0001140361-22-030288.txt : 20220818 0001140361-22-030288.hdr.sgml : 20220818 20220818171737 ACCESSION NUMBER: 0001140361-22-030288 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220818 DATE AS OF CHANGE: 20220818 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSACT TECHNOLOGIES INC CENTRAL INDEX KEY: 0001017303 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 061456680 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21121 FILM NUMBER: 221178165 BUSINESS ADDRESS: STREET 1: ONE HAMDEN CENTER STREET 2: 2319 WHITNEY AVENUE, SUITE 3B CITY: HAMDEN STATE: CT ZIP: 06518 BUSINESS PHONE: 203-859-6800 MAIL ADDRESS: STREET 1: ONE HAMDEN CENTER STREET 2: 2319 WHITNEY AVENUE, SUITE 3B CITY: HAMDEN STATE: CT ZIP: 06518 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
      
90
  

15
10. Subsequent events

The Company has evaluated all events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were issued.  Based upon this review, other than the below, the Company did not identify any other additional subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

On July 19, 2022, the Company and the Lender entered into Amendment No. 2 (the “Credit Facility Amendment No. 2”) to the Loan and Security Agreement, dated as of March 13, 2020, between the Lender and the Company, as amended by Amendment No. 1, dated as of July 21, 2021, between the Lender and the Company.  Also on July 19, 2022, the Company and the Lender entered into an Amended and Restated Fee Letter (the “Amended Fee Letter”) in connection with the Credit Facility Amendment No. 2. The Credit Facility Amendment No. 2 did not modify the aggregate amount of the revolving commitment or the interest rate applicable to the loans.

The changes to the Siena Credit Facility provided for in the Credit Facility Amendment No. 2 include, among other things, the following:

(i)
The extension of the maturity date from March 13, 2023 to March 13, 2025; and

(ii)
The termination of the existing blocked account control agreement and entry into a new “springing” deposit account control agreement, permitting the Company to direct the use of funds in its deposit account until such time as (a) the sum of excess availability under Siena Credit Facility (as amended by the Credit Facility Amendment) and unrestricted cash is less than $5 million for 3 consecutive business days or (b) an event of default occurs and is continuing.

In addition, the Amended Fee Letter requires the Company, while it retains the ability to direct the use of funds in the deposit account, to maintain outstanding borrowings of at least $2,250,000 in principal amount. If the Company does not have the ability to direct the use of funds in the deposit account, then the Amended Fee Letter requires the Company to pay interest on at least $2,250,000 principal amount of loans, whether or not such amount of loans is actually outstanding.

The Company has evaluated all events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were available to be issued.  Based upon this review, the Company did not identify any other additional subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (as adjusted for a change in accounting principle)

Forward Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q for the period ended June 30, 2022 (this “Report”), including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts are “forward-looking statements” within the meaning of the U.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “project”, “plan” or “continue” or the negative thereof or other similar words.  The Company cautions readers not to place undue reliance on any such forward-looking statements, each of which involves certain risks and uncertainties, including, but not limited to, those listed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Form 10-K”), and in our other filings with the Securities and Exchange Commission (the “SEC”).  Such risks and uncertainties could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements.  Any such risks and uncertainties may also be exacerbated by the ultimate impact of the COVID-19 pandemic and the re- emergence of virus variants, supply chain disruptions, inflation which is unknown at this time and the Russia/Ukraine conflict and its impact on freight costs.  In addition, statements made in this Report about the COVID-19 pandemic and the potential effects and impacts of the COVID-19 pandemic on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the COVID-19 pandemic, actions taken by governmental authorities and businesses in response to the COVID-19 pandemic and any further resurgences or variants, vaccination rates and the direct and indirect impact of the COVID-19 pandemic on our employees, customers and third parties with which we conduct business, including difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions.  Although management has taken steps to mitigate any negative effect of such risks and uncertainties, including the impact of the COVID-19 pandemic, significant unfavorable changes could severely impact the assumptions used.  Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect the impact of subsequent events or circumstances, except as required by law.  As used in this Report, unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” and “TransAct” refer to the consolidated operations of TransAct Technologies Incorporated and its consolidated subsidiaries.

Overview
TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets including food service technology, point of sale (“POS”) automation and casino and gaming.  Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca®, brand names.  During 2019, we launched a new line of products for the food service technology market, the BOHA! branded suite of cloud-based applications and companion hardware solutions.  The BOHA! software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production in the back-of-house operations.  Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents, as well as printed logging and plotting of data.  We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, and select distributors, as well as directly to end-users.  Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific. We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers. Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in the restaurant and hospitality, retail, casino and gaming, and government markets.  Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products.  We operate in one reportable segment, the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.
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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, increased freight costs, and 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 again are beginning 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.

Below is a discussion of the impact we have experienced from the COVID-19 pandemic, and that we believe will continue to experience for the foreseeable future in each of our markets.

Food service technology and POS automation.  In both our food service