What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-14 · 305 added, 469 removed, 105 unchanged (88% of the section changed)

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Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q for the period ended September 30, 2023 (this “Report”), including

Certain statements included in this Quarterly Report on Form 10-Q for the period ended March 31, 2024 (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.

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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.

In the 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, the conflicts in Russia/Ukraine and the Middle East, 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

Forward-looking statements represent current views about possible future events and are often identified by the use of

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

Forward-looking statements are

subject to certain risks, uncertainties and assumptions.

In the 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 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, inflationary pressures, the Russia/Ukraine and Middle East conflicts, 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 third party component parts or raw

materials at reasonable prices, 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 ability to successfully grow our business in the food service technology market;

risks associated with the pursuit of strategic initiatives and business growth;

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 ability to recruit and retain quality employees;

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

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.

associated with foreign operations;

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 (the “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”).

our ability to protect intellectual property;

exchange rate fluctuations;

the availability of needed financing on acceptable terms or at all;

volatility of, and decreases in

trading prices of our common stock 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, in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 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 Report.

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

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

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

software and hardware products help restaurants,

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generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents.

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

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

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

We also offer world-class service, support, labels, spare parts, accessories

and printing supplies to our growing worldwide base of products currently in use by our customers.

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

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

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

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

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

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

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

We operate in one reportable segment:

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

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

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

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

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

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

Recent Developments

In the fourth quarter of 2023, we completed an asset sale of our Printrex product line (essentially inventory on-hand) and plan to record a resulting

non-operating gain of approximately $0.4 million in the fourth quarter of 2023.

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

The Company recently announced that it intends to engage 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.

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

Since early 2020 and into the first quarter of 2022, the COVID-19 pandemic caused uncertainty and disruption in

the global economy and financial markets.

Similar to other companies, TransAct has 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.

After experiencing significantly lower inventory and sales levels in 2021 due to supply chain disruptions, we were able to increase our inventory levels and minimize the impact to our customers in

2022 by successfully modifying our products that were affected by supply chain disruptions, as well as by sourcing component parts from alternate suppliers.

At the same time, after a slowdown resulting from the Omicron and other variants of COVID-19

that began to ease in the first nine months of 2022, we continued to experience demand recovery during the remainder of 2022 and into 2023.

Although we were able to increase inventory levels during 2022 and the first nine months of 2023 and expect to

continue to do so in 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

Further, while we have offset most of our cost increases by increasing prices of our products, there can be no guarantee that we will not be 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 in the markets we serve and from which we source our supplies and parts.

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 – The Company received a refundable employee retention credit

under the CARES Act in the first quarter of 2023.

The Company previously 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.

Credit Facility – On March 13, 2020, we entered into a 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 to the accompanying condensed consolidated financial statements for further

details regarding this facility.

Expense Reductions – During the third quarter of 2023, we began a cost reduction initiative to reduce our overall level of operating expenses

that includes 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

When completed in the fourth quarter of 2023, we expect these actions will result in approximately $3 million of annualized savings beginning in 2024.

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

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” in our 2023 Form 10-K.

Current Business Trends

After strong demand during most of 2023 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 normalized.

This slowdown impacted our results in the fourth quarter of 2023 and the first quarter of 2024, and we expect this trend to continue to impact results during 2024 until these customers are able to

sell their on-hand inventory.

Further, our primary competitor in the casino and gaming market has resumed supplying product and continued to increase volume at what we believe is full capacity, which has resulted in the beginning of downward pricing

pressure in that market and could exacerbate the demand slowdown, which has negatively impacted 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 further 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.

Balance Sheet, Cash Flow and Liquidity.

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 saw the full impact of these actions in the first quarter of 2024 and expect they will result in approximately $3 million of annualized savings

compared to 2023 levels, 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, and conditions in our markets will be 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.

Notwithstanding the foregoing, there is no assurance that the actions we have taken in response to the current business trends 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 that cannot be predicted at this time.

See Part I, Item 1A, Risk Factors, of the 2023 Form 10-K for further discussion of risks related to these current business trends.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial

Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America.

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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 circumstances.

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 the 2022 Form 10-K.

Our critical accounting estimates include those related to revenue recognition, accounts receivable, inventory obsolescence,

goodwill and intangible assets, the valuation of deferred tax assets and liabilities and share-based compensation.

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

circumstances.

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

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the 2023 Form

Results of Operations:

Three months ended September 30, 2023 compared to three months ended September 30, 2022

sales, which include printer, 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 September 30, 2023 and 2022 were as follows

(in thousands, except percentages):

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Net sales, which

include printer, 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, 2024 and 2023 were as follows (in thousands,

except percentages):

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Food service technology (“FST”)

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International *

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

those printers and terminals to international destinations.

Net sales for the third quarter of 2023 decreased $0.7

million, or 4%, compared to the third quarter of 2022.

Printer, terminal and other hardware unit sales volume decreased 24% to approximately 33,000 units, due primarily to a 68% unit sales volume decline in the POS automation market,

partially offset by a unit sales volume increase in the casino and gaming market of 8%.

The average selling price of our printers, terminals and other hardware increased 10% during the third quarter of 2023 compared to the third quarter of 2022

primarily due to price increases instituted during 2022 as well as higher volume sales of our higher priced products.

In addition, FST software, labels and other recurring revenue increased $0.6 million, or 22%, in the third quarter of 2023

compared to the third quarter of 2022.

International sales for the third quarter of 2023 decreased $0.3 million, or 7%, from the same period in 2022 due largely to lower sales

in our Casino and gaming market.

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 2024 decreased $11.6 million, or 52%,

compared to the first quarter of 2023.

Printer, terminal and other hardware unit sales volume decreased 62% to approximately 19,000 units, due primarily to a 63% unit sales volume decrease in the casino and gaming market, a 57% unit sales volume decline in the POS automation market and a 50% unit sales volume decline in FST hardware.

For more information about the sales volume decreases

described above, please refer to the results of operations for each of our markets discussed further below.

The average selling price of our printers, terminals and other hardware was relatively flat in the first quarter of 2024 compared to the

first quarter of 2023.

In addition, FST software, labels and other recurring revenue increased $0.1 million, or 3%, in the first quarter of 2024 compared to the first quarter of 2023.

International sales for the first quarter of 2024 decreased $1.8 million, or 38%, from the same period in 2023 due primarily to lower sales in our casino

and gaming market.

Food service technology (“FST”) .

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

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

offering in the FST market is our line of 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.

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

service operations.

The additional software offerings of BOHA!

consist 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.

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.

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.

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.

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

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” date labels.

WorkStation uses an iPad or Android tablet instead of an integrated

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.

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 September 30, 2023 and 2022 were as follows (in

thousands, except percentages):

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 FST products for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

International

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Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Software, labels and other recurring revenue

The increase in food service technology sales in the third

quarter of 2023 compared to the third quarter of 2022 was driven largely by an increase in software and label sales.

Hardware sales decreased 6% in the third quarter of 2023 compared to the third quarter of 2022, due to lower sales of our BOHA!

Terminals and Workstations .

Software sales, including

sales of BOHA!

software recognized on a SaaS subscription basis and labels increased 22% compared to the prior year period due largely to unusually high label sales to

several existing customers, as well as the continued growth of the installed base of our BOHA!

Terminals and Work s tations (driving higher software sales) .

The decrease in food service technology sales in the first quarter of 2024 compared to the

first quarter of 2023 was primarily driven by a decrease in hardware sales.

Hardware sales decreased 21% in the first quarter of 2024 compared to the first quarter of 2023 due primarily to 89% lower sales of our AccuDate 9700 terminals which

we discontinued at the end of 2023.

This decrease was partially offset by a 43% increase in sales of our BOHA!

terminals and Workstation, led by strong sales of our newly launched BOHA!

Terminal 2 to a large international quick serve restaurant (“QSR”)

FST software, labels and other recurring revenue increased 3% compared to the prior year period due largely to the overall increased base of installed terminals.

Recently, a significant customer notified us that it would be terminating service, including its BOHA!

software subscriptions and label sales, for its

existing installed base of BOHA!

terminals by the middle of June 2024.

Total sales to this customer were approximately $4.0 million in 2023.

Despite the loss of this customer, we expect FST revenue for the remainder of 2024 to be relatively

consistent with 2023, as we expect revenue from new customers, including those from our newly announced international QSR customer, to largely offset those from the lost customer.

POS automation:

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Our POS printer is used primarily by

McDonald’s, and to a lesser extent, other quick-service restaurants either at the checkout counter , grill station 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 September 30, 2023 and 2022 were as follows (in thousands, except

percentages):

McDonald’s, and to a lesser extent, other quick-service restaurants either at the checkout counter, grill station 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.

Sales of our worldwide POS automation products for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

International

The decrease in POS automation sales in the third quarter of 2023 compared to the third quarter of 2022 was driven by a 70% decrease in domestic sales, partially offset by a price increase instituted during 2022.

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 resulted in unusually high sales for this prior year period .

During the third quarter of 2023, we shipped our normal

run-rate of POS automation printers which we expect to continue at approximately the same rate for the remainder of 2023 .

The decrease in POS automation sales in the first quarter of 2024 compared to the first quarter of 2023 was largely driven by a 64% decrease in domestic

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

However, by the first quarter of 2023,

we successfully managed through the shortage, significantly increased production and began to fulfill our large backlog of sales orders which resulted in unusually high sales for this period.

During 2024, due to the fact that many of our customers have built up higher than normal levels of inventory of our product as described above, we have seen a slowdown in their order and shipment rates as well as a

reduction in our average selling prices due to renewed competitive pressure.

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

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

Casino and gaming .

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

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

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, 2023 and 2022 were as follows (in thousands, except percentages):

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, 2024 and 2023 were as follows

(in thousands, except percentages):

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

International

The increase in domestic sales of our casino and gaming products for the third quarter of 2023 compared to the third quarter of 2022 of $1.7 million , or 44% , was primarily

driven by sales growth of our thermal casino printers, particularly to one large customer.

We believe we have increased our market share during 2023 compared to 2022 as a result of our largest competitor’s inability to supply product due to supply chain issues, but we anticipate a more competitive

environment in the casino and gaming market going forward.

We expect domestic sales in the fourth quarter of 2023 to be lower than the third quarter of 2023 as

many of our customers have built up higher than normal levels of inventory of our product (accumulated as a hedge during the worldwide supply chain crisis earlier in the year) and we therefore expect a slowdown in their order rates until they are

able to sell through their on-hand inventory.

The decrease in international casino and gaming sales during the third quarter of 2023 compared to the third quarter of 2022 was due to a 10% decrease in

sales of our thermal casino printers.

Similar to our domestic customers, our international customers also began to slow their order rates in the third quarter of 2023 due

to higher than normal inventory levels.

We expect this to continue to impact our international sales in the fourth quarter of 2023.

Though sales of both our domestic and international casino printers have been strong in 2023 as compared to 2022, we believe it is likely that our largest

competitor will eventually be able to resume supplying product which would negatively impact our worldwide casino and gaming sales.

TransAct Services Group

Revenue generated by TSG includes sales of consumable products (POS receipt paper, 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 September 30, 2023 and 2022 were as follows (in

thousands, except percentages):

The decrease in domestic sales of our casino and gaming products for the first quarter of

2024 compared to the first quarter of 2023 of $8.3 million, or 72% is due to the fact that 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.

As a result, we have experienced a slowdown in their order and shipment rates that we expect to continue during 2024 until they are able to sell through their on-hand inventory.

We expect this dynamic to

continue through at least the second quarter of 2024 with order rates and sales expected to steadily improve as we move through the second half of 2024.

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

has resumed volume shipments.

The decrease in international casino and gaming sales during the first quarter of 2024 compared to the first quarter of 2023 was due to a 42% decrease in sales of our

thermal casino printers.

Similar to our domestic customers, our international customers also began to slow their order rates for the first quarter of 2024 due to higher-than-normal inventory levels.

We expect this to continue to impact our

international sales during 2024.

TransAct Services Group (“TSG”):

generated by TSG includes sales of consumable products (POS receipt paper, 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, 2024 and 2023 were as follows (in thousands, except percentages) :

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

International

The increase in both domestic and international revenue from TSG during the third quarter of 2023 as compared to the third quarter of 2022 was due

largely to higher sales of legacy replacement parts for lottery printers.

Sales of replacement parts for our legacy lottery printers can vary significantly from quarter to quarter.

However, based on our backlog of orders, we expect TSG sales in the fourth quarter of 2023 to be consistent with the third quarter of 2023.

