TRANSACT TECHNOLOGIES INC 10-Q

Item 1. FINANCIAL STATEMENTS TRANSACT TECHNOLOGIES INCORPORATED C ONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) March 31, 2023 December 31, 2022 Assets: (In thousands, except share data) Current assets: Cash and cash equivalents $ 6,644 $ 7,946 Accounts receivable, net 17,022 13,927 Employee retention credit receivable – 1,500 Inventories 12,390 12,028 Other current assets 910 724 Total current assets 36,966 36,125 Fixed assets, net of accumulated depreciation of $ 17,869 and $ 17,656 , respectively 2,882 2,781 Right-of-use asset, net 2,274 2,488 Goodwill 2,621 2,621 Deferred tax assets 6,828 7,327 Intangible assets, net of accumulated amortization of $ 1,402 and $ 1,364 , respectively 204 242 Other assets 225 248 15,034 15,707 Total assets $ 52,000 $ 51,832 Liabilities and Shareholders’ Equity: Current liabilities: Current portion of revolving loan payable $ 2,250 $ 2,250 Accounts payable 4,574 7,395 Accrued liabilities 4,061 4,077 Lease liability 891 875 Deferred revenue 1,205 1,329 Total current liabilities 12,981 15,926 Deferred revenue, net of current portion 148 143 Lease liability, net of current portion 1,449 1,683 Other liabilities 226 218 1,823 2,044 Total liabilities 14,804 17,970 Commitments and contingencies (see Notes 5 and 7) Shareholders’ equity: Common stock, $ 0.01 par value, 20,000,000 shares authorized; 13,998,535 and 13,956,725 shares issued, respectively; 9,953,693 and 9,911,883 shares outstanding, respectively 140 139 Additional paid-in capital 56,474 56,282 Retained earnings 12,769 9,630 Accumulated other comprehensive loss, net of tax ( 77 ) ( 79 ) Treasury stock, at cost ( 4,044,842 shares) ( 32,110 ) ( 32,110 ) Total shareholders’ equity 37,196 33,862 Total liabilities and shareholders’ equity $ 52,000 $ 51,832 See notes to Condensed Consolidated Financial Statements. 3 Index TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, as adjusted – See Note 9) Three Months Ended March 31, 2023 2022 (In thousands, except per-share data) Net sales $ 22,270 $ 9,702 Cost of sales 10,015 7,136 Gross profit 12,255 2,566 Operating expenses: Engineering, design and product development 2,269 2,283 Selling and marketing 2,757 2,683 General and administrative 3,416 3,204 8,442 8,170 Operating income (loss) 3,813 ( 5,604 ) Interest and other (expense) income: Interest, net ( 66 ) ( 64 ) Other, net 21 ( 35 ) ( 45 ) ( 99 ) Income (loss) before income taxes 3,768 ( 5,703 ) Income tax expense (benefit) 629 ( 1,355 ) Net income (loss) $ 3,139 $ ( 4,348 ) Net income (loss) per common share: Basic $ 0.32 $ ( 0.44 ) Diluted $ 0.31 $ ( 0.44 ) Shares used in per-share calculations: Basic 9,930 9,886 Diluted 10,043 9,886 See notes to Condensed Consolidated Financial Statements. 4 Index TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, as adjusted – See Note 9) Three Months Ended March 31, 2023 2022 (In thousands) Net income (loss) $ 3,139 $ ( 4,348 ) Foreign currency translation adjustment, net of tax 2 ( 42 ) Comprehensive income (loss) $ 3,141 $ ( 4,390 ) See notes to Condensed Consolidated Financial Statements. 5 Index TRANSACT TECHNOLOGIES INCORPORATED CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, as adjusted – See Note 9) Three Months Ended March 31, 2023 2022 (In thousands) Cash flows from operating activities: Net income (loss) $ 3,139 $ ( 4,348 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Share-based compensation expense 278 296 Depreciation and amortization 352 228 Deferred income taxes 501 ( 1,355 ) Foreign currency transaction losses 21 35 Changes in operating assets and liabilities: Accounts receivable ( 3,044 ) 680 Employee retention credit receivable 1,500 – Inventories ( 351 ) ( 916 ) Other current and long-term assets ( 175 ) ( 778 ) Accounts payable ( 2,846 ) ( 400 ) Accrued liabilities and other liabilities ( 132 ) ( 261 ) Net cash used in operating activities ( 757 ) ( 6,819 ) Cash flows from investing activities: Capital expenditures ( 378 ) ( 496 ) Net cash used in investing activities ( 378 ) ( 496 ) Cash flows from financing activities: Withholding taxes paid on stock issuances ( 86 ) ( 119 ) Net cash used in financing activities ( 86 ) ( 119 ) Effect of exchange rate changes on cash and cash equivalents ( 81 ) ( 29 ) Decrease in cash and cash equivalents ( 1,302 ) ( 7,463 ) Cash and cash equivalents, beginning of period 7,946 19,457 Cash and cash equivalents, end of period $ 6,644 $ 11,994 Supplemental schedule of non-cash investing activities: Non-cash capital expenditure items $ 25 $ 174 See notes to Condensed Consolidated Financial Statements. 6 Index TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited, as adjusted – See Note 9) Three Months Ended March 31, 2023 2022 (In thousands) Equity beginning balance $ 33,862 $ 38,984 Common stock: Balance, beginning of period 139 139 Issuance of common stock from restricted stock units 1 – Balance, end of period 140 139 Additional paid-in capital: Balance, beginning of period 56,282 55,246 Share-based compensation expense 278 296 Relinquishment of stock awards to pay for withholding taxes ( 86 ) ( 119 ) Balance, end of period 56,474 55,423 Retained earnings: Balance, beginning of period 9,630 15,566 Net income (loss) 3,139 ( 4,348 ) Balance, end of period 12,769 11,218 Treasury stock: Balance, beginning and end of period ( 32,110 ) ( 32,110 ) Accumulated other comprehensive (loss) income: Balance, beginning of period ( 79 ) 143 Foreign currency translation adjustment, net of tax 2 ( 42 ) Balance, end of period ( 77 ) 101 Equity ending balance $ 37,196 $ 34,771 Supplemental Share Information: Issuance of shares from stock awards 54 63 Relinquishment of stock awards to pay withholding taxes 12 26 See notes to Condensed Consolidated Financial Statements. 7 Index TRANSACT TECHNOLOGIES INCORPORATED N OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature . The December 31, 2022 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 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. 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. 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 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 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: ● 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. ● 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. 8 Index After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued. Use of Assumptions and Estimates Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, 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 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, 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. 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. 2. 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, 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 Statements. 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. 9 Index 3. Revenue We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers. Disaggregation of revenue The following table disaggregates our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues. Three Months Ended March 31, 2023 2022 (In thousands) United States International Total United States International Total Food service technology $ 3,263 $ 195 $ 3,458 $ 1,946 $ 184 $ 2,130 POS automation 1,782 15 1,797 1,300 – 1,300 Casino and gaming 11,569 4,242 15,811 2,788 1,974 4,762 TransAct Services Group 983 221 1,204 1,068 442 1,510 Total net sales $ 17,597 $ 4,673 $ 22,270 $ 7,102 $ 2,600 $ 9,702 Contract balances Contract assets consist of unbilled receivables. Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable, net” and “Other assets” in the Condensed Consolidated Balance Sheets. Contract liabilities consist of customer pre-payments and deferred revenue. Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete. Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL maintenance contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract. For the three months ended March 31, 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 (In thousands) Unbilled receivables, current $ 322 $ 392 Unbilled receivables, non-current 150 163 Customer pre-payments ( 7 ) ( 101 ) Deferred revenue, current ( 1,205 ) ( 1,329 ) Deferred revenue, non-current ( 148 ) ( 143 ) Total net contract liabilities $ ( 888 ) $ ( 1,018 ) Remaining performance obligations Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer. As of March 31, 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 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. 10 Index 4. Inventories The components of inventories were: March 31, 2023 December 31, 2022 (In thousands) Raw materials and purchased component parts $ 9,720 $ 8,884 Finished goods 2,670 3,144 $ 12,390 $ 12,028 5. Debt 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. 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 March 31, 2023, we remained in compliance with our excess availability covenant. As of 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. 2 (“Siena Credit Facility Amendment No. 2”) to the Siena Credit Facility, as amended by Siena Credit Facility Amendment No. 1. Also on July 19, 2022, the Company and the Lender entered into an Amended and Restated Fee Letter (the “Amended Fee Letter”) in connection with the Siena Credit Facility Amendment No. 2. The Siena Credit Facility Amendment No. 2 did not modify the aggregate amount of the revolving commitment or the interest rate applicable to the loans . The changes to the Siena Credit Facility provided for in Siena Credit Facility Amendment No. 2 include, among other things, the following: (i) The extension of the maturity date from March 13, 2023 to March 13, 2025; and (ii) The termination of the existing blocked account control agreement and entry into a new “springing” deposit account control agreement, permitting the Company to direct the use of funds in its deposit account until such time as (a) the sum of excess availability under 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 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. 11 Index 6. Earnings per Share The following table sets forth the reconciliation of basic and diluted weighted average shares outstanding (as adjusted, see Note 9): Three Months Ended March 31, 2023 2022 (In thousands, except per-share data) Net income (loss) $ 3,139 $ ( 4,348 ) Shares: Basic: Weighted average common shares outstanding 9,930 9,886 Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method 113 – Diluted: Weighted average common and common equivalent shares outstanding 10,043 9,886 Net income (loss) per common share: Basic $ 0.32 $ ( 0.44 ) Diluted $ 0.31 $ ( 0.44 ) 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. 7. Leases We account for leases in accordance with ASC Topic 842: Leases. We enter into lease agreements for the use of real estate space and certain equipment under operating leases and we have no financing leases. Our leases are included in “Right-of-use-assets” and “Lease liabilities” in our Condensed Consolidated Balance Sheets. Our leases have various lease terms, some of which include options to extend. Lease expense is recognized on a straight-line basis over the lease term. 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 expenses include short-term lease costs, which were immaterial during the periods presented. The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands): Three Months Ended March 31, 2023 2022 Operating cash outflows from leases $ 252 $ 230 12 Index The following summarizes additional information related to our leases as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 Weighted average remaining lease term (in years) 2.5 2.7 Weighted average discount rate 4.5 % 4.5 % The maturity of the Company’s operating lease liabilities as of March 31, 2023 and December 31, 2022 were as follows (in thousands): March 31, 2023 December 31, 2022 2023 $ 723 $ 972 2024 1,024 1,022 2025 712 710 2026 22 20 Total undiscounted lease payments 2,481 2,724 Less imputed interest 141 166 Total lease liabilities $ 2,340 $ 2,558 8. Income Taxes 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. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2018. However, our federal tax returns for the years 2019 through 2022 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements. The Company maintains a valuation allowance against certain deferred tax assets where realization is not certain. 13 Index 9. 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. 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. 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 follows: Three months ended March 31, 2022 Under FIFO Cost Under Average Cost Effect of Change Cost of sales $ 6,708 $ 7,136 $ 428 Gross profit 2,994 2,566 ( 428 ) Operating loss ( 5,176 ) ( 5,604 ) ( 428 ) Loss before income taxes ( 5,275 ) ( 5,703 ) ( 428 ) Income tax benefit 1,262 1,355 93 Net loss ( 4,013 ) ( 4,348 ) ( 335 ) Net loss per common share: Basic $ ( 0.41 ) $ ( 0.44 ) $ ( 0.03 ) Diluted $ ( 0.41 ) $ ( 0.44 ) $ ( 0.03 ) Shares used in per-share calculation: Basic 9,886 9,886 Diluted 9,886 9,886 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 March 31, 2022 Under FIFO Cost Under Average Cost Effect of Change Net loss $ ( 4,013 ) $ ( 4,348 ) $ ( 335 ) Comprehensive loss ( 4,055 ) ( 4,390 ) ( 335 ) The effect of the changes made to the Company’s Condensed Consolidated Statements of Cash Flows for the periods presented are as follows: Three months ended March 31, 2022 Under FIFO Cost Under Average Cost Effect of Change Net loss $ ( 4,013 ) $ ( 4,348 ) $ ( 335 ) Deferred income taxes ( 1,262 ) ( 1,355 ) ( 93 ) Inventories ( 1,344 ) ( 916 ) 428 14 Index 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 March 31, 2022 Under FIFO Cost Under Average Cost Effect of Change Equity beginning balance $ 38,991 $ 38,984 $ ( 7 ) Retained earnings -- beginning of period 15,573 15,566 ( 7 ) Net loss ( 4,013 ) ( 4,348 ) ( 335 ) Retained earnings -- end of period 11,560 11,218 ( 342 ) Equity ending balance 35,113 34,771 ( 342 ) 10. Subsequent Events 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”). Mr. 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. Mr. 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. Shuldman. The Company has evaluated all events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were available to be issued. Based upon this review, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements. 15 Index