What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-12 compared with 2020-03-16 · 267 added, 588 removed, 111 unchanged (89% of the section changed)

Management's Discussion and Analysis of Financial

Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto.

During the year ended December 31, 2019, we launched our BOHA!

software-as-a-service (“SaaS”)-based software and hardware ecosystem.

The year ended December 31, 2020 was a very challenging year, as the COVID-19 pandemic unexpectedly occurred and significantly impacted our and our customers’ businesses.

The pandemic caused us to quickly react and take actions and measures to reduce costs, increase liquidity and protect our employees.

The good news is that TransAct persevered and made it through these difficult times.

Even with the pandemic raging, we continued to focus our efforts on the sales execution and growing revenue of BOHA!

software-as-a-service (“SaaS”)-based software and hardware ecosystem launched in 2019.

is a comprehensive ecosystem of cloud-based SaaS software applications and hardware designed to help restaurant and food service companies automate their back-of-house operations.

represents the first single-vendor solution to allow

customers to choose from any combination of applications for inventory management, temperature monitoring of food and equipment, food safety labeling, food recalls, checklists & procedures, equipment service management, timers and delivery

In order to accelerate the investment in sales and marketing and continued product development of the BOHA!

ecosystem, the Board of Directors announced the Company will cease our quarterly dividend on the Company’s common stock.

final dividend payment was made in December 2019.

During 2019, our sales decreased due to declines in all markets other than food service technology.

POS automation and banking sales

declined due to lower sales of our Ithaca 9000 printer to McDonald’s in 2019 compared to higher than normal levels in 2018.

Casino and gaming sales were lower in 2019 due to a large order from a domestic casino operator during 2018 that did not

reoccur in 2019 and lower casino and gaming sales to Europe in 2019 compared to 2018 due to a large order from a slot machine manufacturer to replace a competitor’s printer.

Sales for our lottery market and TransAct Services Group (“TSG”) market

decreased in 2019 compared to 2018 due to lower sales to International Gaming Technology and its subsidiaries (“IGT”).

TSG sales to IGT decreased due to lower sales of spare parts in the lottery market during 2019 compared to 2018.

declines were as expected as we are no longer focusing on the lottery markets and therefore we expect lottery and TSG sales to continue to decrease in 2020 compared to 2019.

During the year ended December 31, 2019, our total net sales decreased 16% to approximately $45.7 million.

We have reclassified

sales of labels and other recurring revenue items, which includes extended warranty and service contracts, and technical support services related to our food service technology market, previously included in TSG to Food Service Technology for all

periods presented in this Form 10-K.

represents the first single-vendor solution to allow customers to choose from any combination of applications for inventory management, temperature monitoring of food and equipment, food safety labeling, food recalls, checklists & procedures, equipment service management, timers and delivery management.

Despite the negative impact from the COVID-19 pandemic explained above, food service technology sales increased in 2020 compared to 2019 due primarily to sales of our BOHA!

software, labels and other recurring revenue to both new customers and our existing installed base of BOHA!

During 2020, sales in all markets other than food service technology decreased primarily due to the negative impact from the COVID-19 pandemic.

POS automation and banking sales declined primarily due to lower sales of our Ithaca 9000 printer to McDonald’s in 2020 compared to 2019.

Casino and gaming sales were lower in 2020 due to casino closures and gradual reopenings in the second half of 2020 in response to the COVID-19 pandemic.

Sales for our lottery market decreased as we exited the lottery market in 2019 and completed our final sale of lottery printers in 2020.

Printrex sales declined primarily due to the negative impact from lower worldwide oil prices largely attributable to the COVID-19 pandemic.

TSG sales decreased in 2020 compared to 2019 primarily due to lower sales of our legacy consumable products and service sales due to the exit of the banking market in 2018.

During the year ended December 31, 2020, our total net sales decreased 33% to approximately $30.6 million compared to the year ended December 31, 2019.

See the table below for a breakdown of our sales by market:

(In thousands)

(In thousands, except percentages)

December 31, 2020

5 unchanged sentences

In the food service technology market, we focus on providing hardware products, which include terminals, handheld devices, tablets, temperature probes and temperature sensors;

in addition to cloud-based software applications, labels and

other recurring revenue items.

in addition to cloud-based software applications, labels and other recurring revenue items.

In 2019, we launched our BOHA!

solution, which combines our latest generation terminal, cloud-based software applications and hardware into a unique solution to automate the back-of-house operations in restaurants and

food service operations.

Food service technology sales increased in 2019 primarily due to a 264% increase in recurring revenue attributable to sales of BOHA!, which sales reflect subscriptions for the related software applications, as well as sales

of labels, extended warranty and service contracts, and technical support services.

We expect food service technology to increase in 2020 as we plan to accelerate investments in selling and marketing and product development to exploit the

significant market opportunities.

Sales of our POS automation and banking products decreased 21% in the year ended December 31, 2019 compared to the year ended

December 31, 2018.

solution, which combines our latest generation terminal, cloud-based software applications and hardware into a unique solution to automate the back-of-house operations in restaurants and food service operations.

Food service technology sales increased in 2020 primarily due to a 96% increase in recurring revenue attributable to sales of BOHA!, which sales reflect subscriptions for the related software applications, as well as sales of labels, extended warranty and service contracts, and technical support services.

Sales of our POS automation and banking products decreased 35% in the year ended December 31, 2020 compared to the year ended December 31, 2019.

In the POS market, we focus primarily on supplying printers that print receipts or linerless labels for customers in the restaurant and quick serve markets.

During the year ended December 31, 2019, sales of our Ithaca 9000

printer to McDonald’s slowed from the record pace of the prior two years, which we expect to continue in 2020.

In the banking market, we had focused mainly on supplying printers for use in bank teller stations at banks and financial institutions

primarily in the U.S.

As we continue to shift our focus to our new food service technology market, we do not expect any future sales of these legacy products, as we exited the banking market at the end of 2018.

During the year ended December 31, 2020, sales of our Ithaca 9000 printer to McDonald’s decreased.

We believe the decrease is a result of the COVID-19 pandemic.

In the banking market, which we exited at the end of 2018, we focused mainly on supplying printers for use in bank teller stations at banks and financial institutions primarily in the U.S.

We exited the banking market in order to shift focus to our food service technology market and we do not expect any future sales of these legacy products.

Sales of our casino and gaming products decreased 49% in 2020 compared to 2019.

In our casino and gaming market, our focus lies

primarily in supplying printers worldwide for use in slot machines at casinos and racetracks, as well as in other electronic gaming devices that print tickets or receipts.

Additionally, we supplement these printer sales with revenue from EPICENTRAL™,

our promotional printing system that enables casino operators to create promotional coupons and marketing messages and print them real time at the slot machine.

The decrease of casino and gaming printer sales is primarily due to decreased domestic

and international sales of our thermal casino printers of 18% and 17%, respectively.

The decrease in domestic thermal casino printers was driven primarily by lower sales to our OEMs and a large order of replacement printers from a domestic casino

operator in 2018 that did not reoccur in 2019.

Total casino and gaming sales also decreased, although to a lesser extent, due to a 23% decrease in sales of our international off-premise gaming printers.

In our casino and gaming market, our focus lies primarily in supplying printers worldwide for use in slot machines at casinos and racetracks, as well as in other electronic gaming devices that print tickets or receipts.

Additionally, we supplement these printer sales with revenue from EPICENTRAL™, our promotional printing system that enables casino operators to create promotional coupons and marketing messages and print them in real time at the slot machine.

The decrease of casino and gaming printers was d riven by industry-wide weakness resulting in lower sales to our OEMs that were impacted by casino closures in response to the COVID-19 pandemic, which were in place for most of the second quarter of 2020 before gradually reopening at reduced capacities during the second half of 2020.

During the year ended December 31, 2020, total lottery printer sales decreased approximately 37% due to lower sales to IGT.

sales to IGT each year are directly dependent on the timing and number of new and upgraded lottery terminal installations IGT performs and are not indicative of IGT’s overall business or revenue.

On December 31, 2019, we decided to end our

non-exclusive agreement with IGT and exit the lottery market as we have shifted our focus to our higher-value, technology-enabled market for food service technology and casino and gaming products.

We do expect IGT to make a last time buy of lottery

printers in 2020, with no future sales expected beyond 2020.

Sales of our Printrex branded printers include wide format, rack mounted and vehicle mounted thermal printers used by customers to

log and plot oil field and down hole well drilling data in the oil and gas exploration industry.

During the year ended December 31, 2019, we experienced a 10% decline in Printrex oil and gas printer sales.

Although we will continue to fulfill

orders from existing customers during 2020, we have shifted our focus away from this market and towards our higher value, technology enabled restaurant solution terminals and casino and gaming products.

TSG, which sells service, replacement parts and consumable products, including receipt paper, ribbons and inkjet cartridges,

continues to offer a recurring revenue stream for the Company.

TSG sales decreased 12% in 2019 from 2018 primarily due to lower sales of lottery printer spare parts to IGT for a legacy lottery printer.

Although the installed base of our thermal

lottery printers remains large, we expect sales of spare parts to IGT to decline and overall TSG sales to decrease in 2020 compared to 2019.

Operationally, our gross margin was 47.9% in 2019, a decrease of 110 basis points from 2018 when we reached our highest reported full

year gross margin of 49%.

During 2019 our operating margin declined to 0.7% compared to 12.4% in 2018 primarily due to the 16% decline in sales and 8% increase

in operating expenses.

Operating expenses increased primarily due to increased investments in the launch of BOHA!.

During 2020, we expect operating expenses to increase more significantly compared to 2019, as we accelerate investment in engineering

and selling and marketing to take advantage of the opportunities we see in the food service technology market.

We reported net income of $0.5 million and net income per diluted share of $0.07 for 2019, compared to $5.4 million and net income

per diluted share of $0.70 for 2018.

In terms of cash flow for 2019 we generated $4.8 million of cash from operating activities.

We also returned $2.7 million to our shareholders during 2019 in the form of cash dividends.

We ended the year with

cash and cash equivalents of $4.2 million and no debt on our Consolidated Balance Sheet at December 31, 2019.

On December 31, 2019, we ended our non-exclusive agreement with IGT and exited the lottery market as we shifted our focus to our higher-value, technology-enabled market for food service technology and casino and gaming products.

During 2020 IGT made a final purchase of lottery printers and we expect no future sales of our lottery printer.

Sales of our Printrex branded printers include wide format, rack-mounted and vehicle-mounted thermal printers used by customers to log and plot oil field and down hole well drilling data in the oil and gas exploration industry.

During the year ended December 31, 2020, we experienced a 74% decline in Printrex oil and gas printer sales as a result of lower worldwide oil prices as a result of the COVID-19 pandemic.

Although we will continue to fulfill orders from existing customers during 2021, we have shifted our focus away from this market and towards our higher value, technology enabled food service technology terminals and casino and gaming products.

TSG, which sells service, replacement parts and consumable products, including receipt paper, ribbons and inkjet cartridges, continues to offer a recurring revenue stream from mostly our legacy products.

TSG sales decreased 29% in 2020 from 2019 primarily due to lower sales of consumable products for our legacy banking printers and lower service sales primarily related to a service contract with a banking customer that is expected to end in 2021.

We expect TSG sales to continue to decline in 2021 due to the ending of the service contract and lower expected sales of our lottery printer spare parts to IGT for our legacy lottery printer.

Operationally, our gross margin was 42.3% in 2020, a decrease of 560 basis points from 2019 due to the 33% sales decline during 2020 and the impact of fixed manufacturing overhead on lower sales volume as a result of the impact of the COVID-19 pandemic.

During 2020, our operating margin declined from 0.7% in 2019 to negative 26.7% in 2020 due to the 33% decline in sales and 560 basis point decrease in gross margin.

Operating expenses decreased by 2% due to cost saving initiatives implemented in March 2020 and maintained through 2020 in response to the negative impact from the COVID-19 pandemic.

During 2021, we expect operating expenses to increase significantly compared to 2020, as we resume our investment in selling and marketing to take advantage of the opportunities we see in the food service technology market.

We reported a net loss of $5.6 million and net loss per diluted share of $0.72 for 2020, compared to net income of $0.5 million and net income per diluted share of $0.07 for 2019.

In terms of cash flow, for 2020 we used $3.5 million of cash in operating activities.

During 2020, we completed an underwritten public offering (the “Offering”) which raised net proceeds of $8.7 million and the Company was granted the $2.2 million PPP Loan .

We ended the year with cash and cash equivalents of $10.4 million on our Consolidated Balance Sheet at December 31, 2020.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make

estimates, judgments and assumptions that affect both Balance Sheet items and Statement of Income categories.

Such estimates and judgments are based upon historical experience and certain assumptions that are believed to be reasonable in the

particular circumstances.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect both Balance Sheet items and Statement of Operations categories.

Such estimates and judgments are based upon historical experience and certain assumptions that are believed to be reasonable in the particular circumstances.

We evaluate our assumptions on an ongoing basis by comparing actual results with our estimates.

Actual results may differ from the original estimates.

The following accounting policies are those that we believe to be most critical in the preparation of our financial

The following accounting policies are those that we believe to be most critical in the preparation of our financial statements.

These items utilize assumptions and estimates about the effect of future events that are inherently uncertain and are therefore based on our judgment.

Please refer to Note 2 – Summary of significant accounting policies in the

accompanying Consolidated Financial Statements for a complete listing of our accounting policies.

Revenue Recognition – We account for revenue in accordance with ASC Topic 606:

Revenue from Contracts with Customers.

Please refer to Note 2 – Summary of significant accounting policies in the accompanying Consolidated Financial Statements for a complete listing of our significant accounting policies.

Revenue Recognition – We account for revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers (“ASC 606”).

We adopted ASC 606 effective January 1, 2018 and elected the modified retrospective approach.

The results for

periods before 2018 were not adjusted for the new standard and there was no cumulative effect for the change in accounting at the date of adoption.

In accordance with ASC 606, a performance obligation is a promise in a contract with a customer to

transfer a distinct good or service to the customer.

Some of our contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations (most commonly when contracts include a hardware

product, software and extended warranties).

In accordance with ASC 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer.

Some of our contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations (most commonly when contracts include a hardware product, software and extended warranties).

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring

services to the customer.

the transaction price utilizing either the “expected value” method or the “most likely amount” method depending on the nature of the variable consideration.

Variable consideration is included in the transaction price if, in the Company’s judgment,

it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

For a majority of our revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes

revenue as of a point of time.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer.

To the extent the transaction price includes variable consideration, such as price protection, reserves for returns and other allowances, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the “expected value” method or the “most likely amount” method depending on the nature of the variable consideration.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

For a majority of our revenue, which consists of printers, terminals, consumables, and replacement parts, the Company recognizes revenue as of a point of time.

The transaction price is recognized upon shipment of the order when control of the goods is transferred to the customer and at the time the performance obligation is fulfilled.

We also sell a software solution in our

casino and gaming market, EPICENTRAL™, that enables casino operators to create promotional coupons and marketing messages and to print them in real-time at the slot machine.

EPICENTRAL TM is primarily comprised of both a software

component, which is licensed to the customer, and a hardware component.

We also sell a software solution in our casino and gaming market, EPICENTRAL™, that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine.

EPICENTRAL TM is primarily comprised of both a software component, which is licensed to the customer, and a hardware component.

EPICENTRAL™ software and hardware are integrated to deliver the system’s full functionality.

The transaction prices from EPICENTRAL™ software license and hardware are

recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer.

For out-of-warranty repairs, the transaction price is recognized after the repair work is completed and the printer or

terminal is returned to the customer, as control of the product is transferred to the customer and our performance obligation is completed.

Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls

the asset as it is being produced, or if the product being produced for the customer has no alternative use and we have a contractual right to payment.

The transaction prices from EPICENTRAL™ software license and hardware are recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer.

For out-of-warranty repairs, the transaction price is recognized after the repair work is completed and the printer or terminal is returned to the customer, as control of the product is transferred to the customer and our performance obligation is completed.

Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and we have a contractual right to payment.

For our separately priced extended warranty, BOHA!

cloud-based software applications, technical

support for our food service technology terminals and maintenance agreements (including free one-year maintenance received by the customers upon completion of EPICENTRAL™ installation) revenue is recognized over time as the customer receives the

cloud-based software applications, technical support for our food service technology terminals and maintenance agreements (including free one-year maintenance received by customers upon completion of EPICENTRAL™ installation) revenue is recognized over time as the customer receives the benefit.

The transaction price from the maintenance services is recognized ratably over time, using output methods, as control of the services is transferred to the customer.

The cloud-based software component of BOHA!

allows customers to use

hosted software over the contract period without taking possession of the software and are provided on a subscription basis and is recognized ratably over the contract period.

For extended warranties, the transaction price is recognized ratably over

the warranty period, using output methods, as control of the services is transferred to the customer.

When there is more than one performance obligation in a customer arrangement, the Company typically uses the “standalone selling

price” method to determine the transaction price to allocate to each performance obligation.

Our cloud-based BOHA!

software allows customers to use hosted software over the contract period without taking possession of the software and are provided on a subscription basis and is recognized ratably over the contract period.

For extended warranties, the transaction price is recognized ratably over the warranty period, using output methods, as control of the services is transferred to the customer.

When there is more than one performance obligation in a customer arrangement, the Company typically uses the “standalone selling price” method to determine the transaction price to allocate to each performance obligation.

The Company sells the performance obligations separately and has established standalone selling prices for its products and services.

In the case of an

overall price discount, the discount is applied to each performance obligation proportionately based on standalone selling price.

To determine the standalone selling price for initial EPICENTRAL™ installations, the Company uses the adjusted market

assessment approach.

Receivable – We have standardized credit granting and review policies and procedures for all customer accounts, including:

In the case of an overall price discount, the discount is applied to each performance obligation proportionately based on standalone selling price.

To determine the standalone selling price for initial EPICENTRAL™ installations, the Company uses the adjusted market assessment approach.

Accounts Receivable – We have standardized credit granting and review policies and procedures for all customer accounts, including:

credit reviews of all new customer accounts;

ongoing credit evaluations of current customers;

credit limits and

payment terms based on available credit information;

credit limits and payment terms based on available credit information;

and adjustments to credit limits based upon payment history and the customer’s current creditworthiness.

We also provide an estimate of doubtful accounts based on historical experience and

specific customer collection issues.

Our allowance for doubtful accounts as of December 31, 2019 was $221 thousand, or 3.3% of outstanding accounts receivable, which we believe is appropriate considering the overall quality of our accounts

We also provide an estimate of doubtful accounts based on historical experience and specific customer collection issues.

Our allowance for doubtful accounts as of December 31, 2020 was $220 thousand, or 6.1% of outstanding accounts receivable, which we believe is appropriate considering the overall quality of our accounts receivable.

Although credit losses have historically been within expectations and the reserves established, there is no assurance that our credit loss experience will continue to be consistent with historical experience.

Inventories –

Our inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) or net realizable value.

We review net realizable value based on estimated selling prices in the ordinary

course of business less estimated costs of completion, disposal and transportation, historical usage and estimates of future demand.

Assumptions are reviewed at least quarterly and adjustments are made, as necessary, to reflect changing market

Inventories – Our inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) or net realizable value.

