What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-09 · 427 added, 410 removed, 190 unchanged (81% of the section changed)

1 unchanged sentence

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q for the period ended June 30, 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.

federal securities laws, including the Private Securities Litigation

Reform Act of 1995.

Certain statements included in this Quarterly Report on Form 10-Q for the period ended September 30, 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.

federal securities laws, including the Private Securities

Litigation Reform Act of 1995.

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

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;

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 grow our business in the food service technology market;

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;

any system outages, interruptions or other disruptions to our

software applications, including as a result of unexpected errors or mistakes in connection with over-the-air updates;

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 contract manufacturers for the assembly of a large portion of our products in

our dependence on significant suppliers;

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marketplace acceptance of new products;

risks 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;

political and policy uncertainties with the approach of the U.S.

risks associated with foreign

price wars 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;

political and policy uncertainties in connection with the U.S.

presidential election;

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exchange rate fluctuations;

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

the availability of needed financing on acceptable terms or at

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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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 ™

The Company’s chief operating decision maker, who is the company’s chief

executive officer, in consultation with the company’s chief financial officer, utilizes a consolidated approach to assess the performance of, and allocate resources to, the business.

Accordingly, management has concluded that the Company consists of

a single operating segment and single reportable segment for accounting and financial reporting purposes.

Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this Report 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

The Company engaged an advisor, Roth Capital Partners, LLC (“Roth”), 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.

The Company continues to actively access strategic alternatives with the assistance of Roth while continuing to pursue its business

growth and development initiatives on a parallel track.

The Company has engaged with a number of outside parties and is in various stages of discussion with such outside parties.

The Company is committed to pursuing an optimal outcome for all its

stakeholders and maximizing shareholder value.

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.

The Company engaged an advisor, Roth Capital Partners, LLC (“Roth”), 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.

The Company continues to actively access

strategic alternatives with the assistance of Roth while continuing to pursue its business growth and development initiatives on a parallel track.

has engaged with a number of outside parties and is in various stages of discussion with such outside parties.

The Company is committed to pursuing an optimal

outcome for all its stakeholders and maximizing shareholder value.

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 half 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 some limited 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.

would temporarily reduce orders until their stock normalized.

This slowdown impacted our results in the fourth quarter of 2023 and the first nine months of 2024 .

the third quarter of 2024, we believe all customers, with the exception of one large customer, were able to sell through their on-hand inventory and resumed ordering again.

As a result, we expect this trend to continue to impact results

at least through the end of 2024 until this one remaining customer is 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 their full capacity, which has resulted in downward pricing pressure in that market and could exacerbate the demand slowdown, which has negatively

impacted our worldwide casino and gaming sales.

In addition, during 2023, we experienced cost increases as a result of supply chain constraints , 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.

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 experienced 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 the 2023 levels, partially offset by typical annual inflationary and cost of living increases in operating expenses.

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 began experiencing the full impact of these

actions in the first quarter of 2024 and expect they will result in approximately $3 million of annualized savings during 2024 compared to the 2023 levels,

partially offset by typical annual inflationary and cost of living increases in operating expenses.

We also began an additional cost reduction initiative in the second quarter of 2024 focused largely on further reducing employee headcount and other external third-party

Savings from this initiative are expected to be approximately $2 million on an annualized basis and realized beginning in the third quarter of 2024.

Savings from this initiative were realized beginning in the third quarter of 2024 are expected to be approximately $2 million on an annualized basis.

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

have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as 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.

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.

The presentation of these financial statements requires us to make estimates and judgments that affect the

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

Our 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,” since the filing of

the 2023 Form 10-K.

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.

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

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

Our 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.

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,” since the filing of the 2023 Form 10-K.

Results of Operations:

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Three months ended September 30, 2024 compared to three months ended September 30, 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 June 30, 2024 and 2023 were as follows (in thousands,

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, 2024 and 2023 were as follows (in thousands,

except percentages):

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Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 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 second quarter of 2024 decreased $8.3 million, or 42%,

compared to the second quarter of 2023.

Printer, terminal and other hardware unit sales volume decreased 49% to approximately 22,000 units, due primarily to a 55% unit sales volume decrease in the casino and gaming market, a 27% unit sales volume decline in the POS automation market and a 25% 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 second quarter of 2024 compared to the

second quarter of 2023.

FST software, labels and other recurring revenue increased $0.3 million, or 12%, in the second quarter of 2024 compared to the second quarter of 2023.

International sales for the second quarter of 2024 decreased $0.4 million, or 13%, from the same period in 2023 due primarily 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 third quarter of 2024 decreased $6.3 million, or 37%,

compared to the third quarter of 2023.

Printer, terminal and other hardware unit sales volume decreased 38% to approximately 21,000 units, due primarily to a 50% unit sales volume decrease in the casino and gaming market and a 15% unit sales volume decline in the POS automation market, partially offset by a 69% unit sales volume increase in FST hardware.

For more information about the

sales volume changes 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 down 3% in the third quarter of 2024

compared to the third quarter of 2023 due to increased competition , primarily in the POS automation market.

FST software, labels and other recurring revenue

decreased $ 257 thousand , or 8%, in the third quarter of 2024 compared to the third quarter of 2023.

International sales for the third quarter of 2024 decreased $1.8 million, or 44%, from the same period in 2023 due primarily to lower sales in

our casino and gaming market.

Food service technology (“FST”) .

offering in the FST market is our line of BOHA!

Our primary 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.

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.

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!

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 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.

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” date labels.

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

helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants (“QSRs”), 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 FST products for the three months ended June 30, 2024 and 2023 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 September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

International

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Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

Software, labels and other recurring revenue

The increase in food service technology sales in the second quarter of 2024 compared to the second quarter of 2023 was driven by an increase in software, labels and other recurring revenue.

Domestic sales increased 4% in the second quarter of 2024 compared to the second quarter of 2023, while hardware sales were relatively flat in the second quarter of 2024 compared to the second

quarter of 2023 decreasing by less than 1%.

Hardware sales were impacted by a 97% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and 78% lower sales of our legacy BOHA!

These decreases were

almost entirely offset by strong sales of our newly launched BOHA!

Terminal 2 (that will replace our BOHA!

Terminal 1) to a large international quick serve restaurant (“QSR”) customer as well as increased sales of Workstations.

Despite the loss of a

significant customer (explained further below), FST software, labels and other recurring revenue increased 12% compared to the prior year period due largely to increased label sales to several of our larger existing customers.

The increase in food service technology sales in the third quarter of

2024 compared to the third quarter of 2023 was primarily driven by an increase in international hardware sales.

Hardware sales were strong in the third quarter of 2024, up 30% compared to the third quarter of 2023, due to sales of

our newly launched BOHA!

Terminal 2 (that replaces our BOHA!

Terminal 1) to a large international QSR.

Hardware sales were partially offset by a 96% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and

81% lower sales of our legacy BOHA!

Despite the loss of a significant customer (explained further below), FST software, labels and other

recurring revenue only decreased 8% compared to the prior year period due to increased

label sales to several of our larger existing customers.

During the second quarter of 2024, 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!

software subscriptions

and label sales, for its existing installed base of BOHA!

terminals by the middle of July 2024.

Total sales to this customer (including hardware, software, labels and other recurring revenue) were approximately $4.0 million in 2023.

We do not expect any

significant sales to this customer beyond the second quarter of 2024.

Despite the loss of this customer, we expect FST revenue for the remainder of 2024 to be relatively consistent with the comparable period of 2023, as we expect revenue from new

customers, including those from our newly announced international QSR customer, to largely offset those from this lost customer.

have any hardware sales , and minimal label and software sales, to this customer in the third quarter of 2024, but we expect to continue to service a small percentage of ongoing units and may have some additional sales to this

customer in the future.

Despite the loss of this customer, we expect overall FST revenue for the remainder of 2024 to be relatively consistent with the comparable period of 2023, as we expect revenue from new customers, including those from our

newly announced international QSR customer, to largely offset sales from this 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.

Sales of our worldwide POS automation products for the three months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

McDonald’s, and to a lesser extent, other QSRs 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 September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

International

The decrease in POS automation sales in the second quarter of 2024 compared to the second quarter of 2023 was driven by a 40% decrease in domestic sales.

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 in the first half of 2023.

During the second quarter of 2024, we experienced

renewed competitive pressure that has resulted in a a return to a more normalized level of sales as well as a reduction in our average selling prices.

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.

The decrease in POS automation sales in the third quarter of 2024 compared to the third quarter of 2023 was driven by a 27% decrease in domestic sales largely due to

unusually high sales during 2023, as we increased production and began to fulfill our large backlog of sales orders following supply chain slowdowns in 2022.

During the third quarter of 2024, we experienced renewed competitive pressure that has

resulted in a return to a more normalized level of sales as well as a reduction in our average selling prices.

We expect POS automation sales to continue to be lower during the remainder of 2024 compared to the same period 2023 as our competitors have resumed

volume shipments and we therefore anticipate our sales volume and average selling price to remain at levels relatively consistent with the third quarter of 2024.

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.

Revenue from this market also includes royalties related to our patented casino and gaming technology.

In addition, casino and gaming market revenue includes

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

Sales of our worldwide casino and gaming products for the three months ended June 30,

2024 and 2023 were as follows (in thousands, except percentages):

gaming venues worldwide.

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

In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution , currently sold both directly and through certain casino system providers on a subscription basis, 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, 2024 and 2023 were as follows (in thousands, except percentages):

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

International

Domestic sales of our casino and gaming products for the second quarter of 2024

declined by $6.3 million, or 67%, compared to the second quarter of 2023.

Sales during the second quarter of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues.

two of our larger customers continue to hold higher than normal levels of inventory of our product accumulated as a hedge during the worldwide supply chain crisis during 2022 and 2023.

As a result, we have experienced a significant slowdown in their

order and shipment rates that we expect to continue for the remainder of 2024 until they are able to sell through their on-hand inventory.

We expect this dynamic to improve by the end of 2024 and into 2025.

In addition, we expect a normalized

competitive environment to continue through the second half of 2024 as our largest competitor has resumed volume shipments.

The decrease in international casino and gaming sales during the second quarter of 2024 compared to the second quarter of 2023 was due to a 19% 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 first quarter of 2024 due to higher-than-normal inventory levels.

We expect this to continue to impact our

international sales for the remainder of 2024.

Domestic sales of our casino and gaming products for the third quarter of

2024 declined by $2.7 million, or 49%, compared to the third quarter of 2023.

Sales during the third quarter of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues.

addition, one of our larger customers continues to hold higher than normal

levels of inventory of our product accumulated as a hedge during the worldwide supply chain crisis during 2022 and 2023.

As a result, this customer has not ordered any

product through the first nine months of 2024 and we expect this to continue at least through the end of 2024 until they are able to sell through their

on-hand inventory.

We also believe our sales were negatively impacted by softness in overall demand in the industry which we expect to continue for the remainder of 2024.

We expect a normalized competitive environment to continue going forward as our largest competitor has resumed volume shipments and our customers begin to return to

more normalized buying levels .

Our international casino and gaming sales were down 51% during the third quarter of 2024 compared to the third quarter of 2023.

Like our domestic

customers, our international customers also began to slow their order rates in the first half of 2024 due to higher-than-normal inventory levels and in response to softness in overall demand in the industry.

This slowdown continued into the third quarter of 2024 and we expect this to continue to have an impact our international sales at least through the end of 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 and shipping and handling charges.

Sales in our worldwide TSG market for the three months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Sales in our worldwide TSG market for the three months ended September 30, 2024 and 2023 were

as follows (in thousands, except percentages):

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

International

The decrease in both domestic and international revenue from TSG during the second quarter of 2024 as compared to the second quarter of 2023 was due largely to 68%

lower domestic sales of legacy replacement parts for lottery printers, and to a much lesser extent, lower legacy consumables sales and 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.

The decrease in both domestic and international revenue from the TSG during the third quarter of 2024 as compared to the third quarter of 2023 was due largely to 72%

lower sales of legacy replacement parts for lottery printers, and to a much lesser extent, lower legacy consumables sales and service revenue.

We expect TSG sales to continue to be significantly lower in 2024

compared to 2023 as we experienced an unusually high level of sales of legacy lottery printer replacement parts due to a customer’s last buy in 2023 .

We therefore do not expect any future sales of these spare parts beyond 2023.

Gross Profit.

information for the three months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

information for the three months ended September 30, 2024 and 2023 is summarized

below (in thousands, except percentages):

Three Months Ended September 30,

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 second quarter of 2024, gross profit decreased $4.7 million, or 44%, and gross

margin declined 180 basis points to 53% due primarily to a 42% decline in overall sales including a 56% decline in sales of higher margin casino and gaming printers.

We expect this downward trend in gross margin to continue for the second half

of 2024 due to the continued expected slowdown in order rates from certain of our casino and gaming 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.

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.

In the third quarter of 2024, gross profit decreased $3.7 million,

or 41%, and gross margin declined 380 basis points to 48% due primarily to a 37% decline in overall sales, including a 50% decline in sales of higher margin casino and gaming printers.

We expect this trend in gross margin to continue for the

remainder of 2024 due to the expected continued softness in the casino and gaming market.

As a result, we expect gross margin for the remainder of 2024 to remain 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 June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Engineering, design and

product development expense information for the three months ended September 30,

2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

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 payments to the third-party licensor of our food service

technology software products).

Engineering, design and product development expenses decreased $706 thousand, or 28%, for the second quarter of 2024 compared to the second

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 and additional cost-cutting initiatives taken in the

second quarter of 2024 as discussed above under the heading “Current Business Trends,” we expect that engineering expenses will continue to be lower for the remainder of 2024 compared to 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 payments to the third-party licensor of our food

service technology software products).

Engineering, design and product development expenses decreased $869 thousand, or 35%, for the third quarter of 2024 compared to

the third quarter of 2023 due to cost reduction initiatives taken during the latter part of 2023, and again in the second quarter of 2024, including a reduction of contracted software development expenses in the second quarter of 2024.

result of these initiatives as discussed above under the heading “Current Business Trends,” 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 June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Selling and marketing information for the three months ended September 30, 2024 and

2023 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2024

Total Sales - 2023

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

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

and marketing expenses decreased by $487 thousand, or 18%, in the second quarter of 2024 compared to the second quarter of 2023 due largely to cost reduction initiatives including reduced headcount, trade show and other marketing expenses.

result of these initiatives and additional cost-cutting initiatives taken in the second quarter of 2024 as discussed above under

the heading “Current Business Trends,” we expect selling and marketing expenses will continue to be lower for the remainder of 2024 compared to 2023.

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 by $517 thousand, or 22%, in the third quarter of 2024 compared to the third quarter of 2023 due largely to cost reduction initiatives including reduced headcount, trade show and

other marketing expenses.

Though we expect to continue to realize cost savings as a result of these initiatives as discussed above under the heading “Current Business Trends,” we expect selling and marketing expenses for the remainder of

2024 to be relatively consistent compared to 2023 due to incremental costs we expect to incur related to a program to continue to improve our go-to-market strategy during the fourth quarter 2024.

Operating Expenses - General and

Administrative .

General and administrative information for the three months ended June 30, 2024 and 2023 is summarized below (in

thousands, except percentages):

Three Months Ended June 30,

General and administrative information for the three months ended September 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales - 2024

Total Sales – 2023

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 $1.9 million, or 43%, during the second quarter of 2024 compared to the second quarter of 2023.

decline was largely due to a severance charge of $1.5 million incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief Executive Officer in April 2023.

In addition, we incurred lower bad debt and

incentive compensation expense, as well as benefited from cost reduction initiatives taken during the latter part of 2023.

We expect general and administrative expenses to continue to be lower for the second half of 2024 as compared to 2023.

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 $275 thousand, or 10%, during the third quarter of 2024 compared to the

third quarter of 2023.

This decrease was due to lower bad debt and incentive compensation expenses in the third quarter of 2024 compared to the same period in 2023, and from the impact of cost reduction initiatives taken during the latter

part of 2023 and the second quarter of 2024.

We expect general and administrative expenses to continue to be lower for the remainder of 2024 compared to 2023.

Operating (Loss) Income.

Operating (loss) income for the three months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

(loss) income for the three months ended September 30, 2024 and 2023 is summarized

below (in thousands, except percentages):

Three Months Ended September 30,

Total Sales – 2024

Total Sales – 2023

Our operating income decreased $1.7 million, or 136%, in the second quarter of 2024 compared to the second quarter of 2023 due largely to a 42% decline in

sales and a resulting $4.7 million decrease in gross profit (including a 180 basis point decline in gross margin).

Our operating income decreased $2.0 million, or 170%, in the third quarter of 2024 compared to the third quarter of 2023 due largely to a 37% decline

in sales and a resulting $3.7 million decrease in gross profit (including a 380 basis point decline in gross margin).

This was partially offset by a reduction in operating expenses of $1.7 million, or 22%, primarily due to cost reduction efforts

commenced in the latter part of 2023 as well as a $1.5 million severance charge incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief Executive Officer in April 2023.

commenced in the latter part of 2023 and the second quarter of 2024.

Interest, net.

We recorded net interest income of $26 thousand in the second quarter of 2024 compared to $68 thousand of net interest expense in the second quarter of 2023.

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.

the second quarter of 2024, we earned more interest income than in the second quarter of 2023 due to higher levels of cash on hand combined with a higher interest rate environment.

We recorded net interest income of $42 thousand in the third quarter of 2024 compared to $73 thousand of net interest expense in the third 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, Borrowings, to the accompanying condensed consolidated financial statements.

third quarter of 2024, we earned more interest income than in the third quarter of 2023 due to higher levels of invested cash on hand.

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

During the second quarter of 2024 we recognized $7 thousand of foreign exchange gains

compared to no net foreign exchange gain or loss in the second 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.

During the third quarter of 2024 we recognized $96 thousand of foreign exchange gains compared to a $43

thousand foreign exchange loss in the third 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 an income tax benefit in the second quarter of 2024 of $86 thousand at an effective tax rate of (21.2%), compared to an income tax expense during the second quarter

of 2023 of $391 thousand at an effective tax rate of 33.8%.

The effective tax rate for the second quarter of 2023 of 33.8% was abnormally high as a result of the non-tax deductibility of a portion of the severance of the Company’s former

We recorded an income tax

benefit in the third quarter of 2024 of $148 thousand at an effective tax rate of (21.2%), compared to an income tax expense during the third quarter of 2023 of $169 thousand at an effective tax rate of 15.7%.

Net (Loss) Income .

We reported a net loss for the second quarter of 2024 of $(0.3) million, or ($0.03) per diluted share, compared to net income of $0.8 million, or

$0.08 per diluted share, for the second quarter of 2023.

We reported a net loss for the third quarter of 2024 of ($0.6) million, or ($0.06) per diluted share, compared to net income of $0.9 million, or $0.09 per diluted share, for the

third quarter of 2023.

Results of Operations:

Six Months Ended June 30, 2024 compared to six months ended June 30, 2023

Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the six

months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended September 30, 2024 compared to nine months ended September 30, 2023

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, 2024 and 2023 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2024

September 30, 2023

POS automation

3 unchanged sentences

and terminals to international destinations.

Net sales for the first six months of 2024 decreased $19.9 million, or 47%,

Net sales for the first nine months of 2024 decreased $26.2 million, or 44%,

from the same period in 2023.

Printer, terminal and other hardware sales unit volume decreased by 56% to approximately 41,000 units for the first six months of 2024 driven primarily by a 59% decrease in units within our casino and gaming market.

For more information about the sales volume decreases described above, please refer to the discussion below of the results of operations for each of our markets.

average selling price of our printers, terminals and other hardware remained relatively flat for the first six months of 2024 compared to the first six months of 2023.

FST software, labels and other recurring revenue increased $0.4 million, or

8%, in the first six months of 2024 compared to the first six months of 2023 .

International sales for the first six months of 2024 decreased $2.2 million, or 27%, from the same period in 2023 due primarily to a 33% decrease in the

international casino and gaming market.

Printer, terminal and other hardware sales unit volume decreased by 51% to approximately 62,000 units for the first nine months of 2024 driven primarily by a 57% decrease in units within our casino and gaming market,

and to a much lesser extent, a 33% decline in units from our POS automation market.

For more information about the sales volume decreases described above, please refer to the discussion below of the results of operations for each of our

The average selling price of our printers, terminals and other hardware remained relatively flat for the first nine months of 2024 compared to the first nine

months of 2023.

FST software, labels and other recurring revenue increased $112 thousand, or 1%, in the first nine months of 2024 compared to the first nine months of 2023.

International sales for the first nine months of 2024 decreased $3.9 million, or 33%, from the same period in 2023 due primarily to a 39 % decrease in the international casino and gaming market.

Food service technology.

Sales of our worldwide

food service technology products for the six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2024

June 30, 2023

Sales of our worldwide food service technology products for the nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2024

September 30, 2023

International

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

Software, labels and other recurring revenue

The increase in food service technology sales of $0.1 million, or 2%, in the first six months of 2024 compared to the first six months of 2023 was driven by an 8%

increase in sales of BOHA!

software, labels and other recurring revenue, partially offset by 10% lower sales of FST hardware.

Despite the loss of a significant customer (explained further below), FST software, labels and recurring revenue

increased compared to the prior year period primarily due to higher label sales to several of or our larger existing customers and, to a lesser extent, increased software sales due principally to the growth of the installed base of our BOHA!

terminals and workstations.

Hardware sales were impacted by a 94% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and 69% lower sales of our legacy BOHA!

Terminal 1 (including those from a lost customer

explained further below).

These decreases were largely offset by strong sales of our newly launched BOHA!

Terminal 2 (that will replace our BOHA!

Terminal 1) to a large international quick serve restaurant (“QSR”) customer as well as increased

sales of Workstations.

During the second quarter of 2024, 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 July 2024.

The increase in food service technology sales of $205 thousand, or 2%, in the first nine months of 2024 compared to the first nine months of 2023 was

driven by a 1% increase in sales of BOHA!

software, labels and other recurring revenue, as well as a 3% increase in sales of FST hardware.

Despite the loss of a significant customer (explained further below), FST software, labels and recurring revenue increased slightly compared to the prior year period as sales to the lost customer were more than offset by increased software sales due principally to the growth of the installed base of our BOHA!

terminals and workstations (excluding those from the lost customer) as well as higher label sales to several of our larger existing customers (excluding those from the lost customer).

Hardware sales were impacted by a 95% decrease in sales of our

AccuDate 9700 terminals which we discontinued at the end of 2023 and 72% lower sales of our legacy BOHA!

Terminal 1 (including those from a lost customer explained further below).

These decreases were offset by strong sales of our newly

launched BOHA!

Terminal 2 (that replaced our BOHA!

Terminal 1) to a large international QSR customer as well as increased sales of Workstations.

During the second quarter of 2024, a significant customer notified us that they would be terminating service, including its BOHA!

subscriptions and label sales, for its existing installed base of BOHA terminals by the middle of July 2024.

Total sales to this customer (including hardware, software, labels and other recurring revenue) were approximately $4.0 million in

expect any significant sales to this customer beyond the second quarter of 2024.

Despite the loss of this customer, we expect FST revenue for the remainder of 2024 to be relatively consistent with the comparable period 2023, as we expect revenues

from new customers, including those from our newly announced international QSR customer, to largely offset those from this lost customer.

We did not have any hardware sales , and minimal label and software sales, to this customer in the third quarter of 2024, but we expect to continue to

service a small percentage of ongoing units and may have some additional

sales to this customer in the future.

Despite the loss of this customer, we expect FST revenue for the remainder of 2024 to be relatively consistent with the comparable period 2023, as we expect revenues from new customers, including those

from our newly announced international QSR customer, to largely offset those from this lost customer.

POS automation.

Sales of our worldwide POS automation products for the six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2024

June 30, 2023

Sales of our worldwide POS automation products for the nine months ended September 30,

2024 and 2023 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2024

September 30, 2023

International

Sales of POS automation printers decreased $1.9 million, or 51%, for the first six

months of 2024 compared to the first six months of 2023.

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 in the

first half of 2023.

During the first six months of 2024, we experienced renewed competitive pressure that has resulted in a a return to a more normalized level of sales as well as a reduction in our average selling prices.

In addition to the slowdown in customer order and shipment rates described above, we expect POS automation sales to continue to be lower in 2024 compared

to 2023 due to the resumption of volume shipments by our competitors and we therefore anticipate our sales volume and average selling price to return to more normalized levels.

Sales of POS automation printers decreased $2.4 million, or 45%, for the first nine months

of 2024 compared to the first nine months of 2023, largely due to unusually high sales during 2023, as we increased production and began to fulfill our large backlog of sales orders following supply chain slowdowns in 2022.

During the first

nine months of 2024, we experienced renewed competitive pressure that has resulted in a return to a more normalized level of sales as well as a reduction in our average selling prices.

We expect POS automation sales to continue to be lower during the

remainder of 2024 compared to the same period 2023 as our competitors have resumed volume shipments and we therefore anticipate our sales volume and average

selling price to remain at levels relatively consistent with the third quarter

Casino and gaming.

Sales of our worldwide casino and gaming products for the six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2024

June 30, 2023

Sales of our worldwide casino and gaming products for the nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2024

September 30, 2023

International

Domestic sales of our casino and gaming products declined by $14.6 million, or 70%, for the first six months of 2024 compared to the first six months of 2023.

during the first half of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues.

In addition, many of our customers built up, and two continue to hold, higher than normal levels of

inventory of our product accumulated as a hedge during the worldwide supply chain crisis during 2022 and 2023.

As a result, we have experienced a significant slowdown in their order and shipment rates that we expect to continue for the remainder of

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

We expect this dynamic to improve by the end of 2024 and into 2025.

In addition, we expect a normalized competitive environment to continue through the second half of 2024 as our

largest competitor has resumed volume shipments.

Domestic sales of our casino and gaming products declined by $17.3 million, or 65%, for the first nine months of 2024 compared to the first nine months of

Sales during the first nine months of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues.

In addition, entering 2024, many of our customers built up higher than normal levels of inventory of our product accumulated as a hedge during the worldwide supply chain crisis during 2022 and 2023.

As a result, during the first nine months of 2024, we experienced a significant slowdown in their order and shipment rates .

the end of the third quarter 2023, we believe all significant customers have resumed buying (though not all at normalized levels yet), with the exception of one larger customer.

This customer has not ordered any product through the first nine

months of 2024 and we expect this to continue at least through the end of 2024 until they are able to sell through their on-hand inventory.

We also believe our sales in the third quarter of 2024 were negatively impacted by softness in overall demand in the industry which we expect to continue for the remainder of 2024.

We expect a normalized competitive environment to continue going

forward as our largest competitor has resumed volume shipments and our customers begin to return to more normalized buying levels.

International sales of our casino and gaming products decreased by $4.1

million, or 33%, in the first six months of 2024 compared to the first six months of 2023.

Similar to our domestic customers, our international customers also began to slow their order rates for the first half of 2024 due to

higher-than-normal inventory levels.

We expect this to continue to impact our international sales during the remainder of 2024.

Sales in our worldwide TSG market for the six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2024

June 30, 2023

million, or 39%, in the first nine months of 2024 compared to the first nine months of 2023.

Similar to our domestic customers, our international customers also began to slow their order rates in the first half of 2024 due to higher-than-normal inventory levels and in response to softness in overall demand in the

This slowdown continued into the third quarter of 2024 and we expect this to continue to impact our international sales at least through the end

Sales in our worldwide TSG market for the nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages) :

Nine Months Ended

September 30, 2024

September 30, 2023

International

The decrease in domestic TSG revenue of $1.1 million, or 42%, for the first six months of 2024 as compared to the first six months of 2023 was primarily due largely to

57% lower sales of legacy replacement parts for lottery printers, and to a much lesser extent, lower consumables sales and service revenue.

Internationally, TSG revenue decreased $48 thousand, or 11%, for the first six months of 2024 compared to the first six months of 2023, primarily due to a

13% decrease in sales of replacement parts 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.

The decrease in domestic TSG revenue of $2.5 million, or 53%, for the first nine months of 2024 as compared to the first nine months of 2023 was due

largely to 67% lower sales of legacy replacement parts for lottery printers, and to a much lesser extent, lower legacy consumables sales (POS paper and ribbons) and service revenue.

Internationally, TSG revenue decreased $90 thousand, or 14%, for the first nine months of 2024 compared to the first nine months of 2023, primarily due to

a 18% decrease in sales of replacement parts to international casino and gaming customers.

We expect TSG sales to continue to be significantly lower in 2024

compared to 2023 as we experienced an unusually high level of sales of legacy lottery printer replacement parts due to a customer’s last buy in 2023 .

We therefore do not expect any future sales of these spare parts beyond 2023.

Gross Profit.

Gross profit for

the six months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Gross profit for the nine

months ended September 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2024

Total Sales – 2023

For the first six months of 2024, gross profit decreased $11.4 million, or 49%.

Gross margin also decreased 210 basis points to 53% in the first half of 2024 compared

to 55% in the first half of 2023 compared to the first half of 2023.

Both gross profit and gross margin declined primarily due to a 47% decline in overall sales

including a 61% decline in sales of higher margin casino and gaming printers.

We expect this downward trend in gross margin to continue for the second half of 2024 due to the continued expected slowdown in order rates from certain of our casino

and gaming 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 for the six months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

For the first nine months of 2024, gross profit decreased $15.1 million, or 47%.

Gross margin also decreased 280 basis points to 51% in the first nine

months of 2024 compared to 54% in the first nine months of 2023.

Both gross profit and gross margin declined primarily due to a 44% decline in overall sales including a

58% decline in sales of higher margin casino and gaming printers.

We expect this downward trend in gross margin to continue for the remainder of 2024 due to the expected continued softness in the casino and gaming market.

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 for the nine months ended September 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2024

Total Sales - 2023

Engineering, design and product development expenses decreased $1.0 million, or 21%, during the first six months of 2024 compared to first six months 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 and additional cost-cutting initiatives taken in the second quarter of 2024, we expect that engineering expenses will continue to be lower for the remainder of 2024 compared to 2023.

Operating Expenses - Selling and

Selling and marketing expense for the six months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Engineering, design and product development expenses decreased $1.9 million, or 26%, during the first nine months of 2024 compared to first nine months

of 2023 due to cost reduction initiatives taken during the latter part of 2023, and again in the second quarter of 2024, 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 expense for the nine months ended September 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2024

Total Sales - 2023

Selling and marketing expenses decreased $1.2 million, or 21%, for the first six months of 2024 compared to the first six months of 2023 due

largely to cost reduction initiatives including reduced headcount, trade show and other marketing expenses.

As a result of these initiatives and additional cost-cutting initiatives taken in the second quarter of 2024, 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 expense for the six months ended June 30, 2024 and 2023 is summarized below (in thousands,

except percentages):

Six Months Ended June 30,

Selling and marketing expenses decreased $1.7 million, or 21%, for the first nine months of 2024 compared to the first nine months of 2023 due largely

to cost reduction initiatives, including reduced headcount, trade show and other marketing expenses.

Though we expect to continue to realize cost savings as a

result of these initiatives and additional cost-cutting initiatives taken in the second quarter of 2024, we expect selling and marketing expenses for the remainder of 2024 to be relatively consistent compared to 2023 due to incremental costs we expect to incur related to a program to continue to improve our go-to-market

strategy during the fourth quarter 2024.

Operating Expenses - General and Administrative .

General and administrative expense for the nine months ended September 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2024

Total Sales - 2023

General and administrative expenses decreased $2.4 million, or 31%, for the first six months of 2024 compared to the first six months of 2023.

The decline was largely due to a severance charge of $1.5 million incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief

Executive Officer in April 2023.

In addition, we incurred lower legal fees, bad debt and incentive compensation expense, as well as benefited from cost reduction initiatives taken during the latter part of 2023.

We expect general and

administrative expenses to continue to be lower for the second half of 2024 compared to 2023.

General and administrative expenses decreased $2.7 million, or 25%, for the first nine months of 2024 compared to the first nine months of 2023.

The decline was largely due to a severance charge of $1.5 million incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief Executive Officer in

In addition, we incurred lower legal fees, bad debt and incentive compensation expense in the third quarter of 2024 compared to the third quarter of 2023, and we benefited from cost reduction initiatives taken during the latter part

of 2023 and in the second quarter of 2024.

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

Operating (Loss) Income.

(loss) income for the six months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Operating (loss)

income for the nine months ended September 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Nine Months Ended September 30,

Total Sales - 2024

Total Sales - 2023

Our operating income decreased $6.8 million, or 135%, for the first six months of 2024 compared to the first six months of 2023 due largely to a 47%

decline in sales and a resulting $11.4 million decrease in gross profit (including a 210 basis point decline in gross margin).

This was partially offset by a reduction in operating expenses of $4.6 million, or 25%, primarily due to cost reduction

efforts commenced in the latter part of 2023 as well as a $1.5 million severance charge incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief Executive Officer in April 2023.

Our operating income decreased $8.8 million, or 141%, for the first nine months of 2024 compared to the first nine months of 2023 due largely to a 44%

decline in sales and a resulting $15.

1 million decrease in gross profit (including a 280 basis point decline in gross margin).

This was partially offset by a

reduction in operating expenses of $6.3 million, or 24%, primarily due to cost reduction efforts commenced in the latter part of 2023 and the second quarter of 2024 as well as a $1.5 million severance charge incurred during the second quarter of

2023 in connection with the resignation of TransAct’s former Chief Executive Officer in April 2023.

Interest, net.

We recorded net

interest income of $74 thousand for the first six months of 2024 compared to net interest expense of $134 thousand for the first six months 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, Borrowings to the accompanying condensed consolidated financial statements for more

information regarding the Company’s credit facility.

During the first six months of 2024, we earned more interest income than in the first six months of 2023 due to higher levels of cash on hand combined with a higher interest rate environment.

We recorded other expense of $53 thousand for the first six months of 2024 compared

to other income of $21 thousand for the first six months of 2023 relating primarily to foreign exchange gains and losses.

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.

We recorded net interest income of $116

thousand for the first nine months of 2024 compared to net interest expense of $207 thousand for the first nine months 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, Borrowings, to the accompanying condensed consolidated financial statements for more information

regarding the Company’s credit facility.

During the first nine months of 2024, we earned more interest income than in the first nine months of 2023 due to higher levels of invested cash on hand.

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

During the first nine months of 2024 we recognized $43 thousand of foreign exchange gains compared to a $22

thousand foreign exchange loss in the first nine months 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 an income tax benefit for the first six months of 2024 of $363 thousand at an effective tax rate of (21.1%), compared to an income tax expense for the first six

months of 2023 of $1.0 million at an effective tax rate of 20.7%.

We recorded an income tax

benefit in the first nine months of 2024 of $511 thousand at an effective tax rate of (21.1%), compared to an income tax expense during the first nine months of 2023 of $1.2 million at an effective tax rate of 19.8%.

Net (Loss) Income .

As a result of the above, we reported a net loss for the first six months of 2024 of $(1.4) million, or $(0.14) per diluted share, compared to net

income of $3.9 million, or $0.39 per diluted share for the first six months of 2023.

We reported a net loss for the first nine months of 2024 of ($1.9) million, or ($0.19) per diluted share, compared to net income of $4.8 million, or $0.48 per diluted share, for

the first nine months of 2023.

Liquidity and Capital Resources

For the first six months of 2024, our cash and cash equivalents balance decreased $1.2 million from December 31, 2023.

We ended the second quarter of 2024

with $11.1 million in cash and cash equivalents, of which $0.1 million was held by our U.K.

In the first nine months of 2024, our cash and cash equivalents balance decreased $1.0 million from December 31, 2023.

We ended the third quarter of

2024 with $11.3 million in cash and cash equivalents, of which $0.1 million was held by our UK subsidiary.

Operating activities :

The following significant

factors affected our cash used in operating activities of $0.9 million for the first six months of 2024 as compared to cash provided by operating activities of $3.7 million for the first six months of 2023:

During the first six months of 2024:

The following significant factors

affected our cash used in operating activities of $0.5 million for the first nine months of 2024 as compared to cash provided by operating activities of $4.6 million for the first nine months of 2023:

During the first nine months of 2024:

We reported a net loss of $1.9 million.

We recorded depreciation and amortization of $0.8 million and share-based compensation expense of $0.9 million.

Accounts receivable decreased $3.1 million due to the continued collections of sales combined with the slowdown in sales as discussed in the Results of Operations

Accounts payable decreased $1.4 million due to the slowdown in inventory purchases associated with the slowdown in sales as discussed in the Results of Operations

Accounts receivable decreased $2.5 million due to the continued collections of sales combined with the slowdown in sales as discussed in the

Results of Operations above.

Inventories decreased $1.0 million consistent with the slowdown in sales as discussed in the Results of Operations above.

Accounts payable decreased $1.2 million due to the slowdown in inventory purchases associated with the slowdown in sales as discussed in the

Results of Operations above.

Accrued and other liabilities decreased $1.2 million due in part to a reduction in planned 2024 bonuses.

During the first six months of 2023:

During the first nine months of 2023:

We reported net income of $4.8 million.

We recorded depreciation and amortization of $1.1 million and share-based compensation expense of $0.6 million.

Deferred income taxes were down $0.8 million due to pre-tax income being recognized in the first six months of 2023.

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.

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

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

Inventories increased $3.4 million consistent with overall increases in sales in 2023 compared to 2022.

Accounts payable were down $1.1 million in 2023 due largely to the timing of vendor payments.

Accrued liabilities and other liabilities increased $1.3 million due largely to accrued

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.

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Our capital expenditures were $311

$243 thousand for the first six months of 2024 compared to $689 thousand for the first six months of 2023.

thousand for the first nine months of 2024 compared to $788 thousand for the first nine months of 2023.

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

Financing activities:

Financing activities used $71

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

Financing activities used $71 thousand

of cash during the first nine months of 2024 compared to a use of $86 thousand in cash during the first nine months of 2023.

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

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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.

Certain large customers also began to slow their order rates for

the first half of 2024 due to higher-than-normal inventory levels.

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

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.

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, but these competitors have returned to market, resulting

in increased competitive pressure.

Certain large customers also began to slow their order rates for the first half of 2024 due to higher-than-normal inventory

levels , though most have resume buying again with the exception of one large customer.

We expect this to continue to negatively impact our sales through at least

the end of 2024.

Given the continued uncertainty related to the demand slowdown, 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

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calendar month ended July 31, 2021.

From July 31, 2021 through June 30, 2024, we remained in compliance with our excess availability covenant.

From July 31, 2021 through September 30, 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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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 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.

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

5 unchanged sentences

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.

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

Prior to 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 Mr.

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 June 30, 2024, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $4.3 million of net borrowing capacity available

under the Siena Credit Facility.

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 alternative sources of funding as necessary.

As of September 30, 2024, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $4.2 million of net borrowing capacity available under the

Siena Credit Facility.

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 alternative sources of funding as necessary.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis