UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 20212022
or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 0-21121

graphic
TRANSACT TECHNOLOGIES INC
(Exact name of registrant as specified in its charter)

Delaware 06-1456680
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518
(Address of Principal Executive Offices) (Zip Code)

(203) 859-6800
(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value $0.01 per share TACT NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company  ☒
 
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐   No  ☒

As of April 30, 2021,2022, the number of shares outstanding of the Company’s common stock, $0.01 par value, was 8,965,541.9,910,008.




TRANSACT TECHNOLOGIES INCORPORATED

INDEX

PART I - Financial Information:Page
   
Item 1Financial Statements (unaudited) 
   
 
Condensed Consolidated Balance Sheets as of March 31, 20212022 and December 31, 20202021
3
   
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 20212022 and 20202021
4
   
 
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 20212022 and 20202021
5
   
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20212022 and 20202021
6
   
 
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 20212022 and 20202021
7
   
 
Notes to Condensed Consolidated Financial Statements
8
   
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
   
Item 3
Quantitative and Qualitative Disclosures About Market Risk
23
   
Item 4
Controls and Procedures
2423
  
PART II - Other Information: 
   
Item 1
Legal Proceedings
2524
   
Item 1A
Risk Factors
2524
   
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
2524

  
Item 3
DefaultDefaults Upon Senior Securities
2524
   
Item 4
Mine Safety Disclosures
2524
   
Item 5
Other Information
2524
   
Item 6
Exhibits
2524
  
SIGNATURES
2625

2
2
PART I - FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

 March 31, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
Assets: (In thousands, except share data)  (In thousands, except share data) 
Current assets:            
Cash and cash equivalents
 
$
8,728
  
$
10,359
  
$
11,994
  
$
19,457
 
Accounts receivable, net
  
4,712
   
3,377
   
6,882
   
7,593
 
Note receivable
  
0
   
100
 
Employee retention credit receivable
  
1,500
   
1,500
 
Inventories
  
10,000
   
11,286
   
9,048
   
7,720
 
Prepaid income taxes
  
2,411
   
2,409
   
142
   
137
 
Other current assets
  
911
   
644
   
1,579
   
738
 
Total current assets
  
26,762
   
28,175
   
31,145
   
37,145
 
                
Fixed assets, net of accumulated depreciation of $20,124 and $19,979, respectively
  
1,852
   
1,950
 
Note receivable, net of current portion
  
0
   
1,584
 
Fixed assets, net of accumulated depreciation of $16,898 and $16,736, respectively
  
3,100
   
2,684
 
Right-of-use asset
  
3,429
   
3,618
   
2,349
   
2,553
 
Goodwill
  
2,621
   
2,621
   
2,621
   
2,621
 
Deferred tax assets
  
3,489
   
2,939
   
6,402
   
5,141
 
Intangible assets, net of accumulated amortization of $4,056 and $4,005, respectively
  
532
   
583
 
Intangible assets, net of accumulated amortization of $1,248 and $1,209, respectively
  
358
   
397
 
Other assets
  
678
   
777
   
308
   
400
 
  
12,601
   
14,072
   
15,138
   
13,796
 
Total assets
 
$
39,363
  
$
42,247
  
$
46,283
  
$
50,941
 
                
Liabilities and Shareholders’ Equity:
                
Current liabilities:
                
Accounts payable
 
$
1,919
  
$
1,691
  
$
3,997
  
$
4,308
 
Accrued liabilities
  
2,498
   
3,665
   
3,631
   
3,894
 
Lease liability
  
813
   
837
   
744
   
789
 
Deferred revenue
  
569
   
504
   
823
   
805
 
Total current liabilities
  
5,799
   
6,697
   
9,195
   
9,796
 
                
Long-term debt
  
2,173
   
2,173
 
Deferred revenue, net of current portion
  
202
   
111
   
171
   
186
 
Lease liability, net of current portion
  
2,666
   
2,864
   
1,617
   
1,781
 
Other liabilities
  
160
   
166
   
187
   
187
 
  
5,201
   
5,314
   
1,975
   
2,154
 
Total liabilities
  
11,000
   
12,011
   
11,170
   
11,950
 
                
Shareholders’ equity:
                
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,010,383 and 12,976,227 shares issued, respectively; 8,965,541 and 8,931,385 shares outstanding, respectively
  
130
   
130
 
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,954,850 and 13,917,731 shares issued, respectively; 9,910,008 and 9,872,889 shares outstanding, respectively
  
139
   
139
 
Additional paid-in capital
  
42,816
   
42,536
   
55,423
   
55,246
 
Retained earnings
  
17,512
   
19,718
   
11,560
   
15,573
 
Accumulated other comprehensive income (loss), net of tax
  
15
   
(38
)
Accumulated other comprehensive income, net of tax
  
101
   
143
 
Treasury stock, at cost, 4,044,842 shares
  
(32,110
)
  
(32,110
)
  
(32,110
)
  
(32,110
)
Total shareholders’ equity
  
28,363
   
30,236
   
35,113
   
38,991
 
Total liabilities and shareholders’ equity
 
$
39,363
  
$
42,247
  
$
46,283
  
$
50,941
 
        

See notes to Condensed Consolidated Financial Statements.

3
3
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 
Three Months Ended
March 31,
  
Three Months Ended
March 31,
 
 2021  2020  2022  2021 
 (In thousands, except per share data)  (In thousands, except per share data) 
            
Net sales
 
$
8,301
  
$
10,247
  
$
9,702
  
$
8,301
 
Cost of sales
  
5,112
   
5,329
   
6,708
   
5,112
 
Gross profit
  
3,189
   
4,918
   
2,994
   
3,189
 
                
Operating expenses:
                
Engineering, design and product development
  
1,803
   
1,385
   
2,283
   
1,803
 
Selling and marketing
  
1,443
   
2,208
   
2,683
   
1,443
 
General and administrative
  
2,609
   
2,620
   
3,204
   
2,609
 
  
5,855
   
6,213
   
8,170
   
5,855
 
                
Operating loss
  
(2,666
)
  
(1,295
)
  
(5,176
)
  
(2,666
)
                
Interest and other (expense) income:
        
Interest and other expense:
        
Interest, net
  
(13
)
  
3
   
(64
)
  
(13
)
Other, net
  
(83
)
  
(165
)
  
(35
)
  
(83
)
  
(96
)
  
(162
)
  
(99
)
  
(96
)
                
Loss before income taxes
  
(2,762
)
  
(1,457
)
  
(5,275
)
  
(2,762
)
Income tax benefit
  
556
   
465
   
1,262
   
556
 
Net loss
 
$
(2,206
)
 
$
(992
)
 
$
(4,013
)
 
$
(2,206
)
                
Net loss per common share:
                
Basic
 
$
(0.25
)
 
$
(0.13
)
 
$
(0.41
)
 
$
(0.25
)
Diluted
 
$
(0.25
)
 
$
(0.13
)
 
$
(0.41
)
 
$
(0.25
)
                
Shares used in per-share calculation:
                
Basic
  
8,948
   
7,507
   
9,886
   
8,948
 
Diluted
  
8,948
   
7,507
   
9,886
   
8,948
 

See notes to Condensed Consolidated Financial Statements.

4
4
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)

 
Three Months Ended
March 31,
  
Three Months Ended
March 31,
 
 2021  2020  2022  2021 
 (In thousands)  (In thousands) 
            
Net loss
 
$
(2,206
)
 
$
(992
)
 
$
(4,013
)
 
$
(2,206
)
Foreign currency translation adjustment, net of tax
  
53
   
71
   
(42
)
  
53
 
Comprehensive loss
 
$
(2,153
)
 
$
(921
)
 
$
(4,055
)
 
$
(2,153
)

See notes to Condensed Consolidated Financial Statements.

5
5
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 Three Months Ended  Three Months Ended 
 March 31,  March 31, 
 2021  2020  2022  2021 
 (In thousands)  (In thousands) 
Cash flows from operating activities:            
Net loss $(2,206) $(992) $(4,013) $(2,206)
Adjustments to reconcile net loss to net cash used in operating activities:                
Share-based compensation expense  264   187   296   264 
Depreciation and amortization  240   238   228   240 
Deferred income taxes  (555)  (518)  (1,262)  (555)
Gain on the sale of fixed assets  (8)  0   0   (8)
Foreign currency transaction losses  90   194   35   90 
Changes in operating assets and liabilities:                
Accounts receivable  (1,330)  106   680   (1,330)
Inventories  1,309   (573)  (1,344)  1,309 
Prepaid income taxes  (2)  51   (5)  (2)
Other current and long-term assets  (103)  (266)  (773)  (103)
Accounts payable  227   (1,243)  (400)  227 
Accrued liabilities and other liabilities  (1,020)  (755)  (261)  (1,020)
Net cash used in operating activities  (3,094)  (3,571)  (6,819)  (3,094)
                
Cash flows from investing activities:                
Capital expenditures  (68)  (328)  (496)  (68)
Proceeds from the sale of fixed assets  8   0   0   8 
Collection (issuance) of note receivable  1,598   (600)
Net cash provided by (used in) investing activities  1,538   (928)
Collection of note receivable  0   1,598 
Net cash (used in) provided by investing activities  (496)  1,538 
                
Cash flows from financing activities:                
Revolving credit line borrowings  0   1,000 
Revolving credit line payments  0   (206)
Proceeds from stock option exercises  91   353   0   91 
Withholding taxes paid on stock issuances  (75)  (41)  (119)  (75)
Payment of bank financing costs  (31)  (201)  0   (31)
Net cash (used in) provided by financing activities  (15)  905 
Net cash used in financing activities  (119)  (15)
                
Effect of exchange rate changes on cash and cash equivalents  (60)  6   (29)  (60)
                
Decrease in cash and cash equivalents  (1,631)  (3,588)  (7,463)  (1,631)
Cash and cash equivalents, beginning of period  10,359   4,203   19,457   10,359 
Cash and cash equivalents, end of period $8,728  $615  $11,994  $8,728 
                
Supplemental schedule of non-cash investing activities:                
Capital expenditures included in accounts payable $27  $38  $174  $27 

See notes to Condensed Consolidated Financial Statements.

6
6
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)

 Three Months Ended  Three Months Ended 
 March 31,  March 31, 
 2021  2020  2022  2021 
 (In thousands)  (In thousands) 
            
Equity beginning balance $30,236  $25,926  $38,991  $30,236 
                
Common stock                
Balance, beginning of period  130   115 
Issuance of shares from stock awards  0   1 
Balance, end of period  130   116 
Balance, beginning and end of period  139   130 
                
Additional paid-in capital                
Balance, beginning of period  42,536   32,604   55,246   42,536 
Share-based compensation expense  264   187   296   264 
Issuance of shares from exercise of stock options  91   353   0   91 
Relinquishment of stock awards and deferred stock units to pay for withholding taxes  (75)  (41)
Relinquishment of stock awards to pay for withholding taxes  (119)  (75)
Balance, end of period  42,816   33,103   55,423   42,816 
                
Retained earnings                
Balance, beginning of period  19,718   25,348   15,573   19,718 
Net loss  (2,206)  (992)  (4,013)  (2,206)
Balance, end of period  17,512   24,356   11,560   17,512 
                
Treasury stock                
Balance, beginning and end of period  (32,110)  (32,110)  (32,110)  (32,110)
                
Accumulated other comprehensive income (loss)                
Balance, beginning of period  (38)  (31)  143   (38)
Foreign currency translation adjustment, net of tax  53   71   (42)  53 
Balance, end of period  15   40   101   15 
                
Equity ending balance  28,363   25,505  $35,113  $28,363 
                
Supplemental share information                
Issuance of shares from stock awards  65   83   63   65 
Relinquishment of stock awards to pay withholding taxes  31   14   26   31 

See notes to Condensed Consolidated Financial Statements.

7
7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of presentation

The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements.  In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature.nature.  The December 31, 20202021 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.  These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.

The financial position and results of operations of our U.K. subsidiary are measured using local currency as the functional currency.  Assets and liabilities of such subsidiary have been translated at the end of periodend-of-period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income, (loss), net of tax”, in the Condensed Consolidated Balance Sheets and “Accumulated other comprehensive income (loss)” in the Condensed Consolidated Statements of Changes in Shareholders’ Equity.  Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

The results of operations for the three months ended March 31, 20212022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.2022.

Impact of the COVID-19 Pandemic
In the first quarter of 2020, the COVID-19 pandemic and the resulting social distancing measures, including closures and restricted openings of restaurants and casinos implemented by federal, state and local authorities, negatively impacted customer demand and disrupted portions of our supply chain, including delayed product shipments from our 2two manufacturers located in ChinaThailand and Thailand.China.  Our inventory levels decreased significantly during 2021 due to these supply chain disruptions, and although we have been able to increase inventory levels during the first quarter of 2022, continuing delays and further disruptions have led to an increased backlog, including increased freight costs, and have impacted our ability to deliver products to our customers on time or at all.  While we began to experience a modest recovery starting in the second half of 2020 and continuing into 2021, andthe recovery slowed again in the first quarter of 2022 due to a resurgence of the Omicron variant.   We again are beginning to see the recovery resume in the second quarter of 2022 which we expect this recovery to continue during the remainder of 2021,2022, though the exact timing and pace of recovery isare unknown given uncertainty surrounding responsive measures to the spread of virus variants or any potential future resurgences of the virus and the significant disruption that our customers have already experienced and may continue to experience.  In light of this uncertainty, we implemented a number of cost saving measures during 2020 to help mitigate the impact on our financial position and operations and continued to limit discretionary spending during the first quarter of 2021.  We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the ultimate impact of the COVID-19 pandemic on our business; however, the length and ultimate severity of the reduction in demand due to the pandemic remains uncertain.

Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions implemented during 2020, weWe have taken the following actions to increase liquidity and strengthen our financial position.position in an effort to mitigate the negative impacts from the COVID-19 pandemic:
●
Public Offering – On October 16, 2020 and August 16, 2021, the Company raised net proceeds of $8.7$8.7 million and $11.2 million (including the exercise of the underwriters’ overallotment options on October 16, 2020 and August 20, 2021), respectively, after deducting underwriting discounts, commissions and offering expenses, through an underwritten public offering (the “Offering”) andofferings in which we sold an aggregate of 1,380,000 and 842,375 shares of common stock.stock, respectively.
●PPP Loan – On May 1, 2020, the Company was granted a $2.2 million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which enabled us to return employees(“CARES”) Act.  On July 8, 2021, we furloughed earlier in 2020 to full time employment and to restore certain pay cuts untilreceived notice that the PPP Loan proceeds were exhausted.had been forgiven as of July 1, 2021.  See Note 5 for further details regarding the PPP Loan.
●New
Employee Retention Credit – Under the provisions of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria.  In connection with the CARES Act, the Company recognized the employee retention credit during the fourth quarter of 2021 as a $1.5 million “Gain from employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and recorded a $1.5 million “Employee retention credit receivable” in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.  We expect to receive these funds during 2022.
●Credit Facility – On March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC that provides a revolving credit line of up to $10.0 million, subject to a borrowing base.  See Note 65 for further details regarding this facility.
●Reduced Capital Expenditures – We limited capital expenditures during 2020.2020 and gradually increased expenses during 2021 as our sales improved.

We are planning to implement additional expense management measures starting in the second quarter of 2022 to those implemented in 2020 and 2021, but no definitive plans are yet finalized.  In addition to the planned expense management actions, we may also further modify or supplement the expense management measures we have implemented and the actions we have taken to increase liquidity as the timing and extent of customer demand recovery develops.develops and supply chains normalize.
8
8

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Report”) were issued, including consideration of the actions taken to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued.

Use of Assumptions and Estimates
Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, capital expenditures and other operating costs. Our current assumptions are that casinos and restaurants remain open and continueconsumer traffic continues to gradually increase capacity limitations during 2021,2022, but that many casinos and restaurants may delay purchases of new slot machines and our BOHA! products, respectively, as their businesses gradually returndue to pre-pandemic levels of capacitylabor shortages and operations.supply issues caused by the pandemic.  Based on these assumptions, we anticipate that sales in casino and gaming and food service technology willmay continue to be negatively through at least 2021.impacted for the foreseeable future.  We have performed a sensitivity analysis on these assumptions to forecast the potential impact of a slower-than-anticipated recovery and believe that we are positioned to withstand the impact of lower-than-anticipated sales and that we will be able to take additional financial and operational actions to cut costs and/or increase liquidity, if necessary. These actions may include additional expense reductions and capital raising activities.

In addition, the presentation of the accompanying unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities.  Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results could differ from those estimates used.

2. Revenue

We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers.

Disaggregation of revenue

The following table disaggregates our revenue by market-type,market type, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.  Sales and usage-based taxes are excluded from revenues.

 Three Months Ended  Three Months Ended 
 March 31,  March 31, 
 2021  2020  2022  2021 
 
(In thousands)
  
(In thousands)
 
 
United States
  
International
  
Total
  
United States
  
International
  
Total
  
United States
  
International
  
Total
  
United States
  
International
  
Total
 
Food service technology
 
$
2,564
  
$
183
  
$
2,747
  
$
1,239
  
$
132
  
$
1,371
  
$
1,946
  
$
184
  
$
2,130
  
$
2,564
  
$
183
  
$
2,747
 
POS automation
  
1,160
   
4
   
1,164
   
1,554
   
4
   
1,558
   
1,300
   
0
   
1,300
   
1,160
   
4
   
1,164
 
Casino and gaming
  
1,964
   
901
   
2,865
   
2,558
   
2,373
   
4,931
   
2,788
   
1,974
   
4,762
   
1,964
   
901
   
2,865
 
Printrex
  
27
   
132
   
159
   
61
   
56
   
117
   
0
   
0
   
0
   
27
   
132
   
159
 
Transact Services Group
  
1,280
   
86
   
1,366
   
2,003
   
267
   
2,270
   
1,068
   
442
   
1,510
   
1,280
   
86
   
1,366
 
Total net sales
 
$
6,995
  
$
1,306
  
$
8,301
  
$
7,415
  
$
2,832
  
$
10,247
  
$
7,102
  
$
2,600
  
$
9,702
  
$
6,995
  
$
1,306
  
$
8,301
 


9

Contract balances

Contract assets consist of unbilled receivables.  Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced.  An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable” and “Other non-current assets” in the Condensed Consolidated Balance Sheets.
9

Contract liabilities consist of customer pre-payments and deferred revenue.  Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete.  Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL™EPICENTRAL® maintenance contracts and testing service contracts and prepaid software subscriptions for our BOHA! software applications, and is recognized as revenue as (or when) we perform under the contract.  For the three months ended March 31, 2021,2022, we recognized revenue of $0.4 million related to our contract assetsliabilities at December 31, 20202021. Total net contract (liabilities) assetsliabilities consisted of the following:

 March 31, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
 (In thousands)  (In thousands) 
Unbilled receivables, current $293  $290  $329  $314 
Unbilled receivables, non-current  516   591   253   308 
Customer pre-payments  (146)  (216)  (253)  (99)
Deferred revenue, current  (569)  (504)  (823)  (805)
Deferred revenue, non-current  (202)  (111)  (171)  (186)
Total net contract (liabilities) assets $(108) $50 
Total net contract liabilities $(665) $(468)

Remaining performance obligations

Remaining performance obligations represent the transaction price of firm orders for which a good or service has not been delivered to our customer.  As of March 31, 2021,2022, the aggregate amount of transaction prices allocated to remaining performance obligations was $3.3$13.6 million.  The Company expects to recognize revenue on $2.7of $13.2 million of its remaining performance obligations within the next 12 months following March 31, 2021, $0.42022, $0.3 million within the next 24 months and the balance of these remaining performance obligations recognized within the next 36 months.
months.

3. Note receivable

The note receivable balance relates to loans given to a third-party software developer for whom we license our food service technology software with an interest rate of 4.5%, which was originally due in April 2020.  In March 2021, we received payment in the amount of $1.6 million representing the remaining principal balance and interest due from the third-party.  Prior to the payment  being received, notes receivable were stated at unpaid principal balances and interest income was recognized on the accrual method.  For the three months ended March 31, 2021 and 2020, we recorded $17 thousand and $13 thousand of interest income, respectively.

4. Inventories

The components of inventories were:

 March 31, 2021  December 31, 2020 
  
(In thousands)
 
       
Raw materials and purchased component parts
 
$
4,672
  
$
5,467
 
Finished goods
  
5,328
   
5,819
 
  
$
10,000
  
$
11,286
 
 March 31, 2022  December 31, 2021 
  
(In thousands)
 
       
Raw materials and purchased component parts
 
$
7,456
  
$
6,479
 
Work-in-process
  
0
   
11
 
Finished goods
  
1,592
   
1,230
 
  
$
9,048
  
$
7,720
 

5.4. Accrued product warranty liability

We generally provide warranties on our hardware products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded.  Estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs.


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The following table summarizes the activity recorded in the accrued product warranty liability during the three months ended March 31, 20212022 and 2020:2021:

 Three Months Ended  Three Months Ended 
 March 31,  March 31, 
 
2021
  
2020
  
2022
  
2021
 
 
(In thousands)
  
(In thousands)
 
            
Balance, beginning of period
 
$
140
  
$
215
  
$
101
  
$
140
 
Warranties issued
  
5
   
45
   
6
   
5
 
Warranty settlements
  
(29
)
  
(47
)
  
(17
)
  
(29
)
Balance, end of period
 
$
116
  
$
213
  
$
90
  
$
116
 

As of March 31, 2021, $982022, $72 thousand of the accrued product warranty liability was classified as current in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $18 thousand was classified as non-current in “Other liabilities”.

6.5. Debt

On March 13, 2020, we entered into a new credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC.  The Siena Credit Facility provides for a revolving credit line of up to $10.0 million expiring on March 13, 2023.  Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%. The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility was $245 thousand, which were reported as “other“Other current assets” in current assets and “other“Other assets” in non-current assets in the Condensed Consolidated Balance Sheets.  We also pay a fee of 0.50% on unused borrowings under the facility.Siena Credit Facility.  Borrowings under the facilitySiena Credit Facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes a minimum EBITDA financial covenant on the Company and borrowings are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory. AsThe three-month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant, which required the Company to maintain a minimum EBITDA and continued through the 12-month period from April 1, 2020 to March 31, 2021.  On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility.  The Credit Facility Amendment changed the financial covenant under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $750 thousand under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021.  During the first quarter of 2022, we have been in compliance with our excess availability covenant, and as of March 31, 2021,2022, we had $3.60 outstanding borrowings under the Siena Credit Facility and $3.5 million of borrowing capacity available under the Siena Credit Facility.The agreement governing the Siena Credit Facility provides for the parties to update the financial covenant for periods ending after March 31, 2021 based on updated financial projections of the Company. The Company does not anticipate a material change in the financial covenant, nor does it anticipate any other material change in the terms or covenants pertaining to its current credit facilities.  We were in compliance with all financial covenants of the Siena Credit Facility at March 31, 2021.

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

The PPP Loan, which is evidenced by a Note dated the Loan Date issued by the Company (the “Note”) in favor of Berkshire Bank, as lender (the “PPP Lender”), matures May 1, 2022 and bears interest at a fixed rate of  1.0%per annum, accruing from the Loan Date and payable monthly. No payments were due on the PPP Loan for six months from the date of first disbursement, and if a loan forgiveness application is submitted to the SBA within 10 months after the end of the covered period, no payments are due until the date on which the SBA remits the loan forgiveness amount to the PPP Lender (or notifies the PPP Lender that no loan forgiveness is allowed), but interest continues to accrue during the deferment period.  If no loan forgiveness is allowed, the Company will be required to pay the PPP Lender equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any.   The Note is unsecured and guaranteed by the SBA.  The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties.  The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the Note or related documents, reorganizations, mergers, consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions.  The PPP Loan may be accelerated upon the occurrence of a default.

Under the terms of the PPP, the PPP Loan maywould be forgiven to the extent that funds from the PPP Loan arewere used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020, and interest on debt obligations incurred before February 15, 2020, (collectively, “qualifying expenses”), subject to conditions and limitations provided in the CARES Act.  At least 60% (as(under the PPP terms, as amended) of the proceeds from the PPP Loan mustwere required to be used for eligible payroll costs for the PPP Loan to be forgiven.

The PPP Loan, which was evidenced by a Note dated the Loan Date issued by the Company (the “Note”) in favor of Berkshire Bank, as lender (the “PPP Lender”), was scheduled to mature on May 1, 2022 and had a fixed interest rate of 1.0%per annum, accruing from the Loan Date and payable monthly.  The Company has maximized the use ofsubmitted its PPP Loan proceedsforgiveness application in May 2021 to the SBA through Berkshire Bank and submitted the related loan necessity questionnaire in June 2021.  On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP Loan (including all interest accrued thereon) of $2.2 million had been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021.  No payments were due on the PPP Loan for qualifying expensessix months from the date of first disbursement, and intendsbecause a loan forgiveness application was submitted to apply forthe SBA within 10 months after the end of the covered period, no payments were due until the date on which the SBA remitted the loan forgiveness amount to the PPP Lender and interest that accrued during the deferment period was included in the forgiveness amount.  The forgiveness of the PPP Loan in accordance with the termswas reported as “Gain on forgiveness of the CARES Act, as amended by the Paycheck Protection Flexibility Act of 2020.  Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt.  The PPP Loan is classified as “Long-termlong-term debt” in the Condensed Consolidated Balance Sheet untilStatement of Operations during the forgiveness determination has been made by the SBA.  In the event that no portion of the PPP Loan is forgiven by the SBA, $2.0 million in principal and interest of the $2.2 million PPP Loan would be due within the next twelve months as of Marchyear ended December 31, 2021.
2021.


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7.6. Earnings per share

The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding:

 Three Months Ended  Three Months Ended 
 March 31,  March 31, 
 
2021
  
2020
  
2022
  
2021
 
 
(In thousands, except per share data)
  
(In thousands, except per share data)
 
Net loss
 
$
(2,206
)
 
$
(992
)
 
$
(4,013
)
 
$
(2,206
)
                
Shares:
                
Basic: Weighted average common shares outstanding
  
8,948
   
7,507
   
9,886
   
8,948
 
Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method
  
0
   
0
   
0
   
0
 
Diluted: Weighted average common and common equivalent shares outstanding
  
8,948
   
7,507
   
9,886
   
8,948
 
                
Net loss per common share:
                
Basic
 
$
(0.25
)
 
$
(0.13
)
 
$
(0.41
)
 
$
(0.25
)
Diluted
 
$
(0.25
)
 
$
(0.13
)
 
$
(0.41
)
 
$
(0.25
)

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period, as the inclusion of these stock awards in the computation of diluted earnings would be anti-dilutive. For the three months ended March 31, 20212022 and 2020,2021, there were 705943 thousand and 708705 thousand, respectively, of potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.  RegardingFurthermore, in  periods when a net loss is reported, such as the three months ended March 31, 20212022 and 2020, when a net loss is reported,2021, basic and diluted net loss per common share are calculated using the same method.

8. Shareholders’ equity

On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock.  The final dividend payment was made in December 2019.

9.7. Leases

We account for leases in accordance with ASC Topic 842: Leases.

We enter into lease agreements for the use of real estate space and certain otherequipment under operating leases and we have no financing leases. Our leases are included in Right-of-use-assets“Right-of-use-assets” and Lease liabilities“Lease liabilities” in our Condensed Consolidated Balance Sheet.  Our leases have remaining lease terms of one year to sixfour years, some of which include options to extend. The majority of ourOur leases with options to extend provide for extensions of uptwo to five years with the ability to terminate the lease within one year.  On February 28, 2020,April 30, 2021, we entered into an amendment to extendmodify the expiration date of our lease on our facility in Ithaca, New York,Hamden, Connecticut facility.  which resulted in recording an additional right-of-use-asset and lease liability of $1.5 million.  The lease, which was last amended on January 14, 2016,3, 2017, was scheduled to expire on May 31, 2021.April 30, 2027.  The lease amendment provided formodified the expiration date to October 31, 2023 with an extension ofoption to extend the lease for fouran additional years from June 1, 2021two-year period, extending the expiration date to MayOctober 31, 2025.  The modification resulted in reducing the right-of-use-asset and lease liability by $0.3 million. Lease expense is recognized on a straight-line basis over the lease term.

Operating lease expense for the three months ended March 31, 2022 and 2021 and 2020 was $243$237 thousand and $251$243 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations.  Operating lease expenses include short-term lease costs, which were immaterial during the periods presented.

12
The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):

 
Three Months Ended
 
 
March 31,
 
  
2021
  
2020
 
Operating cash outflows from leases
 
$
262
  $259 
 
Three Months Ended
 
 
March 31,
 
  
2022
  
2021
 
Operating cash outflows from leases
 
$
230
  $262 

The following summarizes additional information related to our leases as of March 31, 20212022 and December 31, 2020:2021:

 
March 31, 2021
  
December 31, 2020
  
March 31, 2022
  
December 31, 2021
 
Weighted average remaining lease term (in years)
  
4.7
   
4.9
   
3.3
   
3.5
 
Weighted average discount rate
  
4.1
%
  
4.1
%
  
4.4
%
  
4.4
%


12
The maturity of the Company’s operating lease liabilities as of March 31, 20212022 and December 31, 20202021 were as follows (in thousands):

 
March 31, 2021
  
December 31, 2020
 
2021
 
$
709
  
$
971
 
2022
  
880
   
879
 
2023
  
713
   
713
 
2024
  
718
   
718
 
2025
  
463
   
464
 
Thereafter
  
340
   
180
 
Total undiscounted lease payments
  
3,823
   
3,925
 
Less imputed interest
  
344
   
224
 
Total lease liabilities
 
$
3,479
  $3,701 
 
March 31, 2022
  
December 31, 2021
 
2022
 
$
654
  
$
886
 
2023
  
719
   
721
 
2024
  
720
   
721
 
2025
  
425
   
426
 
2026
  
22
   
23
 
Total undiscounted lease payments
  
2,540
   
2,777
 
Less imputed interest
  
179
   
207
 
Total lease liabilities
 
$
2,361
  $2,570 

10.8. Income taxes

We recorded an income tax benefit for the first quarter of 20212022 of $556 thousand$1.3 million at an effective tax rate of 20.1%23.9%, compared to an income tax benefit during the first quarter of 20202021 of $465 thousand$0.6 million at an effective tax rate of 31.9%20.1%.  The effective tax rate for the first quarter of 2020 was2022 is higher as it includedthan the impact of our net operating loss (“NOL”) that we incurred during 2020 and will carry back to prior years.  The CARES Act enacted on March 27, 2020 permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.  We generated an NOL in 2020 which we will carry back to tax years that had a federal statutoryeffective tax rate for the first quarter of 34%2021 as we are estimating an increase in the R&D credit in 2022 compared to 21% in 2020.2021 due to expected investment spending for our BOHA! products.

We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions.  We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2016.2017.  However, our federal tax returns for the years 20172018 through 20192020 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.  

As of March 31, 2021,2022, we had $121$144 thousand of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.  We expect that $24$28 thousand of the $121$144 thousand of unrecognized tax benefits will reverse in 20212022 upon the expiration of the statute of limitations.

We recognize interest and penalties related to uncertain tax positions in the income tax provision reported as “Deferred tax assets” in the Condensed Consolidated Balance Sheet.  As of March 31, 20212022, we had $2124 thousand of accrued interest and penalties related to uncertain tax positions.  The Company maintains a valuation allowance against certain deferred tax assets where realization is not certain.

11.9. Subsequent events

On April 30, 2021, we entered into an agreementThe Company has evaluated all events or transactions that occurred up to modify the term ofdate the lease on our facilityCondensed Consolidated Financial Statements were available to be issued.  Based upon this review, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in Hamden, CT.  The lease, which was last amended on January 3, 2017, was scheduled to expire on April 30, 2027.  The lease amendment modified the expiration date to October 31, 2023 with an option to extend the lease for an additional two year period extending the expiration date to October 31, 2025.
Condensed Consolidated Financial Statements.

13
13
Item 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q for the period ended March 31, 20212022 (this “Report”), including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts are “forward-looking statements” within the meaning of the U.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “project”, “plan” or “continue” or the negative thereof or other similar words.  The Company cautions readers not to place undue reliance on any such forward-looking statements, each of which involves certain risks and uncertainties, including, but not limited to, those listed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20202021 (our “2020“2021 Form 10-K”), and in our other filings with the Securities and Exchange Commission (the “SEC”).  Such risks and uncertainties could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements.  Any of such risks and uncertainties may also be exacerbated by the ultimate impact of the COVID-19 pandemic and the emergence of virus variants, which is unknown at this time.time, or by the Russia-Ukraine conflict and its impact on freight costs.  In addition, statements made in this Report about the COVID-19 pandemic and the potential effects and impacts of the COVID-19 pandemic on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic, actions taken by governmental authorities and businesses in response to the pandemic and any resurgences or variants, vaccination rates and the direct and indirect impact of the pandemic on our employees, customers and third parties with which we conduct business.business, including difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions.  Although management has taken steps to mitigate anythe negative effect of such risks and uncertainties, including the impact of the COVID-19 pandemic, significant unfavorable changes could severely impact the assumptions used.  Forward-looking statements speak only as of the date of they are made, and we do not undertake any obligation to update them to reflect the impact of subsequent events or circumstances, except as required by law.  As used in this Report, unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” and “TransAct” refer to the consolidated operations of TransAct Technologies Incorporated and its consolidated subsidiaries.

Overview

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high growthhigh-growth markets including food service technology, point of sale (“POS”) automation and casino and gaming, and oil and gas.gaming.  Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic®, EPICENTRAL™,Epic, EPICENTRAL® and Ithaca®, and Printrex® brand names.  During 2019, we launched a new line of products for the food service technology market, the BOHA! branded suite of cloud-based applications and companion hardware solutions.  The new BOHA! software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production in the back-of-house operations.  Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents, as well as printed logging and plotting of data.documents.  We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, select distributors as well asand directly to end-users.  Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific. We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers. Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in the restaurant and hospitality, retail, casino and gaming, government and oil and gas explorationgovernment markets.  Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products. We operate in one reportable segment, the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.

Impact of COVID-19 Pandemic
Our business trends throughDuring the first two months of 2020, our business trends were in line with internal expectations; however, the challenges posed by the COVID-19 pandemic on the United States and global economy increased significantly as the first quarter of 2020 progressed and continued throughout the remainder of 2020 and into the first three months of 2021.  Though we have begunbegan to seeexperience some recovery during 2021 the recovery slowed again in the first quarter of 2021,2022 due to a resurgence of the Omicron variant, and unfortunately, the massive economic and social disruptions across the world persist due to COVID-19, including the emergence of virus variants, and the measures implemented to mitigate its spread.  The food service and casino and gaming and oil and gas industries have been particularly affected by the pandemic, and we expect such disruptions to continue to negatively impact our overall business for the foreseeable future.
14

As a result of the COVID-19 pandemic and measures implemented to mitigate its spread, we experienced decreased demand for our products and lower than anticipated sales beginning in the second half of March 2020 and continuing through 2021 and the first three monthsquarter of 2021,2022, particularly in our food service technology and casino and gaming markets.  We experienced some improvement in demand during the second half of 2020 thoughcontinuing through 2021 and the first three monthsquarter of 20212022 compared to the second quarter of 2020, as some state and local governments lifted certain measures implemented earlier in 2020 to mitigate the spread of the virus, but demand remained lower than 2019, and2019.  While we expect this trendimprovement to continue throughduring 2022 as compared to 2021, the exact timing and pace of recovery is unknown.  We have also experienced supply chain disruptions, including delayed product shipments from our two contract manufacturers located in Thailand and China that conduct almost all of our printer and BOHA! hardware manufacturing, due to reduced operations and part shortages at leastthese facilities.  Our inventory levels decreased significantly during 2021 due to these supply chain disruptions, and although we have been able to increase inventory levels during the first halfquarter of 2021.2022, continuing delays and further disruptions have led to an increased backlog, including increased freight costs, and have impacted our ability to deliver products to our customers on time or at all.  Below is a discussion of the impact of COVID-19 that we have experienced from the COVID-19 pandemic, and that we believe we will continue to experience for the foreseeable future in each of our markets.


14
Food service technology and POS automation.  In both our food service technology and POS automation markets, many restaurants and food service establishments that were closed during much of the second quarter of 2020 started to reopen in the third quarter of 2020 as state and local governments began to ease restrictions put in place in response to the pandemic.  Many of our customers haveinitially opened under restrictions that limitlimited them to providing drive through,drive-through, take-out or delivery service without dine-in options, as well as limiting the volume of customers and employees on site at any one time.  During the second half of 2020 and throughout 2021 and the first three monthsquarter of 2021,2022, as these food service customers reopened for business, we experienced sales improvement compared to the second quarter of 2020, as these food service customers reopened for business.  However, during the fourth quarter of 2020 and early in 2021, restaurants were again impacted by a resurgence of the pandemic.2020.  Notwithstanding the gradual resumption of limited operations that began in the third quarter of 2020, our food service technology and POS automation customers continue to recover from the financial impact of being closed for several monthsthe pandemic and we expect new capital expenditures to be a lower priority for them in the near term, which we believe will continue to negatively impact sales of BOHA! hardware, software and label products, as well as sales of POS printers.products.  However, food service providers have been and are likely to continue to be required to develop and implement new or enhanced policies and operating procedures regarding cleaning, sanitizing and social distancing to ensure the safety of their employees and customers.  Additionally, our markets have experienced labor shortages and inflation in their food and labor costs.  We believe that our BOHA! hardware, software and label products could prove to be helpful to our food service customers in efficiently and effectively managing and complying with these new procedures, while also helping to overcome staffing issues and inflation, especially as many establishments are and will likely continue to be operating with reduced staff levels.levels due to the continuing labor shortage.

Casino and gaming.   In the casino and gaming market, most casinos and other gaming establishments were closed worldwide during most of the second quarter of 2020.  Many casinos began to reopen in late May and early June 2020, but similar to restaurants, casino openings were slow and measured, starting with reduced capacity and limited game playgameplay based on social distancing guidelines.  During the fourth quarter of 2020, some casinos re-closed due to a resurgence of the pandemic.  However, many casinos in the U.S. have reopened during the first quarter of 2021 with limited capacity and wecontinued to remain open and further expand capacity during the remainder of 2021.  We anticipate that theycasinos world-wide will progressivelycontinue to increase capacity over time.  Astime, barring any new closures or reduced capacity requirements in response to any new resurgence of the pandemic, including the emergence of variants.  Though sales of our casino and gaming products increased during 2021 and the first quarter of 2022, and we expect this trend to continue for the remainder of 2022, casinos graduallycontinue to recover from the financial impact of being closed for several months,the COVID-19 pandemic, and therefore we expect that certain casinos’ appetite for purchases of new slot machines willmay be diminished, which we believe is likely tomay negatively impact sales of casino and gaming printers purchased by slot manufacturers for use in slot machines at casinos during 2021.

Lottery.  We exited the lottery market at the end of 2019 and IGT made a final purchase of our lottery printer during 2020.  Therefore, COVID-19 has not had an impact our lottery printer sales.2022.

Printrex.  The oilWe made a strategic decision to exit the Printrex market as of December 31, 2021 and gasexpect to have no future sales in this market has been negatively impacted by the decline in worldwide oil prices attributable to the COVID-19 pandemic.  Due to the uncertainty of current and future market conditions, we believe sales of our Printrex oil and gas printers will continue to be negatively impacted until oil and gas prices recover.beyond 2021.

TSG.  Due to closures and reduced operating capacity of restaurants, food service establishments, casinos and other gaming establishments resulting from the COVID-19 pandemic, sales of spare parts, service and consumable products have declined, and we expect suchfull year sales to remain at reduced levels, due to lower usage while the pandemic persists.

Our gross margin has been negatively impacted, and we expect our gross margin to continue to be negatively impacted, while the COVID-19 pandemic and its economic effects on the markets we serve persists.  As a result of an expected significantlythe COVID-19 pandemic, we have experienced (1) lower sales level,levels compared to pre-pandemic levels, (2) increased material and shipping costs resulting from worldwide supply disruptions and (3) increased product, contract manufacturing and labor costs resulting from inflation.  Though we have implemented price increases during the first and second quarters of 2022 on all our products (except our FST products) to help mitigate the product cost increases, we believe our gross margin will remain lower than pre-pandemic levels due to fixed manufacturing overhead expenses (such as facility costs, depreciation, etc.) that cannot be reduced or eliminated, even with the lower sales level.

We have also experienced supply chain disruptions, including delayed product shipments from our two contract manufacturers located in China and Thailand that conduct almost all of our printer and terminal manufacturing, due to reduced operations and parts shortages at these facilities.  To date, these disruptions have only minimally impacted deliveries to customers due to our high inventory levels and reduced demand for our products.  However, if the delays are sustained or additional disruptions from the pandemic occur, we may have insufficient inventory levels and our ability to deliver products to our customers on time or at all may be impaired.
15

While we began to experience a modest recovery starting in the second half of 2020 and continuing into 2021 andthe recovery slowed again in the first quarter of 2022 due to a resurgence of the Omicron variant.  We are beginning to see the recovery resume in the second quarter of 2022 which we expect this recovery to continue during the remainder of 2021,2022, though the exact timing and pace of recovery is unknown given uncertainty surrounding responsive measures to potential future resurgences of the virus, vaccination rates, the emergence of virus variants and the significant disruption that our customers and suppliers have already experienced and may continue to experience. In light of this uncertainty, we implemented a number of cost saving measures during 2020

15
We have taken the following actions to help mitigate the impact onincrease liquidity and strengthen our financial position and operations and continuedin an effort to limit discretionary spending duringmitigate the first quarter of 2021.

In addition, during 2020 we took additional measures to increase liquidity, includingnegative impacts from the following:COVID-19 pandemic:

●
Public Offering – OnOn October 16, 2020 and August 16, 2021, the Company raised net proceeds of $8.7 million and $11.2 million (including the exercise of the underwriters’ overallotment options on October 16, 2020 and August 20, 2021), respectively, after deducting underwriting discounts, commissions and offering expenses, through an underwritten public offering (the “Offering”)offerings and sold an aggregate of 1,380,000 and 842,375 shares of common stock.stock, respectively.
●
PPP Loan - On May 1, 2020, the Company was granted a $2.2 million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which has enabled us to return our furloughed employees to full time employment and to restore certain pay cuts until(“CARES”) Act.  On July 8, 2021, we received notice that the PPP Loan proceeds were exhausted.had been forgiven as of July 1, 2021.
●New
Employee Retention Credit –Under the provisions of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria.  In connection with the CARES Act, the Company recognized the employee retention credit during the fourth quarter of 2021 as a $1.5 million “Gain from employee retention credit” in the Consolidated Statement of Operations for the year ended December 31, 2021 and recorded a $1.5 million “Employee retention credit receivable” in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.  We expect to receive these funds during 2022.
●
Credit Facility - We alsoOn March 13, 2020, we entered into a new credit facility with Siena Lending Group LLC (the “Siena Credit Facility”) that provides a revolving credit line of up to $10$10.0 million, subject to a borrowing base.base.
●Reduced Capital Expenditures - We limited capital expenditures during 2020.2020 and gradually increased expenses during 2021 as our sales improved.

Since the onset of the pandemic, our top priority has been to ensure the health and safety of our employees while continuing to provide our customers with high-quality, personalized service.  On March 20, 2020, we instituted work-from-home practices for the majority of our employees to reduce the spread of COVID-19 and to comply with government mandates.  Because most of our employees already had laptop computers with remote access into our IT systems, we have experienced only minor reductions in productivity and minimal costs related to the implementation of our work-from-home practices.  In addition, even with the move to a work-from-home environment, our existing internal control structure remained operational and unchanged.

With a majorityAs of October 4, 2021, all of our employees now fully-vaccinatedwere fully vaccinated against COVID-19 and, as a result, we are beginning to prepareimplemented a return-to-work plan, that we expect to implement in the second halfreopening all of 2021.

our facilities and ending our work-from-home practices.  Our distribution centers, deemed an essential service, have remained operational throughout the pandemic.  During 2020, we implemented a new COVID-19 policy,policies, most of which waswere still in place during the first three months of 2021,prior to ending our work-from-home practices, to specifically address health and safety guidelines for employees to adhere to and follow when at work or returning to work.  This policy wasThese policies were based on the COVID-19 safety guidelines recommended by the Centers for Disease Control and Prevention and implements the following operations procedures:Prevention.

●
staggered shifts and a rotational/flexible work schedule to minimize the number of employees at any particular facility at a single time;
●
mandated use of protective equipment, such as masks and gloves, when in common areas, which is provided to employees;
●spacing seating in workspaces such as manufacturing cells, lunch/break rooms, conference rooms and other common areas to comply with social distancing guidelines;
●
employees who (i) show symptoms of COVID-19 or (ii) have been exposed to someone who shows symptoms or has tested positive for COVID-19 are prohibited from reporting to work for 10 days;
●visitors are prohibited from entering all facilities;
●cleaning and disinfecting protocols at all facilities; and
●daily temperature taking of all employees before entering all facilities.

We have evaluated the recoverability of the assets on our unaudited condensed consolidated balance sheetCondensed Consolidated Balance Sheet as of March 31, 20212022 in accordance with relevant authoritative accounting literature. We considered the disruptions caused by the COVID-19 pandemic, including lower than previously forecasted sales and customer demand and macroeconomic factors potentially impacting accounts receivable, inventory, investments, intangible assets, goodwill and other assets and liabilities.  Where forward-looking estimates are required, we made a good-faith estimate based on information available as of the balance sheet date. We have continued to monitor for indicators of impairment through the date of this Report and reflected any impairments accordingly in the accompanying condensed consolidated financial statements.Condensed Consolidated Financial Statements.

Notwithstanding the foregoing, there is no assurance that the actions we have taken in response to the pandemic are sufficient or adequate, and we may be required to take additional preventive or responsive measures, as the ultimate extent of the effects of the COVID-19 pandemic on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time.  See Part I, Item 1A, Risk Factors,“Risk Factors”, of our 2021 Form 10-K for the year ended December 31, 2020 for further discussion of risks related to COVID-19.
16

Critical Accounting Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America.  The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities.  Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, share-based compensation and contingent liabilities.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  There have been no material changes in our critical accounting judgements and estimates from the information presented in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our  2021 Form 10-K.

16
Results of Operations: Three months ended March 31, 20212022 compared to three months ended March 31, 20202021

Net Sales: Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables (including labels) and maintenance and repair services, by market for the three months ended March 31, 20212022 and 20202021 were as follows:

 Three Months Ended  Three Months Ended     Three Months Ended  Three Months Ended    
(In thousands, except percentages) March 31, 2021  March 31, 2020  $ Change  % Change  March 31, 2022  March 31, 2021  $ Change  % Change 
Food service technology (“FST”)
 
$
2,747
   
33.1
%
 
$
1,371
   
13.4
%
 
$
1,376
   
100.4
%
 
$
2,130
   
22.0
%
 
$
2,747
   
33.1
%
 
$
(617
)
  
(22.5
%)
POS automation
  
1,164
   
14.0
%
  
1,558
   
15.2
%
  
(394
)
  
(25.3
%)
  
1,300
   
13.4
%
  
1,164
   
14.0
%
  
136
   
11.7
%
Casino and gaming
  
2,865
   
34.5
%
  
4,931
   
48.1
%
  
(2,066
)
  
(41.9
%)
  
4,762
   
49.1
%
  
2,865
   
34.5
%
  
1,897
   
66.2
%
Printrex
  
159
   
1.9
%
  
117
   
1.1
%
  
42
   
35.9
%
  
–
   
0.0
%
  
159
   
1.9
%
  
(159
)
  
(100.0
%)
TSG
  
1,366
   
16.5
%
  
2,270
   
22.2
%
  
(904
)
  
(39.8
%)
  
1,510
   
15.5
%
  
1,366
   
16.5
%
  
144
   
10.5
%
 
$
8,301
   
100.0
%
 
$
10,247
   
100.0
%
 
$
(1,946
)
  
(19.0
%)
 
$
9,702
   
100.0
%
 
$
8,301
   
100.0
%
 
$
1,401
   
16.9
%
                                                
International *
 
$
1,306
   
15.7
%
 
$
2,832
   
27.6
%
 
$
(1,526
)
  
(53.9
%)
 
$
2,600
   
26.8
%
 
$
1,306
   
15.7
%
 
$
1,294
   
99.1
%

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

Net sales for the first quarter of 2021 decreased $1.92022 increased $1.4 million, or 19%17%, fromcompared to the same period in 2020.first quarter of 2021.  Printer, terminal and other hardware unit sales volume decreased 27%increased 25% to approximately 18,00023,000 units, due primarily to a sales volume decreaseincrease in the casino and gaming market of 42% and, to a lesser extent, a 17% decrease in the POS automation market.61%.  The volume decreaseincrease was partially offset by an increasea decrease in FST hardware volume of 129%64% in the first quarter of 20212022 compared to the first quarter of 2020.2021.  The average selling price of our printers, terminals and other hardware increaseddecreased 7% during the first quarter of 20212022 compared to the first quarter of 20202021 primarily due to a higherlower level of FST hardware sales, which sell at higher prices than our other products.  TheIn addition to the sales volume decreases were partially offset by a $0.6 million, or 96%, increase inincreases, FST software, labels and other recurring revenue from our food service technology market.increased $0.4 million, or 30%, in the first quarter of 2022 compared to the first quarter of 2021.

International sales for the first quarter of 2021 decreased $1.52022 increased $1.3 million, or 54%99%, from the same period in 20202021 primarily due to decreasedincreased sales in the international casino and gaming market, and to a lesser extent, increased sales in the international TSG market.

Food service technology: Our primary offering in the food service technology market is our BOHA! ecosystem, which combines our latest generation terminal/workstation, cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in restaurants, convenience stores and food service operations.  The software component of BOHA! consists of a suite of software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for inventory management, temperature monitoring of food and equipment, timers, food safety labeling, food recalls,media libraries, checklists and procedures,task lists, and equipment service management, and delivery management.  These applications arecan be combined into a single platform with the associated hardware, which includes the BOHA! terminal/workstation, handheld devices, tablets, temperature probes and temperature sensors. The BOHA! terminal combines the software and hardware components in a device that includes an operating system, touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels for prepared foods, and “enjoy by” date labels.  The BOHA! Workstationworkstation uses an iPad or Android tablet instead of an integrated touchscreen.  Both the BOHA! terminal and BOHA! workstation are equipped with the TransAct Enterprise Management System to ensure that only approved applications and functions are available on the device and allows over-the-air updates to the applications and operating system.  BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-serve restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations.  Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are typically charged to customers upfrontannually on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services.  Sales of our worldwide food service technology products for the three months ended March 31, 20212022 and 20202021 were as follows:

17
  
Three Months Ended
  
Three Months Ended
    
(In thousands, except percentages)
 
March 31, 2022
  
March 31, 2021
  $ Change  
% Change
 
Domestic
 
$
1,946
   
91.4
%
 
$
2,564
   
93.3
%
 
$
(618
)
  
(24.1
%)
International
  
184
   
8.6
%
  
183
   
6.7
%
  
1
   
0.5
%
  
$
2,130
   
100.0
%
 
$
2,747
   
100.0
%
 
$
(617
)
  
(22.5
%)

  
Three Months Ended
  
Three Months Ended
    
(In thousands, except percentages)
 
March 31, 2021
  
March 31, 2020
  $ Change  
% Change
 
Domestic
 
$
2,564
   
93.3
%
 
$
1,239
   
90.4
%
 
$
1,325
   
106.9
%
International
  
183
   
6.7
%
  
132
   
9.6
%
  
51
   
38.6
%
  
$
2,747
   
100.0
%
 
$
1,371
   
100.0
%
 
$
1,376
   
100.4
%

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
(In thousands, except percentages)
 
March 31, 2021
  
March 31, 2020
  
$ Change
  
% Change
  
March 31, 2022
  
March 31, 2021
  
$ Change
  
% Change
 
Hardware
 
$
1,542
   
56.1
%
 
$
755
   
55.1
%
 
$
787
   
104.2
%
 
$
563
   
26.4
%
 
$
1,542
   
56.1
%
 
$
(979
)
  
(63.5
%)
Software, labels and other recurring revenue
  
1,205
   
43.9
%
  
616
   
44.9
%
  
589
   
95.6
%
  
1,567
   
73.6
%
  
1,205
   
43.9
%
  
362
   
30.0
%
 
$
2,747
   
100.0
%
 
$
1,371
   
100.0
%
 
$
1,376
   
100.4
%
 
$
2,130
   
100.0
%
 
$
2,747
   
100.0
%
 
$
(617
)
  
(22.5
%)

The increasedecrease in food service technology sales for the first quarter of 20212022 compared to the first quarter of 20202021 was driven by an increasea decrease in sales of both hardware and BOHA! software, labels and other recurring revenue.hardware.  Hardware sales increased 104%decreased 64% in the first quarter of 2022 compared to 2021 due largely to lower sales to a national convenience store customer and an initial sale to a new national travel center customer completed in the first quarter of 2021 compared to 2020 due largely tothat did not reoccur in 2022.  The decrease in hardware sales to an existing national convenience store customer and a new national travel center customer.  Saleswas partially offset by increased sales of BOHA! software recognized on a SaaS subscription basis, labels and other recurring revenue, which increased by 96%30%, primarily due to increased label sales and, to a lesser extent,  increased software sales, compared to the prior year period due to the growth of the installed base of our BOHA! terminals.terminals and workstations. 

POS automation: Revenue from the POS automation market includes sales of thermal printers used primarily by McDonald’s, and to a lesser extent, other quick serve restaurants located either at the checkout counter or within self-service kiosks to print receipts for consumers or print on linerless labels.  Sales of our worldwide POS automation products for the three months ended March 31, 20212022 and 20202021 were as follows:

 Three Months Ended  Three Months Ended     Three Months Ended  Three Months Ended    
(In thousands, except percentages)
 
March 31, 2021
  
March 31, 2020
  $ Change  
% Change
  
March 31, 2022
  
March 31, 2021
  $ Change  
% Change
 
Domestic
 
$
1,160
   
99.7
%
 
$
1,554
   
99.7
%
 
$
(394
)
  
(25.4
%)
 
$
1,300
   
100.0
%
 
$
1,160
   
99.7
%
 
$
140
   
12.1
%
International
  
4
   
0.3
%
  
4
   
0.3
%
  
-
   
0.0
%
  
–
   
0.0
%
  
4
   
0.3
%
  
(4
)
  
(100.0
%)
 
$
1,164
   
100.0
%
 
$
1,558
   
100.0
%
 
$
(394
)
  
(25.3
%)
 
$
1,300
   
100.0
%
 
$
1,164
   
100.0
%
 
$
136
   
11.7
%

The decreaseincrease in POS automation sales during the first quarter of 20212022 compared to the first quarter of 20202021 was driven by a 25% decrease12% increase in domestic sales of our Ithaca® 9000 printer, largely attributable to fewer salesprimarily to McDonald’s, which we believe resulted fromas POS automation sales continue to improve in 2022 compared to the continuednegative impact ofthat the COVID-19 pandemic.pandemic had on POS automation sales during the first three months of 2021.  We expect sales of POS automation printers to be significantly higher in the second half of 2022 compared to the first quarter of 2022 based on the backlog of orders we have received for McDonald’s.

Casino and gaming: Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos and racetracks and other gaming venues worldwide.  Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals at non-casino gaming and sports betting establishments. Revenue from 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™EPICENTRAL print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine.  Sales of our worldwide casino and gaming products for the three months ended March 31, 20212022 and 20202021 were as follows:

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
(In thousands, except percentages)
 
March 31, 2021
  
March 31, 2020
  $ Change  
% Change
  
March 31, 2022
  
March 31, 2021
  $ Change  
% Change
 
Domestic
 
$
1,964
   
68.6
%
 
$
2,558
   
51.9
%
 
$
(594
)
  
(23.2
%)
 
$
2,788
   
58.5
%
 
$
1,964
   
68.6
%
 
$
824
   
42.0
%
International
  
901
   
31.4
%
  
2,373
   
48.1
%
  
(1,472
)
  
(62.0
%)
  
1,974
   
41.5
%
  
901
   
31.4
%
  
1,073
   
119.1
%
 
$
2,865
   
100.0
%
 
$
4,931
   
100.0
%
 
$
(2,066
)
  
(41.9
%)
 
$
4,762
   
100.0
%
 
$
2,865
   
100.0
%
 
$
1,897
   
66.2
%

The decreaseincrease in domestic sales of our casino and gaming products for the first quarter of 20212022 compared to the first quarter of 20202021 was primarily due to a 23% decrease43% increase in domestic sales of our thermal casino printers, driven by industry-wide weakness resulting in lowerhigher sales to our OEMs that continueas the market continued to be impacted by casino closures, capacity limitations and lower customer demand resulting from the COVID-19 pandemic.  We have started to experience some recoveryrecover from the negative impact of the COVID-19 pandemic as domestic casino sales in the first quarter of 2021 increased 11% compared to the fourth quarter of 2020.
18
pandemic.

The decreaseincrease in international casino and gaming sales during the first quarter of 20212022 compared to the first quarter of 20202021 was primarily due to a 64% decline71% increase in sales of our thermal casino printers and a 39% decline397% increase in international sales of our off-premise gaming printersprinters.  These increases are attributable to the continuedrecovery of the international markets after significant negative impacts offrom the COVID-19 pandemic on thepandemic.  The international casino and gaming industry.market recovered at a slower pace during 2021 compared to the domestic casino and gaming market.

18
Printrex: PrintrexPrintrex branded printers arewere sold into markets that include wide format, desktop and rack mountedrack-mounted and vehicle mountedvehicle-mounted black/white thermal printers used by customers to log and plot oil field, seismic and down hole well drilling data in the oil and gas exploration industry.  It also includes high-speed color inkjet desktop printers used to print logs at the data centers of the oil and gas field service companies.  Sales of our worldwide Printrex printers for the three months endedMarch 31, 20212022 and 20202021 were as follows:

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
(In thousands, except percentages)
 
March 31, 2021
  
March 31, 2020
  $ Change  
% Change
  
March 31, 2022
  
March 31, 2021
  $ Change  
% Change
 
Domestic
 
$
27
   
17.0
%
 
$
61
   
52.1
%
 
$
(34
)
  
(55.7
%)
 
$
–
   
0.0
%
 
$
27
   
17.0
%
 
$
(27
)
  
(100.0
%)
International
  
132
   
83.0
%
  
56
   
47.9
%
  
76
   
135.7
%
  
–
   
0.0
%
  
132
   
83.0
%
  
(132
)
  
(100.0
%)
 
$
159
   
100.0
%
 
$
117
   
100.0
%
 
$
42
   
35.9
%
 
$
–
   
0.0
%
 
$
159
   
100.0
%
 
$
(159
)
  
(100.0
%)

The increaseDuring 2021, we decided to exit the Printrex business and in sales of Printrex printers for the firstfourth quarter of 2021 comparedfulfilled last buy orders to the first quarter of 2020 resulted primarily from increased international sales in the oil and gas market.  This increase was partially offset by a decrease in domestic Printrex printer sales during the first quarter of 2021 compared to the first quarter of 2020.  Though our overalllegacy customers.  We expect no future Printrex sales increased,as we are no longer focused onhave shifted our focus away from this market and expect sales to decline over time.towards our higher value, technology-enabled food service technology terminals and casino and gaming products.

TSG: Revenue generated by TSG includes sales of consumable products (POS receipt paper, inkjet cartridges, ribbons and other printing supplies for legacy products), replacement parts and accessories, maintenance and repair services, testing services, refurbished printers, and shipping and handling charges.  Sales in our worldwide TSG market for the three months ended March 31, 20212022 and 20202021 were as follows:

 
Three Months Ended
  
Three Months Ended
     
Three Months Ended
  
Three Months Ended
    
(In thousands, except percentages)
 
March 31, 2021
  
March 31, 2020
  $ Change  
% Change
  
March 31, 2022
  
March 31, 2021
  $ Change  
% Change
 
Domestic
 
$
1,280
   
93.7
%
 
$
2,003
   
88.2
%
 
$
(723
)
  
(36.1
%)
 
$
1,068
   
70.7
%
 
$
1,280
   
93.7
%
 
$
(212
)
  
(16.6
%)
International
  
86
   
6.3
%
  
267
   
11.8
%
  
(181
)
  
(67.8
%)
  
442
   
29.3
%
  
86
   
6.3
%
  
356
   
414.0
%
 
$
1,366
   
100.0
%
 
$
2,270
   
100.0
%
 
$
(904
)
  
(39.8
%)
 
$
1,510
   
100.0
%
 
$
1,366
   
100.0
%
 
$
144
   
10.5
%

The decrease in domestic revenue from TSG forduring the first quarter of 20212022 as compared to the first quarter of 20202021 was due primarily to lower sales of legacy replacement parts, service revenue, and consumable products and service revenue.products.  Replacement part sales decreased 31%14% primarily from lower lottery printer spare part sales to IGT, which can vary significantly from quarter to quarter.  Consumable sales declined 57% due primarily to lower sales of HP inkjet cartridges used in our banking printers, as we exited the banking market at the end of 2018, and to a lesser extent, lower sales of legacy POS printer paper.  Service revenue declined 43% 24%, primarily related to declining revenue from a service contract with a legacy banking customer that is expected to end later in 2021.  We expect TSGexpire during 2022.  Consumable sales to decrease in 2021 compared to 2020declined 23%, due to lower expecteddecreased sales of consumable products for our legacy lottery printer spare printer parts to IGT and lower service sales related to the service contract with a banking customer that is expected to end in 2021.products on which we are no longer focusing. 

Internationally, TSG revenue decreased forincreased in the first quarter of 20212022 compared to the first quarter of 20202021 primarily due to a 66% decrease576% increase in sales of replacement parts, and accessoriesas we made a sale of obsolete electronic components to international casino and gaming customers due to the negative impact from the COVID-19 pandemic.customers.

Gross Profit. Gross profit information for the three months ended March 31, 20212022 and 20202021 is summarized below (in thousands, except percentages):

Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
$
3,189
  
$
4,918
   
(35.2
%)
  
38.4
%
  
48.0
%
19
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
2022
  
2021
  
Change
  
Total Sales - 2022
  
Total Sales - 2021
 
$
2,994
  
$
3,189
   
(6.1
%)
  
30.9
%
  
38.4
%

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 EPICENTRALTM print system and BOHA! ecosystem and royalty payments to third parties, including to the third-party licensor of our food service technology software products.  For the first quarter of 2021,2022, gross profit decreased $1.7$0.2 million, or 35%6%, due largelyprimarily to increased product and shipping costs related to world-wide supply chain shortages and disruptions offsetting a sales decreaseincrease of 19% for the first quarter in 2021 compared to the first quarter of 2020.$1.4 million.  Additionally, our gross margin decreased 960750 basis points to 30.9% for the first quarter of 2022 compared to 38.4% for the first quarter of 2021 compareddue to 48.0% forthe increased product and shipping costs noted above.  We expect our gross margin to continue to be negatively impacted by higher product and shipping costs throughout 2022, but this impact should be mitigated by price increases instituted during the first quarter of 2020.  The decrease in gross margin resulted from lower sales of our higher margin casino printers and lower margin on our BOHA! hardware sales2022 that will be fully realized beginning in the firstsecond quarter of 2021 compared to the first quarter of 2020.2022.

19

Operating Expenses - Engineering, Design and Product Development. Engineering, design and product development information for the three months ended March 31, 20212022 and 20202021 is summarized below (in thousands, except percentages):

Three Months Ended March 31,
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
2022
2022
  
2021
  
Change
  
Total Sales - 2022
  
Total Sales - 2021
 
$
1,803
  
$
1,385
   
30.2
%
  
21.7
%
  
13.5
%
2,283
  
$
1,803
   
26.6
%
  
23.5
%
  
21.7
%

Engineering, design and product development expenseexpenses primarily includesinclude salary and payroll relatedpayroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses including those to the third-party licensor of our food service technology software products).  Engineering, design and product development expenses increased $418 thousand,$0.5 million, or 30%27%, for the first quarter of 20212022 compared to the first quarter of 2020,2021, primarily due to the hiring of additional software developers during the second half of 2021 and first quarter of 2022 for the continued development forof our food service technology products.  We expect engineering, design and product development expenseexpenses to continue to increase in 20212022 compared to 2020 related2021 due to acceleratedcontinued planned investments planned forin our food service technology products.

Operating Expenses - Selling and Marketing. Selling and marketing information for the three months ended March 31, 20212022 and  20202021 is summarized below (in thousands, except percentages):

Three Months Ended March 31,
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
2022
2022
  
2021
  
Change
  
Total Sales - 2022
  
Total Sales - 2021
 
$
1,443
  
$
2,208
   
(34.6
%)
  
17.4
%
  
21.5
%
2,683
  
$
1,443
   
85.9
%
  
27.7
%
  
17.4
%

Selling and marketing expenses primarily include salaries and payroll relatedpayroll-related expenses for our sales, marketing and marketingcustomer 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 decreasedincreased by $765 thousand,$1.2 million, or 35%86%, for the first quarter of 20212022 compared to the first quarter of 20202021 due primarily due to lower expenses from travel, trade showsinvestment spending for our food service technology sales and marketing groups.  During the first quarter of 2022, we initiated BOHA! market studies, increased marketing programs and hired additional employees in our BOHA! sales and marketing groups.  In addition to these investments, we experienced higher sales commissions, travel expenses and tradeshow expense, as travel begins to return to pre-COVID-19 levels, compared to the lower levels of spending in the first quarter of 2021.  The first quarter2021 resulting from the negative impacts of 2020 reflected pre-COVID 19 levels of sales and marketing expenses before costs saving measures were taken once we were impacted by the pandemic.COVID-19.  We expect selling and marketing expenses to increase in 2022 compared to 2021, as we gradually returnplan to more normalized pre-COVID-19 spending levels as well ascontinue to make substantial strategic investments in our food service technology sales and marketing groups that were deferred from 2020 dueattend more trade shows in 2022 compared to the pandemic.2021.

Operating Expenses - General and Administrative. General and administrative information for the three months ended March 31, 20212022 and 20202021 is summarized below (in thousands, except percentages):

Three Months Ended March 31,
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
2022
2022
  
2021
  
Change
  
Total Sales - 2022
  
Total Sales - 2021
 
$
2,609
  
$
2,620
   
(0.4
%)
  
31.4
%
  
25.6
%
3,204
  
$
2,609
   
22.8
%
  
33.0
%
  
31.4
%

General and administrative expenses primarily include salaries, incentive compensation, and other payroll relatedpayroll-related expenses for our executive, accounting, human resources, business development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, telecommunicationinformation technology expenses, board of director expenses and other expenses related to being a publicly-tradedpublicly traded company.  General and administrative expenses decreased less than 1% forincreased $0.6 million, or 23%, during the first quarter of 20212022 compared to the first quarter of 2020.  We expect general2021.  The increase is primarily due to higher compensation expense for existing employees, higher recruiting fees related to BOHA! engineering and administrativesales and marketing staff hired during the first quarter of 2022 and expenses related to increasethe implementation of a new ERP system that was completed in 2021 asApril 2022 and legal fees related to a shareholder matter that was resolved on March 30, 2022 when we gradually return to more normalized pre-COVID-19 spending levels.entered into a Cooperation Agreement with two shareholders.

Operating Loss. Operating loss information for the three months ended March 31, 20212022 and 20202021 is summarized below (in thousands, except percentages):
20

Three Months Ended March 31,
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
Three Months Ended March 31,
  
Percent
  
Percent of
  
Percent of
 
2021
  
2020
  
Change
  
Total Sales - 2021
  
Total Sales - 2020
 
2022
2022
  
2021
  
Change
  
Total Sales - 2022
  
Total Sales - 2021
 
$
(2,666
)
 
$
(1,295
)
  
105.9
%
  
(32.1
%)
  
(12.6
%)
(5,176
)
 
$
(2,666
)
  
94.1
%
  
(53.3
%)
  
(32.1
%)

Our operating loss increased $1.4$2.5 million, or 106%94%, in the first quarter of 20212022 compared to the first quarter of 20202021 due to a decrease in sales of 19% resulting from the negative impact of COVID-19 on sales and a decrease in our gross margin of 960750 basis points.  This decrease was partially offset by a 6% declinepoints and the 40% increase in operating expenses, largely for BOHA! investment spending, during the first quarter of 20212022 compared to the first quarter of 2020.2021.

20
Interest. We recorded net interest expense of $64 thousand for the first quarter of 2022 compared to $13 thousand for the first quarter of 2021 compared2021.  The increase in interest expense was primarily due to net interest income of $3 thousand forlosses reported in our short-term investment accounts during the first quarter of 2020.  Interest expense in2022.  The first quarter of 2021 was due to unused borrowing fees under the Siena Credit Facility that was entered into on March 13, 2020, partially offset byincluded interest income earned on thefrom a note receivable andto a long-term revenue contract.  We expect interest expense to increasethird-party software developer that was collected in the full year 2021 compared to the full year 2020 due to the full year impact of unused borrowing fees incurred from the Siena Credit Facility and lower interest income due to the collection of the note receivable in the first quarter ofMarch 2021.

Other, net. We recorded other expense of $35 thousand for the first quarter of 2022 compared to other expense of $83 thousand for the first quarter of 2021 compared to other expense of $165 thousand for the first quarter of 2020 primarily due to foreign exchange losses recorded by our UK subsidiary.  Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the Euro and Pound Sterling against the U.S. Dollar, which may be impacted by volatility in global economic conditions due to the COVID-19 pandemic.

Income Taxes. We recorded an income tax benefit for the first quarter of 20212022 of $556 thousand$1.3 million at an effective tax rate of 20.1%23.9%, compared to an income tax benefit during the first quarter of 20202021 of $465 thousand$0.6 million at an effective tax rate of 31.9%20.1%.  The effective tax rate for the first quarter of 2020 was2022 is higher as it includedthan the impact of our net operating loss (“NOL”) that we incurred during 2020 and will carry back to prior years.  The CARES Act enacted on March 27, 2020 permits NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.  We generated an NOL in 2020 which we will carry back to tax years that had a federal statutoryeffective tax rate for the first quarter of 34%2021 as we are estimating an increase in the R&D credit in 2022 compared to 21% in 2020.2021 due to expected investment spending for our BOHA! products.

Net Loss. We reported a net loss for the first quarter of 20212022 of $2.2$4.0 million, or $0.25$0.41 per diluted share, compared to a net loss of $1.0$2.2 million, or $0.13,$0.25 per diluted share, for the first quarter of 2020.2021.

Liquidity and Capital Resources

Cash Flow
For the first three months of 2021,2022, our cash and cash equivalents balance decreased $1.6$7.5 million, or 16%38%, from December 31, 2020.2021. We ended the first quarter of 20212022 with $8.7$12.0 million in cash and cash equivalents, of which $0.1$2.6 million was held by our U.K. subsidiary.

Operating activities:  The following significant factors affected our cash used in operating activities of $3.1$6.8 million for the first three months of 20212022 as compared to cash used in operating activities of $3.6$3.1 million for the first three months of 2020:2021:

During the first three months of 2022:
●We reported a net loss of $4.0 million.
●We recorded depreciation and amortization of $0.2 million, and share-based compensation expense of $0.3 million.
●Accounts receivable decreased $0.7 million, or 9%, primarily due to a decrease in sales in the first quarter of 2022 compared to the fourth quarter of 2021.
●
Inventory increased $1.3 million, or 17%, due to the strategic purchase of additional inventory to mitigate supply chain constraints.
●Other current and long-term assets increased $0.8 million, or 68%, due primarily to customer cash deposits made during the last week of March 2022 that were automatically swept from our bank account by Siena pursuant to an arrangement made under our credit facility.  These funds are typically redeposited to our bank account before each quarter but were not returned until April 1, 2022.
●Accounts payable decreased $0.4 million, or 9%, due primarily to the payment of inventory purchases made during the fourth quarter of 2021.
●Accrued liabilities and other liabilities decreased $0.3 million, or 3%, due primarily to the payment of 2021 annual bonuses in March 2022, somewhat offset by higher accrued legal expenses and accrued salaries.

During the first three months of 2021:
●We reported a net loss of $2.2 million.
●We recorded depreciation and amortization of $0.2 million, and share-based compensation expense of $0.3 million.
●Accounts receivable increased $1.3 million, or 40%, primarily due to increased sales volume late in the first quarter of 2021.
●
Inventory decreased $1.3 million, or 11%, due to the utilization of inventory on hand to fulfill sales in response to the pandemic.
pandemic.
●Other current and long-term assets increased $0.1 million, or 7%, due largely to advance payments made in the first quarter of 2021 for our annual ERP software maintenance.
●Accounts payable increased $0.2 million, or 13%, due primarily to the timing of payments during the first quarter of 2020.2021.
●Accrued liabilities and other liabilities decreased $1.0 million, or 13%, due primarily to the payment of 2020 annual bonuses in March 2021.


21

During the first three months of 2020:
●We reported a net loss of $1.0 million.
●We recorded depreciation and amortization of $0.2 million, and share-based compensation expense of $0.2 million.
●Accounts receivable decreased $0.1 million, or 1%, primarily due to lower sales volume during the first three months of 2020.
●Inventory increased $0.6 million, or 5%, due to the purchase of inventory during the first quarter of 2020 to support anticipated sales that did not occur due to the impact of the COVID-19 pandemic on our sales in March 2020.
●Other current and long-term assets increased $0.3 million, or 26%, due largely to advance payments made in the first quarter of 2020 for our annual ERP software maintenance.
●Accounts payable decreased $1.2 million, or 42%, due primarily to inventory purchases made towards the end of the fourth quarter of 2019 that were subsequently paid in the first quarter of 2020.
●Accrued liabilities and other liabilities decreased $0.8 million, or 11%, due primarily to the payment of 2019 annual bonuses in March 2020.

Investing activities:  Our capital expenditures were $68$496 thousand for the first three months 20212022 compared to $328$68 thousand for the first quarter of 2020.2021.  Expenditures in 2022 were primarily related to implementation costs of a new ERP system that was completed in April 2022 and computer and networking equipment.  Expenditures in 2021 were for computer and networking equipment and new product tooling equipment.  Expenditures in 2020 were primarily for computer and networking equipment, new product tooling equipment and leasehold improvements at our Las Vegas facility.  InvestingIn the first quarter of 2021, investing activities also provided $1.6 million for the first three months of 2021 uponfrom the collection of the remaining $1.6 million note receivable balance from an unaffiliated third-party compared to $0.6 million of cash used in investing activities during the first three months of 2020 for a loan to the same unaffiliated third-party.

Capital expenditures and additions to capitalized software for 2021 are expected to be approximately $1.4 million, primarily for new product tooling, new computer software and computer and networking equipment to support our food service technology market.

Financing activities:  Financing activities used $15$119 thousand of cash during the first three months of 2022 to pay for withholding taxes on stock issued from our stock compensation plans.  During the first three months of 2021, financing activities used $15 thousand of cash to pay $75 thousand for withholding taxes on stock issued from our stock compensation plans and $31 thousand on the final payment of financing costs associated with our Siena Credit Facility, partially offset by proceeds of $91 thousand from stock option exercises.  During the first three months of 2020, financing activities provided $0.9 million of cash from net borrowings of $794 thousand from our Siena Credit Facility and proceeds of $353 thousand from stock option exercises, partially offset by the payment of financing costs associated with signing our Siena Credit Facility.

Credit Facility and Borrowings
On March 13, 2020, we entered into the Siena Credit Facility with Siena Lending Group LLC, and terminated our credit facility with TD Bank N.A.  The Siena Credit Facilitywhich provides for a revolving credit line of up to $10 million expiring on March 13, 2023.  Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%.  The total deferred financing costs related to expenses incurred to complete the Siena Credit Facility were $245 thousand.  We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility.  Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.  Borrowings under the Siena Credit Facility are subject to a borrowing base based on (i) 85% of eligible accounts receivable plus the lesser of (a) $5 million and (b) 50% of eligible raw material and 60% of finished goods inventory.

The Siena Credit Facility imposes a quarterly financial covenant on the Company and restricts, among other things, our ability to incur additional indebtedness and the creation of other liens.  The three month period from April 1, 2020 to June 30, 2020 was the first period we were subject to the financial covenant, which required the Company to maintain a minimum EBITDA.EBITDA and continued through the 12-month period from April 1, 2020 to March 31, 2021.  On July 21, 2021, the Company entered into an amendment (the “Credit Facility Amendment”) to the Siena Credit Facility.  The Credit Facility Amendment changed the financial covenant under the Siena Credit Facility from a minimum EBITDA covenant to an excess availability covenant requiring that the Company maintain excess availability of at least $750 thousand under the Siena Credit Facility, tested as of the end of each calendar month, beginning with the calendar month ending July 31, 2021. From July 31, 2021 to March 31, 2022, we have been in compliance with our excess availability covenant.  As of March 31, 2021,2022, we had no outstanding borrowings under the Siena Credit Facility and were in compliance with our financial covenant.  The agreement governing$3.5 million of available borrowing capacity under the Siena Credit Facility provides for the parties to update the financial covenant for periods ending after March 31, 2021 based on updated financial projections of the Company. The Company does not anticipate a material change in the financial covenant, nor does it anticipate any other material change in the terms or covenants pertaining to its current credit facilities.  The following table demonstrates our compliance with the financial covenant at March 31, 2021.Facility.

Financial CovenantRequirementCalculation for the period from April 1, 2020 to March 31, 2021
EBITDA
Minimum of $(7,984)
$(7,144)

On May 1, 2020 (the “Loan Date”), the Company entered intowas granted the PPP Loan with Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP which is administered by the SBA and was established under Division A, Title I of the CARES Act, enacted March 27, 2020.
22
  Under the terms of the PPP, the PPP Loan would be forgiven to the extent that funds from the PPP Loan were used for payroll costs and costs to continue group health care benefits, as well as for interest on mortgage obligations incurred before February 15, 2020, rent payments under lease agreements in effect before February 15, 2020, utilities for which service began before February 15, 2020 and interest on debt obligations incurred before February 15, 2020, subject to conditions and limitations provided in the CARES Act.  At least 60% (under the PPP terms, as amended) of the proceeds of the PPP Loan needed to have been used for eligible payroll costs for the PPP Loan to be forgiven.

The PPP Loan, which iswas evidenced by a Note dated the Loan Date issued by the Company (the “Note”), maturesin favor of Berkshire Bank as a lender, was scheduled to mature on May 1, 2022 and bears interest athad a fixed interest rate of 1.0% per annum, accruing from the Loan Date and payable monthly. The Company submitted its PPP Loan forgiveness application in May 2021 to the SBA through Berkshire Bank and submitted the related loan necessity questionnaire in June 2021.  On July 8, 2021, the Company received notifications from Berkshire Bank and the SBA that its PPP Loan (including all interest accrued thereon) of $2.2. million had been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021.  No payments were due on the PPP Loan for six months from the date of first disbursement, and ifbecause a loan forgiveness application iswas submitted to the SBA within 10 months after the end of the covered period, no payments arewere due until the date on which the SBA remitsremitted the loan forgiveness amount to the PPP Lender, (or notifies the PPP Lenderand interest that no loan forgiveness is allowed), but interest will continue to accrueaccrued during the deferment period.  If no loan forgiveness is allowed, the Company will be required to pay the PPP Lender equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period and taking into account any reductionswas included in the principal amount due to forgiveness if any.amount.  The Note is unsecured and guaranteed by the SBA.  The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties.  The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the Note or related documents, reorganizations, mergers, consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions.  The PPP Loan may be accelerated upon the occurrence of a default.

Under the terms of the PPP, the PPP Loan may be forgiven to the extent that funds from the PPP Loan are used for qualifying expenses, subject to conditions and limitations provided in the CARES Act.  At least 60% (as amended) of the proceeds of the PPP Loan must be used for eligible payroll costs for the PPP Loan to be forgivable. The Company has maximized the use of the PPP Loan proceeds for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the termswas reported as “Gain on forgiveness of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020.  Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt.  The PPP Loan is classified as “Long-termlong-term debt” in the Condensed Consolidated Balance Sheet untilStatement of Operations during the forgiveness determination has been made by the SBA.year ending December 31, 2021.

Shareholder Dividend Payments
In 2012, our Board of Directors initiated a quarterly cash dividend program which was subject to the Board’s approval each quarter.  On January 23, 2020, our Board of Directors announced the cessation of our quarterly cash dividend on the Company’s common stock to accelerate the investment in sales and marketing, continued product development and infrastructure of the BOHA! ecosystem.  The final dividend payment was made in December 2019.

22
Resource Sufficiency
Given the unprecedented uncertainty related to the impact of the COVID-19 pandemic on the food service and casino industries, the Company is closely monitoring its cash generation, usage and preservation including the management of working capital to generate cash. The Company does not currently anticipate requiring any additional credit facilities within the next twelve months beyond our Siena Credit Facility and the PPP Loan, which are discussed above.    The agreement governing the Siena Credit Facility provides for the parties to update the financial covenant for periods ending after March 31, 2021 based on updated financial projections of the Company. The Company does not anticipate a material change in the financial covenant, nor does it anticipate any other material change in the terms or covenants pertaining to its current credit facilities.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, and borrowings available under our Siena Credit Facility will provide sufficient resources to meet our working capital needs, finance our capital expenditures and meet our liquidity requirements through at least the next twelve months.  Notwithstanding this belief, the duration and extent of the pandemic remainremains uncertain and its ultimate impact is unknown.  Further, availability under the Siena Credit Facility depends in part on inventory levels, which have been impacted and are expected to continue to be impacted by supply chain disruptions due to the COVID-19 pandemic.  As a result, we continue to evaluate several different strategies to enhance our liquidity position as a result of the significant financial and operational impacts due to the COVID-19 pandemic.  These strategies may include, but are not limited to, seeking to raise additional capital through an equity or debt financing and applying for additional relief through other programs established under the CARES Act.financing.

Off-Balance Sheet Arrangements
As of March 31, 2021, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

23

Item 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)(our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022.  The term “disclosure controls and procedures,” as defined in RuleRules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of March 31, 2021.  In the Amendment to2022, our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on November 21, 2019, we disclosedChief Executive Officer and Chief Financial Officer concluded that, management, including our CEO and CFO, concluded thatas of such date, our disclosure controls and procedures were not effective as of December 31, 2018, due to two material weaknesses in our internal control over financial reporting.  As of March 31, 2021, one material weakness was not fully remediated and our disclosure controls and procedures were not effective as of March 31, 2021.  Management has begun remediation efforts onat the remaining material weakness, which are described below.

Notwithstanding the material weakness, our management, including our CEO and CFO, has concluded that our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 and the condensed consolidated financial statements included in this Report for the three months ended March 31, 2021, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles, and that they can still be relied upon.

Material Weakness in Internal Control Over Financial Reporting
We identified a control deficiency that constituted a material weakness in our internal control over financial reporting as of March 31, 2021 and December 31, 2020 and 2019.  The material weakness was that we did not design and maintain effective controls over the completeness and accuracy of information included in key spreadsheets supporting our accounting records (the “Spreadsheet Control Weakness”).

The control deficiency constituted a material weaknesses, but did not result in a material misstatement of our annual or interim consolidated financial statements.  However, if the material weakness is not remediated, a material misstatement of account balances or disclosures may not be prevented, and may go undetected, which could result in a material misstatement of future annual or interim consolidated financial statements.

Remediation Efforts to Address Material Weakness
Beginning December 31, 2019, we commenced developing and implementing a plan to enhance the design and operating effectiveness of our internal control over financial reporting.  As of December 31, 2020 we have taken the following steps to remediate the identified control deficiency and material weakness:

To address the Spreadsheet Control Weakness, for each key spreadsheet we plan to evaluate and determine (1) if a standard Oracle report exists containing the same information as the spreadsheet, and if so, we would utilize the standard Oracle report (without modification) instead of the spreadsheet to support our accounting records and (2) if a standard Oracle report cannot be used, we will implement a new key control whereby an employee performs a formal validation that the information from Oracle is completely and accurately transferred (automatically or manually) to a spreadsheet by verifying totals and other information on a test basis.  For all key spreadsheets, we plan to design and implement a new key control to validate the completeness and accuracy of information supporting our accounting records.  During 2020 and the first quarter of 2021, we completed the evaluation process for each key spreadsheet based on the above criteria, and we implemented a new key control for approximately 30% of our key spreadsheets to validate the completeness and accuracy of the information contained within and supporting each such spreadsheet.  We expect to complete the remediation of the Spreadsheet Control Weakness during 2021.

We believe these steps will address the material weaknesses described above.reasonable assurance level.

Changes in Internal Control Over Financial Reporting
Other than the changes intended to remediate the material weakness noted above, no changesNo change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
24
23

PART II.  OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS
The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business.  As of March 31, 2021,2022, we are unaware of any material pending legal proceedings, or of any material legal proceedings contemplated by government authorities.

Item 1A.RISK FACTORS
Information regarding risk factors appears under Part I, Item 1A, “Risk Factors,” of our Annual Report on2021 Form 10-K for the year ended December 31, 2020.10-K.  There have been no material changes from the risk factors previously disclosed in that Annual Report onour 2021 Form 10-K. The risks factors described in our Annual Report on2021 Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties, not currently known to us or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition or future results.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

Item 3.DEFAULTS UPON SENIOR SECURITIES
None.

Item 4.MINE SAFETY DISCLOSURES
Not applicable.

Item 5.OTHER INFORMATION
None.

Item 6.EXHIBITS

10.13.1(a)*
 Second Amendment to Lease by and between 2319 Hamden Center I, L.L.C. andCertificate of Incorporation of TransAct Technologies dated April 30, 2021.Incorporated (conformed copy) (incorporated by reference to Exhibit 3(i) of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 9, 2019).
3.1(b)
Certificate of Designation, Series A Preferred Stock, filed with the Secretary of State of Delaware on December 2, 1997 (incorporated by reference to Exhibit C of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on February 18, 1999).
3.1(c)
Certificate of Designation, Series B Preferred Stock, filed with the Secretary of State of Delaware on April 6, 2000 (incorporated by reference to Exhibit 3.1(c) of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on May 8, 2000).
3.2
Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on August 2, 2019).
10.1
Cooperation Agreement, dated as of March 30, 2022, by and among TransAct Technologies Incorporated, 325 Capital Master Fund LP and Harbert Discovery Fund, LP (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-21121) filed with the SEC on March 31, 2022).
31.1 *
 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *
 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 **
 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS 
Inline XBRL Instance Document.Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.
**Furnished herewith.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 TRANSACT TECHNOLOGIES INCORPORATED
 (Registrant)
  
 By: /s/ Steven A. DeMartino
Dated: May 13, 202116, 2022     Steven A. DeMartino
      President, Chief Financial Officer, Treasurer and Secretary
      (Principal Financial Officer)
  
  
 By: /s/ David B. Peters
Dated: May 13, 202116, 2022     David B. Peters
      Vice President and Chief Accounting Officer
      (Principal Accounting Officer)

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