What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-24 · 208 added, 387 removed, 122 unchanged (83% of the section changed)

1 unchanged sentence

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

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

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

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

chain, customer and vendors.

During 2021, we continued to focus our efforts on the sales execution and growing revenue of BOHA!

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

Despite the negative impact from

COVID-19, food service technology sales increased 63% in 2021 compared to 2020 due primarily to sales of our BOHA!

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

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

impacts from the COVID-19 pandemic.

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

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

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

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

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

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

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

During the year ended December 31, 2021,

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

See the table below

for a breakdown of our sales by market:

During the year ended December 31, 2022, we continued to experience recovery from the negative impacts COVID-19 had on our business during 2021 and 2020.

While we have experienced recovery in most of our markets, there are still uncertainties on how any future variants of COVID-19 and global supply chain disruptions may continue to impact our business, operations, supply chain, customers and vendors.

During 2022, we continued to focus our efforts on sales execution, operating and engineering adjustments to react to global supply chain disruptions and expansion of our market share.

We successfully navigated the supply chain disruptions, and thanks to a significant market share gain in our casino and gaming market, we returned to bottom line profitability in the third and fourth quarters of 2022.

During the year ended December 31, 2022, our total net sales increased 48% to approximately $58.1 million compared to the year ended December 31, 2021.

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

(In thousands, except percentages)

4 unchanged sentences

Casino and gaming

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

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

recurring revenue items.

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

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

contracts, and technical support services.

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

Sales of our food service technology products remained relatively flat (decreasing 2%) in the year ended December 31, 2022 compared to the year ended December 31, 2021.

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

Food service technology sales decreased in 2022 primarily due to a 30% decrease in FST hardware sales to one of our largest customers.

Our total installed base increased by 2,362 terminals and WorkStations during 2022 resulting in a total installed base of 12,180 terminals at the end of 2022.

This was partially offset by record sales and an 18% increase in BOHA!

recurring revenue.

Recurring revenue increased 18% primarily due to higher label sales, as well as record sales of BOHA!

software (largely from our labeling software application) recognized on a SaaS subscription basis due principally to the continued growth of the installed base of our BOHA!

Terminals and WorkStations.

Sales of our POS automation products increased 121% in the year ended December 31, 2022 compared to the year ended December 31, 2021.

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

During the year ended December 31, 2021,

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

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

During the year ended December 31, 2022, sales of our Ithaca 9000 printer benefitted from market share gain resulting from a competitor’s supply chain issues, as well as a special project for our largest customer.

Sales in 2021 were unusually low due to the significant negative impact of the COVID-19 pandemic on the POS automation market.

Sales of our casino and gaming products increased 96% in 2022 compared to 2021.

In our casino and gaming market, our focus lies

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

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

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

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

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

On December 31, 2019, we ended our non-exclusive agreement with IGT and exited the lottery market as we shifted our focus to our

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

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

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

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

During the year ended December 31, 2021, we experienced a 110% increase in Printrex oil and gas printer sales, as the oil and gas market recovered from the

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

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

We expect no future Printrex sales as we have shifted our focus away from this market and towards our higher value, technology-enabled food service technology terminals and casino and gaming products.

TSG, which sells service, replacement parts and consumable products, including receipt paper, ribbons and other printing supplies,

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

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

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

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

parts to IGT for our legacy lottery printer.

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

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

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

installed base, as well as higher material and

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

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

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

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

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

The increase of casino and gaming printers was due to the recovery of the domestic and international casino and gaming market during 2022 as well as our expanding market share, as our largest competitor experienced supply chain issues and casinos continued to reopen compared to 2021 when the market was severely impacted by the COVID-19 pandemic and the related closures of casinos.

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

There were no Printrex sales in 2022 as we fulfilled last buy orders to legacy customers during the fourth quarter of 2021 and exited this market as of December 31, 2021 to focus towards our higher value, technology-enabled food service technology terminals and casino and gaming products.

TSG, which sells service, replacement parts and consumable products, including receipt paper, ribbons and other printing supplies for our non-FST products, continues to offer a recurring revenue stream from mostly our legacy products.

TSG sales decreased 15% in 2022 compared to 2021, primarily due to declining service revenue from a legacy banking customer whose service contract ended during 2022, as well as lower replacement part and consumable product sales.

Operationally, our gross margin rose to 42.0% in 2022, an increase of 290 basis points from 39.1% in 2021, due largely to higher volume of sales overall of our gaming and casino printers which have a higher margin, partially offset by higher material and shipping costs resulting from worldwide supply disruptions.

During 2022, our operating margin improved to (13.2%) compared to (23.8%) in 2021 as the 48% increase in sales helped increase gross margin by 290 basis points, offset by an increase of $7.3 million of operating expenses.

Operating expenses increased by 30% as we gradually returned to more normalized pre-COVID-19 spending levels.

During 2022, we expect operating expenses to continue

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

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

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

We reported a net loss of $5.9 million and a net loss per diluted share of $0.60 for 2022, compared to a net loss of $4.0 million and net loss per diluted share of $0.43 for 2021.

In terms of cash flow, for 2022 we used $12.2 million of cash in operating activities.

During 2021, we also successfully

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

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

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

We ended the year with cash and cash equivalents of $7.9 million and we had $2.3 million of outstanding borrowings under the Siena Credit Facility on our Consolidated Balance Sheet at December 31, 2022.

Critical Accounting Estimates

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

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

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

particular circumstances;

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

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

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

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

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

Refer to Note 2 – Summary of significant accounting policies in the accompanying Consolidated Financial

Statements for a complete listing of our significant accounting policies.

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

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

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

Specifically, the determination of whether

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

Other significant judgments include contracts that contain multiple

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

or as, the performance obligation is satisfied.

Specifically, the determination of whether revenues related to our revenue contracts should be recognized over time or at a point in time.

Other significant judgments include contracts that contain multiple performance obligations (most commonly when contracts include a hardware product, software, financing and extended warranties) which require a contract’s transaction price to be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

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

Accounts Receivable

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

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

credit reviews of all new customer accounts;

ongoing credit evaluations of current customers;

credit limits and payment terms based on

available credit information;

credit limits and payment terms based on available credit information;

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

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

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

Our allowance for doubtful accounts as of December 31, 2022 was $351 thousand, or 2.5% of outstanding accounts receivable, which we believe is appropriate considering the overall quality of our accounts receivable.

Although credit losses have

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

Inventories –

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

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

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

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

Inventories – Our inventories are stated at the lower of average cost or net realizable value.

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

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

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

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

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

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

The determination of the value of

intangible assets requires management to make estimates and assumptions.

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

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

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of December 31) and, if

certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.

The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative

goodwill impairment test in accordance with the applicable accounting standards.

Under the qualitative assessment, management considers relevant events and circumstances including, but not limited to, macroeconomic conditions, industry and market

considerations, Company performance, and events directly affecting the Company.

If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income

approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach.

Factors considered that may trigger an interim

period impairment review of either acquired goodwill or intangible assets are:

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

Effective April 1, 2022, TransAct changed its method of inventory valuation from standard costing which approximated the “first-in, first-out” (“FIFO”) costing methodology to the average costing methodology.

We believe this methodology is preferable because it reflects a better estimate of inventory cost as we do not typically perform intensive manufacturing of our finished products, which are therefore better measured under average cost.

In addition, our business is projected to include an increasing sales volume of software going forward, which better aligns with average costing.

See Note 16 for further details.

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

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

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

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

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

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

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

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

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

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

strategy for the overall business;

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

significant negative industry or economic trends;

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

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

As of December 31, 2021, upon the completion of our annual assessment for impairment, we have determined that no goodwill or intangible

asset impairment has occurred and the fair value of goodwill was substantially higher than our carrying value.

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

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

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

These differences result in deferred tax assets and liabilities,

which are reflected in our Consolidated Balance Sheets.

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

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

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

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

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

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

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

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

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

As of December 31, 2022, upon the completion of our annual assessment for impairment, we have determined that no goodwill or intangible asset impairment has occurred and the fair value of the Company was substantially higher than our carrying value.

We have evaluated the recoverability of the assets on our Consolidated Balance Sheet as of December 31, 2022 in accordance with relevant authoritative accounting literature.

We have considered the effects caused by the COVID-19 pandemic, the global supply chain disruptions, inflation 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 have continued to monitor for indicators of impairment through the date of this Annual Report on Form 10-K and reflected accordingly in the accompanying consolidated financial statements.

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

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

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

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

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

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

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

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

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”).

Among other things this provision prescribes a

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

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

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

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

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

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

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

We generally warrant our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded.

Estimated warranty costs are based upon actual past experience of product repairs and the related

estimated cost of labor and material to make the necessary repairs.

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

would be made.

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

The key assumptions

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

Among other things this provision prescribes a minimum recognition threshold that an income tax position must meet before it is recorded in the reporting entity’s financial statements.

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

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

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

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

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

We account for forfeitures as they occur.

11 unchanged sentences

Net sales for 2022 increased $18.8 million, or 48%, from 2021.

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

The primary volume increases

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

The average selling price of our printers,

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

Printer, terminal and other hardware sales volume increased by 63% to approximately 134,000 units for 2022, driven by large unit volume increases in all casino and gaming and POS automation, partially offset by unit volume declines in FST and Printrex (the oil and gas market which we exited in 2021).

The primary volume increases were an 80% increase in unit volume from the casino and gaming market, as the casino market continued to rebound from the impact of COVID-19 shutdowns and our market share increased due to our efforts to navigate supply chain restraints that prevented certain other suppliers from fully meeting customer demand and, to a lesser extent, a 60% unit volume increase in our POS automation market.

We experienced a 32% decrease in hardware unit volume from the FST market, driven by a year-over-year reduction in sales from a large convenience store.

The average selling price of our printers, terminals and other hardware increased 4% during 2022 compared to 2021, mainly due to price increases instituted during 2022 in response to product cost increases related to supply chain issues.

Additionally, sales of our software, labels and other recurring revenue from our FST market increased $1.3 million, or 18%, during 2022 compared to 2021.

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

and gaming sales.

International sales for 2022 increased $7.1 million, or 102%, compared to 2022, primarily due to a 141% increase in international casino and gaming sales due to unit volume increases noted above, partially offset by increased materials and shipping costs in the face of global supply chain disruptions.

Food service technology .

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

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

in restaurants, convenience stores and food service operations.

The software component of BOHA!

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

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

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

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

terminal combines the software and hardware components in a device that includes an operating system, touchscreen and one or two thermal print

mechanisms that print easy-to-read food rotation labels, grab-and-go labels for prepared foods, and “enjoy by” date labels.

workstation uses an iPad instead of an integrated touchscreen.

Both the BOHA!

terminal and BOHA!

workstation are

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

helps food service

establishments and restaurants (including fine dining, casual dining, fast casual and quick-serve restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go

initiatives, as well as automate and manage back-of-house operations.

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

products, which can combine our latest generation terminal and workstation which includes one or two printers and our BOHA!

Labeling, timers, and media software.

In addition, customers may individually purchase cloud-based software applications that connect to a separate application on a separate mobile device into a solution to automate back-of-house operations in restaurants, convenience stores and food service operations.

The additional software offering of BOHA!

consists of a variety of individually purchased software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for, temperature monitoring, temperature taking and checklists and task lists.

These applications are sold separately, and customers purchase the applications they need for their back-of-house operations.

Customers may also purchase associated hardware, such as handheld devices, tablets, temperature probes and temperature sensors and gateways.

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.

Terminal and the BOHA!

WorkStation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on the touchscreen device and to allow over-the-air updates to the operating system.

helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service 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 years ended December

31, 2021 and 2020 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 years ended December 31, 2022 and 2021 were as follows:

(In thousands, except percentages)

6 unchanged sentences

Software, labels and other recurring revenue

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

Sales in food service technology decreased 2.1% in 2022 compared to 2021.

This was driven by a decrease in sales of hardware, partially offset by an increase in BOHA!

software, labels and other recurring revenue.

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

AccuDate 9700 terminal to McDonald’s.

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

Sales of BOHA!

software recognized on a SaaS subscription

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

Hardware sales decreased 30% during 2022 compared to 2021 due largely to a reduction in sales to a large retail customer.

Recurring revenue increased 18% primarily due to higher label sales, as well as record sales Of BOHA!

software (largely from our labeling software application) recognized on a SaaS subscription basis due principally to the continued growth of the installed base of our BOHA!

Terminals and WorkStations.

We expect FST revenue to be higher in 2023 than in 2022 as we continue to grow our installed base of paid terminals and the related recurring revenue (primarily the sale of labels and subscription software revenue from our labeling software application).

POS automation .

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

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

Sales of our worldwide POS automation products for the years

ended December 31, 2021 and 2020 were as follows:

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

Sales of our worldwide POS automation products for the years ended December 31, 2022 and 2021 were as follows:

(In thousands, except percentages)

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International

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

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

The increase in POS automation product revenue during 2022 compared to 2021 was driven by a 121% increase in sales of our Ithaca® 9000 printer, primarily to McDonald’s, as we benefited from market share gains resulting from a competitor’s supply chain issues as well as a special project for McDonald’s that utilized our printer.

Sales for 2021 were unusually low due to the significant negative impact from the COVID-19 pandemic on POS automation sales during 2021.

Due to the completion of the special project in 2022, we expect POS automation sales to be lower in 2023 compared to 2022.

Casino and gaming .

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

venues worldwide.

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

non-casino gaming 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.

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.

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

Sales of our worldwide casino and gaming products for the years ended December 31, 2022 and 2021 were as follows:

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International

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

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

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

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

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

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

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

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

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

Revenue from the

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

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

(In thousands, except percentages)

December 31, 2021

December 31, 2020

International

On December 31, 2019, we allowed our non-exclusive agreement to provide lottery terminal printers to IGT to expire as we decided to exit

the lottery market and shift our focus towards our higher-value, technology-enabled food service technology and casino and gaming products.

As a result, IGT made a final purchase of our lottery printers during the second quarter of 2020 and we do not

expect any further lottery printer sales in the future.

Printrex branded

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

The increase in domestic sales of our casino and gaming products during 2022 compared to 2021 was primarily due to a 74% increase in domestic sales of our thermal casino printers, as our business experienced a strong recovery from the COVID-19 pandemic during 2022 compared to 2021 and we increased our overall market share due largely to our largest competitor’s inability to supply product due to supply chain issues.

The overall increase in casino and gaming domestic sales was also driven by a 410% increase in domestic EPICENTRAL sales during 2022 as we completed several EPICENTRAL installations/expansions during 2022.

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

International sales of our casino and gaming products increased during 2022 compared to 2021, primarily due to a 155% increase in sales of our thermal casino printers.

Similar to the domestic market, we experienced significant recovery during 2022 from the COVID-19 pandemic in the international gaming markets and increased our market share due largely to our competitor’s inability to supply product due to supply chain issues.

The substantial increase in international gaming sales was predominantly driven by the European and Australian markets while the Asian market still remained negatively impacted from the COVID-19 pandemic.

We expect both domestic and international sales of our casino printers to continue to be strong and higher in 2023 as compared to 2022 as we work to fulfil our large backlog of orders and continue to capitalize on our increasing market share in the industry.

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 years ended December 31, 2022 and 2021 were as follows:

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International

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

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

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

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

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

We do not expect any

further Printrex sales beyond 2021.

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

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

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 non-FST legacy products), replacement parts and accessories, maintenance and repair services, refurbished printers, and shipping and handling charges.

Sales in our worldwide TSG market for the years ended December 31, 2022 and 2021 were as follows:

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International

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

replacement parts, and consumable products.

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

The decrease in domestic revenue from TSG during 2022 as compared to 2021 on significantly lower legacy lottery printer part sales was due primarily to lower sales of replacement parts.

Replacement part sales decreased 34%.

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

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

banking market at the end of 2018.

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

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

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

Service revenue and consumable sales also declined 8% and 19%, respectively.

Internationally, TSG revenue increased during 2022 compared to 2021, due primarily to a 136% increase in sales of replacement parts and accessories to international casino and gaming customers.

We expect TSG sales for 2023 to be higher than 2022.

Gross Profit.

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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.

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

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

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

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

prices to accelerate the growth of our BOHA!

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

Operating Expenses

- Engineering, Design and Product Development.

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 our line of BOHA!

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

Gross profit increased $9.0 million, or 59%, in 2022 compared to 2021, primarily due to the 48% sales increase in 2022 compared to 2021.

Gross margin increased to 42.0% in 2022 compared to 39.1% in 2021 due largely to a favorable change in product sales mix and the effect from two rounds of price increases we instituted during 2022 to mitigate higher product and shipping costs related to the worldwide supply chain disruptions.

Operating Expenses - Engineering, Design and Product Development.

Engineering, design and product development information for the years ended December 31, 2022 and 2021 is summarized below (in thousands, except percentages):

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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).

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

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

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

to planned investments in our food service technology products.

Operating Expenses

- Selling and Marketing .

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

thousands, except percentages):

Engineering, design and product development expenses primarily include salary and payroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses including those to the third party licensor of our food service technology software products).

Engineering, design and product development expenses increased $1.1 million, or 15%, in 2022 compared to 2021 resulting from an increase in expenses related to reconfiguring unavailable parts and qualifying new parts, as well as a gradual return to more normalized pre-COVID-19 spending levels and from the full effect (in 2022) of hiring additional software developers in late 2021 to continue development of our food service technology products.

Operating Expenses - Selling and Marketing .

Selling and marketing information for the years ended December 31, 2022 and 2021 is summarized below (in thousands, except percentages):

Year Ended December 31,

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Total Sales - 2021

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

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

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

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

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

Operating Expenses

- General and Administrative.

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

Selling and marketing expenses increased $3.7 million, or 48%, during 2022 compared to 2021 primarily due to higher trade show expenses, expanded marketing expenses as we returned to more normalized pre-COVID-19 levels of sales and marketing expense during 2022 compared to lower costs during 2021 due to cost saving measures implemented during 2020 that carried into 2021, payroll expenses for the expanded sales and marketing staff and increased commissions on higher sales in the casino and gaming market.

Operating Expenses - General and Administrative.

General and administrative information for the years ended December 31, 2022 and 2021 is summarized below (in thousands, except percentages):

2 unchanged sentences

Total Sales - 2021

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

executive, accounting, human resources, business development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, information technology expenses, and other expenses related to being a publicly

traded company.

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

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

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

during 2021 compared to 2020.

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

General and administrative expenses increased $2.6 million, or 27%, during 2022 compared to 2021 due to higher recruiting fees and employee compensation, as well as higher consulting fees and depreciation related to the implementation of a new ERP system that we completed in early 2022.

Legal fees also increased year-over-year related to a shareholder matter that was resolved on March 30, 2022 when we entered into a Cooperation Agreement with two shareholders.

Operating Loss.

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Total Sales – 2021

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

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

Our operating loss decreased $1.7 million, or 18%, during 2022 compared to 2021 as a $9.0 million, or 59% increase in gross profit on 48% higher sales was largely offset by a $7.3 million or 30% increase in operating expenses during 2022 compared to 2021..

Interest, net.

We recorded net interest expense of $208 thousand in 2022 compared to $96 thousand in 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 and the full year impact of unused borrowing fees incurred from the Siena Credit Facility that was entered into on March 13, 2020.

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

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

Going forward, we may continue to experience more foreign exchange gains

or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the Euro and Pound Sterling against the U.S.

Dollar, which may be impacted by volatility in global economic conditions

due to the COVID-19 pandemic and political instability such as the Russia-Ukraine conflict.

Gain from Employee

Retention Credit.

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 also increased during 2022 and we expect will continue to increase during 2023 due to required minimum borrowings pursuant to the terms of the July 2022 Siena Credit Facility Amendment No.

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

We recorded other expense of $16 thousand in 2022 compared to other expense of $283 thousand in 2021 primarily due to higher foreign exchange losses recorded by our UK subsidiary during 2021.

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

Dollar, which may be impacted by volatility in global economic conditions and political instability such as the Russia-Ukraine conflict.

Gain from Employee Retention Credit.

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

Gain on Forgiveness

of Long-Term Debt.

Gain on Forgiveness of Long-Term Debt.

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

Income Taxes .

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

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

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

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

The CARES Act enacted on March 27, 2020 permitted NOLs incurred in 2018, 2019 and 2020 to be

carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

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

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

We recorded an income tax benefit during 2022 of $2.0 million at an effective tax rate of 24.9%, compared to an income tax benefit during 2021 of $2.0 million at an effective tax rate of 33.6%.

The tax benefit recorded for 2021 was higher as it included the recognition of the gain on the forgiveness of the PPP Loan which was not taxable.

We reported a net loss for the year ended December 31, 2022 of $5.9 million, or $0.60 per basic and diluted share, compared to a net loss of $4.0 million, or $0.43 per basic and diluted share, in 2021.

Liquidity and Capital Resources

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

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

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

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

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

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

Internal cash generation together with currently available cash and cash equivalents, available borrowing facilities and an ability to access credit lines at market-competitive rates, if needed, are expected to be sufficient to fund operations, capital expenditures, and any increase in working capital that would be required to accommodate a higher level of business activity for the 2023 fiscal year and beyond.

During 2022, our cash balance decreased $11.5 million (versus an increase of $9.1 million in 2021) due primarily to operating activities, including an increase in inventories of $4.4 million to support the growing demand of our products and an increase of $6.4 million in receivables, reflecting stronger sales in 2022.

We had $7.9 million in cash and cash equivalents as of December 31, 2022, of which $219 thousand was held by our UK subsidiary.

Operating activities :

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

The following significant factors primarily affected our cash used in operating activities of $12.2 million in 2022 as compared to cash used in operating activities of $2.5 million in 2021.

We reported a net loss of $5.9 million.

We recorded depreciation and amortization of $1.3 million and share-based compensation expense of $1.2 million.

We recorded an increase in our deferred tax assets of $2.2 million due to our net loss in 2022.

Accounts receivable increased $6.4 million primarily due to increased sales volume during the fourth quarter of 2022.

Inventories increased $4.4 million primarily due to strategic purchases of electronic and other parts to support our sales growth.

Accounts payable provided $3.2 million in cash due to increased inventory purchases and the timing of cash disbursements.

We reported a net loss of $4.0 million.

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

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

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

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

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

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

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

prior years as permitted by the CARES Act.

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

sales contract completed

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

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

We recorded a receivable of $1.5 million for the employee retention credit.

Inventories decreased $3.4 million primarily due to the utilization of inventory on hand to fulfill sales and significantly reduced inventory purchases resulting from the supply chain disruptions caused by the COVID-19 pandemic.

Prepaid income taxes decreased $2.2 million due to receiving an income tax refund in 2021 related to the net operating loss reported for 2020 that was carried back to prior years as permitted by the CARES Act.

Accounts payable increased $2.5 million, or 150%, d ue to inventory purchases made towards the end of the fourth quarter of 2021 to support expected 2022 sales .

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

We reported a net loss of $5.6 million.

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

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

the pandemic.

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

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

carried back to prior years as permitted by the CARES Act.

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

sales contract which was

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

Accounts payable decreased $1.3 million, or 43%, d ue to inventory purchases made

towards the end of the fourth quarter of 2019 that were subsequently paid in the first quarter of 2020 and a lower level of inventory purchases during 2020 due to the pandemic .

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

Investing activities :

Our capital expenditures were $1.3 million and $1.4 million in 2022 and 2021, respectively.

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

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

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

networking equipment.

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

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

Expenditures in both 2022 and 2021 were primarily related to the implementation of a new ERP system which was completed in early 2022, new product tooling and computer and networking equipment.

Financing activities:

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

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

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

financing costs associated with our Siena Credit Facility.

During 2020, financing activities provided $11.0 million of cash primarily from the completion of an underwritten public offering which raised net proceeds of $8.7 million, after deducting u nderwriting discounts, commissions and offering expenses, and $2.2 million in funds received from the PPP Loan and, to a lesser extent, proceeds of $0.4 million from stock

option exercises.

These increases were partially offset by the payment of $0.2 million in financing costs associated with signing our Siena Credit Facility.

Financing activities provided $2.1 million of cash during 2022 due primarily to required minimum borrowing on our Siena Credit Facility.

During 2021, financing activities provided $11.5 million of cash primarily from the completion of an underwritten public offering which raised net proceeds of $11.2 million, after deducting u nderwriting discounts, commissions and offering expenses and, to a lesser extent, proceeds of $0.4 million from stock option exercises.

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.

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

through the underwritten public offering during August 2021, and borrowings available under our Siena Credit Facility will provide sufficient resources to meet our working capital needs, finance our capital expenditures and meet our liquidity

requirements through at least the next twelve months.

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

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

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

As a result, we continue to evaluate several different strategies to enhance our liquidity position as a

result of the significant financial and operational impacts due to the COVID-19 pandemic.

These strategies may include, but are not limited to, seeking to raise additional capital through an equity or debt financing.

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

We have also been impacted by global supply chain issues, increased shipping costs and inflationary pressures.

Given the unprecedented uncertainty related to the impact of these external factors on the food service and casino industries, the Company continues to monitor its cash generation, usage and preservation including the management of working capital to generate cash.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, 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 these global economic pressures and the future of pandemic variants remain uncertain and the ultimate impact of these global pressures is unknown.

Credit Facility and Borrowings

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

The Siena Credit Facility provides for a revolving credit line of up to $10 million expiring on March 13, 2023.

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

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

On March 13, 2020, we entered into the Loan and Security Agreement (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%.

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

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

Credit Facility.

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

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

Borrowings under the Siena Credit Facility are subject to a borrowing base based on (i) 85% of eligible accounts

receivable plus the lesser of (a) $5 million and (b) 50% of eligible raw material and 60% of finished goods inventory.

The Siena Credit Facility imposes a financial covenant on the Company and restricts, among other things, our ability to incur

additional indebtedness and the creation of other liens.

The three month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant, which required the Company to maintain a minimum EBITDA and continued

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

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

The Credit Facility Amendment changed the financial covenant

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

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

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

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

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

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

pursuant to the PPP which is administered by the SBA and was established under Division A, Title I of the CARES Act, enacted March 27, 2020.

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

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

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

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

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

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

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

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

the related loan necessity questionnaire in June 2021.

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

million had been fully forgiven by the SBA

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

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

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

The forgiveness of the PPP Loan

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

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 original 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 (“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 ended July 31, 2021.

From July 31, 2021 through December 31, 2022, we have been in compliance with our excess availability covenant.

As of December 31, 2022, we had $2.3 million in outstanding borrowings under the Siena Credit Facility and $3.9 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 (“Siena Credit Facility Amendment No.

2”) to the Siena Credit Facility as amended by 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 Siena Credit Facility Amendment No.

Siena 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 Siena Credit Facility provided for in Siena Credit Facility Amendment No.

2 included, 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 February15, 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 of long-term debt” in the Consolidated Statement of Operations during the year ended December 31, 2021.

Stock Repurchase Program

1 unchanged sentence

Shareholders’ Equity

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

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

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

discounts, commissions and offering expenses.

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

stock related to employee stock awards, net of relinquishments.

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

Shareholders’ equity decreased $5.1 million, or 13%, to $33.9 million at December 31, 2022 from $39.0 million at December 31, 2021.

The decrease was primarily due to the net loss of $5.9 million in 2022.

This was partially offset by share-based compensation expense related to stock awards of $1.0 million (net of withholding taxes paid by relinquishment of shares) in 2022.

Quantitative and Qualitative Disclosures about Market Risk.

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis