1. Basis of presentation

The accompanying unaudited financial statements of TransAct Technologies Incorporated (“TransAct”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to be included in full year financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature. The December 31, 2019 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 for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the full year ended December 31, 2019.

The financial position and results of operations of our U.K. subsidiary are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated at the end of period exchange rates, and related revenues and expenses have been translated at the exchange rate as of the date the transaction was recognized, with the resulting translation gain or loss recorded in “Accumulated other comprehensive income (loss), net of tax”, in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity. Transaction gains and losses are included in “Other, net” in the Condensed Consolidated Statements of Operations.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

COVID-19

The unprecedented and rapid spread of a novel strain of coronavirus, commonly known as COVID-19, and the measures implemented to mitigate its spread have caused widespread business, government and school closures that have particularly affected the food service and casinos and gaming industries. Such disruptions have also negatively impacted our business. As a result of the COVID-19 pandemic and the protective measures instituted to contain its spread, we have experienced decreased customer demand, lower than anticipated sales in the second half of March 2020 and supply chain disruptions, including delayed product shipments from our two contract manufacturers located in China and Thailand. We are monitoring indicators of demand recovery, including our sales pipeline, customer orders and product shipments to ascertain an estimate of the full-year impact; however, the length and severity of the reduction in demand due to the pandemic is uncertain. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of March 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, inventory obsolescence, stock based compensation, the value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the quarter ended March 31, 2020, resulting from our assessments, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Our expense management and liquidity measures described below may be modified as we obtain additional clarity on the timing of customer demand recovery. Given the unpredictability of the future operations of our customers, as well as of any economic or business recovery, we have implemented certain measures to mitigate the impact of the pandemic on our financial position and operations. These measures include, but are not limited to, the following:

Expense Management. With the reduction in net sales, we have implemented, and expect to continue to implement to the extent necessary or advisable cost saving initiatives including:

•	the temporary furlough of approximately 10% of our workforce prior to receiving PPP loan proceeds;

•	a 10% reduction in the salaries of all salaried, non-commissioned employees, including executive officers,

•	a reduction in sales commissions for all commissioned employees;

•	a 10% reduction of cash retainer fees for all non-employee director; and

•	the elimination of discretionary spending wherever possible.

Balance Sheet, Cash Flow and Liquidity. In addition to the expense management actions noted above, we have taken the following actions to increase liquidity and strengthen our financial position:

•

PPP Loan - On May 1, 2020, the Company was granted a $2.2 million loan under the Paycheck Protection Program (the “PPP Loan”) administered by the United States Small Business Administration (“SBA”) established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which has enabled us to return our furloughed employees to full time employment.

•	New Credit Facility - We also secured a new revolving credit facility with Siena Lending Group LLC that provides a revolving credit line of up to $10 million, subject to a borrowing base; and

•	Reduced Capital Expenditures - We also have limited capital expenditures until market conditions improve.

After reviewing whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations over the next twelve months, including consideration of our recent actions in response to the pandemic and the assumptions discussed below, we have concluded our net cash provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility and the PPP Loan and savings from the cost reduction actions described below will provide sufficient liquidity to fund our current obligations, capital spending, and working capital requirements. We expect to comply with our credit facility’s minimum EBITDA financial covenant over at least the next twelve months.

Our conclusion regarding the ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. Our current assumptions are that casinos and restaurants will reopen, although in a limited capacity, during the second quarter of 2020 in our primary market areas but we anticipate that demand for our casino and gaming printers, as well as, POS printers and BOHA! products will remain low due to a decline in capital expenditures likely to result from months of ceased or reduced operations. If we experience a slower than expected recovery, we believe we can take additional financial and operational actions to mitigate the impact of lower sales than our current plans assume. These actions include additional expense reductions, capital raising activities including utilization of opportunities provided under the CARES Act.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

We perform a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of December 31) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our fourth quarter 2019 quantitative impairment tests of goodwill and indefinite-lived intangible assets indicated that there was no indication of impairment as the fair value exceeded our carrying value.

During the three months ended March 31, 2020, our stock price declined to the lowest price since 2009. We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event and an indicator that it was more likely than not that the carrying value of goodwill could have been reduced below its fair value. Therefore, we concluded that quantitative analyses were required to be performed due to the triggering event occurring during the quarter.

We view our operations and manage our business as one operating unit. We utilized an implied market value method under the market approach to calculate the fair value of the Company as of March 31, 2020, which we determined was the best approximation of fair value in the current social and economic environment. Based on our interim impairment assessment as of March 31, 2020, we have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill exceeded our carrying value. We will continue to monitor and evaluate the carrying value of goodwill. We may be subject to impairments in the future depending on how long the economic and social conditions resulting from COVID-19 exist and its future impact on the broader economy.