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. The Condensed Consolidated Financial Statements as of June 30, 2026 and for the three and six months ended June 30, 2026 and 2025 are unaudited, but 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, 2025 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, 2025 (the “2025 Form 10-K”).

The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results to be expected for the full year ending December 31, 2026.

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 the first quarter of 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, andone large customer indicated they were in an overstock position while awaiting jurisdictional approvals on new machines. While these conditions impacted our casino and gaming sales in the fourth quarter of 2025, demand in 2026 has improved as customer inventory levels have normalized and installations have been proceeding.

On February 20, 2026, the U.S. Supreme Court issued a ruling in Learning Resources, Inc. v. Trump, holding that the International Emergency Economic Powers Act (“IEEPA”) does not provide the executive branch with the authority to impose certain tariffs. This ruling invalidated certain tariffs previously paid by the Company on goods imported from Thailand. Following the Supreme Court’s ruling that IEEPA-based tariffs were unlawful, the Court of International Trade (CIT) ordered U.S. Customs and Border Protection (CBP) to provide a process for the refund of collected tariffs. The refund mechanism allows importers to file claims for duties paid on shipments through a declaration in the Consolidated Administration and Processing of Entries (“CAPE”) system, which was launched on April 20, 2026. In addition, subsequent to the U.S. Supreme Court’s decision invalidating certain tariffs imposed under the IEEPA, the presidential administration implemented a tariff surcharge under Section 122 of the Trade Act of 1974, establishing a minimum 10% duty on imports, subject to certain exemptions. The Company iscontinuing to monitor the impact of these additional tariffs but does not expect them to have a material adverse effect on its operations or financial condition.

Following the February 2026 U.S. Supreme Court ruling regarding IEEPA tariffs, the Company initiated a process of claiming refunds for approximately $572 thousand in previously paid duties. In line with our commitment to customer transparency, we intend to reimburse those specific customers in which tariff costs were previously passed, subject to applicable law and any further legal or regulatory developments. We expect to issue these reimbursements following our successful receipt of funds from U.S. Customs and Border Protection. The timing and ultimate amount of these payments remain subject to the federal CAPE portal processing timelines and final verification of eligible entries. As discussed below, certain portal reimbursements were received in July 2026, however the ultimate availability, timing and final amounts to be received from refunds remain uncertain.

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In July 2026, subsequent to the quarter ended June 30, 2026, but prior to the issuance of these financial statements, the Company received partial payment of $466 thousand in cash reimbursements from the government via the CAPE portal. The Company has evaluated the financial statement impacts for the quarterly period ended June 30, 2026, and recorded certain accounting adjustments. The Company recognized areceivable (included in other current assets) and a corresponding reduction in cost of goods sold of $572 thousand, representing the total estimated recovery of previously paid invalidated tariffs. In addition, in the quarter ended June 30, 2026, the Company recorded a liability of $1,070 thousand (included in accrued liabilities) and a reduction in sales of $1,007 thousand. This liability reflects the Company’s estimated obligation to reimburse customers for prior tariff surcharges in the period from April 2025 through February 2026, net of administrative and processing incidentals.

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. We cannot predict the ultimate impact of the current economic environment, including inflation, interest rates and supply chain disruptions, on our customers, which may impact sales. 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, tariff refund estimates, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates used.

2. Significant accounting policies

For a discussion of our significant accounting policies, see Note 2, Summary of significant accounting policies within Part II, Item 8. “Financial Statements and Supplementary Data” in the 2025 Form 10-K. There have been no changes to our significant accounting policies since the 2025 Form 10-K.

Intangible assets:

The Company accounts for software development costs for products to be sold or marketed in accordance with Accounting Standards Codification (“ASC”) 985-20, Software - Costs of Software to Be Sold, Leased, or Marketed. Costs incurred to establish the technological feasibility of a software product are engineering, design and product development costs and are expensed as incurred. Technological feasibility is established when the Company has completed all planning, designing, coding, and testing activities necessary to determine that a product can be produced to meet its design specifications. Capitalization of software costs begins upon the establishment of technological feasibility and ceases when the product is available for general release to customers. Capitalized software costs are amortized on a product-by-product basis using the straight-line method over the estimated economic life of the product, or the ratio of current gross revenues to total current and anticipated future gross revenues, whichever is greater. See additional discussion in Note 5.

Recently issued accounting pronouncements:

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 and interim periods within fiscal years beginning after December 15, 2027. 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.

