What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-24 compared with 2021-03-12 · 399 added, 268 removed, 110 unchanged (86% of the section changed)

1 unchanged sentence

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

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!

During the year ended December 31, 2021, we continued to

experience recovery from the negative impacts COVID-19 had on our business during 2020.

While we have experienced recovery in most of our markets, there are still uncertainties on how COVID-19 will continue to impact our business, operations, supply

chain, customer and vendors.

During 2021, 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 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!

Despite the negative impact from

COVID-19, food service technology sales increased 63% in 2021 compared to 2020 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:

During 2021, all markets other than lottery and TSG increased compared to 2020 as we have started to see recovery from the negative

impacts from the COVID-19 pandemic.

POS automation sales increased primarily due to higher sales of our Ithaca 9000 printer to McDonald’s in 2021 compared to 2020.

Casino and gaming sales were higher in 2021 due to casinos continuing to reopen and

increase capacity during 2021 after being closed in 2020 in response to the COVID-19 pandemic.

Printrex sales increased in 2021 after being negatively impacted by lower worldwide oil prices largely attributable to the COVID-19 pandemic during 2020.

We had no lottery market sales during 2021 as we exited the lottery market in 2019 and completed our final sale of lottery printers in 2020.

TSG sales decreased in 2021 compared to 2020 primarily due to lower service sales due to exiting the banking

market in 2018, lower replacement part sales and lower sales of our legacy consumable products.

During the year ended December 31, 2021,

our total net sales increased 29% to approximately $39.4 million compared to the year ended December 31, 2020.

See the table below

for a breakdown of our sales by market:

(In thousands, except percentages)

1 unchanged sentence

December 31, 2020

Food service technology

POS automation and banking

Food service technology (“FST”)

POS automation

Casino and gaming

Sales of our food service technology products increased 63% in the year ended December 31, 2021 compared to the year ended December 31,

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 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 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, 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 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.

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.

In the food service technology market, we focus on providing hardware products, which include terminals/workstations, temperature probes, temperature sensors and gateways in addition to cloud-based software applications, labels and other

recurring revenue items.

Food service technology sales increased in 2021 primarily due to a 95% increase in BOHA!

recurring revenue, which include subscriptions for the software applications, as well as sales of labels, extended warranty and service

contracts, and technical support services.

Our FST hardware sales also increased by 33% as we increased our total installed base by 4,130 terminals and workstations during 2021 resulting in a total installed base of 9,818 terminals at the end of 2021.

Sales of our POS automation products increased 28% in the year ended December 31, 2021 compared to the year ended December 31, 2020.

In the POS automation market, we focus primarily on supplying printers that print receipts or linerless labels to McDonald’s, and to a lesser extent other customers in the restaurant and quick serve markets.

During the year ended December 31, 2021,

sales of our Ithaca 9000 printer to McDonald’s recovered from the unusually low level we experienced in 2020 due to the significant negative impact of the COVID-19 pandemic on the POS automation market.

Sales of our casino and gaming products increased 39% in 2021 compared to 2020.

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 increase of casino and gaming printers was due to the recovery of the domestic and

international casino and gaming market during 2021, as casinos continued to reopen compared to 2020 when the market was severely impacted by the COVID-19 pandemic and the related closures of casinos.

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.

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, 2021, we experienced a 110% increase in Printrex oil and gas printer sales, as the oil and gas market recovered from the

negative impact during 2020 of lower worldwide oil prices as a result of the COVID-19 pandemic.

Additionally, we fulfilled last buy orders to legacy customers during the fourth quarter of 2021, as we decided to exit this market as of December 31,

We expect no future Printrex sales as 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 other printing supplies,

continues to offer a recurring revenue stream from mostly our legacy products.

TSG sales decreased 14% in 2021 compared to 2020, primarily due to declining service revenue from a legacy banking customer whose service contract is expected to end during

2022, as well as lower replacement part and consumable product sales.

We expect TSG sales to continue to decline in 2022 due to the ending of the service contract with a legacy banking customer and lower expected sales of our lottery printer spare

parts to IGT for our legacy lottery printer.

Operationally, our gross margin was 38.7% in 2021, a

decrease of 360 basis points from 2020, due largely to lower margin on our BOHA!

hardware sales during 2021 compared to 2020, as we have reduced prices to accelerate the growth of our BOHA!

installed base, as well as higher material and

shipping costs resulting from worldwide supply disruptions caused by the COVID-19 pandemic.

During 2021, our operating margin improved to negative 24.1% compared to negative 26.7% in 2020 as the 29% increase in sales more than

offset the 360 basis point decrease in gross margin and increased operating expenses.

Operating expenses increased by 17% as we gradually returned to more normalized pre-COVID-19 spending levels.

During 2022, we expect operating expenses to continue

to increase compared to 2021, due to the continued investment in our food service technology products.

We reported a net loss of $4.1 million and net loss per

diluted share of $0.45 for 2021, compared to a net loss of $5.6 million and net loss per diluted share of $0.72 for 2020.

In terms of cash flow, for 2021 we used $2.5 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 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.

During 2021, we also successfully

completed an underwritten public offering of our common stock which raised net proceeds of $11.2 million .

We ended the year with cash and cash equivalents of $19.5

million and no debt outstanding on our Consolidated Balance Sheet at December 31, 2021.

Critical Accounting Estimates

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

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;

however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

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 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.

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

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

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

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

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

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

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.

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

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

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

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

For our separately priced extended warranty, BOHA!

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

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

Our cloud-based BOHA!

software allows customers to use hosted software over the contract period 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.

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

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

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 – Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.

Specifically, the determination of whether

revenues related to our revenue contracts should be recognized over time or at a point in time.

Other significant judgments include contracts that contain multiple

performance obligations (most commonly when contracts include a hardware product, software and extended warranties) which require a contract’s transaction price to be allocated to each distinct performance obligation and recognized as revenue when,

or as, the performance obligation is satisfied.

Both of these determinations impact the timing and amount of our reported revenues and net income and loss.

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.

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

Our allowance for doubtful accounts as of December 31, 2021 was $219 thousand, or 2.8% 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.

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 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.

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

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

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

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (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:

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.

The determination of the value of

intangible assets requires management to make estimates and assumptions.

In accordance with ASC 350-20 “Goodwill,” acquired goodwill is not amortized but is subject to impairment testing at least annually and when an event occurs or circumstances

change that indicate it is more likely than not an impairment exists.

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (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.

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.

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

As of December 31, 2021, 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.

– 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

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” (“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.

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.

We account for forfeitures as they occur.

6 unchanged sentences

Food service technology

POS automation and banking

POS automation

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

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.

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

Net sales for 2021 increased $8.8 million, or 29%, from

Printer, terminal and other hardware sales volume increased by 33% to approximately 82,000 units for 2021, driven by volume increases in all our markets except the lottery market, which we exited in 2020.

The primary volume increases

were a 42% increase in unit volume from the casino and gaming market and, to a lesser extent, a 26% unit volume increase in our POS automation market and a 44% increase in unit volume from the FST market.

The average selling price of our printers,

terminals and other hardware increased 1% during 2021 compared to 2020.

Additionally, sales of our software, labels and other recurring revenue from our FST market increased $3.6 million, or 95%, during 2021 compared to 2020.

International sales for 2021 increased $1.1 million, or 19%, compared to 2020, primarily due to a 24% increase in international casino

and gaming sales.

Food service technology:

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.

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

ecosystem, which combines our latest generation terminal/workstation, 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 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.

consists of a suite of software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for temperature

monitoring of food and equipment, timers, food safety labeling, media libraries, checklists and task lists, and equipment service 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/workstation, 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.

workstation uses an iPad instead of an integrated touchscreen.

Both the BOHA!

terminal and BOHA!

workstation are

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.

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

is generated by software sales, including software subscriptions that are typically charged to customers annually 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, 2021 and 2020 were as follows:

(In thousands, except percentages)

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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!

The increase in food service technology sales in 2021 compared to 2020 was driven by an increase in sales of both hardware and BOHA!

software, labels and other recurring revenue.

Hardware sales increased 33% during 2021 compared to 2020 due largely to sales to an existing national convenience store customer and a new national travel center customer, as well as higher sales of our

AccuDate 9700 terminal to McDonald’s.

These increases in hardware sales were partially offset by a large sale completed in 2020 to a grab-and-go sushi chain that did not reoccur in 2021.

Sales of BOHA!

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:

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:

software recognized on a SaaS subscription

basis, labels and other recurring revenue increased by 95%, primarily due to increased label sales and, to a lesser extent, increased software sales, compared to the prior year period due principally to the growth of the installed base of our BOHA!

terminals and workstations.

POS automation:

Revenue from the POS automation market includes sales of thermal printers used primarily by McDonald’s, and to a lesser extent, other quick serve restaurants either at

the checkout counter or within self-service kiosks to print receipts for consumers or print on linerless labels.

Sales of our worldwide POS automation products for the years

ended December 31, 2021 and 2020 were as follows:

(In thousands, except percentages)

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International

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.

The increase in POS automation product revenue during 2021 compared to 2020 was driven by a 28% increase in sales of our Ithaca® 9000

printer, primarily to McDonald’s, as POS automation sales continually improved during 2021 compared to the significant negative impact from the COVID-19 pandemic on POS automation sales during the final nine months of 2020.

Casino and Gaming:

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 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 and sports betting establishments.

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.

non-casino gaming and sports betting establishments.

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 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 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.

Sales of our worldwide casino and gaming products for the years ended December 31, 2021 and 2020 were as follows:

(In thousands, except percentages)

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International

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:

The increase in domestic sales of our casino and gaming products during 2021 compared to 2020 was primarily due to a 57% increase in

domestic sales of our thermal casino printers, as we have experienced some recovery during 2021 compared to 2020, particularly the second quarter of 2020, when the casino and gaming market was most severely impacted by the COVID-19 pandemic.

increase was partially offset by an 81% decrease in domestic EPICENTRAL sales to an existing EPICENTRAL customer during 2020 to expand its slot machine floor that did not reoccur in 2021.

Sales of EPICENTRAL are project based, and as a result, may

fluctuate significantly quarter-to-quarter and year-to-year.

International sales of our casino and gaming products increased during 2021 compared to 2020, primarily due to a 40% increase in sales

of our thermal casino printers, as we experienced modest recovery during 2021, most significantly during the fourth quarter of 2021, after the significant negative impact of the COVID-19 pandemic on the international casino and gaming industry, which

is recovering at a slower pace than the domestic casino and gaming market.

The increase from international sales of our thermal casino printers was partially offset by a 33% decline in sales of our off-premise gaming printers during 2021 compared to

Revenue from the

lottery market includes sales of thermal on-line and other lottery printers to IGT for various lottery applications.

Sales of our worldwide lottery printers for the years ended December 31, 2021 and 2020 were as follows:

(In thousands, except percentages)

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International

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.

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

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

Sales of our worldwide Printrex printers for the years ended December 31, 2021 and 2020 were as follows:

(In thousands, except percentages)

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International

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:

The increase in sales of Printrex printers during 2021 compared to 2020 resulted from increased domestic and international sales in the

oil and gas market, which was negatively impacted during 2020 by the decline in worldwide oil prices attributable to the COVID-19 pandemic.

Additionally, we decided to exit the Printrex market as of December 31, 2021 in order to shift focus towards

our higher-value, technology-enabled food service technology and casino and gaming products.

As a result, we had increased sales in 2021 due to fulfilling last buy orders from legacy customers during the fourth quarter of 2021.

We do not expect any

further Printrex sales beyond 2021.

Revenue generated by TSG includes sales of consumable products (POS receipt paper, inkjet cartridges, ribbons and other printing supplies for legacy products), replacement parts and

accessories, maintenance and repair services, refurbished printers, and shipping and handling charges.

Sales in our worldwide TSG market for the years ended December 31, 2021 and 2020 were as follows:

(In thousands, except percentages)

2 unchanged sentences

International

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.

The decrease in domestic revenue from TSG during 2021 as compared to 2020 was due primarily to lower service revenue, lower sales of

replacement parts, and consumable products.

Service revenue declined 39%, primarily related to declining revenue from a service contract with a legacy banking customer that is expected to expire during 2022.

Replacement part sales decreased 4%

primarily from lower lottery printer spare part sales to IGT, which can vary significantly from quarter-to-quarter.

Consumable sales declined 25%, due primarily to lower sales of HP inkjet cartridges used in our banking printers, as we exited the

banking market at the end of 2018.

We expect TSG sales to continue to decrease in 2022 compared to 2021 due to lower expected sales of legacy lottery printer spare parts to IGT and lower service sales related to the banking service contract noted

Internationally, TSG revenue decreased during 2021 compared to 2020, primarily due to 58% lower service revenue, a 64% decrease in

international consumable sales and a 15% decrease in sales of replacement parts and accessories to international casino and gaming customers due to the negative impact from the COVID-19 pandemic.

Gross Profit.

3 unchanged sentences

Total Sales - 2020

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.

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 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 increased $2.3 million, or 18%, in 2021 compared to 2020, primarily due to the 29% sales increase, which was largely offset by a

decrease in gross margin of 360 basis points during 2021 compared to 2020.

Gross margin decreased to 38.7% in 2021 compared to 42.3% in 2020 due largely to lower margin on our BOHA!

hardware sales during 2021 compared to 2020, as we have reduced

prices to accelerate the growth of our BOHA!

installed base, as well as higher material and shipping costs resulting from worldwide supply disruptions caused by the COVID-19 pandemic.

Operating Expenses

- Engineering, Design and Product Development.

Engineering, design and product development information for the years ended December 31, 2021 and 2020 is summarized below (in thousands, except percentages):

2 unchanged sentences

Total Sales - 2020

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, 2020 and 2019 is summarized below (in thousands, except percentages):

Engineering, design and product development expenses primarily include 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 including those to the third-party licensor of our

food service technology software products).

Engineering, design and product development expenses increased $1.8 million, or 31%, in 2021 compared to 2020 as we

gradually returned to more normalized pre-COVID-19 spending levels and continued development for our food service technology products.

We expect engineering, design and product development expenses to continue to increase in 2022 compared to 2021 due

to planned investments in our food service technology products.

Operating Expenses

- Selling and Marketing .

Selling and marketing information for the years ended December 31, 2021 and 2020 is summarized below (in

thousands, except percentages):

Year Ended December 31,

1 unchanged sentence

Total Sales - 2020

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.

Selling and marketing expenses primarily include salaries and payroll-related expenses for our sales, marketing and customer success

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 $1.5 million, or 25%, during 2021 compared to 2020 primarily due to higher trade show expense, expanded marketing expense and new sales and marketing staff as we returned

to more normalized pre-COVID-19 levels of sales and marketing expense during 2021 compared to lower costs during 2020 due to cost saving measures implemented during the second and third quarters of 2020.

We expect selling and marketing expenses to increase in 2022, as we plan to make substantial strategic investments in our food service technology sales and marketing groups.

Operating Expenses

- General and Administrative.

General and administrative information for the years ended December 31, 2021 and 2020 is summarized below (in thousands, except percentages):

2 unchanged sentences

Total Sales - 2020

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):

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, information technology expenses, and other expenses related to being a publicly

traded company.

General and administrative expenses increased $0.4 million, or 4%, during 2021 compared to 2020 due to higher recruiting fees and employee

compensation, as well as higher consulting fees related to a planned implementation of a new ERP system expected to be completed in early 2022.

These increases were partially offset by lower legal and professional fees and lower severance expense

during 2021 compared to 2020.

Operating Loss.

Operating loss information for the years ended December 31, 2021 and 2020 is summarized below (in thousands, except percentages):

Year Ended December 31,

1 unchanged sentence

Total Sales – 2020

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.

Our operating loss increased $1.3 million, or 16%, during 2021 compared to 2020 on 29% higher sales due to a decrease in our gross

margin of 360 basis points and increased operating expenses of $3.7 million during 2021 compared to 2020.

Interest, net.

We recorded net interest expense of $96 thousand in 2021 compared to $52 thousand in 2020.

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.

The increase in net interest expense was primarily due to lower interest

income earned from the note receivable to a third-party software developer that was collected in March 2021 and the full year impact of unused borrowing fees incurred from the Siena Credit Facility that was entered into on March 13, 2020.

We recorded other expense of $283 thousand in 2021 compared to other

income of $56 thousand in 2020 primarily due to foreign exchange losses recorded by our UK subsidiary during 2021 compared to foreign exchange gains recorded in 2020.

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 and political instability such as the Russia-Ukraine conflict.

Gain from Employee

Retention Credit.

We recorded a $1.5 million gain during 2021 resulting from the recognition of the employee retention credit pursuant to the CARES Act upon meeting the conditions required to claim the credit.

Gain on Forgiveness

of Long-Term Debt.

We recorded a $2.2 million gain in 2021 resulting from the forgiveness of the PPP Loan in July 2021.

Income Taxes .

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.

We recorded an income tax benefit during 2021 of $2.1 million at

an effective tax rate of 33.3%, compared to an income tax benefit during 2020 of $2.5 million at an effective tax rate of 31.1%.

The tax benefit recorded for 2021 included the recognition of the gain on the forgiveness of the PPP Loan which is not

The effective tax rate for 2020 included the impact of the net operating loss (“NOL”) we incurred during 2020 and was carried back to prior years.

The CARES Act enacted on March 27, 2020 permitted 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 in 2020, which we carried back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020.

We reported a net loss for the year ended December 31, 2021 of $4.1 million, or $0.45 per diluted share, compared to a net loss of $5.6 million, or $0.72 per diluted share, in 2020.

Liquidity and Capital Resources

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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.

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.

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.

During 2021, our cash balance increased $9.1 million, or 88%, from December 31, 2020 due primarily to financing activities providing

$11.5 million of cash primarily from the completion of an underwritten public offering.

We had $19.5 million in cash and cash equivalents as of December 31, 2021, of which $1.8 million was held by our UK subsidiary.

Operating activities :

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.

following significant factors primarily affected our cash used in operating activities of $2.5 million in 2021 as compared to cash used in operating activities of $3.5 million in 2020.

We reported a net loss of $4.1 million.

We recorded depreciation and amortization of $1.0 million and share-based compensation expense of $1.2 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.

We recorded a gain of $2.2 million from the forgiveness of the PPP loan.

Accounts receivable increased $4.2 million, or 125%, primarily due to increased sales volume during the fourth quarter of 2021.

We recorded a receivable of $1.5 million for the employee retention credit that is expected to be collected during 2022.

Inventories decreased $3.6 million, or 32%, primarily due to the utilization of inventory on hand to fulfill sales and significantly reduced inventory purchases

resulting from the supply chain disruptions caused by the COVID-19 pandemic.

Prepaid income taxes decreased $2.2 million due to receiving an income tax refund in 2021 related to the net operating loss reported for 2020 that was carried back to

prior years as permitted by the CARES Act.

Other current and long-term assets decreased $0.3 million, or 23%, primarily due to reduction of a contract asset related to a long-term BOHA!

sales contract completed

Accounts payable increased $2.5 million, or 150%, d ue to inventory purchases made

towards the end of the fourth quarter of 2021 to support expected 2022 sales .

Accrued liabilities and other liabilities increased $0.6 million, or 7%, due primarily to increased deferred revenue.

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.

Prepaid income taxes increased $2.2 million due to an income tax refund, subsequently received in 2021, related to the net operating loss reported for 2020 that was

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 .

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.

We recorded depreciation and amortization of $1.4 million and share-based compensation expense of $0.7 million.

Accounts receivable decreased $1.6 million, or 20%, primarily due to strong collections on receivables during the fourth quarter of 2019.

Inventories decreased $0.8 million, or 6%, primarily due to the utilization of inventory on hand to fulfill sales.

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 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 :

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.

Our capital expenditures were $1.4 million and $0.7 million in 2021 and 2020, respectively.

Expenditures in 2021 were primarily related to the implementation of a new

ERP system expected to be completed in early 2022, new product tooling and computer and networking equipment.

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

networking equipment.

Investing activities also provided $1.6 million in 2021 upon the collection of the remaining $1.6 million note receivable balance during the first quarter of 2021 from an unaffiliated third-party software developer from whom we

license our food service technology software, compared to $0.6 million of cash used in investing activities during 2020, for the issuance of a loan to the same unaffiliated third-party.

Financing activities:

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.

activities provided $11.5 million of cash during 2021 primarily from the completion of an underwritten public offering which raised net proceeds of $11.2 million, after deducting underwriting discounts, commissions and offering expenses and, to a

lesser extent, proceeds of $0.4 million from stock option exercises.

These increases were partially offset by $0.1 million for the payment of withholding taxes on stock issued from our stock compensation plans and $31 thousand on the final payment of

financing costs associated with our Siena Credit Facility.

During 2020, financing activities provided $11.0 million of cash primarily from the completion of an underwritten public offering which raised net proceeds of $8.7 million, after deducting u nderwriting discounts, commissions and offering expenses, and $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 $0.2 million in financing costs associated with signing our Siena Credit Facility.

Resource Sufficiency

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.

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.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, the proceeds raised

through the underwritten public offering during August 2021, and borrowings available under our Siena Credit Facility 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 is unknown.

Further, availability under the Siena Credit Facility depends in part on

inventory levels, which have been impacted and are expected to continue to be impacted by supply chain disruptions due to the COVID-19 pandemic.

As a result, we 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.

Credit Facility and Borrowings

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..

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

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%.

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.

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

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 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.

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 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 and continued

through the 12-month period from April 1, 2020 to March 31, 2021.

On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility.

The Credit Facility Amendment changed the financial covenant

under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $750 thousand under the Siena Credit Facility, tested as of the end of each calendar

month, beginning with the calendar month ending July 31, 2021.

From July 31, 2021 to December 31, 2021, we have been in compliance with our excess availability covenant.

As of December 31, 2021, we had no outstanding borrowings under the Siena Credit

Facility and $5.1 million of available borrowing capacity under the Siena Credit Facility.

On May 1, 2020 (the “Loan Date”), the Company was granted 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.

Under the terms of the PPP, the PPP Loan would be forgiven to the extent that funds from the PPP Loan were

used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent payments under lease agreements in effect before February 15, 2020, utilities for which

service began before February 15, 2020 and interest on debt obligations incurred before February 15, 2020, subject to conditions and limitations provided in the CARES Act.

At least 60% (under the PPP terms, as amended) of the proceeds of the PPP Loan

needed to have been used for eligible payroll costs for the PPP Loan to be forgiven.

The PPP Loan, which was evidenced by a Note dated the Loan Date issued by the Company in favor of Berkshire Bank as a lender, was

scheduled to mature on May 1, 2022 and had a fixed interest rate of 1.0% per annum, accruing from the Loan Date and payable monthly.

The Company submitted its PPP Loan forgiveness application in May 2021 to the SBA through Berkshire Bank and submitted

the related loan necessity questionnaire in June 2021.

On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP Loan (including all interest accrued thereon) of $2.2.

million had been fully forgiven by the SBA

and that the forgiveness payment date was July 1, 2021.

No payments were due on the PPP Loan for six months from the date of first disbursement, and because a loan forgiveness application was submitted to the SBA within 10 months after the end of the

covered period, no payments were due until the date on which the SBA remitted the loan forgiveness amount to the PPP Lender, and interest that accrued during the deferment period was included in the forgiveness amount.

The forgiveness of the PPP Loan

was reported as “Gain on forgiveness of long-term debt” in the Consolidated Statement of Operations during the year ending December 31, 2021.

Stock Repurchase Program

1 unchanged sentence

Shareholders’ Equity

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.

Shareholders’ equity increased $8.8 million, or 29%, to

$39.0 million at December 31, 2021 from $30.2 million at December 31, 2020.

The increase was primarily due to the completion of an underwritten public offering during 2021 which raised net proceeds of $11.2 million, after deducting u nderwriting

discounts, commissions and offering expenses.

Shareholders’ equity also increased, although to a lesser extent, from share-based compensation expense related to stock awards of $1.2 million and $0.4 million from the issuance of 97,000 shares of common

stock related to employee stock awards, net of relinquishments.

These increases were partially offset by a net loss of $4.1 million.

Off-Balance Sheet Arrangements

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.

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

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