TRANSACT TECHNOLOGIES INC

OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation

Theaccompanying 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. The December 31, 2024 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 in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the full year ending December 31, 2025.

After strong demand during most of 2023 due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023 and during the year ended December 31, 2024. 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 “Form 10-Q”) were issued, including consideration of the actions 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 unaudited Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, inflation, tariffs and other trade restrictions, rising interest rates, capital expenditures and other operating costs. We cannot predict the ultimate impact of the current economic environment, including inflation, and rising interest rates on our customers, which may impact sales. In addition, we cannot predict the ultimate impact that recent or future tariff actions by the U.S. government and other countries may have on our costs and supply chain or provide assurance that all such cost increases can be offset by price increases. Tariffs may also change customer behavior, as some customers may seek to order further in advance than they typically do to avoid any potential cost increases, which could result in lower demand in future periods. We believe that we are positioned to withstand the impact of any potential future economic downturn and we would be able to take additional financial and operational actions to increase liquidity.

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

2. Significant accounting policies

For a discussion of our significant accounting policies, see Note 2, Summary of significant accounting policies within Part II, Item 8. “Financial Statements and Supplementary Data” in the 2024 Form 10-K. There have been no changes to our significant accounting policies since the 2024 Form 10-K.

Recently issued accounting pronouncements:

On December 14, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires the use of consistent categories and greater disaggregation in tax rate reconciliations and income taxes paid disclosures. These amendments are effective for fiscal years beginning after December 15, 2024. These income tax disclosure requirements can be applied either prospectively or retrospectively to all periods presented in the financial statements. We are currently evaluating the impact of adopting this standard; however, we do not expect it to have a material impact on our Consolidated Financial Statements.

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In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this update require footnote disclosures on disaggregated information about specific categories underlying certain income statement expense line items that are considered relevant. This includes items such as the purchase of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026. Early adoption is permitted. We expect that adoption of this ASU will result in additional disclosure, but will not impact our consolidated financial position, results of operations, or cash flows.

Other new accounting pronouncements issued, but not effective until after March 31, 2025, did not and are not expected to have a material impact on our financial position, results of operations or liquidity.

3. Revenue

We account for revenue in accordance with Accounting Standards Codification (“ASC”)Topic 606: Revenue from Contracts with Customers.

Disaggregation of revenue

The following tables disaggregate our revenue by market type, as we believe this 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.

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, net” and “Other assets” in the Condensed Consolidated Balance Sheets.

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 maintenance 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, 2025, we recognized revenue of $0.4 million related to our contract liabilities at December 31, 2024. Total net contract liabilities consisted of the following:

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Remaining performance obligations

Remaining performance obligations represent the transaction priceof firm orders for which a good or service has not been delivered to our customer. As of March 31, 2025, the aggregate amount of transaction prices allo cated to remaining performance obligations was $6.6 million. The Company expects to recognize revenue of $6.3 million of its remaining performance obligations within the next 12 months following March 31, 2025, $0.2 million within the next 24 months following March 31, 2025 and thebalance of these remaining performance obligations recognized within the next 36 months following March 31, 2025.

4. Inventories

The components of inventories were:

5. Borrowings

Credit Facility

We are party to a Loan and Security Agreement, dated as of March 13, 2020 (as amended, the “Loan Agreement”), with Siena Lending Group LLC (the “Lender”) that provides for a revolving credit line of up to $10.0 million, subject to a borrowing base based on 85% of eligible accounts receivable plus the lesser of (a) $5.0 million and (b)50% of eligible raw material and 60% of finished goods inventory (the “Siena Credit Facility”). 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%. 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.

The Siena Credit Facility imposes a financial covenant on the Company 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 and restricts, among other things, our ability to incur additional indebtedness and create other liens. We have remained in compliance with our excess availability covenant through March 31, 2025.

The Company is required to either maintain outstanding borrowings under the Siena Credit Facility of at least $3.0 million in principal amount, or during any period during which the Lender has control of the Company’s deposit account in accordance with the Loan Agreement, to pay interest on at least $3.0 million principal amount of loans, whether or not such amount of loans is actually outstanding. The maturity date of the Siena Credit Facility is March 31, 2027.

As of March 31, 2025, we had $3.0 million of outstanding borrowings under the Siena Credit Facility at an interest rate of 9.25%. We had $3.3 million of net borrowing capacity available under the Siena Credit Facility at March 31, 2025.

6. Segment reporting

We apply the provisions of FASB ASC Topic 280, “Segment Reporting.” We view our operations and manage our business asone 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. Factors used to identify TransAct’s single operating segment include the similar design, construction and functionality of our products and services, the combined research & development team that supports the entire company, a combined assembly, production and supply chain logistics process used to construct our products and services and a similar class of customers within our core markets (distributors, resellers, original equipment manufacturers (“OEMs”) and end users).

Other factors used to identify TransAct’s single operating segment include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker (“CODM”) in making decisions about how to allocate resources and assess performance. The Company’s chief operating decision makers, who are the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, utilize a consolidated approach to assess the performance of and allocate resources to the business.

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We generally use measures of sales, gross margin percentage, net income, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA to make operational and strategic decisions. These financial measures are compared to budgeted and forecasted amounts by the CODMs on a regular basis to measure our progress towards our strategic plans, pursue product enhancements, conduct research and development initiatives and make any other necessary overall strategic changes to the business. We disclose these non-GAAP segment results because we believe they provide meaningful supplemental information and are used by the CODM in making decisions about how to allocate resources and assess performance.

We are currently dependent upon one manufacturer located in Thailand for the manufacturing and assembly of substantially all of our printers and terminals. The majority of raw components used in the manufacturing and assembly of our printers and terminals are sourced locally in Thailand, and to a lessor extent, from other countries in the region, including China.

The following table provides the operating financial results of our segment:

A reconciliation of net income (loss) to EBITDA and adjusted EBITDA follows:

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7. Earnings per share

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

The computation of basic net earnings per share for each period is computed by dividing earnings by the basic weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities under the treasury stock method (including stock options, restricted stock units and performance stock units), if the impact is dilutive.

When the average market price of our common stock is lower than the exercise price of the related stock option during the period, the computation of diluted earnings per share excludes the effect of the potential exercise of these stock option awards because the effect of including these stock option exercises would be anti-dilutive. Furthermore, in periods when a net loss is reported, basic and diluted net loss per common share are calculated using the same method.

Anti-dilutive stock option awards excluded from the computation of earnings per dilutive share were 1.3 million and 1.5 million at March 31, 2025 and 2024, respectively. Anti-dilutive restricted stock awards excluded from the computation of earnings per dilutive share were 0.1 million and 0.2 million at March 31, 2025 and 2024, respectively. Anti-dilutive performance stock awards excluded from the computation of earnings per dilutive share (including performance stock awards whose performance conditions were not satisfied as of the end of the period) were zero and 0.1 million at March 31, 2025 and 2024, respectively.

8. Leases

We account for leases in accordance with ASCTopic 842: Leases.

We enter into lease agreements for the use of real estate space and certain equipment under operating leases and we have no financing leases. Our leases are included in “Right-of-use-assets” and “Lease liabilities” in our Condensed Consolidated Balance Sheets. Our leases have various lease terms, some of which include options to extend. Lease expense is recognized on a straight-line basis over the lease term.

Operating lease expense for the three months ended March 31, 2025 and 2024 was $259 thousand and $282 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.

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

The following summarizes additional information related to our leases as of March 31, 2025 and December 31, 2024:

The maturity of the Company’s operating lease liabilities as of March 31, 2025 and December 31, 2024 were as follows (in thousands):

9. Income taxes

We recorded income tax expense in the first quarter of 2025 of $51 thousand at an effective tax rate of 72.9% compared to an income tax benefit in the first quarter of 2024 of $277 thousand at an effective tax rate of (21.1%). The effective rate for the first quarter of 2025 was unusually high due to (1) a near-breakeven level of pre-tax earnings of $70 thousand and (2) tax expense only included taxes associated with earnings in the United Kingdom and minimum required state taxes in the US.

As of March 31, 2025 and December 31, 2024, we had $8.3 million and $8.1 million, respectively, of valuation allowance against our net deferred income tax assets in multiple global tax jurisdictions. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations and projections of future profitability within the carryforward period, including any potential tax planning strategies. Negative evidence includes items such as cumulative losses and projections of future losses. Upon changes in facts and circumstances, management may conclude that deferred tax assets for which no valuation allowance is currently recorded may not be realized, resulting in a charge to establish a valuation allowance. Existing valuation allowances are re-examined on a quarterly basis under the same standards of positive and negative evidence.

In the fourth quarter of 2024, TransAct recognized a $7.3 million discrete income tax charge for a valuation allowance on the full value of the net deferred tax assets in the United States. These deferred tax assets have an unlimited life (for net operating losses, capitalized R&D expenses and R&D credit carryforwards). The need for this valuation allowance has been assessed as of March 31, 2025 and management continues to believe that the negative evidence, as discussed above, continues to support our valuation allowance.

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 2020. However, our federal tax returns for the years 2021 through 2024 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.

10. Subsequent events

The Company is continuously monitoring the ongoing U.S. government’s executive order tariffs and counter tariffs imposed on the U.S. by certain countries. Since February 2025, the U.S. government has issued several executive orders imposing tariffs on imports from most countries with which the U.S. engages in trade. We are currently dependent upon a manufacturer located in Thailand for the manufacturing and assembly of substantially all of our printers and terminals. On April 2, 2025, the U.S. government imposed a baseline 10% tariff on goods imported from Thailand, effective April 5, 2025. In addition, the U.S. government announced a 36% reciprocal tariff on goods imported from Thailand that was intended to replace the baseline tariff on April 9, 2025, but was subsequently suspended until July 2025.

The Company has evaluated all other events or transactions that occurred up to the date the Condensed Consolidated Financial Statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

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