We review net realizable value based on estimated selling prices in the ordinary course of business less estimated costs of completion, disposal and transportation, historical usage and estimates of future demand.

Assumptions are reviewed at least quarterly and adjustments are made, as necessary, to reflect changing market conditions.

Based on these reviews, inventory write-downs are recorded, as necessary, to reflect estimated obsolescence, excess quantities and net realizable value.

Should circumstances change and we determine that additional inventory is subject to

obsolescence, additional write-downs of inventory could result in a charge to income.

Intangible Assets – We acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets.

Should circumstances change and we determine that additional inventory is subject to obsolescence, additional write-downs of inventory could result in a charge to income.

Goodwill and Intangible Assets – We acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets.

The determination of the value of intangible assets requires management to make estimates and assumptions.

In accordance with ASC 350-20 “Goodwill”, acquired goodwill is not amortized, but is subject to impairment testing at least annually and when an event occurs or circumstances change, which indicate it is more likely than not an impairment exists.

Factors considered that may trigger an impairment review are:

In accordance with ASC 350-20 “Goodwill,” acquired goodwill is not amortized but is subject to impairment testing at least annually and when an event occurs or circumstances change that indicate it is more likely than not an impairment exists.

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of December 31) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.

The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards.

Under the qualitative assessment, management considers relevant events and circumstances including, but not limited to, macroeconomic conditions, industry and market considerations, Company performance, and events directly affecting the Company.

If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach.

Factors considered that may trigger an interim period impairment review of either acquired goodwill or intangible assets are:

significant underperformance relative to expected historical or projected future operating results;

significant changes in the manner of use of acquired assets or the strategy for the

overall business;

significant changes in the manner of use of acquired assets or the strategy for the overall business;

significant negative industry or economic trends;

and significant decline in market capitalization relative to net book value.

Definite-lived intangible assets are amortized and are tested for impairment when appropriate.

reported $2.6 million of goodwill and $0.8 million of unamortized definite-lived intangible assets at December 31, 2019.

We have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was substantially

higher than our carrying value based on our assessment as of December 31, 2019 when the impairment review was performed.

– In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate.

This involves estimating the actual current tax exposure together with assessing temporary differences

between the tax basis of certain assets and liabilities and their reported amounts in the financial statements, as well as net operating losses, tax credits and other carryforwards.

These differences result in deferred tax assets and liabilities,

which are reflected in our Consolidated Balance Sheets.

We then assess the likelihood that the deferred tax assets will be realized from future taxable income, and to the extent that we believe that realization is not likely, we establish a

valuation allowance.

Significant judgment is required in determining the provision for income taxes and, in particular, any valuation allowance or tax

reserves with respect to our deferred tax assets and uncertain tax positions.

On a quarterly basis, we evaluate the recoverability of our deferred tax assets based upon historical results and forecasted taxable income over future years, and match

this forecast against the basis differences, deductions available in future years and the limitations allowed for net operating loss and tax credit carryforwards to ensure that there is adequate support for the realization of the deferred tax assets.

deferred tax assets in the future, an adjustment to the valuation allowance or tax reserves would be charged as a reduction to income in the period such determination was made.

Likewise, should we determine that we would be able to realize future

deferred tax assets in excess of its net recorded amount, an adjustment to the valuation allowance would increase net income in the period such determination was made.

We account for income taxes in accordance with ASC 740, “Income Taxes.” Among other things this provision prescribes a minimum

recognition threshold that an income tax position must meet before it is recorded in the reporting entity’s financial statements.

It also requires that the effects of such income tax positions be recognized only if, as of the balance sheet reporting

date, it is “more likely than not” (i.e., more than a 50% likelihood) that the income tax position will be sustained based solely on its technical merits.

When making this assessment, management must assume that the responsible taxing authority will

examine the income tax position and have full knowledge of all relevant facts and other pertinent information.

The accounting guidance also clarifies the method of accruing for interest and penalties when there is a difference between the amount

claimed, or expected to be claimed, on a company’s income tax returns and the benefits recognized in the financial statements.

See Note 10 to the consolidated financial statements for further details of the impact of the Tax Reform Act.

We generally warrant 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.

If actual future product repair rates or the actual costs of material and labor differ from the estimates, adjustments to the accrued warranty liability and related warranty expense

would be made.

Compensation – We calculate share-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation” using the Black-Scholes option-pricing model to calculate the fair value of share-based awards.

The key assumptions

for this valuation method include the expected term of an option grant, stock price volatility, risk-free interest rate, and dividend yield.

Finite lived intangible assets are amortized and are tested for impairment when appropriate.

During the three months ended March 31, 2020, our stock price declined to the lowest price since 2009.

We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event and an indicator that it was more likely than not that the carrying value of goodwill exceeded fair value.

Therefore, we concluded that quantitative analyses were required to be performed due to the triggering event occurring during the first quarter of 2020.

We utilized an implied market value method under the market approach to calculate the fair value of the Company as of March 31, 2020, which we determined was the best approximation of fair value in the current social and economic environment.

Based on our interim impairment assessment as of March 31, 2020, we determined that no goodwill or intangible asset impairment occurred and the fair value of goodwill was substantially higher than our carrying value.

As of December 31, 2020, upon the completion of our annual assessment for impairment, we have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was substantially higher than our carrying value.

Income Taxes – In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate.

This involves estimating the actual current tax exposure together with assessing temporary differences between the tax basis of certain assets and liabilities and their reported amounts in the financial statements, as well as net operating losses, tax credits and other carryforwards.

These differences result in deferred tax assets and liabilities, which are reflected in our Consolidated Balance Sheets.

We then assess the likelihood that the deferred tax assets will be realized from future taxable income, and to the extent that we believe that realization is not likely, we establish a valuation allowance.

Significant judgment is required in determining the provision for income taxes and, in particular, any valuation allowance or tax reserves with respect to our deferred tax assets and uncertain tax positions.

On a quarterly basis, we evaluate the recoverability of our deferred tax assets based upon historical results and forecasted taxable income over future years, and match this forecast against the basis differences, deductions available in future years and the limitations allowed for net operating loss and tax credit carryforwards to ensure that there is adequate support for the realization of the deferred tax assets.

Although we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the valuation allowance or tax reserves would be charged as a reduction to income in the period such determination was made.

Likewise, should we determine that we would be able to realize future deferred tax assets in excess of its net recorded amount, an adjustment to the valuation allowance would increase net income in the period such determination was made.

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”) Among other things this provision prescribes a minimum recognition threshold that an income tax position must meet before it is recorded in the reporting entity’s financial statements.

It also requires that the effects of such income tax positions be recognized only if, as of the balance sheet reporting date, it is “more likely than not” (i.e., more than a 50% likelihood) that the income tax position will be sustained based solely on its technical merits.

When making this assessment, management must assume that the responsible taxing authority will examine the income tax position and have full knowledge of all relevant facts and other pertinent information.

The accounting guidance also clarifies the method of accruing for interest and penalties when there is a difference between the amount claimed, or expected to be claimed, on a company’s income tax returns and the benefits recognized in the financial statements.

Warranty – We generally warrant 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.

If actual future product repair rates or the actual costs of material and labor differ from the estimates, adjustments to the accrued warranty liability and related warranty expense would be made.

Share-Based Compensation – We calculate share-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation” using the Black-Scholes option-pricing model to calculate the fair value of share-based awards.

The key assumptions for this valuation method include the expected term of an option grant, stock price volatility, risk-free interest rate, and dividend yield.

We account for forfeitures as they occur.

1 unchanged sentence

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

sales, which include printer, terminal and software sales as well as sales of replacement parts, consumables and maintenance and repair services, by market for the years ended December 31, 2019 and 2018 are detailed in the below table.

reclassified sales of labels and other recurring revenue items, which includes extended warranty and service contracts, and technical support services related to our food service technology market, previously included in TSG to Food Service

Technology for all periods presented in this Form 10-K.

(In thousands)

Net sales, which include printer, terminal and software sales as well as sales of replacement parts, consumables and maintenance and repair services, by market for the years ended December 31, 2020 and 2019 are detailed in the below table.

(In thousands, except percentages)

December 31, 2020

6 unchanged sentences

Net sales for 2020 decreased $15.2 million, or 33%, from 2019.

Printer, terminal and other hardware sales volume decreased by 22% to

approximately 111,000 units, driven primarily by a 17% decrease in unit volume from the casino and gaming market and, to a lesser extent, a 66% and 22% decrease in the lottery market and POS automation and banking market, respectively.

selling price of our printers, terminals and other hardware increased 2% during 2019 compared to 2018.

International sales decreased $0.7 million, or 6%, primarily driven by a 7% decrease of international casino and gaming sales.

increase was partially offset by a 31% increase from our international food service technology market during 2019 compared to 2018.

Printer, terminal and other hardware sales volume decreased by 44% to approximately 62,000 units, due to volume decreases in almost all our markets except for a slight increase in food service technology terminal sales.

The volume decrease in 2020 was driven primarily by a 52% decrease in unit volume from the casino and gaming market and, to a lesser extent, a 28% decrease in the POS automation and banking market and 50% decrease in the lottery market.

The average selling price of our printers, terminals and other hardware increased 2% during 2020 compared to 2019 primarily due to a lower level of POS automation and banking printer sales, which sell at a lower price than our other products.

The sales volume decreases were partially offset by a $1.9 million, or 96%, increase in software, labels and other recurring revenue from our food service technology market.

International sales for 2020 decreased $4.6 million, or 44%, compared to 2019, primarily due to a 51% decrease of international casino and gaming sales.

Food service technology:

primary offering in the food service technology market is our BOHA!

ecosystem, which combines our latest generation terminal, cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in

restaurants and food service operations.

Our primary offering in the food service technology market is our BOHA!

ecosystem, which combines our latest generation terminal, cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in restaurants, convenience stores and food service operations.

The software component of BOHA!

consists of a suite of SaaS-based applications, including applications for inventory management, temperature monitoring of food and equipment, timers, food safety labeling,

food recalls, checklists and procedures, equipment service management, and delivery management.

consists of a suite of software-as-a-service (“SaaS”)-based applications, including applications for inventory management, temperature monitoring of food and equipment, timers, food safety labeling, food recalls, checklists and procedures, equipment service management, and delivery management.

These applications are combined into a single platform with the associated hardware, which includes the BOHA!

terminal, handheld devices, tablets,

temperature probes and temperature sensors.

terminal combines the software and hardware components in a device that includes an operating system, touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation

labels, grab and go labels for prepared foods, and “enjoy by” date labels.

terminal is equipped with the TransAct Enterprise Management System to ensure that only approved applications and functions are available on the device, and allows

over-the-air updates to the applications and operating system.

helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-serve restaurants, convenience stores, hospitality establishments and

contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations.

terminal, handheld devices, tablets, temperature probes and temperature sensors.

terminal combines the software and hardware components in a device that includes an operating system, touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels, grab and go labels for prepared foods, and “enjoy by” date labels.

terminal is equipped with the TransAct Enterprise Management System to ensure that only approved applications and functions are available on the device and allows over-the-air updates to the applications and operating system.

helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-serve restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations.

Recurring revenue from BOHA!

is generated by software sales, including software subscriptions that

are charged to customers upfront on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services.

In the food service technology market, we use an internal sales force and, to a lesser

extent, distributors, to solicit sales directly from end users.

Sales of our worldwide food service technology products for the years ended December 31, 2019 and 2018 is as follows (in thousands, except percentages):

(In thousands)

is generated by software sales, including software subscriptions that are charged to customers upfront on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services.

Sales of our worldwide food service technology products for the years ended December 31, 2020 and 2019 is as follows:

(In thousands, except percentages)

December 31, 2020

1 unchanged sentence

International

(In thousands)

(In thousands, except percentages)

December 31, 2020

1 unchanged sentence

Software, labels and other recurring revenue

The increase in food service technology sales in 2019 compared to 2018 was driven by sales of our BOHA!

software, labels and other

recurring revenue.

The increase in food service technology sales in 2020 compared to 2019 was driven primarily by sales of our BOHA!

software, labels and other recurring revenue.

Sales of BOHA!

software, recognized on a SaaS subscription basis, labels and other recurring revenue increased by 264%, including a 241% increase in label sales and an eight-fold increase in software sales (though off a low base

Hardware sales declined approximately 9% primarily due to lower sales of our AccuDate 9700 terminal to our former U.S.

Sales of our new BOHA!

terminal and other hardware products partially offset the decline of the AccuDate

9700 terminal, increasing 4% in 2019 compared to 2018.

We expect food service technology sales to increase in 2020 compared to 2019 as we convert the investments we have made, and will continue to make in our BOHA!

products, into sales, including

recurring software subscription, service and label sales.

International food service technology sales increased during 2019 compared to 2018 primarily due to increased sales of the BOHA!

ecosystem to a casino operator in Asia and a quick serve chain in Canada.

software recognized on a SaaS subscription basis, labels and other recurring revenue increased by 96%, primarily due to increased label sales and, to a lesser extent, increased software sales, compared to the prior year period.

Sales for the prior year period were significantly lower due to the launch of BOHA!

not occurring until March 2019.

The large increase of label sales in 2020 was primarily due to an initial stocking order to a distributor of a large convenience store chain as well as increased usage by existing customers as the installed terminal base continued to increase.

Hardware sales in 2020 decreased 6% compared to 2019 primarily due to the impact from the COVID-19 pandemic that resulted in widespread store closings and substantially reduced customer operations.

POS automation and banking:

from the POS automation and banking market includes sales of thermal printers used primarily by quick serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or to print on linerless

In addition, revenue includes sales of inkjet printers used by banks, credit unions and other financial institutions to print deposit or withdrawal receipts and/or validate checks at bank teller stations.

As of December 31, 2018, we exited

the banking market, but will continue to fulfill orders from legacy customers until our inventory is exhausted and to sell consumable products through TSG that are compatible with the previously sold inkjet printers.

A summary of sales of our

worldwide POS automation and banking products for the years ended December 31, 2019 and 2018 is as follows:

(In thousands)

Revenue from the POS automation and banking market includes sales of thermal printers used primarily by quick serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or print on linerless labels.

Prior to 2020, revenue included sales of inkjet printers used by banks, credit unions and other financial institutions to print deposit or withdrawal receipts and/or validate checks at bank teller stations.

We exited the banking market during 2018.

A summary of sales of our worldwide POS automation and banking products for the years ended December 31, 2020 and 2019 is as follows:

(In thousands, except percentages)

December 31, 2020

1 unchanged sentence

International

The decrease in domestic POS automation and banking sales in 2019 compared to 2018 was primarily driven by a 20%

decrease in domestic sales of our Ithaca® 9000 printer, as sales to McDonald’s decreased during 2019 compared to 2018, and the decrease in international POS automation and banking sales was primarily due to lower sales of our Ithaca® 9000 printer to

our Canadian distributor for McDonald’s during 2019 compared to 2018.

We expect POS automation and banking sales to decrease due to lower expected sales of our Ithaca® 9000 printer to McDonald's in 2020 compared to 2019.

The decrease in both domestic and international POS automation and banking sales in 2020 compared to 2019 was primarily driven by a 33% decrease in domestic and international sales of our Ithaca® 9000 printer largely attributable to fewer sales to McDonald’s which we believe resulted from the COVID-19 pandemic.

Casino and Gaming:

from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos and racetracks and other gaming

venues worldwide.

Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals at

non-casino gaming establishments.

Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos and racetracks and other gaming venues worldwide.

Revenue from this market also includes royalties related to our patented casino and gaming technology.

In addition, casino and gaming market revenue includes sales of the EPICENTRAL™ print system, our software

solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them real-time at the slot machine.

In addition, casino and gaming market revenue includes sales of the EPICENTRAL™ print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine.

A summary of sales of our worldwide casino and gaming products for the years ended December 31, 2020 and 2019 is as follows:

(In thousands)

(In thousands, except percentages)

December 31, 2020

1 unchanged sentence

International

The decrease in domestic sales of our casino and gaming products during 2019 compared to 2018 was due primarily to a 18% decrease in

domestic sales of our thermal casino printer, driven primarily by a large order from a domestic casino operator for replacement printers during 2018 that did not reoccur in 2019, as well as lower sales to our domestic OEMs.

Additionally, domestic

sales of our off-premise gaming printers decreased 95% during 2019 compared to 2018 due to sales to an OEM in the 2018 period that did not reoccur in 2019.

Domestic EPICENTRAL™ software sales decreased 60%, as we had no new installations during 2019

compared to two new installations during 2018.

Sales of EPICENTRAL™ are project based, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

The decrease in international sales in 2019 compared to 2018 was primarily due to a 17% decline in international sales of our thermal

casino printer due primarily to lower sales to a large OEM in Europe to replace a competitor’s printer .

The decrease was partially offset by a 26% increase in

international sales of our off-premise gaming printers to Europe for sports betting.

Sales of our off-premise gaming printers are largely project-oriented and therefore may fluctuate significantly from quarter-to-quarter and year-to-year.

Revenue from the

lottery market includes sales of thermal on-line and other lottery printers primarily to IGT and, to a lesser extent, other lottery system companies for various lottery applications.

A summary of sales of our worldwide lottery printers for the years

ended December 31, 2019 and 2018 is as follows:

(In thousands)

The decrease in domestic sales of our casino and gaming products during 2020 compared to 2019 was primarily due to a 50% decrease in domestic sales of our thermal casino printer, driven by industry-wide weakness resulting in lower sales to our OEMs that were impacted by casino closures in response to the COVID-19 pandemic, which were in place for most of the second quarter of 2020 before gradually reopening at reduced capacities during the second half of 2020.

This decrease was partially offset by a 73% increase in EPICENTRAL™ sales to an existing EPICENTRAL™ customer that expanded their slot machine floor.

There were no new EPICENTRAL™ software installations during 2020 or 2019.

Sales of domestic EPICENTRAL TM are project based, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

The decrease in international casino and gaming sales during 2020 compared to 2019 was primarily due to a 46% decline in sales of our thermal casino printers and a 64% decline in international sales of our off-premise gaming printers attributable to the negative impacts of the COVID-19 pandemic on the international casino and gaming industry.

Revenue from the lottery market includes sales of thermal on-line and other lottery printers primarily to IGT and, to a lesser extent, other lottery system companies for various lottery applications.

A summary of sales of our worldwide lottery printers for the years ended December 31, 2020 and 2019 is as follows:

(In thousands, except percentages)

December 31, 2020

1 unchanged sentence

International

Our sales to IGT are directly dependent on the timing and number of new and upgraded lottery terminal installations that IGT

performs, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

Our sales to IGT are not indicative of IGT’s overall business or revenue.

We allowed our non-exclusive agreement to provide lottery terminal printers to IGT

to expire on December 31, 2019 as we have decided to exit this market and to shift our focus towards our higher-value, technology enabled food service technology and casino and gaming products.

As a result, we expect IGT to make a last time buy in

2020 and expect no future sales beyond 2020.

Printrex branded

printers are sold into markets that include wide format, desktop and rack mounted and vehicle mounted black/white thermal printers used by customers to log and plot oil field, seismic and down hole well drilling data in the oil and gas exploration

On December 31, 2019, we allowed our non-exclusive agreement to provide lottery terminal printers to IGT to expire, as we decided to exit the lottery market and shift our focus towards our higher-value, technology enabled food service technology and casino and gaming products.

