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Item 8. Financial Statements and Supplementary Data

2022-06-09 compared with 2021-06-08 · 988 added, 479 removed, 298 unchanged (83% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

Management of Transcat, Inc.

(the “Company”) is responsible for establishing and maintaining an adequate system of internal control over financial reporting.

This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 27, 2021.

The effectiveness of the Company’s internal control over financial reporting has been audited by Freed Maxick CPAs, P.C.

an independent registered public accounting firm, as stated in their report which is included herein.

Report of Independent Registered Public Accounting Firm

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 317 ) 37

Consolidated Statements of Income for the Fiscal Years Ended March 26, 2022 and March 27, 2021 39

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 26, 2022 and March 27, 2021 40

Consolidated Balance Sheets as of March 26, 2022 and March 27, 2021 41

Consolidated Statements of Cash Flows for the Fiscal Years Ended March 26, 2022 and March 27, 2021 42

Consolidated Statements of Changes in Shareholders’ Equity for the Fiscal Years Ended March 26, 2022 and March 27, 2021 43

Notes to Consolidated Financial Statements 44

Report of Independent Registered Public Accounting

Board of Directors and Shareholders

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Rochester, New York

Opinions on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Transcat, Inc.

and its subsidiaries (the Company) as of March 27, 2021 and March 28, 2020, and the related consolidated statements of income, comprehensive income, changes in shareholders'

equity and cash flows for the years ended March 27, 2021 and March 28, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

We also have audited the Company’s internal control over financial reporting as of March 27, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 27, 2021 and March 28, 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 27, 2021, based on criteria established in Internal Control —

Opinions on the Financial Statements and Internal Control Over Financial

We have audited the accompanying consolidated

balance sheets of Transcat, Inc.

and its subsidiaries (the Company) as of March 26, 2022 and March 27, 2021, and the related consolidated

statements of income, comprehensive income, changes in shareholders' equity and cash flows for the years ended March 26, 2022 and March

27, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements).

We also have audited

the Company’s internal control over financial reporting as of March 26, 2022, based on criteria established in Internal Control

— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the financial statements referred

to above present fairly, in all material respects, the financial position of the Company as of March 26, 2022 and March 27, 2021, and

the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted

in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over

financial reporting as of March 26, 2022, based on criteria established in Internal Control — Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinions

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Annual report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company's financial statements and an opinion on the company's internal control over financial reporting 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 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 financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

The Company's management is responsible for these

financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness

of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company's financial statements and an opinion on the company's internal control over

financial reporting 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 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 financial

statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting

was maintained in all material respects.

Our audits of the financial statements included

performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

Our audit of internal control over financial reporting included

obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing

and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing

such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) 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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A company's internal control over financial reporting

is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial

reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately

and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) 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.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

BioTek Services, Inc.

Purchase Price Allocation

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combinations

Critical Audit Matter Description

As discussed in Notes 1 and 9 to the consolidated financial statements, effective December 16, 2020, the Company acquired substantially all of the assets of BioTek Services, Inc.

(“BioTek”).

The total purchase price paid for the assets of BioTek was approximately $3.5 million.

The Company applied the acquisition method of accounting for the acquisition.

Under this method, identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair value.

The Company used a valuation hierarchy, and utilized an independent third-party valuation specialist to determine the fair values used in this allocation.

Intangible assets and goodwill represented an allocation of purchase price to identifiable intangible assets of the acquired business in the amount of $2.0 million and $1.1 million, respectively.

The Company’s determination of the fair value used for the allocation of the purchase price is based upon assumptions of the future performance of BioTek and includes work performed by a third-party valuation specialist.

Due to the subjectivity involved in estimating the fair values and ultimate allocation of purchase price, we identified the fair value estimates for purchase price allocation of BioTek’s intangible assets as a critical audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge.

As discussed in Notes 1

and 9 to the consolidated financial statements, during the year ended March 26, 2022, the Company completed multiple business

combinations for an aggregate purchase of approximately $36.1 million, including contingent consideration initially valued at $0.2

million, which can reach up to $7.5 million over the four-year period following the closing of the transaction based upon one

acquired business achieving certain annual revenue and EBITDA targets.

The Company applied the acquisition method of accounting for

the acquisitions.

Under this method, identifiable assets acquired, liabilities assumed, and consideration transferred are measured

at their acquisition-date fair value.

Assumptions used include the weighted-average cost of capital, risk free rate, asset

volatility, customer attrition, as well as forecasted revenue and EBITDA.

Aggregate intangible assets and goodwill represented an

allocation of purchase price in the amount of $11.1 million and $21.7 million, respectively.

The Company’s determination of the fair

value of assets acquired and contingent consideration is based upon assumptions of the future performance of the acquisitions and other

Due to the subjectivity involved we identified the fair value estimate of assets acquired and contingent consideration as a critical

audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimation of fair value associated with the purchase price allocation of the BioTek acquisition included the following, among others:

We obtained an understanding of the process and assumptions used by management to develop the estimate of the purchase price allocation.  

We obtained an understanding of management’s controls relating to the purchase price allocation and tested the operating effectiveness of the controls, as necessary.  

We engaged an internal valuation specialist to test certain assumptions and approaches used.  

We tested cut-off of working capital at the acquisition date for any impact to the fair value assigned to the identifiable tangible and intangible assets acquired or liabilities assumed.  

We tested management’s allocation, including testing of the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and evaluated reasonableness and consistency of methodology and assumption.  

Our audit procedures related to the estimation

of fair value of assets acquired and contingent consideration associated with the business combinations included the following, among

● We obtained an understanding of the process and

assumptions used by management to develop the estimate of the fair value of assets acquired and consideration transferred.

● We obtained an understanding of management’s

controls and tested the operating effectiveness of the controls.

● We engaged an internal valuation specialist to

test certain assumptions and approaches used.

● We tested management’s measurement of fair

value, including testing of the completeness and accuracy of source information used, mathematical accuracy of management’s calculations,

and evaluated reasonableness and consistency of methodology and assumption.

/s/ Freed Maxick CPAs, P.C .

We have served as the Company's auditor since 2012.

Rochester, New York

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Average Shares Outstanding

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated

financial statements.

TRANSCAT, INC.

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For the Fiscal Years Ended

Other Comprehensive Income (Loss):

Other Comprehensive Income:

Currency Translation Adjustment

Other, net of tax effects of $( 146 ) and $ 36 for the years ended March 26, 2022 and March 27, 2021, respectively.

Total Other Comprehensive Income (Loss)

Total Other Comprehensive Income

Comprehensive Income

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated

financial statements.

TRANSCAT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

(In Thousands, Except Share and Per Share

Current Assets:

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Right to Use Assets, net

LIABILITIES AND SHAREHOLDERS'

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

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Total Liabilities

Shareholders'

Shareholders' Equity:

Common Stock, par value $ 0.50 per share, 30,000,000 shares authorized;

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Retained Earnings

Total Shareholders'

Total Liabilities and Shareholders'

See accompanying notes to consolidated financial statements.

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

See accompanying notes to consolidated

financial statements.

TRANSCAT, INC.

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Business Acquisitions, net of cash acquired

Payment of Contingent Consideration and Holdbacks Related to Business Acquisitions

Net Cash Used in Investing Activities

Cash Flows from Financing Activities:

(Repayment of) Proceeds from Revolving Credit Facility, net

Proceeds from (Repayment of) Revolving Credit Facility, net

Repayments of Term Loan

1 unchanged sentence

Repurchase of Common Stock

Net Cash (Used In) Provided by Financing Activities

Net Cash Provided by (Used In) Financing Activities

Effect of Exchange Rate Changes on Cash

Net Increase (Decrease) in Cash

Net Increase in Cash

Cash at Beginning of Fiscal Year

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Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Payment of Contingent Consideration and Holdback Amounts Related to Business Acquisition

See accompanying notes to consolidated financial statements.

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

Common stock issued for NEXA acquisition

Assets acquired and liabilities assumed in business combinations:

Contingent consideration related to NEXA acquisition

See accompanying notes to consolidated

financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

(In Thousands, Except Per Share Amounts)

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Comprehensive

Income (Loss)

Balance as of March 28, 2020

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Stock-Based Compensation

Other Comprehensive Loss

Other Comprehensive Income

Balance as of March 27, 2021

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Balance as of March 26, 2022

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated

financial statements.

TRANSCAT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share and Per Unit Amounts)

NOTE 1 –

NOTE 1 – GENERAL

Description of Business:

Transcat, Inc.

(“Transcat”

or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade handheld test, measurement and control instrumentation.

The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses.

(“Transcat,” “ we,” “us,” “our” or the “Company”)

is a leading provider of accredited calibration services, enterprise asset management services, and value-added distributor of professional

grade handheld test, measurement and control instrumentation.

The Company is focused on providing services and products to highly regulated

industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated

Additional industries served include industrial manufacturing;

energy and utilities, including oil and gas and alternative energy;

FAA-regulated businesses, including aerospace and defense;

and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

energy and utilities, including oil and gas;

chemical manufacturing;

FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation

of the capabilities of their equipment, and for which the risk of failure is very costly.

Principles of Consolidation:

The consolidated financial statements of Transcat include the accounts of Transcat and the Company’s wholly-owned subsidiaries, Transcat Canada Inc., United Scale & Engineering Corporation, WTT Real Estate Acquisition, LLC and Anmar Metrology, Inc.

(which merged with and into the Company on March 28, 2020).

All intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial statements

of Transcat include the accounts of Transcat and the Company’s wholly-owned subsidiaries, Transcat Canada Inc., WTT Real Estate

Acquisition, LLC, Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), Cal OpEx Inc.

and Tangent Labs, LLC.

All intercompany balances

and transactions have been eliminated in consolidation.

Use of Estimates:

The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, and the valuation of assets acquired and liabilities assumed in business acquisitions.

The preparation of Transcat’s Consolidated

Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that

the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent

assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting

Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory

reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives

of fixed assets, estimated lives of major catalogs and intangible assets, and the valuation of assets acquired, liabilities assumed and

consideration transferred in business acquisitions.

Future events and their effects cannot be predicted with certainty;

accordingly, accounting estimates require the exercise of judgment.

The accounting estimates used in the preparation of the Consolidated Financial Statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.

accordingly, accounting

estimates require the exercise of judgment.

The accounting estimates used in the preparation of the Consolidated Financial Statements

may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment

Actual results could differ from those estimates.

Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements.

Transcat operates on a 52/53-week fiscal year, ending the last Saturday in March.

Such changes and refinements in estimation methodologies are reflected in reported

results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated

Financial Statements.

Transcat operates on a 52/53-week fiscal year,

ending the last Saturday in March.

In a 52-week fiscal year, each of the four quarters is a 13-week period.

In a 53-week fiscal year, the last quarter is a 14-week period.

The fiscal years ended March 27, 2021 (“fiscal year 2021”) and March 28, 2020 (“fiscal year 2020”) both consisted of 52 weeks.

In a 53-week fiscal year,

the last quarter is a 14-week period.

The fiscal years ended March 26, 2022 (“fiscal year 2022”) and March 27, 2021 (“fiscal

year 2021”) both consisted of 52 weeks.

Accounts Receivable:

Accounts receivable represent amounts due from customers in the ordinary course of business.

These amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets.

Accounts receivable represent amounts due

from customers in the ordinary course of business.

These amounts are recorded net of the allowance for doubtful accounts and returns in

the Consolidated Balance Sheets.

The allowance for doubtful accounts is based upon the expected collectability of accounts receivable.

The Company applies a specific formula to its accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure.

After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts.

The returns reserve is calculated based upon the historical rate of returns applied to revenues over a specific timeframe.

The returns reserve will increase or decrease as a result of changes in the level of revenue and/or the historical rate of returns.

Inventory consists of products purchased for resale and is valued at the lower of average cost or net realizable value.

The Company applies a specific formula to its accounts receivable aging, which may be adjusted on a specific account basis where the formula

may not appropriately reserve for loss exposure.

After all attempts to collect a receivable have failed, the receivable is written-off

against the allowance for doubtful accounts.

The returns reserve is calculated based upon the historical rate of returns applied to revenues

over a specific timeframe.

The returns reserve will increase or decrease as a result of changes in the level of revenue and/or the historical

rate of returns.

Inventory consists of products purchased for resale

and is valued at the lower of average cost or net realizable value.

Costs are determined using the average cost method of inventory valuation.

The Company performs physical inventory counts and cycle counts on inventory throughout the year and adjusts the recorded balance to reflect the results.

Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical experience, to specific categories of inventory.

The Company performs physical inventory counts and cycle counts on inventory throughout the year and adjusts the recorded balance to reflect

Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical

experience, to specific categories of inventory.

The Company evaluates the adequacy of the reserve on a quarterly basis.

The Company had reserves for inventory losses totaling $ 0.6 million at March 27, 2021 and $ 0.5 million at March 28, 2020.

The Company had

reserves for inventory losses totaling $ 0.5 million at March 26, 2022 and $ 0.6 million at March 27, 2021.

Property and Equipment, Depreciation and Amortization:

Property and equipment are stated at cost.

Depreciation and amortization are computed primarily under the straight-line method over the following estimated useful lives:

and equipment are stated at cost.

Depreciation and amortization are computed under the straight-line method over the following estimated

useful lives:

Machinery, Equipment and Software

2 unchanged sentences

Leasehold Improvements

The Company tests property and equipment for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist.

Property and equipment determined to have no value are written off at their then remaining net book value.

The Company capitalizes certain costs incurred in the procurement and development of computer software used for internal purposes.

Leasehold improvements are amortized under the straight-line method over the estimated useful life or the lease term, whichever is shorter.

Maintenance and repairs are expensed as incurred.

The Company tests property and equipment for impairment on an annual

basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist.

equipment determined to have no value are written off at their then remaining net book value.

The Company capitalizes certain costs, including

internal payroll costs incurred in the procurement and development of computer software used for internal purposes.

Leasehold improvements

are amortized under the straight-line method over the estimated useful life or the lease term, whichever is shorter.

Maintenance and repairs

are expensed as incurred.

See Note 2 for further information on property and equipment.

Business Acquisitions:

The Company applies the acquisition method of accounting for business acquisitions.

Under the acquisition method, identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair value.

The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments below, to determine the fair values used in this allocation.

Historically, we have relied, in part, upon the use of reports from third-party valuation specialists to assist in the estimation of fair values.

Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition.

Costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services, and are expensed as incurred in the Consolidated Statements of Income.

The Company applies the acquisition method

of accounting for business acquisitions.

Under the acquisition method, identifiable assets acquired, liabilities assumed and consideration

transferred are measured at their acquisition-date fair value.

The Company uses a valuation hierarchy, as further described under Fair

Value of Financial Instruments below, to determine the fair values.

Historically, we have relied, in part, upon the use of reports from

third-party valuation specialists to assist in the estimation of fair values.

Purchase price allocations are subject to revision within

the measurement period, not to exceed one year from the date of acquisition.

Costs to acquire a business may include, but are not limited

to, fees for accounting, legal and valuation services, and are expensed as incurred in the Consolidated Statements of Income.

Goodwill and Intangible Assets:

Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business.

The Company tests goodwill for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist.

The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the goodwill impairment process.

The Company determined that no impairment was indicated as of March 27, 2021 and March 28, 2020.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business.

The Company estimates the fair value of its reporting units using the fair market value measurement requirement.

Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

A summary of changes in the Company’s goodwill and intangible assets is as follows:

Goodwill represents the excess

of the purchase price over the fair values of the underlying net assets of an acquired business.

The Company tests goodwill for impairment

for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such

impairment could exist.

The Company is permitted, but not required, to qualitatively

assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment

If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.

determined that no impairment was indicated as of March 26, 2022 and March 27, 2021.

The Company estimates the fair value of its reporting units using the

fair market value measurement requirement.

Intangible assets are evaluated for impairment when events or changes in business circumstances

indicate that the carrying amount of the assets may not be fully recoverable.

A summary of changes in the Company’s goodwill and

intangible assets is as follows (amounts in thousands):

Intangible Assets

4 unchanged sentences

Net Book Value as of March 26, 2022

The intangible assets are being amortized on an accelerated basis over their estimated useful lives of up to 10 years.

Amortization expense relating to intangible assets is expected to be $ 2.3 million in fiscal year 2022, $ 1.7 million in fiscal year 2023, $ 1.2 million in fiscal year 2024, $ 0.9 million in fiscal year 2025 and $ 0.6 million in fiscal year 2026.

The intangible assets are being amortized on an accelerated basis over

their estimated useful lives of up to 15 years.

Amortization expense relating to intangible assets is expected to be $ 4.0 million in fiscal

year 2023, $ 3.3 million in fiscal year 2024, $ 2.7 million in fiscal year 2025, $ 1.9 million in fiscal year 2026 and $ 0.7 million in fiscal

Catalog Costs:

Transcat capitalizes the cost of each master catalog mailed and amortizes the cost over the respective catalog’s estimated productive life.

The Company reviews response results from catalog mailings on a continuous basis, and if warranted, modifies the period over which costs are recognized.

Transcat capitalizes the cost of each master

catalog mailed and amortizes the cost over the respective catalog’s estimated productive life.

The Company reviews response results

from catalog mailings on a continuous basis, and if warranted, modifies the period over which costs are recognized.

The Company amortizes

the cost of each master catalog over an eighteen-month period and amortizes the cost of each catalog supplement over a three-month period.

Total unamortized catalog costs, included as a component of prepaid expenses and other current assets on the Consolidated Balance Sheets, were $ 0.1 million as of both March 27, 2021 and March 28, 2020.

Total unamortized catalog costs, included as a component of prepaid expenses and other current assets on the Consolidated Balance Sheets,

were $ 0.1 million as of both March 26, 2022 and March 27, 2021.

Deferred Taxes:

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of its assets and liabilities.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the Consolidated Statements of Income in the period that includes the enactment date.

The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its deferred tax assets will not be realized.

The Company recognizes deferred tax assets and

liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts

and the tax bases of its assets and liabilities.

Deferred income tax assets and liabilities are measured using enacted tax rates expected

to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred

tax assets and liabilities of a change in income tax rates is recognized in the Consolidated Statements of Income in the period that includes

the enactment date.

The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its

deferred tax assets will not be realized.

See Note 4 for further discussion on income taxes.

Fair Value of Financial Instruments:

Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy.

The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels.

Transcat has determined

the fair value of debt and other financial instruments using a valuation hierarchy.

The hierarchy, which prioritizes the inputs used in

measuring fair value, consists of three levels.

Level 1 uses observable inputs such as quoted prices in active markets;

Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable;

and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions.

The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature.

Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs.

At each of March 27, 2021 and March 28, 2020, investment assets totaled $ 0.4 million and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Level 2 uses inputs

other than quoted prices in active markets that are either directly or indirectly observable;

and Level 3, which is defined as unobservable

inputs in which little or no market data exists, requires the Company to develop its own assumptions.

The carrying amount of debt on the

Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing

an interest rate approximating current market rates, and the carrying amounts for cash, accounts receivable and accounts payable approximate

fair value due to their short-term nature.

Investment assets, which fund the Company’s non-qualified deferred compensation plan,

consist of mutual funds and are valued based on Level 1 inputs.

At March 26, 2022 and March 27, 2021, investment assets totaled $ 0.2 million

and $ 0.4 million, respectively, and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Stock-Based Compensation:

The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date.

The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award.

Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes.

Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards.

The Company measures the cost of services

received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value

of the award as of the grant date.

The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line

basis, the unamortized grant date fair value over the remaining service period of each award.

Excess tax benefits for share-based award

activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes.

Excess tax benefits

are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation

costs for such awards.

The Company did not capitalize any stock-based compensation costs as part of an asset.

The Company estimates forfeiture rates based on its historical experience.

During fiscal years 2021 and 2020, the Company recorded non-cash stock-based compensation cost in the amount of $ 1.5 million and $ 0.9 million, respectively, in the Consolidated Statements of Income.

The Company estimates forfeiture

rates based on its historical experience.

During fiscal years 2022 and 2021, the Company recorded non-cash stock-based compensation cost

in the amount of $ 2.3 million and $ 1.5 million, respectively, in the Consolidated Statements of Income.

Revenue Recognition:

Distribution sales are recorded when an order’s title and risk of loss transfers to the customer.

The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer.

The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled.

Some Service revenue is generated from managing customers’

calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer.

Revenue is measured as the amount of consideration it expects to receive in exchange for product shipped or services performed.

Distribution sales are recorded when an

order’s title and risk of loss transfers to the customer, which is generally upon shipment.

The Company recognizes the majority

of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer.

The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point

in time when control transfers and/or our obligation has been fulfilled.

Some Service revenue is generated from managing customers’

calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer

of control to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for product

shipped or services performed.

Sales taxes and other taxes billed and collected from customers are excluded from revenue.

The Company generally invoices its customers for freight, shipping, and handling charges.

Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Revenue recognized from prior period performance obligations for fiscal year 2021 was immaterial.

As of March 27, 2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year.

Pursuant to Topic 606 (defined below), the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.

Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of March 27, 2021 and March 28, 2020 were immaterial.

Payment terms are generally 30 to 45 days.

generally invoices its customers for freight, shipping, and handling charges.

Freight billed to customers is included in revenue.

and handling is not included in revenue.

Provisions for customer returns are provided for in the period the related revenue is recorded

based upon historical data.

Under Topic 606 “Revenue from Contracts with Customers”,

we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of

transaction prices used in determining revenue recognized.

Such judgments include considerations in determining our transaction prices

when our performance obligations are satisfied for our standard product sales that include general payment terms that are between

net 30 and 90 days

Revenue recognized from prior period performance obligations for fiscal

year 2022 was immaterial.

As of March 26, 2022, the Company had no unsatisfied performance obligations for contracts with an original

expected duration of greater than one year.

Pursuant to Topic 606, the Company applied the practical expedient with respect to disclosure

of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.

Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of March 26, 2022 and March

27, 2021 were immaterial.

See Note 7 for disaggregated revenue information.

Vendor Rebates:

Vendor rebates are generally based on specified cumulative levels of purchases and/or incremental distribution sales and are recorded as a reduction of cost of distribution sales.

Purchase rebates are calculated and recorded quarterly based upon the volume of purchases with specific vendors during the quarter.

Point of sale rebate programs that are based on year-over-year sales performance on a calendar year basis are recorded as earned, on a quarterly basis, based upon the expected level of annual achievement.

Point of sale rebate programs that are based on year-over-year sales performance on a quarterly basis are recorded as earned in the respective quarter.

The Company recorded vendor rebates of $ 0.7 million and $ 1.6 million in fiscal years 2021 and 2020, respectively, as a reduction of cost of distribution sales.

Vendor rebates are generally based on specified

cumulative levels of purchases and/or incremental distribution sales and are recorded as a reduction of cost of distribution sales.

rebates are calculated and recorded quarterly based upon the volume of purchases with specific vendors during the quarter.

Point of sale

rebate programs that are based on year-over-year sales performance on a calendar year basis are recorded as earned, on a quarterly basis,

based upon the expected level of annual achievement.

Point of sale rebate programs that are based on year-over-year sales performance

on a quarterly basis are recorded as earned in the respective quarter.

The Company recorded vendor rebates of $ 1.0 million and $ 0.7 million

in fiscal years 2022 and 2021, respectively, as a reduction of cost of distribution sales.

Cooperative Advertising Income:

The Company participates in co-op advertising programs with certain of its vendors.

The Company records cash consideration received from these vendors for advertising as a reduction of cost of distribution sales.

The Company recorded consideration in the amount of $ 0.6 million and $ 1.4 million in fiscal years 2021 and 2020, respectively, in connection with these programs.

The Company participates in

co-op advertising programs with certain of its vendors.

The Company records cash consideration received from these vendors for advertising

as a reduction of cost of distribution sales.

The Company recorded consideration in the amount of $ 0.8 million and $ 0.6 million in fiscal

years 2022 and 2021, respectively, in connection with these programs.

Advertising Costs:

Advertising costs, other than catalog costs, are expensed as they are incurred and are included in Selling, Marketing and Warehouse Expenses in the Consolidated Statements of Income.

Advertising costs, other than catalog costs,

are expensed as they are incurred and are included in Selling, Marketing and Warehouse Expenses in the Consolidated Statements of Income.

Advertising costs were approximately $ 1.1 million and $ 0.9 million in fiscal years 2022 and 2021, respectively.

Shipping and Handling Costs:

Freight expense and direct shipping costs are included in the cost of revenue.

These costs totaled approximately $ 2.5 million and $ 2.6 million in fiscal years 2021 and 2020, respectively.

Direct handling costs, the majority of which represent direct compensation of employees who pick, pack, and prepare merchandise for shipment to customers, are reflected in selling, marketing and warehouse expenses.

Direct handling costs were approximately $ 0.8 million and $ 0.9 million in fiscal years 2021 and 2020, respectively.

Freight expense and direct shipping

costs are included in the cost of revenue.

These costs totaled approximately $ 2.7 million and $ 2.4 million in fiscal years 2022 and 2021,

respectively.

Direct handling costs, the majority of which represent direct compensation of employees who pick, pack, and prepare merchandise

for shipment to customers, are reflected in selling, marketing and warehouse expenses.

Direct handling costs were approximately $ 0.8 million

in each of fiscal years 2022 and 2021.

Foreign Currency Translation and Transactions:

The accounts of Transcat Canada Inc.

are maintained in the local currency and have been translated to U.S.

Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange, and related revenue and expense accounts have been translated at an average rate of exchange during the period.

Gains and losses arising from translation of Transcat Canada Inc.’s financial statements into U.S.

dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’

Transcat records foreign currency gains and losses on business transactions denominated in foreign currency.

The net foreign currency loss was less than $ 0.1 million in each of the fiscal years 2021 and 2020.

The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings would be adversely affected by changes in currency exchange rates.

The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a net loss of less than $ 0.1 million in each of fiscal year 2021 and 2020, was recognized as a component of Other Expenses in the Consolidated Statements of Income.

The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged.

On March 27, 2021, the Company had a foreign exchange contract, which matured in April 2021, outstanding in the notional amount of $ 3.9 million.

of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, and Transcat Canada Inc., both of which are wholly-owned

subsidiaries of the Company, are maintained in the local currencies, the Euro and the Canadian dollar, respectively, and have been translated

Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange

and related revenue and expense accounts have been translated at an average rate of exchange during the period.

Gains and losses arising

from translation of Cal OpEx Limited’s and Transcat Canada Inc.’s financial statements into U.S.

dollars are recorded directly

to the accumulated other comprehensive loss component of shareholders’ equity.

Transcat records foreign currency gains and losses on business transactions

denominated in foreign currency.

The net foreign currency gain was $ 0.1 million in fiscal year 2022 and a loss of less than $ 0.1 million

in fiscal year 2021.

The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future

earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates.

The Company does not apply

hedge accounting and therefore the net change in the fair value of the contracts, which totaled a net loss of less than $ 0.1 million in

each of fiscal year 2022 and 2021, was recognized as a component of Other Expenses in the Consolidated Statements of Income.

in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian

dollars being hedged.

On March 26, 2022, the Company had a foreign exchange contract, which matured in April 2022, outstanding in the

notional amount of $ 3.3 million.

This contract was subsequently renewed and remains in place.

The Company does not use hedging arrangements for speculative purposes.

The Company does not use hedging arrangements

for speculative purposes.

Other Comprehensive Income:

Comprehensive income is composed of currency translation adjustments, unrecognized prior service costs, net of tax, and unrealized gains or losses on other assets, net of tax.

For the Company’s Canadian subsidiary, the local currency is Canadian dollars.

Assets and liabilities of that subsidiary are translated into United States dollars at the period-end exchange rate or historical rates as appropriate.

Consolidated statements of earnings (loss) amounts are translated at average exchange rates for the period.

The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’

Transaction gains and losses are included in the Consolidated Statements of Income.

The Company determines the expense and obligations for its post-retirement plans using assumptions related to discount rates, expected long-term rates of return on invested plan assets, and certain other factors.

Other comprehensive income is composed

of currency translation adjustments, unrecognized prior service costs from post retirement plan, net of tax, and unrealized gains or

losses on other assets, net of tax.

The Company determines the expense and obligations for its post-retirement

plans using assumptions related to discount rates, expected long-term rates of return on invested plan assets, and certain other factors.

The Company determines the fair value of plan assets and benefit obligations as of the end of each fiscal year.

The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’

equity and is recognized into the plans’

expense over time.

See Note 5 for further discussion on the company’s post retirement plan.

The Company has a non-qualified deferred compensation plan for the benefit of certain management employees and non-employee directors.

Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds.

The unrecognized portion of the gain or loss on plan assets is included in the Consolidated Balance Sheets as a component of accumulated other comprehensive loss in shareholders’

At March 27, 2021, accumulated other comprehensive loss consisted of cumulative currency translation gains of $ 0.1 million, unrecognized prior service costs, net of tax, of $ 0.5 million and an unrealized gain on other assets, net of tax, of $ 0.1 million.

At March 28, 2020, accumulated other comprehensive loss consisted of cumulative currency translation losses of $ 0.6 million, unrecognized prior service costs, net of tax, of $ 0.3 million and an unrealized gain on other assets, net of tax, of $ 0.1 million.

The unrecognized portion

of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss

in shareholders’ equity and is recognized into the plans’ expense over time.

See Note 5 for further discussion on the Company’s

post retirement plan.

The Company has a non-qualified deferred compensation plan for the

benefit of certain management employees and non-employee directors.

Investment assets, which fund the Company’s non-qualified deferred

compensation plan, consist of mutual funds.

The unrecognized portion of the gain or loss on plan assets is included in the Consolidated

Statements of Income.

At March 26, 2022, accumulated other comprehensive loss consisted of

cumulative currency translation losses of $ 0.1 million, unrecognized prior service costs, net of tax, of $ 0.1 million and an unrealized

gain on other assets, net of tax, of less than $ 0.1 million.

At March 27, 2021, accumulated other comprehensive loss consisted of

cumulative currency translation gains of $ 0.1 million, unrecognized prior service costs, net of tax, of $ 0.5 million and an unrealized

gain on other assets, net of tax, of $ 0.1 million.

Earnings per Share:

Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect.

In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For each of fiscal years 2021 and 2020, the net additional common stock equivalents had a $ 0.02 per share effect on the calculation of dilutive earnings per share.

The average shares outstanding used to compute basic and diluted earnings per share are as follows:

Basic earnings per share of common stock

are computed based on the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share

of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in

periods in which they have a dilutive effect.

In computing the per share effect of assumed conversion, proceeds received from the exercise

of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market

prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of

common stock outstanding.

For each of fiscal years 2022 and 2021, the net additional common stock

equivalents had a $ 0.02 per share effect on the calculation of dilutive earnings per share.

The average shares outstanding used to compute

basic and diluted earnings per share are as follows (amounts in thousands):

For the Fiscal Years Ended

Average Shares Outstanding –

Average Shares Outstanding – Basic

Effect of Dilutive Common Stock Equivalents

Average Shares Outstanding –

Average Shares Outstanding – Diluted

Anti-dilutive Common Stock Equivalents

Shareholders’

During each of fiscal years 2021 and 2020, the Company repurchased and subsequently retired 0.1 million shares of its common stock.

There were no stock option redemptions during either fiscal year 2021 or fiscal year 2020.

Shareholders’ Equity:

During each of fiscal years 2022

and 2021, the Company repurchased and subsequently retired 0.1 million shares of its common stock.

The Company allows its employees the

option of satisfying the employee tax withholding obligations with either cash or a net share repurchase.

The repurchase of shares was

for the net awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity,

totaling $ 6.7 million in fiscal year 2022 and $ 3.1 million in fiscal year 2021.

There were no stock option redemptions during either fiscal

year 2022 or fiscal year 2021.

COVID-19 Pandemic:

The COVID-19 pandemic has had a negative impact on our fiscal year 2021 and fiscal year 2020 operations and financial results, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to its severity and duration.

The Company took actions to manage its resources conservatively to mitigate the negative impact of the pandemic, including aligning variable costs with demand, froze hiring and wages, with the exception of technology personnel, tightly controlled discretionary spending;

reduced the CEO’s salary and Board of Director cash retainer fees by 20% and reduced other executive team members salaries by 10% during the first and second quarter of fiscal year 2021;

and amended our revolving credit facility to provide for, among other things, $ 10.0 million in additional borrowing capacity and financial covenant modifications.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted.

The CARES Act included a provision that allows the Company to defer the employer portion of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable by December 31, 2022.

During fiscal year 2021, the Company deferred $ 2.0 million of employer social security payroll taxes, of which $ 1.0 million is recorded in accrued compensation and other current liabilities and $ 1.0 million is recorded in other liabilities on the Consolidated Balance Sheets.

The COVID-19 pandemic had a negative impact

on our fiscal year 2022 and fiscal year 2021 operations and financial results, and the full financial impact of the pandemic cannot be

reasonably estimated at this time due to uncertainty as to its severity and duration.

In fiscal year 2021, the Company took actions to

manage its resources conservatively to mitigate the negative impact of the pandemic, including aligning variable costs with demand, froze

hiring and wages, with the exception of technology personnel, tightly controlled discretionary spending;

reduced the CEO’s salary

and Board of Director cash retainer fees by 20 % and reduced other executive team members salaries by 10 % during the first and second quarter

of fiscal year 2021;

and amended our revolving credit facility to provide for, among other things, $ 10.0 million in additional borrowing

capacity and financial covenant modifications.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security

(“CARES”) Act was enacted.

The CARES Act included a provision that allows the Company to defer the employer portion of social

security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50 % payable by December

31, 2021 and 50 % payable by December 31, 2022.

During fiscal year 2021, the Company deferred $ 2.0 million of employer social security

payroll taxes.

At March 26, 2022, $ 1.0 million is still deferred and is recorded in accrued compensation and other current liabilities.

At March 27, 2021, $ 2.0 million was deferred of which $ 1.0 million is recorded in accrued compensation and other current liabilities and

$ 1.0 million is recorded in other liabilities on the Consolidated Balance Sheets.

Recently Issued Accounting Pronouncements:

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The ASU replaces the "incurred loss"

model with an "expected credit loss"

model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable.

The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on our consolidated financial statements.

In June 2016, the Financial Accounting Standard Board (“FASB”)

issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses

for most financial assets and certain other instruments that are not measured at fair value through net income.

The ASU replaces the “incurred

loss” model with an “expected credit loss” model that requires entities to estimate an expected lifetime credit loss on

financial assets, including trade accounts receivable.

The ASU is effective for fiscal years, and interim periods within those fiscal

years, beginning after December 15, 2022.

Allowance for doubtful accounts is the most significant item for the Company under this ASU.

As credit losses from the Company’s trade receivables have not historically been significant, the Company anticipates that the adoption

of the ASU will not have a material impact on its consolidated financial statements.

Reclassification of Amounts:

Certain reclassifications of financial information for prior fiscal years have been made to conform to the presentation for the current fiscal year.

NOTE 2 –

PROPERTY AND EQUIPMENT

Property and equipment consists of:

Certain reclassifications of financial

information for prior fiscal years have been made to conform to the presentation for the current fiscal year.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consists of (amounts in thousands):

Machinery, Equipment and Software

5 unchanged sentences

Total Property and Equipment, net

Total depreciation and amortization expense relating to property and equipment amounted to $ 5.0 million and $ 4.8 million in fiscal years 2021 and 2020, respectively.

NOTE 3 –

LONG-TERM DEBT

On May 18, 2020, the Company entered into the Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) with Manufacturers and Traders Trust Company that amended the Company’s Credit Agreement (as amended by Amendment Two, the “Credit Agreement”).

Amendment Two extended the term of the revolving credit facility (the “Revolving Credit Facility”) to October 20, 2022 and increased the revolving credit commitment to $ 40 million.

Amendment Two modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the Revolving Credit Facility and it amended the definition of permitted acquisitions to amend borrowings available under the Revolving Credit Facility for acquisitions.

In addition, Amendment Two amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s ability to repurchase its shares and pay dividends.

Amendment Two modified the leverage ratio and fixed charge coverage ratio covenants with which the Company is required to comply for the fiscal year ending March 27, 2021.

Amendment Two also established a London Interbank Offered Rate (“LIBOR”) floor of 1 % and included a mechanism for adoption of a different benchmark rate when LIBOR is discontinued.

During the third quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited capital expenditures to $ 5.5 million for the fiscal year ending March 27, 2021.

During the fourth quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited restricted payments up to $ 2.5 million to pay certain tax obligations associated with share-based payment and stock option activity for the fiscal year ending March 27, 2021.

On December 10, 2018, the Company entered into an Amended and Restated Credit Agreement Amendment 1 (the “2018 Agreement”).

The 2018 Agreement has a term loan (the “2018 Term Loan”) in the amount of $ 15.0 million.

As of March 27, 2021, $ 10.6 million was outstanding on the 2018 Term Loan, of which $ 2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term

Total depreciation and amortization expense relating to property and

equipment amounted to $ 5.7 million and $ 5.0 million in fiscal years 2022 and 2021, respectively.

NOTE 3 – LONG-TERM DEBT

On July 7, 2021, we entered into the Second Amended and Restated Credit

Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that

amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017,

as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility

Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).

The 2021 Credit Agreement increased the revolving credit commitment

(the “Revolving Credit Commitment”) from $ 40.0 million to $ 80.0 million, with a letter of credit subfacility increased from

$ 2.0 million to $ 10.0 million, and extended the term of the Revolving Credit Commitment to June 2026.

The 2021 Credit Agreement amended

the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s

then current leverage ratio and is used to determine interest charges on outstanding and unused

borrowings under the revolving credit

the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels.

The 2021 Credit Agreement also

amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of,

the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from

$ 1.0 million to $ 65.0 million during the current fiscal year and $ 50.0 million during any subsequent fiscal year, and adding an aggregate

purchase price of $ 40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses

with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming no event

of default, restricted payments up to $ 25.0 million (increased from $ 10.0 million in the Prior Credit Agreement) in the aggregate and

$ 10.0 million (increased from $ 3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our

shares and pay dividends.

The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we

are required to comply.

The 2021 Credit Agreement also reduced the London Interbank Offered Rate (“LIBOR”) floor from 1.0 %

to 0.25 % and included a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR.

The 2021 Credit Agreement

also reduced the fixed interest rate on our term loan in the amount of $ 15.0 million (the “2018 Term Loan”) from 4.15 % to

The 2021 Credit Agreement superseded in its entirety, the Prior Credit

Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20,

2022 and increased the revolving credit commitment to $ 40 million.

Amendment Two had modified the definition of the applicable rate used

to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of

permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions.

In addition, Amendment Two

had amended the definition of restricted payments to exclude amounts up to $ 2.5 million during each fiscal year used to pay certain employee

tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s

ability to repurchase its shares and pay dividends.

Amendment Two also had modified the leverage ratio and fixed charge coverage ratio

covenants with which the Company was required to comply and limited capital expenditures to $ 5.5 million for fiscal year 2021.

Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR

was discontinued.

As of March 26, 2022, $ 80.0 million was available under the revolving

credit facility, of which $ 39.9 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

During fiscal

year 2022, $ 29.8 million was used for business acquisitions.

As of March 26, 2022, $ 8.5 million was outstanding on the 2018 Term

Loan, of which $ 2.2 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term

The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

Principal payments relating to the 2018 Term Loan will be $ 2.1 million in fiscal year 2022, $ 2.2 million in fiscal year 2023, $ 2.2 million in fiscal year 2024, $ 2.3 million in fiscal year 2025 and $ 1.8 million in fiscal year 2026.

As of March 27, 2021, $ 40.0 million was available under the Revolving Credit Facility, of which $ 8.9 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

During fiscal year 2021, $ 3.6 million of borrowings was used for business acquisitions.

During fiscal year 2020, $ 13.8 million of borrowings was used for business acquisitions, including holdback payments.

The allowable leverage ratio under the Credit Agreement for the first, second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 is a maximum multiple of 3.0 , 5.0 , 5.5 , 7.0 and 4.0 , respectively, of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters.

After the first quarter of fiscal 2022, the allowable leverage ratio is a maximum multiple of 3.0 .

The Credit Agreement provides that the trailing twelve-month pro forma EBITDA of an acquired business is included in the allowable leverage calculation.

Interest and Other Costs:

Interest on outstanding borrowings under the Revolving Credit Facility accrues, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case (subject to a 1% floor), plus a margin.

Interest on outstanding borrowings under the 2018 Term Loan accrues at a fixed rate of 4.15 % over the term of the loan.

Unused fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility.

Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the Credit Agreement.

The Company’s interest rate for the Revolving Credit Facility for fiscal year 2021 ranged from 1.4 % to 2.7 %.

The Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant and a leverage ratio covenant.

We were in compliance with all loan covenants and requirements during fiscal years 2021 and 2020.

Our leverage ratio, as defined in the Credit Agreement, was 0.94 at March 27, 2021, compared with 1.53 at March 28, 2020.

Interest on outstanding borrowings

under the revolving credit facility accrue, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a

designated period at the LIBOR corresponding to such period, in each case (subject to a 1% floor during the first quarter of fiscal year

2022 and a 0.25 % floor for subsequent periods), plus a margin.

Interest on outstanding borrowings under the 2018 Term Loan accrued at

a fixed rate of 4.15 % over the term of the loan during the first quarter of fiscal year 2022 and 3.90 % during the second quarter of fiscal

year 2022 and over the term of the loan for subsequent periods.

Unused fees accrue based on the average daily amount of unused credit

available on the revolving credit facility.

Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s

calculated leverage ratio.

The Company’s interest rate for the revolving credit facility for fiscal year 2022 ranged from 1.0 % to

The 2021 Credit Agreement has certain covenants with

which the Company must comply, including a fixed charge ratio covenant and a leverage ratio covenant.

The Company was in compliance with

all loan covenants and requirements during fiscal years 2022 and 2021.

Our leverage ratio was 1.74 at March 26, 2022, as defined in the

2021 Credit Agreement, compared with 0.94 at March 27, 2021, as defined in the Prior Credit Agreement.

Pursuant to the Prior Credit Agreement, we were required to comply

with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement.

The allowable leverage

ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter

year 2022 was a maximum multiple of 5.0 , 5.5 , 7.0 and 4.0 , respectively, of total debt outstanding compared to EBITDA and non-cash stock-based

compensation expense for the preceding four consecutive fiscal quarters.

The Prior Credit Agreement also had provided that the trailing

twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation.

After the first quarter of fiscal

2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0 .

The Company has pledged all of its U.S.

tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc.

and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat

as collateral security for the loans made under the revolving credit facility.

NOTE 4 –

While the Tax Cuts and Jobs Act of 2017 provides for a territorial tax system, effective for tax years beginning after December 31, 2017, it includes the Global Intangible Low-Taxed Income (“GILTI”) and Foreign Derived Intangible Income (“FDII”) provisions.

The Company has elected to account for these provisions in the period in which incurred.

During fiscal years 2021 and 2020, the Company recorded net income tax benefits of less than $ 0.1 million each year as a result of these provisions.

Foreign subsidiary’s undistributed earnings are considered to be permanently reinvested.

Transcat’s income before income taxes on the Consolidated Statements of Income is as follows:

NOTE 4 – INCOME TAXES

Transcat’s income before income taxes on the Consolidated Statements

of Income is as follows (amounts in thousands):

United States

The provision for income taxes for fiscal years 2021 and 2020 is as follows:

The provision for income taxes for

fiscal years 2022 and 2021 is as follows:

Current Tax Provision:

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Provision for Income Taxes

A reconciliation of the income tax provision computed by applying the statutory U.S.

federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income is as follows:

A reconciliation of the income tax provision computed by applying the

statutory U.S.

federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income is as follows (amounts

in thousands):

Federal Income Tax at Statutory Rate

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Tax Impact of Equity Awards

Non-Deductible Acquisition Costs

GILTI and 78 Gross Up

Deferred Tax Assets:

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Stock-Based Compensation

Deferred Payroll Tax –

Deferred Payroll Tax – CARES Act

Capitalized Inventory Costs

6 unchanged sentences

The Company files income tax returns in the U.S.

federal jurisdiction, various states and Canada.

federal jurisdiction,

various states, Canada and Ireland.

The Company is no longer subject to examination by U.S.

federal income tax authorities for fiscal years 2017 and prior, by state tax authorities for fiscal years 2015 and prior, and by Canadian tax authorities for fiscal years 2014 and prior.

There are no income tax years currently under examination by Canadian or state income tax authorities.

The fiscal year ended March 31, 2018 is currently under examination by the Internal Revenue Service.

A reserve of less than $ 0.1 million was recorded during the fiscal year ended March 27, 2021 relating to this examination.

federal income tax authorities for fiscal

years 2018 and prior, by state tax authorities for fiscal years 2016 and prior, by Canadian tax authorities for fiscal years 2016 and

prior, and by Ireland tax authorities for calendar years 2017 and prior.

There are no income tax years currently under examination by

the Internal Revenue Service, Canadian and Irish tax authorities.

state has selected Transcat for analysis, the results of this

analysis will determine if further action is required.

The Nexa and Tangent acquisitions completed in fiscal year 2022 increased the net

deferred tax liability by $ 3.0 million.

During fiscal years 2022 and 2021, there were no uncertain tax positions.

No interest or penalties related to uncertain tax positions were recognized in fiscal years 2021 and 2020 or were accrued at March 27, 2021 and March 28, 2020.

The Company’s effective tax rate for fiscal years 2021 and 2020 was 21.9 % and 17.1 %, respectively.

The tax rate is affected by recurring items, such as state income taxes and tax credits, which the Company expects to be fairly consistent in the near term.

It is also affected by discrete items that may occur in any given year but are not consistent from year to year.

The discrete benefits related to share-based compensation awards in each of fiscal years 2021 and 2020 were $ 0.3 and $ 0.9 million, respectively.

The Company expects to receive certain federal, state and Canadian tax credits in future years.

The Company also expects to receive discrete tax benefits related to share-based compensation awards in fiscal year 2022.

No interest or penalties related to uncertain tax positions were recognized in fiscal years 2022 and 2021 or were accrued at March 26,

2022 and March 27, 2021.

The Company’s effective tax rate for fiscal years 2022 and 2021

was 13.7 % and 21.9 % , respectively.

The tax rate is affected by recurring items, such as state income taxes and tax credits, which

the Company expects to be fairly consistent in the near term.

It is also affected by discrete items that may occur in any given year but

are not consistent from year to year.

The discrete benefits related to share-based compensation awards in each of fiscal years 2022 and

2021 were $ 1.4 and $ 0.3 million, respectively.

The Company expects to receive certain federal, state and Canadian

tax credits in future years.

The Company also expects to receive discrete tax benefits related to share-based compensation awards in fiscal

As such, it expects its effective tax rate in fiscal year 2023 to be between 22.0 % and 24.0 %.

NOTE 5 –

EMPLOYEE BENEFIT PLANS

NOTE 5 – EMPLOYEE BENEFIT PLANS

Defined Contribution Plan.

All of Transcat’s U.S.

based employees are eligible to participate in a defined contribution plan, the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided they meet certain qualifications.

In response to the COVID-19 pandemic, the Company suspended the employer match to the Plan for the first six months of fiscal year 2021.

In the second six months of fiscal year 2021, the Company matched 50 % of the first 6 % of pay that eligible employees contribute to the Plan.

In fiscal year 2020, the Company matched 50 % of the first 6 % of pay that eligible employees contribute to the Plan.

In the long-term savings portion of the Plan (the “401K Plan”), plan participants are entitled to a distribution of their vested account balance upon termination of employment or retirement.

Plan participants are fully vested in their contributions while Company contributions are fully vested after three years of service.

The Company’s matching contributions to the 401K Plan were approximately $ 0.4 million and $ 0.9 million in fiscal years 2021 and 2020, respectively.

In the deferred profit sharing portion of the Plan, Company contributions are made at the discretion of the board of directors.

The Company made no profit sharing contributions in fiscal years 2021 and 2020.

All of Transcat’s U.S.

employees are eligible to participate in a defined contribution plan, the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”),

provided they meet certain qualifications.

In fiscal year 2022, the Company matched 50 % of the first 6 % of pay that eligible employees

contribute to the Plan.

In response to the COVID-19 pandemic, the Company suspended the employer match to the Plan for the first six months

of fiscal year 2021.

In the second six months of fiscal year 2021, the Company matched 50 % of the first 6 % of pay that eligible employees

contribute to the Plan.

In the long-term savings portion of the Plan (the “401K Plan”),

plan participants are entitled to a distribution of their vested account balance upon termination of employment or retirement.

Plan participants

are fully vested in their contributions while Company contributions are fully vested after three years of service.

The Company’s

matching contributions to the 401K Plan were approximately $ 1.1 million and $ 0.4 million in fiscal years 2022 and 2021, respectively.

In the deferred profit sharing portion of the Plan, Company contributions

are made at the discretion of the Company’s Board of Directors.

The Company made no profit sharing contributions in fiscal years

2022 and 2021.

Employee Stock Purchase Plan.

The Company has an Employee Stock Purchase Plan (the “ESPP”) that allows for eligible employees as defined in the ESPP to purchase common shares of the Company through payroll deductions at a price that is 85 % of the closing market price on the second last business day of each calendar month (the “Investment Date”).

The Company has an Employee Stock

Purchase Plan (the “ESPP”) that allows for eligible employees as defined in the ESPP to purchase common shares of the Company

through payroll deductions at a price that is 85 % of the closing market price on the second last business day of each calendar month (the

“Investment Date”).

650,000 shares can be purchased under the ESPP.

The difference between the closing market price on the Investment Date and the price paid by employees is recorded as a general and administrative expense in the accompanying Consolidated Statements of Income.

The difference between the closing market price

on the Investment Date and the price paid by employees is recorded as a general and administrative expense in the accompanying Consolidated

Statements of Income.

The expense related to the ESPP was less than $ 0.1 million in each of fiscal years 2022 and 2021.

Non-Qualified Deferred Compensation Plan.

The Company has available a non-qualified deferred compensation plan (the “NQDC Plan”) for directors and officers.

Participants are fully vested in their contributions.

At its discretion, the Company may elect to match employee contributions, subject to legal limitations in conjunction with the 401K Plan, which fully vest after three years of service.

During fiscal years 2021 and 2020, the Company did not match any employee contributions.

Participant accounts are adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period.

In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy the claims of the Company’s general creditors.

The liability for compensation deferred under the NQDC Plan was $ 0.4 million as of both March 27, 2021 and March 28, 2020, and is included as a component of other liabilities (non-current) on the Consolidated Balance Sheets.

The Company has available

a non-qualified deferred compensation plan (the “NQDC Plan”) for directors and officers.

Participants are fully vested in

their contributions.

At its discretion, the Company may elect to match employee contributions, subject to legal limitations in conjunction

with the 401K Plan, which fully vest after three years of service.

During fiscal years 2022 and 2021, the Company did not match any employee

contributions.

Participant accounts are adjusted to reflect performance, whether positive or negative, of selected investment options

chosen by each participant during the deferral period.

In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy

the claims of the Company’s general creditors.

The liability for compensation deferred under the NQDC Plan was $ 0.2 million as of

March 26, 2022 and $ 0.4 million as of March 27, 2021, and is included as a component of other liabilities (non-current) on the Consolidated

Balance Sheets.

Post-retirement Health Care Plans.

The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses (the “Officer Plan”).

The Company has a defined

benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical

premium reimbursement benefits to eligible retired corporate officers and their eligible spouses (the “Officer Plan”).

The change in the post-retirement benefit obligation is as follows

(amounts in thousands):

Post-retirement benefit obligation, at beginning of fiscal year

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Benefits paid

Actuarial loss

Actuarial (gain) loss

Post-retirement benefit obligation, at end of fiscal year

2 unchanged sentences

Accumulated post-retirement benefit obligation, at end of fiscal year

The accumulated post-retirement benefit obligation is included as a component of other liabilities (non-current) in the Consolidated Balance Sheets.

The components of net periodic post-retirement benefit cost and other amounts recognized in other comprehensive income are as follows:

The accumulated post-retirement benefit obligation is included as a

component of other liabilities (non-current) in the Consolidated Balance Sheets.

The components of net periodic post-retirement benefit

cost and other amounts recognized in other comprehensive income are as follows (amounts in thousands):

Net periodic post-retirement benefit cost:

3 unchanged sentences

Amortization of prior service cost

Total recognized in net periodic benefit cost and other comprehensive income

Amount recognized in accumulated other comprehensive income, at end of fiscal year:

Net actuarial (loss) gain

Total recognized in net periodic benefit cost and other

comprehensive income

Amount recognized in accumulated other comprehensive

income, at end of fiscal year:

Unrecognized prior service cost

The prior service cost is amortized over the average remaining life expectancy of active participants in the Officer Plan.

The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic post-retirement benefit cost during fiscal year 2021 is less than $ 0.1 million.

The post-retirement benefit obligation was computed by an independent third-party actuary.

Assumptions used to determine the post-retirement benefit obligation and the net periodic postretirement benefit cost were as follows:

The prior service cost is amortized over the average remaining life

expectancy of active participants in the Officer Plan.

The estimated prior service cost that will be amortized from accumulated other

comprehensive income into net periodic post-retirement benefit cost during fiscal year 2023 is less than $ 0.1 million.

The post-retirement benefit obligation was computed by an independent

third-party actuary.

Assumptions used to determine the post-retirement benefit obligation and the net periodic postretirement benefit

cost were as follows:

Weighted average discount rate

6 unchanged sentences

Benefit payments are funded by the Company as needed.

Payments toward the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate of no more than 50 % of the annual increase in medical and dental costs, as defined in the plan document.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $ 0.2 million.

A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $ 0.2 million.

NOTE 6 –

STOCK-BASED COMPENSATION

The Company has a share-based incentive plan (the “2003 Plan”) that provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant.

At March 27, 2021, 0.9 million restricted stock units or stock options were available for future grant under the 2003 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed.

The discrete benefits related to share-based compensation awards in fiscal years 2021 and 2020 were $ 0.3 million and $ 0.9 million, respectively.

Restricted Stock:

The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation.

Expense for restricted stock grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant.

The fair value of the restricted stock grants is the quoted market price for the Company’s common stock on the date of grant.

These restricted stock units are either time vested or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.

Beginning in fiscal year 2020, the annual performance-based award for the Company’s non-employee directors was replaced with an annual grant of restricted stock units valued at $ 50,000 that vest after one year.

The restricted stock unit grants to non-employee directors were made in September 2020 and September 2019.

Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the number of units that coincides with the actual outcome of the performance conditions.

Payments toward

the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year

of retirement and are limited to increase at a rate of no more than 50 % of the annual increase in medical and dental costs, as defined

in the plan document.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as

follows (amounts in thousands):

Increasing the assumed health care cost trend rate by one percentage

point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $ 0.1

A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation

and the annual net periodic post-retirement benefit cost by $ 0.1 million.

NOTE 6 – STOCK-BASED COMPENSATION

In September 2021, the Transcat, Inc.

2021 Stock Incentive Plan (the

“2021 Plan”) was approved by shareholders and became effective.

The 2021 Plan replaced the Transcat, Inc.

2003 Incentive Plan

(the “2003 Plan”).

Shares available for grant under the 2021 Plan include any shares remaining available for issuance under

the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited,

or otherwise not issued or are settled in cash.

The 2021 Plan provides for, among other awards, grants of restricted stock units and stock

options to directors, officers and key employees at the fair market value at the date of grant.

At March 26, 2022, 0.7 million shares

of common stock were available for future grant under the 2021 Plan.

The Company receives an excess tax benefit related to restricted stock

vesting and stock options exercised and redeemed.

The discrete benefits related to share-based compensation awards in fiscal years 2022

and 2021 were $ 1.4 million and $ 0.3 million, respectively.

Restricted Stock Units:

The Company grants time-based and performance-based

restricted stock units as a component of executive and key employee compensation.

Expense for restricted stock unit grants is recognized

on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant.

The fair value

of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant.

These restricted

stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings

per share targets over the eligible period.

The Company’s non-employee directors receive an annual grant

of restricted stock units valued at $ 50,000 that vest after one year.

The fiscal year 2022 and fiscal year 2021 restricted stock unit

grants to non-employee directors were made in September 2021 and September 2020.

Compensation cost ultimately recognized for performance-based restricted

stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions.

On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions.

The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

During fiscal year 2021, 80,000 shares granted were time vested.

During fiscal year 2020, 47,000 shares granted were time vested and 28,000 shares were subject to performance targets.

The following table summarizes the restricted stock units vested and shares issued during fiscal years 2021 and 2020 (amounts in thousands):

April 2018 –

April 2016 –

June 2017 –

October 2018 –

September 2019

April 2018 –

April 2017 –

The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period

for the entire award.

During fiscal year 2022, 30,000 shares of time-vested restricted stock

units were granted and 15,000 shares of performance-based restricted units were granted.

During fiscal year 2021, 80,000 shares of time-vested

restricted stock units were granted.

The following table summarizes the restricted stock units vested and

shares issued during fiscal years 2022 and 2021 (amounts in thousands, except per unit data):

April 2018 – March 2020

April 2017 – March 2020

September 2019

September 2019 –

September 2019 – September 2020

September 2020

October 2018 – September 2020

April 2018 – March 2021

September 2020

October 2018 –

September 2020 – September 2021

September 2021

April 2018 –

The following table summarizes the non-vested restricted stock units outstanding as of March 27, 2021:

October 2018 – September 2021

April 2019 – March 2022

The following table summarizes the non-vested restricted stock units

outstanding as of March 26, 2022 (amounts in thousands, except per unit data):

Achievement at

March 26, 2022

April 2018 –

60 % of target level

October 2018 –

September 2027

April 2019 –

October 2018 – September 2027

April 2019 – March 2022

83% of target level

April 2019 –

August 2019 –

April 2020 –

July 2020 –

September 2020

September 2020 –

April 2020 – March 2023

July 2020 – July 2023

September 2020

September 2020 –

September 2020 – July 2023

September 2020

September 2020 –

September 2020 – July 2023

September 2020

September 2020 – September 2023

January 2021 – January 2024

May 2021 – May 2024

June 2021 – March 2024

100% of target level

June 2021 – March 2024

September 2021

September 2020 –

September 2021 – September 2024

September 2021

January 2021 –

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $ 1.4 million and $ 0.8 million in fiscal years 2021 and 2020, respectively.

Unearned compensation totaled $ 1.8 million as of March 27, 2021.

September 2021 – September 2022

December 2021

December 2021 – December 2024

January 2022 – March 2024

100% of target level

January 2022 – March 2024

March 2022 – March 2025

Total expense relating to restricted stock units, based on grant date

fair value and the achievement criteria, was $ 1.6 million and $ 1.4 million in fiscal years 2022 and 2021, respectively.

Unearned compensation

totaled $ 2.2 million as of March 26, 2022 which is expected to be realized over a period of three years.

Stock Options:

The Company grants stock options to employees and directors equal to the quoted market price of the Company’s stock at the date of the grant.

The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option.

Expense for stock options is recognized on a straight-lined basis over the requisite service period for each award.

Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant.

We calculate the value of the stock options granted using the Black-Scholes model.

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term.

The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

The interest rate for periods within the contractual life of the award is based on the U.S.

The Company grants stock options to employees

and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant.

value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility,

expected dividends, the risk-free interest rate and the expected term of the option.

Expense for stock options is recognized on a straight-lined

basis over the requisite service period for each award.

Options vest either immediately or over a period of up to five years using a straight-line

basis and expire either five years or ten years from the date of grant.

We calculate the fair value of the stock options granted using the

Black-Scholes model.

The following weighted-average assumptions were used to value options granted during fiscal years 2022 and 2021:

Risk-Free Interest Rate

Volatility Factor

Expected Term (in Years)

Annual Dividend Rate

We calculate expected volatility for stock options by taking an average

of historical volatility over the expected term.

The computation of expected term was determined based on historical experience of similar

awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

The interest rate for periods within

the contractual life of the award is based on the U.S.

Treasury yield in effect at the time of grant.

We assume no expected dividends.

During fiscal year 2021, the Company’s Board of Directors granted an option for 5,000 shares of common stock to a Company employee that vests over three years and an option for 15,000 shares of common stock to an employee that immediately vested.

During fiscal year 2020, the Company’s Board of Directors granted an option for 5,000 shares of common stock to a Company employee that vest over three years , and an option for 10,000 shares of common stock to a new member of the Board of Directors that vest over 5 years.

The expense related to all stock option awards was $ 0.1 million in each of fiscal years 2021 and 2020.

The following table summarizes the Company’s options for fiscal years 2021 and 2020:

no expected dividends.

Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as

During fiscal year 2022, the Company’s Board of Directors granted

an option for 10,000 shares of common stock each to two new members ( 20,000 shares in the aggregate) of the Board of Directors that vest

over 5 years, an option for 2,000 shares of common stock each to five employees ( 10,000 shares in the aggregate) that vests over three

years , an option for 90,000 shares of common stock in the aggregate to employees during an acquisition that vests over 5 years and an

option for 6,000 shares of common stock to a Company employee that vests over 3 years.

During fiscal year 2021, the Company’s Board of Directors granted

an option for 5,000 shares of common stock to a Company employee that vests over three years and an option for 15,000 shares of common

stock to an employee that immediately vested.

The expense related to all stock option awards was $ 0.7 million in

fiscal year 2022 and $ 0.1 million in fiscal year 2021.

The following table summarizes the Company’s options for fiscal

years 2022 and 2021 (amounts in thousands, except per option data):

Term (in Years)

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Exercisable as of March 26, 2022

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2021 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on March 27, 2021.

The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

Total unrecognized compensation cost related to non-vested stock options as of March 27, 2021 was $ 0.1 million, which is expected to be recognized over a period of three years.

The aggregate intrinsic value of stock options exercised in fiscal years 2021 and 2020 was $ 1.6 million and $ 2.5 million, respectively.

Cash received from the exercise of options in fiscal years 2021 and 2020 was $ 0.8 million and $ 1.4 million, respectively.

NOTE 7 –

SEGMENT AND GEOGRAPHIC DATA

The aggregate intrinsic value in the table above represents the total

pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2022 and

the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all

holders exercised their options on March 26, 2022.

The amount of aggregate intrinsic value will change based on the fair market value

of the Company’s stock.

Total unrecognized compensation cost related to non-vested stock options

as of March 26, 2022 was $ 1.9 million, which is expected to be recognized over a period of three years .

The aggregate intrinsic value

of stock options exercised in fiscal years 2022 and 2021 was $ 5.3 million and $ 1.6 million, respectively.

Cash received from the exercise

of options in fiscal years 2022 and 2021 was $ 1.0 million and $ 0.8 million, respectively.

NOTE 7 – SEGMENT AND GEOGRAPHIC DATA

The basis for determining our operating

segments is the manner in which financial information is used in monitoring our operations.

Transcat has two reportable segments:

Distribution and Service.

The accounting policies of the reportable segments are described above in Note 1.

Service and Distribution.

Through our Service segment, we offer calibration, repair,

inspection, analytical qualifications, preventative maintenance, consulting and other related services.

Through our Distribution

segment, we sell and rent national and proprietary brand instruments to customers globally.

The Company has no inter-segment sales.

The following table presents segment and geographic data for fiscal years 2021 and 2020:

We believe that reporting performance at the operating income level is the best indicator of segment performance.

The following

table presents segment and geographic data for fiscal years 2022 and 2021 (dollars in thousands):

Gross Profit:

14 unchanged sentences

United States (4)

Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s estimates.

(1) Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s

(2) Including amortization of catalog costs and intangible assets.

1 unchanged sentence

(4) United States includes Puerto Rico.

NOTE 8 –

Transcat leases facilities, equipment, and vehicles under various non-cancelable operating leases.

As of March 27, 2021, the remaining lease terms on our operating leases range from approximately one year to less than ten years .

Renewal options not yet exercised and termination options are not reasonably certain of exercise by the Company.

There is no transfer of title or option to purchase the leased assets upon expiration.

The weighted average discount rate for both of the years ended March 27, 2021 and March 28, 2020 was 4.15 %.

The components of lease expense for the current and prior-year comparative periods were as follows:

NOTE 8 – COMMITMENTS

The Company determines if an arrangement is a lease at inception.

lease agreements generally contain lease and non-lease components.

Historically, non-lease components such as utilities have been immaterial.

Payments under our lease arrangements are primarily fixed.

Lease assets and liabilities are recognized at the present value of the future

lease payments at the lease commencement date.

The interest rate used to determine the present value of the future lease payments is our

incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable.

Our incremental borrowing rate

is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments

where the leased asset is located.

Our lease terms include periods under options to extend or terminate the lease when it is reasonably

certain that we will exercise that option.

Transcat leases facilities, equipment, and vehicles under various non-cancelable

operating leases.

As of March 26, 2022, the remaining lease terms on our operating leases range from approximately one year to twelve

years , and include any renewal and/or termination options that are reasonably certain to be exercised by the Company.

There is no transfer

of title or option to purchase the leased assets upon expiration.

The weighted average discount rate for fiscal year 2022 and 2021 was

The weighted average remaining lease term is approximately 8 years.

Short-term leases are leases having a term of 12 months or

The Company recognizes short-term leases on an as incurred basis and does not record a related lease asset or liability for such

Short-term lease expense was immaterial in both fiscal years 2022 and 2021.

The components of lease expense for the current and prior-year comparative

periods were as follows (dollars in thousands):

Operating lease cost

5 unchanged sentences

Right to Use Assets obtained in exchange for lease liabilities

Total rental expense was approximately $ 3.8 million and $ 3.7 million in fiscal years 2021 and 2020, respectively.

The minimum future annual rental payments under the non-cancelable leases at March 27, 2021 are as follows (in millions):

Total rental expense was approximately $ 4.3 million and $ 3.8 million

in fiscal years 2022 and 2021, respectively.

The minimum future annual rental payments under the non-cancelable leases at March 26, 2022

are as follows (in millions):

Total minimum lease payments

1 unchanged sentence

Present value of remaining lease payments

Effective December 2018, the Company has term loan repayments (principal plus interest) of $ 0.2 million per month through December 2025.

The Company has entered into two facility leases subsequent to year

The total payments for these leases aggregates to $ 2.5 million.

Effective December 2018, the Company has term loan repayments (principal

plus interest) of $ 0.2 million per month through December 2025.

These amounts are not reflected in the table above.

NOTE 9 –

BUSINESS ACQUISITIONS

Effective December 16, 2020, Transcat acquired substantially all of the assets of BioTek Services, Inc.

(“BioTek”), a Virginia based provider of pipette calibration services.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

BioTek’s focus on pipettes complements the current offerings Transcat provides to the life science sector.

100% of the goodwill and intangible assets relating to the BioTek acquisition has been allocated to the Service segment.

Intangible assets related to the BioTek acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of goodwill related to the BioTek acquisition is deductible for tax purposes.

The total purchase price paid for the assets of BioTek was approximately $3.5 million.

$ 0.4 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented:

Intangible Assets –

Customer Base & Contracts

Intangible Assets –

Covenant Not to Compete

Plus:       Current Assets

Principal payments

relating to the 2018 Term Loan will be $ 2.2 million in fiscal year 2023, $ 2.2 million in fiscal year 2024, $ 2.3 million in fiscal year

2025 and $ 1.8 million in fiscal year 2026.

Contingent Consideration:

In connection with the acquisition of NEXA, there are potential earn-out

payments of up to $ 7.5 million over the four-year period following the closing of the transaction based upon NEXA achieving certain annual

revenue and EBITDA goals.

If achieved, the earn-out payments will also be made in shares of common stock unless certain criteria is met

for cash payment.

As of August 31, 2021 and March 26, 2022, the estimated fair value for the contingent earn-out payments was $ 0.2 million

and included in the preliminary purchase price allocation in Note 9.

NOTE 9 – BUSINESS ACQUISITIONS

Effective December 31, 2021 , Transcat purchased all

the outstanding membership units of Tangent Labs, LLC, a privately held company (“Tangent”).

Tangent provides in-house and

on-site calibrations of precision measurement and control instrumentation to customers in the life science, aerospace and other regulated

industries, and has lab locations in Indianapolis, Indiana and Huntsville, Alabama.

This transaction aligned with a key component of the

Company’s strategy of acquiring local capabilities in attractive geographies.

The Tangent goodwill is primarily attributable to the workforce acquired,

as well as operational synergies and other intangibles that do not qualify for separate recognition.

All the goodwill and intangible assets

relating to the Tangent acquisition has been allocated to the Service segment.

Intangible assets related to the Tangent acquisition are

being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are

deductible for tax purposes.

Amortization of goodwill related to the Tangent acquisition is not deductible for tax purposes.

The purchase price for Tangent was approximately $ 8.9 million, all

paid in cash, and is subject to certain customary holdback provisions and a portion of which was placed in escrow to secure the sellers’

obligations in the event that a key employee terminates employment with Tangent on or before the first anniversary of the closing of the

$ 7.9 million was paid in cash and $ 1.0 million of the purchase price has been put into escrow as a holdback for indemnification

claims, if any.

The purchase price allocation is subject to revision based upon our

final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed.

The following

is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Tangent’s

assets and liabilities acquired on December 31, 2021 (in thousands):

Intangible Assets – Customer Base & Contracts

Intangible Assets – Covenant Not to Compete

Accounts Receivable

Other Current Assets

Current Liabilities

Deferred Tax Liability

Total Purchase Price

From the date of acquisition, Tangent has contributed revenue of $ 0.6

million and operating income of $ 0.1 million, which includes the negative impact of amortization of the acquired intangible assets, for

fiscal year 2022.

Effective August 31, 2021 , Transcat purchased all of the

outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), a private Irish company, which owns all of the

issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”).

NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical,

biotechnology, and medical device companies worldwide.

This transaction aligned with a key component of the Company’s acquisition

strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

The NEXA goodwill is primarily attributable to the workforce acquired,

as well as operational synergies and other intangibles that do not qualify for separate recognition.

All of the goodwill and intangible

assets relating to the NEXA acquisition has been allocated to the Service segment.

Intangible assets related to the NEXA acquisition are

being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to five years and are deductible

for tax purposes.

Amortization of goodwill related to the NEXA acquisition is not deductible for tax purposes.

The purchase price for NEXA was approximately $ 26.2 million and

was paid with $ 23.9 million in cash and the issuance of 34,943 shares of our common stock valued at $ 2.4 million.

Additionally,

there are potential earn-out payments of up to $ 7.5 million over the four-year period following the closing of the transaction based

upon NEXA achieving certain annual revenue and EBITDA goals.

If achieved, the earn-out payments will also be made in shares of

common stock unless certain criteria is met for cash payment.

As of August 31, 2021 and March 26, 2022, the estimated fair value for

the contingent earn-out payments, classified as Level 3 in the fair value hierarchy, was $ 0.2 million and included in the purchase

price allocation below.

This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte

Carlo simulation model.

Assumptions used in the Monte Carlo simulation model included:

1) weighted-average cost of capital of 6.60 %,

2) risk-free interest rate of 0.58 %, 3) asset volatility of 20.00 %, and 4) forecasted revenue and EBITDA.

This contingent

consideration is remeasured quarterly.

If, as a result of remeasurement, the value of the contingent consideration changes, any

charges or income will be included in the Company’s Consolidated Statements of Income.

For fiscal year 2022, there were no

changes to the range of outcomes for the Monte Carlo simulation model for the valuation of the contingent consideration, no gains or

losses recognized in earnings for changes in the remeasurement of the contingent consideration, and no other issuance or settlement

of the contingent consideration.

$ 0.1 million of the purchase price has been put into escrow as a holdback for indemnification

claims, if any.

The following is a summary of the purchase price allocation, in the

aggregate, to the fair value, based on Level 3 inputs, of NEXA’s assets and liabilities acquired on August 31, 2021 (in thousands):

Intangible Assets – Customer Base & Contracts

Intangible Assets – Backlog

Intangible Assets – Covenant Not to Compete

Accounts Receivable

Non-Current Assets

Current Liabilities

Deferred Tax Liability

Total Purchase Price

Effective, February 21, 2020 , Transcat acquired substantially all of the assets of TTE Laboratories, Inc.

(“TTE") a Boston, MA-based provider of pipette calibration services and equipment.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

TTE’s focus on pipettes complements the current offerings Transcat provides to the life science sector.

We will refer to TTE as “pipettes.com”.

75% of the goodwill and intangible assets relating to the pipettes.com acquisition has been allocated to the Service segment with the remaining 25% allocated to the Distribution segment.

Intangible assets related to the pipettes.com acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of goodwill related to the pipettes.com acquisition is deductible for tax purposes.

The total purchase price paid for the assets of pipettes.com was approximately $12.2 million.

$ 1.2 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of pipettes.com assets and liabilities acquired during the period presented.

Intangible Assets –

Customer Base & Contracts

Intangible Assets –

Covenant Not to Compete

Plus:       Current Assets

From the date of acquisition, NEXA has contributed revenue of $ 5.5

million and operating loss of $ 0.3 million, which includes the negative impact of amortization of the acquired intangible assets, for

fiscal year 2022.

Upstate Metrology :

Effective April 29, 2021 , Transcat acquired

substantially all of the assets of Upstate Metrology Inc.

(“Upstate Metrology”), a New York based provider of calibration

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that can leverage

the Company’s already existing operating infrastructure.

All the goodwill related to the Upstate Metrology acquisition has been

allocated to the Service segment.

Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes.

The total purchase price for the assets of Upstate Metrology was approximately

$ 0.9 million.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs,

of Upstate Metrology’s assets and liabilities acquired on April 29, 2021 (in thousands):

Current Assets

Non-Current Assets

Less:       Current Liabilities

Current Liabilities

Total Purchase Price

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired.

The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of pipettes.com and BioTek had occurred at the beginning of fiscal year 2020.

The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

From the date of acquisition, Upstate Metrology has contributed revenue

of $ 1.0 million.

Since this operation was integrated immediately into our existing operation, its separate operating income in undeterminable.

Effective December 16, 2020 , Transcat acquired substantially

all of the assets of BioTek Services, Inc.

(“BioTek”), a Virginia based provider of pipette calibration services.

This transaction

aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of

the Company’s Service capabilities.

BioTek’s focus on pipettes complements the current offerings Transcat provides to the

life science sector.

All of the goodwill and intangible assets relating to the BioTek acquisition

has been allocated to the Service segment.

Intangible assets related to the BioTek acquisition are being amortized for financial reporting

purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of

goodwill related to the BioTek acquisition is deductible for tax purposes.

The total purchase price for the assets of BioTek was approximately

$ 3.5 million.

$ 0.4 million of the purchase price had been put into escrow as a holdback for indemnification claims, if any.

was released during the fourth quarter of fiscal year 2022.

The following is a summary of the purchase price allocation, in the aggregate,

to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented (in thousands):

Intangible Assets – Customer Base & Contracts

Intangible Assets – Covenant Not to Compete

Current Assets

Non-Current Assets

Total Purchase Price

The results of acquired businesses are included in Transcat’s

consolidated operating results as of the dates the businesses were acquired.

The following unaudited pro forma information presents the

Company’s results of operations as if the acquisitions of Tangent, NEXA, Upstate Metrology and BioTek had occurred at the beginning

of fiscal year 2021.

The pro forma results do not purport to represent what the Company’s results of operations actually would have

been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in

future periods.

Fiscal Years Ended

(in thousands except per share information)

Total Revenue

1 unchanged sentence

Diluted Earnings Per Share

Effective July 19, 2019, Transcat acquired Infinite Integral Solutions Inc.

(“IIS”).

IIS, headquartered in Mississauga, Ontario, Canada, is the owner and developer of the CalTree™

suite of software solutions for the automation of calibration procedures and datasheet generation.

Total consideration for the shares of IIS was 1.4 million Canadian dollars, subject in part to the achievement of certain milestones.

1.0 million Canadian dollars was paid during fiscal year 2020 and was included as a business acquisition in the Consolidated Statement of Cash Flows.

1.0 million Canadian dollars has been allocated to software and property and equipment and 0.3 million Canadian has been allocated to goodwill.

Due to the immaterial amount of pre-acquisition revenue and expenses, no pro forma table of results has been presented.

Effective April 1, 2019, Transcat acquired substantially all of the assets of Gauge Repair Service (“GRS”), a California-based provider of calibration services.

This transaction leveraged the Company’s infrastructure while also increasing the depth and breadth of the Company’s service capabilities.

Due to the immaterial amount of the purchase price of the GRS assets, it has been included in the purchases of property and equipment in the Consolidated Statement of Cash Flows.

Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts.

The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition.

As of March 27, 2021, there was no other holdback amounts unpaid and reflected in current liabilities on the Consolidated Balance Sheets.

During fiscal year 2021, acquisition costs of $ 0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

NOTE 10 –

QUARTERLY DATA (Unaudited)

The following table presents a summary of certain unaudited quarterly financial data for fiscal years 2021 and 2020:

Per Share (a)

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Earnings per share calculations for each quarter include the weighted average effect of stock issuances and common stock equivalents for the quarter;

therefore, the sum of quarterly earnings per share amounts may not equal full-year earnings per share amounts, which reflect the weighted average effect on an annual basis.

Diluted earnings per share calculations for each quarter include the effect of stock options and non-vested restricted stock units, when dilutive to the quarter.

In addition, basic earnings per share and diluted earnings per share may not add due to rounding.

Certain of the Company’s acquisition agreements include provisions

for contingent consideration and other holdback amounts.

The Company accrues for contingent consideration and holdback provisions based

on their estimated fair value at the date of acquisition.

As of March 26, 2022, $ 0.2 million of contingent consideration and $ 0.1 million

of other holdback amounts were unpaid and reflected in current liabilities on the Consolidated Balance Sheets.

During fiscal year 2022

and fiscal year 2021, no contingent consideration or other holdback amounts were paid.

During fiscal year 2022, acquisition costs of $ 0.9 million were recorded

as incurred as general and administrative expenses in the Consolidated Statements of Income.

During fiscal year 2021, acquisition costs

of less than $ 0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

NOTE 10 SUBSEQUENT EVENT

Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology Inc.

(“Upstate Metrology”), a New York based provider of calibration services.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

The total purchase price paid for the assets of Upstate Metrology was approximately $ 0.9 million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

On May 31, 2022, Transcat acquired substantially all of the assets

of Charlton Jeffmont Inc., Raitz Inc.

and Toolroom Calibration Inc.

d/b/a Alliance Calibration (“Alliance”), an Ohio based

provider of calibration services.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting

businesses that expand the depth and breadth of the Company’s service capabilities.

The total purchase price paid for the assets

of Alliance was approximately $ 4.5 million in cash and an amount of the Company’s common stock, par value $ 0.50 per share (“Common

Stock”), with a value equal to $ 157,500 , or 2,284 shares of Common Stock.

Pursuant to the asset purchase agreement, the Company

will hold back $ 500,000 of the purchase price for certain potential post-closing adjustments, and the purchase price will be subject to

reduction by $ 500,000 if a key customer relationship is not retained.

The purchase price allocation has not been finalized, due to the timing

of the acquisition and the filing date of this Annual Report on Form 10-K.

Therefore, the allocation of the purchase price to the assets

acquired and liabilities assumed, including values to be recognized for goodwill and other intangible assets, will be disclosed in the

Quarterly Report on Form 10-Q for the fiscal quarter ending June 25, 2022.

The pro forma results of operations from the Alliance acquisition

will be disclosed in the Quarterly Report on Form 10-Q for the fiscal quarter ending June 25, 2022.

The goodwill related to Alliance is

expected to be deductible for income tax purposes.

All of the goodwill and intangible assets relating to the Alliance acquisition will

be allocated to the Service segment.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data