What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-18 · 428 added, 290 removed, 132 unchanged (84% of the section changed)

1 unchanged sentence

Forward Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q for the period ended June 30, 2022 (this “Report”), including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts are “forward-looking statements” within the meaning of the U.S.

Certain statements included in this Quarterly Report on Form 10-Q for the period ended September 30, 2022 (this “Report”), including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not

historical facts are “forward-looking statements” within the meaning of the U.S.

federal securities laws, including the Private Securities Litigation Reform Act of 1995.

Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “project”, “plan” or “continue” or the negative thereof or other similar words.

The Company cautions readers not to place undue reliance on any such forward-looking statements, each of which involves certain risks and uncertainties, including, but not limited to, those listed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Form 10-K”), and in our other filings with the Securities and Exchange Commission (the “SEC”).

Forward-looking statements generally can be identified by the use of

forward-looking terminology, such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “project”, “plan” or “continue” or the negative thereof or other similar words.

The Company cautions readers not to place undue reliance on

any such forward-looking statements, each of which involves certain risks and uncertainties, including, but not limited to, those listed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Form 10-K”),

and in our other filings with the Securities and Exchange Commission (the “SEC”).

Such risks and uncertainties could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements.

Any such risks and uncertainties may also be exacerbated by the ultimate impact of the COVID-19 pandemic and the re- emergence of virus variants, supply chain disruptions, inflation which is unknown at this time and the Russia/Ukraine conflict and its impact on freight costs.

In addition, statements made in this Report about the COVID-19 pandemic and the potential effects and impacts of the COVID-19 pandemic on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the COVID-19 pandemic, actions taken by governmental authorities and businesses in response to the COVID-19 pandemic and any further resurgences or variants, vaccination rates and the direct and indirect impact of the COVID-19 pandemic on our employees, customers and third parties with which we conduct business, including difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions.

Although management has taken steps to mitigate any negative effect of such risks and uncertainties, including the impact of the COVID-19 pandemic, significant unfavorable changes could severely impact the assumptions used.

Any such risks and

uncertainties may also be exacerbated by the ultimate impact, which is unknown at this time, of the COVID-19 pandemic, supply chain disruptions, inflation and the Russia/Ukraine conflict and its impact on economic conditions, including increased costs

and inflation, supply chains and financial markets.

In addition, statements made in this Report about the potential effects and impacts of the COVID-19 pandemic, supply chain disruptions, inflation or the Russia/Ukraine conflict on the Company’s

business, financial condition, liquidity and results of operations may constitute forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration

and extent of the current economic environment and the direct and indirect impact of the COVID-19 pandemic and the Russia/Ukraine conflict on our employees, customers and third parties with which we conduct business, including difficulties or delays in

manufacturing or delivery of inventory or other supply chain disruptions and inflationary pressures.

Although management has taken steps to mitigate any negative effect of such risks and uncertainties, significant unfavorable changes could severely

impact the assumptions used.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect the impact of subsequent events or circumstances, except as required by law.

As used in this Report, unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” and “TransAct” refer to the consolidated operations of TransAct Technologies Incorporated and its consolidated subsidiaries.

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets including food service technology, point of sale (“POS”) automation and casino and gaming.

this Report, unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” and “TransAct” refer to the consolidated operations of TransAct Technologies Incorporated and its consolidated subsidiaries.

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets including food service technology, point of

sale (“POS”) automation and casino and gaming.

Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca®, brand names.

During 2019, we launched a new line of products for the food service technology market, the BOHA!

During 2019, we

launched a new line of products for the food service technology market, the BOHA!

Branded suite of cloud-based applications and companion hardware solutions.

software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production in the back-of-house operations.

Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents, as well as printed logging and plotting of data.

Software and hardware products help restaurants, convenience stores and food

service operators of all sizes automate the food production in the back-of-house operations.

Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels,

coupons and transaction records such as receipts, tickets and other documents.

We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, and select distributors, as well as directly to end-users.

Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific.

We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers.

Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in the restaurant and hospitality, retail, casino and gaming, and government markets.

distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific.

We also offer world-class service, support, labels, spare parts, accessories and printing supplies to

our growing worldwide base of products currently in use by our customers.

Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in the restaurant and

hospitality, retail, casino and gaming, and government markets.

Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products.

We operate in one reportable segment, the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.

Impact of the COVID-19 pandemic

In the first quarter of 2020, the COVID-19 pandemic and the resulting social distancing measures, including closures and restricted openings of restaurants and casinos implemented by federal, state and local authorities, negatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our two manufacturers located in Thailand and China.

Our inventory levels decreased significantly during 2021 due to these supply chain disruptions, and although we have been able to increase inventory levels during the first six months of 2022, continuing delays and further disruptions have led to an increased backlog, increased freight costs, and impacted our ability to deliver products to our customers on time or at all.

While we began to experience a modest recovery starting in the second half of 2020 and continuing through 2021, the recovery slowed again in the first quarter of 2022 due to a resurgence resulting from the Omicron variant and other variants.

We again are beginning to see a resumption of the recovery in the second quarter of 2022 which we expect to continue during the remainder of 2022, though the exact timing and pace of recovery are unknown given uncertainty surrounding responsive measures to the spread of virus variants or any potential future resurgences of the virus and the significant disruption that we and our customers have already experienced and may continue to experience.

We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ultimate impact of the COVID-19 pandemic on our business, but the length and ultimate severity of the reduction in demand and supply chain disruptions due to the COVID-19 pandemic remains uncertain.

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

Food service technology and POS automation .

In both our food service technology and POS automation markets, many restaurants and food service establishments that were closed during much of the second quarter of 2020 started to reopen in the third quarter of 2020 as state and local governments began to ease restrictions put in place in response to the COVID-19 pandemic.

Many of our customers initially opened under restrictions that limited them to providing drive-through, take-out or delivery service without dine-in options, as well as limiting the volume of customers and employees on site at any one time.

During the second half of 2020 and throughout 2021 and the first six months of 2022, as these food service customers reopened for business, we experienced sales improvement compared to the second quarter of 2020.

Notwithstanding the gradual resumption of operations that began in the third quarter of 2020, our food service technology customers continue to recover from the financial impact of the COVID-19 pandemic, and we expect new capital expenditures to be a lower priority for them in the near term, which we believe will continue to negatively impact sales of BOHA!

hardware, software and label products.

However, food service providers have been and are likely to continue to be required to develop and implement new or enhanced policies and operating procedures regarding cleaning, sanitizing and social distancing to ensure the safety of their employees and customers.

Additionally, our markets have experienced labor shortages and inflation in their food and labor costs.

We believe that our BOHA!

hardware, software and label products could prove to be helpful to our food service customers in efficiently and effectively managing and complying with these new procedures, while also helping to overcome staffing issues and inflation, especially as many establishments are and will likely continue to be operating with reduced staff levels due to the continuing labor shortage.

Casino and gaming .

In the casino and gaming market, most casinos and other gaming establishments were closed worldwide during most of the second quarter of 2020.

Many casinos began to reopen in late May and early June 2020, but similar to restaurants, casino openings were slow and measured, starting with reduced capacity and limited gameplay based on social distancing guidelines.

During the fourth quarter of 2020, some casinos re-closed due to a resurgence of the COVID-19 pandemic.

However, many casinos in the U.S.

reopened during the first quarter of 2021 with limited capacity and continued to remain open and further expand capacity during the remainder of 2021.

We anticipate that casinos world-wide will continue to increase capacity over time, barring any new closures or reduced capacity requirements in response to any new resurgence of the COVID-19 pandemic, including the emergence of variants.

Though sales of our casino and gaming products increased during 2021 and the first six months of 2022, and we expect this trend to continue for the remainder of 2022, casinos continue to recover from the financial impact of the COVID-19 pandemic, and therefore we expect that certain casinos’ appetite for purchases of new slot machines may be diminished, which may negatively impact sales of casino and gaming printers purchased by slot manufacturers for use in slot machines at casinos during the balance of 2022.

We made a strategic decision to exit the Printrex market as of December 31, 2021 and expect to have no future sales in this market beyond 2021.

Due to closures and reduced operating capacity of restaurants, food service establishments, casinos and other gaming establishments resulting from the COVID-19 pandemic, sales of spare parts, service and consumable products have declined, and we expect full year sales to remain at reduced levels, due to lower usage while the COVID-19 pandemic persists.

Although we have seen improvement in the second quarter of 2022, our gross margin has been negatively impacted by the COVID-19 pandemic and we expect our gross margin to continue to be negatively impacted while the COVID-19 pandemic and its economic effects on the markets we serve persists.

As a result of significantly lower sales levels, which were expected, as well as increased material and shipping costs resulting from worldwide supply disruptions caused by the COVID-19 pandemic, we believe our gross margin may continue to be impacted due to fixed manufacturing overhead expenses (such as facility costs, depreciation, etc.) that cannot be reduced or eliminated even with the lower sales level.

We have also experienced supply chain disruptions, including delayed product shipments from our two contract manufacturers located in China and Thailand that conduct almost all of our printer and terminal manufacturing, due to reduced operations and parts shortages at these facilities.

To date, these disruptions have only minimally impacted deliveries to customers due to our high inventory levels and reduced demand for our products.

Our inventory levels have increased during the first half of 2022 as we have made adjustments to the COVID-19 pandemic-related supply chain problems.

In light of the uncertainty around the ultimate impact of the COVID-19 pandemic and the resulting economic impacts, we implemented a number of cost saving measures during 2020 to help mitigate the impact on our financial position and operations and continued to limit discretionary spending during the first nine months of 2021.

Since the onset of the COVID-19 pandemic, our top priority has been to ensure the health and safety of our employees while continuing to provide our customers with high-quality, personalized service.

On March 20, 2020, we instituted work-from-home practices for the majority of our employees to reduce the spread of COVID-19 and to comply with government mandates.

Because most of our employees already had laptop computers with remote access into our IT systems, we experienced only minor reductions in productivity and minimal costs related to the implementation of our work-from-home practices.

In 2022, we have transitioned to a more hybrid and flexible model to accommodate both our employees and the needs of the business.

In addition, even with the transition to a hybrid model, our internal control structure remains operational and unchanged.

We have evaluated the recoverability of the assets on our unaudited condensed consolidated balance sheet as of June 30, 2022 in accordance with relevant authoritative accounting literature.

We considered the disruptions caused by the COVID-19 pandemic, including lower than previously forecasted sales and customer demand and macroeconomic factors potentially impacting accounts receivable, inventory, investments, intangible assets, goodwill and other assets and liabilities.

Where forward-looking estimates are required, we made a good-faith estimate based on information available as of the balance sheet date.

We operate in one reportable segment, the design, development, and

marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.

Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this Form 10-Q are listed without the ©, ® and ™

symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks, trade names and copyrights.

Impact of the COVID-19 Pandemic and Global Supply Chain Disruptions

Since early 2020, the COVID-19 pandemic has continued to cause uncertainty and disruption in the global economy and financial markets, such as increased shipping and

logistics costs and supply chain disruptions.

We have also been impacted by global supply chain issues and inflationary pressures, which have increased our costs and, in some instances, slowed our ability to deliver products to our customers.

2021, our inventory levels decreased significantly as a result of these supply chain disruptions, as well as significantly lower sales levels.

However, during the first nine months of 2022 we have been able to increase our inventory levels and

minimize the impact to our customers by successfully modifying our products that were affected by supply chain disruptions as well as sourcing component parts from alternate suppliers.

Although we have been able to increase inventory levels during the

first nine months of 2022, there can be no assurance that new or continuing supply chain disruptions will not affect our products or that we

will be able to make timely modifications to address any future supply chain issues that arise.

Further, while we have offset most of our cost increases by increasing prices of our products, there can be no guarantee that we will be able to offset any

future cost increases should they arise.

After a slowdown in the first quarter of 2022 resulting from the Omicron and other variants of COVID-19, we have continued to experience demand recovery in the second and third quarters of 2022.

strong backlog position and continued market expansion, we expect this recovery to continue during the remainder of 2022 and into 2023, though the exact timing and pace of recovery may be impacted by global economic conditions.

During 2020 and 2021, our gross margin was negatively impacted by significantly lower sales levels from the economic effects of the COVID-19 pandemic as well as increased

material and shipping costs resulting from worldwide supply chain disruptions continuing into 2022.

However, we have seen significant improvement in the second and third quarters of 2022 resulting from significantly higher sales levels and price

increases we instituted on our products to mitigate higher material and shipping costs.

Though we expect this trend to continue for the remainder of 2022, our gross margin may be negatively impacted by the economic effects of any future cost increases

that cannot be predicted, supply chain disruptions inflationary pressures and potential new COVID-19 variants on the markets we serve.

Although in 2022 we have continued to gradually return to more normalized pre-COVID-19 spending levels after implementing a number of cost saving measures in 2020 through

2022, we expect to continue to closely monitor our spending levels and implement expense management measures if and when circumstances warrant.

Since the onset of the COVID-19 pandemic, our top priority has been to ensure the health and safety of our employees while continuing to provide our customers with

high-quality, personalized service.

After instituting work-from-home practices in 2020, we have transitioned in 2022 to a more hybrid and flexible model to accommodate both our employees and the needs of the business.

In addition, even with the

transition to a hybrid model, our internal control structure remains operational and unchanged.

We have evaluated the recoverability of the assets on our unaudited condensed consolidated balance sheet as of September 30, 2022 in accordance with relevant authoritative accounting literature.

We considered the disruptions caused by the COVID-19 pandemic, supply chain disruptions and inflationary

pressures, including lower than previously forecasted sales and customer demand and macroeconomic factors potentially impacting accounts receivable, inventory, investments, intangible assets, goodwill and other assets and liabilities.

forward-looking estimates are required, we made a good-faith estimate based on information available as of the balance sheet date.

We have continued to monitor for indicators of impairment through the date of this Report.

Notwithstanding the foregoing, there is no assurance that the actions we have taken in response to the COVID-19 pandemic are sufficient or adequate, and we may be required to take additional preventive or responsive measures, as the ultimate extent of the effects of the COVID-19 pandemic on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time.

See Part I, Item 1A, Risk Factors, of Form 10-K for the year ended December 31, 2021, and other filings we make with the SEC from time to time, for further discussion of risks related to COVID-19.

Notwithstanding the foregoing, there is no assurance that the actions we have taken in response to the COVID-19 pandemic, supply chain disruptions and inflationary

pressures are sufficient or adequate, and we may be required to take additional preventive or responsive measures, as the ultimate extent of the effects of the current economic environment and the COVID-19 pandemic on the Company, our financial

condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time.

See Part I, Item 1A, “Risk Factors,” in our 2021 Form 10-K, and other filings we make with the

SEC from time to time, for further discussion of risks related to the COVID-19 pandemic.

Critical Accounting Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America.

The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities.

Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared

by us in accordance with accounting principles generally accepted in the United States of America.

The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,

revenue and expenses, and the disclosure of contingent assets and liabilities.

Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets

and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the

circumstances.

There have been no material changes in our critical accounting judgements and estimates from the information presented in Part II, Item 7.

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Results of Operations:

Three months ended June 30, 2022 compared to the three months ended June 30, 2021

Net sales, which include printer, terminal, software and label sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the three and six months ended June 30, 2022 and 2021 were as follows:

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

Net sales, which include printer,

terminal, software and label sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the three months ended September 30, 2022 and 2021 were as follows:

Three Months Ended

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(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Food service technology (“FST”)

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International *

International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers that may, in turn, ship those printers and terminals to international destinations.

Net sales for the second quarter of 2022 increased $3.3 million, or 35%, from the same period in 2021.

Printer, terminal and other hardware sales unit volume increased 27% year-over-year to approximately 25,000 units for the second quarter of 2022 due primarily to a 69% increase in casino and gaming sales unit volume.

The average selling price of our printers, terminals and other hardware increased 18% in the second quarter of 2022 compared to the second quarter of 2021 due primarily to price increases instituted on most of our products in the latter part of the first quarter of 2022.

In addition to the sales unit volume increases, FST software, labels and other recurring revenue increased $0.1 million, or 6%, in the second quarter of 2022 compared to the second quarter of 2021 due in part to increased sales of BOHA!

International sales for the second quarter of 2022 increased $1.5 million, or 111%, from the same period in 2021, primarily due to a 152% increase in sales in the international casino and gaming market driven largely by an increase in sales of our thermal casino printers.

International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers that may, in turn, ship those printers

and terminals to international destinations.

Net sales for the third quarter of 2022 increased $7.2 million, or 68%, from the same period

Printer, terminal and other hardware sales unit volume increased 105% year-over-year to approximately 44,000 units for the third quarter of 2022 due primarily to increases of 192% and 81% in POS automation and casino and gaming sales unit

volume, respectively.

The average selling price of our printers, terminals and other hardware increased 4% in the third quarter of 2022 compared to the third

quarter of 2021 due primarily to price increases instituted on most of our products in the latter part of the first quarter of 2022.

In addition to the sales unit volume increases, FST software, labels and other recurring revenue increased $0.5

million, or 27%, in the third quarter of 2022 compared to the third quarter of 2021.

International sales for the third quarter of 2022 increased $2.5 million, or 135%, from the same period in 2021, primarily due to a 189% increase in sales

in the international casino and gaming market driven largely by an increase in sales of our thermal casino printers.

Food service technology.

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

ecosystem, which combines our latest generation terminal and 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.

Our primary offering in the food

service technology market is our BOHA!

ecosystem, which combines our latest generation terminal and workstation, cloud-based software applications and related hardware into a complete offering of solutions 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 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 can be sold separately or combined into a single platform with the associated hardware, which includes the BOHA!

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 sold separately and customers purchase the applications they need for their

back-of-house operations.

Customers may also purchase associated hardware, which can include the BOHA!

Terminal and 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 and nutritional labels for prepared foods, and “enjoy by” date labels.

terminal combines an operating system and

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

WorkStation uses an iPad or Android tablet instead of an integrated touchscreen.

Both the BOHA!

terminal and 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.

Terminal and Workstation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on

the touchscreen device and allows over-the-air updates to the 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 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 three months ended June 30, 2022 and 2021 were 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 three months ended September 30, 2022, and 2021 were as follows:

Three Months Ended

1 unchanged sentence

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

2 unchanged sentences

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Software, labels and other recurring revenue

The increase of $0.4 million, or 12%, in food service technology sales for the second quarter of 2022 compared to the second quarter of 2021 was driven by an increase in sales of both hardware as well as software, labels and other recurring revenue.

FST hardware sales increased 24% due to higher sales of our Accudate 9700 terminal (largely for use at McDonald’s) and to a lesser extent, higher sales of our BOHA!

terminal and work station to new and existing customers.

FST sales hit a new record high of $3.7 million in sales in the third quarter of 2022.

The increase of $0.5 million, or 14%, in food service technology sales for the

third quarter of 2022 compared to the third quarter of 2021 was driven by an increase in software, labels and other recurring revenue, slightly offset by a 6% decline in hardware sales largely due to lower sales of our Accudate 9700 terminal.

software (recognized on a SaaS subscription basis), labels and other recurring revenue increased by 27%, primarily due to increased label and software sales due to the growth of the installed base of our BOHA!

terminal and workstation.

terminals and workstations.

POS automation.

Revenue from the POS automation market includes sales of our Ithaca 9000 thermal printer used primarily by McDonalds and other quick-serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or print on liner-less labels.

Sales of our worldwide POS automation products for the three months ended June 30, 2022 and 2021 were as follows :

Revenue from the POS

automation market includes sales of our Ithaca 9000 thermal printer used primarily by McDonalds and other quick-serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or print liner-less

Sales of our worldwide POS automation products for the three months ended September 30, 2022 and 2021 were as follows :

Three Months Ended

1 unchanged sentence

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

The decrease in POS automation product revenue for the second quarter of 2022 compared to the second quarter of 2021 of 7% was driven primarily by printer production limitations caused by the worldwide supply chain slowdown.

As a result, we could not produce enough POS automation printers to fulfill customer orders during the second quarter of 2022.

However, we expect production to ramp up in the second half of 2022 and sales of our POS automation printers to be significantly higher in the second half of 2022 compared to the first half of 2022 based on the backlog of orders we have received for McDonald’s.

The $4.0 million, or 340% increase in POS automation product revenue for the third quarter of 2022 compared to the third quarter of 2021 was driven by a

192% increase in unit sales.

During the second quarter of 2022, due to production limitations caused by the worldwide supply chain slowdown, we could not produce enough POS automation printers to fulfill customer orders.

However, during the third

quarter of 2022, we successfully managed through the shortage, significantly increased production and began to fulfill our large backlog of sales orders which we expect to continue to fulfill for the remainder of 2022.

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 and kiosks for sports betting at non-casino gaming and sports betting establishments.

Revenue from the casino

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

betting at 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.

Sales of our worldwide casino and gaming products for the three months ended June 30, 2022 and 2021 were 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 three months ended September 30, 2022 and 2021 were as follows :

Three Months Ended

1 unchanged sentence

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

The increase in domestic sales of our casino and gaming products for the second quarter of 2022 compared to the second quarter of 2021 of $1.5 million, or 61%, was primarily due to an across-the-board increase in OEM printer sales and price increases as we continue to experience continued recovery and believe we are increasing our market share compared to the second quarter of 2021 when the casino and gaming market was negatively impacted by the COVID-19 pandemic.

This increase was somewhat tempered by a continued global chip shortage that limited our printer production during the second quarter of 2022.

We also completed an installation of Epicentral software at a new casino during the second quarter of 2022 that contributed to the overall increase in domestic sales.

Similar to the domestic sales increase, the international sales increase of our casino and gaming products for the second quarter of 2022 was $1.6 million compared to the second quarter of 2021 and was primarily due to a 157% increase in sales of our thermal casino printers.

Though sales in Asia remain weak due to closures related to the COVID-19 pandemic, we experienced a sales recovery primarily in Europe and Australia during the second quarter of 2022 compared to the second quarter of 2021 when the international casino and gaming market was negatively impacted by the COVID-19 pandemic.

We expect production to continue to ramp up in the second half of 2022 and sales of our casino printers to be higher in the second half of 2022 compared to the first half of 2022 based on the backlog of orders we have received.

Printrex branded printers were 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.

Sales of our worldwide Printrex printers for the three months ended June 30, 2022 and 2021 were as follows :

The increase in domestic sales of our casino and gaming products for the third quarter of 2022 compared to the third quarter of 2021 of $1.1 million, or 42%, was primarily

due to an across-the-board increase in OEM printer sales and price increases as we experience continued recovery and believe we are increasing our market share compared to the third quarter of 2021 when the casino and gaming market was negatively

impacted by the COVID-19 pandemic.

Though we successfully increased printer production during the third quarter of 2022, our casino sales were still somewhat tempered by the continued global chip shortage that limited our printer production during the

third quarter of 2022.

Similar to the domestic sales increase, the international sales increase of our casino and

gaming products for the third quarter of 2022 was $2.6 million compared to the third quarter of 2021 and was primarily due to a 224% increase in sales of our thermal casino printers.

Though sales in Asia remain impacted by the COVID-19 pandemic, we

experienced a strong sales recovery and believe we are increasing market share primarily in Europe, and to a lesser extent Australia, during the third quarter of 2022 compared to the third quarter of 2021 when the international casino and

gaming market was negatively impacted by the COVID-19 pandemic.

We expect production and sales of our casino printers to continue to ramp up in the fourth quarter of 2022 as we work through our large backlog of orders and capitalize on

our increasing market share.

Printrex branded printers were 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.

Sales of our worldwide Printrex printers for the three months ended September 30, 2022 and 2021 were as follows :

Three Months Ended

1 unchanged sentence

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

We made a strategic decision to exit the Printrex market as of December 31, 2021 and have had no sales, and expect to have no future sales in this market 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, maintenance and repair services, refurbished printers, and shipping and handling charges.

Sales in our worldwide TSG market for the three months ended June 30, 2022 and 2021 were as follows :

Revenue generated by TSG includes sales

of consumable products (POS receipt paper, inkjet cartridges, ribbons and other printing supplies for legacy products), replacement parts, maintenance and repair services, refurbished printers, and shipping and handling charges.

Sales in our worldwide

TSG market for the three months ended September 30, 2022 and 2021 were as follows :

Three Months Ended

1 unchanged sentence

( In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

Domestic revenue from TSG for the second quarter of 2022 increased $0.1 million, or 7%, compared to the second quarter of 2021.

The increase was primarily due to increased sales of replacement parts and accessories for lottery and POS printers.

This increase was partially offset by a reduction of legacy consumables that are no longer a focus for the Company.

Internationally, TSG revenue decreased $0.1 million, or 9%, in the second quarter of 2022 compared to the second quarter of 2021.

Domestic revenue from TSG for the third quarter of 2022 declined $0.9 million, or 47%, compared to the third quarter of 2021.

The decrease was primarily due to decreased

sales of replacement parts for legacy lottery printers.

This decrease was partially offset by a 64% increase in service revenue and 80% increase in sales of legacy consumables compared to the impacted sales level in the third quarter of 2021 due to

Gross Profit.

Gross profit for the three months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Gross profit for the three months ended September 30, 2022 and 2021

is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

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.

For the second quarter of 2022, gross profit increased $2.0 million, or 58% due largely to a sales increase of 35% for the second quarter of 2022 compared to the second quarter of 2021.

During the second quarter of 2022, our gross margin increased 620 basis points, to 43.0%, compared to 36.8% in the second quarter of 2021.

The increase in gross margin resulted primarily from higher sales volume, a more favorable product mix and the effect of price increases instituted in the latter part of the first quarter of 2022.

Operating Expenses - Engineering, Design and Product Development.

Engineering, design and product development expense for the three months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

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.

For the third quarter of 2022, gross profit increased $3.9 million, or 90% due largely to a sales increase of 68% for the third quarter of 2022 compared to the third quarter of

During the third quarter of 2022, our gross margin increased 540 basis points, to 45.9%, compared to 40.5% in the third quarter of 2021.

The increase in gross margin resulted primarily from higher sales volume, a more favorable product mix and

the effect of price increases instituted in the first quarter and third quarter of 2022.

Operating Expenses - Engineering, Design and Product

Engineering, design and product development expense for the three months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

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).

Such expenses increased $0.4 million, or 20%, for the second quarter of 2022 compared to the second quarter of 2021, as we gradually return to more normalized pre-COVID-19 spending levels and continue development of our food service technology products which we expect to continue during the second half of 2022.

In addition, we incurred higher design expenses related to incorporating alternate electronic parts into our products in response to the worldwide chip shortage in an effort minimize disruptions to our printer and terminal production.

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

Such expenses increased $0.1 million, or 6%, for the third quarter of 2022 compared to the third quarter of 2021, resulting from a gradual return to

more normalized pre-COVID-19 spending levels and from the full effect of hiring additional software developers in late 2021 to continue development of our food service technology products which we expect to continue for the remainder of 2022.

Operating Expenses - Selling and Marketing.

Selling and marketing expense for the three months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Selling and marketing expense for the three months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

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

Such expenses increased $1.5 million, or 86%, for the second quarter of 2022 compared to the second quarter of 2021, primarily due to investment spending for our FST sales and marketing groups.

During the second quarter of 2022, we continued BOHA!

market studies we began in the first quarter 2022, increased marketing programs and hired additional sales staff to support our BOHA!

In addition to these investments, we incurred higher sales commissions, travel expenses and tradeshow expense, as we returned to pre-COVID-19 spending levels, compared to the lower level of spending during the second quarter of 2021 resulting from the negative impacts of COVID-19.

Despite the strategic investments we have made in our FST sales and marketing groups, we expect overall selling and marketing expenses to be lower in the second half of 2022 compared to the first half of 2022 due to cost cutting measures we have implemented in other areas.

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

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

Such expenses

increased $0.9 million, or 46%, for the third quarter of 2022 compared to the third quarter of 2021, primarily due to investment spending for our FST sales and marketing groups.

During the third quarter of 2022, we increased marketing programs and

hired additional sales and marketing staff to support our BOHA!

In addition to these investments, we incurred higher sales commissions, travel expenses and tradeshow expenses, as we returned to pre-COVID-19 spending levels, compared to the

lower level of spending during the third quarter of 2021 resulting from the negative impacts of COVID-19.

Operating Expenses - General and Administrative .

General and administrative expense for the three months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

General and administrative expense for the three months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

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

General and administrative expenses were up $0.4 million, or 17%, compared to the second quarter of 2021 due to higher professional fees, salary increases, and depreciation and other expenses related to the implementation of a new ERP system that was completed in April 2022.

General and administrative expenses primarily include salaries, incentive compensation, and other payroll related expenses for our executive, finance, human resources,

business development and information technology staff, expenses related to our corporate headquarters, professional and legal expenses, information technology expenses, and other expenses related to being a publicly-traded company.

administrative expenses were up $0.9 million, or 43%, compared to the third quarter of 2021 due to higher professional fees, salary increases, the hiring of additional accounting and finance staff, recruiting fees, and depreciation and other expenses

related to the implementation of a new ERP system that went live in April 2022.

These increases were partially offset by a reduction in incentive compensation expense.

Operating Loss.

Operating loss for the three months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Operating Income (Loss).

Operating income

(loss) for the three months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

Our operating loss increased $0.3 million, or 12%, for the second quarter of 2022 compared to the second quarter of 2021 due to a $2.0 million, or 58%, increase in gross profit on 35% higher sales and 620 basis point improvement in gross margin was more than offset by a $2.3 million, or 38%, increase in operating expenses during the second quarter of 2022 compared to the second quarter of 2021.

Our operating income increased $2.0 million, or 124%, for the third quarter of 2022 compared to the third quarter of 2021 due to a $3.9 million, or 90%,

increase in gross profit on 68% higher sales and 540 basis point improvement in gross margin, partially offset by a $1.9 million, or 32%, increase in operating expenses.

Interest, net.

Net interest expense remained consistent at$28 thousand for the second quarter of 2022 compared to $29 thousand for the second quarter of 2021.

We expect interest expense to increase during the second half of 2022 compared to the first half of 2022 due to required minimum borrowings pursuant to the terms of the July 2022 Amendment No.

2 to the Siena Credit Facility.

We recorded other expense of $264 thousand for the second quarter of 2022 compared to other expense of $17 thousand for the second quarter of 2021, primarily due to higher foreign exchange losses recorded by our U.K.

subsidiary resulting largely from the weakening of the British pound against the U.S.

dollar during the second quarter of 2022.

Net interest expense increased $24 thousand to

$53 thousand for the third quarter of 2022 compared to $29 thousand for the third quarter of 2021.

Net interest expense increased, and we expect to continue to increase for the remainder of 2022, due to required minimum borrowings of $2.25 million

pursuant to the terms of the Siena Credit Facility Amendment No.

2 entered into in July 2022 along with interest rate increases in the broader financial markets.

We recorded other income of $132 thousand for the

third quarter of 2022 compared to other expense of $69 thousand for the third quarter of 2021, primarily due to exchange gains in the third quarter of 2022.

Gain on Forgiveness of Long-Term Debt.

We also recorded a $2.2

million gain on forgiveness of the PPP loan that occurred in the third quarter of 2021.

Income Taxes.

We recorded an income tax benefit for the second quarter of 2022 of $870 thousand at an effective tax rate of (26.8%), compared to an income tax benefit for the second quarter of 2021 of $664 thousand at an effective tax rate of (24.6%).

As a result of the above, we reported a net loss for the second quarter of 2022 of $2.4 million, or ($0.24) per diluted share, compared to a net loss of $2.0 million, or ($0.23) per diluted share for the second quarter of 2021.

We recorded an income tax benefit for the third quarter of 2022 of $62 thousand at an effective tax rate of (13.3%), compared to an income tax benefit for the third quarter of 2021 of $442 thousand at an effective

tax rate of (96.3%).

The tax benefit in the third quarter of 2022 primarily resulted from the reversal of a valuation allowance on deferred tax assets of our UK subsidiary, while a tax benefit was recognized during the third quarter of 2021 on

pre-tax income due to the recognition of the gain on the forgiveness of the PPP Loan which is not taxable.

As a result of the above, we reported net income for the third quarter of 2022 of $0.5 million, or $0.05 per diluted share, compared to net income of $0.9 million, or $0.09 per diluted

share for the third quarter of 2021.

Results of Operations:

Six months ended June 30, 2022 compared to six months ended June 30, 2021

Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

POS automation

1 unchanged sentence

International *

Net sales for the first six months of 2022 increased $4.7 million, or 27%, from the same period in 2021.

Printer, terminal and other hardware sales unit volume increased by 26% to approximately 48,000, units for the six months of 2022 driven primarily by a 65% increase in unit in our casino and gaming market.

The average selling price of our printers, terminals and other hardware increased 5% for the first six months of 2022 compared to the first six months of 2021 due primarily to price increases instituted on most of our products in the latter part of the first quarter of 2022.

FST software, labels and other recurring revenue increased $0.5 million, or 15%, in the first six months of 2022 compared to the first six months of 2021.

International sales for the first six months of 2022 increased $2.8 million, or 105%, from the same period in 2021 due primarily to a 137% increase in the international casino and gaming market.

International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers that may, in turn, ship those printers

and terminals to international destinations.

Net sales for the first nine months of 2022 increased $11.9 million, or 42%, from the same period in 2021.

Printer, terminal and other hardware sales unit

volume increased by 55% to approximately 92,000, units for the nine months of 2022 driven primarily by a 71% increase in unit sales in our casino and gaming market and 51% increase in POS automation unit sales.

The average selling price of our

printers, terminals and other hardware increased 5% for the first nine months of 2022 compared to the first nine months of 2021 due primarily to price increases instituted on most of our products in the latter part of the first quarter of 2022.

software, labels and other recurring revenue increased $1.0 million, or 19%, in the first nine months of 2022 compared to the first nine months of 2021.

International sales for the first nine months of 2022 increased $5.3 million, or 117%, from the same period in 2021 due primarily to a 159% increase in the

international casino and gaming market.

Food service technology.

Sales of our worldwide food service technology products for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

worldwide food service technology products for the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

Six Months Ended

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

Software, labels and other recurring revenue

The decrease in food service technology sales of $0.3 million, or 4%, in the first six months of 2022 compared to the first six months of 2021 was driven by a decrease in hardware sales, partially offset by an increase in sales of BOHA!

September 30, 2022

September 30, 2021

Software, labels and other recurring revenue

Hardware sales decreased 29% in the first half of 2022 compared to the first half of 2021 due largely to lower sales to a national convenience store customer and an initial sale to a new national travel center customer completed in the first quarter of 2021 that did not reoccur in the first half of 2022.

FST software, labels and other recurring revenue sales increased 15% in the first six months of 2022 compared to the first six months of 2021.

This increase was 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!

The increase in food service technology sales of $0.2 million, or 2%, in the first nine months of 2022 compared to the first nine months of 2021 was driven by an increase

of 19% in sales of BOHA!

software, labels and other recurring revenue, partially offset by a decrease of 21% in hardware sales.

This increase was 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.

Hardware sales decreased 21% in the first nine months of 2022 compared to the first nine months of 2021 due largely to lower sales to a

national convenience store customer.

POS automation.

Sales of our worldwide POS automation products for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

Sales of our worldwide POS

automation products for the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

Sales of POS automation printers remained consistent, increasing $0.1 million, or 2%, for the first six months of 2022 compared to the first six months of 2021.

Sales of POS automation printers increased $4.1 million, or 113%, for the first nine months of 2022 compared to the first nine months of 2021.

in sales was driven primarily by increased sales to McDonald’s, largely in the third quarter of 2022, as we successfully managed through the global chip shortage and ramped up production and began to fulfill our backlog of orders from the second

quarter of 2022.

Casino and gaming.

Sales of our worldwide casino and gaming products for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

Sales of our worldwide

casino and gaming products for the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

The increase in domestic sales of our casino and gaming products of $2.3 million, or 53%, for the first six months of 2022 compared to the first six months of 2021 was primarily due to an increase in domestic sales and price increases in our gaming and thermal casino printers, as we have experienced a positive recovery and believe we are increasing our market share during the first six months of 2022 compared to the same period in 2021 which was impacted by the COVID-19 pandemic.

This increase was somewhat tempered by a continued global chip shortage that limited our printer production during the second quarter of 2022.

Domestic sales of our casino and gaming products increased by $3.4 million, or 48%, for the first nine months of 2022 compared to the first nine months of 2021.

increase was primarily due to an increase in domestic sales and price increases in our thermal casino printers, as we have experienced a continued recovery and believe we are increasing our market share during the first nine months of 2022 compared to

the same period in 2021 which was impacted by the COVID-19 pandemic.

We also completed an installation of EPICENTRAL software at a new casino during the second quarter of 2022 that contributed to the overall increase in domestic sales.

International sales of our casino and gaming products increased by $2.6 million, or 137%, in the first six months of 2022 compared to the first six months of 2021.

Sales of our thermal casino printers increased 118% and sales of our off-premise gaming printers increased 273%.

These increases are attributable to the recovery of the international markets after significant negative impacts from the COVID-19 pandemic during the 2021 period.

S ales of our worldwide Printrex printers for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

International sales of our casino and gaming products increased by $5.2 million, or 159%, in

the first nine months of 2022 compared to the first nine months of 2021.

Sales of our thermal casino printers increased 162% and sales of our off-premises gaming printers increased 137%.

These increases are attributable to the recovery of

the international markets after significant negative impacts from the COVID-19 pandemic during the 2021 period as well as increased sales volume due to our increasing market share.

S ales of our worldwide Printrex printers for the nine months ended September 30, 2022

and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

We made a strategic decision to exit the Printrex market as of December 31, 2021 and have had no sales, and expect to have no future sales in this market beyond 2021.

Sales in our worldwide TSG market for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

Sales in our worldwide TSG market for the nine months ended September 30, 2022 and 2021

were as follows:

Nine Months Ended

(In thousands, except percentages)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

International

The decrease in domestic revenue from TSG of $0.1 million, or 5%, for the first six months of 2022 as compared to the first six months of 2021 was primarily due to lower service revenue and sales of consumable products.

Service revenue declined 35%, primarily related to declining revenue from a service contract with a legacy banking customer that is expected to expire during 2022.

Consumable sales declined by 40% due to decreased sales of consumable products for our legacy products on which we are no longer focusing on.

These decreases were offset by a 16% increase in sales of replacement parts and accessories.

Internationally, TSG revenue increased $0.3 million, or 136%, for the first six months of 2022 compared to the first six months of 2021, primarily due to a 205% increase in sales of replacement parts and accessories to international casino and gaming customers.

Domestic revenue from TSG declined $0.9 million, or 23%, for the first nine months of 2022 as compared to the first nine months of 2022.

The decrease was primarily due to

decreased sales of replacement parts for legacy lottery printers.

The decline was largely driven by a 27% decrease in sales of replacement parts primarily for legacy lottery printers and a 13% year-over-year decrease in service revenue.

Internationally, TSG revenue increased $0.4 million, or 104%, for the first nine months of 2022 compared to the first nine months of 2021, primarily due to a 156% increase

in sales of replacement parts and accessories to international casino and gaming customers, partially offset by an 88% decline in service revenue over the comparable period.

Gross Profit.

Gross profit for the six months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Gross profit for the nine months ended September 30, 2022 and 2021

is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

For the first six months of 2022, gross profit increased $1.2 million, or 18%, due largely to a sales increase of 27% in the first six months of 2022 compared to the first six months of 2021.

The decrease in gross margin percentage resulted primarily from higher freight and product costs incurred due to the worldwide supply chain disruption and chip shortage during the first six months of 2022.

Operating Expenses - Engineering, Design and Product Development.

Engineering, design and product development expense for the six months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

For the first nine months of 2022, gross profit increased $5.1 million, or 46%, due largely to a sales increase of 42% in the first nine months of 2022 compared to the

first nine months of 2021.

This increase is a result of a higher volume of sales, a more favorable product mix, and the effect from two rounds of price increases we instituted late in the first quarter of 2022 and again in September 2022 to mitigate

higher product and shipping costs related to the worldwide supply chain disruptions.

Operating Expenses - Engineering, Design and Product

Engineering, design and product development expense for the nine months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

Engineering, design and product development expenses increased $0.8 million, or 24%, during the first six months of 2022 compared to first six months of 2021, as we gradually return to more normalized pre-COVID-19 spending levels, as well as the impact from the hiring of additional engineering staff in late 2021 and the first quarter of 2022 for continued development for our food service technology products.

Engineering, design and product development expenses increased $1.0 million, or 18%, during

the first nine months of 2022 compared to first nine months of 2021, resulting from a gradual return to more normalized pre-COVID-19 spending levels, as well as from the impact from the hiring of additional engineering staff in late 2021 and

the first quarter of 2022 for continued development of our food service technology products.

These increases were partially offset by cost reduction initiatives we instituted that took full effect in the third quarter of 2022.

Operating Expenses - Selling and Marketing.

Selling and marketing expense for the six months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Selling and marketing expense for the nine months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

Selling and marketing expenses increased $2.8 million, or 86%, for the first six months of 2022 compared to the first six months of 2021 primarily due to investment spending for our FST sales and marketing groups.

During the first half of 2022, we initiated BOHA!

market studies, increased marketing programs and hired additional sales staff to support our BOHA!

In addition to these investments, we incurred higher sales commissions, travel expenses and tradeshow expense, as we returned to pre-COVID-19 spending levels, compared to the lower level of spending during the first half of 2021 resulting from the negative impacts of the COVID-19 pandemic.

Selling and marketing expenses increased $3.6 million, or 71%, for the first nine months of

2022 compared to the first nine months of 2021 primarily due to investment spending for our FST sales and marketing groups.

During the first nine months of 2022, we initiated BOHA!

market studies, increased marketing programs and hired additional

sales staff to support our BOHA!

In addition to these investments, we incurred higher sales commissions, travel expenses and tradeshow expenses, as we gradually return to pre-COVID-19 spending levels, compared to the lower level of

spending during the first nine months of 2021 resulting from the negative impacts of the COVID-19 pandemic.

These increases were partially offset by cost reduction initiatives we instituted that took full effect in the third quarter of 2022.

Operating Expenses - General and Administrative .

General and administrative expense for the six months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

General and administrative expense for the nine months ended September 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

General and administrative expenses increased $1.0 million, or 20%, for the first six months of 2022 compared to first six months of 2021 due to higher professional fees (including legal fees related to a shareholder matter that was resolved in March 2022 when we entered into a Cooperation Agreement with two shareholders), salary increases and depreciation and other expenses related to the implementation of a new ERP system that was completed in April 2022.

These increases were partially offset by a reduction in incentive compensation expense during the first half of 2022.

General and administrative expenses increased $1.9 million, or 27%, for the first nine months of 2022 compared to first nine months of 2021 due to higher professional fees

(including legal fees related to a shareholder matter that was resolved in March 2022 when we entered into a Cooperation Agreement with two shareholders), salary increases, the hiring of additional staff, recruiting fees, and depreciation and other

expenses related to the implementation of a new ERP system that went live in April 2022.

These increases were partially offset by a reduction in incentive compensation expense during the first nine months of 2022.

Operating Loss.

Operating loss for the six months ended June 30, 2022 and 2021 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Operating loss for the nine months ended September 30, 2022 and 2021

is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2022

Total Sales - 2021

Our operating loss increased $3.4 million, or 66%, for the first six months of 2022 compared to the first six months of 2021 as a $1.2 million, or 18%, increase in gross profit on 27% higher sales was more than offset by a $4.6 million, or 39%, increase in operating expenses during the first half of 2022 compared to the first half of 2021.

Our operating loss increased $1.4 million, or 21%, for the first nine months of 2022 compared to the first nine months of 2021 as a $5.1 million, or 46%,

increase in gross profit on 42% higher sales was more than offset by a $6.5 million, or 36%, increase in operating expenses during the first nine months of 2022 compared to the first nine months of 2021.

Interest, net.

We recorded net interest expense of $92 thousand for the first six months of 2022 compared to net interest expense of $42 thousand for the first six months of 2021.

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.

We expect interest expense to increase during the second half of 2022 due to required minimum borrowings pursuant to the terms of the July 2022 Credit Facility Amendment No.

We recorded other expense of $299 thousand for the first six months of 2022 compared to other expense of $100 thousand for the first six months of 2021 primarily due to increased foreign exchange losses recorded by our U.K.

subsidiary largely due to a weakening of the British pound against the U.S.

dollar in the second quarter of 2022.

We recorded net interest expense of $145

thousand for the first nine months of 2022 compared to net interest expense of $71 thousand for the first nine months of 2021.

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.

Interest expense has increased during 2022 and we expect will continue to increase during the remainder of 2022 due to required minimum borrowings pursuant to the terms of the July 2022

Credit Facility Amendment No.

2 along with interest rate increases in the broader financial markets.

We recorded other expense of $167 thousand for the

first nine months of 2022 compared to other expense of $169 thousand for the first nine months of 2021.

These losses are primarily attributable to foreign exchange losses recorded by our U.K.

subsidiary largely due to a weakening of the British Pound

against the U.S.

Dollar during both periods.

Gain on Forgiveness of Long-Term Debt.

W e recorded a $2.2 million gain on forgiveness of the PPP Loan that occurred in the third quarter of 2021.

Income Taxes.

We recorded an income tax benefit for the first six months of 2022 of $2.2 million at an effective tax rate of 24.9%, compared to an income tax benefit for the first six months of 2021 of $1.2 million at an effective tax rate of 22.4%.

As a result of the above, we reported a net loss for the first six months of 2022 of $6.7 million, or $0.68 per diluted share, compared to a net loss of $4.1 million, or $0.46 per diluted share for the first six months of 2021.

We recorded an income tax benefit for the first nine months of 2022 of $2.3 million at an effective tax rate of (27.0%), compared to an income tax benefit for the first nine months of 2021 of $1.6 million at an

effective tax rate of (33.6%).

The tax rate benefit recorded for the nine months ended September 30, 2021 was unusually high as it included the recognition of the gain on the forgiveness of the PPP Loan which is not taxable.

As a result of the above, we reported a net loss for the first nine months of 2022 of $6.2 million, or $0.63 per diluted share, compared to a net loss of $3.2 million, or $0.35 per diluted

share for the first nine months of 2021.

Liquidity and Capital Resources

For the first six months of 2022, our cash and cash equivalents balance decreased by $15.6 million to $3.9 million as of June 30, 2022 due primarily to higher accounts receivable associated with higher sales volumes, increased inventory related to strategic inventory purchases in response to the global supply chain crisis and a reported net loss for the period.

For the first nine months of 2022, our cash and cash equivalents balance decreased by $13.1 million to $6.4 million as of September 30, 2022 due primarily

to higher accounts receivable associated with higher sales volumes, increased inventory related to strategic inventory purchases in response to the global supply chain crisis and a reported net loss for the period, offset by proceeds from bank

borrowings of $2.3 million.

Operating activities :

The following significant factors affected our cash used in operating activities of $14.6 million for the first six months of 2022 as compared to cash used in operating activities of $3.9 million for the first six months of 2021:

During the first six months of 2022:

The following significant factors affected our cash used in operating activities of $14.2 million for the first nine months of 2022 as compared to cash used in operating activities of $3.9 million for the first nine months of

During the first nine months of 2022:

We reported a net loss of $6.2 million.

We recorded depreciation and amortization of $1.0 million and share-based compensation expense of $0.9 million.

Accounts receivable increased $4.5 million due to higher sales volumes in the first half of 2022.

Deferred income taxes increased $2.2 million due to continued losses.

Inventories increased $3.3 million due largely to strategic purchases of electronic parts in volume in an effort to minimize disruptions of production at our contract manufacturers.

During the first six months of 2021:

Accounts receivable increased $6.3 million due to higher sales volumes in the third quarter of 2022.

Deferred income taxes increased $2.4 million in large part due to continued losses.

Inventories increased $3.6 million due largely to strategic purchases of electronic parts in volume in an effort to minimize disruptions of production at our contract

manufacturers.

Accounts payable increased $1.9 million due increased inventory purchases and the timing of cash disbursements.

During the first nine months of 2021:

We reported a net loss of $3.2 million.

We recorded depreciation and amortization of $0.7 million and share-based compensation expense of $1.0 million.

Accounts receivable increased $2.4 million primarily due to increased sales volume during the second quarter of 2021.

Inventories decreased $2.3 million due to the utilization of inventory on hand to fulfill sales.

Accounts payable increased $1.0 million due primarily to the timing of payments during the second quarter of 2021.

Accrued liabilities and other liabilities decreased $0.9 million, or 11%, due primarily to the payment of 2020 annual bonuses in March 2021.

Accounts receivable increased $3.1 million primarily due to increased sales volume during the third quarter of 2021.

Inventories decreased $4.7 million 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.

We recorded a gain on the forgiveness of debt of $2.2 million in the third quarter of 2021.

Deferred income taxes increased $1.5 million due in large part

to continued losses.

Other current and long-term assets increased $0.2 million due primarily to prepaid expenses related to tradeshows held in the fourth quarter of 2021.

Accounts payable decreased $0.2 million due primarily to a decrease in inventory purchases made during the third quarter of 2021.

Investing activities:

Our capital expenditures were $0.7 million for the first six months of 2022 compared to $0.2 million for the first six months of 2021.

Our capital expenditures were $1.0 million for the first

nine months of 2022 compared to $0.8 million for the first nine months of 2021.

Expenditures in 2022 were primarily related to the implementation of a new ERP system.

Expenditures in 2021 were primarily related to computer and networking equipment and new product tooling equipment.

During the first six months of 2021, we limited our capital expenditures to help preserve liquidity amidst the height of the COVID-19 pandemic.

Investing activities also provided $1.6 million in the first six months of 2021 for the collection of the remaining $1.6 million note receivable balance from an unaffiliated third party.

Expenditures in 2021 were primarily related to our new ERP system, computer and

networking equipment and new product tooling equipment.

During the first nine months of 2021, we limited our capital expenditures to help preserve liquidity amidst the height of the COVID-19 pandemic.

Investing activities also provided $1.6 million

in the first nine months of 2021 for the collection of the remaining $1.6 million note receivable balance from an unaffiliated third party.

Financing activities:

Financing activities used $0.1 million of cash in the first six months of 2022.

During the first six months of 2021, financing activities provided $0.1 million of cash primarily from the exercise of stock options, net of withholding taxes paid.

Financing activities provided $2.1 million of cash in the

first nine months of 2022 primarily due to proceeds received from the Siena Credit Facility.

This increase was partially offset by $0.1 million for the payment of withholding taxes on stock issued under our compensation plans and $69 thousand for the

payment of financing costs associated with Siena Credit Facility Amendment No.

During the first nine months of 2021, financing activities provided $11.5 million of cash primarily from the completion of an underwritten public offering which provided

net proceeds of $11.3 million after deducting underwriting discounts, commissions and offering expenses and, to a lesser extent, proceeds of $0.3 million from stock option exercises.

These increases were partially offset by $0.1 million for the

payment of withholding taxes on stock issued under our stock compensation plans and $31 thousand on the final payment of financing costs associated with the original Siena Credit Facility.

Credit Facility and Borrowings

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

The Siena Credit Facility provides for a revolving credit line of up to $10.0 million and was originally scheduled to expire 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%.

Credit Facility provides for a revolving credit line of up to $10.0 million and was originally scheduled to expire on March 13, 2023.

Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime

rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%.

The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility were $245 thousand.

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

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) $5.0 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 June 30, 2022, we have been in compliance with our excess availability covenant.

As of June 30, 2022, we had no outstanding borrowings under the Siena Credit Facility and $4.5 million of available borrowing capacity under the Siena Credit Facility, excluding the excess availability covenant.

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) $5.0 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

2020 to March 31, 2021.

On July 21, 2021, the Company entered into an amendment (the “Siena Credit Facility Amendment No.

1”) to the Siena Credit Facility.

Siena Credit Facility Amendment No 1 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 September 30, 2022, we have been in compliance with our excess availability covenant.

As of September 30, 2022, we had $2.3 million in outstanding borrowings under the Siena Credit Facility and $2.5 million of net available borrowing capacity

under the Siena Credit Facility.

On July 19, 2022, the Company and the Lender entered into Amendment No.

2 (the “Credit Facility Amendment No.

2”) to the Loan and Security Agreement, dated as of March 13, 2020, between the Lender and the Company, as amended by Amendment No.

2 (the “Siena Credit Facility Amendment No.

2”) to the Loan and Security Agreement, dated as of

March 13, 2020, between the Lender and the Company, as amended by Siena Credit Facility Amendment No.

1, dated as of July 21, 2021, between the Lender and the Company.

Also on July 19, 2022, the Company and the Lender entered into an Amended and Restated Fee Letter (the “Amended Fee Letter”) in connection with the Credit Facility Amendment No.

The Credit Facility Amendment No.

2 did not modify the aggregate amount of the revolving commitment or the interest rate applicable to the loans .

The changes to the Siena Credit Facility Amendment No.

Also on July 19, 2022, the Company and the Lender entered into an Amended and

Restated Fee Letter (the “Amended Fee Letter”) in connection with the Siena Credit Facility Amendment No.

The Siena Credit Facility Amendment No.

2 did not modify the aggregate amount of the revolving commitment or the interest rate applicable to

The changes to the Siena Credit Facility provided for in the Siena Credit Facility Amendment No.

2 include, among other things, the following:

The extension of the maturity date from March 13, 2023 to March 13, 2025;

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

In addition, the Amended Fee Letter requires the Company, while it retains the ability to direct the use of funds in the deposit account, to maintain outstanding borrowings of at least $2,250,000 in principal amount.

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

On May 1, 2020 (the “Loan Date”), the Company was granted the PPP Loan from Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP 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.

On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP loan (including all interest accrued thereon) of $2.2 million had been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021.

The termination of the existing blocked account control agreement and entry into a new “springing” deposit account control agreement, permitting the Company to direct the use of funds

in its deposit account until such time as (a) the sum of excess availability under the Siena Credit Facility and unrestricted cash is less than $5 million for 3 consecutive business days or (b) an event of default occurs and is continuing.

In addition, the Amended Fee Letter requires the Company, while it retains the ability to direct the use of funds in the deposit account, to maintain outstanding

borrowings of at least $2,250,000 in principal amount.

If the Company does not have the ability to direct the use of funds in the deposit account, then the Amended Fee Letter requires the Company to pay interest on at least $2,250,000 principal amount

of loans, whether or not such amount of loans is actually outstanding.

On May 1, 2020 (the “Loan Date”), the Company was granted the PPP Loan from Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP 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.

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

fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021.

The forgiveness of the PPP Loan was reported as “Gain on forgiveness on long-term debt” in the Consolidated Statement of Operations during the year ended December 31,

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 which is discussed above.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities 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 COVID-19 pandemic remain uncertain, and its ultimate impact is unknown.

Further, the availability under the Siena Credit Facility depends in part on inventory levels, which have been impacted, and will 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.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 2. Management’s Discussion and Analysis