UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: _________________ to: ___________________
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE HAMDEN CENTER, 2319 WHITNEY AVENUE, SUITE 3B, HAMDEN, CT 06518
(Address of principal executive offices)
(Zip Code)
(203) 859-6800
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AS OF
CLASS NOVEMBER 2, 2007
----- -----------------
COMMON STOCK, $.01 PAR VALUE 9,412,086
TRANSACT TECHNOLOGIES INCORPORATED
INDEX
Page No.
--------
PART I. Financial Information:
Item 1 Financial Statements (unaudited)
Condensed consolidated balance sheets as of September 30,
2007 and December 31, 2006 3
Condensed consolidated statements of operations for the
three and nine months ended September 30, 2007 and 2006 4
Condensed consolidated statements of cash flow for the
nine months ended September 30, 2007 and 2006 5
Notes to condensed consolidated financial statements 6 - 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 21
Item 4 Controls and Procedures 21 - 22
PART II. Other Information:
Item 1 Legal Proceedings 22 - 23
Item 1a Risk Factors 23
Item 2c Stock Repurchase 23
Item 6 Exhibits 25
Signatures 26
Certifications 28 - 31
2
ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, December 31,
(In thousands) 2007 2006
------------- ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 3,322 $ 3,436
Receivables, net 7,244 11,422
Inventories, net 8,985 7,567
Refundable income taxes 206 42
Deferred tax assets 1,650 2,167
Other current assets 408 506
------- -------
Total current assets 21,815 25,140
------- -------
Fixed assets, net 6,572 5,938
Goodwill 1,469 1,469
Deferred tax assets 2,342 542
Intangible and other assets, net of
accumulated amortization of $200
and $136, respectively 521 617
------- -------
10,904 8,566
------- -------
Total assets $32,719 $33,706
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 4,898 $ 3,997
Accrued liabilities 3,322 3,796
Accrued restructuring expenses -- 315
Deferred revenue 374 389
------- -------
Total current liabilities 8,594 8,497
------- -------
Deferred revenue, net of current portion 261 508
Accrued warranty, net of current portion 102 160
Accrued rent 515 251
Other liabilities 105 --
------- -------
983 919
------- -------
Total liabilities 9,577 9,416
------- -------
Commitments and contingencies (Note 11)
Shareholders' equity:
Common stock 104 104
Additional paid-in capital 19,822 19,105
Retained earnings 10,768 11,405
Accumulated other comprehensive income 206 168
Treasury stock, 987,100 and 801,300 shares at cost (7,758) (6,492)
------- -------
Total shareholders' equity 23,142 24,290
------- -------
Total liabilities and shareholders' equity $32,719 $33,706
======= =======
See notes to condensed consolidated financial statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
(In thousands, except per share data) 2007 2006 2007 2006
------- -------- ------- -------
Net sales $11,737 $15,276 $37,152 $48,615
Cost of sales 7,852 9,838 24,574 31,744
------- ------- ------- -------
Gross profit 3,885 5,438 12,578 16,871
------- ------- ------- -------
Operating expenses:
Engineering, design and product
development 791 621 2,284 2,151
Selling and marketing 1,618 1,593 4,968 4,884
General and administrative 1,664 1,630 5,346 5,195
Legal fees associated with lawsuit (See Note 11) 1,525 41 1,715 76
Business consolidation and restructuring -- -- 12 --
------- ------- ------- -------
5,598 3,885 14,325 12,306
------- ------- ------- -------
Operating income (loss) (1,713) 1,553 (1,747) 4,565
------- ------- ------- -------
Other income (expense):
Interest, net 20 25 58 62
Other, net (8) (55) 4 (137)
------- ------- ------- -------
12 (30) 62 (75)
------- ------- ------- -------
Income (loss) before income taxes (1,701) 1,523 (1,685) 4,490
Income tax provision (benefit) (685) 504 (730) 1,557
------- ------- ------- -------
Net income (loss) $(1,016) $ 1,019 $ (955) $ 2,933
======= ======= ======= =======
Net income (loss) per common share:
Basic $ (0.11) $ 0.11 $ (0.10) $ 0.31
Diluted $ (0.11) $ 0.10 $ (0.10) $ 0.30
Shares used in per-share calculation
Basic 9,364 9,623 9,390 9,588
Diluted 9,364 9,898 9,390 9,898
See notes to condensed consolidated financial statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
(In thousands) 2007 2006
------- -------
Cash flows from operating activities:
Net income (loss) $ (955) $ 2,933
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Share-based compensation expense 548 422
Deferred income taxes (1,178) (24)
Incremental tax benefits from stock options exercised (20) (275)
Depreciation and amortization 1,377 1,190
Gain on sale of assets (22) --
Changes in operating assets and liabilities:
Receivables 4,178 (2,175)
Inventories (1,418) (1,394)
Refundable income taxes (164) 117
Other current assets 98 (197)
Other assets 24 (76)
Accounts payable 901 409
Accrued liabilities and other liabilities (192) 1,748
Accrued restructuring expenses (315) (306)
------- -------
Net cash provided by operating activities 2,862 2,372
------- -------
Cash flows from investing activities:
Purchases of fixed assets (1,951) (2,521)
Proceeds from sale of assets 37 --
------- -------
Net cash used in investing activities (1,914) (2,521)
------- -------
Cash flows from financing activities:
Proceeds from stock option exercises 149 674
Purchases of common stock for treasury (1,266) (852)
Incremental tax benefits from stock options exercised 20 275
Payment of deferred financing costs (3) --
------- -------
Net cash provided by (used in) financing activities (1,100) 97
------- -------
Effect of exchange rate changes on cash 38 102
------- -------
Increase (decrease) in cash and cash equivalents (114) 50
Cash and cash equivalents at beginning of period 3,436 4,579
------- -------
Cash and cash equivalents at end of period $ 3,322 $ 4,629
======= =======
See notes to condensed consolidated financial statements.
5
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS
TransAct Technologies Incorporated ("TransAct"), which has its headquarters
in Hamden, CT and its primary operating facility in Ithaca, NY, operates in
one industry segment, market-specific printers for transaction-based
industries. These industries include casino, gaming, lottery, banking,
kiosk and point-of-sale. Our printers are designed based on market specific
requirements and are sold under the Ithaca(R) and Epic product brands. We
distribute our products through OEMs, value-added resellers, selected
distributors and directly to end-users. Our product distribution spans
across the Americas, Europe, the Middle East, Africa, Asia, Australia, the
Caribbean Islands and the South Pacific. We also generate revenue from the
after-market side of the business, providing printer service, supplies and
spare parts.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
These accounting principles were applied on a basis consistent with those
of the consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2006. In our opinion,
the accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to state fairly our financial position as of September 30, 2007,
the results of our operations for the three and nine months ended September
30, 2007 and 2006, and our cash flows for the nine months ended September
30, 2007 and 2006. The December 31, 2006 condensed consolidated balance
sheet data were derived from audited financial statements, but do not
include all disclosures required by accounting principles generally
accepted in the United States of America. These interim financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2006 included in our Annual
Report on Form 10-K. Certain amounts from the December 31, 2006 condensed
consolidated balance sheet have been reclassified to conform with the
current period presentation.
The financial position and results of operations of our foreign subsidiary
are measured using the local currency as the functional currency. Assets
and liabilities of such subsidiary have been translated at end of period
exchange rates, and related revenues and expenses have been translated at
weighted average exchange rates with the resulting translation gain or loss
recorded in accumulated other comprehensive income. Transaction gains and
losses are included in other income.
The results of operations for the three and nine months ended September 30,
2007 are not necessarily indicative of the results to be expected for the
full year.
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
3. SHARE-BASED PAYMENTS
STOCK OPTION ACTIVITY. The 1996 Stock Plan, 1996 Directors' Stock Plan,
2001 Employee Stock Plan and 2005 Equity Incentive Plan option activity is
summarized below:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value (in
Options Price Life (in years) thousands)
------- -------- --------------- ----------
Options outstanding at December 31, 2006: 707,344 $6.67
Granted 144,500 $8.82
Exercised (33,199) $4.49
Canceled (46,849) $9.85
-------
Options outstanding at September 30, 2007 771,796 $6.97 5.66 $974
=======
Options exercisable at September 30, 2007 566,296 $6.31 4.43 $974
=======
6
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. SHARE-BASED PAYMENTS (CONTINUED)
As of September 30, 2007, unrecognized compensation cost related to stock
options totaled $1,046,000, which is expected to be recognized over a
weighted average period of 4.0 years. The total intrinsic value of stock
options exercised was $61,000 and $116,000 during the three months ended
September 30, 2007 and 2006, respectively. The total intrinsic value of
stock options exercised was $62,000 and $808,000, during the nine months
ended September 30, 2007 and 2006, respectively.
RESTRICTED STOCK ACTIVITY. Under the 1996 Stock Plan, 2001 Employee Stock
Plan and 2005 Equity Incentive Plan, we have granted shares of restricted
common stock, for no consideration, to our officers, directors and certain
key employees. Restricted stock activity for the 1996 Stock Plan, 2001
Employee Stock Plan and 2005 Equity Incentive Plan is summarized below:
Weighted
Average Grant
Restricted Date Fair
Stock Value
---------- -------------
Nonvested shares at December 31, 2006 154,116 $12.22
Granted -- --
Vested (37,683) 13.01
Canceled (6,750) 9.74
-------
Nonvested shares at September 30, 2007 109,683 $12.10
=======
As of September 30, 2007, unrecognized compensation cost related to
restricted stock totaled $980,000, which is expected to be recognized over
a weighted average period of 2.4 years. No restricted stock vested during
the three months ended September 30, 2007 and 2006, respectively. The
intrinsic value of restricted stock that vested was $280,000 and $338,000,
during the nine months ended September 30, 2007 and 2006, respectively.
SHARE-BASED COMPENSATION EXPENSE. During the three months ended September
30, 2007 and 2006, we recognized compensation expense of $64,000 and
$26,000, respectively, for stock options and $123,000 and $85,000,
respectively, for restricted stock, which was recorded in our condensed
consolidated statements of operations in accordance with SFAS No. 123
(revised 2004), Share-Based Payment ("SFAS No. 123(R)"). The income tax
benefits from share-based payments recorded in the statement of operations
totaled $69,000 and $39,000 for the three months ended September 30, 2007
and 2006, respectively. During the nine months ended September 30, 2007 and
2006, we recognized compensation expense of $168,000 and $81,000,
respectively, for stock options and $380,000 and $341,000, respectively,
for restricted stock. The income tax benefits from share-based payments
recorded in the statement of operations totaled $202,000 and $149,000 for
the nine months ended September 30, 2007 and 2006, respectively.
ASSUMPTIONS FOR ESTIMATING FAIR VALUE OF SHARE-BASED PAYMENTS. We use the
Black-Scholes option-pricing model to calculate the fair value of share
based awards. The key assumptions for this valuation method include the
expected term of the option, stock price volatility, risk-free interest
rate, dividend yield and exercise price. Many of these assumptions are
judgmental and highly sensitive in the determination of compensation
expense. In addition, we estimate forfeitures when recognizing compensation
expense, and we will adjust our estimate of forfeitures over the requisite
service period based on the extent to which actual forfeitures differ, or
are expected to differ, from such estimates. Changes in estimated
forfeitures will be recognized through a cumulative true-up adjustment in
the period of change and will also impact the amount of compensation
expense to be recognized in future periods.
7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. SHARE-BASED PAYMENTS (CONTINUED)
Under the assumptions indicated below, the weighted-average fair value of
stock option grants for the nine months ended September 30, 2007 was $5.81.
No assumptions have been disclosed for the three months ended September 30,
2007 and 2006, as no stock option grants were made during those periods.
The weighted-average fair value of stock option grants for the nine months
ended September 30, 2006 was $5.91. The table below indicates the key
assumptions used in the option valuation calculations for options granted
in the respective periods:
Three months ended Nine months ended
September 30, September 30,
------------------------------- ---------------------
2007 2006 2007 2006
-------------- -------------- --------- ---------
Expected option term Not applicable Not applicable 6.0 years 5.2 years
Expected volatility Not applicable Not applicable 71.2% 78.4%
Risk-free interest rate Not applicable Not applicable 4.5% 4.5%
Dividend yield Not applicable Not applicable 0% 0%
4. INVENTORIES
The components of inventories are:
September 30, December 31,
(In thousands) 2007 2006
------------- ------------
Raw materials and purchased
component parts $8,444 $7,337
Finished goods 541 230
------ ------
$8,985 $7,567
====== ======
5. ACCRUED PRODUCT WARRANTY LIABILITY
The following table summarizes the activity recorded in the accrued product
warranty liability during the three and nine months ended September 30,
2007 and 2006.
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
(In thousands) 2007 2006 2007 2006
---- ----- ----- -----
Balance, beginning of period $580 $ 602 $ 603 $ 644
Additions related to warranties issued 30 84 246 396
Warranty costs incurred (97) (144) (336) (498)
---- ----- ----- -----
Balance, end of period $513 $ 542 $ 513 $ 542
==== ===== ===== =====
The current portion of the accrued product warranty liability is included
in accrued liabilities in the accompanying balance sheets.
6. ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING
In February 2001, we undertook a plan to consolidate all manufacturing and
engineering into our existing Ithaca, NY facility and to close our
Wallingford, CT manufacturing facility (the "Consolidation"). As of
December 31, 2001, substantially all Wallingford product lines were
successfully transferred to Ithaca, NY. We applied the consensus set forth
in EITF 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs
Incurred in a Restructuring)" in recognizing the accrued restructuring
expenses relating to the Consolidation.
8
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING (CONTINUED)
In November 2006, we executed an agreement effective May 1, 2007 to
terminate the lease agreement for our Wallingford, CT facility (the
"Release Agreement"). Prior to the execution of the Release Agreement, we
accrued the remaining non-cancelable lease payments and other related costs
for the unused portion of this facility through the expiration date of the
lease (March 31, 2008). As a result of the Release Agreement and the early
termination of the lease, we were released from the legal obligation to
make lease payments after May 1, 2007 and, accordingly, we reversed
approximately $479,000 of previously accrued restructuring reserve in the
fourth quarter of 2006. During the second quarter of 2007, we recorded an
additional $12,000 of expense to finalize the termination of the lease
agreement. As of September 30, 2007, all non-cancelable lease payments
related to our Wallingford, CT facility have been made.
The following table summarizes the activity recorded in accrued
restructuring expenses during the three and nine months ended September 30,
2007 and 2006.
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
(In thousands) 2007 2006 2007 2006
---- ---- ----- ------
Accrual balance, beginning of
period $ 14 $800 $ 315 $1,007
Business consolidation and
restructuring expenses -- -- 12 --
---- ---- ----- ------
Cash payments (14) (99) (327) (306)
---- ---- ----- ------
Accrual balance, end of period $ -- $701 $ -- $ 701
==== ==== ===== ======
7. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share."
The following table sets forth the reconciliation of basic weighted average
shares outstanding and diluted weighted average shares outstanding: Three
months ended Nine months ended
Three months Nine months
ended ended
September 30, September 30,
---------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2007 2006 2007 2006
------- ------ ------ ------
Net income (loss) $(1,016) $1,019 $ (955) $2,933
======= ====== ====== ======
Shares:
Basic: Weighted average common shares
outstanding 9,364 9,623 9,390 9,588
Add: Dilutive effect of outstanding
options and restricted stock as
determined by the treasury stock
method -- 275 -- 310
------- ------ ------ ------
Diluted: Weighted average common and
common equivalent shares outstanding 9,364 9,898 9,390 9,898
======= ====== ====== ======
Net income (loss) per common share:
Basic $ (0.11) $ 0.11 $(0.10) $ 0.31
Diluted $ (0.11) $ 0.10 $(0.10) $ 0.30
9
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. EARNINGS PER SHARE (CONTINUED)
Unvested restricted stock is excluded from the calculation of weighted
average common shares for basic EPS. For diluted EPS, weighted average
common shares include the impact of restricted stock under the treasury
stock method.
For the three and nine months ended September 30, 2007, there were 881,479
potentially dilutive shares (prior to consideration of the treasury stock
method), consisting of stock options and nonvested restricted stock, that
were excluded from the earnings per share calculation, because such shares
would be anti-dilutive due to the Company's net loss in those periods. For
the three and nine months ended September 30, 2006, potentially dilutive
shares that were excluded from the net income per share calculation,
consisting of out-of-the-money stock options, amounted to 101,750 and
49,250 shares, respectively.
8. COMPREHENSIVE INCOME (LOSS)
The following table summarizes the Company's comprehensive income (loss):
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
(In thousands) 2007 2006 2007 2006
------- ------ ----- ------
Net income (loss) $(1,016) $1,019 $(955) $2,933
Foreign currency translation
adjustment 22 44 38 102
------- ------ ----- ------
Total comprehensive income (loss) $ (994) $1,063 $(917) $3,035
======= ====== ===== ======
9. STOCKHOLDER'S EQUITY
Changes in stockholders' equity for the nine months ended September 30,
2007 were as follows (in thousands):
Balance at December 31, 2006 $24,290
Net loss (955)
Proceeds from issuance of shares from exercise
of stock options 149
Purchases of treasury stock (1,266)
Share-based compensation expense 548
Tax benefits from employee stock transactions 20
Adjustment resulting from the adoption of FIN 48 318
Foreign currency translation adjustment 38
-------
Balance at September 30, 2007 $23,142
=======
10. SIGNIFICANT TRANSACTIONS
In March 2005, our Board of Directors approved a stock repurchase program
(the "Stock Repurchase Program"). Under the program, we are authorized to
repurchase up to $10 million of our outstanding shares of common stock from
time to time on the open market over a three year period ending on March
25, 2008, depending on market conditions, share price and other factors.
During the three months ended September 30, 2007, we repurchased a total of
115,800 shares of common stock for approximately $745,000 at an average
price of $6.43 per share. During the nine months ended September 30, 2007,
we repurchased a total of 185,800 shares of common stock for approximately
$1,266,000 at an average price of $6.81 per share. As of September 30,
2007, we have repurchased a total of 987,100 shares of common stock for
approximately $7,758,000 at an average price of $7.86 per share since the
inception of the Stock Repurchase Program.
10
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. COMMITMENTS AND CONTINGENCIES
In April 2005, we announced a complaint against FutureLogic, Inc.
("FutureLogic") in Connecticut, which charged FutureLogic with
disseminating false and misleading statements. We asserted claims of
defamation and certain other charges. In May 2005, FutureLogic filed a
complaint against us in California, asserting false advertising,
defamation, trade libel and certain other charges. We moved to dismiss
FutureLogic's action in California, on the grounds that any claims raised
in that action should have been brought as part of the case filed by us in
Connecticut. In the alternative, we moved to stay the California action
pending the resolution of jurisdictional motions in the Connecticut court.
In September 2006, the District of Connecticut dismissed our case because
of a lack of jurisdiction. The decision was not on the merits of our
claims, but on the jurisdiction of the court in which the suit was brought.
On June 12, 2007, we answered FutureLogic's complaint and filed a
counterclaim that FutureLogic infringes U.S. Patent No. 6,924,903 (the "903
Patent"). We also filed a motion for a preliminary injunction to stop
infringement by FutureLogic's dual port printers. Our motion for
preliminary injunction was heard on July 30, 2007. Through our preliminary
injunction motion and hearing, we showed that FutureLogic has constructed a
prototype printer, the GEN2 Universal with the ProMatrix system, which the
judge ruled has a likelihood of infringing the 903 Patent covering dual
port technology. The court denied our motion on August 6, 2007, but the
court ruled that "Should TransAct discover that FutureLogic has sold or
offered to sell any GEN2 Universal printers with the ProMatrix system that
infringe the 903 Patent during the course of this action, it may renew this
motion on an expedited ex parte basis and - assuming it shows the requisite
likelihood of success on the merits - the court will afford it the relief
it seeks."
On August 27, 2007, FutureLogic lodged an amended complaint that sought a
declaratory judgment that our U.S. Patent No. 7,099,035 ("the 035 Patent")
is invalid and not infringed by FutureLogic, and that the 903 and 035
Patents are unenforceable for inequitable conduct. Concurrently, we filed
an amended answer that added a counterclaim that FutureLogic infringes the
035 Patent. Also on August 27, 2007, FutureLogic filed a motion for leave
to file a Second Amended Complaint to add monopolization and attempted
monopolization claims against us. The proposed claims were each based on
"Walker Process fraud" and "sham litigation." The Court held a hearing on
this motion on October 29, 2007 and issued an opinion that same day. In its
opinion, the Court denied FutureLogic's motion to add a claim for actual
monopolization based on either the "Walter Process fraud" theory or the
"sham litigation." theory. The Court also denied FutureLogic's motion to
add a claim for attempted monopolization based on the "sham litigation"
theory. The Court did, however, permit FutureLogic to assert a claim of
attempted monopolization based on the "Walker Process fraud" theory. We
believe that FutureLogic's claim in this matter is without merit and intend
to defend vigorously against it.
We are now in the discovery phase of the case.
We are currently unable to estimate any potential liability or range of
loss associated with this litigation. Accordingly, no amounts have been
accrued in the financial statements related to this matter.
11
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
12. INCOME TAXES
We adopted FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes ("FIN 48"), at the beginning of fiscal year 2007. As a result of the
implementation we recognized a decrease to reserves for uncertain tax
positions. This decrease was accounted for as a $318,000 adjustment to the
beginning balance of retained earnings on the Condensed Consolidated
Balance Sheet. Including the cumulative effect decrease, at the beginning
of 2007 we had approximately $79,000 of total gross unrecognized tax
benefits that, if recognized, would favorably affect the effective income
tax rate in any future periods.
At September 30, 2007, we had approximately $105,000 of total gross
unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in any future periods. We are not aware of any
events that could occur within the next twelve months that could cause a
significant change in the total amount of unrecognized tax benefits.
We are subject to U.S. federal income tax as well as income tax of certain
state and foreign jurisdictions. We have substantially concluded all U.S.
federal income tax, state and local, and foreign tax matters through 2002.
Our federal tax returns for the years 2003 - 2006 remain open to
examination. Various state and foreign tax jurisdiction tax years remain
open to examination as well, though we believe that any additional
assessment would be immaterial to the consolidated financial statements. No
state or foreign tax jurisdiction income tax returns are currently under
examination.
We do not anticipate that the total unrecognized tax benefits will
significantly change due to the settlement of audits and the expiration of
statute of limitations prior to September 30, 2008.
We recognize interest and penalties related to uncertain tax positions in
income tax expense. As of September 30, 2007, we have approximately $1,000
of accrued interest related to uncertain tax positions.
13. SUBSEQUENT EVENTS
On November 1, 2007, our Board of Directors approved an increase in our
stock repurchase authorization under the Stock Repurchase Program to $15
million from $10 million. In addition, the Board approved a two-year
extension of the Stock Repurchase Program to March 31, 2010.
On November 7, 2007, we amended our credit facility with TD Banknorth, N.A.
to revise a financial covenant effective September 30, 2007, which resulted
in covenant compliance.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements included in this report, including without limitation
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, which are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements generally can be identified by the use of
forward-looking terminology, such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe", "project" or "continue" or the negative
thereof or other similar words. Forward-looking statements involve risks and
uncertainties, including, but not limited to those listed in Item 1A of our most
recently filed Form 10-K. Actual results may differ materially from those
discussed in, or implied by, the forward-looking statements. The forward-looking
statements speak only as of the date of this report and we assume no duty to
update them to reflect new, changing or unanticipated events or circumstances.
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our 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 disclosure of contingent assets
and liabilities. Our estimates include those related to revenue recognition,
inventory obsolescence, the valuation of deferred tax assets and liabilities,
depreciable lives of equipment, warranty obligations, contingent liabilities and
restructuring accruals. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances.
For a complete description of our accounting policies, see Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations,
"Critical Accounting Policies and Estimates," included in our Form 10-K for the
year ended December 31, 2006. We have reviewed those policies and determined
that, in addition to the policies noted below, they remain our critical
accounting policies for the nine months ended September 30, 2007.
INCOME TAXES - We adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes," ("FIN 48")
on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position that an entity takes or expects to take in a tax return. Additionally,
FIN 48 provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. Under FIN
48, an entity may only recognize or continue to recognize tax positions that
meet a "more likely than not" threshold. See Footnote No. 12, "Income Taxes,"
for additional information.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2006
NET SALES. Net sales, which include printer sales and sales of spare parts,
consumables and repair services, by market for the three months ended September
30, 2007 and 2006 were as follows:
Change
Three months ended Three months ended --------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ------- ----
Banking and point-of-sale $ 2,981 25.4% $ 3,606 23.6% $ (625) (17.3%)
Gaming and lottery 5,801 49.4% 8,495 55.6% (2,694) (31.7%)
TransAct Services Group 2,955 25.2% 3,175 20.8% (220) (6.9%)
------- ----- ------- ----- -------
$11,737 100.0% $15,276 100.0% $(3,539) (23.2%)
======= ===== ======= ===== =======
International * $ 2,824 24.1% $ 3,790 24.8% $ (966) (25.5%)
======= ===== ======= ===== =======
* International sales do not include sales of printers made to domestic
distributors or other customers who in turn ship those printers to
international destinations.
Net sales for the third quarter of 2007 decreased $3,539,000, or 23%, from the
same period last year due primarily to lower printer sales in our gaming and
lottery market (a decrease of approximately $2,694,000, or 32%), lower
13
printer sales in our banking and point of sale ("POS") market (a decrease of
approximately $625,000, or 17%), and lower sales by the TransAct Services Group
("TSG") (a decrease of $220,000, or 7%). Overall, international sales decreased
by $966,000, or 26%, due to lower international shipments of both our POS and
gaming printers.
BANKING AND POINT-OF-SALE:
Revenue from the banking and POS market includes sales of inkjet, thermal and
legacy impact printers used primarily by retailers in the hospitality,
restaurant (including fine dining, casual dining and fast food) and specialty
retail industries to print receipts for consumers, validate checks, or print on
other inserted media. Revenue from this market also includes sales of printers
used by banks, credit unions and other financial institutions to print and/or
validate receipts at bank teller stations. Sales of our banking and POS printers
worldwide decreased approximately $625,000, or 17%.
Change
Three months ended Three months ended -------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ----- -----
Domestic $2,610 87.6% $3,449 95.6% $(839) (24.3%)
International 371 12.4% 157 4.4% 214 136.3%
------ ----- ------ ----- -----
$2,981 100.0% $3,606 100.0% $(625) (17.3%)
====== ===== ====== ===== =====
Domestic banking and POS printer revenue decreased to $2,610,000, representing
an $839,000, or 24%, decrease from the third quarter of 2006, due primarily to
the non-recurrence of significant sales (approximately $600,000) of our
Bankjet(R) line of inkjet bank teller printers to an existing banking customer
that were made in the third quarter of 2006. Although we are currently pursuing
several banking opportunities, due to the project-oriented nature of these
sales, we cannot predict if and when future sales may occur. In addition to
lower banking printer sales, we also experienced a decline in sales of our
legacy line of POS impact printers. We expect sales of our legacy impact
printers to continue to decline for the remainder of 2007 as these printers are
being replaced by our newer thermal and inkjet printers. Our sales into the
banking and POS market over the last several years have been impacted by a shift
in technology in the market from impact printing technology to thermal and
inkjet printing technology. This change in technology has resulted in declining
sales of our impact printers that were at higher average selling prices and
increasing sales of our thermal and inkjet printers that were at lower average
selling prices. Decreased sales of our banking printers and legacy impact
printers were partly offset by increased printer shipments of our line of
thermal printers, primarily through our U.S. distributors.
International banking and POS printer shipments increased by approximately
$214,000, or 136%, to $371,000, due primarily to higher sales to our
international POS distributors in Latin America and Asia.
GAMING AND LOTTERY:
Revenue from the gaming and lottery market includes sales of printers used in
slot machines, video lottery terminals ("VLTs") and other gaming machines that
print tickets instead of issuing coins ("ticket-in, ticket-out" or "TITO") at
casinos, racetracks ("racinos") and other gaming venues worldwide. Revenue from
this market also includes sales of lottery printers to Lottomatica's GTECH
Corporation ("GTECH"), the world's largest provider of lottery terminals, for
various lottery applications. Sales of our gaming and lottery products decreased
by $2,694,000, or 32%, from the third quarter of 2006, primarily due to lower
domestic sales of lottery printers to GTECH and lower domestic and international
gaming printer sales. These decreases were partially offset by an increase in
international sales of our lottery printers to GTECH.
Change
Three months ended Three months ended ---------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ------- -----
Domestic $3,904 67.3% $5,727 67.4% $(1,823) (31.8%)
International 1,897 32.7% 2,768 32.6% (871) (31.5%)
------ ----- ------ ----- -------
$5,801 100.0% $8,495 100.0% $(2,694) (31.7%)
====== ===== ====== ===== =======
Domestic sales of our gaming and lottery printers decreased by $1,823,000, or
32%, due largely to a decrease in sales of our thermal casino printers, which
have been impacted by continued softness in the domestic casino market, and, to
a lesser extent, a decrease in domestic sales of lottery printers to GTECH.
Domestic and international printer sales to GTECH, which include thermal on-line
lottery printers, decreased by approximately $684,000, or 46%, in the third
quarter of 2007 compared to the third quarter of 2006. Our quarterly sales to
GTECH are directly dependent on the timing and number of new and upgraded
lottery terminal installations
14
GTECH performs, and as a result, may fluctuate significantly quarter-to-quarter.
Our sales to GTECH are not indicative of GTECH's overall business or revenue. We
currently have approximately $7.7 million of lottery printers on order for
shipment in 2008, which is approximately 50% more than our expected lottery
printer sales for 2007.
International gaming and lottery printer sales decreased $871,000, or 32%, to
$1,897,000 in the third quarter of 2007. Such sales represented 33% of total
sales into our gaming and lottery market in each of the third quarter of 2007
and the third quarter of 2006. This decrease was due primarily to decreased
sales of our casino and gaming printers in Australia resulting from a slower
than anticipated conversion to ticket-in, ticket-out slot machines, somewhat
offset by an increase in international lottery printer sales to GTECH.
TRANSACT SERVICES GROUP:
Revenue from the TransAct Services Group ("TSG") includes sales of consumable
products (inkjet cartridges, ribbons and paper), replacement parts, maintenance
and repair services, refurbished printers, and shipping and handling charges.
Sales from TSG decreased by approximately $220,000, or 7%.
Change
Three months ended Three months ended -------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ----- -----
Domestic $2,399 81.2% $2,310 72.8% $ 89 3.9%
International 556 18.8% 865 27.2% (309) (35.7%)
------ ----- ------ ----- -----
$2,955 100.0% $3,175 100.0% $(220) (6.9%)
====== ===== ====== ===== =====
Domestic revenue from TSG increased by approximately $89,000, to $2,399,000
largely due to increased sales of consumable products, including higher sales of
inkjet cartridges as we continue to benefit from the agreement we signed in
August 2006 to supply inkjet cartridges to a leading national office supply
chain. The increase in domestic revenue was also due, to a lesser extent, to
maintenance and repair services performed as we continue to win new service
contracts and expand existing contracts for our service products, including
extended warranty contracts and our 24-hour guaranteed replacement product
service called TransAct Xpress(TM). These increases were somewhat offset by a
decline in the sale of replacement parts for certain legacy impact printers, as
the installed base of these legacy printers in the market declines.
Internationally, TSG revenue decreased by approximately $309,000 to $556,000
largely due to a decrease in maintenance and repair services revenue from a
service contract with a single customer in the United Kingdom. The primary
operations of our United Kingdom subsidiary, a European sales and service
center, relate to revenue generated from this service contract with a single
customer in the United Kingdom. The service contract, which represents a
substantial portion of our U.K. subsidiary's revenue, was renewed in April 2007
through November 2007 at a lower minimum sales value compared to the minimum
sales value of the prior year's contract. The customer has begun to replace our
printers with newer technology that we were unable to provide. Since the service
contract ends in November 2007, we expect international TSG revenue to be lower
in the fourth quarter of 2007 and beyond compared to the third quarter of 2007.
GROSS PROFIT. Gross profit is measured as revenue less cost of goods sold. Cost
of goods sold includes primarily the cost of all raw materials and component
parts, direct labor, and the associated manufacturing overhead expenses. Gross
profit decreased $1,553,000, or 29%, and gross margin decreased to 33.1% from
35.6% due primarily to a lower volume of sales and a less favorable sales mix in
the third quarter of 2007 compared to the third quarter of 2006.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses primarily include salary and payroll related expenses for our
engineering staff, depreciation and design expenses (including prototype printer
expenses, outside design and testing services, and supplies). Such expenses
increased by $170,000, or 27%, to $791,000, as we incurred increased outside
design, prototype and development expenses associated largely with new product
development for the banking market, as well as increased professional consulting
related expenses. Engineering and product development expenses increased as a
percentage of net sales to 6.7% from 4.1%, due primarily to lower sales in the
third quarter of 2007 compared to the third quarter of 2006 as well as an
increase in expenses for the respective period.
SELLING AND MARKETING. Selling and marketing expenses primarily include salaries
and payroll related expenses for our sales and marketing staff, sales
commissions, travel expenses, expenses associated with the lease of sales
offices, advertising, trade show expenses and other promotional marketing
expenses. Selling and marketing
15
expenses for the third quarter of 2007 increased by $25,000, or 2%, to
$1,618,000, due primarily to increased travel, trade show, advertising and other
promotional marketing expenses compared with the third quarter of 2006. These
increases were partly offset by lower demonstration printer expenses and the
non-recurrence of expenses incurred in the third quarter of 2006 related to the
redesign of our website that occurred in August 2006. Selling and marketing
expenses increased as a percentage of net sales to 13.8% from 10.4%, due
primarily to lower sales volume in the third quarter of 2007 compared to the
third quarter of 2006.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
include salaries and payroll related expenses for our executive, accounting,
human resource and information technology staff, expenses for our corporate
headquarters, professional and legal expenses, and telecommunication expenses.
General and administrative expenses for the third quarter 2007 were relatively
consistent with those for the third quarter of 2006, increasing by $34,000, or
2%, to $1,664,000. General and administrative expenses for the third quarter of
2007 included a charge of approximately $110,000 for severance resulting from
the termination of certain employees as part of a cost reduction action related
to our POS business. We expect to realize cost savings of approximately
$600,000, mostly as a reduction in selling and marketing expenses, in 2008 as a
result of the action. General and administrative expenses increased as a
percentage of net sales to 14.2% from 10.7%, due primarily to lower sales volume
in the third quarter of 2007 compared to the third quarter of 2006.
LEGAL FEES ASSOCIATED WITH LAWSUIT. During the third quarter of 2007, we
incurred approximately $1,525,000 of legal fees related to our lawsuit with
FutureLogic, Inc. compared to approximately $41,000 in the third quarter of
2006. The substantial increase was due primarily to our patent infringement
counterclaim against FutureLogic, Inc. We expect to incur $1,000,000 to
$1,200,000 of legal fees per quarter related to the FutureLogic lawsuit through
the expedited trial date of June 2008. See "Item 1 - Legal Proceedings" in Part
II of this quarterly report for more information.
OPERATING INCOME (LOSS). During the third quarter of 2007 we reported operating
losses of $1,713,000, or 14.6% of net sales, compared to operating income of
$1,553,000, or 10.2% of net sales in the third quarter of 2006. The substantial
decrease in our operating income and operating margin was due largely to lower
sales and the resulting lower gross profit and higher operating expenses
(primarily legal expenses of approximately $1.5 million related to the
FutureLogic lawsuit), in the third quarter of 2007 compared to that of 2006.
INTEREST. We recorded net interest income of $20,000 in the third quarter of
2007 compared to $25,000 in the third quarter of 2006. We do not expect to draw
on our revolving borrowings as we expect to continue to generate cash from
operations during 2007. As a result, we expect to continue to report net
interest income for the remainder of 2007. See "Liquidity and Capital Resources"
below for more information.
OTHER INCOME (EXPENSE). We recorded other expense of $8,000 in the third quarter
of 2007 compared to $55,000 in the third quarter of 2006. In each quarter, these
amounts were primarily due to transaction exchange losses recorded by our UK
subsidiary resulting from the weakening of the U.S. dollar against the British
pound.
INCOME TAXES. We recorded an income tax benefit for the third quarter of 2007 of
$685,000 at an effective tax rate of 40.3%, compared to an income tax provision
during the third quarter of 2006 of $504,000 at an effective tax rate of 33.1%.
The income tax benefit recorded in the third quarter of 2007 versus the income
tax provision recorded in the third quarter of 2006 was largely due to an
increase in the recognition of certain deferred tax credits. We expect our
annual effective tax rate for the full year 2007 to be approximately 40%.
NET INCOME (LOSS). We reported net losses during the third quarter of 2007 of
$1,016,000, or $0.11 per diluted share, compared to net income of $1,019,000, or
$0.10 per diluted share, for the third quarter of 2006.
NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2006
NET SALES. Net sales by market for the current and prior year's nine month
period were as follows:
Change
Nine months ended Nine months ended ----------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ -------- -----
Banking and point-of-sale $ 8,705 23.4% $12,718 26.2% $ (4,013) (31.6%)
Gaming and lottery 18,580 50.0% 26,283 54.0% (7,703) (29.3%)
TransAct Services Group 9,867 26.6% 9,614 19.8% 253 2.6%
------- ----- ------- ----- --------
$37,152 100.0% $48,615 100.0% $(11,463) (23.6%)
======= ===== ======= ===== ========
International * $ 8,769 23.6% $10,667 21.9% $ (1,898) (17.8%)
======= ===== ======= ===== ========
16
* International sales do not include sales of printers made to domestic
distributors or other customers who in turn ship those printers to
international destinations.
Net sales for the first nine months of 2007 decreased $11,463,000, or 24%, from
the prior year's first nine months due to sales decreases in two out of three of
our markets: banking and POS (a decrease of approximately $4,013,000, or 32%)
and gaming and lottery (a decrease of approximately $7,703,000, or 29%). These
decreases were somewhat offset by a slight increase in TSG sales (an increase of
$253,000, or 3%). Overall, international sales decreased by $1,898,000, or 18%,
due largely to lower international shipments of our gaming and lottery printers,
and to a lesser extent, decreased TSG sales internationally.
BANKING AND POINT-OF-SALE:
Sales of our banking and POS printers worldwide decreased approximately
$4,013,000, or 32%.
Change
Nine months ended Nine months ended ---------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ------- -----
Domestic $7,675 88.2% $11,785 92.7% $(4,110) (34.9%)
International 1,030 11.8% 933 7.3% 97 10.4%
------ ----- ------- ----- -------
$8,705 100.0% $12,718 100.0% $(4,013) (31.6%)
====== ===== ======= ===== =======
Domestic banking and POS printer sales decreased to $7,675,000, representing a
$4,110,000, or 35%, decrease from the first nine months of 2006, due largely to
the non-recurrence of significant sales (approximately $2.8 million) of our
Bankjet(R) line of inkjet bank teller printers to two large banking customers
that were made in the first nine months of 2006. Although we are currently
pursuing additional banking opportunities, due to the project-oriented nature of
these sales, we cannot predict if and when future sales may occur. In addition
to lower banking printer sales, we also experienced a decline in sales from our
line of POS thermal printers due primarily to a large hospitality customer that
has slowed and deferred equipment purchases while it implements a new
point-of-sale software system. We also experienced a decline in sales of our
legacy line of POS impact printers as these printers are being replaced by our
newer thermal and inkjet printers. We expect sales of our legacy impact printers
to continue to decline for the remainder of 2007 as these printers are being
replaced by our newer thermal and inkjet printers. Our sales into the banking
and POS market over the last several years have been impacted by a shift in
technology in the market from impact printing technology to thermal and inkjet
printing technology. This change in technology has resulted in declining sales
of our impact printers that were at higher average selling prices and increasing
sales of our thermal and inkjet printers that were at lower average selling
prices.
International banking and POS printer shipments increased by approximately
$97,000, or 10%, to $1,030,000, due primarily to higher sales to our
international POS distributors in Europe and Asia, offset by lower sales to our
international POS distributors in Latin America.
GAMING AND LOTTERY:
Sales of our gaming and lottery printers decreased by $7,703,000, or 29%, from
the first nine months of 2007, primarily due to lower sales of lottery printers
to GTECH, both domestically and internationally, and lower casino and other
gaming printer sales, both domestically and internationally.
Change
Nine months ended Nine months ended ---------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ------- -----
Domestic $12,943 69.7% $18,935 72.0% $(5,992) (31.6%)
International 5,637 30.3% 7,348 28.0% (1,711) (23.3%)
------- ----- ------- ----- -------
$18,580 100.0% $26,283 100.0% $(7,703) (29.3%)
======= ===== ======= ===== =======
Domestic sales of our gaming and lottery printers decreased by $5,992,000, or
32%, due primarily to a decrease in domestic sales of lottery printers to GTECH
and, to a lesser extent, a decrease in sales of our thermal casino printers due
to continued softness in the domestic casino market during the first nine months
of 2007 as compared to the first nine months of 2006.
17
Domestic and international printer sales to GTECH, which include thermal on-line
lottery printers, decreased by approximately $4,580,000, or 51%, in the first
nine months of 2007 compared to the first nine months of 2006, with domestic
sales declining approximately $4,011,000 and international sales declining
approximately $569,000. Our sales to GTECH are directly dependent on the timing
and number of new and upgraded lottery terminal installations GTECH performs,
and as a result, may fluctuate significantly quarter-to-quarter. Our sales to
GTECH are not indicative of GTECH's overall business or revenue. We currently
have approximately $7.7 million of lottery printers on order for shipment in
2008, which is approximately 50% more than our expected lottery printer sales
for 2007.
International gaming and lottery printer sales decreased $1,711,000, or 23%, to
$5,637,000 in the first nine months of 2007 compared to the first nine months of
2006. Such sales represented 30% and 28% of total sales into our gaming and
lottery market during the first nine months of 2007 and 2006, respectively. This
decrease was primarily due to lower international lottery printer sales to GTECH
as well as lower international gaming printer sales, primarily in Australia due
to a slower than anticipated conversion to ticket-in, ticket-out slot machines
in that region.
TRANSACT SERVICES GROUP ("TSG"):
Sales from TSG increased by approximately $253,000, or 3%.
Change
Nine months ended Nine months ended -------------
(In thousands) September 30, 2007 September 30, 2006 $ %
------------------ ------------------ ----- -----
Domestic $7,765 78.7% $7,228 75.2% $ 537 7.4%
International 2,102 21.3% 2,386 24.8% (284) (11.9%)
------ ----- ------ ----- ----- -----
$9,867 100.0% $9,614 100.0% $ 253 2.6%
====== ===== ====== ===== ===== =====
Domestic TSG revenue increased by approximately $537,000, or 7%, to $7,765,000,
largely due to increased sales of consumable products, including higher sales of
inkjet cartridges as we continue to benefit from the agreement we signed in
August 2006 to supply inkjet cartridges to a leading national office supply
chain. The increase in domestic revenue was also due, to a lesser extent, to
maintenance and repair services performed as we continue to win new service
contracts and expand existing contracts for our service products including
extended warranty contracts and our 24-hour guaranteed replacement product
service called TransAct Xpress(TM). These increases were somewhat offset by a
decline in the sale of refurbished printers and replacement parts for certain
legacy printers, as the installed base of these legacy printers in the market
continues to decline.
Internationally, TSG sales decreased by approximately $284,000, or 12%, to
$2,102,000, due largely to a decrease in maintenance and repair services revenue
from a service contract with a single customer in the United Kingdom, as well as
a decline in sales of consumable products and replacement parts. The primary
operations of our United Kingdom subsidiary, a European sales and service
center, relate to revenue generated from a service contract with a single
customer in the United Kingdom. The service contract, which represents a
substantial portion of our U.K. subsidiary's revenue, was renewed in April 2007
through November 2007 at a lower minimum sales value compared to the minimum
sales value of the prior year's contract. The customer has begun to replace our
printers with newer technology that we were unable to provide. Since the service
contract ends in November 2007, we expect international TSG revenue to be lower
in the fourth quarter of 2007 and beyond compared to the third quarter of 2007.
GROSS PROFIT. Gross profit decreased $4,293,000, or 25%, to $12,578,000 and
gross margin decreased to 33.9% from 34.7%, due primarily to a lower volume of
sales and a less favorable sales mix in the first nine months of 2007 compared
to the first nine months of 2006, somewhat offset by lower component part and
labor costs resulting from our initiatives to increasingly move production to
Asia.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses increased by $133,000, or 6%, to $2,284,000, as we incurred increased
outside design, prototype and development expenses associated largely with new
product development for the banking market, as well as increased professional
consulting related expenses. Engineering and product development expenses
increased as a percentage of net sales to 6.2% from 4.4%, due primarily to lower
sales volume in proportion to a higher level of expenses in the first nine
months of 2007 compared to the first nine months of 2006.
SELLING AND MARKETING. Selling and marketing expenses increased by $84,000, or
2%, to $4,968,000, as we incurred increased travel, trade show, advertising and
other promotional marketing expenses compared with the first
18
nine months of 2006. These increases were partly offset by lower demonstration
printer expenses and the non-recurrence of expenses incurred in the third
quarter of 2006 related to the redesign of our website that occurred in August
2006. Selling and marketing expenses increased as a percentage of net sales to
13.4% from 10.0%, due primarily to lower sales volume in proportion to a higher
level of expenses in the first nine months of 2007 compared to the first nine
months of 2006.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$151,000, or 3%, to $5,346,000, due primarily to (1) higher legal expense
related to the expansion of our international patent portfolio, (2) higher
depreciation and amortization expense associated with the completion of the
implementation of new Oracle software at the beginning of 2007 and the purchase
of office furniture and leasehold improvements for our new Corporate
headquarters in Hamden, CT, and (3) increased compensation-related expenses
including annual salary increases, the hiring of our new vice president of human
resources, and recruiting and employee relocation expenses largely for our
newly-hired gaming sales manager in Macau. These increases were somewhat offset
by a decrease in acquisition-related expenses, as we incurred approximately
$220,000 of legal and consulting services related to a potential acquisition in
the second quarter of 2006 that was not consummated. These expenses did not
recur during the first nine months of 2007. General and administrative expenses
for the first nine months of 2007 also included a charge of approximately
$110,000 for severance resulting from the termination of certain employees as
part of a cost reduction action related to our POS business. We expect to
realize cost savings of approximately $600,000, mostly as a reduction in selling
and marketing expenses, in 2008 as a result of the action. General and
administrative expenses increased as a percentage of net sales to 14.4% from
10.7%, due primarily to lower sales volume in proportion to a higher level of
expenses in the first nine months of 2007 compared to the first nine months of
2006.
LEGAL FEES ASSOCIATED WITH LAWSUIT. During the first nine months of 2007, we
incurred approximately $1,700,000 of legal fees related to our lawsuit with
FutureLogic, Inc. compared to approximately $76,000 in the first nine months of
2006. The substantial increase was due primarily to our patent infringement
counterclaim against FutureLogic, Inc. We expect to incur $1,000,000 to
$1,200,000 of legal fees per quarter related to the FutureLogic lawsuit through
the expedited trial date of June 2008. See "Item 1 - Legal Proceedings" in Part
II of this quarterly report for more information.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the second quarter of 2007, we
recorded an additional $12,000 in expense to finalize the termination of the
lease agreement for our prior corporate headquarters and eastern region service
center facility located in Wallingford, CT.
OPERATING INCOME (LOSS). During the first nine months of 2007, we reported an
operating loss of $1,747,000, or 4.7% of net sales, compared to operating income
of $4,565,000, or 9.4% of net sales in the first nine months of 2006. The
substantial decrease in our operating income and operating margin was due
largely to lower sales and the resulting lower gross profit and higher operating
expenses (largely legal expenses of approximately $1.7 million related to the
FutureLogic lawsuit) in the first nine months of 2007 compared to that of 2006.
INTEREST. We recorded net interest income of $58,000 in the first nine months of
2007 compared to net interest income of $62,000 in the first nine months of
2006. We do not expect to draw on our revolving borrowings and we expect to
continue to report net interest income for the remainder of 2007. See "Liquidity
and Capital Resources" below for more information.
OTHER INCOME (EXPENSE). We recorded other income of $4,000 in the first nine
months of 2007 due primarily to gains recorded from the sale of certain assets
from our prior Corporate headquarters and Eastern Regional Service Center in
Wallingford, CT, partially offset by transaction exchange losses recorded by our
UK subsidiary resulting from the weakening of the U.S. dollar against the
British pound. We recorded other expense of $137,000 in the first nine months of
2006 due primarily to transaction exchange losses recorded by our UK subsidiary
resulting from the weakening of the U.S. dollar against the British pound during
that period.
INCOME TAXES. We recorded an income tax benefit for the first nine months of
2007 of $730,000 at an effective tax rate of 43.3%, compared to an income tax
provision during the first nine months of 2006 of $1,557,000 at an effective tax
rate of 34.7%. The income tax benefit recorded for the first nine months of 2007
versus the income tax provision recorded for the first nine months of 2006 was
largely due to an increase in the recognition of certain deferred tax credits.
We expect our annual effective tax rate for the full year 2007 to be
approximately 40%.
NET INCOME (LOSS). We reported a net loss for the first nine months of 2007 of
$955,000, or $0.10 per diluted share, compared to net income of $2,933,000, or
$0.30 per diluted share, for the first nine months of 2006.
19
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Overview: In the first nine months of 2007, our cash flows reflected the
investment in the build-out of our new, leased Corporate headquarters in Hamden,
CT, the continued repurchase of our common stock, and the results of lower sales
volume compared to the same period in 2006. However, even with the repurchase of
approximately $1,266,000 of our common stock and capital expenditures of
approximately $1,951,000 during the first nine months of 2007, our cash balance
only decreased by $114,000 from December 31, 2006. We ended the first nine
months of 2007 with approximately $3.3 million in cash and cash equivalents and
no debt outstanding. We expect to earn interest income on our available cash
balance for the remainder of 2007.
Operating activities: The following significant factors affected our cash
provided by operations of $2,862,000 in the first nine months of 2007:
- We reported a net loss of $955,000.
- We recorded share-based compensation expense of $548,000.
- We recorded depreciation and amortization expense of $1,377,000.
- Deferred taxes increased by $1,178,000.
- Accounts receivable decreased by $4,178,000 due to lower sales during
the first nine months of 2007 and improved collection efforts.
- Inventory increased by $1,418,000 due to an increase in consignment
inventory programs with certain of our customers and higher stocking
levels resulting from our initiatives to move increased production to
Asia.
- Accounts payable increased by $901,000 due to higher inventory
purchases and the timing of payments during the first nine months of
the year.
- Accrued liabilities decreased by $192,000 due to the following: (1)
lower compensation related accruals and (2) a lower income tax accrual
based on the decreased level of income before taxes. These decreases
were somewhat offset by increases in accrued legal fees, primarily
related to our lawsuit with FutureLogic, Inc. and deferred rent
related to the lease of our new Corporate headquarters in Hamden, CT.
- As of September 30, 2007 and December 31, 2006, our restructuring
accrual amounted to $0 and $315,000, respectively. The decrease of
$315,000 is related largely to payments made on our Wallingford lease
obligation.
Investing activities: Our capital expenditures were approximately $1,951,000 and
$2,521,000 in the first nine months of 2007 and 2006, respectively. Expenditures
in 2007 included approximately $1,247,000 for the purchase of leasehold
improvements and office furniture for our new Corporate headquarters in Hamden,
CT, approximately $121,000 for the purchase of leasehold improvements and office
furniture for our new Eastern Region service center in New Britain, CT,
approximately $290,000 for the purchase of new computer hardware and software
including outside consulting costs related to our Oracle software
implementation, and the remaining amount primarily for the purchase of new
product tooling.
Financing activities: We used approximately $1,100,000 for financing activities
during the first nine months of 2007, largely due to the repurchase of Company
stock of approximately $1,266,000 as compared to $852,000 during the first nine
months of 2006. The repurchases were offset by proceeds from stock option
exercises of approximately $149,000 during the first nine months of 2007.
WORKING CAPITAL
Our working capital decreased to $13,221,000 at September 30, 2007 from
$16,643,000 at December 31, 2006. Our current ratio also decreased to 2.5 to 1
at September 30, 2007, compared to 3.0 to 1 at December 31, 2006. The decrease
in our working capital and current ratio was largely due to lower accounts
receivable balances resulting from decreased sales and improved collection
efforts and higher accounts payable resulting from higher inventory purchases
and the timing of payments, somewhat offset by higher inventory levels, and
lower accrued liabilities.
DEFERRED TAXES
As of September 30, 2007, we had a net deferred tax asset of approximately
$3,992,000. In order to utilize this deferred tax asset, we will need to
generate approximately $10.3 million of taxable income in future years. Based on
future projections of taxable income, we believe that it is more likely than not
that the existing net deferred tax asset will be realized.
20
CREDIT FACILITY AND BORROWINGS
On November 28, 2006, we signed a new, five-year $20 million credit facility
(the "New TD Banknorth Credit Facility") with TD Banknorth, N.A. ("TD
Banknorth"). The new credit facility provides for a $20 million revolving credit
line expiring on November 28, 2011. The New TD Banknorth Credit facility
replaces a previous $11.5 million credit facility also with TD Banknorth. Our
New TD Banknorth Credit Facility provides substantially improved terms compared
to our prior credit facility. Borrowings under the new revolving credit line
bear a floating rate of interest at the prime rate minus one percent and are
secured by a lien on all of our assets. We also pay a fee of 0.25% on unused
borrowings under the revolving credit line. The total deferred financing costs
relating to expenses incurred to complete the New TD Banknorth Credit Facility
was $92,000. The New TD Banknorth Credit Facility imposes certain quarterly
financial covenants on us and restricts the payment of dividends on our common
stock and the creation of other liens. On November 7, 2007, we amended the New
TD Banknorth Credit Facility to revise a financial covenant effective September
30, 2007, which resulted in covenant compliance.
As of September 30, 2007, we had no balances outstanding on the revolving credit
line. Undrawn commitments under the New TD Banknorth Credit facility were
approximately $20,000,000 at September 30, 2007.
STOCK REPURCHASE PROGRAM
In March 2005, our Board of Directors approved a stock repurchase program ("the
Stock Repurchase Program"). Under the Stock Repurchase Program, we are
authorized to repurchase up to $10 million of our outstanding shares of common
stock from time to time in the open market over a three-year period ending March
25, 2008, depending on market conditions, share price and other factors. During
the nine months ended September 30, 2007, we repurchased a total of 185,800
shares of common stock for approximately $1,266,000 at an average price of $6.81
per share. As of September 30, 2007, we have repurchased a total of 987,100
shares of common stock for approximately $7,758,000 at an average price of $7.86
per share since the inception of the Stock Repurchase Program.
On November 1, 2007, our Board of Directors approved an increase in our stock
repurchase authorization under the Stock Repurchase Program to $15 million from
$10 million. In addition, the Board approved a two-year extension of the Stock
Repurchase Program to March 31, 2010.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased by $1,148,000 to $23,142,000 at September 30,
2007 from $24,290,000 at December 31, 2006. The decrease was primarily due to
the following for the nine months ended September 30, 2007: (1) net losses of
$955,000 and (2) treasury stock purchases of 185,800 shares of common stock for
approximately $1,266,000. These decreases were offset by proceeds of
approximately $149,000 from the issuance of approximately 33,000 shares of
common stock from stock option exercises, an increase in additional paid-in
capital of approximately $20,000 resulting from tax benefits resulting from the
sale of employee stock from stock option exercises, compensation expense related
to stock options and restricted stock of $548,000, foreign currency translation
adjustments of approximately $38,000, and a cumulative adjustment to retained
earnings due to the implementation of FIN 48 in the amount of $318,000.
CONTRACTUAL OBLIGATIONS / OFF-BALANCE SHEET ARRANGEMENTS
The disclosure of payments we have committed to make under our contractual
obligations is set forth under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Contractual Obligations" in
our 2006 Form 10-K. There have been no material changes in our contractual
obligations outside the ordinary course of business since December 31, 2006. We
have no material off-balance sheet arrangements as defined in Regulation S-K
303(a)(4)(ii).
RESOURCE SUFFICIENCY
We believe that our cash on hand and cash flows generated from operations and
borrowings available under the New TD Banknorth Credit Facility will provide
sufficient resources to meet our working capital needs, including legal expenses
associated with our lawsuit with FutureLogic, to finance our capital
expenditures, to fund our Stock Repurchase Program, and meet our liquidity
requirements through at least the next 12 months.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report, an evaluation of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures was conducted under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer. Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and
21
procedures were adequate and designed to ensure that information required to be
disclosed by the Company in this report is recorded, processed, summarized and
reported in a timely manner, including that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
There were no significant changes in internal controls or in other factors that
could be reasonably likely to materially affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses in internal controls, during the period covered by this report.
Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to
future periods are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The implementation of our new Oracle enterprise resource planning and accounting
system, completed effective January 8, 2007, required us to modify and
add/remove certain internal controls and processes and procedures. Otherwise, no
change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months
ended September 30, 2007 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 28, 2005, we announced that we filed a complaint in Connecticut
Superior Court against FutureLogic, Inc. ("FutureLogic") of Glendale,
California. The complaint charges FutureLogic with disseminating false and
misleading statements, which impugn our business reputation with the intent of
damaging our business. We assert claims of defamation, tortious interference
with contractual relations, tortious interference with business expectancy, and
violation of the Connecticut Unfair Trade Practices Act, and seek an award of
compensatory and punitive damages, attorneys' fees and costs. FutureLogic
removed this action to the United States District Court for the District of
Connecticut and, on June 7, 2005, filed a motion to dismiss the claims for lack
of jurisdiction. On December 7, 2005, we amended our complaint in the action
pending in the District of Connecticut to add claims that FutureLogic's conduct
violated the Lanham Act's bar on false and deceptive advertising.
On May 20, 2005, FutureLogic filed a complaint in the United States District
Court for the Central District of California against us. The complaint charges
us with false advertising, defamation, trade libel, intentional interference
with prospective economic advantage, common law unfair competition and statutory
unfair competition and seeks an award of compensatory and punitive damages,
attorneys' fees and costs. On August 3, 2005, FutureLogic amended its complaint
in California to seek a declaratory judgment that U.S. Patent No. 6,924,903 (the
"903 Patent") issued to us by the United States Patent and Trademark Office
("PTO") on August 2, 2005, for our dual-port printer technology, is invalid, and
that FutureLogic is not infringing our patent. We moved to dismiss FutureLogic's
action in California, on the grounds that any claims raised in that action
should have been brought as part of the case filed by us in the District of
Connecticut. In the alternative, we moved to stay the California action pending
the resolution of jurisdictional motions in the Connecticut court.
On September 1, 2006, the District of Connecticut dismissed our case because of
a lack of jurisdiction. The decision was not on the merits of our claims, but on
the jurisdiction of the court in which the suit was brought. On June 12,
22
2007, we filed an answer to FutureLogic's amended complaint and filed a
counterclaim that FutureLogic infringes the 903 Patent. We also filed a motion
for a preliminary injunction to stop infringement by FutureLogic's dual port
printers. Our motion for preliminary injunction was heard on July 30, 2007.
Through our preliminary injunction motion and hearing, we showed that
FutureLogic has constructed a prototype printer, the GEN2 Universal with the
ProMatrix system, which the judge ruled has a likelihood of infringing the 903
Patent covering dual port technology. The court denied our motion on August 6,
2007, but the court ruled that "Should TransAct discover that FutureLogic has
sold or offered to sell any GEN2 Universal printers with the ProMatrix system
that infringe the 903 Patent during the course of this action, it may renew this
motion on an expedited ex parte basis and - assuming it shows the requisite
likelihood of success on the merits - the court will afford it the relief it
seeks."
On August 27, 2007, FutureLogic lodged an amended complaint that sought a
declaratory judgment that our U.S. Patent No. 7,099,035 ("the 035 Patent") is
invalid and not infringed by FutureLogic, and that the 903 and 035 Patents are
unenforceable for inequitable conduct. Concurrently, we filed an amended answer
that added a counterclaim that FutureLogic infringes the 035 Patent. Also on
August 27, 2007, FutureLogic filed a motion for leave to file a Second Amended
Complaint to add monopolization and attempted monopolization claims against us.
The proposed claims were each based on "Walker Process fraud" and "sham
litigation." The Court held a hearing on this motion on October 29, 2007 and
issued an opinion that same day. In its opinion, the Court denied FutureLogic's
motion to add a claim for actual monopolization based on either the "Walter
Process fraud" theory or the "sham litigation." theory. The Court also denied
FutureLogic's motion to add a claim for attempted monopolization based on the
"sham litigation" theory. The Court did, however, permit FutureLogic to assert a
claim of attempted monopolization based on the "Walker Process fraud" theory. We
believe that FutureLogic's claim in this matter is without merit and intend to
defend vigorously against it.
We are now in the discovery phase of the case.
We intend to vigorously defend TransAct against FutureLogic's claims, which we
believe to be without merit. We also intend to pursue vigorously our claim
against FutureLogic for infringement of the 903 and 035 Patents. The case is in
the early stages of the discovery process. We are currently unable to estimate
any potential or probable liability.
ITEM 1A. RISK FACTORS
Risk factors that may impact future results include those disclosed in our Form
10-K for the year ended December 31, 2006. No changes have occurred during the
three and nine months ended September 30, 2007.
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2006, which could
materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing our
Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
23
ITEM 2C. STOCK REPURCHASE
On March 25, 2005 our Board of Directors approved a stock repurchase program
("the Stock Repurchase Program"). Under the Stock Repurchase Program, management
is authorized to repurchase up to $10 million of our outstanding shares of
common stock from time to time in the open market over a three year period
ending March 25, 2008, depending on market conditions, share price and other
factors. For the nine months ended September 30, 2007, we had repurchased a
total of 185,800 shares of common stock for approximately $1,266,000 at an
average price of $6.81 per share. As of September 30, 2007, we had repurchased a
total of 987,100 shares of common stock for approximately $7,758,000, at an
average price of $7.86 per share since the inception of the Stock Repurchase
Program.
The following table summarizes repurchases of our common stock in the three
months ended September 30, 2007.
Total Number
of Approximate
Shares Dollar Value of
Purchased as Shares that
Part of May Yet Be
Total Average Publicly Purchased
Number of Price Announced under the
Shares Paid per Plans or Plans or
Period Purchased Share Programs Programs
------ --------- -------- ------------ ---------------
July 1, 2007 - July 31, 2007 -- $ -- -- $2,987,000
August 1, 2007 - August 31, 2007 56,600 6.35 56,600 $2,628,000
September 1, 2007 - September 30, 2007 59,200 6.52 59,200 $2,242,000
------- -------
Total 115,800 $6.43 115,800
======= =======
On November 1, 2007, our Board of Directors approved an increase in our stock
repurchase authorization under the Stock Repurchase Program to $15 million from
$10 million. In addition, the Board approved a two-year extension of the Stock
Repurchase Program to March 31, 2010.
24
ITEM 6. EXHIBITS
a. Exhibits filed herein
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 10.20 First Amendment to Amended and Restated Revolving Credit and
Security Agreement between TransAct and TD Banknorth, N.A.
effective September 30, 2007
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
(Registrant)
November 9, 2007 /s/ Steven A. DeMartino
--------------------------------------------
Steven A. DeMartino
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
(Principal Financial and Accounting Officer)
26
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
-------
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002
10.20 First Amendment to Amended and Restated Revolving Credit and Security
Agreement between TransAct and TD Banknorth, N.A. effective September
30, 2007
27