What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-12 compared with 2025-05-14 · 442 added, 255 removed, 159 unchanged (81% of the section changed)

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Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025 (this “Report”),

including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the U.S.

federal securities laws, including the Private

Securities Litigation Reform Act of 1995.

Certain statements included in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025 (this “Report”), including

without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the U.S.

federal securities laws, including the Private Securities

Litigation Reform Act of 1995.

Forward-looking statements are any statements other than statements of historical fact.

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forward-looking statements include, but are not limited to, the following:

the adverse effects of current economic conditions on our business, operations, financial condition, results of operations and capital resources;

the adverse effects of current economic conditions on our business, operations, financial condition, results of operations and

capital resources;

difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions;

the Russia/Ukraine and Middle East conflicts;

inadequate manufacturing capacity or a shortfall or excess of inventory as a result of difficulty in predicting manufacturing requirements due to

volatile economic conditions;

price increases, decreased availability of third-party component parts or raw materials at reasonable prices, price wars or significant pricing

pressures affecting the Company’s products in the United States or abroad;

increased product costs or reduced customer demand for our products in the United States or abroad, including as a result of trade wars or tariffs;

our ability to successfully develop new products that garner customer acceptance and generate sales, both domestically and internationally, in the

face of substantial competition;

our reliance on an unrelated third party to develop, maintain and host certain web-based food service application software and develop and maintain

selected components of our downloadable software applications pursuant to a non-exclusive license agreement, and the risk that interruptions in our relationship with that third party could materially impair our ability to provide services to

our food service technology customers on a timely basis or at all and could require substantial expenditures to find or develop alternative software products;

any system outages, interruptions or other disruptions to our software applications, including as a result of unexpected errors or mistakes in

connection with over-the-air updates;

inadequate manufacturing capacity or a shortfall or excess of inventory as a result of difficulty in predicting manufacturing

requirements due to volatile economic conditions;

price increases, decreased availability of third-party component parts or raw materials at reasonable prices, price wars or

significant pricing pressures affecting the Company’s products in the United States or abroad;

increased product costs or reduced customer demand for our products in the United States or abroad, including as a result of

trade wars or tariffs;

our ability to successfully develop new products that garner customer acceptance and generate sales, both domestically and

internationally, in the face of substantial competition;

our ability to achieve the anticipated benefits of our acquisition of a licensed copy of the source code for the BOHA!

and risks to our reputation and business relating to the source code transition;

any system outages, interruptions or other disruptions to our software applications, including as a result of unexpected errors

or mistakes in connection with over-the-air updates;

our ability to successfully grow our business in the food service technology market;

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risks associated with foreign operations;

price wars or other significant pricing pressures affecting the Company’s products in the United States or abroad;

the imposition of additional duties, tariffs, quotas, taxes, trade barriers, capital flow restrictions and other charges on imports and exports by the

United States or the governments of the countries in which we or our manufacturers and suppliers operate;

increased product costs or reduced customer demand for our products due to changes in U.S.

policy that may result in trade wars or tariffs;

political and policy uncertainties in connection with the change in U.S.

presidential administrations;

the imposition of additional duties, tariffs, quotas, taxes, trade barriers, capital flow restrictions and other charges on

imports and exports by the United States or the governments of the countries in which we or our manufacturers and suppliers operate;

political and policy uncertainties in connection with the current U.S.

presidential administration;

our ability to protect intellectual property;

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volatility of, and decreases in, trading prices of our common stock;

other risk factors identified and discussed in Part I, Item 1A, Risk

Factors, and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”) and that may be detailed from

time to time in the Company’s other reports filed with the Securities and Exchange Commission (the “SEC”).

other risk factors identified and discussed in Part I, Item 1A, Risk Factors, and Part II, Item 7, Management’s Discussion and

Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”) and

that may be detailed from time to time in the Company’s other reports filed with the Securities and Exchange Commission (the “SEC”).

We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Report.

undertake no obligation to publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors, except where we are expressly required to do so by applicable law.

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets including food service

technology, point of sale (“POS”) automation and casino and gaming.

Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca® brand

TransAct is a global leader in developing and selling software-driven technology and printing solutions for large and emerging markets including food service technology, point of sale (“POS”) automation and casino and gaming.

Our world-class products are designed from the ground up based on market and customer

requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca® brand names.

During 2019, we launched a new line of products for the food service technology market, the BOHA!

hardware solutions and companion branded suite of cloud-based applications.

software and hardware products help restaurants,

convenience stores and food service operators of all sizes automate the food production in the back-of-house operations.

Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals

generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents.

We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, and select distributors, as well as directly to

Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific.

We also offer world-class service, support, labels, spare parts, accessories

and printing supplies to our growing worldwide base of products currently in use by our customers.

Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in

the restaurant and hospitality, retail, casino and gaming, and government markets.

Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products.

hardware solutions and companion branded suite of

cloud-based applications.

software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production in the back-of-house operations.

Known and respected worldwide for

innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents.

We sell our technology to original equipment

manufacturers (“OEMs”), value-added resellers, and select distributors, as well as directly to end users.

Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and

the South Pacific.

We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers.

Through our TransAct Services Group (“TSG”), we provide

a complete range of supplies and consumables used in the printing activities of customers in the restaurant and hospitality, retail, casino and gaming, and government markets.

Through our webstore, www.transactsupplies.com, and our direct selling

team, we address the demand for these products.

We operate in one reportable segment:

design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.

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.

Accordingly, management has concluded that the Company consists of a single operating segment and single reportable segment for accounting and financial reporting purposes.

the design, development, and marketing of software-driven technology and printing solutions for large and emerging markets, and provide related services, supplies and spare parts.

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.

Accordingly, management has concluded that the Company consists of a single operating segment and single reportable segment for accounting and

financial reporting purposes.

Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this Report are listed without the ©, ® and ™

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Recent Developments

Source Code Acquisition

On August 6, 2025, the Company announced that it acquired a perpetual license to a copy of the source code for the BOHA!

software that it

licenses from Avery Dennison.

Under the terms of the agreement, TransAct has obtained a perpetual and royalty free license to use, host, market, sublicense, distribute, copy, and modify the code as the Company sees fit for its business purposes.

addition to the perpetual and royalty free license, TransAct will also host the code in its own environment, which is expected to go live in early 2027.

Total consideration for the acquisition was $2.55 million, plus professional services fees of

approximately $1.0 million for transition services to be provided by Avery Dennison.

Current Business and Economic Trends

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

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.

As of March 31, 2025, we believe all significant domestic customers have been able to sell through their on-hand inventory and have resumed ordering again.

As a result, we expect to continue to see a return to more normalized casino and gaming

sales levels in 2025.

However, c asino and gaming sales levels during 2025 may

be impacted by an increase in advance orders from customers seeking to avoid potential price increases from the recent tariff actions discussed below, which could result in decreased demand in future periods.

The Company is currently evaluating the

potential impact of this trend.

Since February 2025, the U.S.

government has issued several executive orders imposing tariffs on imports from most countries with which the U.S.

As of June 30, 2025, we believe all significant domestic customers have been able to

sell through their on-hand inventory and have resumed ordering again.

As a result, we have seen, and expect to continue to see, a return to more normalized casino and gaming sales levels in 2025.

However, we continue to monitor the potential impact of

any price increases resulting from recent tariff actions on casino and gaming sales levels during 2025, such as the potential increase in advance orders from customers seeking to avoid such price increases, which could result in decreased demand in

future periods.

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.

These tariffs may impact certain goods that our assembled and imported into the U.S.

from our manufacturer in Thailand if a reduction or resolution cannot be negotiated between the Thai and the U.S governments.

The majority of raw components used in

the manufacturing and assembly of our printers and terminals are sourced locally in Thailand, and to a lesser extent, from other countries in the region, including China.

As a result, we currently have a limited ability to mitigate the potential impact

of tariffs on goods sold into the U.S.

through alternative sourcing or manufacturing.

We currently plan to mitigate any potential tariffs by raising prices to customers, but there can be no assurance that we will be able to pass on all tariff costs to

customers via price increases.

While tariffs did not materially impact our results for the first quarter of 2025, we continue to monitor the ongoing implications of tariffs and anticipated

increases in tariffs and counter-tariffs.

Given the continued lack of clarity, it is uncertain whether other countries will continue to seek negotiations or retaliate as future developments occur, or whether the U.S.

government will increase, eliminate

or expand tariffs, reconsider or adjust tariffs based upon negotiations, or grant further exemptions.

During 2025, the U.S.

government has announced a variety of trade-related actions, including

the imposition of tariffs on imports from several countries, including Thailand .

In response, many countries announced their own retaliatory tariffs.

Certain tariffs were

paused for a period of time but have not been withdrawn, while others have been revised .

On July 30, 2025, the U.S.

government announced that an agreement was made with Thailand to establish a U.S.

tariff of 19% on goods imported from Thailand

effective August 7, 2025.

We expect that these tariffs will impact certain goods that are assembled and imported into the United States from our manufacturer in Thailand.

The majority of raw components used in the manufacturing and assembly of our printers

and terminals are sourced locally in Thailand, and to a lesser extent, from other countries in the region, including China.

As a result, we currently have a limited ability to mitigate the expected impact of tariffs on goods sold into the United States through alternative sourcing or manufacturing.

We currently plan to mitigate these tariffs by raising prices to customers, but there can be no assurance that we

will be able to pass on all tariff costs to customers via price increases.

While tariffs did not materially impact our results for the first six months of 2025, we expect the 19% tariff may impact our financial results going forward.

It is uncertain whether other countries will continue to seek further negotiations or retaliate as future developments occur, or whether the U.S.

will reconsider or adjust tariffs based upon continued future negotiations, or grant further exemptions.

The Company continues to monitor the rapidly evolving and uncertain

tariff and global trade environment and the potential impacts to its Consolidated Financial Statements.

The continued effects of any global tariffs may potentially increase the likelihood of a recession, create a significant reduction in consumer confidence and

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For information regarding the risks

related to our manufacturer in Thailand and global economic conditions, please see Part II, Item 1A, “Risk Factors,” of this Form 10-Q.

Strategic Review Process

For information regarding the risks related to the strategic review process, please see Part I, Item 1A, “Risk Factors” under the sub-caption “Our success

may depend in part on our ability to identify and pursue the best long-term strategy for our businesses” in our 2024 Form 10-K.

related to our manufacturer in Thailand and global economic conditions, please see Part II, Item 1A, “Risk Factors,” of this Report .

Balance Sheet, Cash Flow and Liquidity

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 began experiencing the full impact of

these actions in the first quarter of 2024 and such actions resulted in approximately $3 million of annualized savings during 2024 and we expect similar savings to be achieved in 2025 compared to the 2024 levels, partially offset by typical annual

inflationary and cost of living increases in operating expenses.

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 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 inflation, tariffs and

conditions in our markets will be 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.

We began a cost reduction initiative in the second quarter of 2024 focused largely on 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 million on an annualized basis.

We expect these

savings to continue to be realized in 2025.

However, we expect these operating expense

savings in 2025 will be more than offset by typical annual inflationary and cost of living increases as well as higher incentive and stock-based compensation expected from improved results compared to 2024.

Our cash flow and liquidity also benefited during the first half of 2025 from a successful inventory reduction

initiative which reduced our inventory levels by approximately $3.2 million from December 31, 2024.

We do not expect any further reduction in our inventory level for the remainder of 2025.

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 inflation, tariffs and conditions in our markets will be 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.

Critical Accounting Estimates

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Results of Operations:

Three months ended March 31, 2025 compared to three months ended March 31, 2024

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Net sales, which

include printer, terminal and software sales, as well as sales of replacement parts, consumables (including labels) and maintenance and repair services, by market for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except

include printer, terminal and software sales, as well as sales of replacement parts, consumables (including labels) and maintenance and repair services, by market for the three months ended June 30, 2025 and 2024 were as follows (in thousands, except

percentages):

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Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

Food service technology (“FST”)

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terminals to international destinations.

Net sales for the first quarter of 2025 increased $2.4 million, or 22%, compared

to the first quarter of 2024.

Printer, terminal and other hardware unit sales volume increased 28% to approximately 24,700 units, due primarily to a 25% unit sales volume increase in the casino and gaming market and a 143 % unit sales volume increase in FST hardware.

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 was up 5% in the first quarter of 2025 compared to the first quarter of 2024.

FST software, labels and other recurring revenue increased $250 thousand,

or 10%, in the first quarter of 2025 compared to the first quarter of 2024.

International sales for the first quarter of 2025 decreased $615 thousand, or 21%, from the same period in 2024 due primarily to lower sales in our casino

and gaming market.

Net sales for the second quarter of 2025 increased $2.2 million, or 19%,

compared to the second quarter of 2024.

Printer, terminal and other hardware unit sales volume increased 21% to approximately 26,300 units, due primarily to a 40% unit sales volume increase in the casino and gaming market and a 41 % unit sales volume increase in FST hardware , somewhat offset by a 46% decrease in unit sales 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 was up 5% in the second quarter of 2025 compared to the second quarter of 2024, due in part to increased

costs resulting from U.S.

tariffs imposed on our products assembled in Thailand, which have been passed on to our customers.

FST software, labels and other recurring revenue increased $ 183 thousand, or 7%, in the second quarter of 2025 compared to the second quarter of 2024.

International sales for the second quarter of 2025 decreased $464

thousand, or 17%, from the same period in 2024 due primarily to lower sales in our casino and gaming market.

Food service technology (“FST”) .

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in the FST market is our line of BOHA!

product suite combines our latest generation terminal or workstation, which include one or two printers, with our 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 and

checklists and task lists.

individually purchase cloud-based software applications for our Terminal or Workstation 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

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.

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.

WorkStation uses an iPad or Android tablet instead of an integrated touchscreen.

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.

food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants (“QSRs”), 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.

Customers may also purchase associated hardware, such as tablets,

temperature sensors and gateways.

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.

WorkStation uses an iPad or Android tablet

instead of an integrated touchscreen.

updates to the operating system.

helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants (“QSRs”), 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 FST products for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

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 FST products for the three months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages):

Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

International

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Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

Software, labels and other recurring revenue

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!

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.

The increase in food service technology sales in the second quarter of 2025

compared to the second quarter of 2024 was primarily driven by an increase in domestic hardware sales.

Hardware sales were strong in the second quarter of 2025, up 29% compared to the second quarter of 2024 due largely to higher sales of Workstation to a new sushi customer won in the first quarter of 2025 as well as sales of our new BOHA!

Terminal 2 to two large existing customers (replacing our BOHA!

Despite the loss of a significant customer in 2024 (explained further below), FST software, labels and other recurring revenue

increased 7% compared to the prior year period due primarily to label sales to our new

sushi customer .

During the second quarter of 2024, a significant customer notified us that it would be terminating service, including its BOHA!

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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 202 4 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.

Total sales to this customer (including software, labels and other recurring revenue) were approximately $300 thousand in the second quarter of 2024.

sales to this customer in the second quarter of 2025.

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.

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).

We expect FST revenue for the remainder of 2025 to be higher than the

comparable period of 2024 as we continue to focus on growing our installed base of terminals and the related recurring revenue (primarily the sale of BOHA!

and subscription software revenue from our labeling software application).

POS automation:

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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):

McDonald’s, and to a lesser extent, other QSRs at the checkout counter or 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 June 30, 2025 and 2024 were as follows (in thousands, except percentages):

Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

International

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.

The 49% decline in POS automation sales in the second quarter of 2025 compared to the second 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 for the remainder of 2025 to remain at approximately the same level as the second quarter of 2025 as we expect to continue to experience competitive pressure in this market.

Casino and gaming .

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.

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):

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 June 30, 2025 and 2024 were as follows

(in thousands, except percentages):

Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

International

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.

Domestic sales of our casino and gaming products for the second quarter of 2025

increased by $2.8 million, or 88%, compared to the second quarter of 2024.

Sales during the second 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.

Sales increased during the second

quarter of 2025 compared to the second 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 2025.

In addition, sales in the second 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.

Our international casino and gaming sales were down 23% during the second quarter of 2025 compared to the second quarter of 2024, largely due to a

significant 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 to occur late in the second half of 2025.

TransAct Services Group (“TSG”):

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):

generated by TSG includes sales of POS receipt paper 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 June 30, 2025 and 2024 were as follows (in thousands, except percentages):

Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

International

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

The decrease in domestic revenue from TSG of $0.1 million during the second quarter of 2025 as compared to the second 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.

An increase in sales of spare parts to international customers drove the modest increase of $34 thousand of international

sales during the second quarter of 2025 as compared to the second quarter of 2024.

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

Gross Profit.

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

Three Months Ended March 31,

information for the three months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Total Sales - 2025

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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.

In the second quarter of 2025, gross profit increased $542 thousand, or 9% on 19%

higher overall sales, and gross margin declined 450 basis points to 48% due largely 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

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-40s 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):

Three Months Ended March 31,

Engineering, design and product development expense information for the three months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Total Sales - 2025

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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.

Engineering, design and product development expenses decreased $74 thousand, or 4%, for the second quarter of 2025 compared to the second

quarter of 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.

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):

Three Months Ended March 31,

Selling and marketing expense information for the three months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Total Sales - 2025

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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 .

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.

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 decreased $94 thousand, or 4%, in the second quarter of 2025 compared to the second quarter of 2024 due largely to cost reduction initiatives

including reduced headcount, trade show and other marketing expenses taken during the second quarter of 2024 (the full benefit of which was realized in 2025), partially offset by higher costs related to programs to further improve the Company’s

go-to-market strategy as well higher sales commissions and incentive compensation due to improved financial results in 2025 compared to 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):

Three Months Ended March 31,

General and administrative information for the three months ended June 30, 2025 and 2024 is summarized below (in thousands,

except percentages):

Three Months Ended June 30,

Total Sales - 2025

Total Sales – 2024

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.

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 increased $530 thousand, or 21%, during the second quarter of 2025 compared to the second

quarter of 2024.

This increase was driven largely by higher incentive and stock based compensation due to improved financial results as well as estimated better performance against targets in 2025 compared to 2024.

These increases were partially

offset by the impact of cost reduction initiatives taken in the second quarter of 2024.

Operating Loss.

Operating loss for

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

Three Months Ended March 31,

the three months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Three Months Ended June 30,

Total Sales – 2025

Total Sales – 2024

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.

Our operating loss decreased $180 thousand in the second quarter of 2025 compared to the second quarter of 2024 due largely to a 19% increase in sales and a

resulting $542 thousand increase in gross profit (despite a 450 basis point decline in gross margin), partially offset by an increase in operating expenses of $362 thousand, or 6%, as discussed above.

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

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 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.

We recorded net interest income of $40 thousand in the second quarter of 2025 compared to $26 thousand in the second quarter of 2024.

We earned more interest income on increased

levels of invested cash in the second quarter of 2025 compared to the second quarter of 2024.

We maintained the required minimum outstanding borrowings under our credit facility of $3 million and $2.25 million during the second quarter of

2025 and 2024 , respectively.

See Note 5, Borrowings to the accompanying condensed consolidated financial statements for more information regarding the Company’s credit

Other, net primarily includes foreign exchange gains and losses incurred by our UK subsidiary.

During the second quarter of 2025 we recognized $115 thousand of foreign exchange gains compared to

$7 thousand foreign exchange gains in the second 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

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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) t ax 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 .

federal net deferred tax

The need for this valuation allowance has been assessed as of March 31, 2025 and management continues to believe this valuation allowance is appropriate.

We recorded income tax

expense in the second quarter of 2025 of $40 thousand at an effective tax rate of 38.8% compared to an income tax benefit in the second quarter of 2024 of $86 thousand at an effective tax rate of (21.2%).

The effective tax rate for the second quarter

of 2025 was unusually high due to (1) a near-breakeven level of pre-tax earnings of $103 thousand and (2) tax expense only included taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States.

previously disclosed, we provided for a full valuation allowance against our U.S.

deferred taxes in the fourth quarter of 2024 and continue to believe this allowance is required as of June 30, 2025.

As such, the Company has not recorded any U.S.

federal tax benefits associated with losses recorded in the second quarter of 2025.

As a result of the above, we reported a net loss for the second quarter of 2025 of $(143) thousand, or $(0.01) per diluted share, compared to net loss of $(319)

thousand, or $(0.03) per diluted share for the second quarter of 2024.

Results of Operations:

Six Months Ended June 30, 2025 compared to six months ended June 30, 2024

Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the six

months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2025

June 30, 2024

POS automation

Casino and gaming

International *

International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers that may, in turn, ship those printers and

terminals to international destinations.

Net sales for the first six months of 2025 increased $4.6 million, or 21%, from

the same period in 2024.

Printer, terminal and other hardware sales unit volume increased by 24% to approximately 51,000 units for the first six months of 2025 driven by a 32% increase in units within our casino and gaming market and an 82%

increase in units within our FST market, somewhat offset by a 29% decrease in unit sales volume in the POS automation market.

For more information about the sales volume increases described above, please refer to the discussion below of the results

of operations for each of our markets.

The average selling price of our printers, terminals and other hardware was up 5% in the first six months of 2025 compared to the first six months of 2024, due in part to increased costs resulting from

tariffs imposed on our products assembled in Thailand, which have been passed on to our customers.

FST software, labels and other recurring revenue increased $0.4

million, or 8%, in the first six months of 2025 compared to the first six months of 2024.

International sales for the first six months of 2025 decreased $1.1 million, or 19%, from the same period in 2024 due primarily to a 23% decrease in sales

within the international casino and gaming market.

Food service technology.

Sales of our worldwide food service technology products for the six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2025

June 30, 2024

International

Six Months Ended

June 30, 2025

June 30, 2024

Software, labels and other recurring revenue

The increase in food service technology sales of $2.2 million, or 29%, in the

first six months of 2025 compared to the first six months of 2024 was primarily driven by a 77% increase in hardware sales.

Hardware sales were strong in the first six months of 2025 compared to the first six months of 2024 due largely to higher sales of Workstation to a new sushi customer won in the first quarter of

2025 as well as sales of our new BOHA!

Terminal 2 to two large existing

customers (replacing our BOHA!

Despite the loss of a significant customer in 2024, FST labels and other recurring revenue increased 8% in the first half of 2025 compared to the prior year period due primarily to label sales to our new sushi customer .

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 software, labels and other recurring revenue) were approximately $ 600 thousand in the first six months of 2024.

We had a de minimis amount of sales to this customer in the first six months of 2025.

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.

POS automation.

Sales of our worldwide POS automation products for the six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2025

June 30, 2024

International

Sales of POS automation printers decreased $0.6 million, or 33%, for the first six months of 2025 compared to the first six months of 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.

Casino and gaming.

Sales of our worldwide casino and gaming products for the six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2025

June 30, 2024

International

Domestic sales of our casino and gaming products for the first six months of

2025 increased by $4.4 million, or 68%, compared to the first six months of 2024.

Sales during the first six months 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 six months of 2025 compared to the first six months of 2024 as most of our major 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 quarter of

In addition, sales in the first six months 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 six months of 2025 compared to the first six months of 2024, largely due to a

significant 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 to occur late in the second half of 2025.

Sales in our worldwide TSG market for the six months ended June 30, 2025 and 2024 were as follows (in thousands, except percentages) :

Six Months Ended

June 30, 2025

June 30, 2024

International

The decrease in domestic revenue from TSG of $0.3 million during the first six months of 2025 as compared to the first six months 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.

International sales were down $29 thousand during the first six months of 2025 as compared to the first six months of 2024 due to modest decreases in sales

of legacy replacement parts for lottery printers.

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

Gross Profit.

Gross profit for

the six months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Total Sales - 2025

Total Sales – 2024

For the first six months of 2025, gross profit increased by $1.3 million, or 11%.

Gross margin also decreased 420 basis points to 49% in the first half of

2025 compared to 53% in the first half of 2024.

Gross profit increased due to an increase in sales of 21% in the first half of 2025 compared to the first half of 2024, partially offset by the reduction in gross margin described above.

margin decreased 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 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 40s

Operating Expenses - Engineering, Design

and Product Development.

Engineering, design and product development expense for the six months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Total Sales - 2025

Total Sales - 2024

Engineering, design and product development expenses decreased $0.4 million, or 11%, during the first six months of 2025 compared to the first six months

of 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.

Operating Expenses - Selling and

Selling and marketing expense for the six months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Total Sales - 2025

Total Sales - 2024

Selling and marketing expenses decreased $92 thousand, or 2%, for the first six months of 2025 compared to the first six months of 2024 due largely to cost

reduction initiatives including reduced headcount, trade show and other marketing expenses partially offset by higher costs related to programs to further improve the

Company’s go-to-market strategy as well higher sales commissions and incentive compensation due to improved financial results in 2025 compared to 2024.

Operating Expenses - General and

Administrative .

General and administrative expense for the six months ended June 30, 2025 and 2024 is summarized below (in thousands,

except percentages):

Six Months Ended June 30,

Total Sales - 2025

Total Sales - 2024

General and administrative expenses increased $0.3 million, or 6%, for the first six months of 2025 compared to the first six months of 2024.

This increase was driven largely by higher incentive compensation and stock compensation expense.

These increases were partially offset by the impact of cost reduction

initiatives taken in the second quarter of 2024.

Operating Loss.

Operating loss for

the six months ended June 30, 2025 and 2024 is summarized below (in thousands, except percentages):

Six Months Ended June 30,

Total Sales - 2025

Total Sales - 2024

Our operating loss decreased by $1.5 million, or 84%, for the first six months of 2025 compared to the first six months of 2024 due largely to a 21%

increase in sales in the first half of 2025 compared to the first half of 2024 and a resulting $1.3 million increase in gross profit (despite a 420 basis point decline in gross margin).

In addition, operating expenses declined by $0.2 million , or 1%, as discussed above.

Interest, net.

We recorded net

interest income of $62 thousand for the first six months of 2025 compared to net interest income of $74 thousand for the first six months of 2024.

For both periods in 2025

and 2024, we incurred interest expense on the required minimum borrowings under our credit facility ($3 million and $2.25 million for the first six months of 2025

and 2024, respectively).

See Note 5, Borrowings to the accompanying condensed consolidated financial statements for more information regarding the Company’s credit facility.

During the first six months of 2025, we earned more interest

income than the additional interest expense associated with the increase in the minimum required borrowings of $0.7 million in the first six months of 2025 compared

to the first six months of 2024.

We recorded other income

of $178 thousand in the first six months of 2025 compared to other expense of $(53) thousand in the first six months of 2024 relating primarily to foreign exchange gains and losses.

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.

Income Taxes.

We recorded income tax expense in the six months ended June 30, 2025 of $91 thousand at an effective rate of 275.8% compared to an income tax benefit of $363 thousand at an effective rate of (21.1%)

for the six months ended June 30, 2024.

The effective tax rate for the six months ended June 30, 2025 was unusually high due to (1) a near-breakeven level of pre-tax earnings of $33 thousand, and (2) tax expense only included taxes associated with

earnings in the United Kingdom and minimum required state taxes in the United States.

As previously disclosed, we provided for a full valuation allowance against our deferred taxes in the fourth quarter of 2024 and continue to believe this allowance

is required as of June 30, 2025.

As such, the Company has not recorded any U.S.

federal tax benefits associated with losses recorded in the six months ended June 30, 2025.

As a result of the above, we reported a net loss for the first six months of 2025 of $(124) thousand, or $(0.01) per diluted share, compared to a net loss of $(1.4)

million, or $(0.14) per diluted share for the first six months of 2024.

Liquidity and Capital Resources

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.

In the first six months of 2025, our cash and cash equivalents balance increased $3.4 million, or 23%, from December 31, 2024.

We ended the second quarter of

2025 with $17.7 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.

factors affected our cash provided by operating activities of $3.4 million for the first six months of 2025 as compared to cash used in operating activities of $0.9 million for the first six months of 2024:

During the first six months of 2025:

We reported a net loss of $124 thousand.

We recorded depreciation and amortization of $0.3 million and share-based compensation expense of $0.8 million.

Accounts receivable increased $1.2 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:

Inventories decreased $3.4 million as we worked down our elevated inventory levels on hand, in part due to increased sales.

Accounts payable decreased $0.6 million consistent with our decrease in inventory.

Accrued liabilities and other liabilities increased $1.0 million due largely

to higher accruals for incentive compensation as discussed in our Results

of Operations above .

During the first six months of 2024:

We reported a net loss of $1.4 million.

We recorded depreciation and amortization of $0.6 million and share-based compensation expense of $0.5 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.

Accounts receivable decreased $3.1 million due to the continued collections of sales combined with the slowdown in sales as discussed in the

Results of Operations above.

Accounts payable decreased $1.4 million due to the slowdown in inventory purchases associated with the slowdown in sales as discussed in the

Results of Operations above.

Accrued and other liabilities decreased $1.6 million due in part to a reduction in planned 2024 bonuses.

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.

$29 thousand for the first six months of 2025 compared to $243 thousand for the first six months of 2024.

Expenditures for both periods were primarily for computer and networking equipment and new tooling equipment.

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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.

thousand of cash during the first six months of 2025 compared to $71 thousand in cash used during the first six 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.

Competitors that were unable to supply products in 2023 due to supply chain constraints have returned to the market, resulting in increased competitive

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, and consistent with the first half of 2025, we expect to see more normalized sales in casino and gaming throughout the remainder of 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

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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.

W e 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.

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%.

The Siena Credit Facility imposes a financial covenant on the Company requiring that the Company maintain excess availability of at least $750 thousand under

the Siena Credit Facility, tested as of the end of each calendar month and restricts, among other things, our ability to incur additional indebtedness and create other liens.

We have remained in compliance with our excess availability covenant through

June 30, 2025.

The Company is required to either maintain outstanding borrowings under the Siena Credit Facility of at least $3.0 million in principal amount, or during

any period during which the Lender has control of the Company’s deposit account in accordance with the Loan Agreement, to pay interest on at least $3.0 million principal amount of loans, whether or not such amount of loans is actually outstanding.

The maturity date of the Siena Credit Facility is March 31 , 2027.

As of June 30, 2025, we had $3.0 million of outstanding borrowings under the Siena Credit Facility at an interest rate of 9.25%.

We had $1.6 million of net

borrowing capacity available under the Siena Credit Facility at 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.

borrowing capacity available under the Siena Credit Facility at June 30, 2025.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 2. Management’s Discussion and Analysis