What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-13 compared with 2023-03-28 · 345 added, 217 removed, 113 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, 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)

December 31, 2022

December 31, 2021

Food service technology (“FST”)

POS automation

Casino and gaming

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 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 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.

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.

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.

Recent Developments

The Company engaged an advisor in the fourth quarter of 2023 to assist in determining the best long-term

strategy for its business and ensure the Company is maximizing the value of its operations for all shareholders and stakeholders.

For information regarding the risks related to our engagement with an advisor, please see Part I, Item 1A, Risk

Factors under the sub-caption “Our success may depend in part on our ability to identify and pursue the best long-term strategy for our businesses.”

Current Trends

After strong demand during the year due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late

2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock

This slowdown impacted our results in the fourth quarter of 2023, and we expect this trend to continue to impact results in 2024.

Further, our primary competitor in the casino and gaming market has resumed supplying product with

increasing volume in 2024, which has begun to result in downward pricing pressure in that market and could exacerbate the demand slowdown, either of which could negatively impact our worldwide casino and gaming sales.

In addition, we have

experienced cost increases as a result of current economic conditions, most of which we have been able to offset by increasing prices of our products.

However, there can be no guarantee that we will be able to increase prices sufficiently to

offset any future such cost increases that cannot be predicted, and we may be impacted by supply chain disruptions, inflationary pressures and other global economic conditions that may affect the markets we serve and from which we source our

supplies and parts.

For additional discussion of our business, refer to Part I, Item 1.

Business, of this Form 10-K.

Critical Accounting Estimates

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;

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“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.

We base our estimates on historical experience, forecasts and on various other assumptions that are believed to be reasonable under the circumstances;

however actual results may differ from those estimates under different assumptions or conditions.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial

Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

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

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

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.

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.

We also have other policies that we consider key accounting policies;

however, these policies typically

do not require us to make estimates or judgments that are difficult or subjective.

Revenue Recognition – Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant.

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, 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:

We recognize revenue when the obligations under the terms of a contract with our customers are satisfied;

generally, this occurs with the transfer of control of our printers,

terminals, consumables and replacement parts.

For our warranty, software applications and maintenance agreements, revenue is generally recognized ratably over the contract period.

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.

For arrangements containing multiple performance obligations, the revenue relating to the

undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation.

Both of these determinations impact the timing

and amount of our reported revenues and net income and loss.

Accounts Receivable – We have

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

credit reviews of all new customer accounts;

ongoing credit evaluations of current customers;

credit limits and payment terms based on available credit information;

credit limits and payment terms based on available

credit information;

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

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

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 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.

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:

We also provide an estimate for expected credit losses based on an expected loss methodology which considers a broad range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period .

reserve for expected credit losses as of December 31, 2023 was $0.8 million, or 7.0% of outstanding trade 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.

While we believe that our allowance for credit losses is adequate and represents our best estimate of future losses, we will continue to monitor customer liquidity and other economic conditions, which may result in changes to our

Inventories – The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality.

The determination of obsolete or excess

inventory requires us to estimate the future demand for our products.

We record valuation reserves on our inventory for estimated excess and obsolete inventory and lower of cost or net realizable value concerns equal to the difference between

the cost of inventory and the estimated realizable value based upon assumptions about future product demand, market conditions and product selling prices.

If future product demand, market conditions or product selling prices are less than those

projected by management or if continued modifications to products are required to meet specifications or other customer requirements, increases to inventory reserves may be required which would have a negative impact on our gross margin.

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.

Goodwill and Intangible Assets

– We evaluate goodwill and other indefinite-lived intangible assets for impairment annually and when an event occurs or circumstances change that indicate that the

carrying value may not be recoverable.

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.

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.

Under the income approach, we use a discounted cash flow methodology to derive an indication of value, which requires management to make significant estimates and assumptions related to forecasted revenues, gross

profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others.

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 negative industry or economic trends;

significant negative

industry or economic trends;

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

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

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.

As of December 31, 2023, 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, 2023 in accordance with relevant authoritative

accounting literature.

We have considered the effects caused by 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 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

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.

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.

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.

1 unchanged sentence

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net sales, which include printer, terminal and software sales as well as sales of replacement parts, consumables and maintenance and repair services, by market for the years ended December 31, 2022 and 2021 are detailed in the below table.

2023 Financial Highlights

• Net sales were $72.6 million in the current year compared to $58.1 million in the prior year.

• Operating income was $5.7 million in the current year compared to an operating loss of $7.7 million in the

• Net income was $4.7 million, or $0.47 per diluted share in the current year, compared to a net loss of $5.9

million, or a $0.60 loss per share in the prior year.

• Operating cash inflow was $5.5 million in the current year compared to an outflow of $12.2 million in the prior

Net sales, which

include printer, terminal and software sales as well as sales of replacement parts, consumables and maintenance and repair services, by market for the years ended December 31, 2023 and 2022 are detailed in the below table.

(In thousands, except percentages)

7 unchanged sentences

Net sales for 2023 increased $14.5 million, or 25%, from 2022.

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 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.

Printer, terminal and other hardware sales volume increased by 10% to approximately

148,000 units for 2023, driven by large unit volume increases in FST and all casino and gaming, partially offset by a unit volume decline in POS automation.

The primary volume increase came from a 27% increase in unit volume from the casino and

gaming market, supplemented by a 73% hardware unit volume increase in our FST market.

We believe that the 2023 increase in our casino and gaming market share increased was principally due to our successful efforts in navigating the supply chain

constraints that prevented certain other suppliers from fully meeting customer demand.

Partially offsetting these increases, we experienced a 36% decrease in unit volume from the POS automation market.

The average selling price of our printers,

terminals and other hardware increased approximately 9% during 2023 compared to 2022, mainly due to price increases instituted during 2022 in response to product cost increases that we were able to largely maintain throughout 2023.

Additionally,

sales of our software, labels and other recurring revenue from our FST market increased $2.4 million, or 28%, during 2023 compared to 2022.

International sales for 2023 remained relatively flat (increasing $0.5 million, or 3%, compared to 2022).

Food service technology .

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!

products, which can combine our latest generation terminal and workstation, which include one or two

printers, with 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.

In addition, customers may individually purchase cloud-based software applications that connect to an 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.

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.

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

Terminal and newly-launched Terminal 2 combine 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”

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.

Terminal, Terminal 2 and 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, 2022 and 2021 were as follows:

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.

our worldwide food service technology products for the years ended December 31, 2023 and 2022 were as follows:

(In thousands, except percentages)

6 unchanged sentences

Software, labels and other recurring revenue

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

Sales in food service technology increased 32% in 2023 compared to 2022 driven by increases in both sales of hardware and sales of BOHA!

Hardware sales increased 42% compared to 2022 due largely to increased sales of our BOHA!

Terminal, as well as the first volume sales in the fourth quarter of 2023 of our newly-launched BOHA!

In addition, we experienced an

increase in sales of our BOHA!

sensors and gateways due to shipments to a new senior assisted living customer in the fourth quarter of 2023.

FST software, labels

and other recurring revenue sales increased 28% in 2023 compared to 2022.

Recurring revenue increased 24% 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!

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).

We expect FST revenue to be higher in 2024 than in 2023 as we continue to focus on growing our installed base of 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 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.

Revenue from the POS automation

market includes sales of our Ithaca 9000 thermal printer used primarily by McDonald’s, and to a much lesser extent, 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, 2023 and 2022 were as follows:

3 unchanged sentences

International

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.

The decrease in POS automation product revenue during 2023 compared to 2022 was driven by lower sales of our Ithaca® 9000 printer.

During the latter half

of 2022, we successfully managed through supply chain issues, significantly increased production and began to fulfill our large backlog of sales orders from the first half of 2022 (due to our competitor’s inability to supply product) which

resulted in unusually high sales during 2022.

During 2023, we shipped closer to our normal run-rate of POS automation printers and we began to lower our average selling price in the latter portion of the year in response to our competitors

beginning to resume supplying product.

We expect POS automation sales to be lower in 2024 compared to 2023 as our competitors resume volume shipments and we therefore anticipate our sales

volume and average selling price to return to more normalized levels.

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.

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 years ended December 31, 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 years ended December 31, 2023 and 2022 were as follows:

(In thousands, except percentages)

2 unchanged sentences

International

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.

The increase in domestic sales of our casino and gaming products during 2023 compared to 2022 was primarily due to a 62% increase in sales volume as well

as price increases instituted during 2023 and largely maintained throughout the year.

We believe that the 2023 increase in our casino and gaming market share increased was principally due to our successful efforts in navigating the supply chain

constraints that prevented certain other suppliers from fully meeting customer demand.

However, we anticipate a more competitive environment in the casino and gaming market during 2024.

The overall increase in casino and gaming domestic sales was

partially offset by a 48% decrease in domestic EPICENTRAL sales during 2023 compared to 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:

(In thousands, except percentages)

December 31, 2022

December 31, 2021

International

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

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

We expect domestic sales for 2024 to be lower than 2023 as many of our customers have built up higher than normal levels of inventory of our product

(accumulated as a hedge by our customers during the worldwide supply chain crisis during 2022 and 2023) and we therefore have started to see a slowdown in their order and shipment rates that we expect to continue (especially during the first half

of 2024) until they are able to sell through their on-hand inventory.

In addition, we expect an overall more competitive environment in 2024 as we anticipate our

largest competitor will likely resume volume shipments again.

International sales of our casino and gaming products remained flat during 2023 compared to 2022.

Similar to our domestic customers, our international

customers also began to slow their order and shipment rates in the third and fourth quarters of 2023 due to higher than normal inventory levels and we expect this trend to continue for 2024, especially during the first half of the year.

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 and shipping and handling charges.

worldwide TSG market for the years ended December 31, 2023 and 2022 were as follows:

(In thousands, except percentages)

2 unchanged sentences

International

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%.

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.

The increase in domestic revenue from TSG during 2023 as compared to 2022 was due primarily to a 137% increase in sales of replacement parts and

accessories primarily due to a large order by IGT for our installed base of legacy lottery printers that we do not expect to recur, and to a lesser extent, a 12% increase in service revenue.

This increase was partially offset by a decline in

consumable sales of 11%, as we are no longer focused on these legacy sales and expect them to continue to decline over time.

Internationally, TSG revenue decreased 17% during 2023 compared to 2022, due primarily to a decline in sales of replacement parts and accessories to

international casino and gaming customers.

We expect TSG sales to be lower in 2024 compared to 2023 as we experienced an unusually high level of sales of legacy lottery printer replacement parts

in 2023 that we do not expect to repeat at the same level in 2024 as the installed base of these printers continues to decline.

Gross Profit.

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

information for the years ended December 31, 2023 and 2022 is summarized below (in thousands, except percentages):

Year Ended December 31,

1 unchanged sentence

Total Sales - 2022

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 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 $14.0 million, or 57%, in 2023 compared to 2022, primarily due to the 25% sales increase in 2023 compared to 2022.

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.

margin also increased 1,090 basis points to 53% in 2023 compared to 42% in 2022.

The large increase in both gross profit and gross margin is due to a 25% sales increase, increased market share in the casino and gaming market, increased sales of

higher margin products and price increases instituted in 2022 and largely maintained throughout 2023 to mitigate higher product and shipping costs.

However, we expect gross margin in 2024 to be lower than in 2023 due to a return to a more

normalized competitive environment in both the casino and gaming and POS automation markets.

Operating Expenses - Engineering,

Design and Product Development.

Engineering, design and product development information for the years ended December 31, 2023 and 2022 is summarized below (in thousands, except percentages):

2 unchanged sentences

Total Sales - 2022

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):

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 contracted software development expenses including those to the third party licensor of our food service

technology software products).

Engineering, design and product development expenses increased $0.9 million, or 10%, in 2023 compared to 2022 due to the hiring of

additional engineering staff as well as investments in additional software staff resources and product testing primarily for the completed launch of the new BOHA!

Terminal 2 and Epic TR80 gaming printer in the fourth quarter of 2023.

increases were partially offset by cost reduction initiatives taken during the latter part of 2023, including a reduction of contracted software development expenses.

We expect engineering, design and product development expenses to be lower in

2024 compared to 2023 as we expect to benefit from the full effect of the 2023 cost reduction efforts.

Operating Expenses - Selling and

Selling and marketing information for the years ended December 31, 2023 and 2022 is summarized below (in thousands, except

percentages):

Year Ended December 31,

1 unchanged sentence

Total Sales - 2022

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.

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 decreased $1.4 million, or

12%, during 2023 compared to 2022 primarily due to BOHA!

market studies conducted in 2022 which were not repeated in 2023, as well as cost reduction initiatives put into place during 2023, including reduced headcount and a reduction in trade show

and other marketing expenses.

Operating Expenses - General and

Administrative.

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

2 unchanged sentences

Total Sales - 2022

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.

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

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

Officer, Chief Financial Officer, accounting, human resources, corporate 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 $1.1 million, or 9%, during 2023 compared to 2022 due in large part to a

$1.5 million severance charge related to the resignation of the Company’s former Chief Executive Officer in April 2023, partially offset by expense reduction initiatives we commenced in the third quarter of 2023.

Excluding the $1.5 million

severance charge, we expect general and administrative expenses for 2024 to be slightly lower compared to 2023.

Operating Income (Loss).

Operating income (loss) information for the years ended December 31, 2023 and 2022 is summarized below (in thousands, except percentages):

Year Ended December 31,

1 unchanged sentence

Total Sales – 2022

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..

Our operating income increased $13.4 million, or 174%, during 2023 compared to 2022 as a $14.0 million or 57% increase in gross profit on 25% higher

sales, was partially offset by a $0.6 million or 2% increase in operating expenses (including the $1.5 million severance charge discussed above in “General and Administrative”) in 2023 compared to 2022.

Interest, net.

We recorded net interest expense of $255 thousand in 2023 compared to $208 thousand in 2022.

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.

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

This increase in interest expense is related to the Siena Credit

Following the July 2022 amendment of the Siena Credit Facility, we were required to maintain outstanding borrowings of at least $2,250,000 in principal amount.

See Note 8 – Borrowings to the accompanying condensed consolidated financial

Interest expense increased due to the initiation of the minimum borrowing requirement in July 2022 and a higher interest rate environment during 2023 compared to 2022.

We recorded other income of $452 thousand in 2023 compared to other expense of $16 thousand in 2022.

During the fourth quarter of 2023, we

completed an asset sale of our Printrex product line (essentially inventory on-hand) and recorded a non-operating gain of approximately $426 thousand.

Prior to this sale, the last TransAct sales of Printrex products occurred in 2021.

Income Taxes .

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.

We recorded income tax expense during 2023 of $1.2 million at

an effective tax rate of 19.6%, compared to an income tax benefit during 2022 of $2.0 million at an effective tax rate of 24.9%.

The effective tax rate for 2022 was unusually high due to the reversal of a valuation allowance on deferred tax assets

in our UK subsidiary.

Net Income (Loss).

result of the above, we reported net income for the year ended December 31, 2023 of $4.7 million, or $0.47 per diluted share, compared to a net loss of ($5.9 million), or $0.60 per basic and diluted share, in 2022.

Liquidity and Capital Resources

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

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

Internal cash generation together with currently available cash and cash equivalents, available borrowing facilities and an ability to access credit lines 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.

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 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 our anticipated level of business activity for the 2024

fiscal year and beyond.

During the third quarter of 2023, we began a cost reduction initiative to reduce our overall level of operating expenses that included reducing employee

headcount, trade show, advertising and other promotional marketing expenses, certain third party engineering resources and other expenses, and to a lesser extent, certain general and administrative expenses.

We expect these actions will result in

approximately $3 million of annualized savings beginning in 2024, partially offset by typical annual inflationary and cost of living increases in operating expenses.

Notwithstanding the foregoing, there is no assurance that the cost-cutting efforts

we have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as supply chain disruptions and inflation are sufficient or adequate, and we may be required to take additional 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.

Item 1A, Risk Factors, of this Form 10-K for further discussion of risks related to global economic conditions, supply chain disruptions and inflation.

During 2023, our cash balance increased $4.4 million, or 55%, (versus a decrease of $11.5 million in 2022) due primarily to operating activities,

including a reduction in accounts receivable of $4.2 million and net income of $4.7 million (depreciation, amortization and share based compensation totaled $2.3 million).

We had $12.3 million in cash and cash equivalents as of December 31,

2023, of which $116 thousand was held by our UK subsidiary.

Operating activities :

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.

The following significant

factors primarily affected our cash provided by operating activities of $5.5 million in 2023 as compared to cash used in operating activities of $12.2 million in 2022.

We reported net income of $4.7 million.

We recorded depreciation and amortization of $1.5 million and share-based compensation expense of $0.9 million.

We recorded a decrease in our deferred tax assets of $1.0 million due to our net income in 2023.

Accounts receivable decreased $4.2 million primarily due to decreased sales volume during the fourth quarter of 2023.

Inventories increased $5.7 million primarily due to strategic purchases, including initial stocking orders related to the launch of our new BOHA!

Terminal 2 and

Epic TR80 in the fourth quarter of 2023, and declining sales during the four quarters in 2023.

We expect our inventories to gradually decline as we sell through our existing stock during 2024.

Accounts payable used $3.0 million in cash due to increased inventory purchases and the timing of cash disbursements.

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

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.

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.

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.

Investing activities :

Our capital expenditures were $0.9 million and $1.3 million in 2023 and 2022, respectively.

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.

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.

Expenditures in 2023 were related to new product tooling and computer and networking equipment

while in 2022 they 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:

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.

Financing activities used

$0.1 million of cash during 2023 due primarily to withholding taxes paid on stock issuances.

During 2022, financing activities provided $2.1 million of cash primarily due to proceeds received from the required minimum borrowings on our Siena

Credit Facility.

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 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.

Since early 2020, we have been impacted in varying degrees by the lingering effects from the COVID-19 pandemic.

In addition, and more recently, we have

been impacted by global supply chain issues, increased shipping costs, increased interest rates and inflationary pressures.

However, we believe that our operating results and operating cash flow improved significantly during 2023 due largely to

certain competitors’ inability to supply products in both the POS automation and casino and gaming markets.

Nevertheless, given the continued uncertainty related to the impact of external factors on the food service and casino industries, we

continue to monitor our 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 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%.

On March 13, 2020, we entered into the Loan and Security Agreement governing the Siena Credit Facility with Siena Lending Group LLC (the “Lender”).

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, prior to being extended, as discussed below.

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.

1 unchanged sentence

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

Borrowings under the Siena Credit Facility are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory.

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

The three-month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the 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.

Borrowings under the Siena Credit Facility are subject

to a borrowing base based on 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.

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

1 unchanged sentence

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.

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

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.

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.

Facility Amendment No.

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

2 unchanged sentences

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.

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.

As stated above, we continue to monitor our cash generation, usage and preservation including the management of working capital to generate cash and continue to

evaluate any alternative sources of funding as necessary, including the possible extension of our line of credit under the Siena Credit Facility.

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.

this amendment, section 7.1(m) of the Loan and Security Agreement governing the Siena Credit Facility required that any successor to the Company’s former Chief Executive Officer be reasonably acceptable to the Lender, and the amendment confirmed

Dillon, the Company’s current Chief Executive Officer, is an acceptable successor and applied the same requirement to any future successor to Mr.

As of December 31, 2023, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $5.9 million of net borrowing capacity

available under the Siena Credit Facility.

Stock Repurchase Program

1 unchanged sentence

Shareholders’ Equity

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.

Shareholders’ equity increased $5.6 million, or 16%, to $39.4 million at December 31, 2023 from $33.9 million at December 31, 2022.

The increase was

primarily due to net income of $4.7 million in 2023 and share-based compensation expense related to stock awards of $0.8 million (net of withholding taxes paid by relinquishment of shares) in 2023.

Quantitative and Qualitative Disclosures about Market Risk.

1 unchanged sentence

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