TRANSACT TECHNOLOGIES INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Certain statements included in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026 (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. Forward-looking statements represent current views about possible future events and are often identified by the use of forward-looking terminology, such as “may,” “will,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” “plan,” “predict,” “design” or “continue” or the negative thereof or other similar words. Forward-looking statements are subject to certain risks, uncertainties and assumptions. In the event that one or more of such risks or uncertainties materialize, or one or more underlying assumptions prove incorrect, actual results may differ materially from those expressed or implied by the forward-looking statements. Important factors and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: • the adverse effects of current economic conditions, including inflation and changes in interest rates, on our business, operations, financial condition, results of operations and capital resources; • our ability to achieve the anticipated benefits of our acquisition of a licensed copy of the source code for the BOHA! software and risks to our reputation and business relating to the source code transition; • our ability to successfully transition the BOHA! source code to our platform and systems and, until such transition is complete, our continued reliance on third parties to host and support our FST offerings; • difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions; • our dependence on a single contract manufacturer for the assembly of a large portion of our products in Asia; • 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 including the potential for new or reinstated trade measures, in addition to the 10% tariff surcharge already implemented under Section 122 of the Trade Act of 1974, following the U.S. Supreme Court’s decision to invalidate certain previously imposed tariffs; • 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, tariffs or other trade actions; • our ability to successfully develop new products that garner customer acceptance and generate sales, both domestically and internationally, in the face of substantial competition; • 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; • renewal rates for our subscription-based products; • risks associated with the pursuit of strategic initiatives and business growth; • uncertainties and administrative, legal, and tax complexities associated with the process of claiming and remitting tariff refunds to customers, which may expose us to litigation, regulatory scrutiny, and financial loss; • our dependence on significant suppliers; • our ability to recruit and retain quality employees; • our dependence on third parties for sales outside the United States; • marketplace acceptance of new products; • risks associated with foreign operations; • our ability to protect intellectual property; • exchange rate fluctuations; • the availability of needed financing on acceptable terms or at all; • volatility of, and decreases in, trading prices of our common stock; and • 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, 2025 (the “2025 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. We 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. 17 Index Overview TransAct is a leading provider of cloud-based software and integrated hardware 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 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. The BOHA! 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: the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and the provision of related services, supplies and spare parts. The Company’s chief operating decision makers, consisting of 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 ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks, trade names and copyrights. Recent Developments Current Business and Economic Trends Global macroeconomic conditions have impacted, and continue to impact, aspects of the Company’s operations and overall financial performance during the quarters ended March 31, 2026 and 2025. These macroeconomic conditions include, among others, changing levels of demand in the casino and gaming market, supply chain constraints, geopolitical conflicts, inflationary pressures, high interest rates, and changes in global trade policies including higher tariffs in the U.S. and other countries. These macroeconomic trends could continue to impact our business, including potential impacts to overall financial performance during the remainder of 2026. We currently do not expect any significant impact to our capital and financial resources from these macroeconomic conditions, including to our overall liquidity position based on our available cash and cash equivalents and our access to credit facilities. Tariffs We are currently dependent upon a manufacturer located in Thailand for the manufacturing and assembly of substantially all of our printers and terminals. During 2025, the U.S. government announced a variety of trade-related actions, including the imposition of tariffs on imports from several countries, including Thailand. In response, many countries announced their own retaliatory tariffs. After a number of announcements imposing and revising tariffs applicable to goods imported from Thailand over the course of the year, 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. 