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 and six months ended June 30, 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. While there was not a material impact to our Condensed Consolidated Financial Statements as of June 30, 2025 and for the quarters and six months ended June 30, 2025 and 2024 resulting from our assessments of these matters, future assessment of our expectations of the magnitude and duration of these macroeconomic developments, as well as other factors, could result in material impacts to our Condensed Consolidated Financial Statements in future reporting periods.

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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.

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 June 30, 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.

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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 six months ended June 30, 2025, we recognized revenue of $0.7 million related to our contract liabilities at December 31, 2024. Total net contract liabilities consisted of the following:

Remaining performance obligations

Remaining performance obligations (“RPOs”) represent the transaction priceof firm orders for which a good or service has not been delivered to our customer. As of June 30, 2025, the aggregate amount of transaction prices allo cated to RPOs was $6.4 million. The Company expects to recognize revenue of $6.1 million of its RPOs within the next 12 months following June 30, 2025, $0.2 million within the next 24 months following June 30, 2025 and thebalance of these RPOs recognized within the next 36 months following June 30, 2025.

4. Inventories

The components of inventories were:

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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 June 30, 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 June 30, 2025, we had $3.0 million of outstanding borrowings under the Siena Credit Facility at an interest rate of 9.25%. We had $1.6 million of net borrowing capacity available under the Siena Credit Facility at June 30, 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 large and emerging 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.

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 lesser extent, from other countries in the region, including China.

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

A reconciliation of net 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.

There were 1.8 million and 1.6 million of anti-dilutive stock awards excluded from the computation of earnings per share for the quarters ended June 30, 2025 and 2024, respectively, and 1.7 million and 1.5 million of anti-dilutive stock awards excluded from the computation of earnings per diluted share for the six months ended June 30, 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 six months ended June 30, 2025 and 2024 was $518 thousand and $500 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 June 30, 2025 and December 31, 2024:

The maturity of the Company’s operating lease liabilities as of June 30, 2025 and December 31, 2024 were as follows (in thousands):

9. Income taxes

We recorded income tax expense in thesecond quarter of 2025 of $40 thousand at an effective tax rate of 38.8% compared to an income tax benefit in thesecond quarter of 2024 of $86 thousand at an effective tax rate of (21.2%). For the six months ended June 30, 2025, we recorded income tax expense of $91 thousand at an effective rate of 275.8% compared to an income tax benefit of $363 thousand at an effective rate of (21.1%) for the six months ended June 30, 2024.

The effective tax rates for the second quarter of 2025 and the six months ended June 30, 2025 were unusually high because (1) pre-tax losses were at near-breakeven levels of $103 thousand and $33 thousand, respectively, and (2) tax expense only included taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States. As discussed below, we provided for a full valuation allowance against our U.S. deferred taxes in the fourth quarter of 2024 and continue to believe this allowance is required as of June 30, 2025. As such, the Company has not recorded any U.S. federal tax benefits associated with losses recorded in the second quarter of 2025 and the six months ended June 30, 2025.

As of June 30, 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.

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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 varying lives (for federal net operating losses, state net operating losses and capitalized R&D expenses). The need for this valuation allowance has been assessed as of June 30, 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

On July 4, 2025, the U.S. President signed into law the One Big Beautiful Bill Act (the “OBBBA”), which introduces significant federal tax law changes. For example, the OBBBA includes numerous changes to U.S. corporate income tax law, including but not limited to: (i) a permanent 100% bonus depreciation for qualified property, (ii) immediate expensing of domestic research and experimental expenditures, (iii) modifications to the limitation on business interest expense deductions, (iv) increased expensing limits under Section 179 of the Internal Revenue Code (the “Code”), (v) changes to certain international tax provisions, (vi) and expanded limitations on the deductibility of executive compensation under Section 162(m) of the Code. Most provisions are effective for tax years beginning after December 31, 2024, with certain transition rules and exceptions.

The Company is currently evaluating the impact of the OBBBA on its Consolidated Financial Statements. The effects of the OBBBA, including remeasurement of deferred tax assets and liabilities and changes to current and future tax expense, will be reflected in the period of enactment and in future periods as additional guidance is issued and the Company completes its analysis. Given TransAct’s current tax positions (including a full valuation allowance against its net deferred tax assets), we do not anticipate this law to have a material impact on our Consolidated Financial Statements.

We are currently dependent upon a manufacturer located in Thailand for the manufacturing and assembly of substantially all of our printers and terminals. During 2025, the U.S. governmenthas announced avariety of trade-related actions, including the imposition of tariffs on imports from several countries, including Thailand. In response, many countries announced their own retaliatory tariffs. Certain tariffs were paused for a period of time buthave not been withdrawn, while others have been revised. On July 30, 2025, the U.S. government announced that an agreement was made with Thailand toestablish a U.S. tariffof 19% on goods imported from Thailand, effective August 7, 2025. The Company continues to monitor therapidly evolving and uncertain tariffand global trade environment and the potential impact to its Consolidated Financial Statements.

On August 6, 2025, the Company announced that it acquired a perpetual licenseto a copyofthe source codefor the BOHA! software that it currently licenses from Avery Dennison. Under the terms of the agreement, TransAct has obtaineda perpetual and royalty free license to use, host, market, sublicense, distribute, copy, and modify the code as the Company sees fit for its business purposes. In addition to the perpetual and royalty free license, TransAct will also host the code in its own environment, which is expected to go live in early 2027. Total consideration for theacquisition was $2.55 million, plus professional services fees of approximately $1.0 million for the transition services to be provided by Avery Dennison.

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 on this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

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