10-Q 1 form10q.htm FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2022
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 0-21121


graphic
TRANSACT TECHNOLOGIES INC

(Exact name of registrant as specified in its charter)

Delaware
 
06-1456680
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT
 
06518
(Address of Principal Executive Offices)
 
(Zip Code)

(203) 859-6800
(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, par value $0.01 per share
 
TACT
 
NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
Accelerated filer
Non-accelerated filer 
Smaller reporting company 
 
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 

As of July 31, 2022, the number of shares outstanding of the Company’s common stock, $0.01 par value, was 9,910,008.



TRANSACT TECHNOLOGIES INCORPORATED

INDEX

PART I - Financial Information:
Page
     
Item 1
Financial Statements (unaudited, as adjusted)
 
     
 
Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
3
     
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021
4
     
 
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2022 and 2021
5
     
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021
6
     
 
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021
7
     
 
8
     
Item 2
17
     
Item 3
29
     
Item 4
29
   
PART II - Other Information:
 
     
Item 1
30
     
Item 1A
30
     
Item 2
30
     
Item 3
30
     
Item 4
30
     
Item 5
30
     
Item 6
30
   
31

2

PART I - FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, as adjusted)

 
June 30, 2022
   
December 31, 2021
 
Assets:
 
(In thousands, except share data)
 
Current assets:
           
Cash and cash equivalents
 
$
3,893
   
$
19,457
 
Accounts receivable, net
   
11,991
     
7,593
 
Employee retention credit receivable
   
1,500
     
1,500
 
Inventories
   
10,907
     
7,711
 
Prepaid income taxes
   
188
     
137
 
Other current assets
   
794
     
738
 
Total current assets
   
29,273
     
37,136
 
                 
Fixed assets, net of accumulated depreciation of $17,216 and $16,736, respectively
   
2,838
     
2,684
 
Right-of-use asset
   
2,937
     
2,553
 
Goodwill
   
2,621
     
2,621
 
Deferred tax assets
   
7,325
     
5,143
 
Intangible assets, net of accumulated amortization of $1,286 and $1,209, respectively
   
319
     
397
 
Other assets
   
230
     
400
 
     
16,270
     
13,798
 
Total assets
 
$
45,543
   
$
50,934
 
                 
Liabilities and Shareholders’ Equity:
               
Current liabilities:
               
Accounts payable
 
$
5,017
   
$
4,308
 
Accrued liabilities
   
3,649
     
3,894
 
Lease liability
   
789
     
789
 
Deferred revenue
   
887
     
805
 
Total current liabilities
   
10,342
     
9,796
 
                 
Deferred revenue, net of current portion
   
169
     
186
 
Lease liability, net of current portion
   
2,170
     
1,781
 
Other liabilities
   
190
     
187
 
     
2,529
     
2,154
 
Total liabilities
   
12,871
     
11,950
 
                 
Shareholders’ equity:
               
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,954,850 and 13,917,731 shares issued, respectively; 9,910,008 and 9,872,889 shares outstanding, respectively
   
139
     
139
 
Additional paid-in capital
   
55,708
     
55,246
 
Retained earnings
   
8,842
     
15,566
 
Accumulated other comprehensive income, net of tax
   
93
     
143
 
Treasury stock, at cost, 4,044,842 shares
   
(32,110
)
   
(32,110
)
Total shareholders’ equity
   
32,672
     
38,984
 
Total liabilities and shareholders’ equity
 
$
45,543
   
$
50,934
 

See notes to Condensed Consolidated Financial Statements.

3

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, as adjusted)

   
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
(In thousands, except per share data)
 
                         
Net sales
 
$
12,623
   
$
9,325
   
$
22,325
   
$
17,626
 
Cost of sales
   
7,189
     
5,893
     
14,325
     
10,855
 
Gross profit
   
5,434
     
3,432
     
8,000
     
6,771
 
                                 
Operating expenses:
                               
Engineering, design and product development
   
2,172
     
1,804
     
4,455
     
3,607
 
Selling and marketing
   
3,293
     
1,767
     
5,976
     
3,210
 
General and administrative
   
2,923
     
2,509
     
6,127
     
5,118
 
     
8,388
     
6,080
     
16,558
     
11,935
 
                                 
Operating loss
   
(2,954
)
   
(2,648
)
   
(8,558
)
   
(5,164
)
Interest and other expense:
                               
Interest, net
   
(28
)
   
(29
)
   
(92
)
   
(42
)
Other, net
   
(264
)
   
(17
)
   
(299
)
   
(100
)
     
(292
)
   
(46
)
   
(391
)
   
(142
)
                                 
Loss before income taxes
   
(3,246
)
   
(2,694
)
   
(8,949
)
   
(5,306
)
Income tax benefit
   
870
     
664
     
2,225
     
1,187
 
Net loss
 
$
(2,376
)
 
$
(2,030
)
 
$
(6,724
)
 
$
(4,119
)
                                 
Net loss per common share:
                               
Basic
 
$
(0.24
)
 
$
(0.23
)
 
$
(0.68
)
 
$
(0.46
)
Diluted
 
$
(0.24
)
 
$
(0.23
)
 
$
(0.68
)
 
$
(0.46
)
                                 
Shares used in per-share calculation:
                               
Basic
   
9,910
     
8,976
     
9,898
     
8,962
 
Diluted
   
9,910
     
8,976
     
9,898
     
8,962
 

See notes to Condensed Consolidated Financial Statements.

4

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, as adjusted)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
(In thousands)
 
                         
Net loss
 
$
(2,376
)
 
$
(2,030
)
 
$
(6,724
)
 
$
(4,119
)
Foreign currency translation adjustment, net of tax
   
(8
)
   
32
     
(50
)
   
85
 
Comprehensive loss
 
$
(2,384
)
 
$
(1,998
)
 
$
(6,774
)
 
$
(4,034
)

See notes to Condensed Consolidated Financial Statements.

5

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, as adjusted)

 
Six Months Ended
 
 
June 30,
 
   
2022
   
2021
 
   
(In thousands)
 
Cash flows from operating activities:
           
Net loss
 
$
(6,724
)
 
$
(4,119
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Share-based compensation expense
   
581
     
695
 
Depreciation and amortization
   
625
     
486
 
Deferred income taxes
   
(2,227
)
   
(1,153
)
Gain on the sale of fixed assets
   
     
(8
)
Foreign currency transaction losses
   
298
     
107
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(4,547
)
   
(2,350
)
Inventories
   
(3,250
)
   
2,334
 
Prepaid income taxes
   
(51
)
   
(90
)
Other current and long-term assets
   
77
     
29
 
Accounts payable
   
789
     
1,012
 
Accrued liabilities and other liabilities
   
(159
)
   
(862
)
Net cash used in operating activities
   
(14,588
)
   
(3,919
)
                 
Cash flows from investing activities:
               
Capital expenditures
   
(744
)
   
(159
)
Proceeds from the sale of fixed assets
   
     
8
 
Collection of note receivable
   
     
1,598
 
Net cash (used in) provided by investing activities
   
(744
)
   
1,447
 
                 
Cash flows from financing activities:
               
Proceeds from stock option exercises
   
     
277
 
Withholding taxes paid on stock issuances
   
(119
)
   
(100
)
Payment of bank financing costs
   
(10
)
   
(31
)
Net cash (used in) provided by financing activities
   
(129
)
   
146
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
(103
)
   
(73
)
                 
Decrease in cash and cash equivalents
   
(15,564
)
   
(2,399
)
Cash and cash equivalents, beginning of period
   
19,457
     
10,359
 
Cash and cash equivalents, end of period
 
$
3,893
   
$
7,960
 
                 
Supplemental schedule of non-cash investing activities:
               
Capital expenditures included in accounts payable
 
$
7
   
$
100
 

See notes to Condensed Consolidated Financial Statements.

6

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited, as adjusted)

   
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
(In thousands)
 
                         
Equity beginning balance
 
$
34,771
   
$
28,369
   
$
38,984
   
$
30,125
 
                                 
Common stock
                               
Balance, beginning and end of period
   
139
     
130
     
139
     
130
 
                                 
Additional paid-in capital
                               
Balance, beginning of period
   
55,423
     
42,816
     
55,246
     
42,536
 
Share-based compensation expense
   
285
     
431
     
581
     
695
 
Issuance of shares from exercise of stock options
   
     
186
     
     
277
 
Relinquishment of stock awards and restricted stock units to pay for withholding taxes
   
     
(25
)
   
(119
)
   
(100
)
Balance, end of period
   
55,708
     
43,408
     
55,708
     
43,408
 
                                 
Retained earnings
                               
Balance, beginning of period
   
11,218
     
17,518
     
15,566
     
19,607
 
Net loss
   
(2,376
)
   
(2,030
)
   
(6,724
)
   
(4,119
)
Balance, end of period
   
8,842
     
15,488
     
8,842
     
15,488
 
                                 
Treasury stock
                               
Balance, beginning and end of period
   
(32,110
)
   
(32,110
)
   
(32,110
)
   
(32,110
)
                                 
Accumulated other comprehensive income (loss), net of tax
                               
Balance, beginning of period
   
101
     
15
     
143
     
(38
)
Foreign currency translation adjustment, net of tax
   
(8
)
   
32
     
(50
)
   
85
 
Balance, end of period
   
93
     
47
     
93
     
47
 
                                 
Equity ending balance
 
$
32,672
   
$
26,963
   
$
32,672
   
$
26,963
 
                                 
Supplemental share information
                               
Issuance of shares from stock awards
   
     
27
     
63
     
92
 
Relinquishment of stock awards to pay withholding taxes
   
     
1
     
26
     
32
 

See notes to Condensed Consolidated Financial Statements.

7

TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of presentation

The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements.  In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included.  The December 31, 2021 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.  These interim financial statements should be read in conjunction with the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

The financial position and results of operations of our U.K. subsidiary are measured using the local currency as the functional currency.  Assets and liabilities of such subsidiary have been translated at the end-of-period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income, net of tax” in the Condensed Consolidated Balance Sheets and “Accumulated other comprehensive income (loss)” in the Condensed Consolidated Statements of Changes in Shareholders’ Equity.  Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

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

See Note 9 for a discussion of a change in accounting principle which occurred in the second quarter of 2022. TransAct changed its method of inventory valuation from standard costing which approximates first-in first-out “FIFO” to the average costing methodology. All prior periods presented have been retrospectively adjusted to apply the new method of accounting. Certain prior period amounts have been adjusted to conform with the current year presentation.

Impact of the COVID-19 pandemic
In the first quarter of 2020, the COVID-19 pandemic and the resulting social distancing measures, including closures and restricted openings of restaurants and casinos implemented by federal, state and local authorities, negatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our two manufacturers located in Thailand and China.  Our inventory levels decreased significantly during 2021 due to these supply chain disruptions, and although we have been able to increase inventory levels during the first six months of 2022, continuing delays and further disruptions have led to an increased backlog and increased freight costs, which have impacted our ability to deliver products to our customers on time or at all.  While we began to experience a modest recovery starting in the second half of 2020 and continuing through 2021, the recovery slowed again in the first quarter of 2022 due to a resurgence resulting from the Omicron variant and other variants. We began to see a resumption of the recovery in the second quarter of 2022 which we expect to continue during the remainder of 2022, though the exact timing and pace of recovery are unknown given uncertainty surrounding responsive measures to the spread of virus variants or any potential future resurgences of the virus and the significant disruption that we and our customers have already experienced and may continue to experience.  We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ultimate impact of the COVID-19 pandemic on our business; but, the length and ultimate severity of the reduction in demand and supply chain disruptions due to the COVID-19 pandemic remains uncertain.

Balance Sheet, Cash Flow and Liquidity. We have taken the following actions to increase liquidity and strengthen our financial position in an effort to mitigate the negative impacts from the COVID-19 pandemic:
Public Offering – On October 16, 2020 and August 16, 2021, the Company raised net proceeds of $8.7 million and $11.2 million (including the exercise of the underwriters overallotment options on October 16, 2020 and August 20, 2021), respectively, after deducting underwriting discounts, commissions and offering expenses, through underwritten public offerings in which we sold an aggregate of 1,380,000 and 842,375 shares of common stock, respectively.
PPP Loan – On May 1, 2020, the Company was granted a $2.2 million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.  On July 8, 2021, we received notice that the PPP Loan had been forgiven as of July 1, 2021.  See Note 5 for further details regarding the PPP Loan.
Employee Retention Credit – Under the provisions of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria.  In connection with the CARES Act, the Company recognized the employee retention credit during the fourth quarter of 2021 as a $1.5 million “Gain from employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and recorded a $1.5 million “Employee retention credit receivable” in the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.  We expect to receive these funds during 2022.
Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC (the “Lender”) that provides a revolving credit line of up to $10.0 million, subject to a borrowing base, and on July 19, 2022, we entered into an amendment to extend the maturity of the facility to March 13, 2025.  See Note 5 and Note 10 for further details regarding this facility.
Reduced Capital Expenditures – We limited capital expenditures during 2020 and 2021, and are gradually increasing expenditures during 2022 as sales improve.

8

We continue to implement additional expense management measures as circumstances warrant.  In addition to the planned expense management actions, we may also further modify or supplement the actions we have taken to increase liquidity as the timing and extent of customer demand recovery develops and supply chains normalize.

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the issuance date of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following such issuance date.

Use of Assumptions and Estimates
Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital expenditures and other operating costs. Our current assumptions are that casinos and restaurants will remain open and consumer traffic will continue to increase during the balance of 2022, but that casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, due to labor shortages, supply issues and inflation caused by the COVID-19 pandemic.  Based on these assumptions, we anticipate that sales in casino and gaming and food service technology may continue to be negatively impacted for the foreseeable future.  We have performed a sensitivity analysis on these assumptions to forecast the potential impact of a slower-than-anticipated recovery and believe that we are positioned to withstand the impact of lower-than-anticipated sales and that we will be able to take additional financial and operational actions to cut costs and/or increase liquidity, if necessary. These actions may include additional expense reductions and capital raising activities.

In addition, the presentation of the accompanying unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities.  Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results could differ from those estimates used.

2. Revenue

We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers.

Disaggregation of revenue

The following tables disaggregate our revenue by market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.  Sales and usage-based taxes are excluded from revenues.

   
Three Months Ended
 
 
June 30,
 
   
2022
   
2021
 
   
(In thousands)
 
   
United States
   
International
   
Total
   
United States
   
International
   
Total
 
Food service technology
 
$
3,281
   
$
151
   
$
3,432
   
$
2,987
   
$
87
   
$
3,074
 
POS automation
   
1,172
     
     
1,172
     
1,252
     
4
     
1,256
 
Casino and gaming
   
3,929
     
2,596
     
6,525
     
2,438
     
1,029
     
3,467
 
Printrex
   
     
     
     
25
     
87
     
112
 
TransAct Services Group
   
1,345
     
149
     
1,494
     
1,252
     
164
     
1,416
 
Total net sales
 
$
9,727
   
$
2,896
   
$
12,623
   
$
7,954
   
$
1,371
   
$
9,325
 

   
Six Months Ended
 
 
June 30,
 
   
2022
   
2021
 
   
(In thousands)
 
   
United States
   
International
   
Total
   
United States
   
International
   
Total
 
Food service technology
 
$
5,227
   
$
335
   
$
5,562
   
$
5,551
   
$
270
   
$
5,821
 
POS automation
   
2,472
     
     
2,472
     
2,412
     
8
     
2,420
 
Casino and gaming
   
6,717
     
4,570
     
11,287
     
4,402
     
1,930
     
6,332
 
Printrex
   
     
     
     
52
     
219
     
271
 
TransAct Services Group
   
2,413
     
591
     
3,004
     
2,532
     
250
     
2,782
 
Total net sales
 
$
16,829
   
$
5,496
   
$
22,325
   
$
14,949
   
$
2,677
   
$
17,626
 

9

Contract balances

Contract assets consist of unbilled receivables.  Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced.  An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable” and “Other non-current assets” in the Condensed Consolidated Balance Sheets.

Contract liabilities consist of customer pre-payments and deferred revenue.  Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete.  Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL® maintenance contracts and prepaid software subscriptions for our BOHA! software applications and is recognized as revenue as (or when) we perform under the contract.  For the six months ended June 30, 2022, we recognized revenue of $0.6 million related to our contract liabilities at December 31, 2021. Total net contract liabilities consisted of the following:

 
June 30, 2022
   
December 31, 2021
 
   
(In thousands)
 
Unbilled receivables, current
 
$
342
   
$
314
 
Unbilled receivables, non-current
   
185
     
308
 
Customer pre-payments
   
(320
)
   
(99
)
Deferred revenue, current
   
(887
)
   
(805
)
Deferred revenue, non-current
   
(169
)
   
(186
)
Total net contract liabilities
 
$
(849
)
 
$
(468
)

Remaining performance obligations

Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer.  As of June 30, 2022, the aggregate amount of transaction prices allocated to remaining performance obligations was $19.5 million.  The Company expects to recognize revenue of $18.8 million of its remaining performance obligations within the next 12 months following June 30, 2022, $0.6 million within the next 24 months following June 30, 2022 and the balance of these remaining performance obligations recognized within the next 36 months following June 30, 2022.

3. Inventories

The components of inventories were:

 
June 30, 2022
   
December 31, 2021
 
   
(In thousands)
 
             
Raw materials and purchased component parts
 
$
9,242
   
$
6,470
 
Work-in-process
   
     
11
 
Finished goods
   
1,665
     
1,230
 
   
$
10,907
   
$
7,711
 

4. Accrued product warranty liability

We generally provide hardware warranties on our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded.  Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs.

10

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

 
Six Months Ended
 
 
June 30,
 
   
2022
   
2021
 
   
(In thousands)
 
             
Balance, beginning of period
 
$
101
   
$
140
 
Warranties issued
   
12
     
19
 
Warranty settlements
   
(33
)
   
(45
)
Balance, end of period
 
$
80
   
$
114
 

As of June 30, 2022, $63 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $17 thousand was classified as non-current in “Other liabilities”.

5. Debt

On March 13, 2020, we entered into a credit facility (the “Siena Credit Facility”) with the Lender.  The Siena Credit Facility provides for a revolving credit line of up to $10.0 million expiring on March 13, 2023.  Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%. The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility was $245 thousand, which were reported as “Other current assets” in current assets and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.  We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility.  Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes a financial covenant on the Company and borrowings are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory. The three-month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant, which required the Company to maintain a minimum EBITDA and continued through the 12-month period from April 1, 2020 to March 31, 2021.  On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility.  The Credit Facility Amendment changed the financial covenant under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $750 thousand under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021.  From July 31, 2021 to June 30, 2022, we have been in compliance with our excess availability covenant. As of June 30, 2022, we had no outstanding borrowings under the Siena Credit Facility and $4.5 million of borrowing capacity available under the Siena Credit Facility, excluding the excess availability covenant. This agreement was further amended in the third quarter of 2022 – see Note 10.


On May 1, 2020 (the “Loan Date”), the Company was granted the PPP Loan from Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP.  Under the terms of the PPP, the PPP Loan would be forgiven to the extent that funds from the PPP Loan were used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020, and interest on debt obligations incurred before February 15, 2020, subject to conditions and limitations provided in the CARES Act.  At least 60% (under the PPP terms, as amended) of the proceeds from the PPP Loan were required to be used for eligible payroll costs for the PPP Loan to be forgiven.

On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP Loan (including all interest accrued thereon) of $2.2 million had been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021.  The forgiveness of the PPP Loan was reported as “Gain on forgiveness of long-term debt” in the Consolidated Statement of Operations during the year ended December 31, 2021.

11

6. Earnings per share

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding:

   
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
(In thousands, except per share data)
 
Net loss
 
$
(2,376
)
 
$
(2,030
)
 
$
(6,724
)
 
$
(4,119
)
                                 
Shares:
                               
Basic:  Weighted average common shares outstanding
   
9,910
     
8,976
     
9,898
     
8,962
 
Add:  Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method
   
     
     
     
 
Diluted:  Weighted average common and common equivalent shares outstanding
   
9,910
     
8,976
     
9,898
     
8,962
 
                                 
Net loss per common share:
                               
Basic
 
$
(0.24
)
 
$
(0.23
)
 
$
(0.68
)
 
$
(0.46
)
Diluted
 
$
(0.24
)
 
$
(0.23
)
 
$
(0.68
)
 
$
(0.46
)

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive.  For the three months ended June 30, 2022 and 2021, there were 1.5 million and 0.3 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.  For the six months ended June 30, 2022 and 2021, there were 1.2 million and 0.7 million, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.  In periods for which a net loss is reported, such as the three and six months ended June 30, 2022 and 2021, basic and diluted net loss per common share are calculated using the same method.

7. Leases

We account for leases in accordance with ASC Topic 842: Leases.

We enter into lease agreements for the use of real estate space and certain equipment under operating leases and we have no financing leases. Our leases are included in “Right-of-use-assets” and “Lease liabilities” in our Condensed Consolidated Balance Sheet.  Our leases have remaining lease terms of two to four years, some of which include options to extend. Our leases with options to extend provide for extensions of two to five years with the ability to terminate the lease within one year. Lease expense is recognized on a straight-line basis over the lease term.

On April 30, 2021, we entered into an amendment to modify the expiration date of our lease on our Hamden, Connecticut facility.  The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027.  The lease amendment modified the expiration date to October 31, 2023 with an option to extend the lease for an additional two-year period, extending the expiration date to October 31, 2025.  The modification resulted in reducing the right-of-use-asset and lease liability by $0.3 million.

On April 26, 2022, we entered into an amendment to modify the expiration date of our lease on our Las Vegas, Nevada facility.  The lease was set to expire on November 1, 2022 and the amendment extended the lease term to November 30, 2025. The lease amendment resulted in an increase to the right-of-use-asset and lease liability of $0.8 million. The lease amendment modified the base rent and extended the lease term from October 31, 2022 to November 30, 2025.

Operating lease expense for the three months ended June 30, 2022 and 2021 was $250 thousand and $239 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations.  Operating lease expense for the six months ended June 30, 2022 and 2021 was $487 thousand and $482 thousand, respectively. Operating lease expenses include short-term lease costs, which were immaterial during the periods presented.

12

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

 
Six Months Ended
 
 
June 30,
 
   
2022
   
2021
 
Operating cash outflows from leases
 
$
456
   
$
522
 

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

 
June 30, 2022
   
December 31, 2021
 
Weighted average remaining lease term (in years)
   
3.2
     
3.5
 
Weighted average discount rate
   
4.5
%
   
4.4
%

The maturity of the Company’s operating lease liabilities as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

 
June 30, 2022
   
December 31, 2021
 
2022
 
$
461
   
$
886
 
2023
   
972
     
721
 
2024
   
1,023
     
721
 
2025
   
711
     
426
 
2026
   
21
     
23
 
Total undiscounted lease payments
   
3,188
     
2,777
 
Less imputed interest
   
229
     
207
 
Total lease liabilities
 
$
2,959
   
$
2,570
 

8. Income taxes

We recorded an income tax benefit for the second quarter of 2022 of $870 thousand at an effective tax rate of (26.8%), compared to an income tax benefit for the second quarter of 2021 of $664 thousand at an effective tax rate of (24.6%).  For the six months ended June 30, 2022,  we recorded an income tax benefit of $2.2 million at an effective tax rate of (24.9%), compared to an income tax benefit for the six months ended June 30, 2021 of $1.2 million at an effective tax rate of (22.4%).

We are subject to U.S. federal income tax, as well as income tax in certain U.S. states and foreign jurisdictions.  We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2017.  However, our federal tax returns for the years 2018 through 2021 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

As of June 30, 2022, we had $144 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods.

We recognize interest and penalties related to uncertain tax positions in the income tax provision reported as “Deferred Tax Assets” in the Condensed Consolidated Balance Sheet. As of June 30, 2022, we had $29 thousand of accrued interest and penalties related to uncertain tax positions.  The Company maintains a valuation allowance against certain deferred tax assets where realization is not likely.

9.  Change in accounting principle

Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximates FIFO to the average costing methodology.  We believe this methodology is preferable because it reflects a better measurement estimate of inventory cost as we do not typically perform intensive manufacturing of our finished products which are therefore better measured under average cost.  In addition, our business is projected to include an increasing sales volume of software going forward, which better aligns with average costing.  Comparative financial statements of prior periods have been adjusted to apply the new method retrospectively.  Tax effects are calculated at the Company’s marginal tax rate, or the tax impact of incremental income changes rather than the average tax rate applied to our total net loss before income taxes.  The following financial statement line items for the periods presented were impacted by the change in accounting principle.

13

The effect of the changes made to the Company’s Condensed Consolidated Balance Sheets follows:

   
December 31, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Inventories
 
$
7,720
   
$
7,711
   
$
(9
)
Deferred tax assets
   
5,141
     
5,143
     
2
 
Retained earnings
   
15,573
     
15,566
     
(7
)

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

The effect of the changes made to the Company’s Condensed Consolidated Statements of Operations follows:

   
Three months ended March 31, 2022
   
Three months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
   
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Cost of sales
 
$
6,708
   
$
7,136
   
$
428
   
$
6,000
   
$
5,893
   
$
(107
)
Gross profit
   
2,994
     
2,566
     
(428
)
   
3,325
     
3,432
     
107
 
Operating loss
   
(5,176
)
   
(5,604
)
   
(428
)
   
(2,755
)
   
(2,648
)
   
107
 
Loss before income taxes
   
(5,275
)
   
(5,703
)
   
(428
)
   
(2,801
)
   
(2,694
)
   
107
 
Income tax benefit
   
1,262
     
1,355
     
93
     
687
     
664
     
(23
)
Net loss
   
(4,013
)
   
(4,348
)
   
(335
)
   
(2,114
)
   
(2,030
)
   
84
 
                                                 
Net loss per common share:
                                               
Basic
 
$
(0.41
)
 
$
(0.44
)
 
$
(0.03
)
 
$
(0.24
)
 
$
(0.23
)
 
$
0.01
 
Diluted
 
$
(0.41
)
 
$
(0.44
)
 
$
(0.03
)
 
$
(0.24
)
 
$
(0.23
)
 
$
0.01
 
                                                 
Shares used in per-share calculation:
                                               
Basic
   
9,886
     
9,886
             
8,976
     
8,976
         
Diluted
   
9,886
     
9,886
             
8,976
     
8,976
         

   
Six months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Cost of sales
 
$
11,112
   
$
10,855
   
$
(257
)
Gross profit
   
6,514
     
6,771
     
257
 
Operating loss
   
(5,421
)
   
(5,164
)
   
257
 
Loss before income taxes
   
(5,563
)
   
(5,306
)
   
257
 
Income tax benefit
   
1,243
     
1,187
     
(56
)
Net loss
   
(4,320
)
   
(4,119
)
   
201
 
                         
Net loss per common share:
                       
Basic
 
$
(0.48
)
 
$
(0.46
)
 
$
0.02
 
Diluted
 
$
(0.48
)
 
$
(0.46
)
 
$
0.02
 
                         
Shares used in per-share calculation:
                       
Basic
   
8,962
     
8,962
         
Diluted
   
8,962
     
8,962
         

14

The effect of the changes made to the Company’s Condensed Consolidated Statements of Comprehensive Loss follows:

   
Three months ended March 31, 2022
   
Three months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
   
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Net loss
 
$
(4,013
)
 
$
(4,348
)
 
$
(335
)
 
$
(2,114
)
 
$
(2,030
)
 
$
84
 
Comprehensive loss
   
(4,055
)
   
(4,390
)
   
(335
)
   
(2,082
)
   
(1,998
)
   
84
 

   
Six months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Net loss
 
$
(4,320
)
 
$
(4,119
)
 
$
201
 
Comprehensive loss
   
(4,235
)
   
(4,034
)
   
201
 

The effect of the changes made to the Company’s Condensed Consolidated Statements of Cash Flows follows:

   
Three months ended March 31, 2022
   
Six months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
   
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Net loss
 
$
(4,013
)
 
$
(4,348
)
 
$
(335
)
 
$
(4,320
)
 
$
(4,119
)
 
$
201
 
Deferred income taxes
   
(1,262
)
   
(1,355
)
   
(93
)
   
(1,209
)
   
(1,153
)
   
56
 
Inventories
   
(1,344
)
   
(916
)
   
428
     
2,591
     
2,334
     
(257
)

The effect of the changes made to the Company’s Condensed Consolidated Statements of Changes in Shareholders’ Equity follows:

   
Three months ended March 31, 2022
   
Three months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
   
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Equity beginning balance
 
$
38,991
   
$
38,984
   
$
(7
)
 
$
28,363
   
$
28,369
   
$
6
 
Retained earnings -- beginning of period
   
15,573
     
15,566
     
(7
)
   
17,512
     
17,518
     
6
 
Net loss
   
(4,013
)
   
(4,348
)
   
(335
)
   
(2,114
)
   
(2,030
)
   
84
 
Retained earnings -- end of period
   
11,560
     
11,218
     
(342
)
   
15,398
     
15,488
     
90
 
Equity ending balance
   
35,113
     
34,771
     
(342
)
   
26,873
     
26,963
     
90
 

   
Six months ended June 30, 2021
 
 
Under
FIFO Cost
   
Under
Average Cost
   
Effect
of Change
 
Equity beginning balance
 
$
30,236
   
$
30,125
   
$
(111
)
Retained earnings -- beginning of period
   
19,718
     
19,607
     
(111
)
Net loss
   
(4,320
)
   
(4,119
)
   
201
 
Retained earnings -- end of period
   
15,398
     
15,488
     
90
 
Equity ending balance
   
26,873
     
26,963