Transact Technologies TACT Form 10-Q filing Q1 FY2025

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

See notes to Condensed Consolidated Financial Statements.

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See notes to Condensed Consolidated Financial Statements.

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See notes to Condensed Consolidated Financial Statements.

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TRANSACT TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See notes to Condensed Consolidated Financial Statements.

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See notes to Condensed Consolidated Financial Statements.

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TRANSACT TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of presentation

The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature. The December 31, 2024 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).

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

After strong demand during most of 2023 due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023 and during the year ended December 31, 2024. After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the 12 months following the date on which the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) were issued, including consideration of the actions to manage expenses and liquidity, we believe that our net cash to be provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements and to comply with the financial covenants of our credit facility over at least 12 months following the date that the Condensed Consolidated Financial Statements were issued.

Use of Assumptions and Estimates

Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the unaudited Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, inflation, tariffs and other trade restrictions, rising interest rates, capital expenditures and other operating costs. We cannot predict the ultimate impact of the current economic environment, including inflation, and rising interest rates on our customers, which may impact sales. In addition, we cannot predict the ultimate impact that recent or future tariff actions by the U.S. government and other countries may have on our costs and supply chain or provide assurance that all such cost increases can be offset by price increases. Tariffs may also change customer behavior, as some customers may seek to order further in advance than they typically do to avoid any potential cost increases, which could result in lower demand in future periods. We believe that we are positioned to withstand the impact of any potential future economic downturn and we would be able to take additional financial and operational actions to increase liquidity.

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

2. Significant accounting policies

For a discussion of our significant accounting policies, see Note 2, Summary of significant accounting policies within Part II,

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Software, labels and other recurring revenue 54.1% 72.9% 249 10.3% $100.0% $100.0% $1,608 48.7%

The increase in food service technology sales in the first quarter of 2025 compared to the first quarter of 2024 was primarily driven by an increase in domestic hardware sales. Hardware sales were strong in the first quarter of 2025, up 152% compared to the first quarter of 2024, due to sales of our BOHA! Terminal 2 to a large convenience store (replacing our BOHA! Terminal 1), a large international QSR (replacing our AccuDate 9700) and a new sushi customer win. Despite the loss of a significant customer (explained further below), FST software, labels and other recurring revenue increased 10% compared to the prior year period due to label sales to our new sushi customer as well as higher sales to several of our larger existing customers.

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 $900 thousand in 2024 and approximately $300 thousand in the first quarter of 2024 (largely software and labels). We had minimal sales to this customer in the first quarter of 2025 as we continue to service a small percentage of ongoing units. Despite the loss of this customer, we expect overall FST revenue for the remainder of 2025 to be higher than the comparable period of 2024.

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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 BOHA! labels and subscription software revenue from our labeling software application).

POS automation: In the POS automation market, we sell our Ithaca 9000 printer, which utilizes thermal printing technology. Our POS printer is used primarily by McDonald’s, and to a lesser extent, other QSRs either at the checkout counter, grill station or within self-service kiosks to print receipts for consumers or print on linerless labels. In the POS automation market, we primarily sell our products through a network of domestic and international distributors and resellers.

Sales of our worldwide POS automation products for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

The modest 5% decline in POS automation sales in the first quarter of 2025 compared to the first quarter of 2024 was largely due to 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.

We expect POS automation sales to be lower in 2025 than in 2024 as we expect to continue to experience competitive pressure in this market.

Casino and gaming. Revenue from the casino and gaming market includes sales of thermal ticket 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 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. In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution, currently sold both directly and through certain casino system providers on a subscription basis, 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 three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

Domestic sales of our casino and gaming products for the first quarter of 2025 increased by $1.6 million, or 49%, compared to the first quarter of 2024. Sales during the first quarter of 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 during the first quarter of 2025 compared to the first quarter of 2024 as most of our major casino and gaming customers worked through their on-hand inventory and began to order at normalized levels again. In addition, sales in the first quarter of 2025 benefitted from sales of our casino printer to a new OEM customer for the use in charitable gaming establishments. We expect this new OEM customer to continue to contribute to sales for the remainder of 2025. As a result of these factors, we expect our domestic casino and gaming sales to be significantly higher in 2025 compared to 2024.

Our international casino and gaming sales were down 23% during the first quarter of 2025 compared to the first quarter of 2024, largely due to a large European OEM still working down an overstock of their on-hand inventory. We expect our international sales to continue to be negatively impacted until this customer resumes ordering which is expected in the second half of 2025.

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TransAct Services Group (“TSG”): Revenue

generated by TSG includes sales of consumable products (POS receipt paper, ribbons and other printing supplies for non-FST legacy products), replacement parts and accessories, maintenance and repair services and shipping and handling charges. Sales in our worldwide TSG market for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

The decrease in both domestic and international revenue from TSG during the first quarter of 2025 as compared to the first quarter of 2024 was due largely to lower sales of legacy replacement parts for lottery printers, as well as lower legacy consumables sales and service revenue.

We expect TSG sales to be somewhat lower in 2025 compared to 2024 as we expect to cease selling all of our remaining legacy consumable products by the end of 2025.

Gross Profit. Gross profit information for the three months ended March 31, 2025 and 2024 is summarized below (in thousands, except percentages):

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 BOHA! products and royalty payments to third parties, including to the third-party licensor of our food service technology software products. In the first quarter of 2025, gross profit increased $735 thousand, or 13%, and gross margin declined 390 basis points to 49% due largely to higher sales of BOHA! hardware products which carry lower average margins than our casino and gaming products, and to a lesser extent, increased overhead costs, inflation and lower prices on our POS automation printer due to increased competitive pressure.

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

Operating Expenses - Engineering, Design and Product Development. Engineering, design and product development expense information for the three months ended March 31, 2025 and 2024 is summarized below (in thousands, except percentages):

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 contract software development expenses including those payments to the third-party licensor of our food service technology software products). Engineering, design and product development expenses decreased $331 thousand, or 17%, for the first quarter of 2025 compared to the first quarter of 2024 due to cost reduction initiatives taken during the latter part of 2023, and again in the second quarter of 2024, including a reduction of contracted software development expenses.

Operating Expenses - Selling and Marketing. Selling and marketing expense information for the three months ended March 31, 2025 and 2024 is summarized below (in thousands, except percentages):

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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, other promotional marketing expenses and outsourced go-to-market consulting services. Selling and marketing expenses remained relatively flat in the first quarter of 2025 compared to the first quarter of 2024 due largely to typical inflationary and cost of living increases as well incremental costs we incurred related to programs to further improve and refine our go-to-market strategy offset by cost reduction initiatives including reduced headcount, trade show and other marketing expenses taken during the latter part of 2023 and the second quarter of 2024.

Operating Expenses - General and Administrative. General and administrative information for the three months ended March 31, 2025 and 2024 is summarized below (in thousands, except percentages):

General and administrative expenses primarily include salaries, incentive and share-based compensation, and other payroll-related expenses for our executive, accounting, human resources, corporate development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, information technology expenses, board of director expenses and other expenses related to being a publicly traded company. General and administrative expenses decreased $222 thousand, or 8%, during the first quarter of 2025 compared to the first quarter of 2024. This decrease was driven largely by the impact of cost reduction initiatives taken during the latter part of 2023 and the second quarter of 2024 as well as lower depreciation and incentive compensation expense in the first quarter of 2025 compared to the same period in 2024.

Operating Loss. Operating loss for the three months ended March 31, 2025 and 2024 is summarized below (in thousands, except percentages):

Our operating loss decreased $1.3 million, or 99%, in the first quarter of 2025 compared to the first quarter of 2024 due largely to a 22% increase in sales and a resulting $735 thousand increase in gross profit (despite a 390 basis point decline in gross margin). Furthermore there was a reduction in operating expenses of $551 thousand, or 8%, primarily due to cost reduction efforts commenced in the latter part of 2023 and the second quarter of 2024.

Interest, net. We recorded net interest income of $22 thousand in the first quarter of 2025 compared to $48 thousand in the first quarter of 2024. 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, which resulted in higher interest expense in the first quarter of 2025. In addition, we earned less interest income in the first quarter of 2025 than in the first quarter of 2024 due to the impact of lower interest rates on invested cash on hand.

Other, net. Other, net primarily includes foreign exchange gains and losses by our UK subsidiary. During the first quarter of 2025 we recognized $63 thousand of foreign exchange gains compared to a $60 thousand foreign exchange loss in the first quarter of 2024. Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the euro and pound sterling against the U.S. dollar.

Income Taxes. We recorded an income tax expense in the first quarter of 2025 of $51 thousand at an effective tax rate of 72.9%, compared to an income tax benefit during the first quarter of 2024 of $277 thousand at an effective tax rate of (21.1%). The effective rate for the first quarter of 2025 was unusually high due to (1) a near-breakeven level of pre-tax earnings of $70 thousand and (2) tax expense only included taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States. In the fourth quarter of 2024, the Company recognized a $7.3 million charge to income tax expense to record 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 March 31, 2025 and management continues to believe this valuation allowance is appropriate.

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Liquidity and Capital Resources

Cash Flow

In the first three months of 2025, our cash and cash equivalents balance decreased $216 thousand, or 2%, from December 31, 2024. We ended the first quarter of 2025 with $14.2 million in cash and cash equivalents, of which $0.2 million was held by our UK subsidiary.

Operating activities: The following significant factors affected our cash used in operating activities of $161 thousand for the first three months of 2025 as compared to cash used in operating activities of $1.5 million for the first three months of 2024:

During the first three months of 2025:

• We reported net income of $19 thousand.
• We recorded depreciation and amortization of $0.2 million and share-based compensation expense of $0.3 million.
• Accounts receivable increased $2.5 million due to the increase in sales as discussed in our Results of Operations above.
• Inventories decreased $1.8 million as we work down our elevated inventory levels on hand.

During the first three months of 2024:

• We reported a net loss of $1.0 million.
• We recorded depreciation and amortization of $0.4 million and share-based compensation expense of $0.3 million.
• Inventories increased $1.4 million consistent with the slowdown in sales as discussed in our Results of Operations above.
• Accounts receivable decreased $2.0 million due to the continued collections of sales combined with the slowdown in sales as discussed in our Results of Operations above.
• Accrued and other liabilities decreased $1.0 million due largely to the payout of 2023 bonuses in the first quarter of 2024.

Investing activities: Our capital expenditures were $10 thousand for the first three months of 2025 compared to $106 thousand for the first three months of 2024. Expenditures for both periods were primarily for computer and networking equipment and new tooling equipment.

Financing activities: Financing activities used $50 thousand of cash during the first three months of 2025 compared to $71 thousand in cash used during the first three months of 2024. These amounts relate to cash used to pay withholding taxes on stock issued from our stock compensation plans.

Resource Sufficiency

Competitors that were unable to supply products in 2023 due to supply chain constraints have returned to the market, resulting in increased competitive pressure. Certain large customers began to slow their order rates in the first half of 2024 due to higher-than-normal inventory levels, though most have resumed buying again. As a result, following an increase in casino and gaming sales in 2023 and then a fall-off in 2024 as customers worked through inventory on hand, we expect to see more normalized sales in casino and gaming in 2025. Given the continued uncertainty related to tariffs and general economic conditions, we continue to monitor our cash generation, usage and preservation including the management of working capital to generate cash.

We believe that our cash and cash equivalents on hand, our expected cash flows generated from operating activities, and borrowings available under our 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 duration and extent of current global economic pressures and conditions in our markets remain uncertain and their ultimate impact is unknown.

Credit Facility

We are party to a Loan and Security Agreement, dated as of March 13, 2020 (as amended, the “Loan Agreement”), with Siena Lending Group LLC (the “Lender”) that provides for a revolving credit line of up to $10.0 million, subject to a borrowing base based on 85% of eligible accounts receivable plus the lesser of (a) $5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory (the “Siena Credit Facility”). Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%. We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility. Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes a financial covenant on the Company requiring that the Company maintain excess availability of at least $750 thousand under the Siena Credit Facility, tested as of the end of each calendar month and restricts, among other things, our ability to incur additional indebtedness and create other liens. We have remained in compliance with our excess availability covenant through March 31, 2025.

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

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

As stated above, we continue to monitor our cash generation, usage and preservation including the management of working capital to generate cash and continue to evaluate alternative sources of funding as necessary.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TransAct is a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, and is not required to provide information under this item.

Item 4. Controls and Procedures

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2025. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2025, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 8. “Financial Statements and Supplementary Data” in the 2024 Form 10-K. There have been no changes to our significant accounting policies since the 2024 Form 10-K.

Recently issued accounting pronouncements:

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

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

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

3. Revenue

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

Disaggregation of revenue

The following tables disaggregate our revenue by market type, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues.

Contract balances

Contract assets consist of unbilled receivables. Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when such revenue exceeds the amount invoiced to the customer. Unbilled receivables are separated into current and non-current assets and included within “Accounts receivable, net” and “Other assets” in the Condensed Consolidated Balance Sheets.

Contract liabilities consist of customer pre-payments and deferred revenue. Customer prepayments are reported as “Accrued liabilities” in current liabilities in the Condensed Consolidated Balance Sheets and represent customer payments made in advance of performance obligations in instances where credit has not been extended and are recognized as revenue when the performance obligation is complete. Deferred revenue is reported separately in current liabilities and non-current liabilities and consists of our extended warranty contracts, technical support for our food service technology terminals, EPICENTRAL maintenance contracts and prepaid software subscriptions for our BOHA! software applications and is recognized as revenue as (or when) we perform under the contract. For the three months ended March 31, 2025, we recognized revenue of $0.4 million related to our contract liabilities at December 31, 2024. Total net contract liabilities consisted of the following:

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Remaining performance obligations

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

4. Inventories

The components of inventories were:

5. Borrowings

Credit Facility

We are party to a Loan and Security Agreement, dated as of March 13, 2020 (as amended, the “Loan Agreement”), with Siena Lending Group LLC (the “Lender”) that provides for a revolving credit line of up to $10.0 million, subject to a borrowing base based on 85% of eligible accounts receivable plus the lesser of (a) $5.0 million and (b) 50% of eligible raw material and 60% of finished goods inventory (the “Siena Credit Facility”). Borrowings under the Siena Credit Facility bear a floating rate of interest equal to the greatest of (i) the prime rate plus 1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%. We also pay a fee of 0.50% on unused borrowings under the Siena Credit Facility. Borrowings under the Siena Credit Facility are secured by a lien on substantially all the assets of the Company.

The Siena Credit Facility imposes a financial covenant on the Company requiring that the Company maintain excess availability of at least $750 thousand under the Siena Credit Facility, tested as of the end of each calendar month and restricts, among other things, our ability to incur additional indebtedness and create other liens. We have remained in compliance with our excess availability covenant through March 31, 2025.

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

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

6. Segment reporting

We apply the provisions of FASB ASC Topic 280, “Segment Reporting.” We view our operations and manage our business as one segment: the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts. Factors used to identify TransAct’s single operating segment include the similar design, construction and functionality of our products and services, the combined research & development team that supports the entire company, a combined assembly, production and supply chain logistics process used to construct our products and services and a similar class of customers within our core markets (distributors, resellers, original equipment manufacturers (“OEMs”) and end users).

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

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

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

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

(1) Other segment expenses included in segment net income primarily include other cost of goods sold, other administrative costs and engineering costs.

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

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7. Earnings per share

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

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

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

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

8. Leases

We account for leases in accordance with ASC Topic 842: Leases.

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

Operating lease expense for the three months ended March 31, 2025 and 2024 was $259 thousand and $282 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations. Operating lease expenses include short-term lease costs, which were immaterial during the periods presented.

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

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

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

9. Income taxes

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

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

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

We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2020. However, our federal tax returns for the years 2021 through 2024 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.

10. Subsequent events

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

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

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Item 1. Legal Proceedings

Item 1. LEGAL PROCEEDINGS

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. As of March 31, 2025, we are unaware of any material pending legal proceedings, or of any material legal proceedings contemplated by government authorities.

Item 1A. Risk Factors

Item 1A. RISK FACTORS

Information regarding risk factors appears under Part I, Item 1A, “Risk Factors,” of our 2024 Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2024 Form 10-K, other than as set forth below. The risk described below and those other risks included in our 2024 Form 10-K are the currently known risks facing our Company that management deems to be material to the Company. Additional risks and uncertainties, not currently known to us or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition or future results.

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We are currently dependent upon a manufacturer located in Thailand for the manufacturing and assembly of substantially all of our printers and terminals, and any further or future disruption in the businesses or operations of this manufacturer or changes to our relationship with this manufacturer/increased costs of products from this manufacturer?, including as a result of political, social or economic instability, war, trade restrictions or tariffs, severe weather, changes in climate, additional public health crises and other events out of our control, could materially adversely affect our business, financial condition and results of operations.

In an effort to maximize cost savings and operational benefits, we have outsourced substantially all of the manufacturing and assembly of our printers and terminals to a contract manufacturer located in Thailand. As a result, we are dependent on this manufacturer for the manufacturing of our products, and any disruption in such manufacturing or the export of products from this manufacturer to the U.S., or the cost of such manufacturing and export, may adversely affect our business, financial condition and results of operations.

Risks affecting the businesses and operations of our manufacturer in Thailand and the cost to us of the products sourced from this manufacturer include: political and regional strife; war; labor shortages; severe weather and natural disasters such as earthquakes, hurricanes, fires, and floods, whether as a result of climate change or otherwise; lengthy power outages; increased pricing, financial instability and capacity constraints of shippers; and concerns with or threats of public health crises, contagious diseases or health epidemics. We are also exposed to risks relating to the government imposition of tariffs, which may impact the cost or availability of products or components that we purchase. For example, on April 2, 2025, the U.S. government imposed a baseline 10% tariff on goods imported from Thailand, effective April 5, 2025. In addition, the U.S. government announced a 36% reciprocal tariff on goods imported from Thailand that was intended to replace the baseline tariff on April 9, 2025 but was subsequently suspended until July 2025. These tariffs may impact certain goods that are assembled and imported from our contract manufacturer in Thailand if a reduction or resolution to the tariffs cannot be negotiated between the Thai and U.S. governments. These and future changes in tariffs and trade policies by the United States on imports from Thailand (or other countries, such as China), or retaliatory trade measures in response, may result in additional costs and pricing pressures, supply chain disruptions, volatile or unpredictable customer spending patterns and increased economic or geopolitical risk that we may not be able to offset or otherwise mitigate, any or all of which could adversely impact our business, financial condition and results of operations. In addition, the risk to our business posed by any disruption in manufacturing or impacts resulting from tariffs or trade policy uncertainty, such as price increases, is exacerbated by the concentration of substantially all of our manufacturing operations in one manufacturer located in Thailand, and there can be no assurance that we will be able to successfully mitigate any such risk by making changes to our supply chain practices, sources of supply, or manufacturing locations, or raising the prices on products subject to such tariffs and sharing these costs with our customers, which could also have significant impacts on our financial results.

If the contract manufacturer is unable to manufacture our products or continue operating its facilities, as occurred in connection with the COVID-19 pandemic, or if cost increases (as a result of tariffs or otherwise) make continued reliance on the contract manufacturer impractical, we will have limited means for the final assembly of a majority of our products until we are able to secure the manufacturing capability at another facility, develop an alternative manufacturing facility or qualify and begin sourcing from an alternative contract manufacturer, which could be costly and time consuming and have a material adverse effect on our operating and financial results.

We may also incur increased business continuity and reputational risks to the extent that we continue to outsource the manufacturing and assembly of our products to foreign third-party service providers. For example, outsourcing of manufacturing prevents us from exercising control over the assembly of certain of our products and related operations or processes, including the internal controls associated with operations and processes conducted and the quality of our products assembled by contract manufacturers. If we are unable to effectively manage and oversee our outsourcing strategy, we may not realize cost structure efficiencies and our operating and financial results could be materially adversely affected. Outsourcing also exposes us to increased risk of infringement or misappropriation of our intellectual property, to which our manufacturers have access. Because our manufacturer is located in Asia, there is no guarantee that our intellectual property rights will be protected or enforced to the same extent as under U.S. federal and state laws. Consequently, we may not be able to prevent third parties from developing or selling products made using our technologies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. Defaults Upon Senior Securities

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. Mine Safety Disclosures

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. Other Information

Item 5. OTHER INFORMATION

a) None

b) None

c) During the three months ended March 31, 2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined it Item 408(a) of Regulation S-K.

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Item 6. Exhibits

Item 6. EXHIBITS

3.1 Certificate of Incorporation of Trans Act Technologies Incorporated (conformed copy) (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 000-21121) filed with the SEC on August 18, 2022).

3.2 Amended and Restated By-Laws of TransAct Technologies Incorporated (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K (SEC File No. 000-21121) filed with the SEC on March 28, 2023). 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. (104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

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