What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 330 added, 455 removed, 105 unchanged (88% of the section changed)

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

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.

Certain statements included in this Quarterly Report on Form 10-Q for the period ended March 31, 2023 (this “Report”), including without limitation,

statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the U.S.

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

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, 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.

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.

Forward-looking statements are any statements other than statements of historical fact.

Forward looking statements represent current views about possible future events that are often 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.

Forward-looking statements are subject to certain risks, uncertainties and assumptions.

event that one or more of such risks or uncertainties materialize, or one or more underlying assumptions prove incorrect, actual results may differ materially from those expressed or implied by the forward-looking statements.

Important factors and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking

statements include, but are not limited to, the following:

the adverse effects of current economic conditions, whether due to the COVID-19 pandemic or otherwise, on our business, operations, financial condition, results of operations and capital

resources, difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions, inflation and the Russia/Ukraine conflict, an inability of our customers to make payments on time or at all, diversion of management

attention, a possible future reduction in the value of goodwill or other intangible assets, inadequate manufacturing capacity or a shortfall or excess of inventory as a result of difficulty in predicting manufacturing requirements due to volatile

economic conditions, price increases or decreased availability of component parts or raw materials, exchange rate fluctuations, volatility of, and decreases in, trading prices of our common stock and the availability of needed financing on acceptable

terms or at all;

our ability to successfully develop new products that garner customer acceptance and generate sales, both domestically and internationally, in the face of substantial competition;

our reliance on an unrelated third party to develop,

maintain and host certain web-based food service application software and develop and maintain selected components of our downloadable software applications pursuant to a non-exclusive license agreement, and the risk that interruptions in our

relationship with that third party could materially impair our ability to provide services to our food service technology customers on a timely basis or at all and could require substantial expenditures to find or develop alternative software products;

our ability to successfully transition our business into the food service technology market;

risks associated with potential future acquisitions;

general economic conditions;

our dependence on contract manufacturers for the assembly of a large portion

of our products in Asia;

our dependence on significant suppliers;

our ability to recruit and retain quality employees as the Company grows;

our dependence on third parties for sales outside the United States;

our dependence on technology licenses from

third parties;

marketplace acceptance of new products;

risks associated with foreign operations;

the availability of third party components at reasonable prices;

price wars, supply chain disruptions or other significant pricing pressures affecting the

Company’s products in the United States or abroad;

increased product costs or reduced customer demand for our products due to changes in U.S.

policy that may result in trade wars or tariffs;

our ability to protect intellectual property;

and other risk

factors identified and discussed in Part I, Item 1A, Risk Factors, and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022 (our

“2022 Form 10-K”) and that may be detailed from time to time in the Company’s other reports filed with the Securities and Exchange Commission (the “SEC”).

We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q.

We undertake no

obligation to publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors, except where we are expressly required to do so by applicable law.

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

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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

We operate in one reportable segment:

the design, development, and

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

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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, 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.

Recent Developments

On April 5, 2023, the Company announced that on April 4, 2023, Bart C.

Shuldman had resigned as the Company’s Chief Executive Officer and as a director of

the Company, effective immediately (the “Effective Time”).

Shuldman’s resignation as director is not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On April 4, 2023, the Board

of Directors appointed John M.

Dillon, a Board member, to serve as interim Chief Executive Officer of the Company, effective as of the Effective Time.

In this capacity, Mr.

Dillon serves as the Company’s principal executive officer.

continue to serve on the Board of Directors, but has stepped down from his position as Audit Committee chair and from his membership on each of the committees of the Board of Directors.

On May 8, 2023, the Board of Directors removed the “interim”

designation and the Company announced that Mr.

Dillon would continue in the role of Chief Executive Officer indefinitely, subject to the terms of his employment agreement.

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

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

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

During 2021, our

inventory levels decreased significantly as a result of these supply chain disruptions, and we experienced significantly lower sales levels.

However, during 2022 we were 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 were able to increase inventory levels during 2022 and expect to continue to do so during the

balance of 2023, 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 continued to experience demand recovery during the remainder of 2022 and the first quarter of 2023.

Based on our strong backlog position and continued market share expansion due to certain competitors’ inability to supply

product, we expect this recovery to continue through 2023, though the future timing and pace of recovery may be impacted by global economic conditions.

During 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 saw significant sales improvement in the beginning in the second half of 2022 and continuing

through the first quarter of 2023 resulting from significantly higher sales levels and price increases instituted on our products to mitigate higher material and shipping costs.

Though we expect this trend to continue for the remainder of 2023, 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 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 as circumstances warrant.

We have taken the following actions to increase liquidity and strengthen our financial position in an effort

to mitigate the negative impacts from the COVID-19 pandemic, supply chain disruptions and inflationary pressures:

Employee Retention Credit – Under the provisions of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria.

In connection with

the CARES Act, the Company recognized the employee retention credit during the fourth quarter of 2021 as a $1.5 million “Gain from employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and

recorded a $1.5 million “Employee retention credit receivable” in the Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021.

We received these funds in the first quarter of 2023.

Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC that provides a revolving credit line of up to $10.0 million, subject to a

borrowing base and on July 19, 2022, we entered into an amendment to extend the maturity of the facility to March 13, 2025.

See Note 5 of the accompanying condensed consolidated financial statements for further details regarding this facility.

Notwithstanding the foregoing, there is no assurance that the actions we have taken in response to the pandemic, global supply chain disruptions and inflation are

sufficient or adequate, and we may be required to take additional preventive or responsive measures, as the ultimate extent of the effects of these risks 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 the 2022 Form 10-K for further discussion of risks related to COVID-19, global supply chain disruptions and inflation.

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.

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, 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

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

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2021 Form 10-K.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our

2022 Form 10-K.

Results of Operations:

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

Three months ended March 31, 2023 compared to three months ended March 31, 2022

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:

terminal and software sales, as well as sales of replacement parts, consumables (including labels) and maintenance and repair services, by market for the three months ended March 31, 2023 and 2022

were as follows:

Three Months Ended

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(In thousands, except percentages)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Food service technology (“FST”)

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Casino and gaming

TransAct Services Group (“TSG”)

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 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 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 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 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 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.

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

terminals to international destinations.

Net sales for the first quarter of 2023 increased $12.6 million, or 130%, compared to the

first quarter of 2022.

Printer, terminal and other hardware unit sales volume increased 125% to approximately 51,000 units, due primarily to a sales volume increase in the casino and gaming market of 175%, and to a lesser extent, an increase

in FST hardware volume of 173%.

Sales in the first quarter of 2022 were also still somewhat negatively impacted by COVID-19.

The volume increases noted above were partially offset by a decrease in POS automation volume of 1% in the first quarter of 2023 compared to the first quarter of 2022.

The average selling price of our printers, terminals and other hardware increased 25% during the first quarter of 2023

compared to the first quarter of 2022 primarily due to price increases instituted during 2022.

In addition to the sales volume increases, FST software, labels and other recurring revenue increased $0.8 million, or 49%, in the first quarter of 2023

compared to the first quarter of 2022.

International sales for the first quarter of 2023 increased $2.1 million, or 80%, from the same period in 2022 primarily due to increased sales in the

international casino and gaming market, partially offset by a decline in sales in the international TSG market.

Food service technology (“FST”):

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.

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

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 three months ended September 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.

In the food service technology market, we use an internal sales force to solicit sales directly from end users.

Sales of our worldwide food service technology products for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended

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(In thousands, except percentages)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

International

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(In thousands, except percentages)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Software, labels and other recurring revenue

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!

The increase in food service technology sales in the first quarter of 2023 compared to the

first quarter of 2022 was driven by a quarter over quarter increase in both the sales of hardware and software.

Hardware sales increased 101% in the first quarter of 2023 compared to the first quarter of 2022, due to increased sales of our

Accudate 9700, and BOHA!

Terminals to several new brands.

Software sales, including sales of BOHA!

software recognized on a SaaS subscription basis, labels and other recurring revenue, increased 49% compared to the prior year period due largely to the

growth of the installed base of our BOHA!

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 liner-less

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

In the POS automation market, we sell our Ithica 9000 printer, which utilizes thermal printing technology.

Our POS printer is used primarily by McDonald’s, and to a lesser extent, other quick-service

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

In the POS automation market, we primarily sell our products through a network of domestic and international

distributors and resellers.

We use an internal sales force to manage sales through our distributors and resellers, as well as to solicit sales directly from end-users.

Sales of our worldwide POS automation products for the three months ended March 31, 2023 and 2022

were as follows:

Three Months Ended

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(In thousands, except percentages)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

International

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.

The increase in POS automation sales in the first quarter of 2023 compared to the first quarter of 2022 was driven by a 37% increase in domestic sales of our Ithaca® 9000

printer, resulting largely from a price increase instituted during 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, 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.

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 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 September 30, 2022 and 2021 were as follows :

Three Months Ended

(In thousands, except percentages)

September 30, 2022

September 30, 2021

International

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 :

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 March 31, 2023 and 2022

were as follows:

Three Months Ended

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(In thousands, except percentages)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

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 September 30, 2022 and 2021 were as follows :

The large increase in domestic sales of our casino and gaming products for the first

quarter of 2023 compared to the first quarter of 2022 was primarily due to an across-the-board increase in OEM printer sales, driven primarily by a 316% increase in domestic sales of our thermal casino printers as our business has experienced a

strong recovery from the COVID-19 pandemic.

We believe we have significantly increased our market share compared to the first quarter of 2022 due to our largest competitor’s inability to supply product due to supply chain issues.

The increase in international casino and gaming sales during the first quarter of 2023 compared to the first quarter of 2022 was due to a 224% increase in sales of our

thermal casino printers.

The increase is attributable to the recovery of the international markets after significant negative impacts from the COVID-19 pandemic and our increased

our market share compared to the first quarter of 2022 due to our largest competitor’s inability to supply product due to supply chain issues.

T he international casino and gaming market recovered at a slower pace during 2022 compared to the

domestic casino and gaming market.

Though we expect both domestic and international sales of our casino printers to continue to be strong and higher in 2023 as compared to 2022, we believe it is likely that

our largest competitor will be able to resume supplying product later in 2023 which would negatively impact our worldwide casino and gaming sales.

TransAct Services Group (“TSG”):

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 three months ended March 31, 2023 and 2022

were as follows:

Three Months Ended

1 unchanged sentence

(In thousands, except percentages)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

International

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

The decrease in both domestic and international revenue from TSG during the first quarter of 2023 as compared to the first quarter of 2022 was due largely to lower sales

of legacy replacement parts.

Gross Profit.

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

Gross profit information for the

three months ended March 31, 2023 and 2022

is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Three Months Ended March 31,

Total Sales – 2023

4 unchanged sentences

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.

For the first quarter of 2023, gross profit increased $9.7 million, or 378%, due primarily to a 130%

increase in sales in the first quarter of 2023 compared to the first quarter of 2022 and the negative impact of COVID-19 on the first quarter of 2022.

Additionally, our gross margin increased to 55.0% for the first quarter of 2023 compared to 26.4%

for the first quarter of 2022 due primarily to increased sales and market share gained in the casino and gaming industry (as previously discussed) as well as the effect from two rounds of price increases we instituted during 2022 to mitigate higher

product and shipping costs related to worldwide supply chain disruptions.

We expect gross margin to be under downward pressure for the remainder of 2023 due to our largest competitor’s likely resumption of supplying product to the casino and gaming

market later in 2023.

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,

Engineering, design and product development expense information for the three months ended March 31, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales – 2023

2 unchanged sentences

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.

Engineering, design and product development expenses remained relatively flat and decreased $14 thousand, or less than 1%, for the first quarter of 2023

compared to the first quarter of 2022.

Operating Expenses - Selling and Marketing.

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,

Selling and marketing information for the three months ended March 31, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales – 2023

Total Sales – 2022

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.

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.

and marketing expenses increased by $74 thousand, or 3%, in the first quarter of 2023 compared to the first quarter of 2022 due in part to the resumption of post-COVID levels of spending for travel, marketing and trade show expenses, partially offset

by focused headcount reductions.

Operating Expenses - General and Administrative .

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,

General and administrative information for the three months ended March 31, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales – 2023

Total Sales – 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.

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, board of director expenses and other expenses related to being a publicly traded company.

General and administrative expenses increased $0.2 million, or 7%, during the first quarter of 2023 compared to the first quarter of 2022.

The increase in general and

administrative expenses is primarily attributable to an increase in compensation expense and audit fees, the hiring of additional accounting and finance staff in late 2022, and higher depreciation expense related to the Company’s new ERP system

implemented in the second quarter of 2022.

In connection with the termination of TransAct's former CEO in April 2023, the Company expects to incur a severance charge of approximately $1.5 million in

the second quarter of 2023 which will be included in general and administrative expenses.

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 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 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 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:

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)

September 30, 2022

September 30, 2021

POS automation

Casino and gaming

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 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.

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)

September 30, 2022

September 30, 2021

International

Nine Months Ended

(In thousands, except percentages)

September 30, 2022

September 30, 2021

Software, labels and other recurring revenue

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 nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

September 30, 2022

September 30, 2021

International

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 nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

(In thousands, except percentages)

September 30, 2022

September 30, 2021

International

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 $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)

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 nine months ended September 30, 2022 and 2021

were as follows:

Nine Months Ended

(In thousands, except percentages)

September 30, 2022

September 30, 2021

International

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 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 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 $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 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 $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 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 $1.9 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 nine months ended September 30, 2022 and 2021

is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

(loss) information for the three months ended March 31, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales – 2023

Total Sales – 2022

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.

Our operating income increased $9.4 million, or 168%, in the first quarter of 2023 compared to the first quarter of 2022 due to a $9.7 million increase in

gross profit on 130% higher sales combined with a 2,860 basis point increase in gross margin, somewhat offset by a 3% increase in operating expenses.

This is due to strong sales in the casino and gaming market during the first quarter of 2023, while

the comparable period from 2022 was negatively impacted by the COVID-19 pandemic.

We recorded net interest expense of

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.

$66 thousand for the first quarter of 2023 compared to $64 thousand for the first quarter of 2022.

This interest expense is related to the company’s Siena Credit Facility.

We recorded other income of $21 thousand for the first quarter of 2023 compared to other expense of $35 thousand for the first quarter of 2022 primarily due to foreign exchange gains/losses

recorded by our UK subsidiary.

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

Pound Sterling against the U.S.

Income Taxes.

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.

We recorded income tax expense

for the first quarter of 2023 of $0.6 million at an effective tax rate of 16.7%, compared to an income tax benefit during the first quarter of 2022 of $1.4 million at an effective tax rate of 23.8%.

The effective tax rate for the first quarter of 2023

is lower than the effective tax rate for the first quarter of 2022 due to the impact from the R&D credit.

In periods with pre-tax income, such as the first quarter of 2023, the R&D credit has the effect of lowering the effective tax rate.

periods with pre-tax losses, such as first quarter of 2022, the R&D credit has the effect of raising the effective tax rate.

Net Income (Loss) .

We reported net income for the first quarter of 2023 of $3.1 million, or $0.31 per diluted share, compared to a net loss of $4.3 million, or $0.44 per diluted share, for the first

quarter of 2022.

Liquidity and Capital Resources

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.

For the first three months of 2023, our cash

and cash equivalents balance decreased $1.3 million from December 31, 2022.

We ended the first quarter of 2023 with $6.6 million in cash and cash equivalents, of which $0.2 million was held by our U.K.

Operating activities :

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.

The following significant factors affected

our cash used in operating activities of $0.8 million for the first three months of 2023 as compared to cash used in operating activities of $6.8 million for the first three months of 2022:

During the first three months of 2023:

We reported net income of $3.1 million.

We recorded depreciation and amortization of $0.4 million, and share-based compensation expense of $0.3 million.

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:

Deferred tax assets were down $0.5 million due to pre-tax income being recognized in the first quarter of 2023.

Accounts receivable increased $3.0 million in 2023 due primarily to increased sales.

Employee retention credit receivable decreased $1.5 million due to the collection of this receivable in the first quarter of 2023.

Accounts payable was down $2.8 million in 2023 due largely to the sell through of inventory on-hand at the end of 2022 as well as the timing of vendor payments.

During the first three months of 2022:

We reported a net loss of $4.3 million.

We recorded depreciation and amortization of $0.2 million, and share-based compensation expense of $0.3 million.

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.

Accounts receivable decreased $0.7 million, or 9%, primarily due to a decrease in sales in the first quarter of 2022 compared to the fourth quarter of 2021.

Inventory increased $0.9 million due to the strategic purchase of additional inventory to

mitigate supply chain constraints .

Other current and long-term assets increased $0.8 million, or 68%, due primarily to customer cash deposits made during the last week of March 2022 that were

automatically swept from our bank account by the Lendor pursuant to an arrangement made under the Siena Credit Facility.

These funds are typically redeposited to our bank account before each quarter but were not returned until April 1, 2022.

Accounts payable decreased $0.4 million, or 9%, due primarily to the payment of inventory purchases made during the fourth quarter of 2021.

Accrued liabilities and other liabilities decreased $0.3 million, or 3%, due primarily to the payment of 2021 annual bonuses in March 2022, somewhat offset by higher

accrued legal expenses and accrued salaries.

Investing activities:

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 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.

Our capital expenditures were $378

thousand for the first three months 2023 compared to $496 thousand for the first quarter of 2022.

Expenditures in 2023 were for computer and networking equipment and new tooling equipment.

Expenditures in 2022 were primarily related to implementation

costs of a new ERP system that was completed in April 2022 and computer and networking equipment.

Financing activities:

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.

Financing activities used $86 thousand and

$119 thousand of cash during the first three months of 2023 and 2022, respectively, to pay for withholding taxes on stock issued from our stock compensation plans.

Resource Sufficiency

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 the 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 COVID-19 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 (the “Lender”) and terminated our credit facility with TD Bank N.A.

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%.

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

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.

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

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 “Siena Credit Facility Amendment No.

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 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.

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 March 31, 2023, we remained in compliance with our excess availability covenant.

As of March 31, 2023, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and

$6.4 million of net borrowing capacity available under the Siena Credit Facility.

On July 19, 2022, the Company and the Lender entered into 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 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:

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.

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.

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

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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

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.

On May 1, 2023, the Company and the Lender agreed to a letter amendment to the Loan and Security Agreement governing the Siena Credit Facility.

Section 7.1(m) of the Loan

and Security Agreement governing the Siena Credit Facility required that any successor to Mr.

Shuldman be reasonably acceptable to the Lender, and this amendment confirmed that Mr.

Dillon is an acceptable successor to Mr.

Shuldman and applied the same

requirement to any future successor to Mr.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis