TRANSACT TECHNOLOGIES INC 10-K

Item 9A . Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2023. Based on this evaluation of our disclosure controls and procedures as of December 31, 2023, our CEO and CFO concluded that, as of December 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level. Our management, including our CEO and CFO, has concluded that our consolidated financial statements, included in this Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with GAAP, and that they can be relied upon. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Our management assessed our internal control over financial reporting as of December 31, 2023. Our management based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In the opinion of management, TransAct maintained effective internal control over financial reporting as of December 31, 2023. Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B . Other Information. (a) None (b) During the fourth quarter of 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1trading arrangement” or “non-Rule 10b5-1trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Item 9C . Disclosure Regarding Foreign Jurisdictions that Prevent Inspection. Not applicable. 30 Index PART III Item 10 . Directors, Executive Officers and Corporate Governance. Set forth in Part I, Item 1. Business of this Form 10-K, under the heading “Information about our Executive Officers,” is certain information regarding our executive officers, and information regarding our code of ethics is set forth below. The remaining information in response to this item is incorporated herein by reference to the disclosure, if any; that will be contained, as applicable, under the headings “Proposal 1: Election of Directors,” “Delinquent Section 16(a) Reports,” “Corporate Governance – Director Nomination Process” and “Corporate Governance – Committees of the Board” in our Proxy Statement for our 2024 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed within 120 days after the end of the year covered by this Form 10-K. Code of Ethics We maintain a Standards of Business Conduct and Code of Ethics (“Standards of Business Conduct”) that includes our code of ethics that is applicable to all employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller. Our Standards of Business Conduct, which require continued observance of high ethical standards, such as honesty, integrity and compliance with the law in the conduct of our business, are available for public access on our website at https://transacttech.gcs-web.com/corporate-governance. Any person may request a copy of our Standards of Business Conduct free of charge by calling (203) 859-6800. We will disclose on our website at https://transacttech.gcs-web.com/corporate-governance any amendment to or waiver of a provision of the Standards of Business Conduct as may be required and within the time period specified under the applicable SEC and Nasdaq rules. Item 11 . Executive Compensation. The information in response to this item will be contained in the Proxy Statement under the headings “Executive Compensation,” “Summary Compensation Table,” “Outstanding Equity Awards at 2023 Fiscal Year-End,” “Potential Payments Upon Termination or Change in Control” and “Pay Versus Performance,” and is incorporated herein by reference. Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Set forth below is certain information regarding our equity compensation plans. The remaining information in response to this item will be contained in the Proxy Statement under the heading, “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference. Equity Compensation Plan Information Information regarding our equity compensation plans as of December 31, 2023 is as follows: Plan category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted- average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) Equity compensation plans approved by security holders: 2005 Equity Incentive Plan 76,000 $ 11.61 – 2014 Equity Incentive Plan 1,423,011 7.53 981,769 Total 1,499,011 $ 7.73 981,769 In May 2014, our stockholders approved the adoption of the 2014 Equity Incentive Plan. In May 2020, our stockholders approved an amendment and restatement of the 2014 Equity Incentive Plan to increase the number of shares of common stock which may be subject to awards granted under the plan from 1,400,000 to 2,200,000 shares. In June 2023, our stockholders approved an amendment and restatement of the 2014 Equity Incentive Plan to increase the number of shares of common stock which may be subject to awards granted under the plan from 2,200,000 to its current level of 2,900,000 and to change the date of adoption of the 2014 Equity Incentive Plan to April 17, 2023 (thereby extending its expiration date to April 17, 2033). The Company also maintains the 2005 Equity Incentive Plan; however no new awards are be available for future issuance under this plan. Both plans generally provide for awards in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights. The Company does not have any equity plans that have not been approved by its stockholders. Item 13 . Certain Relationships and Related Transactions, and Director Independence. The information in response to this item will be contained in the Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Corporate Governance-Board Leadership Structure and Independence” and is incorporated herein by reference. Item 14 . Principal Accountant Fees and Services. The information in response to this item will be contained in the Proxy Statement under the headings, “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm” and “Independent Registered Public Accounting Firm’s Services and Fees” and is incorporated herein by reference. 31 Index PART IV Item 15 . Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2023 and 2022 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023 and 2022 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 Notes to Consolidated Financial Statements 2. Schedules. All schedules are omitted because they are either inapplicable or not required, or because the information required therein is included in the Consolidated Financial Statements and Notes thereto. 3. Exhibits Exhibit Index 3.1(a) Certificate of Incorporation of TransAct Technologies Incorporated (conformed copy) (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 18, 2022). 3.1(b) Certificate of Designation, Series A Preferred Stock, filed with the Secretary of State of Delaware on December 2, 1997 (incorporated by reference to Exhibit C of the Form of Amended and Restated Rights Agreement, dated as of February 16, 1999, between TransAct Technologies Incorporated and American Stock Transfer & Trust Company filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on February 18, 1999.” 3.1(c) Certificate of Designation, Series B Preferred Stock, filed with the Secretary of State of Delaware on April 6, 2000 (incorporated by reference to Exhibit 3.1(c) of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 8, 2000). 3.2 Amended and Restated By-Laws of TransAct Technologies Incorporated (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 28, 2023). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1/A (No. 333-06895) filed with the SEC on August 1, 1996). 4.2 * Description of Securities. 10.1 (x) 2005 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on June 1, 2005). 10.2 (x) TransAct Technologies Incorporated 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on May 19, 2014). 10.3 (x) Amendment to 2014 Equity Incentive Plan approved by Shareholders on May 22, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 9, 2017). 10.4 (x) TransAct Technologies Incorporated 2014 Equity Incentive Plan, as Amended and Restated in 2020 (incorporated by reference to Exhibit I to the Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2020, File No. 000-21121). 10.5 (x) TransAct Technologies Incorporated 2014 Equity Incentive Plan, as Amended and Restated in 2023 (incorporated by reference to Exhibit I to the Definitive Proxy Statement on Schedule 14A filed with the Commission on April 21, 2023, File No. 000-21121). 10.6 (x) 2014 Equity Incentive Plan Time-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 6, 2016). 10.7 (x) 2014 Equity Incentive Plan Performance-based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-211121) filed with the SEC on August 8, 2016). 10.8 (x) 2014 Equity Incentive Plan Non-statutory Stock Option Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on May 19, 2014). 10.9 (x) Severance Agreement by and between TransAct and Steven A. DeMartino, dated June 1, 2004 (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2005). 10.10 (x) Amendment to Severance Agreement by and between TransAct and Steven A. DeMartino, effective January 1, 2008 (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2009). 10.11 (x) Severance Agreement by and between TransAct and Andrew J. Hoffman (as amended), effective December 23, 2008 (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 24, 2022). 32 Index 10.12 (x) Second Amendment to Severance Agreement by and between TransAct and Steven A. DeMartino, effective April 29, 2021 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 24, 2022). 10.13 (x) Amended and Restated Employment Agreement, dated as of December 14, 2022, by and between TransAct Technologies Incorporated and Bart C. Shuldman (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on December 27, 2022). 10.14 (x) Separation Agreement and General Release, dated April 20, 2023, between the Company and Bart C. Shuldman (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on April 26, 2023). 10.15 (x) Letter Agreement, dated April 24, 2023, between the Company and John M. Dillon (incorporated by reference to Exhibit 10.2 of Amendment No. 1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on April 26, 2023). 10.16 * Lease Agreement between Bomax Properties, LLC and TransAct, dated July 18, 2001.* 10.17 Amendment No. 1 to Lease Agreement between Bomax Properties, LLC and TransAct, dated May 8, 2012 (incorporated by reference to Exhibit 10.16 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 10, 2012). 10.18 Amendment No. 2 to Lease Agreement between Bomax Properties, LLC and TransAct, dated January 14, 2016 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 11, 2016). 10.19 Amendment No. 3 to Lease Agreement between Bomax Properties, LLC and TransAct, dated February 29, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on March 4, 2020). 10.20 Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated December 2, 2004 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2005). 10.21 First Amendment to Lease Agreement by and between CIP Hughes Center LLC and TransAct dated August 24, 2009 (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2010). 10.22 Second Amendment to Lease Agreement by and between The Realty Associates Fund IX LP and TransAct dated June 30, 2015 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 7, 2015). 10.23 Lease Agreement by and between 2319 Hamden Center I, L.L.C. and TransAct dated November 27, 2006 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 15, 2007). 10.24 First Amendment to Lease by and between 2319 Hamden Center I, L.L.C. and TransAct dated January 3, 2017 (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 16, 2017). 10.25 Second Amendment to Lease by and between 2319 Hamden Center I, L.L.C. and TransAct Technologies dated April 30, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 13, 2021). 10.26 Loan and Security Agreement, dated as of March 13, 2020, among Siena Lending Group LLC, TransAct Technologies Incorporated and the other Loan Parties from time to time party thereto (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 22, 2020). 10.27 Amendment No. 1 To Loan and Security Agreement, dated as of July 21, 2021, among Siena Lending Group and TransAct Technologies Incorporated (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on July 26, 2021) 10.28 Amendment No. 2 To Loan and Security Agreement, dated as of July 19, 2022, between Siena Lending Group LLC and TransAct Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on July 25, 2022). 10.29 Amended and Restated Fee Letter, dated as of July 19, 2022, between Siena Lending Group LLC and TransAct Technologies Incorporated (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on July 25, 2022). 10.30 Letter Amendment, dated May 1, 2023, to Loan and Security Agreement between Siena Lending Group LLC and TransAct Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on May 4, 2023). 10.31 † Master License Agreement dated February 22, 2019 and amendments thereto (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 12, 2021). 10.32 † Master Development and License Agreement dated July 20, 2018 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 12, 2021). 33 Index 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 12, 2021) 23.1 * Consent of Marcum LLP 31.1 * Rule 13a-14(a) Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Rule 13a-14(a) Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. 32 ‡ Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 * TransAct Technologies Incorporated Clawback Policy in the Event of a Financial Restatement 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (x) Management contract or compensatory plan or arrangement. * These exhibits are filed herewith. † Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Item (601)(b)(10) of Regulation S-K. ‡ These exhibits are furnished herewith. (b) Exhibits. The Exhibits required by Item 601 of Regulation S-K under the Exchange Act are included in the Exhibit Index above under a(3) of this Item 15. (c) Financial Statement Schedules. See the Notes to the Consolidated Financial Statements included in this Form 10-K. Item 16 . Form 10-K Summary. None. 34 Index SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSACT TECHNOLOGIES INCORPORATED By: /s/ John M. Dillon Name: John M. Dillon Title: Chief Executive Officer Date: March 13, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ John M. Dillon Chief Executive Officer and Director March 13, 2024 John M. Dillon (Principal Executive Officer) /s/ Steven A. DeMartino President, Chief Financial Officer, Treasurer and Secretary March 13, 2024 Steven A. DeMartino (Principal Financial Officer) /s/ William J. DeFrances Vice President and Chief Accounting Officer March 13, 2024 William J. DeFrances (Principal Accounting Officer) /s/ Haydee Ortiz Olinger Chair of the Board March 13, 2024 Haydee Ortiz Olinger /s/ Audrey P. Dunning Director March 13, 2024 Audrey P. Dunning /s/ Daniel M. Friedberg Director March 13, 2024 Daniel M. Friedberg /s/ Randall S. Friedman Director March 13, 2024 Randall S. Friedman /s/ Emanuel P. N. Hilario Director March 13, 2024 Emanuel P. N. Hilario 35 Index TRANSACT TECHNOLOGIES INCORPORATED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID 688 ) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 F-6 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023 and 2022 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-8 Notes to Consolidated Financial Statements F-9 F-1 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of TransAct Technologies Incorporated Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of TransAct Technologies Incorporated and its subsidiaries(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Inventories - Excess and Obsolete Inventory Reserve As described in Note 2 to the consolidated financial statements, inventories are stated at the lower of average cost or net realizable value. The Company reviews net realizable value based on estimated selling prices in the ordinary course of business less estimated costs of completions, disposal and transportation, historical usage and estimates of future demand. Based on these reviews, inventory write-downs are recorded, as necessary, to reflect estimated obsolescence, excess quantities, and net realizable value. A majority of the Company’s excess and obsolete inventory reserve relates to excess quantities of products, based on the Company’s inventory levels and future product purchase commitments compared to assumptions relating to future demand and market conditions. As of December 31, 2023, the Company’s consolidated inventories balance was $17.759 million . The principal considerations for our determination that the Company’s valuation of inventories, specifically the excess and obsolete inventory reserve, was a critical audit matter included the following: (1) management identifies inventories as a critical accounting estimate, and (2) there were significant judgments made by management in estimating the excess and obsolete inventory reserve, including developing assumptions related to future product demand based on historical usage and current market conditions. This in turn led to a high degree of auditor judgment in performing our audit procedures, which were designed to evaluate the reasonableness of audit evidence related to management’s assumptions of future product demand . F-2 Index Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) obtaining an understanding of the Company’s accounting policy related to inventory, specifically as it relates to the excess and obsolete inventory reserve; (ii) evaluating management’s methodology and process for developing the excess and obsolete inventory reserve, including estimating assumptions related to future product demand based on historical usage and current market conditions; and (iii) testing management’s calculation of the excess and obsolete inventory reserve, which included evaluating the completeness and accuracy of underlying data used by management in the calculation, principally inputs such as actual historical usage and management’s determination of future estimated consumption of inventory . Marcum LLP We have served as the Company’s auditor since 2020. Hartford, Connecticut March 13, 2024 F-3 Index TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, 2023 December 31, 2022 Assets: Current assets: Cash and cash equivalents $ 12,321 $ 7,946 Accounts receivable (net of allowance for expected credit losses of $ 768 and $ 351 ) 9,824 13,927 Employee retention credit receivable – 1,500 Inventories 17,759 12,028 Prepaid income taxes 322 – Other current assets 773 724 Total current assets 40,999 36,125 Fixed assets, net 2,421 2,781 Right-of-use assets 1,602 2,488 Goodwill 2,621 2,621 Deferred tax assets 6,304 7,327 Intangible assets, net 88 242 Other assets 163 248 13,199 15,707 Total assets $ 54,198 $ 51,832 Liabilities and Shareholders’ Equity: Current liabilities: Revolving loan payable $ 2,250 $ 2,250 Accounts payable 4,431 7,395 Accrued liabilities 4,947 4,077 Lease liabilities 929 875 Deferred revenue 1,079 1,329 Total current liabilities 13,636 15,926 Deferred revenue, net of current portion 209 143 Lease liabilities, net of current portion 720 1,683 Other liabilities 219 218 1,148 2,044 Total liabilities 14,784 17,970 Commitments and contingencies (see Notes 8 and 14) Shareholders’ equity: Preferred stock, $ 0.01 value, 4,800,000 authorized, none issued and outstanding – – Preferred stock, Series A, $ 0.01 par value, 200,000 authorized, none issued and outstanding – – Common stock, $ 0.01 par value, 20,000,000 authorized at December 31, 2023 and 2022 ; 14,003,653 and 13,956,725 shares issued; 9,958,811 and 9,911,883 shares outstanding, at December 31, 2023 and 2022 , respectively 140 139 Additional paid-in capital 57,055 56,282 Retained earnings 14,378 9,630 Accumulated other comprehensive loss, net of tax ( 49 ) ( 79 ) Treasury stock, 4,044,842 shares, at cost ( 32,110 ) ( 32,110 ) Total shareholders’ equity 39,414 33,862 Total liabilities and shareholders’ equity $ 54,198 $ 51,832 See accompanying notes to Consolidated Financial Statements. F-4 Index TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2023 2022 Net sales $ 72,631 $ 58,139 Cost of sales 34,231 33,727 Gross profit 38,400 24,412 Operating expenses: Engineering, design and product development 9,442 8,570 Selling and marketing 9,934 11,326 General and administrative 13,318 12,193 32,694 32,089 Operating income (loss) 5,706 ( 7,677 ) Interest and other income (expense): Interest expense ( 310 ) ( 208 ) Interest income 55 – Other, net 452 ( 16 ) 197 ( 224 ) Income (loss) before income taxes 5,903 ( 7,901 ) Income tax (expense) benefit ( 1,155 ) 1,965 Net income (loss) $ 4,748 $ ( 5,936 ) Net income (loss) per common share: Basic $ 0.48 $ ( 0.60 ) Diluted $ 0.47 $ ( 0.60 ) Shares used in per-share calculation: Basic 9,951 9,905 Diluted 10,021 9,905 See accompanying notes to Consolidated Financial Statements. F-5 Index TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended December 31, 2023 2022 Net income (loss) $ 4,748 $ ( 5,936 ) Foreign currency translation adjustment, net of tax 30 ( 222 ) Comprehensive income (loss) $ 4,778 $ ( 6,158 ) See accompanying notes to Consolidated Financial Statements. F-6 Index TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (in thousands, except share data) Common Stock Additional Paid-in Retained Treasury Accumulated Other Comprehensive Total Shares Amount Capital Earnings Stock Income (Loss) Equity Balance, December 31, 2021 9,872,889 $ 139 $ 55,246 $ 15,566 $ ( 32,110 ) $ 143 $ 38,984 Issuance of common stock from exercise of stock options 17,500 – – – – – – Issuance of common stock on restricted stock units 47,931 – – – – – – Relinquishment of stock awards and deferred stock units to pay withholding taxes ( 26,437 ) – ( 119 ) – – – ( 119 ) Share-based compensation expense – – 1,155 – – – 1,155 Foreign currency translation adjustment, net of tax – – – – – ( 222 ) ( 222 ) Net loss – – – ( 5,936 ) – – ( 5,936 ) Balance, December 31, 2022 9,911,883 139 56,282 9,630 ( 32,110 ) ( 79 ) 33,862 Issuance of common stock from exercise of stock options 1,875 – – – – – – Issuance of common stock on restricted stock units 58,705 1 – – – – 1 Relinquishment of stock awards and deferred stock units to pay withholding taxes ( 13,652 ) – ( 87 ) – – – ( 87 ) Share-based compensation expense – – 860 – – – 860 Foreign currency translation adjustment, net of tax – – – – – 30 30 Net income – – – 4,748 – – 4,748 Balance, December 31, 2023 9,958,811 $ 140 $ 57,055 $ 14,378 $ ( 32,110 ) $ ( 49 ) $ 39,414 See accompanying notes to Consolidated Financial Statements. F-7 Index TRANSACT TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ 4,748 $ ( 5,936 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Share-based compensation expense 860 1,155 Depreciation and amortization 1,489 1,332 Deferred income tax benefit 1,020 ( 2,141 ) Loss on the disposal of fixed assets – 2 Foreign currency transaction losses ( 30 ) 6 Changes in operating assets and liabilities: Accounts receivable 4,248 ( 6,421 ) Employee retention credit receivable 1,500 – Inventories ( 5,658 ) ( 4,378 ) Prepaid income taxes ( 322 ) 137 Other current and long-term assets ( 10 ) 167 Accounts payable ( 2,988 ) 3,103 Accrued liabilities and other liabilities 650 754 Net cash provided by (used in) operating activities 5,507 ( 12,220 ) Cash flows from investing activities: Capital expenditures ( 901 ) ( 1,299 ) Net cash used in investing activities ( 901 ) ( 1,299 ) Cash flows from financing activities: Proceeds from bank borrowings – 2,250 Withholding taxes paid on stock issuance ( 87 ) ( 119 ) Payment of bank financing costs – ( 69 ) Net cash (used in) provided by financing activities ( 87 ) 2,062 Effect of exchange rate changes on cash and cash equivalents ( 144 ) ( 54 ) Increase (decrease) in cash and cash equivalents 4,375 ( 11,511 ) Cash and cash equivalents, beginning of period 7,946 19,457 Cash and cash equivalents, end of period $ 12,321 $ 7,946 Supplemental cash flow information: Interest paid $ 268 $ 129 Income taxes paid 160 62 Non-cash capital expenditures 23 54 See accompanying notes to Consolidated Financial Statements. F-8 Index TRANSACT TECHNOLOGIES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of business TransAct Technologies Incorporated (together with its subsidiaries, “TransAct,” the “Company,” “we,” “us,” or “our”), which has its headquarters in Hamden, Connecticut and its primary operating facility in Ithaca, New York, operates in one operating segment: software-driven technology and printing solutions for high growth markets including food service technology, casino and gaming and “point of sale” (“POS”) automation markets. Our solutions are designed from the ground up based on market and customer requirements and are sold under the BOHA! TM , AccuDate™, Epic, Ithaca®, and EPICENTRAL ® product brands. We sell our products to original equipment manufacturers, value-added resellers, select distributors, and directly to end-users. Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific. TransAct also provides world-class service, spare parts, accessories and printing supplies to its growing worldwide installed base of products. We also generate revenue from the after-market side of the business, providing printer and terminal service, consumables and spare parts in addition to revenue from our two software solutions; (i) our line of BOHA! software applications used to automate the back-of-house operations of restaurants, convenience stores and food service operators and (ii) the EPICENTRAL Print System (“EPICENTRAL”), that enables casino operators to create promotional coupons and marketing messages and print them in real time at the slot machine. Current Business Trends After strong demand during the year due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023, and we expect this trend to continue to impact results in 2024. Further, our primary competitor in the casino and gaming market has resumed supplying product with increasing volume in 2024, which has begun to result in downward pricing pressure in that market and could exacerbate the demand slowdown, either of which could negatively impact our worldwide casino and gaming sales. In addition, we have experienced cost increases as a result of current economic conditions, most of which we have been able to offset by increasing prices of our products. However, there can be no guarantee that we will be able to increase prices sufficiently to offset any future such cost increases that cannot be predicted, and we may be impacted by supply chain disruptions, inflationary pressures and other global economic conditions that may affect the markets we serve and from which we source our supplies and parts. Balance Sheet, Cash Flow and Liquidity. During the third quarter of 2023, we began a cost reduction initiative to reduce our overall level of operating expenses that includes reducing employee headcount, trade show, advertising and other promotional marketing expenses, certain third party engineering resources and other expenses, and to a lesser extent, certain general and administrative expenses. We expect these actions will result in approximately $ 3 million of annualized savings beginning in 2024, partially offset by typical annual inflationary and cost of living increases in operating expenses. Notwithstanding the foregoing, there is no assurance that the cost-cutting efforts we have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as supply chain disruptions and inflation are sufficient or adequate, and we may be required to take additional measures, as the ultimate extent of the effects of these risks on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time. After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Consolidated Financial Statements included in this Annual Report on Form 10-K (this “Form 10-K”) were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following such issuance date. Use of Assumptions and Estimates Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, inflation, rising interest rates, capital expenditures and other operating costs. Our current assumptions are that casinos and restaurants will remain open and consumer traffic will continue to remain strong during 2024. Though demand for our products at casinos has increased substantially post-COVID, 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 and we would be able to take additional financial and operational actions to cut costs and/or increase liquidity. In addition, the presentation of the accompanying audited Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, share-based compensation and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates used. F-9 Smaller Reporting Company As a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, we may choose to prepare our disclosures relying on certain scaled disclosure requirements for smaller reporting companies in Regulation S-K and in Article 8 of Regulation S-X. The scaled disclosure requirements for smaller reporting companies permit us (i) to include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation in our proxy statement and (ii) to provide audited financial statements for two fiscal years in our Form 10-K, in contrast to other reporting companies, which must provide audited financial statements for three years. We will cease to be a smaller reporting company if we have (i) equal to or greater than $250 million in market value of our shares held by non-affiliates as of the last business day of our second fiscal quarter and (ii) if the market value of our shares held by non-affiliates does not exceed $700 million as of the last business day of our second fiscal quarter, equal to or greater than $100 million in annual revenues for the most recent fiscal year. Index 2. Summary of significant accounting policies Principles of consolidation: The accompanying Consolidated Financial Statements include the audited Consolidated Financial Statements of TransAct and its wholly-owned subsidiaries, which require consolidation, after the elimination of intercompany accounts, transactions and unrealized profit. Use of estimates : The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Segment reporting : We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” We view our operations and manage our business as one segment: the design, development and marketing of software-driven technology and printing solutions and providing printer and terminal related software, services, supplies and spare parts. Factors used to identify TransAct’s single operating segment include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. Cash and cash equivalents : We consider all highly liquid investments with a maturity date of three months or less at date of purchase to be cash equivalents. Accounts receivable and credit losses : The Company records accounts receivable when the right to consideration becomes unconditional. We establish an allowance for expected credit losses to ensure trade receivables are valued appropriately. We are exposed to credit losses primarily through our net sales of products and services to our customers which are recorded as Accounts Receivable, net on the Consolidated Balance Sheets. We evaluate each customer’s ability to pay through assessing customer creditworthiness, historical experience and current economic conditions through a reasonable forecast period. Factors considered in our evaluation of assessing collectability and risk include: underlying value of any collateral or security interests, significant past due balances, historical losses and existing economic conditions including country and political risk. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses. We may require collateral or prepayment to mitigate credit risk. We estimate expected credit losses of financial assets with similar risk characteristics. We determine an asset is impaired when our assessment identifies there is a risk that we will be unable to collect amounts due according to the contractual terms of the agreement. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible. The following table summarizes the activity recorded in the allowance for expected credit losses related to accounts receivable: Years Ended December 31 , (In thousands) 2023 2022 Balance, beginning of period $ 351 $ 219 Additions charged to costs and expenses 606 140 Deductions ( 189 ) ( 8 ) Balance, end of period $ 768 $ 351 Inventories: Inventories are stated at the lower of average cost or net realizable value. We review net realizable value based on estimated selling prices in the ordinary course of business less estimated costs of completions, disposal and transportation, historical usage and estimates of future demand. Based on these reviews, inventory write-downs are recorded, as necessary, to reflect estimated obsolescence, excess quantities and net realizable value. Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximated the “first-in, first-out” (“FIFO”) costing methodology to the average costing methodology. F-10 Index Fixed assets: Fixed assets are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives. The estimated useful life of tooling is five years ; machinery and equipment is ten years ; furniture and office equipment is five years to ten years ; and computer software and equipment is three years to seven years . Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset. Costs related to repairs and maintenance are expensed as incurred. The costs of sold or retired assets are removed from the related asset and accumulated depreciation accounts and any gain or loss is recognized. Depreciation expense was $ 1.3 and $ 1.1 million in 2023 and 2022, respectively. Leases: We account for leases in accordance with ASC 842, “Leases” (“ASC 842”), which requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for based on existing guidance for operating leases. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risks and rewards or control, the lease is treated as operating. We have elected certain practical expedients available under ASC 842 upon adoption. We have applied the practical expedient for short-term leases. We have lease agreements that include lease and non-lease components, and we have not elected the practical expedients to combine these components for any of our leases. We enter into lease agreements for the use of real estate space and certain equipment under operating leases and we have no financing leases. We determine if an arrangement contains a lease at inception. Our leases are included in “Right-of-use assets” and “Lease liabilities” in our Consolidated Balance Sheets. Right of use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease right of use assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. On April 26, 2022, we entered into an amendment to modify the expiration date of our lease on our Las Vegas, Nevada facility. The lease was set to expire on November 1, 2022 and the amendment extended the lease term to November 30, 2025. The lease amendment resulted in an increase to the right-of-use-asset and lease liability of $ 0.8 million. The lease amendment modified the base rent. Lease expense is recognized on a straight-line basis over the lease term. As most of our leases do not provide an implicit rate, the Company determines its incremental borrowing rate by using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Our lease right of use asset excludes lease incentives. Our leases have remaining lease terms of one year to four years , some of which include options to extend. The exercise of lease renewal options is at our sole discretion and our lease right of use assets and liabilities reflect only the options we are reasonably certain that we will exercise. Goodwill and intangible assets : We acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets. The determination of the value of intangible assets requires management to make estimates and assumptions. In accordance with ASC 350-20 “Goodwill,” acquired goodwill is not amortized but is subject to impairment testing at least annually and when an event occurs or circumstances change that indicate it is more likely than not an impairment exists. We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards. Under the qualitative assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, Company performance and events directly affecting the Company. If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach. Factors considered that may trigger an interim period impairment review of either acquired goodwill or intangible assets are: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of acquired assets or the strategy for the overall business; significant negative industry or economic trends; and significant decline in market capitalization relative to net book value. Finite lived intangible assets are amortized and are tested for impairment when appropriate. As of December 31, 2023, we have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was substantially higher than our carrying value based on our assessment as of December 31, 2023 when our annual review for impairment was performed. Revenue recognition: We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers. In accordance with ASC 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Some of our contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations (most commonly when contracts include a hardware product, software and extended warranties). A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, such as price protection, reserves for returns and other allowances, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the “expected value” method or the “most likely amount” method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. F-11 Index For a majority of our revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes revenue as of a point of time. The transaction price is recognized upon shipment of the order when control of the goods is transferred to the customer and at the time the performance obligation is fulfilled. We also sell a software solution in our casino and gaming market, EPICENTRAL, that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine. EPICENTRAL is primarily comprised of both a software component, which is licensed to the customer, and a hardware component. EPICENTRAL software and hardware are integrated to deliver the system’s full functionality. The transaction prices from EPICENTRAL software license and hardware are recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer. For out-of-warranty repairs, the transaction price is recognized after the repair work is completed and the printer or terminal is returned to the customer, as control of the product is transferred to the customer and our performance obligation is completed. Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and we have a contractual right to payment. For our separately priced extended warranty, BOHA! cloud-based software applications, technical support for our food service technology terminals and maintenance agreements (including free one-year maintenance received by customers upon completion of EPICENTRAL installation) revenue is recognized over time as the customer receives the benefit. The transaction price from the maintenance services is recognized ratably over time, using output methods, as control of the services is transferred to the customer. Our cloud-based BOHA! software allows customers to use hosted software over the contract period on a subscription basis without taking possession of the software and the subscription price is recognized ratably over the contract period. For extended warranties, the transaction price is recognized ratably over the warranty period, using output methods, as control of the services is transferred to the customer. When there is more than one performance obligation in a customer arrangement, the Company typically uses the “standalone selling price” method to determine the transaction price to allocate to each performance obligation. The Company sells the performance obligations separately and has established standalone selling prices for its products and services. In the case of an overall price discount, the discount is applied to each performance obligation proportionately based on standalone selling price. To determine the standalone selling price for initial EPICENTRAL installations, the Company uses the adjusted market assessment approach. For contracts with terms of less than 12 months, the Company expenses sales commissions as they are incurred, since the expected amortization period of the cost to obtain a contract is less than 12 months. Disaggregation of revenue The following table disaggregates our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues. Year Ended December 31, 2023 (In thousands) United States International Total Food service technology $ 15,159 $ 1,149 $ 16,308 POS automation 6,805 117 6,922 Casino and gaming 28,715 12,477 41,192 TransAct Services Group 7,381 828 8,209 Total net sales $ 58,060 $ 14,571 $ 72,631 Year Ended December 31, 2022 (In thousands) United States International Total Food service technology $ 11,602 $ 762 $ 12,364 POS automation 10,657 2 10,659 Casino and gaming 17,686 12,343 30,029 TransAct Services Group 4,089 998 5,087 Total net sales $ 44,034 $ 14,105 $ 58,139 Contract balances Contract assets consist of unbilled receivables. Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts Receivable, net” and “Other Assets” on the Consolidated Balance Sheets. We first recorded contract assets during 2020 upon the start of a long-term BOHA! contract. Contract liabilities consist of customer prepayments and deferred revenue. Customer prepayments are reported as “Accrued Liabilities” in current liabilities in the Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and is recognized as revenue when the performance obligation is complete. Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL maintenance contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract. During the year ended December 31, 2023, we recognized revenue of $ 1.4 million related to our contract liabilities as of December 31, 2022. F-12 Index Net contract (liabilities) assets consist of the following: December 31, (In thousands) 2023 2022 Unbilled receivables, current $ 145 $ 392 Unbilled receivables, non-current 120 163 Customer pre-payments ( 155 ) ( 101 ) Deferred revenue, current ( 1,079 ) ( 1,329 ) Deferred revenue, non-current ( 209 ) ( 143 ) Net contract (liabilities) assets $ ( 1,178 ) $ ( 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 December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 8.2 million. The Company expects to recognize revenue on $ 7.9 million of its remaining performance obligations within the next 12 months following December 31, 2023, $ 0.2 million within the next 24 months following December 31, 2023 and the balance of these remaining performance obligations within the next 36 months following December 31, 2023. Concentration of credit risk: Financial instruments that potentially expose us to concentrations of credit risk are limited to cash and cash equivalents held by our banks in excess of insured limits and accounts receivable. Accounts receivable from customers representing 10% or more of total accounts receivable, net were as follows: December 31, 2023 2022 International Gaming Technology (“IGT”) 28 % 12 % The Bright Group 9 % 11 % Sales to customers representing 10% or more of total net sales were as follows: December 31, 2023 2022 IGT 15 % 10 % Engineering, design and product development: Engineering, design and product development expenses include expenses incurred in connection with specialized engineering and design to introduce new products and to customize existing products, and are expensed as a component of operating expenses as incurred. We recorded $ 9.4 million and $ 8.6 million of research and development expenses in 2023 and 2022, respectively. Costs incurred in the engineering, design and product development of a computer software product are charged to expense until technological feasibility has been established, at which point all material software costs are capitalized within Intangible assets in our Consolidated Balance Sheet until the product is available for general release to customers. While judgment is required in determining when technological feasibility of a product is established, we have determined that it is reached after all high-risk development issues have been documented in a formal detailed plan design. The amortization of these costs has been included in cost of sales over the estimated life of the product. Advertising: Advertising costs are expensed as incurred. Advertising expenses, which are included in selling and marketing expense on the accompanying Consolidated Statements of Operations for 2023 and 2022 totaled $ 1.7 million and $ 3.1 million, respectively. These expenses include items such as consulting, professional services, tradeshows, and print advertising. Income taxes: The income tax amounts reflected in the accompanying Consolidated Financial Statements are accounted for under the liability method in accordance with ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We assess the likelihood that net deferred tax assets will be realized from future taxable income, and to the extent that we believe that realization is not likely, we establish a valuation allowance. In accordance with ASC 740, we identified, evaluated and measured the amount of benefits to be recognized for our tax return positions. Foreign currency translation: The financial position and results of operations of our foreign subsidiary in the UK are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated into U.S. dollars at the year-end exchange rate, related sales and expenses have been translated at the weighted average rate for the period, and shareholders’ equity has been translated at historical exchange rates. The resulting translation gains or losses, net of tax, are recorded in shareholders’ equity as a cumulative translation adjustment, which is a component of accumulated other comprehensive income and loss. Foreign currency transaction gains and losses, including those related to intercompany balances, are recognized in Other, net on the Consolidated Statements of Operations. F-13 Index Share-based payments: At December 31, 2023, we have share-based employee compensation plans, which are described more fully in Note 9 - Stock incentive plans. We account for those plans under the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation.” Share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period. We use the Black-Scholes option-pricing model to calculate the fair value of share-based awards. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, market price of our underlying stock and exercise price. Many of these assumptions require judgment and are highly sensitive in the determination of compensation expense. Forfeitures are recognized as they occur. Net income (loss) per share : We report net income or loss per share in accordance with ASC 260, “Earnings per Share (EPS).” Under this guidance, basic EPS, which excludes dilution, is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS includes in-the-money stock options using the treasury stock method. During a loss period, the assumed exercise of in-the-money stock options has an anti-dilutive effect, and therefore, these instruments are excluded from the computation of diluted EPS. See Note 11 - Earnings per share. Recently issued accounting pronouncements : In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Consolidated Financial Statements. On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) . The amendments improve reportable segment disclosures requirements and clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. These amendments are effective for fiscal years beginning after December 15, 2023 and for interim periods beginning after December 15, 2024. These segment disclosure requirements must be applied retrospectively to all periods presented in the financial statements. We are currently evaluating the impact of adopting this standard; however, we do not expect it to have a material impact on our Consolidated Financial Statements. On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) . This ASU requires the use of consistent categories and greater disaggregation in tax rate reconciliations and income taxes paid disclosures. These amendments are effective for fiscal years beginning after December 15, 2024. These income tax disclosure requirements can be applied either prospectively or retrospectively to all periods presented in the financial statements. We are currently evaluating the impact of adopting this standard; however, we do not expect it to have a material impact on our Consolidated Financial Statements. 3. Inventories The components of inventories are: December 31, (In thousands) 2023 2022 Raw materials and purchased component parts $ 9,382 $ 8,884 Finished goods 8,377 3,144 $ 17,759 $ 12,028 4. Fixed assets, net The components of fixed assets, net are: December 31, (In thousands) 2023 2022 Tooling, machinery and equipment $ 7,562 $ 6,859 Furniture and office equipment 2,078 1,882 Computer software and equipment 8,190 8,348 Leasehold improvements 2,895 2,883 20,725 19,972 Less: Accumulated depreciation and amortization ( 18,646 ) ( 17,656 ) 2,079 2,316 Construction in-process 342 465 $ 2,421 $ 2,781 F-14 Index 5. Intangible assets, net Identifiable intangible assets are recorded in Intangible assets, net in the accompanying Consolidated Balance Sheets and are comprised of the following: December 31, 2023 2022 (In thousands) Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Purchased technology $ 1,591 $ ( 1,503 ) $ 1,591 $ ( 1,349 ) Patents 15 ( 15 ) 15 ( 15 ) Total $ 1,606 $ ( 1,518 ) $ 1,606 $ ( 1,364 ) Amortization expense was $ 154 thousand and $ 155 thousand in 2023 and 2022, respectively. Amortization expense for each of the next five years ending December 31 is expected to be as follows: $ 88 thousand in 2024; and none thereafter. 6. Accrued liabilities The components of accrued liabilities are: December 31, (In thousands) 2023 2022 Salaries and compensation related $ 3,455 $ 2,744 Taxes 870 530 Professional and consulting 161 371 Other 461 432 $ 4,947 $ 4,077 7. Retirement savings plan We maintain a 401(k) plan under which all full-time employees are eligible to participate at the beginning of the month immediately following their date of hire. We match employees’ contributions at a rate of 50 % of employees’ contributions up to the first 6 % of the employees’ compensation contributed to the 401(k) plan. Our matching contributions, net of applied forfeitures, were $ 230 thousand and $ 355 thousand in 2023 and 2022, respectively. 8. Borrowings Credit Facility On March 13, 2020, we entered into the Loan and Security Agreement governing 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 were $ 245 thousand. 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. Borrowings under the Siena Credit Facility are subject to a borrowing base based on 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 Siena Credit Facility imposes a financial covenant on the Company and restricts, among other things, our ability to incur additional indebtedness and create other liens. 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 ended July 31, 2021. From July 31, 2021 through December 31, 2023, we remained in compliance with our excess availability covenant. 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 Siena Credit Facility Amendment No. 2. 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 and unrestricted cash is less than $ 5 million for 3 consecutive business days or (b) an event of default occurs and is continuing. F-15 Index 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. 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. Prior to such amendment, Section 7.1(m) of the Loan and Security Agreement governing the Siena Credit Facility required that any successor to the Company’s former Chief Executive Officer be reasonably acceptable to the Lender. This amendment confirmed that Mr. Dillon, the Company’s current Chief Executive Officer, is an acceptable successor, and applied the same requirement to any future successor to Mr. Dillon as Chief Executive Officer. As of December 31, 2023, we had $ 2.3 million of outstanding borrowings under the Siena Credit Facility and $ 5.9 million of net borrowing capacity available under the Siena Credit Facility. 9. Stock incentive plans Stock incentive plans . We currently have two stock incentive plans: the 2005 Equity Incentive Plan and the 2014 Equity Incentive Plan, which provide for awards to executives, key employees, directors and consultants. The plans generally provide for awards in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights. Awards granted under these plans have exercise prices equal to 100 % of the fair market value of the common stock at the date of grant. Awards granted have a ten-year term and generally vest over a two-year to four-year period, unless automatically accelerated for certain defined events. As of May 2014, no new awards may be made under the 2005 Equity Incentive Plan. Under our 2014 Equity Incentive Plan, as amended in May 2023, we are authorized to grant awards of up to 2,900,000 shares of TransAct common stock. At December 31, 2023, 981,769 shares of common stock remained available for issuance under the 2014 Equity Incentive Plan. Under the assumptions indicated below, the weighted-average per share fair value of stock option grants for 2023 and 2022 was $ 4.16 and $ 4.39 , respectively. We also issued restricted stock units for certain executives and directors that vest over a specified period of time, and in some instances require achieving certain performance metrics. The weighted-average per share fair value of these restricted stock units was $ 7.21 and $ 8.43 in 2023 and 2022, respectively. The table below indicates the key assumptions (on a weighted-average basis) used in the option valuation calculations for options granted in 2023 and 2022 and a discussion of our methodology for developing each of the assumptions used in the valuation model: Years ended December 31, 2023 2022 Expected option term (in years) 7.0 7.1 Expected volatility 55.6 % 51.3 % Risk-free interest rate 4.2 % 2.2 % Dividend yield 0.0 % 0.0 % Expected Option Term - This is the weighted average period of time over which the options granted are expected to remain outstanding giving consideration to our historical exercise patterns. Options granted have a maximum term of ten years and an increase in the expected term will increase compensation expense. Expected Volatility – The stock volatility for each grant is measured using the weighted average of historical daily price changes of our common stock over the most recent period approximately equal to the expected option term of the grant. An increase in the expected volatility factor will increase compensation expense. Risk-Free Interest Rate - This is the U.S. Treasury rate in effect at the time of grant having a term approximately equal to the expected term of the option. An increase in the risk-free interest rate will increase compensation expense. Dividend Yield –The dividend yield is calculated by dividing the annual dividend declared per common share by the weighted average market value of our common stock on the date of grant. An increase in the dividend yield will decrease compensation expense. We recorded $ 0.9 and $ 1.2 million of share-based compensation expense for 2023 and 2022, respectively, included primarily in general and administrative expense in our Consolidated Statements of Operations. We also recorded income tax benefits of $ 0.2 million in 2023 and $ 0.3 million in 2022, related to such share-based compensation. At December 31, 2023, these benefits are recorded as a deferred tax asset in the Consolidated Balance Sheets. F-16 Index Equity award activity in the 2005 Equity Incentive Plan and the 2014 Equity Incentive Plan, as amended, is summarized below: Stock Options Restricted Stock Units Number of Shares Average Price* Number of Units Average Price** Outstanding at December 31, 2022 1,355,955 $ 9.08 214,286 $ 9.28 Granted 309,800 6.91 210,100 7.21 Exercised ( 1,875 ) 4.25 ( 58,705 ) 9.55 Forfeited ( 271,655 ) 7.72 ( 181,145 ) 8.34 Expired ( 77,750 ) 8.90 – – Outstanding at December 31, 2023 1,314,475 $ 8.82 184,536 $ 7.76 * weighted average exercise price per share ** weighted average grant stock price per share The following summarizes information about equity awards outstanding that are vested and expect to vest and equity awards that are exercisable at December 31, 2023: Equity Awards Vested and Expected to Vest Equity Awards That Are Exercisable Awards Average Price* Aggregate Intrinsic Value Remaining Term** Awards Average Price* Aggregate Intrinsic Value Remaining Term** Stock Options 1,314,475 $ 8.82 $ 316 4.0 968,972 $ 9.31 $ 167 2.2 Restricted stock units 184,536 – 1,288 2.7 – – – – * weighted average exercise price per share ** weighted-average contractual remaining term in years Shares that are issued upon exercise of employee stock awards are newly issued shares and not issued from treasury stock. As of December 31, 2023, unrecognized compensation cost related to non-vested equity awards granted under our stock incentive plans is approximately $ 4.1 million, which is expected to be recognized over a weighted average period of 3.3 years. The total fair value of awards vested was $ 1.3 million and $ 1.6 million during the years ended December 31, 2023 and 2022, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options exercised during the years ended December 31, 2023 and 2022 was $ 3 thousand and $ 40 thousand, respectively, and cash received from option exercises was zero in both 2023 and 2022. 1,875 and 17,500 stock options were exercised during the year ended December 31, 2023 and 2022, respectively. We recorded a realized tax provision in 2023 and 2022 from equity-based awards of zero and $ 13 thousand, respectively, related to options exercised. 10. Income taxes The components of the income tax expense (benefit) are as follows: December 31, (In thousands) 2023 2022 Current: Federal $ ( 1 ) $ 149 State 51 110 Foreign 85 ( 83 ) 135 176 Deferred: Federal 825 ( 1,924 ) State 132 ( 217 ) Foreign 63 – 1,020 ( 2,141 ) Income tax expense (benefit) $ 1,155 $ ( 1,965 ) Our effective tax rates were 19.6 % and ( 24.9 % ) for 2023 and 2022 , respectively. The tax benefit recorded for 2022 includes the recognition of stock option cancellations for which no benefit was realized . At December 31, 2023, we have no federal net operating loss carryforwards, $ 0.1 million of tax-effected state net operating loss carryforwards, $ 0.7 million in R&D credit carryforwards, and no state tax credit carryforwards. Foreign income before taxes were $ 322 thousand and $ 24 thousand in 2023 and 2022, respectively. F-17 Index Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. Our deferred tax assets and liabilities were comprised of the following: December 31, (In thousands) 2023 2022 Deferred tax assets: Federal net operating losses $ – $ 2,297 Foreign net operating losses 733 676 State net operating losses 84 149 Accrued severance 165 – Capitalized R&D expenses 3,127 1,708 Inventory reserves 896 648 Deferred revenue 31 41 Warranty reserve 24 17 Stock compensation expense 790 769 Other accrued compensation 404 222 R&D credit carryforward 695 1,238 Other Assets 360 – Other liabilities and reserves – 463 Gross deferred tax assets 7,309 8,228 Valuation allowance ( 719 ) ( 656 ) Net deferred tax assets 6,590 7,572 Deferred tax liabilities: Depreciation and amortization 237 196 Other 49 49 Net deferred tax liabilities 286 245 Total net deferred tax assets $ 6,304 $ 7,327 As of December 31, 2023 and 2022, we had a $ 719 thousand and $ 656 thousand, respectively, of valuation allowances on our net operating loss carryforwards. The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets: Year Ended December 31, (In thousands) 2023 2022 Balance, beginning of period $ 656 $ 733 Subtractions released to income tax provisions – ( 77 ) Additions charged to income tax provision 63 – Balance, end of period $ 719 $ 656 Differences between the U.S. statutory federal income tax rate and our effective income tax rate are analyzed below: Year Ended December 31, 2023 2022 Federal statutory rate 21.0 % 21.0 % R&D credit ( 5.9 ) 4.3 Foreign-derived intangible income deduction ( 1.7 ) – Stock award excess tax benefit 0.4 – State income taxes, net of federal income taxes 2.5 1.1 Business meals and entertainment 0.3 – Executive compensation limitation 0.6 – Uncertain tax positions 0.5 ( 0.5 ) Stock option cancellations 0.6 ( 1.9 ) Valuation allowance and tax accruals 1.0 1.0 Other 0.3 ( 0.1 ) Effective tax rate 19.6 % 24.9 % F-18 We had $ 197 thousand and $ 142 thousand of total gross unrecognized tax benefits at December 31, 2023 and 2022, respectively that, if recognized, would favorably affect the effective income tax rate in any future periods. We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits. A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows: December 31, (In thousands) 2023 2022 Balance, beginning of period $ 142 $ 144 Tax positions taken during the current period 83 26 Lapse of statute of limitations ( 28 ) ( 28 ) Balance, end of period $ 197 $ 142 We expect $ 40 thousand of the $ 197 thousand of unrecognized tax benefits will reverse in 2024 upon the expiration of the statute of limitations. We recognize interest and penalties related to uncertain tax positions in the income tax provision. We have accrued interest and penalties related to uncertain tax positions of $ 25 thousand and $ 34 thousand as of December 31, 2023 and 2022, respectively. We are subject to U.S. federal income tax as well as income tax of certain state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax, state and local, and foreign tax matters through 2019. However, our federal tax returns for the years 2020 through 2023 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Consolidated Financial Statements. Index 11. Earnings per share Earnings per share was computed as follows (in thousands, except per share amounts): Years Ended December 31, 2023 2022 Net income (loss) $ 4,748 $ ( 5,936 ) Shares: Basic: Weighted average common shares outstanding 9,951 9,905 Add: Dilutive effect of outstanding equity awards as determined by the treasury stock method 70 – Diluted: Weighted average common and common equivalent shares outstanding 10,021 9,905 Net income (loss) per common share: Basic $ 0.48 $ ( 0.60 ) Diluted 0.47 ( 0.60 ) The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, restricted stock units and performance stock awards, when the average market price of the common stock is lower than the exercise price of the related stock award during the period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would be anti-dilutive. Furthermore, in periods when a net loss is reported, such as in 2022, basic and diluted net loss per common share are calculated using the same method. Anti-dilutive stock awards excluded from the computation of earnings per dilutive share were 1.1 million and 1.5 million at December 31, 2023 and 2022, respectively. 12. Stock repurchase program We use the cost method to account for treasury stock purchases, under which the price paid for the stock is charged to the treasury stock account. Repurchases of our common stock are accounted for as of the settlement date. During 2023 and 2022, we did no t repurchase any shares of our common stock. From January 1, 2005 through December 31, 2019, we repurchased a total of 4,044,842 shares of common stock for $ 32.1 million, at an average price of $ 7.94 per share. F-19 13. Geographic area information Information regarding our operations by geographic area is contained in the following table. These amounts in the geographic area table are based on the location of the customer and asset. Years Ended December 31, (In thousands) 2023 2022 Net sales: United States $ 58,060 $ 44,034 International 14,571 14,105 Total $ 72,631 $ 58,139 Fixed assets, net: United States $ 945 $ 2,252 International 1,476 529 Total $ 2,421 $ 2,781 Sales to international customers were 20 % and 24 % of total sales in 2023 and 2022, respectively. Sales to Europe represented 64 % and 68 %, sales to the Pacific Rim (which includes Australia and Asia) represented 29 % and 28 %, and sales to Canada represented 4 % of total international sales in both 2023 and 2022, respectively. International long-lived assets consist of net fixed assets located at our foreign subsidiary in the UK, as well as our contract manufacturer in Thailand. Index 14. Leases Operating lease expense was $ 1.1 million and $ 1.0 million for the years ended December 31, 2023 and 2022 , 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 Consolidated Statements of Operations. Operating costs include short-term lease costs. The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands): Years Ended December 31, 2023 2022 Operating cash outflows from leases $ 1,013 $ 967 The following summarizes additional information related to our leases: Years Ended December 31, 2023 2022 Weighted average remaining lease term (in years) 1.7 2.7 Weighted average discount rate 4.4 % 4.5 % The maturity of the Company’s operating lease liabilities are as follows (in thousands): December 31, 2023 2024 $ 985 2025 713 2026 22 Total undiscounted lease payments 1,720 Less imputed interest 71 Total lease liabilities $ 1,649 F-20 15. Quarterly results of operations (unaudited) Our quarterly results of operations for 2023 and 2022 are as follows: Quarter Ended (In thousands, except per share amounts) March 31 June 30 September 30 December 31 2023: Net sales $ 22,270 $ 19,906 $ 17,190 $ 13,265 Gross profit 12,255 10,858 8,916 6,371 Net income (loss) 3,139 765 906 ( 62 ) Net income (loss) per common share: Basic 0.32 0.08 0.09 ( 0.01 ) Diluted 0.31 0.08 0.09 ( 0.01 ) 2022: Net sales $ 9,702 $ 12,623 $ 17,856 $ 17,958 Gross profit 2,566 5,434 8,193 8,219 Net (loss) income ( 4,348 ) ( 2,376 ) 528 260 Net (loss) income per common share: Basic ( 0.44 ) ( 0.24 ) 0.05 0.03 Diluted ( 0.44 ) ( 0.24 ) 0.05 0.03 16. Related party transactions One of the Company’s directors serves as President and Chief Executive Officer of The One Group Hospitality, Inc. The Company sold various food service technology products to The One Group Hospitality, Inc. on an arms’ length basis totaling $ 246 thousand and $ 37 thousand in 2023 and 2022, respectively. The Company’s accounts receivable from The One Group Hospitality, Inc. amounted to $ 34 thousand and $ 4 thousand in 2023 and 2022, respectively. Index 17. Subsequent events The Company has evaluated all events or transactions that occurred up to the date the consolidated financial statements were available to issue. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements. F-21