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 nine months ended September 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, interest rates, capital expenditures and other operating costs.

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.

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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. Wehave assessed the impact of adopting this standard and outside of enhanced disclosures, this adoption will not 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.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326). This amendment provides certain entities with an additional practical expedient election for estimating expected credit losses on current accounts receivable and current contract assets arising from revenue transactions under Accounting Standards Codification (“ASC”) Topic 606; Revenue from Contracts with Customers (“ASC Topic 606”). This includes assets acquired in business combinations or through consolidation of VIEs that are not a business if those assets arose from transactions that the acquiree or variable interest entity accounted for under ASCTopic 606. 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.

Other new accounting pronouncements issued, but not effective until after September 30, 2025, did not have, 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 ASC Topic 606.

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 nine months ended September 30, 2025, we recognized revenue of $1.0 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 September 30, 2025, the aggregate amount of transaction prices allo cated to RPOs was $3.7 million. The Company expects to recognize revenue of $3.4 million of its RPOs within the next 12 months following September 30, 2025, an additional $0.2 million within the next 24 months following September 30, 2025 and thebalance of these RPOs within the next 36 months following September 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 September 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 September 30, 2025, we had $3.0 million of outstanding borrowings under the Siena Credit Facility at an interest rate of 9.00%. We had $4.8 million of net borrowing capacity available under the Siena Credit Facility at September 30, 2025.

6. Segment reporting

We apply the provisions of ASC Topic 280, Segment Reporting. We view our operations and manage our business as one segment: the design, development, and marketing of software-driven technology and printing solutions for large and emerging markets, andthe provision of 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 CODM, 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 CODM 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 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.

There were 1.6 million of anti-dilutive stock awards excluded from the computation of earnings per share for both of the quarters ended September 30, 2025 and 2024, and 1.8 million and 1.5 million of anti-dilutive stock awards excluded from the computation of earnings per diluted share for the nine months ended September 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 nine months ended September 30, 2025 and 2024 was $778 thousand and $759 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 for 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 September 30, 2025 and December 31, 2024:

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

9. Income taxes

We recorded income tax expense in thethird quarter of 2025 of $25 thousand at an effective tax rate of 62.5% compared to an income tax benefit in thethird quarter of 2024 of $148 thousand at an effective tax rate of (21.2%). For the nine months ended September 30, 2025, we recorded income tax expense of $116 thousand (on pre-tax income of $7 thousand) compared to an income tax benefit of $511 thousand at an effective rate of (21.1%) for the nine months ended September 30, 2024.

The effective tax rates for the third quarter of 2025 and the nine months ended September 30, 2025 were unusually high because (1) pre-tax income was at near-breakeven levels of $40 thousand and $7 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 September 30, 2025. As such, the Company has not recorded any U.S. federal tax expense associated with pre-tax income recorded in the third quarter of 2025 and the nine months ended September 30, 2025.

As of September 30, 2025 and December 31, 2024, we had $8.4 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 September 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 October 26, 2025, the U.S. government and Thai government issued a joint statement announcing a Framework for an Agreement on Reciprocal Trade, pursuant to which, among other things, the U.S. has agreed to maintain a tariff of 19% on goods imported from Thailand, as set forth in Executive Order 14257 issued April 2, 2025, as amended, with certain products eventually to be identified for a 0% tariff rate. See further discussion of tariffs in“Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

On November 3, 2025, we entered into an amendment to modify the square footage and expiration date of our lease on our Hamden, Connecticut facility. The lease, which was last amended on April 30, 2021, was scheduled to expire on October 31, 2025. This lease amendment, which was effective on November 1, 2025, modified the expiration date of the lease to December 31, 2029 and reduced the leased square footage from 11,075 square feet to 3,630 square feet.

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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