TRANSACT TECHNOLOGIES INC 10-Q

Item 1. FINANCIAL STATEMENTS TRANSACT TECHNOLOGIES INCORPORATED C ONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) March 31, 2026 December 31, 2025 Assets: (In thousands, except share data) Current assets: Cash and cash equivalents $ 18,841 $ 20,433 Accounts receivable, net of allowance for expected credit losses of $ 476 and $ 476 9,024 6,364 Inventories 9,574 10,858 Prepaid income taxes 379 399 Other current assets 894 754 Total current assets 38,712 38,808 Fixed assets, net of accumulated depreciation of $ 18,654 and $ 18,519 1,168 1,243 Right-of-use assets, net of accumulated amortization of $ 1,106 and $ 1,918 3,347 557 Goodwill 2,621 2,621 Intangible assets, net of accumulated amortization of $ 1,606 and $ 1,606 1,983 1,503 Other assets 56 37 9,175 5,961 Total assets $ 47,887 $ 44,769 Liabilities and Shareholders’ Equity: Current liabilities: Revolving loan payable $ 3,000 $ 3,000 Accounts payable 4,414 3,539 Accrued liabilities 3,113 4,763 Lease liabilities 503 346 Deferred revenue 1,340 1,400 Total current liabilities 12,370 13,048 Deferred revenue, net of current portion 322 355 Lease liabilities, net of current portion 2,860 215 Other liabilities 47 35 3,229 605 Total liabilities 15,599 13,653 Commitments and contingencies (see Notes 5 and 8) Shareholders’ equity: Common stock, $ 0.01 par value, 20,000,000 shares authorized; 14,321,121 and 14,170,676 shares issued, respectively; 10,276,279 and 10,125,834 shares outstanding, respectively 142 141 Additional paid-in capital 60,266 59,824 Retained earnings 4,041 3,275 Accumulated other comprehensive loss, net of tax ( 51 ) ( 14 ) Treasury stock, at cost ( 4,044,842 shares) ( 32,110 ) ( 32,110 ) Total shareholders’ equity 32,288 31,116 Total liabilities and shareholders’ equity $ 47,887 $ 44,769 See notes to Condensed Consolidated Financial Statements. 3 Index TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, (In thousands except share data) 2026 2025 Net sales $ 14,415 $ 13,053 Cost of sales 7,162 6,694 Gross profit 7,253 6,359 Operating expenses: Engineering, design and product development 1,380 1,635 Selling and marketing 2,197 2,085 General and administrative 2,905 2,654 6,482 6,374 Operating income (loss) 771 ( 15 ) Interest and other income (expense): Interest, net 66 22 Other, net ( 48 ) 63 18 85 Income before income taxes 789 70 Income tax expense 23 51 Net income $ 766 $ 19 Net income per common share (Note 7): Basic $ 0.08 $ 0.00 Diluted $ 0.07 $ 0.00 Shares used in per-share calculation: Basic 10,178 10,043 Diluted 10,233 10,054 See notes to Condensed Consolidated Financial Statements. 4 Index TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) Three Months Ended March 31, (In thousands) 2026 2025 Net income $ 766 $ 19 Foreign currency translation adjustment, net of taxes ( 37 ) 16 Comprehensive income $ 729 $ 35 See notes to Condensed Consolidated Financial Statements. 5 Index TRANSACT TECHNOLOGIES INCORPORATED CONDE NSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, (In thousands) 2026 2025 Cash flows from operating activities: Net income $ 766 $ 19 Adjustments to reconcile net income to net cash used in operating activities: Share-based compensation expense 511 323 Depreciation and amortization 158 173 Unrealized foreign currency transaction losses (gains) 46 ( 64 ) Changes in operating assets and liabilities: Accounts receivable ( 2,687 ) ( 2,538 ) Inventories 1,243 1,805 Prepaid income taxes 19 – Other current and long-term assets ( 160 ) 49 Accounts payable 869 120 Accrued liabilities and other liabilities ( 1,711 ) ( 48 ) Net cash used in operating activities ( 946 ) ( 161 ) Cash flows from investing activities: Capital expenditures ( 80 ) ( 10 ) Capitalized software development costs ( 480 ) – Net cash used in investing activities ( 560 ) ( 10 ) Cash flows from financing activities: Withholding taxes paid on stock issuances ( 69 ) ( 50 ) Net cash used in financing activities ( 69 ) ( 50 ) Effect of exchange rate changes on cash and cash equivalents ( 17 ) 5 Decrease in cash and cash equivalents ( 1,592 ) ( 216 ) Cash and cash equivalents, beginning of period 20,433 14,394 Cash and cash equivalents, end of period $ 18,841 $ 14,178 Supplemental schedule of non-cash investing and financing activities: Non-cash capital expenditure items $ 20 $ – New right of use assets obtained in exchange for lease liabilities $ 3,029 $ – See notes to Condensed Consolidated Financial Statements. 6 Index TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) Three Months Ended March 31, (In thousands) 2026 2025 Equity beginning balance $ 31,116 $ 30,633 Common stock Balance, beginning of period 141 141 Issuance of common stock on restricted stock units 1 – Balance, end of period 142 141 Additional paid-in capital Balance, beginning of period 59,824 58,141 Share-based compensation expense 511 323 Relinquishment of stock awards to pay for withholding taxes ( 69 ) ( 50 ) Balance, end of period 60,266 58,414 Retained earnings Balance, beginning of period 3,275 4,515 Net income 766 19 Balance, end of period 4,041 4,534 Treasury stock Balance, beginning and end of period ( 32,110 ) ( 32,110 ) Accumulated other comprehensive loss, net of tax Balance, beginning of period ( 14 ) ( 54 ) Foreign currency translation adjustment, net of tax ( 37 ) 16 Balance, end of period ( 51 ) ( 38 ) Equity ending balance $ 32,288 $ 30,941 Supplemental share information Issuance of shares from stock awards 150 68 Relinquishment of stock awards to pay withholding taxes 20 11 See notes to Condensed Consolidated Financial Statements. 7 Index TRANSACT TECHNOLOGIES INCORPORATED N OTES 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. The Condensed Consolidated Financial Statements as of March 31, 2026 and for the quarters ended March 31, 2026 and 2025 are unaudited, but in the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature . The December 31, 2025 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”). The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full year ending December 31, 2026. After strong demand during most of 2023 due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023 and during the year ended December 31, 2024. By the first quarter of 2025, we believe that all significant domestic customers had been able to sell through their on-hand inventory and had resumed ordering, contributing to more normalized casino and gaming sales for the first nine months of 2025. During the fourth quarter of 2025, some domestic casino and gaming customers indicated slowing demand, and one large customer indicated they were in an overstock position while awaiting jurisdictional approvals on new machines. While these conditions impacted our casino and gaming sales in the fourth quarter of 2025, demand in 2026 has improved as customer inventory levels have normalized and installations have been proceeding. Although the timing and extent of any improvement will depend on prevailing economic and industry conditions in the casino and gaming market, we expect our domestic casino and gaming sales to be higher in 2026 compared to 2025. On February 20, 2026, the U.S. Supreme Court issued a ruling in Learning Resources, Inc. v. Trump , holding that the International Emergency Economic Powers Act (“IEEPA”) does not provide the executive branch with the authority to impose certain tariffs. This ruling invalidated certain tariffs previously paid by the Company on goods imported from Thailand. Following the Supreme Court’s ruling that IEEPA-based tariffs were unlawful, the Court of International Trade (CIT) ordered U.S. Customs and Border Protection (CBP) to provide a process for the refund of collected tariffs. The refund mechanism allows importers to file claims for duties paid on shipments through a declaration in the Consolidated Administration and Processing of Entries (“CAPE”) system, which was launched on April 20, 2026. In addition, subsequent to the U.S. Supreme Court’s decision invalidating certain tariffs imposed under the IEEPA, the presidential administration implemented a tariff surcharge under Section 122 of the Trade Act of 1974, establishing a minimum 10% duty on imports, subject to certain exemptions. The Company is currently evaluating the impact of these additional tariffs but does not expect them to have a material adverse effect on its operations or financial condition. Following the February 2026 U.S. Supreme Court ruling regarding IEEPA tariffs, the Company initiated a process of claiming refunds for approximately $ 0.5 million in previously paid duties. In line with our commitment to customer transparency, we intend to reimburse those specific customers in which tariff costs were previously passed through via pricing adjustments, subject to applicable law and any further legal or regulatory developments. We expect to issue these reimbursements following our successful receipt of funds from U.S. Customs and Border Protection. The timing and ultimate amount of these payments remain subject to the federal CAPE portal processing timelines and final verification of eligible entries. The ultimate availability, timing and amount of any potential refunds remain highly uncertain and are subject to further legal, regulatory, and administrative developments. 8 Index Any tariff recoveries received from the CAPE portal will be recorded as a reduction in cost of sales. Under Accounting Standards Codification (“ASC”) Topic 606: Revenue from Contracts with Customers (“ASC 606”), anticipated payments to customers are treated as variable consideration and will be recorded as a reduction to the transaction price (revenue) once they are collected by TransAct and reimbursed to customers. We will continue to evaluate the estimate of this liability as the federal refund process matures. Due to the inherent uncertainties in this process, the Company has not recognized a receivable or payable for any potential refunds as of March 31, 2026. We will continue to monitor legal developments and evaluate our eligibility for recovery. Use of assumptions and estimates Management’s belief that the Company will be able to fund its planned operations over the 12 months following the date on which the unaudited Condensed Consolidated Financial Statements were issued is based on assumptions which involve significant judgment and estimates of future revenues, inflation, tariffs and other trade restrictions, interest rates, capital expenditures and other operating costs. Our current assumption is that consumer traffic will continue to remain strong in casinos and restaurants during the remainder of 2026. We cannot predict the ultimate impact of the current economic environment, including inflation, interest rates and supply chain disruptions, on our customers, which may impact sales. We believe that we are positioned to withstand the impact of any potential future economic downturn and we would be able to take additional financial and operational actions to increase liquidity. In addition, the presentation of the accompanying unaudited Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, share-based compensation and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates used . 2. Significant accounting policies For a discussion of our significant accounting policies, see Note 2, Summary of significant accounting policies within Part II, Item 8. “Financial Statements and Supplementary Data” in the 2025 Form 10-K. There have been no changes to our significant accounting policies since the 2025 Form 10-K. Intangible assets: The Company accounts for software development costs for products to be sold or marketed in accordance with Accounting Standards Codification (“ASC”) 985-20, Software -- Costs of Software to Be Sold, Leased, or Marketed. Costs incurred to establish the technological feasibility of a software product are engineering, design and product development costs and are expensed as incurred. Technological feasibility is established when the Company has completed all planning, designing, coding, and testing activities necessary to determine that a product can be produced to meet its design specifications. Capitalization of software costs begins upon the establishment of technological feasibility and ceases when the product is available for general release to customers. Capitalized software costs are amortized on a product-by-product basis using the straight-line method over the estimated economic life of the product, or the ratio of current gross revenues to total current and anticipated future gross revenues, whichever is greater. During the quarter ended March 31, 2026, the Company capitalized $ 0.5 million of software development costs. Amortization will commence upon completion and release to customers and will be over an estimated useful life of seven years . 9 Index Recently issued accounting pronouncements: In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this update require footnote disclosures on disaggregated information about specific categories underlying certain income statement expense line items that are considered relevant. This includes items such as the purchase of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We expect that adoption of this ASU will result in additional disclosure, but will not impact our consolidated financial position, results of operations, or cash flows. In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments in this update remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. The amendments in this update specify that the disclosures in Subtopic 360-10, Property, Plant, and Equipment—Overall, are required for all capitalized internal-use software costs, regardless of how those costs are presented in the financial statements. Additionally, the amendments clarify that the intangibles disclosures in paragraphs 350-30-50-1 through 50-3 are not required for capitalized internal-use software costs. The amendments in ASU 2025-06 are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this standard. On January 1, 2026, the Company adopted ASU 2025-05, which provides a practical expedient for estimating expected credit losses. Under this standard, the Company elected the practical expedient that allows for the measurement of expected credit losses based on the assumption that current conditions will persist through the end of the contractual term of the financial assets. By electing this expedient, the Company is no longer required to develop or incorporate complex, forward-looking forecasts or revert to historical loss descriptions for the remaining life of the assets. The Company applied this transition to its accounts receivable assets using a modified retrospective approach. The adoption did not have a material impact on the Company’s consolidated financial statements or opening retained earnings, as the current economic environment at the time of adoption was consistent with the historical loss experience and existing trends previously utilized in our CECL models. Other new accounting pronouncements issued, but not effective until after March 31, 2026, did not and are not expected to have a material impact on our financial position, results of operations or liquidity. 3. Revenue We account for revenue in accordance with ASC 606. Disaggregation of revenue The following tables disaggregate our revenue by market type, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Sales and usage-based taxes are excluded from revenues. Three Months Ended March 31, 2026 2025 (In thousands) United States International Total United States International Total Food service technology $ 4,376 $ 316 $ 4,692 $ 4,622 $ 286 $ 4,908 POS automation 620 – 620 618 – 618 Casino and gaming 5,782 2,557 8,339 4,822 1,897 6,719 TransAct Services Group 638 126 764 684 124 808 Total net sales $ 11,416 $ 2,999 $ 14,415 $ 10,746 $ 2,307 $ 13,053 10 Index 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, 2026, we recognized revenue of $ 0.5 million related to our contract liabilities at December 31, 2025. Total net contract liabilities consisted of the following: March 31, 2026 December 31, 2025 (In thousands) Unbilled receivables, current $ 20 $ 31 Unbilled receivables, net of current portion – 1 Customer pre-payments ( 45 ) ( 26 ) Deferred revenue, current ( 1,340 ) ( 1,400 ) Deferred revenue, net of current portion ( 322 ) ( 355 ) Total net contract liabilities $ ( 1,687 ) $ ( 1,749 ) Remaining performance obligations R emaining 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, 2026, the aggregat e amount of transaction prices allo cated t o r emaining performance obligations was $ 6.4 million. The Company expects to recognize revenue of $ 6.0 million of its r emaining performance obligations within the next 12 months following March 31, 2026, $ 0.3 million within the next 24 months following March 31, 2026 and the balance of these r emaining performance obligations recognized within the next 36 months following March 31, 2026. 4. Inventories The components of inventories were: March 31, 2026 December 31, 2025 (In thousands) Raw materials and purchased component parts $ 4,234 $ 4,797 Finished goods 5,340 6,061 $ 9,574 $ 10,858 11 Index 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, 2026. The Company is required to either maintain outstanding borrowings under the Siena Credit Facility of at least $ 3.0 million in principal amount, or during any period during which the Lender has control of the Company’s deposit account in accordance with the Loan Agreement, to pay interest on at least $ 3.0 million principal amount of loans, whether or not such amount of loans is actually outstanding. The maturity date of the Siena Credit Facility is March 31, 2027. As of March 31, 2026, we had $ 3.0 million of outstanding borrowings under the Siena Credit Facility at an interest rate of 8.50 %. We had $ 2.8 million of net borrowing capacity available under the Siena Credit Facility at March 31, 2026. 6. Segment reporting We apply the provisions of ASC Topic 280: Segment Reporting . We view our operations and manage our business as one segment: the design, development, and marketing of software-driven technology and printing solutions for 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 CODM function is performed by the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, who utilize a consolidated approach to assess the performance of and allocate resources to the business. The CODM generally uses measures of sales, gross margin percentage, net income, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA to make operational and strategic decisions. These financial measures are compared to budgeted and forecasted amounts by the CODM s 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. 12 Index The following table provides the operating financial results of our segment: March 31, 2026 2025 (In thousands) Revenues $ 14,415 $ 13,053 Cost of materials sold 5,132 4,964 Compensation costs 4,961 4,837 Professional services 815 971 Occupancy costs 386 364 Marketing expenses 163 244 IT expenses 345 329 Severance expense 42 7 Depreciation and amortization 158 173 Other segment expenses 1,642 1,179 13,644 13,068 Operating income (loss) 771 ( 15 ) Interest income 145 107 Interest expense ( 79 ) ( 85 ) Other, net ( 48 ) 63 Income tax expense ( 23 ) ( 51 ) Net income $ 766 $ 19 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 to EBITDA and adjusted EBITDA follows: March 31, 2026 2025 (unaudited) (In thousands) Net income $ 766 $ 19 Interest income, net ( 66 ) ( 22 ) Income tax expense 23 51 Depreciation and amortization 158 173 EBITDA 881 221 Share-based compensation 511 323 Adjusted EBITDA $ 1,392 $ 544 13 Index 7. Earnings per share The following table sets forth the reconciliation of basic and diluted weighted average shares outstanding: Three Months Ended March 31, 2026 2025 (In thousands, except per-share data) Net income $ 766 $ 19 Shares: Basic: Weighted average common shares outstanding 10,178 10,043 Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method 55 11 Diluted: Weighted average common and common equivalent shares outstanding 10,233 10,054 Net income per common share: Basic $ 0.08 $ 0.00 Diluted $ 0.07 $ 0.00 The computation of basic net earnings per share for each period is computed by dividing earnings by the basic weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities under the treasury stock method (including stock options, restricted stock units and performance stock units), if the impact is dilutive. When the average market price of our common stock is lower than the exercise price of the related stock option during the period, the computation of diluted earnings per share excludes the effect of the potential exercise of these stock option awards because the effect of including these stock option exercises would be anti-dilutive. Furthermore, in periods when a net loss is reported, basic and diluted net loss per common share are calculated using the same method. There were 1.1 million and 1.4 million anti-dilutive stock awards excluded from the computation of earnings per share for the quarters ended March 31, 2026, and March 31, 2025, 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. On March 31, 2026, we amended our lease agreement for our facility in Ithaca, New York. This amendment extends the expiration of the lease from May 31, 2026 to September 30, 2031, resulting in a $ 3.0 million increase in our right of use assets and lease liabilities. Operating lease expense for the three months ended March 31, 2026 and 2025 was $ 235 thousand and $ 259 thousand, respectively, and is reported as “Cost of sales”, “Engineering, design and product development expense”, “Selling and marketing expense”, and “General and administrative expense” in the Condensed Consolidated Statements of Operations. Operating lease expenses include short-term lease costs, which were immaterial for the periods presented. 14 Index The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands): Three Months Ended, March 31, 2026 2025 Operating cash outflows from leases $ 217 $ 259 The following summarizes additional information related to our leases as of March 31, 2026 and December 31, 2025: March 31, 2026 December 31, 2025 Weighted average remaining lease term (in years) 5.2 2.3 Weighted average discount rate 9.7 % 9.1 % The maturity of the Company’s operating lease liabilities as of March 31, 2026 and December 31, 2025 were as follows (in thousands): March 31, 2026 December 31, 2025 2026 $ 594 $ 376 2027 764 82 2028 778 82 2029 813 82 Thereafter 1,260 – Total undiscounted lease payments 4,209 622 Less imputed interest 846 61 Total lease liabilities $ 3,363 $ 561 9. Income taxes We recorded income tax expense in the first quarter of 2026 of $ 23 thousand at an effective tax rate of 2.9 % compared to income tax expense in the first quarter of 2025 of $ 51 thousand at an effective tax rate of 72.9 %. In the fourth quarter of 2024, the Company recorded a valuation allowance on the full value of its U.S. federal net deferred tax asset. The need for this valuation allowance has been assessed as of March 31, 2026 and management continues to believe that the negative evidence, as further discussed below, continues to support our valuation allowance. As such, we recorded no U.S. federal income tax expense during the first quarter of 2026 and the first quarter of 2025. The effective tax rate for the first quarter of 2026 was low due to tax expense only being recorded on income taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States. The effective tax 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. As of March 31, 2026 and December 31, 2025, we had $ 8.5 million and $ 8.7 million, respectively, of valuation allowance against our net deferred income tax assets in multiple global tax jurisdictions. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. Federal net operating losses can be carried forward indefinitely, however these indefinite-lived NOLs are generally limited to offsetting 80% of taxable income in any given year. The Federal R&D credit carryforwards typically have a 20 -year carryforward period. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations and projections of future profitability within the carryforward period, including any potential tax planning strategies. Negative evidence includes items such as cumulative losses and projections of future losses. Upon changes in facts and circumstances, management may conclude that deferred tax assets for which no valuation allowance is currently recorded may not be realized, resulting in a charge to establish a valuation allowance. Existing valuation allowances are re-examined on a quarterly basis under the same standards of positive and negative evidence. 15 Index We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2021. However, our federal tax returns for the years 2022 through 2025 remain open to examination. Various U.S. state and foreign tax jurisdiction tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements. 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, including a minimum 10% duty on imports, subject to certain exemptions, pursuant to Section 122 of the Trade Act of 1974. We are currently dependent upon a manufacturer located in Thailand for the manufacturing and assembly of substantially all of our printers and terminals. On February 20, 2026, the U.S. Supreme Court issued a ruling in Learning Resources, Inc. v. Trump , holding that the International Emergency Economic Powers Act (“IEEPA”) does not provide the executive branch with the authority to impose certain tariffs. This ruling invalidated certain tariffs previously paid by the Company on goods imported from Thailand. Following the Supreme Court’s ruling that IEEPA-based tariffs were unlawful, the Court of International Trade (“CIT”) ordered U.S. Customs and Border Protection (“CBP”) to provide a process for the refund of collected tariffs. The refund mechanism allows importers to file claims for duties paid on shipments through a declaration in the Consolidated Administration and Processing of Entries (“CAPE”) system, which was launched on April 20, 2026. See Note 1 Basis of presentation . On April 28, 2026, the Company’s Board of Directors approved a share repurchase program authorizing the purchase of up to $ 3 million of the Company’s outstanding common stock. Under this program, the Company may repurchase shares from time to time in the open market, through negotiated transactions, or other legal means, depending on market conditions, share price, and other factors. The program has a term of one year , unless terminated earlier by the Board of Directors. The repurchase program will be funded using the Company’s existing cash balance and cash generated from operations. 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. 16 Index