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 this decision, 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. 18 Index These tariffs may impact certain goods that are 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. 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. Since we generally have been able to pass on all tariff costs to our customers, they did not materially impact our results for the first quarter of 2026. Following the February 2026 U.S. Supreme Court ruling regarding IEEPA tariffs, the Company has initiated a process to claim refunds of approximately $0.5 million in previously paid duties. In line with its commitment to customer transparency, the Company also intends to reimburse certain customers for tariff costs previously passed through via pricing adjustments, subject to applicable law and any further legal or regulatory developments. We continue to monitor the ongoing implications of tariffs and potential 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. The continued effects of any global tariffs may potentially increase the likelihood of a recession, create a significant reduction in consumer confidence and customer demand, increase inflation or impact credit markets and interest rates. Any of these resulting effects could materially and adversely affect our business, financial condition and results of operations. 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. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The presentation of these 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 critical accounting estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities and share-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There have been no material changes in our critical accounting estimates from the information presented in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” since the filing of the 2025 Form 10-K. 19 Index Results of Operations: Three months ended March 31, 2026 compared to three months ended March 31, 2025 Net Sales: 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, 2026 and 2025 were as follows (in thousands, except percentages): Three Months Ended Three Months Ended March 31, 2026 March 31, 2025 $ Change % Change FST $ 4,692 32.5 % $ 4,908 37.6 % $ (216 ) (4.4 %) POS automation 620 4.3 % 618 4.7 % 2 0.3 % Casino and gaming 8,339 57.9 % 6,719 51.5 % 1,620 24.1 % TSG 764 5.3 % 808 6.2 % (44 ) (5.4 %) $ 14,415 100.0 % $ 13,053 100.0 % $ 1,362 10.4 % International * $ 2,999 20.8 % $ 2,307 17.7 % $ 692 30.0 % * International sales do not include sales of printers and terminals made to domestic distributors or other domestic customers who may, in turn, ship those printers and terminals to international destinations. Net sales for the first quarter of 2026 increased $1.4 million, or 10%, compared to the first quarter of 2025. Printer, terminal and other hardware unit sales volume increased 9% to approximately 26,900 units, due primarily to a 16% unit sales volume increase in the casino and gaming market, partially offset by a 37 % unit sales volume decrease in FST hardware (FST has a smaller base). Unit sales volume changes in TSG and POS automation were not material. 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 down 1% in the first quarter of 2026 compared to the first quarter of 2025. FST software, labels and other recurring revenue increased $0.7 million, or 26%, in the first quarter of 2026 compared to the first quarter of 2025 due primarily to increased label sales. International sales for the first quarter of 2026 increased $692 thousand, or 30%, from the same period in 2025 due primarily to increased sales in our casino and gaming market. FST . Our primary offering in the FST market is our line of BOHA! products. The BOHA! product suite combines our latest generation terminal or workstation, which includes one or two printers, with our BOHA! labeling, timers, and media software. In addition, customers may individually purchase cloud-based software applications for our terminal or workstation. These applications can be integrated with separate mobile devices to create a solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The additional software offering of BOHA! consists of a variety of individually purchased software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for temperature monitoring, temperature taking and checklists and task lists. These applications are sold separately, and customers purchase the applications they need for their back-of-house operations. Customers may also purchase associated hardware, such as tablets, temperature sensors and gateways. The BOHA! Terminal 2 and the newly launched Terminal 2 LTE combine an operating system and hardware components in a single touchscreen device with one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels, and nutritional labels for prepared foods, and “enjoy by” date labels. The BOHA! WorkStation uses an iPad or Android tablet instead of an integrated touchscreen. The BOHA! Terminal, Terminal 2 and WorkStation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on the device and to allow over-the-air updates to the operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants (“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. 20 Index Sales of our worldwide FST products for the three months ended March 31, 2026 and 2025 were as follows (in thousands, except percentages): Three Months Ended Three Months Ended March 31, 2026 March 31, 2025 $ Change % Change Domestic $ 4,376 93.3 % $ 4,622 94.2 % $ (246 ) (5.3 %) International 316 6.7 % 286 5.8 % 30 10.5 % $ 4,692 100.0 % $ 4,908 100.0 % $ (216 ) (4.4 %) Three Months Ended Three Months Ended March 31, 2026 March 31, 2025 $ Change % Change Hardware $ 1,344 28.6 % $ 2,252 45.9 % $ (908 ) (40.3 %) Software, labels and other recurring revenue 3,348 71.4 % 2,656 54.1 % 692 26.1 % $ 4,692 100.0 % $ 4,908 100.0 % $ (216 ) (4.4 %) The decrease in food service technology sales in the first quarter of 2026 compared to the first quarter of 2025 was driven by a decrease in domestic hardware sales. Hardware sales were particularly strong in the first quarter of 2025 due to replacement sales of our BOHA! Terminal 2 to a large convenience store (replacing our BOHA! Terminal 1) and a large international QSR (replacing our AccuDate 9700), as well as a new sushi customer, that did not repeat in the first quarter of 2026. FST software, labels and other recurring revenue increased 26% for the first quarter of 2026 compared to the prior year period due largely to stronger label sales to our new sushi customer and large convenience store described above. Although FST revenues were lower in the first quarter of 2026 compared to the first quarter of 2025, we expect FST revenue to be higher in 2026 than in 2025 for the remainder of the year as we continue to focus on growing our installed base of terminals and the related recurring software revenue (including the sale of BOHA! labels and other recurring revenue). POS automation: In the POS automation market, we sell our Ithaca 9000 printer, which utilizes thermal printing technology. Our POS printer is used primarily by McDonald’s, and to a lesser extent, other QSRs either at the checkout counter, grill station or within self-service kiosks to print receipts for consumers or print on linerless labels. In the POS automation market, we primarily sell our products through a network of domestic distributors and resellers. Sales of our POS automation products for the three months ended March 31, 2026 and 2025 were as follows (in thousands, except percentages): Three Months Ended Three Months Ended March 31, 2026 March 31, 2025 $ Change % Change Domestic $ 620 100.0 % $ 618 100.0 % $ 2 0.3 % International – 0.0 % – 0.0 % – – $ 620 100.0 % $ 618 100.0 % $ 2 0.3 % Sales were consistent in the first quarter of 2026 compared to the first quarter of 2025 as we believe sales have normalized at a new, lower level due to competitive pressures that resulted in a decreased level of sales and a reduction in average selling prices in 2025 compared to prior periods. We expect POS automation sales for the remainder of 2026 to be comparable to our sales in 2025. 21 Index Casino and gaming . Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos, racetracks, charitable gaming establishments and other gaming venues worldwide. Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals and kiosks for sports betting at non-casino gaming and sports betting establishments. In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution, currently sold both directly and through certain casino system providers on a subscription basis, that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine . Sales of our worldwide casino and gaming products for the three months ended March 31, 2026 and 2025 were as follows (in thousands, except percentages): Three Months Ended Three Months Ended March 31, 2026 March 31, 2025 $ Change % Change Domestic $ 5,782 69.3 % $ 4,822 71.8 % $ 960 19.9 % International 2,557 30.7 % 1,897 28.2 % 660 34.8 % $ 8,339 100.0 % $ 6,719 100.0 % $ 1,620 24.1 % Domestic sales of our casino and gaming products for the first quarter of 2026 increased by $1.0 million, or 20% compared to the first quarter of 2025. Sales during the first quarter of 2025 started to recover from a significant 2024 slowdown in order and shipment rates as our customers worked through their excess inventory that had accumulated as a hedge during the worldwide supply chain crisis of 2022 and 2023. Sales in the first quarter of 2026 were strong as our major casino and gaming customers had fully worked through their on-hand inventory and began to order at higher demand levels again. As a result of these factors, including higher expected demand, we expect our domestic casino and gaming sales to be higher in 2026 compared to 2025. Our international casino and gaming sales were up 35% during the first quarter of 2026 compared to the first quarter of 2025, due to increased demand across multiple customers in both Europe and Australia. We expect our international sales to continue to be higher in 2026 compared to 2025. TSG: Revenue generated by TSG includes sales of consumable products (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 March 31, 2026 and 2025 were as follows (in thousands, except percentages): Three Months Ended Three Months Ended March 31, 2026 March 31, 2025 $ Change % Change Domestic $ 638 83.5 % $ 684 84.7 % $ (46 ) (6.7 %) International 126 16.5 % 124 15.3 % 2 1.6 % $ 764 100.0 % $ 808 100.0 % $ (44 ) (5.4 %) The decrease in domestic revenue from TSG during the first quarter of 2026 as compared to the first quarter of 2025 was due largely to lower sales of replacement parts, as well as lower legacy consumables sales and service revenue. We expect TSG sales to be somewhat lower in 2026 compared to 2025 as we ceased selling all our remaining legacy consumable products at the end of 2025. 22 Index Gross Profit. Gross profit information for the three months ended March 31, 2026 and 2025 is summarized below (in thousands, except percentages): Three Months Ended March 31, Percent Percent of Percent of 2026 2025 Change Total Sales - 2026 Total Sales - 2025 $ 7,253 $ 6,359 14.1 % 50.3 % 48.7 % Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses (including tariffs), cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and BOHA! products and royalty payments to third parties, including to the former third-party licensor of our food service technology software products (during 2025). In the first quarter of 2026, gross profit increased $894 thousand, or 14%, and gross margin increased 160 basis points to 50% due primarily to a 10% increase in overall sales, including a 24% increase in sales in our casino and gaming market which carry higher average margins than our other markets. This was partially offset by increased overhead costs and general inflation. We expect gross margin for 2026 to be in the mid-to high-40% range. Operating Expenses - Engineering, Design and Product Development. Engineering, design and product development expense information for the three months ended March 31, 2026 and 2025 is summarized below (in thousands, except percentages): Three Months Ended March 31, Percent Percent of Percent of 2026 2025 Change Total Sales - 2026 Total Sales - 2025 $ 1,380 $ 1,635 (15.6 %) 9.6 % 12.5 % Engineering, design and product development expenses primarily include salary and payroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses including those payments to the former third-party licensor of our food service technology software products). Engineering, design and product development expenses decreased $255 thousand, or 16%, for the first quarter of 2026 compared to the first quarter of 2025 due largely to the capitalization of certain internal labor costs associated with development activities related to the 2025 acquisition from Avery Dennison Corporation of a perpetual license to a copy of the source code for the BOHA! software. TransAct is capitalizing certain internal and external labor related to this project. Operating Expenses - Selling and Marketing. Selling and marketing expense information for the three months ended March 31, 2026 and 2025 is summarized below (in thousands, except percentages): Three Months Ended March 31, Percent Percent of Percent of 2026 2025 Change Total Sales - 2026 Total Sales - 2025 $ 2,197 $ 2,085 5.4 % 15.2 % 16.0 % Selling and marketing expenses primarily include salaries and payroll-related expenses for our sales, marketing and customer success staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce, other promotional marketing expenses and outsourced go-to-market consulting services. Selling and marketing expenses increased $112 thousand, or 5%, in the first quarter of 2026 compared to the first quarter of 2025 due to higher costs related to programs to further improve the Company’s go-to-market strategy, including the hire of additional sales, marketing and sales support staff, as well as higher sales commissions due to increased sales in 2026 compared to 2025. 23 Index Operating Expenses - General and Administrative . General and administrative information for the three months ended March 31, 2026 and 2025 is summarized below (in thousands, except percentages): Three Months Ended March 31, Percent Percent of Percent of 2026 2025 Change Total Sales - 2026 Total Sales – 2025 $ 2,905 $ 2,654 9.5 % 20.2 % 20.3 % General and administrative expenses primarily include salaries, incentive and share-based compensation, and other payroll-related expenses for our Chief Executive Officer, Chief Financial Officer, accounting, human resources, corporate development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, information technology expenses, board of director expenses and other expenses related to being a publicly traded company. General and administrative expenses increased $251 thousand, or 10%, during the first quarter of 2026 compared to the first quarter of 2025. This increase was driven largely by increased share-based compensation expense due to the timing of awards, recruiting fees for the hire of additional sales and marketing staff, and other fees and taxes in the first quarter of 2026 compared to the same period in 2025. Operating Income (Loss). Operating income (loss) for the three months ended March 31, 2026 and 2025 is summarized below (in thousands, except percentages): Three Months Ended March 31, Percent Percent of Percent of 2026 2025 Change Total Sales – 2026 Total Sales – 2025 $ 771 $ (15 ) NM* 5.3 % (0.1 %) * Not meaningful Our operating income (loss) increased $786 thousand in the first quarter of 2026 compared to the first quarter of 2025 due largely to a $1.4 million, or 10% increase in sales and a resulting $894 thousand increase in gross profit combined with relatively flat operating expenses (operating expenses were up only $108 thousand, or 2% in the first quarter of 2026 compared to the first quarter of 2025). Interest, net. We recorded net interest income of $66 thousand in the first quarter of 2026 compared to $22 thousand in the first quarter of 2025. For both quarters, we were required to maintain outstanding borrowings of at least $3 million in principal amount on our Siena Credit Facility. We maintained a higher average level of invested cash during the first quarter of 2026 compared to the first quarter of 2025 which resulted in higher interest income in the 2026 period. Other, net. Other, net primarily includes foreign exchange gains and losses by our UK subsidiary. During the first quarter of 2026 we recognized $48 thousand of foreign exchange losses compared to $63 thousand of foreign exchange gains in the first quarter of 2025. Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the euro and pound sterling against the U.S. dollar. Income Taxes. We recorded an income tax expense in the first quarter of 2026 of $23 thousand at an effective tax rate of 2.9%, compared to income tax expense during 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 this valuation allowance is appropriate. 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 income 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. 24 Index Liquidity and Capital Resources Cash Flow In the first three months of 2026, our cash and cash equivalents balance decreased $1.6 million, or 8%, from December 31, 2025. We ended the first quarter of 2026 with $18.8 million in cash and cash equivalents, of which $0.3 million was held by our UK subsidiary. Operating activities : The following significant factors affected our cash used in operating activities of $946 thousand for the first three months of 2026 as compared to cash used in operating activities of $161 thousand for the first three months of 2025: During the first three months of 2026: • We reported net income of $766 thousand. • We recorded depreciation and amortization of $0.2 million and share-based compensation expense of $0.5 million. • Accounts receivable increased $2.7 million due largely to the increase in sales as discussed in our Results of Operations above. • Inventories decreased $1.2 million due to higher than expected casino and gaming demand. • Accrued liabilities and other liabilities decreased $1.7 million due largely to the payout of 2025 bonuses in the first quarter of 2026. During the first three months of 2025: • We reported net income of $19 thousand. • We recorded depreciation and amortization of $0.2 million and share-based compensation expense of $0.3 million. • Accounts receivable increased $2.5 million due to the increase in sales as discussed in our Results of Operations above. • Inventories decreased $1.8 million as we were able to work down our elevated inventory levels on hand. Investing activities: Our capital expenditures were $80 thousand for the first three months of 2026 compared to $10 thousand for the first three months of 2025. Expenditures for both periods were primarily for computer and networking equipment and new tooling equipment. We also incurred $0.5 million in capitalized software development costs during the first three months of 2026 related to our purchase of a copy of the source code related to our BOHA! line of products. Financing activities: Financing activities used $69 thousand of cash during the first three months of 2026 compared to $50 thousand in cash used during the first three months of 2025. These amounts relate to cash used to pay withholding taxes on stock issued from our stock compensation plans. Resource Sufficiency Over the past two years, we have been impacted by global supply chain issues, increased shipping and tariff costs, increased interest rates and inflationary pressures. After experiencing lingering effects of the COVID-19 pandemic through 2022, our operating results and operating cash flow improved significantly during 2023 due largely to certain competitors’ inability to supply products in both the POS automation and casino and gaming markets. 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 years ended December 31, 2024 and 2025. Given the continued uncertainty related to the impact of external factors on the food service and casino industries, 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 Siena Credit Facility will provide sufficient resources to meet our working capital needs, finance our capital expenditures, fund the remaining payments for the source code purchase and capitalized software development costs related to our BOHA! software, and meet our liquidity requirements through at least the next twelve months. Notwithstanding this belief, the ultimate impact of current global economic pressures and uncertainty relating to tariffs, inflationary pressures and market instability is unknown. 25 Index 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. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK TransAct is a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, and is not required to provide information under this item.