As a result, IGT made a final purchase of our lottery printers during the second quarter of 2020 and we do not expect any further lottery printer sales in the future.

Printrex branded printers are sold into markets that include wide format, desktop and rack mounted and vehicle mounted black/white thermal printers used by customers to log and plot oil field, seismic and down hole well drilling data in the oil and gas exploration industry.

It also includes high-speed color inkjet desktop printers used to print logs at the data centers of the oil and gas field service companies.

Prior to 2019, revenue in this market also included sales of vehicle mounted printers used to

print schematics and certain other critical information in emergency services vehicles and other mobile printing applications.

We exited this market at the end of 2018 and do not expect any future sales.

A summary of sales of our worldwide Printrex

printers for the years ended December 31, 2019 and 2018 is as follows (in thousands, except percentages):

(In thousands)

A summary of sales of our worldwide Printrex printers for the years ended December 31, 2020 and 2019 is as follows:

(In thousands, except percentages)

December 31, 2020

1 unchanged sentence

International

The decrease in sales of Printrex printers during 2019 compared to 2018 resulted from a 12% decrease in domestic and international

sales in the oil and gas market.

This decrease was partially offset by higher sales from the international medical and mobile market which we exited at the end of 2018 but continued to fulfill orders from legacy customers during 2019.

Revenue generated by our

TSG includes sales of consumable products (inkjet cartridges, ribbons, receipt paper, and other printing supplies), replacement parts, maintenance and repair services, testing services, refurbished printers, and shipping and handling charges.

sales for all periods presented in this Form 10-K exclude the sales of labels, extended warranty and service contracts, and technical support services related to our food service technology market, which have been reclassified to food service

The decrease in sales of Printrex printers in 2020 compared to 2019 resulted primarily from lower domestic sales in the oil and gas market which was negatively impacted by the decline in worldwide oil prices largely attributable to the COVID-19 pandemic.

Revenue generated by TSG includes sales of consumable products (POS receipt paper, inkjet cartridges, ribbons and other printing supplies), replacement parts, maintenance and repair services, testing services, refurbished printers, and shipping and handling charges.

A summary of sales in our worldwide TSG market for the years ended December 31, 2020 and 2019 is as follows:

(In thousands)

December 31, 2019

December 31, 2018

International

The decrease in domestic revenue from TSG for 2019 as compared to 2018 was due primarily to lower sales of replacement parts and

lower sales of consumable products.

Replacement part sales decreased 29% due to lower lottery printer spare parts to IGT.

Consumable sales declined 13% due largely to lower sales of HP inkjet cartridges used in our banking printers, as we exited

the banking market at the end of 2018.

These decreases were partially offset by a 24% increase in service revenue during 2019 compared 2018.

We expect TSG sales to decrease in 2020 compared to 2019 due to lower expected sales of lottery printer

spare printer parts to IGT and lower service sales related to a service contract with a banking customer that is expected to end in 2020.

Internationally, TSG revenue increased during 2019 compared to 2018 primarily due to a 18% increase in sales of replacement parts and

accessories to international casino and gaming customers.

This increase was partially offset by a 60% decrease of international consumable sales in 2019 compared to 2018.

Gross Profit.

profit information for the years ended December 31, 2019 and 2018 is summarized below (in thousands, except percentages):

Total Sales - 2019

Total Sales - 2018

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts,

direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers and expenses associated with installations and support of our EPICENTRAL TM print system and BOHA!

profit decreased $4.8 million, or 18%, and gross margin decreased 110 basis points due primarily to the 16% sales decrease in 2019 compared to 2018.

The decline in gross margin reflects higher manufacturing overhead expenses including approximately

$0.2 million incurred for the new Chinese tariffs and $0.4 million for the write-off of tooling related to a product design change incurred during the year ended December 31, 2019 compared to the year ended December 31, 2018.

Expenses - Engineering, Design and Product Development.

Engineering, design and product development information for the years ended December 31, 2019 and 2018 is summarized below (in thousands, except percentages):

Total Sales - 2019

Total Sales - 2018

Engineering, design and product development expenses primarily includes salary and payroll related expenses for our hardware and

software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses).

Engineering, design and product development

expenses decreased $183 thousand, or 4%, in 2019 compared to 2018 due primarily to lower expenses related to hardware product development for the food service technology market and casino and gaming market.

We expect engineering, design and product

development expenses to increase in 2020 related to accelerated investments planned for our food service technology products.

Expenses - Selling and Marketing .

Selling and marketing information for the years ended December 31, 2019 and 2018 is summarized below

(In thousands, except percentages)

Total Sales - 2019

Total Sales - 2018

Selling and marketing expenses primarily include salaries and payroll related expenses for our sales and marketing staff, sales

commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses.

Selling and marketing expenses increased $830 thousand, or

12%, in 2019 compared to 2018 due primarily to higher compensation expenses related to the hiring of additional outside sales, technical sales and marketing staff and higher promotional marketing expenses for our food service technology market.

expect selling and marketing expenses to continue to increase in 2020 as we make substantial strategic investments in our food service technology sales and marketing groups.

Expenses - General and Administrative.

General and administrative information for the years ended December 31, 2019 and 2018 is summarized below (in thousands, except percentages):

Total Sales - 2019

Total Sales - 2018

General and administrative expenses primarily include salaries, incentive compensation, and other payroll related expenses for our

executive, accounting, human resources and information technology staff, expenses for our corporate headquarters, professional and legal expenses, telecommunication expenses, and other expenses related to being a publicly-traded company.

administrative expenses increased $961 thousand, or 12%, in 2019 compared to 2018 due primarily to higher professional and legal expenses.

We expect general and administrative expenses to increase in 2020 compared to 2019 due to the hiring of

additional administrative staff to support the anticipated growth in the food service technology market.

Operating Income.

income information for the years ended December 31, 2019 and 2018 is summarized below (in thousands, except percentages):

Total Sales – 2019

Total Sales – 2018

Our operating income decreased by $6.4 million, or 95%, in 2019 due to a decrease in sales of 16% and an 8% increase in operating

expenses related to the investments made in our food service technology market during 2019 compared to 2018.

recorded net interest expense of $11 thousand in 2019 compared to $27 thousand in 2018 primarily due to interest income earned on the note receivable during 2019 partially offsetting interest expense.

We recorded other income of $35 thousand in 2019 compared to other expense of $266 thousand in 2018 primarily due to foreign exchange gains recorded

by our UK entity during 2019 compared to foreign exchange losses recorded during 2018.

Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to Europe through our UK subsidiary and the

change in exchange rates of the Euro and Pound Sterling against the U.S.

Income Taxes .

We recorded an income tax benefit during the year ended December 31, 2019 of $149 thousand at an effective tax rate of -40.6%, compared to an income

tax provision during the year ended December 31, 2018 of $1.0 million at an effective tax rate of 16.1%.

An income tax benefit was recorded in 2019 primarily due to the impact of research and development (R&D) credits on a relatively low level

of taxable income.

reported net income of $0.5 million, or $0.07 per diluted share, in 2019 compared to net income of $5.4 million, or $0.70 per diluted share, in 2018.

Results of Operations:

Year ended December 31, 2018 compared to year ended December 31, 2017

Technology for all periods presented in this Form 10-K.

(In thousands)

December 31, 2020

December 31, 2019

Food service technology

POS automation and banking

Casino and gaming

International

International sales do not include sales of products made to domestic distributors or other customers who in turn ship those products to international destinations.

Net sales for 2018 decreased $1.7 million, or approximately 3%, from 2017.

Printer and terminal sales volume decreased by 5% to

approximately 142,000 units, driven primarily by a 71% decrease in unit volume from the lottery market and, to a lesser extent, a 6% and 18% decrease in the POS automation and banking market and food service technology market, respectively.

decreases were partially offset by an increase in sales volume of 44% in the casino and gaming market.

Although unit volume decreased during 2018 compared to 2017, the average selling price of our printers and terminals increased 7% during 2018

compared to 2017, due primarily to the decreased volume of lottery printers, which carry lower prices than our other products.

International sales increased $3.5 million, or 46%, primarily driven by 81% higher international sales in the casino and gaming

This increase was partially offset by a $1.1 million sales decrease in our international lottery market during 2018 compared to 2017.

Food service technology:

summary of sales of our worldwide food service technology products for the years ended December 31, 2018 and 2017 is as follows:

(In thousands)

December 31, 2018

December 31, 2017

International

(In thousands)

December 31, 2018

December 31, 2017

Software, labels and other recurring revenue

The increase in food service technology sales in 2018 compared to 2017 was due to increased sales of our labels and other recurring

revenue, primarily increased label sales which more than quadrupled in 2018 compared 2017.

Hardware sales declined 4% in 2018 compared to 2017 due to lower sales of our AccuDate 9700 terminal for McDonald’s.

This decrease was partially offset by

increased sales of our newer AccuDate XL2e terminal, which was renamed to our BOHA!

terminal in 2019, to three large corporate customers.

International food service technology sales increased during 2018 compared to 2017 due to increased sales of the AccuDate 9700 for

McDonald’s through our Canadian distributor.

POS automation and banking:

summary of sales of our worldwide POS automation and banking products for the years ended December 31, 2018 and 2017 is as follows:

(In thousands)

December 31, 2018

December 31, 2017

International

The decrease in domestic POS automation and banking sales in 2018 compared to 2017 was primarily driven by a 75% decrease in sales of

our legacy banking and other POS printers.

These decreases were partially offset by a slight increase in domestic sales of our Ithaca® 9000 printers of 1% during 2018 compared to 2017, as sales rebounded to 2017, near-record levels during the second

and third quarters of 2018.

International POS automation and banking sales decreased due to lower sales of our Ithaca® 9000 printer to our Canadian distributor

for McDonald’s during 2018 compared to 2017.

Casino and gaming:

of sales of our worldwide casino and gaming products for the years ended December 31, 2018 and 2017 is as follows:

(In thousands)

December 31, 2018

December 31, 2017

International

The increase in domestic sales of our casino and gaming products was due primarily to a 20% increase in domestic sales of our thermal

casino printer in 2018 compared to 2017, driven primarily by increased sales to our OEMs and a large order from a domestic casino operator for replacement printers.

Domestic sales also increased during 2018 due to a significant sale of our

off-premise gaming printers to an OEM.

Sales of EPICENTRAL™ software during 2018 were comparable with our 2017 EPICENTRAL™ sales as we completed two new installations during both 2018 and 2017.

The increase in international sales in 2018 compared to 2017 was due to a 143% increase of thermal casino printer sales.

increases were due to the successful transition away from using our previous exclusive worldwide distributor whose contract ended at the end of 2017 and using our new direct sales team to sell to end user casino and gaming customers in Europe.

increases were partially offset by a 5% decrease in international sales of off-premise gaming printers.

A summary of sales

of our worldwide lottery printers for the years ended December 31, 2018 and 2017 is as follows:

(In thousands)

December 31, 2018

December 31, 2017

International

Our sales to IGT are directly dependent on the timing and number of new and upgraded lottery terminal installations that IGT

performs, and as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

However, our lottery market sales are not indicative of IGT’s overall business or revenue.

The decrease in international lottery sales in 2018 compared to 2017 was primarily due to a sale of lottery printers to IGT for the

Canadian lottery in 2017 and no comparable sale occurring in 2018.

A summary of sales

of our worldwide Printrex printers for the years ended December 31, 2018 and 2017 is as follows (in thousands, except percentages):

(In thousands)

December 31, 2018

December 31, 2017

International

The increase in Printrex sales in 2018 compared to 2017 resulted from a 57% increase in domestic and international sales of our oil

and gas printers due to a continued recovery in the oil and gas market.

This increase was partially offset by 87% lower sales of domestic and international medical and mobile printers in 2018 compared to 2017.

A summary of sales in

our worldwide TSG market for the years ended December 31, 2018 and 2017 is as follows:

(In thousands)

December 31, 2018

December 31, 2017

International

The decrease in domestic revenue from TSG in 2018 compared to 2017 was due primarily to lower sales of replacement parts,

non-Printrex consumable products and service revenue.

Replacement part sales decreased 36% due to lower sales of lottery printer spare parts to IGT.

Non-Printrex consumables sales declined 10% due to lower sales of our legacy HP inkjet cartridges

used in our banking printers, as we exited the banking market at the end of 2018.

Service revenue declined 14% in 2018 compared to 2017 due to paper testing sales that occurred in 2017 but did not repeat in 2018.

Internationally, TSG revenue increased primarily due to a 134% increase in sales of replacement parts and accessories in 2018

compared to 2017, as sales of replacement parts and accessories to international casino and gaming customers increased upon the transition away from using our previous exclusive worldwide distributor and using our new direct sales team to sell to end

user casino and gaming customers.

The decrease in domestic TSG sales for 2020 as compared to 2019 was primarily due to a 72% decline in consumable sales resulting largely from lower sales of legacy HP inkjet cartridges used in our banking printers, as we exited the banking market at the end of 2018, and to a lesser extent, lower sales of legacy POS receipt paper.

In addition, we experienced 32% lower service sales primarily related to a service contract with a banking customer that is expected to end in 2021.

We expect TSG sales to decrease in 2021 compared to 2020 due to lower expected sales of lottery printer spare printer parts to IGT and lower service sales related to the service contract with a banking customer that is expected to end in 2021.

Internationally, TSG sales decreased during 2020 compared to 2019 primarily due to a 49% decrease in sales of replacement parts and accessories to international casino and gaming customers.

Gross Profit.

profit information for the years ended December 31, 2018 and 2017 is summarized below (in thousands, except percentages):

Gross profit information for the years ended December 31, 2020 and 2019 is summarized below (in thousands, except percentages):

Year Ended December 31,

Total Sales - 2020

Total Sales - 2019

Gross profit increased $81 thousand, or less than 1%, and gross margin increased 170 basis points due primarily to a more favorable

sales mix in 2018 compared to 2017.

The increased gross margin reflected a favorable shift in sales mix towards higher-value, technology driven solutions, as well as lower sales volume of lottery and POS printers, which carry lower margins than our

other products.

Expenses - Engineering, Design and Product Development.

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL TM print system and BOHA!

ecosystem and royalty payments to third parties, including to the third party licensor of our food service technology software products.

Gross profit decreased $9.0 million, or 41% in 2020 compared to 2019 primarily due to a 33% sales decrease in 2020 compared to 2019.

Gross margin decreased 560 basis points to 42.3% during 2020 compared to 47.9% in 2019 primarily due to the impact of fixed manufacturing overhead expenses on lower sales volume as a result of the effects of the COVID-19 pandemic, partially offset by cost savings measures implemented in late March 2020 and maintained through the end of 2020 in response to the COVID-19 pandemic.

Operating Expenses - Engineering, Design and Product Development.

Engineering, design and product development information for the years ended December 31, 2020 and 2019 is summarized below (in thousands, except percentages):

Year Ended December 31,

Total Sales - 2020

Total Sales - 2019

Engineering, design and product development expenses increased $273 thousand, or 6%, in 2018 compared to 2017 due primarily to the

hiring of additional engineering staff and increased expenses related to product development for the food service technology and casino and gaming markets.

Engineering, design and product development expense primarily includes salary and payroll related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses).

Engineering, design and product development expenses increased $1.3 million, or 30%, in 2020 compared to 2019 primarily due to continued expanded development for our food service technology products.

We expect engineering, design and product development expense to increase in 2021 compared to 2020 related to accelerated investments planned for our food service technology products.

Operating Expenses - Selling and Marketing .

Selling and marketing information for the years ended December 31, 2018 and 2017 is

summarized below (in thousands, except percentages):

Selling and marketing information for the years ended December 31, 2020 and 2019 is summarized below (in thousands, except percentages):

Year Ended December 31,

Total Sales - 2020

Total Sales - 2019

Selling and marketing expenses decreased $358 thousand, or 5%, in 2018 compared to 2017 primarily due to the retirement of our EVP,

Sales and Marketing in December 2017, whose position was replaced by an existing employee of TransAct, as well as the elimination of sales commission expense to our former international casino and gaming distributor, Suzo-Happ.

These decreases were

partially offset by the hiring of additional sales staff to replace our former exclusive worldwide distributor with a direct selling team for our casino and gaming sales in Europe.

Expenses - General and Administrative.

Selling and marketing expense primarily includes salaries and payroll related expenses for our sales and marketing staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses.

Selling and marketing expenses decreased $1.9 million, or 24%, in 2020 compared to 2019 primarily due to cost saving measures implemented in late March 2020 and maintained through 2020 in response to the COVID-19 pandemic, which more than offset the increase in sales and marketing expenses resulting from the new and expanded marketing programs and promotions to support our food service technology products that were implemented during the first quarter of 2020 prior to the COVID-19 outbreak.

We expect selling and marketing expenses to increase in 2021 as we gradually return to more normalized pre-COVID-19 spending levels as well as make substantial strategic investments in our food service technology sales and marketing groups that were deferred from 2020 due to the pandemic.

Operating Expenses - General and Administrative.

General and administrative information for the years ended December 31, 2020 and 2019 is summarized below (in thousands, except percentages):

Year Ended December 31,

Total Sales - 2020

Total Sales - 2019

General and administrative expenses increased $221 thousand, or 3%, in 2018 compared to 2017 due primarily to increased legal

expenses and increased administrative expenses related to the expansion of our food service technology sales staff and transitioning to a direct selling model for the casino and gaming market in Europe.

These increases were partially offset by lower

incentive compensation expense in 2018 compared to 2017.

Operating Income

Operating income information for the years ended December 31, 2018 and 2017 is summarized below (in thousands, except percentages):

General and administrative expenses primarily include salaries, incentive compensation, and other payroll related expenses for our executive, accounting, human resources, business development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, telecommunication expenses, and other expenses related to being a publicly-traded company.

General and administrative expenses increased $0.1 million, or 1%, in 2020 compared to 2019 primarily due to higher compensation expense almost entirely offset by a decrease in professional fees and discretionary spending resulting from cost saving initiatives implemented in the first quarter of 2020 in response to the COVID-19 pandemic.

We expect general and administrative expenses to increase in 2021 as we gradually return to more normalized pre-COVID-19 spending levels.

Operating (Loss) Income.

Operating (loss) income information for the years ended December 31, 2020 and 2019 is summarized below (in thousands, except percentages):

Year Ended December 31,

Total Sales – 2020

Total Sales – 2019

Our operating income decreased by $55 thousand, or 1%.

Despite a sales decline of 3% our operating margin improved, increasing 30

basis points to 12.4% in 2018 compared to 12.1% in 2017, largely due to a 170 basis point increase in gross margin somewhat offset by a 1% increase in operating expenses.

recorded net interest expense of $27 thousand in 2018 compared to $33 thousand in 2017.

We recorded other expense of $266 thousand in 2018 compared to $9 thousand in 2017.

The additional expense was due to higher foreign currency

exchange losses recorded by our U.K.

subsidiary in 2018 compared to 2017.

Our operating income decreased $8.5 million during 2020 compared to 2019 primarily due to the 33% decrease in sales and the 560 basis point decrease in gross margin in 2020 compared to 2019.

We recorded net interest expense of $52 thousand in 2020 compared to $11 thousand in 2019.

The increase in interest expense was primarily due to interest on borrowings under the Siena Credit Facility in the second quarter of 2020 and higher fees for unused borrowings under the Siena Credit Facility as compared to no borrowings and lower fees for unused borrowings under the TD Bank revolving line of credit during 2019.

We recorded other income of $56 thousand in 2020 compared to $35 thousand in 2019 primarily due to foreign exchange gains recorded by our UK subsidiary.

Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the Euro and Pound Sterling against the U.S.

Dollar, which may be impacted by volatility in global economic conditions due to the COVID-19 pandemic.

Income Taxes .

We recorded an income tax provision during the year ended December 31, 2018 of $1.0 million at an effective tax rate of 16.1%, compared to an income

tax provision during the year ended December 31, 2017 of $3.6 million at an effective tax rate of 52.6%.

The effective tax rate in 2018 was lower than the effective tax rate in 2017 due to the enactment of the Tax Reform Act that was signed on

December 22, 2017.

Additionally, the effective tax rate in 2017 was unusually high due to the initial impact of the Tax Reform Act as we recognized a provisional $1.3 million charge to income tax expense for the year ended December 31, 2017 as a

result of revaluing our net deferred tax assets using the new U.S.

corporate tax rate of 21%.

reported net income during 2018 of $5.4 million, or $0.70 per diluted share, compared to $3.2 million, or $0.42 per diluted share, for 2017.

We recorded an income tax benefit during the year ended 2020 of $2.5 million at an effective tax rate of 31.1%, compared to an income tax benefit during the year ended 2019 of $149 thousand at an effective tax rate of (40.6%).

The effective tax rate for 2020 included the impact of the net operating loss (“NOL”) that we expect to carry back to prior years.

The CARES Act permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

We generated an NOL for 2020 which we will carry back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020.

The income tax benefit for 2019 was unusually high primarily due to the impact of research and development (R&D) credits on a relatively low level of taxable income.

We reported a net loss for the year ended 2020 of $5.6 million, or $(0.72) per diluted share, compared to net income of $0.5 million, or $0.07 per diluted share, in 2019.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities.

Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, access to bank lines of credit and our ability to attract long-term capital with satisfactory terms.

Internal cash generation together with currently available cash and cash equivalents, available borrowing facilities and an ability

to access credit lines, if needed, are expected to be sufficient to fund operations, capital expenditures, and any increase in working capital that would be required to accommodate a higher level of business activity.

We may actively seek to expand

by acquisition as well as through the growth of our current business.

While a significant acquisition may require additional debt and/or equity financing, although no assurances can be given, we believe that we would be able to obtain additional

financing based on our available collateral and historical earnings performance.

During 2019 our cash balance decreased $0.5 million, or 10%, from December 31, 2018 and we returned cash to shareholders of $2.7

million in the form of cash dividends paid to common shareholders.

Additionally, we issued a note receivable of $1 million to a third party in 2019.

Even after funding these items and our capital expenditures, we had $4.2 million in cash and cash

equivalents as of December 31, 2019, of which $0.9 million was held by our UK subsidiary, and no debt outstanding.

Internal cash generation together with currently available cash and cash equivalents, available borrowing facilities and an ability to access credit lines, if needed, are expected to be sufficient to fund operations, capital expenditures, and any increase in working capital that would be required to accommodate a higher level of business activity.

We may actively seek to expand by acquisition as well as through the growth of our current business.

A significant acquisition may require additional debt and/or equity financing.

During 2020 our cash balance increased $6.2 million, or 146%, from December 31, 2019 due to financing activities providing $11 million of cash primarily from the completion of the Offering and the funds received from the PPP Loan.

We had $10.4 million in cash and cash equivalents as of December 31, 2020, of which $0.5 million was held by our UK subsidiary.

Operating activities :

following significant factors primarily affected our cash provided by operating activities of $4.8 million in 2019 as compared to $5.1 million in 2018.

The following significant factors primarily affected our cash used in operating activities of $3.5 million in 2020 as compared to cash provided by operating activities of $4.8 million in 2019.

We reported a net loss of $5.6 million.

We recorded depreciation and amortization of $1.3 million and share-based compensation expense of $0.9 million.

Accounts receivable decreased $3 million, or 47%, primarily due to lower sales volume during the fourth quarter of 2020 compared to the fourth quarter of 2019 due to the pandemic.

Inventories decreased $0.9 million, or 7%, primarily due to the utilization of inventory on hand to fulfill sales in response to the pandemic.

Prepaid income taxes increased $2.2 million due to an expected income tax refund related to the net operating loss reported for 2020 that will be carried back to prior years as permitted by the CARES Act.

Other current and long-term assets increased $0.2 million, or 19%, due primarily to recording a contract asset related to a long term BOHA!

sales contract which was partially offset by the recognition of royalty expense that was prepaid in 2019 to a technology partner for food service technology.

Accounts payable decreased $1.3 million, or 43%, d ue to inventory purchases made towards the end of the fourth quarter of 2019 that were subsequently paid in the first quarter of 2020 and a lower level of inventory purchases during 2020 due to the pandemic .

Accrued liabilities and other liabilities increased $0.2 million, or 3%, due primarily to an increase in accrued inventive compensation.

We reported a net income of $0.5 million.

3 unchanged sentences

Prepaid income taxes decreased $0.6 million, or 71%, primarily due to an income tax refund received in the fourth quarter of 2019.

Other current and long-term assets increased $0.3 million, or 47%, due primarily to an advanced payment of royalty fees to a technology partner for food service

Accounts payable decreased $0.5 million, or 15%, primarily due to the utilization of inventory on hand to fulfill sales requiring a lower level of inventory

purchases during the second half of 2019.

Accrued liabilities and other liabilities increased $0.4 million, or 11%, due primarily to an increase in deferred revenue related to our food service technology

service contracts and software subscriptions.

We reported a net income of $5.4 million.

We recorded depreciation and amortization of $1.0 million and share-based compensation expense of $0.6 million.

Accounts receivable decreased $2.7 million, or 25%, primarily due to the collection of past due receivables from 2017 sales made to our former international

casino and gaming distributor.

Inventories increased $4.0 million, or 46%, primarily due to the buildup of inventory on hand to support future anticipated sales in the casino and gaming market

and food service technology market.

Accounts payable decreased $0.3 million, or 9%, primarily due to the timing of inventory purchases in 2017 compared to 2018.

Accrued liabilities and other liabilities decreased $0.2 million, or 5%, due primarily to a decrease in our accrued incentive compensation.

Other current and long-term assets increased $0.3 million, or 47%, due primarily to an advanced payment of royalty fees to a technology partner for food service technology.

Accounts payable decreased $0.5 million, or 15%, primarily due to the utilization of inventory on hand to fulfill sales requiring a lower level of inventory purchases during the second half of 2019.

Accrued liabilities and other liabilities increased $0.4 million, or 11%, due primarily to an increase in deferred revenue related to our food service technology service contracts and software subscriptions.

Investing activities :

capital expenditures, including capitalized software costs, were $1.4 million and $1.5 million in 2019 and 2018, respectively.

Expenditures in 2019 were primarily for new product tooling equipment, and, to a lesser extent, computer and networking

Expenditures in 2018 were primarily for computer and networking equipment and furniture and fixtures purchases related to investments made in our UK facility to support the build-out of our internal sales infrastructure to sell directly

to slot machine manufacturers and end-user casino and gaming customers.

To a lesser extent, expenditures in 2018 included computer and networking equipment for our U.S.

operations and leasehold improvements made at our Las Vegas facility.

Capital expenditures and additions to capitalized software for 2020 are expected to be approximately $1.1 million, primarily for

new product tooling, new computer software and equipment purchases and leasehold improvements to support our food service technology market.

Our capital expenditures, including capitalized software costs, were $0.7 million and $1.4 million in 2020 and 2019, respectively.

Expenditures for 2020 were primarily for new product tooling equipment, leasehold improvements at our Las Vegas facility and computer and networking equipment.

Expenditures in 2019 were primarily for new product tooling equipment, and, to a lesser extent, computer and networking equipment.

Additionally, during the first quarter of 2020, prior to widespread shutdowns in the United States in response to the COVID-19 pandemic, we loaned an additional $0.6 million to a third party software developer from whom we license our food service technology software.

Capital expenditures and additions to capitalized software for 2021 are expected to be approximately $1.4 million, primarily for new product tooling, new computer software and computer and networking equipment to support our food service technology market.

Financing activities:

used $2.9 million of cash from financing activities during 2019 to pay dividends of $2.7 million and $0.2 million related to the relinquishment of shares to pay for withholding taxes on stock issued from our stock compensation plan.

we used $4.5 million of cash to pay dividends of $2.7 million to common shareholders, purchase $2 million of common stock for treasury and $0.3 million related to the relinquishment of shares to pay for withholding taxes on stock issued from our

stock compensation plan, partially offset by proceeds from stock option exercises of $0.4 million.

Financing activities provided $11.0 million of cash during 2020 primarily from the completion of the Offering which raised net proceeds of $8.7 million, after deducting u nderwriting discounts, commissions and offering expenses, and the $2.2 million in funds received from the PPP Loan and, to a lesser extent, proceeds of $0.4 million from stock option exercises.

These increases were partially offset by the payment of financing costs associated with signing our Siena Credit Facility.

During 2019, we used $2.9 million of cash from financing activities to pay dividends of $2.7 million and $0.2 million related to the relinquishment of shares to pay for withholding taxes on stock issued from our stock compensation plan.

