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Item 1. Financial Statements

2023-08-10 compared with 2023-05-15 · 154 added, 197 removed, 235 unchanged (60% of the section changed)

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C ONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2023

June 30, 2023

December 31, 2022

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Shareholders’ equity:

Common stock, $ 0.01

par value, 20,000,000 shares authorized;

Common stock, $ 0.01 par

value, 20,000,000 shares authorized;

14,001,935 and 13,956,725 shares issued, respectively;

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TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, as adjusted – See Note 9)

CONDE NSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

(In thousands, except per share data)

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Operating income (loss)

Interest and other (expense) income:

Interest and other income (expense):

Interest, net

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Net income (loss) per common share:

Shares used in per-share calculations:

Shares used in per-share calculation:

See notes to Condensed Consolidated Financial Statements.

TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

INCOME (LOSS)

(unaudited, as adjusted – See Note 9)

CONDENSED CONSOLI DATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Six Months Ended

(In thousands)

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CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, as adjusted – See Note 9)

Three Months Ended

Six Months Ended

(In thousands)

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Net income (loss)

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

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

Share-based compensation expense

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Deferred income taxes

Foreign currency transaction losses

Unrealized foreign currency transaction losses

Changes in operating assets and liabilities:

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Accrued liabilities and other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

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Withholding taxes paid on stock issuances

Payment of bank financing costs

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

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TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

(unaudited, as adjusted – See Note 9)

CONDENSED CONSO LIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended

Six Months Ended

(In thousands)

Equity beginning balance

Common stock:

Balance, beginning of period

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Balance, beginning and end of period

Accumulated other comprehensive (loss) income:

Accumulated other comprehensive (loss) income, net of tax

Balance, beginning of period

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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.

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.

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 .

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, 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

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.

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”).

The results of operations for the three and six months ended June 30, 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 Disruptions

Since early 2020 and into the first quarter of 2022, the COVID-19 pandemic caused uncertainty and disruption in the global

economy and financial markets.

Similar to other companies, TransAct has 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, 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.

At the same time, after a slowdown resulting from the Omicron and other variants of COVID-19 that began to ease in the first six months of

2022, we continued to experience demand recovery during the remainder of 2022 and into 2023.

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 not be impacted by the economic effects of any future cost increases that cannot be predicted, supply chain disruptions, inflationary pressures and potential new COVID-19 variants in the markets

we serve and from which we source our supplies and parts.

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

Employee Retention Credit – Under the provisions of the CARES Act, the Company received 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.

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.

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.

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 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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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.

Though demand for our products at casinos has increased substantially in 2022 and during the first six months of 2023, 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.

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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

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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.

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

There have been no changes to our significant accounting policies since our

2022 Form 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):

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

Measurement of Credit Losses on Financial Instruments .

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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 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.

We account for revenue in accordance with ASC Topic 606:

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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.

The following tables disaggregate our revenue by market type, as we believe this 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.

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Total net sales

Six Months Ended

(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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Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced.

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.

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.

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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

For the six months ended June 30, 2023 , we recognized revenue of $ 1 million related to our contract liabilities at December 31, 2022 .

Total net contract liabilities consisted of the following:

June 30, 2023

December 31, 2022

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Unbilled receivables, current

Unbilled receivables, non-current

Unbilled receivables, net of current portion

Customer pre-payments

Deferred revenue, current

Deferred revenue, non-current

Deferred revenue, net of current portion

Total net contract liabilities

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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.

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

As of June 30, 2023, the aggregate amount of transaction prices allocated to remaining performance obligations was $ 15.7 million.

The Company expects to recognize revenue of $ 15.4

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.

million of its remaining performance obligations within the next 12 months following June 30, 2023, $ 0.2 million within the next 24 months following June 30, 2023 and

the balance of these remaining performance obligations recognized within the next 36 months following June 30, 2023.

The components of inventories were:

March 31, 2023

June 30, 2023

December 31, 2022

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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 %.

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

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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.

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.

The Siena Credit Facility imposes a financial covenant on the Company and borrowings are subject to a borrowing base based on (i) 85 % of eligible accounts receivable plus the lesser of (a) $ 5.0

million and (b) 50 % of eligible raw material and 60 % of finished goods inventory.

The agreement governing the Siena Credit Facility restricts, among other things, our ability to incur additional indebtedness and create other liens.

21, 2021, the Company entered into an amendment (“Siena Credit Facility Amendment No.

1”) to the Loan and Security Agreement governing 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.

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.

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 ended July 31, 2021.

From July 31, 2021 through June 30, 2023, we remained in compliance with our excess availability covenant.

As of June 30, 2023, we had $ 2.3 million of outstanding borrowings under the Siena Credit Facility and $ 5.6 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.

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.

The Siena Credit Facility

2”) to the Loan and Security Agreement governing the

Siena Credit Facility, as amended by Siena Credit Facility Amendment No.

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.

Siena Credit Facility Amendment No.

2 did not modify the aggregate amount of the revolving commitment or the interest rate applicable to the loans .

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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 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

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

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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.

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.

On May 1, 2023, the Company and the Lender agreed to a letter amendment to the Loan and Security Agreement governing the Siena Credit Facility.

Section 7.1(m) of the

Loan and Security Agreement governing the Siena Credit Facility required that any successor to Mr.

Shuldman be reasonably acceptable to the Lender, and this amendment confirmed that Mr.

Dillon is an acceptable successor to Mr.

Shuldman and applied

the same requirement to any future successor to Mr.

Earnings per share

The following table sets forth the reconciliation of basic 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:

Three Months Ended

Six Months Ended

(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

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

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 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

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 and six months ended June 30, 2022, there were 1.5 million and 1.2 million, respectively,

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

Furthermore, in periods when a net loss is reported, such as the three and six months ended June 30, 2022, basic and

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

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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 expense for the six months ended June 30, 2023

and 2022 was $ 483

thousand and $ 487 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

Six Months Ended

Operating cash outflows from leases

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

March 31, 2023

The following summarizes additional information related to our leases as of June 30, 2023 and December 31, 2022:

June 30, 2023

December 31, 2022

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Weighted average discount rate

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

The maturity of the Company’s operating lease liabilities as of June 30, 2023 and December 31, 2022 were as follows (in thousands):

June 30, 2023

December 31, 2022

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Total lease liabilities

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 recorde d income tax expense in the second

quarter of 2023 of $ 391

thousand at an effective tax rate of 33.8 % compared to an income tax benefit in the second quarter of 2022 of $ 870 thousand at an effective tax rate of ( 26.8 %).

For the six months ended June 30, 2023,

we recorded income tax expense of $ 1.0 million at an effective tax rate of 20.7 % , compared to an income tax benefit for the six months ended June 30, 2022 of $ 2.2 million at an effective tax rate of ( 24.9 %) .

We are subject to U.S.

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

foreign jurisdictions.

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

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.

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

Loss before income taxes

Income tax benefit

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 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:

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 March 31, 2022

Equity beginning balance

Retained earnings -- beginning of period

Retained earnings -- end of period

Equity ending balance

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.

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

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”).

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.

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 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