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In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments in this update remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. The amendments in this update specify that the disclosures in Subtopic 360-10, Property, Plant, and Equipment—Overall, are required for all capitalized internal-use software costs, regardless of how those costs are presented in the financial statements. Additionally, the amendments clarify that the intangibles disclosures in paragraphs 350-30-50-1 through 50-3 are not required for capitalized internal-use software costs. The amendments in ASU 2025-06 are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this standard.

On January 1, 2026, the Company adopted ASU 2025-05, which provides a practical expedient for estimating expected credit losses. Under this standard, the Company elected the practical expedient that allows for the measurement of expected credit losses based on the assumption that current conditions will persist through the end of the contractual term of the financial assets. By electing this expedient, the Company is no longer required to develop or incorporate complex, forward-looking forecasts or revert to historical loss experience for the remaining life of the assets. The Company applied this transition to its accounts receivable assets on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements or opening retained earnings, as the current economic environment at the time of adoption was consistent with the historical loss experience and existing trends previously utilized in our Current Expected Credit Losses (CECL) models.

Other new accounting pronouncements issued, but not effective until after June 30, 2026, 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 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, 2026, we recognized revenue of $0.9 million related to our contract liabilities at December 31, 2025. Total net contract liabilities consisted of the following:

Remaining performance obligations

Remaining performance obligations represent the transaction priceof firm orders for which a good or service has not been delivered to our customer. As of June 30, 2026, the aggregate amount of transaction prices allo cated toremaining performance obligationswas $6.0 million. The Company expects to recognize revenue of $5.7 million of its remaining performance obligations within the next 12 months following June 30, 2026, $0.2 million within the next 24 months following June 30, 2026 and thebalance of these remaining performance obligations recognized within the next 36 months following June 30, 2026.

4. Inventories

The components of inventories were:

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5. Intangible assets, net

During the six months ended June 30, 2026, the Company capitalized $2.0 million of software development costs that were incurred subsequent to achieving technological feasibility but prior to commercialization. Amortization using the straight-line method will commence on July 1, 2026 which is the completion and release of the software to customers and will be over an estimated useful life ofseven years.

Identifiable intangible assets are recorded in Intangible assets, net in the accompanying Consolidated Balance Sheets and are comprised of the following:

Amortization expense waszero in both fiscal 2025 and in the first six months of 2026.

6. 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, 2026.

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, 2026, we had $3.0 million of outstanding borrowings under the Siena Credit Facility at an interest rate of 8.50%. We had $2.8 million of net borrowing capacity available under the Siena Credit Facility at June 30, 2026.

7. Segment reporting

We apply the provisions of ASC Topic 280: Segment Reporting. We view our operations and manage our business asone segment: the design, development, and marketing of software-driven technology and printing solutions for high growth markets, andprovide 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 function is performed by the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, who utilize a consolidated approach to assess the performance of and allocate resources to the business.

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The CODM generally uses 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.

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

A reconciliation of net income to EBITDA and adjusted EBITDA follows:

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8. 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 0.8 million and 1.8 million of anti-dilutive stock awards excluded from the computation of earnings per share for the quarters ended June 30, 2026 and 2025, respectively. There were 1.0 million and 1.7 million of anti-dilutive stock awards excluded from the computation of earnings per diluted share for the six months ended June 30, 2026 and 2025, respectively.

9. 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. Leases with an initial term of twelve months or less are not recorded on the Condensed Consolidated Balance Sheets.

On March 31, 2026, we amended our lease agreement for our facility in Ithaca, New York and entered into a new lease for facility in Las Vegas, Nevada. The Ithaca amendment extended the expiration of the lease from May 31, 2026 to September 30, 2031 and the new lease for our facility in Las Vegas expires on June 30, 2031. These leases resulted in a $3.0 million increase in our right of use assets and lease liabilities in the first quarter of 2026.

Operating lease expense for the six months ended June 30, 2026 and 2025 was $441 thousand and $518 thousand, respectively, and is reported within “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.

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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, 2026 and December 31, 2025:

The maturity of the Company’s operating lease liabilities as of June 30, 2026 and December 31, 2025 were as follows (in thousands):

10. Income taxes

We recorded income tax expense in the first six months of 2026 of $53 thousand compared to income tax expense in the first six months of 2025 of $91 thousand. In the fourth quarter of 2024, the Company recorded a valuation allowance on the full value of its U.S. federal net deferred tax asset. The need for this valuation allowance has been assessed as of June 30,2026 and management continues to believe that the negative evidence, as further discussed below, continues to support our valuation allowance. As such, we recordedno U.S. federal income tax expense during the first six months of 2026 and the first six months of 2025. Tax expense is only being recorded on income taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States.

As of June 30,2026 and December 31,2025, we had $8.5 million and $8.7 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. Federal net operating losses can be carried forward indefinitely, but these indefinite-lived NOLs are generally limited to offsetting 80% of taxable income in any given year. The Federal R&D credit carryforwards typically have a 20-year carryforward period.

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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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 2021. However, our federal tax returns for the years 2022 through 2025 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.

11. Shareholders’ Equity

On April 28, 2026, the Company’s Board of Directors approved a share repurchase program authorizing the repurchase of up to $3.0 million of the outstanding common stock of the Company. Under this program, the Company may repurchase shares from time to time in the open market, through negotiated transactions, or by other means in accordance with applicable securities laws. The repurchase program was effective on May 12, 2026 and has a term ofone year. The repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended, modified, or discontinued at any time. The repurchase program is funded using the Company’s existing cash balance and cash generated from operations. No shares were repurchased by the Company during the three months ended June 30, 2026.

12. Subsequent events

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. government announced a variety of trade-related actions, including the imposition of tariffs on imports from several countries, including Thailand. On February 20, 2026, the U.S. Supreme Court issued a ruling in Learning Resources, Inc. v. Trump, holding that IEEPA does not provide the executive branch with the authority to impose certain tariffs. This ruling invalidated certain tariffs previously paid by the Company on goods imported from Thailand. Within hours of that ruling, the White House issued Proclamation 11012, utilizing Section 122 of the Trade Act of 1974 to bypass the court decision and immediately instituted a temporary 10% global import surcharge. U.S. Customs and Border Protection (CBP) officially began collecting the new 10% surcharge on February 24, 2026. Because Section 122 authority strictly limits emergency balance-of-payments surcharges to 150 days, this specific 10% global tariff met its statutory expiration date on July 24, 2026.

Also, following the Supreme Court’s ruling that IEEPA-based tariffs were unlawful, the Court of International Trade (CIT) ordered the CBP to provide a process for the refund of collected tariffs. The refund mechanism allows importers to file claims for duties paid on shipments through a declaration in the CAPE system, which was launched on April 20, 2026. See Note 1 Basis of presentation.

As stated, on July 24, 2026, the temporary 10% global import surcharge previously levied by the U.S. administration expired. Concurrently, effective July 24, 2026, the U.S. government implemented a new 12.5% import tariff under Section 301 on various goods imported from Thailand and dozens of other trading partners, following an administration-led supply chain investigation. Because these Section 301 trade policy adjustments occurred subsequent to the close of the reporting period on June 30, 2026, there is no impact on the condensed consolidated financial statements for the quarter then ended. The Company is currently evaluating the long-term quantitative impact of these revised tariff rates on its future cost of goods sold, gross margins, and inventory valuation, but expects that it will increase the landed cost of unexempt products imported from Thailand in future periods.

In the second quarter of 2026, the Company submitted tariff refund claims through the CAPE portal totaling approximately $572 thousand. In July 2026, subsequent to the end of the reporting period but prior to the issuance of these financial statements, the Company received most of this refund claim from the CAPE portal. The tariff claim has been recognized as of June 30, 2026 as a Type I subsequent event under ASC Topic 855: Subsequent Events, resulting in areceivable and a credit to Cost of Goods Sold for the quarter ended June 30, 2026 in the amount of $572 thousand. The Company has communicated to certain customers that it intends to pass through tariff refunds if and when the cash is successfully received from the government portal. In addition, in the quarter ended June 30, 2026, the Company recorded a liability of $1,070 thousand (included in accrued liabilities) and a reduction in sales of $1,007 thousand. This liability reflects the Company’s estimated obligation to reimburse customers for prior tariff surcharges billed from April 2025 to February 2026, net of administrative and processing incidentals.

On August 10, 2026, management engaged BofA Securities as its financial advisor, given their expertise within the casino and gaming market and their long-standing relationship with TransAct. This followed a request by the Company’s Board of Directors to initiate a formal strategic review of the casino and gaming business. The Company believes that exploring potential options within casino and gaming, given the current strength within this market, is in the best interests of stockholders as they look to maximize value. While the review is focused on the casino and gaming business, the Board of Directors intends to evaluate a broader range of strategic alternatives to the extent the Board of Directors determines that doing so may further enhance stockholder value. The Company has not set a timetable for the review, and there can be no assurance that the review will result in any transaction or other strategic outcome.

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

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