Resource Sufficiency

We believe that our cash and cash equivalents on hand, cash flows generated from operating activities and access to our credit

facility will provide sufficient resources to meet our working capital needs, finance our capital expenditures, support planned investments for our food service technology market and meet our liquidity requirements through at least the next twelve

Given the unprecedented uncertainty related to the impact of the COVID-19 pandemic on the food service and casino industries, the Company is closely monitoring its cash generation, usage and preservation including the management of working capital to generate cash.

The Company does not currently anticipate requiring any additional credit facilities within the next twelve months beyond our Siena Credit Facility and the PPP Loan, which are discussed above, nor does it anticipate a material change in the terms or covenants pertaining to its current facilities.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, proceeds raised through the Offering on October 16, 2020, borrowings available under our Siena Credit Facility, and savings from the cost reduction actions discussed above will provide sufficient resources to meet our working capital needs, finance our capital expenditures and meet our liquidity requirements through at least the next twelve months.

Notwithstanding this belief, the duration and extent of the pandemic remain uncertain and its ultimate impact unknown.

As a result, continue to evaluate several different strategies to enhance our liquidity position as a result of the significant financial and operational impacts due to the COVID-19 pandemic.

These strategies may include, but are not limited to, seeking to raise additional capital through an equity or debt financing and applying for additional relief through other programs established under the CARES Act.

Credit Facility and Borrowings

During 2019 we maintained a credit facility (the “TD Bank Credit Facility”) with TD Bank N.A.

(“TD Bank) which provided for a $20

million revolving credit line.

On November 21, 2017, we signed an amendment to the TD Bank Credit Facility through November 28, 2022.

Borrowings under the revolving credit line bear a floating rate of interest at the prime rate minus one percent

and are secured by a lien on all our assets.

We also pay a fee of 0.125% on unused borrowings under the revolving credit line.

The amendment increased the amount of revolving credit loans we may use to fund future cash dividend payments or treasury

share buybacks to $12.5 million from $10 million.

The TD Bank Credit Facility imposes certain quarterly financial covenants on us and restricts, among other things, our ability to

incur additional indebtedness and the creation of other liens.

On November 6, 2019, we amended our TD Credit Facility to change the definition of interest expense to exclude fees paid on unused borrowings under the revolving credit line which is used

to calculate total debt service in the operating cash flow to total debt service.

Additionally, the amendment limited our maximum loan amount to $1 million.

We were in compliance with all financial covenants of the TD Bank Credit Facility at

December 31, 2019.

On March 13, 2020, we entered into the Siena Credit Facility with Siena Lending Group LLC and terminated our credit facility with TD Bank N.A..

The Siena Credit Facility provides for a revolving credit line of up to $10 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 were $245 thousand.

We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility.

Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.

Borrowings under the Siena Credit Facility are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5 million and (b) 50% of eligible raw material and 60% of finished goods inventory.

The Siena Credit Facility imposes a quarterly financial covenant on the Company and restricts, among other things, our ability to incur additional indebtedness and the creation of other liens.

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.

As of December 31, 2020, we had no outstanding borrowings under the Siena Credit Facility and were in compliance with our financial covenant.

The following table demonstrates our compliance with the financial covenant at December 31, 2020.

Financial Covenant

Requirement/Restriction

Calculation at December 31, 2019

Operating cash flow / Total debt service

Minimum of 1.25 times

Funded debt / EBITDA

Maximum of 3.0 times

As of December 31, 2019, we had no outstanding borrowings under the TD Bank Credit facility.

On March 13, 2020 we terminated our TD Bank Credit Facility and signed a $10 million credit facility (the “Siena Credit Facility”)

with Siena Lending Group LLC.

The Siena Credit Facility replaced our TD Bank Credit Facility.

The Siena Credit Facility provides for a $10 million revolving credit line 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%.

We incurred a closing fee of $63 thousand payable 50% on the closing date and 50% on the first anniversary of

the closing date.

We will also pay a fee of 0.50% on unused borrowings under the facility.

Borrowings under the facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes certain financial

covenants on the Company and borrowings are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5,000,000 and (b) 50% of eligible raw material and 60% of finished good inventory.

Calculation for the period from April 1, 2020 to December 31, 2020

Minimum of $(6,631)

On May 1, 2020, the Company entered into the PPP Loan with Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP which is administered by the SBA and was established under Division A, Title I of the CARES Act, enacted March 27, 2020.

The PPP Loan, which is evidenced by a Note dated the Loan Date issued by the Company (the “Note”), matures on May 1, 2022 and bears interest at a fixed rate of 1.0% per annum, accruing from the Loan Date and payable monthly.

No payments are due on the PPP Loan for six months from the date of first disbursement, and if a loan forgiveness application is submitted to the SBA within 10 months after the end of the covered period, no payments are due until the date on which the SBA remits the loan forgiveness amount to the PPP Lender (or notifies the PPP Lender that no loan forgiveness is allowed), but interest will continue to accrue during the deferment period.

If no loan forgiveness is allowed, the Company will be required to pay the PPP Lender equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any.

The Note is unsecured and guaranteed by the SBA.

The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the Note or related documents, reorganizations, mergers, consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions.

The PPP Loan may be accelerated upon the occurrence of a default.

Under the terms of the PPP, the PPP Loan may be forgiven to the extent that funds from the PPP Loan are used for qualifying expenses, subject to conditions and limitations provided in the CARES Act.

At least 60% (as amended) of the proceeds of the PPP Loan must be used for eligible payroll costs for the PPP Loan to be forgivable.

The Company has maximized the use of the PPP Loan proceeds for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020.

Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt.

The PPP Loan is classified as “Long-term debt” in the Condensed Consolidated Balance Sheet until the forgiveness determination has been made by the SBA.

Shareholder Dividend Payments

In 2012, our Board of Directors initiated a quarterly cash dividend program which is subject to the Board’s approval each

Our Board of Directors declared an increase to the quarterly cash dividend from $0.06 to $0.07 per share in May 2013, from $0.07 to $0.08 per share in May 2014, and from $0.08 to $0.09 per share in May 2017.

Dividends declared and paid on

our common stock totaled $2.7 million or $0.36 per in both 2019 and 2018.

On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock to accelerate the investment in sales and

marketing, continued product development and infrastructure of the BOHA!

In 2012, our Board of Directors initiated a quarterly cash dividend program which is subject to the Board’s approval each quarter.

Dividends declared and paid on our common stock totaled $2.7 million or $0.36 per share in 2019.

On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock to accelerate the investment in sales and marketing, continued product development and infrastructure of the BOHA!

The final dividend payment was made in December 2019.

Stock Repurchase Program

Prior to its expiration on December 31, 2019, we maintained a stock repurchase program (the "2018 Stock Repurchase Program") whereby

we were authorized to repurchase up to $5 million of our outstanding shares of common stock from time to time in the open market at prevailing market prices based on market conditions, share price and other factors.

We use the cost method to account

for treasury stock purchases, under which the price paid for the stock is charged to the treasury stock account.

Repurchases of our common stock are accounted for as of the settlement date.

During 2019 we did not repurchase any shares of our common

From the start of the 2018 Stock Repurchase Program on March 1, 2018 through December 31, 2018, we repurchased 156,410 shares of our common stock for approximately $2.0 million at an average price per share of $12.79.

In 2017, under a prior repurchase program that was in place from February 25, 2016 through December 31, 2017, we purchased 36,465

shares of our common stock for $0.4 million at an average price of $9.84 per share.

From January 1, 2005 through December 31, 2019, we repurchased a total of 4,044,842 shares of common stock for $32.1 million, at an average price of $7.94 per share.

During 2020 and 2019 we did not repurchase any shares of our common stock.

Shareholders’ Equity

Shareholders’ equity decreased $1.6 million, or 6%, to $25.9 million at December 31, 2019 from $27.6 million at December 31,

The decrease was due to the payment of $2.7 million in dividends during 2019 and $0.2 million related to the relinquishment of stock awards to pay for withholding taxes on stock awards.

These decreases were partially offset by net income of

$0.5 million, as well as share-based compensation expense related to stock awards of $0.7 million.

Shareholders’ equity increased 4.3 million, or 17%, to $30.2 million at December 31, 2020 from $25.9 million at December 31, 2019.

The increase was primarily due to the completion of the Offering which raised net proceeds of $8.7 million, after deducting u nderwriting discounts, commissions and offering expenses, and sold an aggregate of 1,380,000 shares of common stock.

Shareholders’ equity also increased, although to a lesser extent, from share-based compensation expense related to stock awards of $0.9 million and $0.4 million from the issuance of 62,500 shares of common stock related to employee stock awards, net of relinquishments.

These increases were partially offset by a net loss of $5.6 million.

Off-Balance Sheet Arrangements

As of December 31, 2019, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have

a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

Our contractual obligations as of December 31, 2019 were as follows:

Payments due by period

(In thousands)

Operating lease obligations

Purchase obligations

Purchase obligations are for purchases made in the normal course of business to meet operational requirements, primarily of fully

assembled printers, terminals and component part inventory.

Impact of Inflation

We believe that our business has not been affected to a significant degree by inflationary trends during the past three

However, inflation is still a factor in the worldwide economy and may increase the cost of purchasing products from our contract manufacturers in Asia, as well as the cost of certain raw materials, component parts and labor used in the

production of our products.

It also may increase our operating expenses, manufacturing overhead expenses and the cost to acquire or replace fixed assets.

We have generally been able to maintain or improve our profit margins through productivity and

efficiency improvements, cost reduction programs and to a lesser extent, price increases, and we expect to be able to do the same during 2020.

As such, we do not believe that inflation will have a significant impact on our business during 2020.

As of December 31, 2020, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Quantitative and Qualitative Disclosures about Market Risk.

TransAct is a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, and is not required to provide information under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis