TRANSACT TECHNOLOGIES INC

Previous wording

After strong demand during most of 2023 due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023 and the first nine months of 2024. We currently believe all major customers, with the exception of one large international casino and gaming customer, were able to sell through their on-hand inventory and resumed ordering. Though we expect our overall casino and gaming sales to improve in 2025 compared to 2024, we expect such sales to be somewhat impacted in 2025 until this customer has sold through its inventory on hand. Further, our primary competitor in the casino and gaming market has resumed supplying product at what we believe is their full capacity. The return of this competitor has resulted in some downward pricing pressure in certain geographies of that market which may continue and may negatively impact our worldwide casino and gaming sales. In addition, during 2022 and 2023, we experienced cost increases as a result of supply chain constraints, most of which we have been able to offset by increasing prices of our products. However, pricing pressure has subsequently caused us to lower prices again and there can be no guarantee that we will be able to increase prices sufficiently to offset any future similar cost increases, which generally cannot be predicted, and we may be further impacted by supply chain disruptions, inflation and other global economic conditions that may affect the markets we serve and from which we source our supplies and parts.

Current wording

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. By September 30, 2025, we believe that all significant domestic customers had been able to sell through their on-hand inventory and had resumed ordering, contributing to more normalized casino and gaming sales for the first nine months of 2025. During the fourth quarter of 2025, some domestic casino and gaming customers indicated slowing demand, and one large customer indicated they were in an overstock position while awaiting jurisdictional approvals on new machines. We believe this more recent softness reflects a combination of customer-specific ordering dynamics and broader macroeconomic conditions affecting the casino and gaming industry. While these conditions impacted our casino and gaming sales in the fourth quarter of 2025, we expect demand to improve as customer inventory levels continue to normalize and installations proceed, although the timing and extent of any improvement will depend on prevailing economic and industry conditions in the casino and gaming market as we move through 2026.

Previous wording

Revenue Recognition –Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. The application of GAAP to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, the determination of whether revenues related to our revenue contracts should be recognized over time or at a point in time. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our printers, terminals, consumables and replacement parts. For our warranty, software applications and maintenance agreements, revenue is generally recognized ratably over the contract period. Other significant judgments include contracts that contain multiple performance obligations (most commonly when contracts include a hardware product, software, financing and extended warranties) which require a contract’s transaction price to be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation. Both of these determinations impact the timing and amount of our reported revenues and net income and loss.

Current wording

Revenue Recognition –Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. The application of GAAP to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, the determination of whether revenues related to our revenue contracts should be recognized over time or at a point in time. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our printers, terminals, labels and replacement parts. For our warranty, software applications and maintenance agreements, revenue is generally recognized ratably over the contract period. Other significant judgments include contracts that contain multiple performance obligations (most commonly when contracts include a hardware product, software, financing and extended warranties) which require a contract’s transaction price to be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation. Both of these determinations impact the timing and amount of our reported revenues and net income and loss.

Previous wording

Accounts Receivable – We have standardized credit granting and review policies and procedures for all customer accounts, including: credit reviews of all new customer accounts; ongoing credit evaluations of current customers; credit limits and payment terms based on available credit information; and adjustments to credit limits based upon payment history and the customer’s current creditworthiness. We also provide an estimate for expected credit losses based onan expected loss methodology which considers a broad range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period. Our reserve for expected credit losses as of December 31, 2024 was $0.5 million, or 7.0% of outstanding trade accounts receivable, which we believe is appropriate considering the overall quality of our accounts receivable. Although credit losses have historically been within expectations and the reserves established, there is no assurance that our credit loss experience will continue to be consistent with historical experience. While we believe that our allowance for credit losses is adequate and represents our best estimate of future losses, we will continue to monitor customer liquidity and other economic conditions, which may result in changes to our estimates.

Current wording

Accounts Receivable – We have standardized credit granting and review policies and procedures for all customer accounts, including: credit reviews of all new customer accounts; ongoing credit evaluations of current customers; credit limits and payment terms based on available credit information; and adjustments to credit limits based upon payment history and the customer’s current creditworthiness. We also provide an estimate for expected credit losses based onan expected loss methodology which considers a broad range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period. Our reserve for expected credit losses as of December 31, 2025 was $0.5 million, or 7% of outstanding trade accounts receivable, which we believe is appropriate considering the overall quality of our accounts receivable. Although credit losses have historically been within expectations and the reserves established, there is no assurance that our credit loss experience will continue to be consistent with historical experience. While we believe that our allowance for credit losses is adequate and represents our best estimate of future losses, we will continue to monitor customer liquidity and other economic conditions, which may result in changes to our estimates.

Previous wording

Income Taxes – We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. Among other things, this provision prescribes a minimum recognition threshold that an income tax position must meet before it is recorded in the reporting entity’s financial statements. It also requires that the effects of such income tax positions be recognized only if, as of the balance sheet reporting date, it is “more likely than not” (i.e., more than a 50% likelihood) that the income tax position will be sustained based solely on its technical merits. When making this assessment, management must assume that the responsible taxing authority will examine the income tax position and have full knowledge of all relevant facts and other pertinent information. The accounting guidance also clarifies the method of accruing for interest and penalties when there is a difference between the amount claimed, or expected to be claimed, on a company’s income tax returns and the benefits recognized in the financial statements. This involves estimating the actual current tax exposure together with assessing temporary differences between the tax basis of certain assets and liabilities and their reported amounts in the financial statements, as well as net operating losses, tax credits and other carryforwards. These differences result in deferred tax assets and liabilities, which are reflected in our Consolidated Balance Sheets. We then assess the likelihood that the deferred tax assets will be realized from future taxable income.

Current wording

Income Taxes – We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. Among other things, this provision prescribes a minimum recognition threshold that an income tax position must meet before it is recorded in the reporting entity’s financial statements. It also requires that the effects of such income tax positions be recognized only if, as of the balance sheet reporting date, it is “more likely than not” (i.e., more than a 50% likelihood) that the income tax position will be sustained based solely on its technical merits. When making this assessment, management must assume that the responsible taxing authority will examine the income tax position and have full knowledge of all relevant facts and other pertinent information. The accounting guidance also clarifies the method for accruing interest and penalties when there is a difference between the amount claimed, or expected to be claimed, on a company’s income tax returns and the benefits recognized in the financial statements. This involves estimating the actual current tax exposure together with assessing temporary differences between the tax basis of certain assets and liabilities and their reported amounts in the financial statements, as well as net operating losses, tax credits and other carryforwards. These differences result in deferred tax assets and liabilities, which are reflected in our Consolidated Balance Sheets. We then assess the likelihood that the deferred tax assets will be realized from future taxable income.

Previous wording

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, and 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 under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.

Current wording

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, and 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. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.

Previous wording

In 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. After weighing all available positive and negative evidence, as described above, management determined that it was no longer more likely than not that TransAct will realize the tax benefit of these deferred tax assets. This was mainly driven by a cumulative taxable loss over the previous three fiscal years (2022 through 2024) combined with a near term outlook of future taxable losses. The need for this valuation allowance will be assessed on a quarterly basis in future periods and, as a result, a portion, or all of the allowance, may be reversed based on changes in facts and circumstances.

Current wording

In 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. The company’s deferred tax assets generated by net operating losses have an unlimited life and R&D credit carryforwards have a twenty-year life. After weighing all available positive and negative evidence, as described above, management determined that it was no longer more likely than not that TransAct will realize the tax benefit of these deferred tax assets. This was mainly driven by a cumulative taxable loss over the three preceding fiscal years (2022 through 2024), combined with a near term outlook of future taxable losses (a taxable loss was generated in 2025 as well). The need for this valuation allowance will be assessed on a quarterly basis in future periods and, as a result, a portion, or all of the allowance, may be reversed based on changes in facts and circumstances.

Previous wording

Net sales for 2024 decreased $29.2 million, or 40%, from 2023. Printer, terminal and other hardware sales volume decreased by 47% to approximately 79,000 units for 2024, driven by large unit volume decreases across all markets, including a 50% decrease in unit volume from the casino and gaming market, a 42% decrease in unit volume in the POS automation market and a 20% hardware unit volume decrease in our FST market. For more information about the sales volume changes described above, please refer to the results of operations for each of our markets discussed further below. The average selling price of our printers, terminals and other hardware increased approximately 1% during 2024 compared to 2023 due to general inflationary pressures.

Current wording

Net sales for 2025 increased $8.1 million, or 19%, from 2024. Printer, terminal and other hardware sales volume increased by 19% to approximately 94,000 units for 2025, driven largely by a 32% increase in unit volume from the casino and gaming market, and to a much lesser extent, an 18% hardware unit volume increase in our FST market. These increases were somewhat offset by a 32% decrease in unit volume in the POS automation market. For more information about the sales volume changes described above, please refer to the results of operations for each of our markets discussed further below. The average selling price of our printers, terminals and other hardware increased approximately 5% during 2025 compared to 2024 due in part to increased costs in the latter part of 2025 resulting from U.S. tariffs imposed on our products assembled in Thailand, which have generally been passed on in the form of price increases to our customers. This additional cost primarily relates to an agreement which was made between the U.S. Government and Thailand to establish a U.S. tariff of 19% on goods imported from Thailand, effective August 7, 2025. The Company is closely monitoring developments relating to tariffs and the evolving international trade environment, including the implications of the recent U.S. Supreme Court ruling.

Previous wording

International sales for 2024 decreased $4.7 million, or 32%, compared to 2023 predominantly due to lower sales in our casino and gaming market.

Current wording

International sales for 2025 decreased $0.5 million, or 5%, compared to 2024 due primarily to a 7% decrease in sales within the international casino and gaming market.

Previous wording

Food service technology (“FST”). Our primary offering in the food service technology market is our line of BOHA! products, the BOHA! product suite combines our latest generation terminal or workstation, which include one or two printers, with our BOHA! labeling, timers, and media software. In addition, customers may individually purchase cloud-based software applications that connect to an application on a separate mobile device into a solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The additional software offering of BOHA! consists of a variety of individually purchased software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for temperature monitoring, temperature taking and checklists and task lists. These applications are sold separately, and customers purchase the applications they need for their back-of-house operations. Customers may also purchase associated hardware, such as tablets, temperature sensors and gateways. The BOHA! Terminal and the more recently launched Terminal 2 combine an operating system and hardware components in a single touchscreen device with one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels, and nutritional labels for prepared foods, and “enjoy by” date labels. The BOHA! WorkStation uses an iPad or Android tablet instead of an integrated touchscreen. The BOHA! Terminal, Terminal 2 and WorkStation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on the device and to allow over-the-air updates to the operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations. Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are typically charged to customers annually on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services. Sales of our worldwide food service technology products for the years ended December 31, 2024 and 2023 were as follows:

Current wording

FST. Our primary offering in the FST market is our line of BOHA! products. The BOHA! product suite combines our latest generation terminal or workstation, which includes one or two printers, with our BOHA! labeling, timers, and media software. In addition, customers may individually purchase cloud-based software applications that connect to an application on a separate mobile device into a solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The additional software offering of BOHA! consists of a variety of individually purchased software-as-a-service (“SaaS”) based applications for both Android and iOS operating systems, including applications for temperature monitoring, temperature taking, checklists, and task lists. These applications are sold separately, and customers purchase the applications they need for their back-of-house operations. Customers may also purchase associated hardware, such as tablets, temperature sensors, and gateways. The BOHA! Terminal, and the more recently launched Terminal 2, combine an operating system and hardware components in a single touchscreen device with one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels, nutritional labels for prepared foods, and “enjoy by” date labels. The BOHA! WorkStation uses an iPad or Android tablet instead of an integrated touchscreen. The BOHA! Terminal, Terminal 2, and WorkStation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on the device and to allow over-the-air updates to the operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants, convenience stores, hospitality establishments, and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations. Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are typically charged to customers annually on a per-application basis, as well as sales of labels, extended warranty, service contracts, and technical support services. Sales of our worldwide FST products for the years ended December 31, 2025 and 2024 were as follows:

Previous wording

During the second quarter of 2024, a significant customer notified us that it would be terminating service, including its BOHA! software subscriptions and label sales, for its existing installed base of BOHA! Terminals by the middle of July 2024. Total sales to this customer (including hardware, software, labels and other recurring revenue) were approximately $4.0 million in 2023 and $0.9 million in 2024. We did not have any hardware sales, and minimal label and software sales, to this customer in the third and fourth quarters of 2024, but we expect to continue to service a small percentage of ongoing units and may have some additional sales to this customer in the future.

Current wording

During the second quarter of 2024, a significant customer notified us that it would be terminating service, including its BOHA! software subscriptions and label sales, for its existing installed base of BOHA! Terminals by the middle of July 2024. Total sales to this customer (including hardware, software, labels and other recurring revenue) were approximately $0.9 million in 2024. We had a de minimis amount of sales to this customer in 2025. Despite the loss of this customer, software, labels and other recurring revenue increased $1.5 million, or 14%, compared to the prior year period due primarily to higher label sales to a new sushi customer (approximately $0.8 million) and one existing convenience store customer (up approximately $0.5 million).

Previous wording

We expect FST revenue to be higher in 2025 than in 2024 as we continue to focus on growing our installed base of terminals and the related recurring revenue (primarily the sale of labels and subscription software revenue from our labeling software application).

Current wording

We expect FST revenue to be higher in 2026 than in 2025 as we continue to focus on growing our installed base of terminals and the related recurring revenue (primarily the sale of labels and subscription software revenue.

Previous wording

The decrease in POS automation revenue in 2024 compared to 2023 was driven by a 51% decrease in domestic sales largely due to unusually high sales during 2023, as we increased production and began to fulfill our large backlog of sales orders following supply chain slowdowns in 2022. During 2024, we experienced renewed competitive pressure that has resulted in a return to a more normalized level of sales as well as a reduction in our average selling prices

Current wording

Sales of POS automation printers decreased $1.1 million, or 34%, in 2025 compared to 2024. We continue to experience competitive pressure that has resulted in a lower level of sales as well as a reduction in our average selling prices.

Previous wording

Casino and gaming. Revenue from the casino and gaming market includes sales of thermal printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos, racetracks and other gaming venues worldwide. Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals and kiosks for sports betting at non-casino gaming and sports betting establishments. Revenue from this market also includes royalties related to our patented casino and gaming technology. In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine. Sales of our worldwide casino and gaming products for the years ended December 31, 2024 and 2023 were as follows:

Current wording

Casino and gaming. Revenue from our casino and gaming market includes sales of thermal printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos, racetracks, charitable gaming establishments, 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. This gaming market includes gaming machines such as Amusement with Prizes, Skills with Prizes, and Fixed Odds Betting Terminals and kiosks for sports betting at non-casino gaming and sports betting establishments. In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution (including annual software maintenance) that enables casino operators to create promotional coupons and marketing messages for printing in real time at slot machines. Sales of our worldwide casino and gaming products for the years ended December 31, 2025 and 2024 were as follows:

Previous wording

The 56% decrease in domestic sales of our casino and gaming products during 2024 compared to 2023 was primarily due to a 50% decrease in sales unit volume. Sales during 2023 were unusually high due to our largest competitor’s inability to supply product to customers as a result of supply chain issues. In addition, entering 2024, many of our customers had accumulated higher-than-normal levels of inventory of our product as a hedge during the worldwide supply chain crisis during 2022 and 2023. As a result, during 2024, we experienced a significant slowdown in their order and shipment rates as they worked through this excess inventory. In addition, we believe our sales in the second half of 2024 were impacted by softness in overall demand in the industry.

Current wording

Domestic sales of our casino and gaming products in 2025 increased by $7.1 million, or 56%, compared to 2024. Sales in 2024 were negatively impacted as many of our customers had accumulated higher-than-normal levels of inventory of our product as a hedge during the worldwide supply chain crisis during 2022 and 2023. As a result, during 2024, we experienced a significant slowdown in their order and shipment rates as they worked through this excess inventory. Sales increased in 2025 compared to 2024 as most of our major domestic casino and gaming customers had worked through their on-hand inventory by the first quarter of 2025 and were ordering at normalized levels in the second and third quarters of 2025. In addition, sales in 2025 benefitted from sales of our casino printer to a new OEM customer for the use in charitable gaming establishments. However, we believe this customer is now in an overstock position awaiting jurisdictional approvals to install new gaming machines. As a result, we expect a more moderate pace of sales to this new customer in 2026. Though we experienced slowing demand from our domestic OEM customers during the fourth quarter of 2025, we expect to demand to resume more normalized levels in 2026. As a result of these factors, we expect our domestic casino and gaming sales to be slightly lower in 2026 compared to 2025.

Previous wording

The large decrease in domestic revenue from TSG during 2024 as compared to 2023 resulted primarily from a 75% decrease in sales of replacement parts and accessories. During 2023, we experienced unusually high sales of approximately $4.1 million from the final purchases of spare parts for our legacy lottery printer that did not repeat in 2024. We do not expect any future sales of these spare parts. Also contributing to the decline was a 57% decrease in consumable sales as we are no longer focused on these legacy products (POS paper and ribbons) and expect to cease selling these products by the end of 2025.

Current wording

The decrease of $0.4 million, or 16%, in domestic revenue from TSG during 2025 as compared to 2024 resulted primarily from a $0.3 million, or 20%, decrease in sales of replacement parts and a $0.2 million, or 22%, decrease in repairs, partially offset by a $0.1 million, or 26%, increase in shipping charges (as a result of higher overall sales volume in 2025 compared to 2024). Also contributing to the decline was a $0.1 million, or 75%, decrease in consumable sales as we are no longer focused on selling these legacy products (POS paper and ribbons) and we expect to have virtually no sales of these legacy products in 2026. Internationally, TSG revenue decreased 7% during 2025 compared to 2024, due primarily to a decline in sales of replacement parts and accessories to international casino and gaming customers.

Previous wording

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and our line of BOHA! products and royalty payments to third-parties, including to the third party licensor of our food service technology software products. Gross profit decreased $16.9 million, or 44%. Gross margin also decreased 340 basis points to 49.5% in 2024 compared to 52.9% in 2023. Both gross profit and gross margin declined primarily due to a 40% decline in overall sales including a 51% decline in sales of higher margin casino and gaming printers. Gross margin for 2024 was also impacted by competitive price adjustments.

Current wording

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and our line of BOHA! products, and royalty payments to third-parties, including to the third party licensor of our food service technology software products. Gross profit increased $3.5 million, or 16% primarily driven by an increase of sales of $8.1 million in 2025 compared to 2024, partially reduced by lower gross margin in 2025 as discussed below. Gross margin decreased 90 basis points from 49.5% in 2024 compared to 48.6% in 2025. largely due to higher sales of BOHA! hardware products which carry lower average margins than our other products, and to a lesser extent, increased overhead costs, inflation, tariffs and lower prices on our POS automation printer due to increased competitive pressure.

Previous wording

We expect gross margin for 2025 to be in the mid 40% to high 40% range.

Current wording

We expect gross margin for 2026 to be relatively consistent with 2025..

Previous wording

Engineering, design and product development expenses primarily include salary and payroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contracted software development expenses including those to the third party licensor of our food service technology software products). Engineering, design and product development expenses decreased $2.5 million, or 26%, in 2024 compared to 2023 due to cost reduction initiatives taken during the latter part of 2023, and in the second quarter of 2024, including a reduction of contracted software development expenses. We expect engineering, design and product development expenses to be higher in 2025 compared to 2024 due to typical inflationary and cost of living increases in such expenses.

Current wording

Engineering, design and product development expenses primarily include salary and payroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contracted software development expenses including those to the third-party licensor of our food service technology software products). Engineering, design and product development expenses decreased $0.3 million, or 4%, in 2025 compared to 2024 due to cost reduction initiatives taken in the second quarter of 2024 (the full benefit of which was realized in 2025), including a reduction of contracted software development expenses, partially offset by higher incentive compensation due to improved financial results in 2025 compared to 2024.

Previous wording

Selling and marketing expenses primarily include salaries and payroll-related expenses for our sales, marketing and customer success staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses. Selling and marketing expenses decreased $1.7 million, or 18%, during 2024 compared to 2023 primarily due to cost reduction initiatives, including reduced headcount, trade show and other marketing expenses. We expect selling and marketing expenses for 2025 to increase compared to 2024 due to typical inflationary and cost of living increases as well incremental costs we expect to incur related to programs to further improve and refine our go-to-market strategy.

Current wording

Selling and marketing expenses primarily include salaries and payroll-related expenses for our sales, marketing and customer success staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses. Selling and marketing expenses increased $0.2 million, or 3%, during 2025 compared to 2024 due largely to higher costs related to programs to further improve the Company’s go-to-market strategy as well as higher sales commissions and incentive compensation due to improved financial results in 2025 compared to 2024, partially offset by cost reduction initiatives including reduced headcount, trade show and other marketing expenses.

Previous wording

General and administrative expenses primarily include salaries, incentive compensation, and other payroll-related expenses for our Chief Executive Officer, Chief Financial Officer, accounting, human resources, corporate development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, information technology expenses, and other expenses related to being a publicly traded company. General and administrative expenses decreased $3.4 million, or 25%, during 2024 compared to 2023 due in large part to a $1.5 million severance charge incurred in 2023 related to the resignation of the Company’s former Chief Executive Officer in April 2023, as well as expense reduction initiatives we commenced in the third quarter of 2023 and in the second quarter of 2024. We expect general and administrative expenses to increase in 2025 compared to 2024 due to typical inflationary and cost or living increases combined with higher expected incentive and share-based compensation expense (both largely performance-based).

Current wording

General and administrative expenses primarily include salaries, incentive compensation, and other payroll-related expenses for our Chief Executive Officer, Chief Financial Officer, accounting, human resources, corporate development and information technology staff, corporate headquarters expenses, professional and legal expenses, information technology expenses, and other expenses related to being a publicly traded company. General and administrative expenses increased $1.4 million, or 14%, during 2025 compared to 2024. This increase was driven largely by higher incentive compensation and share-based compensation expense due to improved financial results in 2025 compared to 2024. These increases were partially offset by the impact of cost reduction initiatives taken in the second quarter of 2024.

Previous wording

Interest, net. We recorded net interest income of $147 thousand in 2024 compared to net interest expense of $255 thousand in 2023. During 2023 and 2024, we incurred interest expense related to minimum borrowings required pursuant to the Siena Credit Facility. Following the November 2024 amendment of the Siena Credit Facility, we were required to maintain outstanding borrowings of at least $3 million in principal amount, an increase from $2.25 million prior to the amendment. See Note 9 – Borrowings to the accompanying consolidated financial statements. In addition, during 2024 we earned more interest income than in 2023 due to higher levels of invested cash on hand.

Current wording

Interest, net. We recorded net interest income of $198 thousand in 2025 compared to net interest income of $147 thousand in 2024. During 2025 we earned more interest income than in 2024 due to higher levels of invested cash on hand (cash and cash equivalents were $20.4 million and $14.4 million at December 31, 2025 and 2024, respectively). During both 2025 and 2024 we incurred interest expense related to minimum borrowings required pursuant to the Siena Credit Facility. Following the November 2024 amendment of the Siena Credit Facility, we were required to maintain outstanding borrowings of at least $3 million in principal amount, an increase from $2.25 million prior to the amendment. The interest rate of our Siena Credit Facility was 8.50% and 9.25% as of December 31, 2025 and 2024, respectively. See Note 9 –Borrowings to the accompanying consolidated financial statements.

Previous wording

Income Taxes. We recorded income tax expense in 2024 of $6.3 million at an effective tax rate of (176.4%), compared to income tax expense in 2023 of $1.2 million at an effective tax rate of 19.6%. The effective tax rate for 2024 was unusually high due to an income tax charge of $7.3 million related to the write down of our U.S. net deferred income tax asset as more fully described below (See Note 11 – Income taxes in the Consolidated Financial Statements).

Current wording

Income Taxes. We recorded income tax expense in 2025 of $0.2 million at an effective tax rate of (14.4%), compared to income tax expense in 2024 of $6.3 million at an effective tax rate of (176.4%). Our tax expense in 2025 only included taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States. The effective tax rate for 2024 was unusually high due to an income tax charge of $7.3 million related to the write down of our U.S. net deferred income tax asset as more fully described below (See Note 11 –Income taxes to the accompanying consolidated financial statements). We continue to believe this tax valuation allowance is required as of December 31, 2025. As such, the Company has not recorded any U.S. federal tax benefits associated with losses recorded in 2025.

Previous wording

Net (Loss) Income. As a result of the above, we reported a net loss for the year ended December 31, 2024 of $9.9 million, or ($0.99) per diluted share, compared to net income of $4.7 million, or $0.47 per diluted share in 2023.

Current wording

Net Loss. As a result of the above, we reported a net loss for the year ended December 31, 2025 of $1.2 million, or ($0.12) per diluted share, compared to a net loss of $9.9 million, or ($0.99) per diluted share in 2024.

Previous wording

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, access to bank lines of credit and our ability to attract long-term capital with satisfactory terms.

Current wording

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, the purchase of a copy of the source code and capitalized software development costs related to our BOHA! software, access to bank lines of credit and our ability to attract long-term capital with satisfactory terms.

Previous wording

During the third quarter of 2023, we began a cost reduction initiative to reduce our overall level of operating expenses that included reducing employee headcount, trade show, advertising and other promotional marketing expenses, certain third-party engineering resources and other expenses, and to a lesser extent, certain general and administrative expenses. We estimated annual cost savings from these initiatives to be approximately $3.0 million and we realized the full savings from these actions in 2024.. We also began an additional cost reduction initiative in the second quarter of 2024 focused largely on further reducing employee headcount and other external third-party resources. Savings from this initiative were realized beginning in the third quarter of 2024 and are expected to be approximately $2.0 million on an annualized basis. Notwithstanding the foregoing, there is no assurance that the cost-cutting efforts we have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as supply chain disruptions and inflation are sufficient or adequate, and we may be required to take additional measures, as the ultimate extent of the effects of these risks on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time. See Part I, Item 1A, Risk Factors, of this Form 10-K for further discussion of risks related to global economic conditions, supply chain disruptions and inflation.

Current wording

During the third quarter of 2023, we began a cost reduction initiative to reduce our overall level of operating expenses that included reducing employee headcount, trade show, advertising and other promotional marketing expenses, certain third-party engineering resources and other expenses, and to a lesser extent, certain general and administrative expenses. We estimated annual cost savings from these initiatives to be approximately $3.0 million and we realized the full savings from these actions in 2024. We also began an additional cost reduction initiative in the second quarter of 2024 focused largely on further reducing employee headcount and other external third-party resources. Savings from this initiative were realized beginning in the third quarter of 2024 and resulted in approximately $2.0 million of savings on an annualized basis. Notwithstanding the foregoing, there is no assurance that the cost-cutting efforts we have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as supply chain disruptions and inflation are sufficient or adequate, and we may be required to take additional measures, as the ultimate extent of the effects of these risks on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time. See Part I, Item 1A, Risk Factors, of this Form 10-K for further discussion of risks related to global economic conditions, supply chain disruptions and inflation.

Previous wording

During 2024, our cash balance increased $2.1 million, or 16% (versus an increase of $4.4 million in 2023) due primarily to operating activities, including a reduction in accounts receivable of $3.3 million and a reduction of inventory of $1.6 million. Financing activities also provided a net increase in cash of $0.6 million due to the increase in bank borrowings required by Amendment No. 4 to the Siena Loan and Credit Facility Agreement signed on November 20, 2024 (see further detail in “Credit Facility and Borrowings” section below). We had $14.4 million in cash and cash equivalents as of December 31, 2024, of which $168 thousand was held by our UK subsidiary.

Current wording

During 2025, our cash balance increased $6.0 million, or 42% (versus an increase of $2.1 million in 2024) due primarily to operating activities, including a reduction in inventory of $5.4 million and an increase in accrued liabilities and other liabilities of $1.9 million. Investing activities used $1.6 million in cash, primarily attributed to capitalized software development costs. We had $20.4 million in cash and cash equivalents as of December 31, 2025, of which $310 thousand was held by our UK subsidiary.

Previous wording

Operating activities: The following significant factors primarily affected our cash provided by operating activities of $1.8 million in 2024 as compared to cash provided by operating activities of $5.5 million in 2023.

Current wording

Operating activities: The following significant factors primarily affected our cash provided by operating activities of $7.7 million in 2025 as compared to cash provided by operating activities of $1.9 million in 2024.

Previous wording

Financing activities: Financing activities provided $0.6 million of cash in 2024 due primarily to proceeds received from the increase in the required minimum borrowings on our Siena Credit Facility while the use of cash of $0.1 million in 2023 related to withholding taxes paid on stock issuances.

Current wording

Financing activities: Financing activities used $0.1 million in 2025 related to withholding taxes paid on stock issuances while financing activities provided $0.6 million of cash in 2024 due primarily to proceeds received from the increase in the required minimum borrowings on our Siena Credit Facility.

Previous wording

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 ultimate impact of current global economic pressures and uncertainty relating to tariffs, inflationary pressures and market instability is unknown.

Current wording

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, fund the purchase of a copy of the source code and capitalized software development costs related to our BOHA! software, and meet our liquidity requirements through at least the next twelve months. Notwithstanding this belief, the ultimate impact of current global economic pressures and uncertainty relating to tariffs, inflationary pressures and market instability is unknown.

Previous wording

On March 13, 2020, we entered into the Loan and Security Agreement (the “Loan Agreement”) governing a credit facility (the “Siena Credit Facility”) with Siena Lending Group LLC (the “Lender”). The Siena Credit Facility provides for a revolving credit line of up to $10.0 million and was originally scheduled to expire on March 13, 2023, prior to being extended, as discussed below. 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. Borrowings under the Siena Credit Facility are 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.

Current wording

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.

Previous wording

The Siena Credit Facility imposes a financial covenant on the Company and restricts, among other things, our ability to incur additional indebtedness and create other liens. On July 21, 2021, the Company entered into an amendment (“Siena Credit Facility Amendment No. 1”) to the Loan Agreement. Siena Credit Facility Amendment No. 1 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 ended July 31, 2021. From July 31, 2021 through December 31, 2024, we remained in compliance with our excess availability covenant.

Current wording

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 December 31, 2025.

Previous wording

On November 30, 2024, the Company and the Lender entered into Amendment No. 4 (“Siena Credit Facility Amendment No. 4”) to the Loan Agreement. The changes to the Loan Agreement provided for in Siena Credit Facility Amendment No. 4 include, among other things, the extension of the maturity date from March 13, 2025 to March 31, 2027. Also on November 20, 2024, the Company and the Lender entered into a Second Amended and Restated Fee Letter (the “Second Amended Fee Letter”) in connection with Siena Credit Facility Amendment No. 4. The Second Amended Fee Letter increases the minimum borrowing amount from $2.25 million to $3.0 million, such that the Company is required to either maintain outstanding borrowings of at least $3,000,000 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, as amended through Siena Credit Facility Amendment No. 4, to pay interest on at least $3,000,000 principal amount of loans, whether or not such amount of loans is actually outstanding. The Second Amended Fee Letter also extends the dates before which a prepayment and termination of the Loan Agreement requires the Company to pay to the Lender an early payment/termination premium, providing for (i) a two percent premium for prepayment on or prior to March 31, 2025, (ii) a one percent premium for prepayment from April 1, 2025 through March 31, 2026, and no premium for prepayment thereafter.

Current wording

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.

Previous wording

As of December 31, 2024, we had $3.0 million of outstanding borrowings under the Siena Credit Facility and $3.2 million of net borrowing capacity available under the Siena Credit Facility.

Current wording

As of December 31, 2025 and 2024, we had $3.0 million of outstanding borrowings under the Siena Credit Facility at interest rates of 8.5% and 9.25%, respectively. We had $3.8 million of net borrowing capacity available under the Siena Credit Facility at December 31, 2025.

Previous wording

Shareholders’ equity decreased $8.8 million, or 22%, to $30.6 million at December 31, 2024 from $39.4 million at December 31, 2023. The decrease was primarily due to a net loss of $9.9 million in 2024, including a $7.3 million write down of the deferred income tax asset, partially offset by share-based compensation expense related to stock awards of $1.2 million (net of withholding taxes paid by relinquishment of shares) in 2024.

Current wording

Shareholders’ equity increased $0.5 million, or 2%, to $31.1 million at December 31, 2025 from $30.6 million at December 31, 2024. The increase was primarily due to share-based compensation expense related to stock awards of $1.7 million (net of withholding taxes paid by relinquishment of shares) in 2025, partially offset by a net loss of $1.2 million in 2025.