The decrease in both domestic and international revenue from TSG during the first quarter of 2024 as compared to the first quarter of 2023 was due largely

to 31% lower sales of legacy replacement parts for lottery printers, partially offset by a 32% increase in service revenue.

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 three months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

information for the three months ended March 31, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales - 2024

Total Sales - 2023

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor,

manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and BOHA!

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

For the third quarter of 2023, gross profit increased $0.7 million, or 9%, and gross margin increased 600 basis points to 52% due primarily to an improved mix of higher margin casino and gaming printer sales (which increased by 17%).

Additionally, our gross margin increased f due to the effect of two rounds of price increases we instituted during

2022 to mitigate higher product and shipping costs related to worldwide supply chain disruptions.

Our gross margin decreased slightly from 55% in the second quarter of 2023 as a result of previously anticipated downward pressure on gross margin from a sequential decline in casino and gaming sales.

W e expect this downward trend in gross margin to continue for the remainder of 2023

due to an expected slowdown in order rates from many of our casino and gaming customers at they sell through higher than normal levels of inventory of our

Operating Expenses -

Engineering, Design and Product Development.

Engineering, design and product development expense information for the three months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing

overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and BOHA!

products and royalty payments to third parties, including

to the third-party licensor of our food service technology software products.

For the first quarter of 2024, gross profit decreased $6.6 million, or 54%, and gross

margin decreased 240 basis points to 53% due primarily to a 52% decline in overall sales including a 64% decline in sales of higher margin casino and gaming printers.

We expect this downward trend in gross margin to continue for much of 2024 due

to the continued expected slowdown in order rates from many of our casino and gaming and POS customers until they sell through higher-than-normal levels of inventory of our product.

As a result, we expect gross margin for the remainder of 2024

to be in the mid-40% to high-40% range.

Operating Expenses - Engineering, Design

and Product Development.

Engineering, design and product development expense information for the three months ended March 31, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales - 2024

Total Sales - 2023

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 of the third-party licensor of our food service

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 payments to third-party licensor of our food service

technology software products).

Engineering, design and product development expenses increased $524 thousand, or 26%, for the third quarter of 2023

compared to the third quarter of 2022 due to additional software staff resources and product testing primarily for planned new product launches, including the

We expect engineering, design and

product development expenses to be lower in the fourth quarter of 2023 than the third quarter of 2023 due cost reduction initiatives we began during the third quarter of 2023.

Operating Expenses -

Selling and Marketing.

Selling and marketing information for the three months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Engineering, design and product development expenses decreased $303 thousand, or 13%, for the first quarter of 2024 compared to the first

quarter of 2023 due to cost reduction initiatives taken during the latter part of 2023, including a reduction of contracted software development expenses.

As a result of these initiatives, we expect that engineering expenses will continue to be lower

for the remainder of 2024 compared to 2023.

Operating Expenses - Selling and Marketing.

Selling and marketing information for the three months ended March 31, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales - 2024

2 unchanged sentences

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 by $351 thousand, or 13%, in the third quarter of 2023 compared to the third quarter of 2022 due to cost reduction initiatives including reduced headcount, trade show and other marketing expenses .

As a result of these initiatives, we expect selling and

marketing expenses will continue to decline for the remainder of 2023 and into 2024.

Operating Expenses -

General and Administrative .

General and administrative information for the three months ended September 30, 2023 and 2022 is summarized

below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2023

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, board of director expenses and other expenses related to being a

publicly traded company.

General and administrative expenses decreased $254 thousand, or 8%, during the third quarter of 2023 compared to the third

quarter of 2022 due largely to lower share-based and incentive compensation expense due to the resignation of our former Chief Executive Officer in April 2023 .

Operating Income.

Operating income information for the three months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales – 2023

Total Sales – 2022

Our operating income increased $0.8 million, or 208%, in the third quarter of 2023 compared to the third quarter of 2022 due to a $0.7

million increase in gross profit despite a 4% decline in sales (600 basis point improvement in gross margin).

O perating income also benefited from an $81 thousand , or 1%, reduction in operating expenses.

Interest, net.

We recorded net interest expense of $73 thousand in the third quarter of 2023 compared to $53 thousand in the third quarter of 2022.

For both periods, we maintained

outstanding borrowings of about $2.3 million in principal amount pursuant to the terms of the July 2022 Siena Credit Facility Amendment No.

2 – see Note 5 to the accompanying condensed consolidated financial statements.

Interest expense increased

due to a higher interest rate environment in the third quarter of 2023 compared to the third quarter of 2022.

Other, net primarily includes foreign exchange gains/ losses by our UK subsidiary.

During the third quarter of 2023 we recognized $43 thousand of foreign

exchange losses compared to $132 thousand of foreign exchange gains in the third quarter of 2022.

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 income tax expense in the third quarter of 2023 of $169 thousand at an effective tax rate of 15.7%, compared to an income tax benefit during the third quarter of 2022 of $62 thousand at an effective tax rate of (13.3%).

The tax benefit

in the third quarter of 2022 despite having pre-tax income of $466 thousand for the period primarily resulted from the reversal of a valuation allowance on deferred tax assets in our UK subsidiary.

We reported net income for the third quarter of 2023 of $0.9 million, or $0.09 per diluted share, compared to net income of $0.5 million, or $0.05

per diluted share, for the third quarter of 2022.

Results of Operations:

Nine Months Ended September 30, 2023 compared to nine months ended September 30, 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 nine months ended September 30, 2023 and 2022 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2023

September 30, 2022

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 2023 increased

$19.2 million, or 48%, from the same period in 2022.

Printer, terminal and other hardware sales unit volume increased by 38% to approximately 127,000, units for the first nine months of 2023 driven primarily by a 73% increase in units sold

within our casino and gaming market , somewhat offset by a 34% decline in unit sales of our POS automation printers .

The average selling price of our printers, terminals and other hardware increased 13% for the first nine months of 2023 compared to the first nine months of 2022 due primarily to

price increases instituted on most of our products in the latter part of 2022.

FST software, labels and other recurring revenue increased $1.6 million, or 26%, in the first nine months of 2023 compared to the first nine months of 2022.

in the nine months ended September 30, 2022 were also still somewhat negatively impacted by COVID-19.

International sales for the first nine months of 2023 increased $2.0 million, or 21%, from the same period in 2022 due primarily to a 23%

increase in sales within the international casino and gaming market.

Sales of our worldwide food service technology products for the nine months ended September 30, 2023 and 2022 were as follows (in

Selling and marketing expenses decreased by $674 thousand, or 24%, in the first quarter of 2024 compared to the first quarter of 2023 due to cost reduction initiatives including reduced headcount, trade show and other marketing

As a result of these initiatives, we expect selling and marketing expenses will continue to be lower for the remainder of 2024 compared to 2023.

Operating Expenses - General and

Administrative .

General and administrative information for the three months ended March 31, 2024 and 2023 is summarized below (in

thousands, except percentages):

Nine Months Ended

September 30, 2023

September 30, 2022

International

Nine Months Ended

September 30, 2023

September 30, 2022

Software, labels and other recurring revenue

The increase in food service technology sales of $2.3 million, or 25%, in the first nine months of 2023 compared to the first nine months of 2022 was

driven by increases in both sales of hardware and sales of BOHA!

software and labels.

Hardware sales increased 22% in the first nine months of 2023 compared to the first nine months of 2022 due largely to increased sales of our AccuDate 9700 and

FST software, labels and other recurring revenue sales increased 26% in the first nine months of 2023 compared to the first nine months of 2022.

This increase was primarily due to both increased label sales and increased software

sales, compared to the prior year period due principally to the growth of the installed base of our BOHA!

Terminals and Workstations.

POS automation.

Sales of our worldwide POS automation products for the nine months ended September 30, 2023 and 2022 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2023

September 30, 2022

International

Sales of POS automation printers decreased $2.4 million, or 31%, for the first nine months of 2023 compared to the first nine months

of 2022 due to a decrease of domestic sales of our Ithaca 9000 printer, partially offset by a price increase instituted during 2022.

The decrease in sales was

driven primarily by unusually high sales to McDonald’s in the third quarter of

2022, as we successfully managed through the global chip shortage and increased production and began to fulfill a large backlog of orders (due to a competitor’s inability to supply product) from the second quarter of 2022.

Casino and gaming.

Sales of our worldwide casino and gaming products for the nine months ended September 30, 2023 and 2022 were as follows (in thousands, except

percentages) :

Nine Months Ended

September 30, 2023

September 30, 2022

International

The increase in domestic sales of our casino and gaming products of $16.0 million, or 153%, for the first nine months of 2023 compared to the first nine

months of 2022 was due to an increase in sales and price increases in our gaming and thermal casino printers.

We believe we have significantly increased our

market share compared to the comparable period in 2022 due to our largest competitor’s inability to supply product due to supply chain issues.

However, we anticipate a more competitive environment going forward.

International sales of our casino and gaming products increased $2.0 million, or 23%, in the first nine months of 2023 compared to the

first nine months of 2022.

We believe we have significantly increased our market share in the first nine months of 2023 compared to the comparable period in 2022 due to

our largest competitor’s inability to supply product due to supply chain issues, but we anticipate a more competitive environment in the casino and gaming market going forward.

Sales in our worldwide TSG market for the nine months ended September 30, 2023 and 2022 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2023

September 30, 2022

International

The increase in domestic TSG revenue of $1.4 million, or 41%, for the first nine months of 2023 as compared to the first nine months of 2022 was

primarily due to a 61% increase in sales of replacement parts and accessories

primarily for our installed base of legacy lottery printers, and to a lesser extent, a 24% increase in service revenue.

Internationally, TSG revenue decreased $0.1 million, or 15%, for the first nine months of 2023 compared to the first nine months of 2022, primarily due to

a 20% decrease in sales of replacement parts to international casino and gaming customers.

Gross Profit.

Gross profit for the nine months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2023

Total Sales – 2022

For the first nine months of 2023, gross profit increased $15.8 million, or 98%, due largely to a sales increase of 48% in the first nine months of 2023

compared to the first nine months of 2022.

Gross margin also increased 1,370 basis

points to 54% in the first nine months of 2023 compared to 40% in the first nine months of 2022.

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

of higher margin products and price increases instituted in 2022.

However, we expect downward pressure on our gross margin for the remainder of 2023 (see discussion in the third quarter of 2023 results discussed above ) .

Operating Expenses -

Engineering, Design and Product Development.

Engineering, design and product development expense for the nine months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2023

Total Sales - 2022

Engineering, design and product development expenses increased

$0.8 million, or 13%, during the first nine months of 2023 compared to first nine months of 2022 due to the impact from the hiring of additional engineering staff as well as investments in additional software staff resources and product testing primarily for planned new product launches including our new

Operating Expenses -

Selling and Marketing.

Selling and marketing expense for the nine months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2023

Total Sales - 2022

Selling and marketing expenses decreased $0.9 million, or 10%, for the first nine months of 2023 compared to the first nine months of

The primary driver of the decline relates to BOHA!

market studies conducted in the first half of 2022 which were not repeated in 2023.

In addition , selling and

marketing expenses declined due to cost reduction initiatives put into place during the 2023 period including reduced headcount, trade show and other marketing

As a result of these initiatives, we expect selling and marketing expenses will continue to decline for the remainder of 2023 and into 2024.

Operating Expenses -

General and Administrative .

General and administrative expense for the nine months ended September 30, 2023 and 2022 is summarized

below (in thousands, except percentages):

Nine Months Ended September 30,

Three Months Ended March 31,,

Total Sales - 2024

Total Sales - 2023

General and administrative expenses were up $1.5 million for the first nine months of 2023 compared to the first nine months of 2022.

This increase was

primarily driven by a $1.5 million severance charge related to the resignation of the Company’s former Chief Executive Officer in April 2023.

Operating Income

Operating income (loss) for the nine months ended September 30, 2023 and 2022 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

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

resources, corporate 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 decreased $540 thousand, or 16%, during the first quarter of 2024 compared to the first quarter of 2023 due largely to

reduced legal fees, lower bad debt expense and the impact of cost reduction initiatives taken during the latter part of 2023.

We expect general and administrative expenses for 2024 to be slightly lower compared to 2023.

Operating (Loss) Income.

(loss) income information for the three months ended March 31, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended March 31,

Total Sales – 2024

Total Sales – 2023

Our operating income increased $14.4 million, or 176%, in the first nine months of 2023 compared to the first nine months of 2022 as a

$15.8 million, or 98% increase in gross profit on 48% higher sales was partially offset by a $1.4 million, or 6%, increase in operating expenses during the first nine months of 2023 compared to the first nine months of 2022.

Our operating income decreased $5.1 million, or 134%, in the first quarter of 2024 compared to the first quarter of 2023 due largely to a 52% decline in

sales and a resulting $6.6 million decrease in gross profit (including a 240 basis point decline in gross margin).

This was partially offset by a reduction in operating expenses of $1.5 million, or 18%, primarily due to cost reduction efforts

commenced in the latter part of 2023.

Interest, net.

net interest expense of $207 thousand for the first nine months of 2023 compared to net interest expense of $145 thousand in the first nine months of 2022.

This increase in interest expense is related to the Siena Credit Facility.

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 pursuant to the terms of the July 2022 Siena Credit Facility Amendment No.

2 – see Note 5 to the

accompanying condensed consolidated financial statements.

Interest expense increased due to the initiation of the minimum borrowing requirement in July 2022 and a

higher interest rate environment in the first nine months of 2023 compared to the first nine months of 2022.

We recorded other

expense of $22 thousand for the first nine months of 2023 compared to other expense of $167 thousand for the first nine months of 2022.

The decline in other expense is due to higher foreign exchange losses recorded by our U.K.

subsidiary in 2022

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

We recorded net interest income of $48 thousand in the first quarter of 2024 compared to $66 thousand of net interest expense in the first quarter of 2023.

For both periods, we incurred interest

expense on the minimum $2.3 million of borrowings pursuant to the terms of the July 2022 amendment of our credit facility – see Note 5 to the accompanying condensed consolidated financial statements.

During the first quarter of 2024, we

earned more interest income than in the first quarter of 2023 due to higher levels of cash on hand combined with a higher interest rate environment.

Other, net primarily includes foreign exchange gains or losses by our UK subsidiary.

During the first quarter of 2024 we recognized $60 thousand of foreign exchange losses

compared to $21 thousand of foreign exchange gains in the first quarter of 2023.

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 income tax expense for the first nine months of 2023 of $1.2 million at an effective tax rate of 19.8%, compared to an income tax benefit for the

first nine months of 2022 of $2.3 million at an effective tax rate of (27.0%).

The tax benefit for the first nine months of 2022, which drove the (27.0%) effective tax rate, primarily resulted from the reversal of a valuation allowance on

deferred tax assets in our UK subsidiary.

Net Income (Loss) .

As a result of the above, we reported net income for the first nine months of 2023 of $4.8 million, or $0.48 per diluted share, compared to a net

loss of $6.2 million, or ($0.63) per diluted share for the first nine months of 2022.

We recorded an income

tax benefit in the first quarter of 2024 of $277 thousand at an effective tax rate of (21.1%), compared to an income tax expense during the first quarter of 2023 of $629 thousand at an effective tax rate of 16.7%.

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.

In periods with pre-tax losses, such as the first quarter of 2024, the R&D credit has the effect of raising the effective tax rate.

Net (Loss) Income .

We reported a net loss for the first quarter of 2024 of $(1.0) million, or ($0.10) per diluted share, compared to net income of $3.1 million, or

$0.31 per diluted share, for the first quarter of 2023.

Liquidity and Capital Resources

For the first nine months of 2023, our cash and cash equivalents balance increased $3.7 million from December 31, 2022.

third quarter of 2023 with $11.6 million in cash and cash equivalents, of which $0.2 million was held by our U.K.

For the first three months of 2024, our cash and cash equivalents balance decreased $1.7 million from December 31, 2023.

We ended the first quarter of 2024

with $10.6 million in cash and cash equivalents, of which $0.5 million was held by our U.K.

Operating activities :

following significant factors affected our cash provided by operating activities of $4.6 million for the first nine months of 2023 as compared to cash used in operating activities of $14.2 million for the first nine months of 2022:

During the first nine months of 2023:

The following significant

factors affected our cash used in operating activities of $1.5 million for the first three months of 2024 as compared to cash used in operating activities of $0.8 million for the first three months of 2023:

During the first three months of 2024:

We reported a net loss of $1.0 million.

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

Inventories increased $1.4 million consistent with the slowdown in sales as discussed in our Results of Operations above.

We expect our

inventories to decline, particularly during the second half of 2024, as we reduce our ordering levels and sell through our inventories on hand.

Accounts receivable decreased $2.0 million due to the continued collections of sales combined with the slowdown in sales as discussed in our

Results of Operations above.

Accrued and other liabilities decreased $1.0 million due largely to the payout of 2023 bonuses in the first quarter of 2024.

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.

Inventories increased $5.6 million consistent with overall increases in sales in 2023 compared to 2022 and the planned launch

of several new product models the second half of 2023.

We expect our inventories to continue to increase during the remainder of 2023.

Accounts receivable decreased $1.8 million due to stronger collections of sales.

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 decreased $1.2 million in 2023 due largely to the timing of vendor payments.

Accrued and other liabilities increased $1.3

million due largely to accrued severance i n connection with the resignation of TransAct’s former Chief Executive Officer in April 2023.

During the first nine months of 2022:

We reported a net loss of $6.2 million.

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

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

Deferred income taxes increased $2.4 million due to a pretax loss during the first nine months of 2022.

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 to increased inventory purchases and the timing of cash disbursements.

Accounts payable declined $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.

Investing activities:

capital expenditures were $788 thousand for the first nine months of 2023 compared to $1.0 million for the first nine months of 2022.

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

Expenditures in 2022

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

Our capital expenditures

were $106 thousand for the first three months of 2024 compared to $378 thousand for the first three months of 2023.

Expenditures for both periods were primarily for computer and networking equipment and new tooling equipment.

Financing activities:

activities used $86 thousand of cash during the first nine months of 2023 and provided $2.1 million in cash during the first nine months of 2022.

Cash used to pay withholding taxes on stock issued from our stock compensation plans amounted to $86

thousand and $0.1 million, respectively.

In addition, proceeds received from our Siena Credit Facility provided $2.3 million in cash during the first nine months of 2022.

Financing activities used

$71 thousand of cash during the first three months of 2024 and used $86 thousand in cash during the first three months of 2023.

These amounts relate to cash used to pay withholding taxes on stock issued from our stock compensation plans.

Resource Sufficiency

Since early 2020, we have been impacted in varying degrees by 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.

Although several of these economic conditions have abated

since the end of 2022 and into 2023, they continue to cause uncertainty and disruption in the global economy and financial markets.

Given the unprecedented impact and severity of these external factors on the food service and casino and gaming

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 remain uncertain and the ultimate impact of these global pressures is unknown.

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

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.

Our customers also began to slow their order rates for the first

quarter of 2024 due to higher-than-normal inventory levels.

We expect this to continue to negatively impact our sales during 2024.

Nevertheless, given the continued uncertainty related to the demand slowdown and pricing pressure on the food service

and casino industries, including the loss of a major customer described above, 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

credit facility (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 current global economic pressures and conditions in our markets remain uncertain and their ultimate impact is unknown.

Credit Facility and Borrowings

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.

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%.

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

We also pay a fee of 0.50% on unused borrowings

under the Siena Credit Facility.

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

Borrowings under the Siena Credit Facility are subject to a borrowing base based on 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.

which were reported as “Other current assets” and “Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.

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

Borrowings under the Siena Credit

Facility are secured by a lien on substantially all the assets of the Company.

Borrowings under the Siena Credit Facility are subject to a borrowing base based on 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.

create other liens.

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

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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 September 30, 2023, we remained in compliance with our excess availability covenant.

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, 2024, we remained in compliance with our excess availability covenant.

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

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

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

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

2 included, among other things, the following:

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

The termination of the existing blocked account control agreement and entry into a new “springing” deposit account control

agreement, permitting the Company to direct the use of funds in its deposit account until such time as (a) the sum of excess availability under the Siena Credit Facility and unrestricted cash is less than $5 million for 3 consecutive

business days or (b) an event of default occurs and is continuing.

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

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

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

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

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 as amended 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.

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.

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 this amendment confirmed that Mr.

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 September 30, 2023, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $6.8 million of net borrowing capacity

available under the Siena Credit Facility.

such 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.

This amendment confirmed that

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

Dillon as Chief Executive Officer.

As of March 31, 2024, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $3.0 million of net borrowing capacity available

under the Siena Credit Facility.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis