT TECHNOLOGIES INCORPORATED

CONDE NSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, as adjusted – See Note 9)

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per-share data)

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Operating income (loss)

Interest and other income (expense):

Interest and other (expense) income:

Interest, net

Gain on forgiveness of long-term debt

Income (loss) before income taxes

Income tax benefit

Income tax expense (benefit)

Net income (loss)

Net income (loss) per common share:

Shares used in per-share calculation:

Shares used in per-share calculations:

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLI DATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

INCOME (LOSS)

(unaudited, as adjusted – See Note 9)

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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(unaudited, as adjusted – See Note 9)

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Share-based compensation expense

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Deferred income taxes

Gain on the sale of fixed assets

Foreign currency transaction losses

Gain on forgiveness of long-term debt

Changes in operating assets and liabilities:

Accounts receivable

Prepaid income taxes

Employee retention credit receivable

Other current and long-term assets

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Capital expenditures

Proceeds from the sale of fixed assets

Collection of note receivable

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from the issuance of common stock

Proceeds from bank borrowings

Payment of common stock issuance costs

Proceeds from stock option exercises

Withholding taxes paid on stock issuances

Payment of bank financing costs

Net cash provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental schedule of non-cash investing activities:

Non-cash capital expenditure items

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSO LIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

(unaudited, as adjusted – See Note 9)

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Equity beginning balance

Common stock:

Balance, beginning of period

Issuance of common stock

Issuance of common stock from restricted stock units

Balance, end of period

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Balance, beginning of period

Issuance of common stock, net of issuance costs

Share-based compensation expense

Issuance of shares from exercise of stock options

Relinquishment of stock awards and restricted stock units to pay for withholding taxes

Relinquishment of stock awards to pay for withholding taxes

Balance, end of period

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Balance, beginning and end of period

Accumulated other comprehensive income (loss), net of tax

Accumulated other comprehensive (loss) income:

Balance, beginning of period

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Supplemental Share Information:

Issuance of common stock

Issuance of shares from stock awards

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The accompanying unaudited financial statements of TransAct Technologies Incorporated

(“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

(“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information.

Accordingly, they do not include all of the

information and footnotes required by U.S.

Accordingly, they do not include all of

the information and footnotes required by U.S.

GAAP to be included in full year financial statements.

In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included

and are of a normal recurring nature .

The December 31, 2022 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S.

These interim financial statements should be read

in conjunction with the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 .

The financial position and results of operations of our U.K.

subsidiary are measured using the local currency as the functional currency.

Assets and liabilities of such

subsidiary have been translated at the end-of-period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in

“Accumulated other comprehensive income (loss), net of tax” in the Condensed Consolidated Balance Sheets and “Accumulated other comprehensive income (loss), net of tax” in the Condensed Consolidated Statements of Changes in Shareholders’ Equity.

Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31,

These interim financial

statements should be read in conjunction with the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

See Note 9 for a discussion of a change in accounting principle which occurred in the second quarter of 2022.

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All prior periods presented have been retrospectively adjusted to apply the new method of accounting.

Certain prior period amounts have been adjusted to conform with the current year presentation.

Impact of the COVID-19 pandemic and Global Supply Chain Disruptions

Since early 2020, the COVID-19 pandemic has continued to cause uncertainty and disruption in the global economy and financial markets, such as increased shipping and

logistics costs and supply chain disruptions.

We have also been impacted by global supply chain issues and inflationary pressures, which have increased our costs and, in some instances, slowed our ability to deliver products to customers.

2021, our inventory levels decreased significantly as a result of these supply chain disruptions and we experienced significantly lower sales levels because of the global economic slowdown.

However, during the first nine months of 2022, we have been

able to increase our inventory levels and minimize the impact to our customers by successfully modifying our products that were affected by supply chain disruptions as well as sourcing component parts from alternate suppliers.

This strategy allowed us

to meet expanding customer demands and significantly grow our sales after the first quarter of 2022 as the pandemic eased.

Although we have been able to increase inventory levels during the first nine months of 2022, there can be no assurance that new

supply chain disruptions will not affect our products or that we will be able to make timely modifications to address any future supply chain issues that arise.

Further, while we have offset most of our cost increases by increasing prices of our

products, there can be no guarantee that we will be able to offset any future cost increases should they arise.

After a slowdown in the first quarter of 2022 resulting from the Omicron and other variants of COVID-19, we have continued to experience

demand recovery in the second and third quarters of 2022.

We expect this recovery to continue during the remainder of 2022.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.

Impact of the COVID-19 Pandemic and Global Supply Chain Issues

Since early 2020, the COVID-19 pandemic has continued to cause uncertainty and disruption in the global economy and financial

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 the

balance of 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 and continued market share expansion due to certain competitors’ inability to supply product, we expect this recovery to

continue into 2023, though the future 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 October 16, 2020 and August 16, 2021, the Company raised net proceeds of $ 8.7 million and $ 11.2 million ( including the exercise of the underwriters overallotment options on

October 16, 2020 and August 20, 2021 ), respectively, after deducting underwriting discounts, commissions and offering expenses, through underwritten public offerings

in which we sold an aggregate of 1,380,000 and 842,375 shares of common stock, respectively.

PPP Loan – On May 1, 2020, the Company was granted a $ 2.2

million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES

On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021.

See Note 5 for further details regarding the PPP Loan.

Employee Retention Credit – Under the provisions of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria.

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 as a $ 1.5 million “Gain from

employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and recorded a $ 1.5

million “Employee retention credit receivable” in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31,

We expect to receive these funds within the next twelve months.

Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC (the “Lender”) that provides a revolving credit line of up to $ 10.0 million, subject to a borrowing base, and on July 19, 2022, we entered into an amendment to extend the maturity of the facility to March 13,

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

We received these funds in the first quarter of 2023.

Credit Facility -- On March 13, 2020, we entered into a Credit Facility with Siena Lending Group LLC that provides a revolving credit line of up to $ 10.0 million , subject to a borrowing base, and on July 19, 2022, we entered into an amendment to extend the maturity of the facility to March 13, 2025.

See Note 5 for further details regarding this facility.

Reduced Capital Expenditures – We limited capital expenditures during 2020 and 2021 and are gradually increasing expenditures during 2022 as sales improve.

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months

following the issuance date of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), including consideration of the actions taken to manage expenses and liquidity, we believe that our net

cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital

requirements and to comply with the financial covenants of our credit facility over at least 12 months following such issuance date.

following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be

provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and

to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued.

Use of Assumptions and Estimates

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Our current assumptions are that casinos and

restaurants will remain open and consumer traffic will continue to increase during the balance of 2022.

Though demand for our products at casinos has increased substantially in 2022, and we expect this trend to continue, we cannot predict the ultimate

impact of the current economic environment, including inflation, rising interest rates and supply chain disruptions on our customers, which may impact sales.

We believe that we are positioned to withstand the impact of any potential economic downturn

or slower than anticipated economic recovery.

However, despite our recent large backlog of orders and increasing market share, should such conditions arise, we believe we will be able to take additional financial and operational actions to cut costs

and/or increase liquidity.

restaurants will remain open and consumer traffic will continue to remain strong during the remainder 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, should conditions warrant, we believe we will be able to take additional financial and operational actions to cut costs and/or increase liquidity.

In addition, the presentation of the accompanying unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets,

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Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of

deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities.

We base our estimates on historical experience and on various other assumptions that we believe to be

reasonable under the circumstances.

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.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

See Note 9 for a discussion of a change in accounting policy

which occurred in the second quarter of 2022.

Significant Accounting Policies

For a discussion of our significant accounting policies, see Note 2, Summary of

Significant Accounting Policies within Part II, Item 8, “Financial Statements and Supplementary Data” in the Annual Report on Form 10-K for the year ended December 31, 2021.

Other than as described in Note 9 of this Form 10Q, there have been

no changes to our significant accounting policies since our Annual Report on Form 10K for the year ended December 31, 2021.

significant accounting policies within Part II, Item 8.

“Financial Statements and Supplementary Data” in the Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no changes to our significant accounting policies

since our Annual Report on 10-K for the year ended December 31, 2022.

Recently Adopted Accounting Pronouncement

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit

Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This ASU and its related amendments (collectively, the “Credit Loss Standard”) modifies the impairment model to utilize an expected loss methodology in place of the

incurred loss methodology for financial instruments, including trade receivables, contract assets and off-balance sheet credit exposures.

The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit

losses, including historical information, current economic conditions and a reasonable forecast period.

This Credit Loss Standard requires that the statement of operations reflect estimates of expected credit losses for newly recognized financial

assets as well as changes in the estimate of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses.

We adopted this standard effective January 1, 2023, and this standard did not have a material impact on the Company’s Condensed Consolidated Financial

We are exposed to credit losses primarily through our sales of products and software to

commercial customers which are recorded as Accounts receivable, net on the Condensed Consolidated Balance Sheets.

Our method for developing our allowance for credit losses involves making informed judgments regarding whether an adjustment is

necessary to our historical loss experiences to reflect our expectations around current economic conditions and reasonable and supportable forecast periods, where applicable.

We utilize current economic market data as well as other internal and

external information available to us to inform our decision making in this process.

We account for revenue in accordance with ASC Topic 606:

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Disaggregation of revenue

The following tables disaggregate our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are

affected by economic factors.

The following table disaggregates our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows

are affected by economic factors.

Sales and usage-based taxes are excluded from revenues.

Three Months Ended

September 30,

(In thousands)

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Total net sales

Nine Months Ended

September 30,

(In thousands)

United States

International

United States

International

Food service technology

POS automation

Casino and gaming

TransAct Services Group

Total net sales

Contract balances

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Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable, net”

and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.

and “Other assets” in the Condensed Consolidated Balance Sheets.

Contract liabilities consist of customer pre-payments and deferred revenue.

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software applications, and is recognized as revenue as (or when) we perform under the contract.

For the nine months ended September 30, 2022 , we recognized revenue of $ 0.8 million related to our contract liabilities at December 31, 2021 .

contract liabilities consisted of the following:

September 30, 2022

For the three months ended March 31, 2023 , we recognized revenue of $ 0.9 million related to our contract liabilities at December 31, 2022 .

Total net contract liabilities

consisted of the following:

March 31, 2023

December 31, 2022

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Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer.

September 30, 2022, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 19.0 million.

March 31, 2023, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 20.4 million.

The Company expects to recognize revenue of $ 20.2

million of its remaining performance obligations within the next 12 months following September 30, 2022, $ 0.4 million within the next 24 months following September 30, 2022 and the balance of these remaining performance obligations within the next 36 months following September 30, 2022.

million of its remaining performance obligations within the next 12 months following March 31, 2023, $ 0.2 million within the next 24 months following March 31, 2023 and the balance of these remaining performance obligations recognized within the next 36 months following March 31, 2023.

The components of inventories were:

September 30, 2022

March 31, 2023

December 31, 2022

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Raw materials and purchased component parts

Work-in-process

Finished goods

Accrued product warranty liability

We generally provide hardware warranties on our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded.

Estimated warranty costs are based upon actual past experience of product repairs and the

related estimated cost of labor and material to make the necessary repairs.

The following table summarizes the activity recorded in the accrued product warranty liability during the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

(In thousands)

Balance, beginning of period

Warranties issued

Warranty settlements

Balance, end of period

As of September 30, 2022, $ 57 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheet and the

remaining $ 20 thousand was classified as non-current in “Other liabilities”.

Credit Facility

On March 13, 2020, we entered into a credit facility (the “Siena Credit Facility”) with the Lender and terminated our credit facility with TD Bank, N.A.

The Siena Credit

Facility provides for a revolving credit line of up to $ 10.0 million and was originally scheduled to expire on March 13, 2023.

Borrowings under

the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75 %, (ii) the federal funds rate

plus 2.25 %, and (iii) 6.50 %.

total deferred financing costs related to expenses incurred to complete the Siena Credit Facility was $ 245 thousand, which were reported as

“Other current assets” in current assets and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.

We also pay a fee of 0.50 %

on unused borrowings under the Siena Credit Facility.

On March 13, 2020, we entered into a credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC (the “Lender”).

The Siena Credit Facility provides for a

revolving credit line of up to $ 10.0 million and was originally scheduled to expire on March 13, 2023.

Borrowings under the Siena Credit Facility

bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75 %, (ii) the federal funds rate plus 2.25 %, and (iii) 6.50 %.

The total deferred

financing costs related to expenses incurred to complete the Siena Credit Facility was $ 245 thousand, which were reported as “Other current

assets” in current assets and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.

We also pay a fee of 0.50 % on

unused borrowings under the Siena Credit Facility.

Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.

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month ending July 31, 2021.

From July 31, 2021 to September 30, 2022, we remained in compliance with our excess availability covenant.

September 30, 2022, we had $ 2.3

million of outstanding borrowings under the Siena Credit Facility and $ 2.5 million of net borrowing capacity available under the Siena Credit

From July 31, 2021 through March 31, 2023, we remained in compliance with our excess availability covenant.

March 31, 2023, we had $ 2.3 million

of outstanding borrowings under the Siena Credit Facility and $ 6.4 million of net borrowing capacity available under the Siena Credit Facility.

On July 19, 2022, the Company and the Lender entered into Amendment No.

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(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

the Company to direct the use of funds in its deposit account until such time as (a) the sum of excess availability under the 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

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

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amount of loans is actually outstanding.

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.

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

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.

Earnings per Share

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (as adjusted, See Note 9):

The following table sets forth the reconciliation of basic and diluted weighted average shares outstanding (as adjusted, see Note 9):

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per-share data)

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Weighted average common shares outstanding

Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method

Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock

Weighted average common and common equivalent shares outstanding

Net income (loss) per common share:

The computation of diluted earnings per share excludes the effect of the potential exercise

of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the

computation of diluted earnings would be anti-dilutive.

For the three months ended September 30, 2022 and 2021 , there were 0.3 million and 0.3 million, respectively, of potentially dilutive shares consisting of stock

awards that were excluded from the calculation of earnings per diluted share.

For the nine months ended September 30, 2022 and 2021 , there were 1.6 million and 0.4 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the

calculation of earnings per diluted share.

In periods for which a net loss is reported, such as the nine months ended September 30, 2022 and 2021, basic and

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock

units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive.

For the three

months ended March 31, 2022, there were 943

thousand of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.

Furthermore, in periods when a net loss is reported, such as the three months ended March 31, 2022, basic and

diluted net loss per common share are calculated using the same method.

For the three months ended September 30, 2022, the d ilutive effect of outstanding options

and restricted stock units, as determined by the treasury stock method, was less than one thousand shares and thus did not impact the

rounded shares presented above.

We account for leases in accordance with ASC Topic 842:

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“Right-of-use-assets” and “Lease liabilities” in our Condensed Consolidated Balance Sheets.

Our leases have remaining lease terms of two to four years , some of which include options to extend.

Our leases have various lease terms, some of which include options to extend.

Lease expense is recognized on a straight-line basis over the lease term.

On April 30, 2021, we entered into an amendment to modify the expiration date of our lease

on our Hamden, Connecticut facility.

The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027.

The lease amendment modified the expiration date to October 31, 2023 with an option to extend the lease

for an additional two-year period, extending the expiration date to October 31, 2025.

The modification resulted in reducing the

right-of-use-asset and lease liability by $ 0.3 million .

On April 26, 2022, we entered into an amendment to modify the expiration date of our lease on our Las Vegas, Nevada facility.

The lease was set to expire on November 1,

2022 and the amendment extended the lease term to November 30, 2025.

The lease amendment resulted in an increase to the right-of-use-asset and lease liability of $ 0.8 million .

The lease amendment modified the base rent and extended the lease term from October 31, 2022 to

November 30, 2025.

Operating lease expense for the three months ended September 30, 2022

Operating lease expense for the three months ended March 31, 2023

and 2022 was $ 237 thousand and $ 237 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and

“General and administrative expense” in the Condensed Consolidated Statements of Operations.

Operating lease expense for the nine months ended September 30, 2022 and 2021 was $ 748

thousand and $ 717 thousand, respectively.

Operating lease expenses include short-term lease costs, which were immaterial during the periods

Operating lease expenses include short-term lease costs, which were immaterial during the periods presented.

The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):

Nine Months Ended

September 30,

Three Months Ended

Operating cash outflows from leases

The following summarizes additional information related to our leases as of September 30, 2022 and December 31, 2021:

September 30, 2022

The following summarizes additional information related to our leases as of March 31, 2023 and December 31, 2022:

March 31, 2023

December 31, 2022

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Weighted average discount rate

The maturity of the Company’s operating lease liabilities as of September 30, 2022

The maturity of the Company’s operating lease liabilities as of March 31, 2023

and December 31, 2022 were as follows (in thousands):

September 30, 2022

March 31, 2023

December 31, 2022

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Total lease liabilities

We recorded an income tax benefit for the third

quarter of 2022 of $ 62 thousand at

an effective tax rate of ( 13.3 %), compared to an income tax benefit for the third quarter of 2021 of $ 442 thousand at an effective tax rate of ( 96.3 %).

For the nine months ended September 30, 2022, we

recorded an income tax benefit of $ 2.3 million at an effective tax rate of ( 27.0 %), compared to an income tax benefit for the nine months ended September 30, 2021 of $ 1.6 million at an

effective tax rate of ( 33.6 %).

We recorded income tax expense in the first quarter of 2023

of $ 0.6 million at an effective tax rate of 16.7 %,

compared to an income tax benefit during the first quarter of 2022 of $ 1.4 million at an effective tax rate of 23.8 %.

The effective tax rate for the first

quarter of 2023 is lower than the effective tax rate for the first quarter of 2022 due to the impact from the research and development (“R&D”) credit.

In periods with pre-tax income, such as the first quarter of 2023, the R&D credit has the

effect of lowering the effective tax rate.

In periods with pre-tax losses, such as first quarter of 2022, the R&D credit has the effect of raising the effective tax rate.

We are subject to U.S.

federal income tax, as well as income tax in certain U.S.

states and foreign jurisdictions.

We have substantially concluded all

foreign jurisdictions.

We have substantially concluded all U.S.

federal, state and local income tax, and foreign tax regulatory examination matters through 2018.

However, our federal tax returns from 2019 through 2021 remain open to examination.

Various state and foreign tax jurisdiction tax years remain open

to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of September 30, 2022 , we had $ 116 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective

income tax rate in future periods.

For the third quarter of 2022, we recognized $ 28 thousand of previously unrecognized tax benefits

as the statute of limitations on the use of our 2018 research and development credit expired during the third quarter of 2022.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.

As of September 30, 2022, we had $ 20 thousand of accrued interest and penalties related to

uncertain tax positions.

Management evaluates all jurisdictions based on historical pre-tax earnings and taxable income to determine the need for valuation allowances on a quarterly basis.

three months ended September 30, 2022 benefitted from the remeasurement of our deferred tax asset valuation allowance associated with our operations in the United Kingdom.

Based on this analysis, we currently have no valuation allowances recorded for

any jurisdiction.

Change in accounting principle

However, our federal tax returns for the years 2019 through 2022 remain open to

state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

The Company maintains a valuation allowance against certain deferred tax assets where realization is not certain.

Change in Accounting Method

Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximates FIFO to the average costing methodology.

this methodology is preferable because it reflects a better estimate of inventory cost as we do not typically perform intensive manufacturing of our finished products, which are therefore better measured under average cost.

In addition, our business

is projected to include an increasing sales volume of software going forward, which better aligns with average costing.

Comparative financial statements of prior periods have been adjusted to apply the new method retrospectively.

Tax effects are

calculated at the Company’s marginal tax rate, or the tax impact of incremental income changes rather than the average tax rate applied to our total net loss before income taxes.

The following financial statement line items for the periods presented

were impacted by the change in accounting principle.

The effect of the changes made to the Company’s Condensed Consolidated Balance Sheets for the periods presented are as

December 31, 2021

Deferred tax assets

Retained earnings

The ending balance in retained earnings as of December 31, 2020 was adjusted from $ 19,718 to $ 19,607 .

The effect of the changes made to the Company’s Condensed Consolidated Statements of Operations for the periods presented are as follows:

Three months ended September 30, 2021

Nine months ended September 30, 2021

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 (dollars in thousands).

The effect of the changes made to the Company’s Condensed Consolidated Statements of Operations for the periods presented are as

Three months ended March 31, 2022

Cost of sales

Operating loss

Income (loss) before income taxes

Loss before income taxes

Income tax benefit

Net income (loss)

Net income (loss) per common share:

Net loss per common share:

Shares used in per-share calculation:

The effect of the changes made to the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the periods presented are as follows:

Three months ended September 30, 2021

Nine months ended September 30, 2021

Net income (loss)

Comprehensive income (loss)

Three months ended March 31, 2022

Comprehensive loss

The effect of the changes made to the Company’s Condensed Consolidated Statements of Cash Flows for the periods presented are as follows:

Nine months ended September 30, 2021

Three months ended March 31, 2022

Deferred income taxes

The effect of the changes made to the Company’s Condensed Consolidated Statements of Changes in Shareholders’ Equity for the periods presented are as follows:

Three months ended September 30, 2021

Nine months ended September 30, 2021

Three months ended March 31, 2022

Equity beginning balance

Retained earnings -- beginning of period

Net income (loss)

Retained earnings -- end of period

1 unchanged sentence

Subsequent Events

The Company has evaluated all events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were issued.

Based upon this review, the

Company did not identify subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

On April 5, 2023, the Company announced that on April 4, 2023, Bart C.

Shuldman had resigned as the Company’s Chief Executive Officer and as a director of the Company,

effective immediately (the “Effective Time”).

Shuldman’s resignation as director is not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On April 4, 2023, the Board of Directors

appointed John M.

Dillon, a Board member, to serve as interim Chief Executive Officer of the Company, effective as of the Effective Time.

In this capacity, Mr.

Dillon serves as the Company’s principal executive officer.

Dillon will continue to

serve on the Board of Directors, but has resigned from his position as Audit Committee chair and from his membership on each of the committees of the Board of Directors.

On May 8, 2023, the Board of Directors removed the “interim” designation and the

Company announced that Mr.

Dillon would continue in the role of Chief Executive Officer indefinitely, subject to the terms of his employment agreement.

See Exhibit 10.1 “Separation Agreement and General Release, dated April 20, 2023 between the Company and Bart C.

Shuldman” and Exhibit 10.2 “Letter Agreement dated April

24, 2023 between the Company and John M.

Dillon” in Item 6.

Exhibits of this Quarterly Report on Form 10-Q.

On May 1, 2023, TransAct and Siena Lending Group LLC signed a Letter Amendment to the Siena Credit Facility.

Section 7.1(m) of the Siena Credit Facility requires that any

successor to Mr.

Shuldman be reasonably acceptable to Siena Lending Group LLC and this Letter Amendment confirmed that Mr.

Dillon is an acceptable successor to Mr.

The Company has evaluated all events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were available to be issued.

this review, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements