UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC. 20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS
PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES
AND EXCHANGE ACT OF 1934
(Mark
One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2008
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
______________________________________________________________________
______________________________________________________________________
(Exact
name of registrant as specified in its charter)
|
Delaware
|
06-1456680
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
One
Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden,
CT
|
06518
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code 203-859-6800
______________________________________________________________________
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of Each Class
|
Name
of Exchange on which Registered
|
|
|
Common
Stock, par value $.01 per share
|
NASDAQ
Global Market
|
______________________________________________________________________
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined in
Rule 405 of the Securities Act).
Yes o No ý
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Act.
Yes o No ý
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 ý No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. ý
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting
company)
|
Smaller
reporting company ý
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No ý
As of
June 30, 2008 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$72,000,000.
As of
February 28, 2009, the registrant had outstanding 9,303,238 shares of common stock,
$0.01 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Proxy
Statement for the Annual Meeting of Shareholders to be held on May 28,
2009 – Part III (Items 10-14).
INDEX
|
Item
1.
|
1
|
|
|
Item
1A.
|
5
|
|
|
Item
1B.
|
10
|
|
|
Item
2.
|
10
|
|
|
Item
3.
|
10
|
|
|
Item
4.
|
10
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|
|
Item
5.
|
10
|
|
|
Item
6.
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12
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|
|
Item
7.
|
12
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|
|
Item
7A.
|
26
|
|
|
Item
8.
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26
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|
|
Item
9.
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26
|
|
|
Item
9A.
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27
|
|
|
Item
9B.
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27
|
|
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Item
10.
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27
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|
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Item
11.
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28
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|
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Item
12.
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28
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|
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Item
13.
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28
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|
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Item
14.
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28
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|
|
Item
15.
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28
|
|
|
SIGNATURES
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||
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29
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||
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CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULE
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||
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F-1
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||
|
EXHIBITS
|
||
The
Company
TransAct
Technologies Incorporated (“TransAct” or the “Company”) was incorporated in June
1996 and began operating as a stand-alone business in August 1996 as a spin-off
of the printer business that was formerly conducted by certain subsidiaries of
Tridex Corporation. We completed an initial public offering on August
22, 1996.
TransAct
designs, develops, assembles, markets and services world-class transaction
printers under the Epic and Ithaca® brand
names. Known and respected worldwide for innovative designs and
real-world service reliability, our thermal, inkjet and impact printers generate
top-quality transaction records such as receipts, tickets, coupons, register
journals and other documents. We focus on three core markets: (1)
banking and point-of-sale (“POS”), (2) casino and gaming and (3)
lottery. We sell our products to original equipment manufacturers
("OEMs"), value-added resellers ("VARs"), selected distributors, as well as
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. In addition, we have a strong focus on
the after-market side of the business, through
our TransAct Services Group, with a growing commitment to printer
service, supplies and spare parts. We have one primary operating
facility located in Ithaca, NY, our printer sales headquarters and western
region service center in Las Vegas, NV, an eastern region service center located
in New Britain, CT, a European sales and service center in the United Kingdom,
and a sales office located in Macau and two other sales offices located in the
United States. Our executive offices are located at
One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT, 06518,
with a telephone number of (203) 859-6800.
Financial
Information about Segments
We have
determined that we operate in one reportable segment, the design, development,
assembly and marketing of transaction printers and printer-related service,
supplies and spare parts.
Products
and Services
Printers
TransAct
designs, develops, assembles and markets a broad array of transaction-based
printers utilizing inkjet, thermal and impact printing technology for
applications requiring up to 60 character columns, primarily in the banking,
POS, casino, gaming and lottery markets. Our printers are
configurable and offer customers the ability to choose from a variety of
features and functions. Options typically include interface
configuration, paper cutting devices, paper handling capacities and cabinetry
color. In addition to our configurable printers, we design and
assemble custom printers for certain OEM customers. In collaboration
with these customers, we provide engineering and manufacturing expertise for the
design and development of specialized printers.
Banking
and POS: Our banking and POS printers include hundreds of optional
configurations that can be selected to meet particular customer
needs. We believe that this is a significant competitive strength, as
it allows us to satisfy a wide variety of printing applications that our
customers request. In the banking market, we sell printers that are
used by banks, credit unions and other financial institutions to print and/or
validate receipts at bank teller stations. In the POS market, we sell
several models of printers utilizing inkjet, thermal and impact printing
technology. Our printers are used primarily by retailers in the
restaurant (including fine dining, casual dining, and fast food), hospitality,
and specialty retail industries to print receipts for consumers, validate
checks, or print on other inserted media.
Lottery: We
supply lottery printers to Lottomattica’s GTECH Corporation (“GTECH”),
our largest customer and the world’s largest provider of lottery
terminals, with an approximate 70% market share. These printers are
designed for high-volume, high-speed printing of lottery tickets for various
lottery applications.
Casino
and gaming: We sell several models of printers used in slot machines
and video lottery terminals that print tickets or receipts instead of issuing
coins at casinos, racetracks and other gaming establishments
worldwide. These printers utilize thermal printing technology and can
print tickets or receipts in monochrome or two-color (depending upon the model),
and offer various other features such as jam resistant bezels and a dual port
interface that will allow casinos to print coupons/promotions. In
addition, we sell printers using thermal and impact printing technology for use
in non-casino establishments, including game types such as Amusements with
Prizes (“AWP”), Skills with Prizes (“SWP”), Video lottery terminals (“VLT”),
Fixed Odds Betting Terminals (“FOBT”) and other off-premise gaming type machines
around the world.
TransAct
Services Group
Through
our TransAct Services Group, we proactively market the sale of consumable
products (including inkjet cartridges, ribbons,
receipt paper and other transaction supplies), replacement parts and
maintenance services for all of our products and certain competitor’s
products. Our maintenance services include the sale of extended
warranties, multi-year maintenance contracts, 24-hour guaranteed replacement
product service TransAct XpressSM,
and other repair services for our printers. Within the United States,
we provide repair services through our eastern region service center in New
Britain, CT and our western region service center in Las Vegas,
NV. Internationally, we provide repair services through our European
service center located in Doncaster, United Kingdom, and through partners
strategically located around the world.
1
We also
provide customers with telephone sales and technical support, and a personal
account representative to handle orders, shipping and general
information. Technical and sales support personnel receive training
on all of our manufactured products and our services.
In
addition to personalized telephone and technical support, we also market and
sell consumable products 24 hours a day, seven days a week, via our online
webstore www.transactsupplies.com.
Product
Warranty
Our
printers generally carry up to a two-year limited warranty against defects in
material and workmanship. Defective equipment may be returned to any
of our service centers, or our assembly facility in Ithaca, NY for
newly-released printers only, for repair or replacement during the applicable
warranty period.
Production,
Manufacturing and Sources and Availability of Raw Materials
We design
our products to optimize product performance, quality, reliability and
durability. These designs combine cost efficient materials, sourcing
and assembly methods with high standards of workmanship. During 2008,
we began a program to transfer final assembly for approximately 70% of our total
printer production to a third-party contract manufacturer in China by the end of
2009. As of December 31, 2008, we had transferred approximately
30% of our total production to this contract manufacturer, and we expect the
remaining 40% to be transferred during 2009. Over the remainder of
2009, we will continue to finalize assembly for some of our products in our
Ithaca, NY facility largely on a configure-to-order basis using components and
subassemblies that have been sourced from vendors or contract manufacturers
around the world. However, we plan to decrease in-house printer
production in Ithaca, NY by printer model as the assembly of that printer model
is transferred to our contract manufacturer.
We
procure component parts and subassemblies for use in the assembly of our
products in Ithaca, NY. Critical component parts and subassemblies
include inkjet, thermal and impact printheads, printing/cutting mechanisms,
power supplies, motors, injection molded plastic parts, circuit boards and
electronic components, which are obtained from domestic and foreign suppliers at
competitive prices. With the transition of 70% of our production to
our contract manufacturer, during 2009 we expect purchases of component parts
will decline, while purchases of fully-assembled printers will increase, as
in-house printer assembly in Ithaca, NY declines and assembly by our contract
manufacturer increases. Furthermore, during this transition, we
expect inventories to temporarily rise, as we plan to increase our stocking
levels to ensure product availability to meet our customers’
demands. We typically strive to maintain more than one source for our
component parts, subassemblies and fully assembled printers to reduce the risk
of parts shortages or unavailability. However, we could experience
temporary disruption if certain suppliers ceased doing business with us, as
described below.
We
currently buy substantially all of our thermal print mechanisms, an important
component of our thermal printers, and fully assembled printers for several of
our printer models, from one foreign contract manufacturer. Although
we believe that other contract manufacturers could provide similar thermal print
mechanisms or fully assembled printers, on comparable terms, a change in
contract manufacturers could cause a delay in manufacturing and possible loss of
sales, which may have a material adverse effect on our operating
results.
Hewlett-Packard
Company (“HP”) is the sole supplier of inkjet cartridges that are used in all of
our inkjet printers. The loss of the supply of HP inkjet cartridges
would have a material adverse effect on the sale of our inkjet
printers. Prior to February 2006, we had a supply agreement with HP
to purchase inkjet cartridges at fixed prices. This agreement expired
on February 1, 2006 and was not renewed, as HP informed us that they no longer
maintain supply agreements for these inkjet cartridges; however, we continue to
purchase inkjet cartridges from HP. Although we no longer have a
supply agreement with HP, our relationship with HP remains strong and we have no
reason to believe that HP will discontinue its supply of inkjet cartridges to
us. The inkjet cartridges we purchase from HP are used not only in
our inkjet printers for the banking and POS market, but also in other
manufacturer’s printing devices across several other markets.
Okidata
Americas, Inc. (“Okidata”) is the sole supplier for an impact printer component
kit consisting of a printhead, control board and carriage (the “Oki Kit”) that
is used in all of our Ithacaâ brand impact
printers. The loss of the supply of Oki Kits would have a material
adverse effect on TransAct. However, sales of impact printers
continue to decline as sales of these printers are replaced by sales of thermal
and inkjet printers. As such,
we believe that any possible loss of supply of Oki Kits will continue to have
less of an impact on TransAct in 2009 and beyond. Although we do not
have a supply agreement with Okidata, our relationship with Okidata remains
strong and we have no reason to believe that Okidata will discontinue its supply
of Oki Kits to us during 2009 or that their terms to us will be any less
favorable than they have been historically.
2
Patents
and Proprietary Information
We have
significantly expanded our patent portfolio since 2002, and expect to continue
to do so in the future. We also believe our patent portfolio could
provide additional opportunities to license our intellectual property in the
future. We hold 23 United States and 19 foreign patents and have 8
United States and 72 foreign patent applications pending pertaining to our
products. The duration of these patents range from 10 to 18
years. The expiration of any individual patent would not have a
significant negative impact on our business. We regard certain
manufacturing processes and designs to be proprietary and attempt to protect
them through employee and third-party nondisclosure agreements and similar
means. It may be possible for unauthorized third parties to copy
certain portions of our products or to reverse engineer or otherwise obtain and
use, to our detriment, information that we regard as
proprietary. Moreover, the laws of some foreign countries do not
afford the same protection to our proprietary rights as do United States laws.
There can be no assurance that legal protections relied upon by the Company to
protect our proprietary position will be adequate or that our competitors will
not independently develop technologies that are substantially equivalent or
superior to our technologies.
Seasonality
Retailers
typically reduce purchases of new POS equipment in the fourth quarter, due to
the increased volume of consumer transactions in that holiday period, and our
sales of printers in the POS market historically have increased in the third
quarter and decreased in the fourth quarter. Similarly, installations
of lottery terminals are typically reduced in the fourth quarter, resulting in
decreased sales of lottery printers.
Certain
Customers
We
currently have an ongoing OEM purchase agreement, as amended in February 2006
(the “GTECH Thermal Printer Agreement”) with GTECH that provides for the sale of
thermal on-line lottery printers and spare parts, at fixed prices, through June
28, 2012. During 2008, sales to GTECH accounted for 28% of our net
sales, and no other customer individually accounted for more than 10% of total
net product sales. Firm purchase orders for printers under the GTECH
Thermal Printer Agreement may be placed as required by GTECH. Prior
to this agreement, we had a purchase agreement with GTECH that provided for the
sale of impact on-line lottery printers and spare parts through December 31,
2004. Because our new thermal on-line lottery printer is a
replacement for our impact on-line printer, we do not expect any further
shipments of impact on-line lottery printers. However, we do expect
to continue to sell spare parts to GTECH for the remaining installed base of
impact on-line lottery printers, although we expect such sales to decline as the
installed base of impact on-line lottery printers are replaced with our thermal
printer.
Backlog
Our
backlog of firm orders was approximately $9,994,000 as of February 28,
2009, compared to $9,123,000 as of February 29, 2008. Based on
customers’ current delivery requirements, we expect to ship our entire current
backlog during 2009.
Competition
The
market for transaction-based printers is extremely competitive, and we expect
such competition to continue in the future. We compete with a number of
companies, many of which have greater financial, technical and marketing
resources than us. We believe our ability to compete successfully depends on a
number of factors both within and outside our control, including durability,
reliability, quality, design capability, product customization, price, customer
support, success in developing new products, manufacturing expertise and
capacity, supply of component parts and materials, strategic relationships with
suppliers, the timing of new product introductions by us and our competitors,
general market, economic and political conditions and, in some cases, the
uniqueness of our products.
In the
banking and POS market, our major competitor is Epson America, Inc., which holds
a dominant market position of the POS markets into which we sell. We
also compete, to a much lesser extent, with Transaction Printer Group, Star
Micronics America, Inc., Citizen -- CBM America Corporation, Pertech Resources,
Inc., Addmaster, and Samsung/Bixolon. Certain competitors of ours
have greater financial resources, lower costs attributable to higher volume
production and sometimes offer lower prices than us.
In the
lottery market (consisting principally of on-line lottery transaction printing),
we hold a leading position, based largely on our long-term purchase agreement
with GTECH, which holds approximately 70% market share of the worldwide on-line
lottery market. We compete in this market based solely on our ability
to provide specialized, custom-engineered products to GTECH.
In the
casino and gaming market (consisting principally of slot machine and video
lottery terminal transaction printing), we compete with several companies
including FutureLogic, Inc., Nanoptix, Inc., Custom Engineering SPA and
others. Certain of our products sold for casino and gaming
applications compete based upon our ability to provide highly specialized
products, custom engineering and ongoing technical support.
The
TransAct Services Group business is highly fragmented, and we compete with
numerous competitors of various sizes depending on the geographic
area.
3
Our
strategy for competing in our markets is to continue to develop new products and
product line extensions, to increase our geographic market penetration, to take
advantage of strategic relationships, and to lower product costs by sourcing
certain products overseas. Although we believe that our products,
operations and relationships provide a competitive foundation, there can be no
assurance that we will compete successfully in the future. In
addition, our products utilize certain inkjet, thermal and impact printing
technology. If other technologies, or variations to existing
technologies were to evolve or become available to us, it is possible that we
would incorporate these technologies into our
products. Alternatively, if such technologies were to evolve or
become available to our competitors, our products could become obsolete, which
would have a significant negative impact on our business.
Research
and Development Activities
We spent
approximately $2,942,000, $3,129,000 and $2,824,000 in 2008, 2007 and 2006,
respectively, on engineering, design and product development efforts in
connection with specialized engineering and design to introduce new products and
to customize existing products.
Environment
We are
not aware of any material noncompliance with federal, state and local provisions
that have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment.
Employees
As of
February 28, 2009, TransAct and our subsidiaries employed 151 persons, of whom
150 were full-time and 1 was a temporary employee. None of our
employees are unionized, and we consider our relationships with our employees to
be good.
Financial
Information About Geographic Areas
We have
foreign operations primarily from TransAct Technologies Ltd., a wholly-owned
subsidiary located in the United Kingdom, which had sales to its customers of
$120,000, $2,121,000 and $2,722,000 in 2008, 2007 and 2006,
respectively. We had export sales from our domestic operations of
approximately $10,006,000, $8,674,000 and $11,416,000 in 2008, 2007 and 2006,
respectively. Total international sales, which include sales from our
foreign subsidiary and export sales from our domestic operations, were
approximately $10,126,000, $10,795,000 and $14,138,000 in 2008, 2007 and 2006,
respectively.
Additional
Information
We make
available free of charge through our internet website, www.transact-tech.com,
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or furnished to the
SEC.
We
maintain a Code of Business Conduct that includes our code of ethics that is
applicable to all employees, including our Chief Executive Officer, Chief
Financial Officer and Controller. This Code, which requires continued
observance of high ethical standards such as honesty, integrity and compliance
with the law in the conduct of our business, is available for public access on
our internet website. Any person may request a copy of our Code of
Business Conduct free of charge by calling (203) 859-6800.
Executive
Officers of the Registrant
The
following list is included as an unnumbered item in Part I of this Report in
lieu of being included in the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 28, 2009.
The
following is a list of the names and ages of all executive officers of the
registrant, indicating all positions and offices with the registrant held by
each such person and each person’s principal occupations and employment during
at least the past five years.
|
Name
|
Age
|
Position
|
||
|
Bart
C. Shuldman
|
51
|
Chairman
of the Board, President and Chief Executive Officer
|
||
|
Steven
A. DeMartino
|
39
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
||
|
Michael
S. Kumpf
|
59
|
Executive
Vice President-Engineering
|
||
|
James
B. Stetson
|
52
|
Senior
Vice President and Business Manager of the TransAct Services
Group
|
||
|
Tracey
S. Chernay
|
49
|
Senior
Vice President-Sales and Marketing
|
||
|
Andrew
Hoffman
|
51
|
Senior
Vice
President-Operations
|
Bart C.
Shuldman has been Chief Executive Officer, President and a Director of the
Company since its formation in June 1996. In February 2001, Mr.
Shuldman was elected Chairman of the Board.
Steven A.
DeMartino was named as TransAct’s Executive Vice President, Chief Financial
Officer, Treasurer and Secretary on June 1, 2004. Previously, Mr.
DeMartino served as Senior Vice President, Finance and Information Technology
from October 2001 to May 2004, Vice President and Corporate Controller from
January 1998 to October 2001, and Corporate Controller from August 1996 to
December 1997. Mr. DeMartino is a certified public
accountant.
4
Michael
S. Kumpf was appointed Executive Vice President of Engineering in March
2002. He served as Senior Vice President, Engineering from June 1996
to March 2002.
James B.
Stetson was appointed Senior Vice President and Business Manager of TransAct
Services Group in January 2005. Previously, Mr. Stetson held the
position of Executive Vice President of Sales and Marketing from February 2000
to December 2004, and Vice President of Latin American Sales from October 1997
to February 2000.
Tracey S.
Chernay was appointed Senior Vice President, Sales and Marketing in June 2007,
with responsibility for the sales and marketing of all TransAct printer products
worldwide. Previously Ms. Chernay served as Sr. Vice President,
Marketing & Sales, POS & Banking with the Company from July 2006 to June
2007, and joined TransAct in May of 2005 as Senior Vice President,
Marketing. Prior to joining TransAct, Ms. Chernay was employed with
Xerox Corporation where she held the role of Manager, Worldwide Marketing since
2003, and Manager, Sales Operations from 2000 to 2002. She joined
Xerox Corporation in 1983.
Andrew
Hoffman was appointed Senior Vice President, Operations for TransAct worldwide
in November 2004. He served as Vice President, Operations from
September 1994 to November 2004.
Investors
should carefully consider the risks, uncertainties and other factors described
below, as well as other disclosures in Management’s Discussion and Analysis of
Financial Condition and Results of Operations, because they could have a
material adverse effect on our business, financial condition, operating results,
and growth prospects. The risks described below and incorporated by
reference are not the only ones facing our Company. Additional risks
not known to us now or that we currently deem immaterial may also impair our
business operations.
We assume
no obligation (and specifically disclaim any such obligation) to update these
Risk Factors or any other forward-looking statements contained in this Annual
Report to reflect actual results, changes in assumptions or other factors
affecting such forward-looking statements, except as required by
law.
Current
economic conditions and market disruptions may adversely affect our business and
results of operations.
As widely
reported, financial markets throughout the world have been experiencing extreme
disruption in recent months, including, among other things, extreme volatility
in security prices, severely diminished liquidity and credit availability,
rating downgrades of certain investments and declining valuations of others,
failure and potential failures of major financial institutions and unprecedented
government support of financial institutions. The financial, casino
and gaming industries have been more severely impacted by the current economic
downturn than other industries and this may lead our customers in these
industries to reduce, or discontinue, spending on our products which could
adversely impact our business. These developments and the related general
economic downturn may adversely impact our business and financial condition in a
number of additional ways, including impacts beyond those typically associated
with other recent downturns in the U.S. and foreign economies. The
slowdown could lead to reduced capital spending by end users, which could
adversely affect our product sales. The current tightening of credit
in financial markets and the general economic downturn may adversely affect the
ability of our customers, suppliers, outsource manufacturer and channel partners
(e.g., distributors and resellers) to obtain financing for significant purchases
and operations and to perform their obligations with the Company. The
tightening could result in a decrease in or cancellation of orders for our
products and services, could negatively impact our ability to collect our
accounts receivable on a timely basis, could result in additional reserves for
uncollectible accounts receivable being required, and in the event of the
contraction in our sales, could lead to excess inventory and require additional
reserves for obsolescence. Significant volatility and fluctuations in
the rates of exchange for the U.S. dollar against foreign currencies could
negatively impact our customer pricing and adversely affect our
results.
We are
unable to predict the duration and severity of the current economic downturn and
disruption in financial markets or their effects on our business and results of
operations, but the consequences may be materially adverse and more severe than
other recent economic slowdowns.
Our
success will depend on our ability to sustain and manage growth.
As part
of our business strategy, we intend to pursue an aggressive growth
strategy. Assuming this growth occurs, it will require the expansion
of distribution relationships in international markets, the successful
development and marketing of new products, expanded customer service and
support, and the continued implementation and improvement of our operational,
financial and management information systems.
To the
extent that we seek growth through acquisitions, our ability to manage our
growth will also depend on our ability to integrate businesses that have
previously operated independently. We may not be able to achieve this
integration without encountering difficulties or experiencing the loss of key
employees, customers or suppliers. It may be difficult to design and
implement effective financial controls for combined operations and differences
in existing controls for each business may result in weaknesses that require
remediation when the financial controls and reporting functions are
combined.
5
There can
be no assurance that we will be able to successfully implement our growth
strategy, or that we can successfully manage expanded operations. As
the Company expands, we may from time to time experience constraints that will
adversely affect our ability to satisfy customer demand in a timely
fashion. Failure to manage growth effectively could adversely affect
our results of operations and financial condition.
In
the lottery market, we have been dependent on sales to one large customer; the
loss of this customer or reduction in orders from this customer could materially
affect our sales.
We expect
that sales to one large customer will continue to represent a significant
percentage of our net sales for the foreseeable future. A reduction,
delay or cancellation in orders from this customer, including reductions or
delays due to market, economic, or competitive conditions in the industries in
which we serve, could have a material adverse effect upon our results of
operations.
We
rely on resellers to sell our products and services.
We use a
variety of distribution channels, including OEMs and distributors, to market our
products. We may be adversely impacted by any conflicts that could
arise between and among our various sales channels.
Our
dependence upon resellers exposes us to numerous risks, including:
|
·
|
loss
of channel and the ability to bring new products to
market;
|
|
·
|
concentration
of credit risk, including disruption in distribution should the resellers’
financial condition deteriorate;
|
|
·
|
reduced
visibility to end user demand and pricing issues which makes forecasting
more difficult;
|
|
·
|
resellers
leveraging their buying power to change the terms of pricing, payment and
product delivery schedules; and
|
|
·
|
direct
competition should a reseller decide to manufacture printers internally or
source printers from a competitor.
|
We cannot
guarantee that resellers will not reduce, delay or eliminate purchases from us,
which could have a material adverse effect upon the business, consolidated
results of operations and financial condition.
Our
operating results and financial condition may fluctuate.
Our
operating results and financial condition may fluctuate from quarter to quarter
and year to year and are likely to continue to vary due to a number of factors,
many of which are not within our control. If our operating results do
not meet the expectations of securities analysts or investors, who may derive
their expectations by extrapolating data from recent historical operating
results, the market price of our common stock will likely
decline. Fluctuations in our operating results and financial
condition may be due to a number of factors, including, but not limited to,
those identified throughout this “Risk Factors” section:
|
·
|
market
acceptance of our products, both domestically and
internationally;
|
|
·
|
development
of new competitive printers by
others;
|
|
·
|
our
responses to price competition;
|
|
·
|
our
level of research and development
activities;
|
|
·
|
changes
in the amount that we spend to develop, acquire or license new products,
consumables, technologies or
businesses;
|
|
·
|
changes
in the amount we spend to promote our products and
services;
|
|
·
|
changes
in the cost of satisfying our warranty obligations and servicing our
installed base of printers;
|
|
·
|
delays
between our expenditures to develop and market new or enhanced printers
and consumables and the generation of sales from those
products;
|
|
·
|
the
geographic distribution of our
sales;
|
|
·
|
availability
of third-party components at reasonable
prices;
|
|
·
|
general
economic and industry conditions, including changes in interest rates
affecting returns on cash balances and investments, that affect customer
demand;
|
|
·
|
severe
weather events (such as hurricanes) that can disrupt or interrupt the
operation of our customers or suppliers facilities;
and
|
|
·
|
changes
in accounting rules.
|
Due to
all of the foregoing factors, and the other risks discussed in this report,
quarter-to-quarter comparisons of our operating results may not be an indicator
of future performance.
We
depend on key personnel, the loss of which could materially impact our
business.
Our
future success will depend in significant part upon the continued service of
certain key management and other personnel and our continuing ability to attract
and retain highly qualified managerial, technical and sales and marketing
personnel. There can be no assurance that we will be able to recruit
and retain such personnel. The loss of either Bart C. Shuldman, the
Company's Chairman of the Board, President and Chief Executive Officer, or
Steven A. DeMartino, Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, or the loss of certain groups of key employees, could
have a material adverse effect on our results of operations.
6
Our
stock price may fluctuate significantly.
The
market price of our common stock could fluctuate significantly in response to
variations in quarterly operating results and other factors, such
as:
|
·
|
changes
in our business, operations or
prospects;
|
|
·
|
developments
in our relationships with our
customers;
|
|
·
|
announcements
of new products or services by us or by our
competitors;
|
|
·
|
announcement
or completion of acquisitions by us or by our
competitors;
|
|
·
|
changes
in existing or adoption of additional government
regulations;
|
|
·
|
unfavorable
or reduced analyst coverage; and
|
|
·
|
prevailing
domestic and international market and economic
conditions.
|
In
addition, the stock market has experienced significant price fluctuations in
recent years. Broad market fluctuations, general economic conditions
and specific conditions in the industries in which we operate may adversely
affect the market price of our common stock.
Limited
trading volume of our capital stock may contribute to its price
volatility.
Our
common stock is traded on the NASDAQ Global Market. During the twelve
months ended December 31, 2008, the average daily trading volume for our common
stock as reported by the NASDAQ Global Market was approximately 66,000
shares. We are uncertain whether a more active trading market in our
common stock will develop. In addition, many investment banks no
longer find it profitable to provide securities research on micro-cap and
small-cap companies. If any analyst were to discontinue coverage of
our common stock, our trading volume may be further reduced. As a
result, relatively small trades may have a significant impact on the market
price of our common stock, which could increase the volatility and depress the
price of our common stock.
Future
sales of our common stock may cause our stock price to decline.
In the
future, we may sell additional shares of our common stock in public or private
offerings, and we may also issue additional shares of our common stock to
finance future acquisitions. Shares of our common stock are also
available for future sale pursuant to stock options that we have granted to our
employees, and in the future we may grant additional stock options and other
forms of equity compensation to our employees. Sales of our common
stock or the perception that such sales could occur may adversely affect
prevailing market prices for shares of our common stock and could impair our
ability to raise capital through future offerings.
If
we are unable to enforce our patents or if it is determined that we infringe
patents held by others it could damage our business.
Prosecuting
and defending patent lawsuits is very expensive. We are committed to
aggressively asserting and defending our technology and related intellectual
property, which we have spent a significant amount of money to
develop. These factors could cause us to become involved in new
patent litigation in the future. The expense of prosecuting or defending these
future lawsuits could also have a material adverse effect on our business,
financial condition and results of operations.
If we
were to lose a patent lawsuit in which another party is asserting that our
products infringe its patents, we would likely be prohibited from marketing
those products and could also be liable for significant damages. Either or both
of these results may have a material adverse effect on our business, financial
condition and results of operations. If we lose a patent lawsuit in which we are
claiming that another party’s products are infringing our patents and thus, are
unable to enforce our patents, it may have a material adverse effect on our
business, financial condition and results of operations. In addition
to disputes relating to the validity or alleged infringement of other parties'
rights, we may become involved in disputes relating to our assertion of our own
intellectual property rights. Whether we are defending the assertion of
intellectual property rights against us or asserting our intellectual property
rights against others, intellectual property litigation can be complex, costly,
protracted, and highly disruptive to business operations by diverting the
attention and energies of management and key technical personnel. Plaintiffs in
intellectual property cases often seek injunctive relief, and the measures of
damages in intellectual property litigation are complex and often subjective or
uncertain. Thus, any adverse determinations in this type of litigation could
subject us to significant liabilities and costs. During the course of these
lawsuits there may be public announcements of the results of hearings, motions,
and other interim proceedings or developments in the litigation. If securities
analysts or investors perceive these results to be negative, it could harm the
market price of our stock.
The
inability to protect intellectual property could harm our reputation, and our
competitive position may be materially damaged.
Our
intellectual property is valuable and provides us with certain competitive
advantages. Copyrights, patents, trade secrets and contracts are used to protect
these proprietary rights. Despite these precautions, it may be possible for
third parties to copy aspects of our products or, without authorization, to
obtain and use information which we regard as trade secrets.
7
Infringement
on the proprietary rights of others could put us at a competitive disadvantage,
and any related litigation could be time consuming and costly.
Third
parties may claim that we violated their intellectual property rights. To the
extent of a violation of a third party’s patent or other intellectual property
right, we may be prevented from operating our business as planned and may be
required to pay damages, to obtain a license, if available, or to use a
non-infringing method, if possible, to accomplish our objectives. Any of these
claims, with or without merit, could result in costly litigation and divert the
attention of key personnel. If such claims are successful, they could result in
costly judgments or settlements.
We compete in a highly competitive market, which is likely to become more competitive. Competitors may be able to respond more quickly to new or emerging technology and changes in customer requirements.
We face
significant competition in developing and selling our printers and
services. Principal competitors have substantial marketing,
financial, development and personnel resources. To remain
competitive, we believe we must continue to provide:
|
·
|
Technologically
advanced printers that satisfy the user
demands,
|
|
·
|
Superior
customer service,
|
|
·
|
High
levels of quality and reliability,
and
|
|
·
|
Dependable
and efficient distribution
networks.
|
We cannot
ensure we will be able to compete successfully against current or future
competitors. Increased competition in printers or supplies may result
in price reductions, lower gross profit margins and loss of market share, and
could require increased spending on research and development, sales and
marketing and customer support. Some competitors may make strategic
acquisitions or establish cooperative relationships with suppliers or companies
that produce complementary products. Any of these factors could
reduce our earnings.
We
have outsourced a large portion of the assembly of our printers to a contract
manufacturer and will be dependent on them for the manufacturing of such
printers. A failure by this contract manufacturer , or any disruption
in such manufacturing, may adversely affect our business results.
In an
effort to achieve additional cost savings and operation benefits, we have
continued to outsource the manufacturing and assembly of our printers to a
contract manufacturer in China.
However,
to the extent we rely on a third party service provider for manufacturing
services, we may incur increased business continuity risks. We will
no longer be able to exercise control over the assembly of certain of our
printers or any related operations or processes, including the internal controls
associated with operations and processes conducted and the quality of our
products assembled by the contract manufacturer. If we are unable to
effectively develop and implement our outsourcing strategy, we may not realize
cost structure efficiencies and our operating and financial results could be
materially adversely affected.
In
addition, if the contract manufacturer experiences business difficulties or
fails to meet our manufacturing needs, then we may be unable to meet production
requirements, may lose revenue and may not be able to maintain relationships
with our customers. Without the contract manufacturer continuing to
manufacture our products and the continuing operation of the contract
manufacturer’s facility, we will have limited means for the final
assembly of a majority of our printers until we are able to secure the
manufacturing capability at another facility or develop an alternative
manufacturing facility, which could be costly and time consuming and have a
material adverse effect on our operating and financial results.
The
increased elements of risk that arise from conducting certain operating
processes in foreign jurisdictions may lead to an increase in reputational
risk.
Although
we carry business interruption insurance to cover lost revenue and profits in an
amount we consider adequate, this insurance does not cover all possible
situations. In addition, the business interruption insurance would not
compensate us for the loss of opportunity and potential adverse impact, both
short-term and long-term, on relations with our existing customers resulting
from our inability to produce products for them.
The
contract manufacturer has access to our intellectual property, which
increases the risk of infringement or misappropriation of this intellectual
property.
We
source some of our component parts and consumable products from sole source
suppliers; any disruptions may impact our ability to manufacture and sell our
products.
A
disruption in the supply of such component parts and consumable products could
have a material adverse effect on our operations and financial
results.
8
We
sell a significant portion of our products internationally and purchase
important components from foreign suppliers. These circumstances create a
number of risks.
We sell a
significant amount of our products to customers outside the United States.
Shipments to international customers are expected to continue to account for a
material portion of net sales. Risks associated with sales and purchases outside
the United States include:
|
·
|
Fluctuating
foreign currency rates could restrict sales, or increase costs of
purchasing, in foreign countries.
|
|
·
|
Foreign
governments may impose burdensome tariffs, quotas, taxes, trade barriers
or capital flow restrictions.
|
|
·
|
Political
and economic instability may reduce demand for our products or put our
foreign assets at risk.
|
|
·
|
Restrictions
on the export or import of technology may reduce or eliminate the ability
to sell in or purchase from certain
markets.
|
|
·
|
Potentially
limited intellectual property protection in certain countries, such as
China, may limit recourse against infringing products or cause us to
refrain from selling in certain geographic
territories.
|
If market conditions deteriorate or future results of operations are less than expected, a valuation allowance may be required for all or a portion of our deferred tax assets.
We
currently have significant deferred tax assets, which may be used to reduce
taxable income in the future. We assess the realization of these deferred tax
assets on a quarterly basis, and if we determine that it is more likely than not
that some portion of these assets will not be realized, an income tax valuation
allowance is recorded. If market conditions deteriorate or future
results of operations are less than expected, or there is a change to applicable
tax rules, future assessments may result in a determination that it is more
likely than not that some or all of our net deferred tax assets are not
realizable. As a result, we may need to establish a valuation allowance for all
or a portion of our net deferred tax assets, which may have a material adverse
effect on our business, results of operations and financial
condition.
We
cannot provide any assurance that current laws, or any laws enacted in the
future, will not have a material adverse effect on our business.
Our
operations are subject to laws, rules, regulations, including environmental
regulations, government policies and other requirements in each of the
jurisdictions in which we conduct business. Changes in laws, rules,
regulations, policies or requirements could result in the need to modify our
products and could affect the demand for our products, which may have an adverse
impact on our future operating results. If we do not comply with
applicable laws, rules and regulations we could be subject to costs and
liabilities and our business may be adversely impacted.
Our
business could be adversely affected by actual or threatened terrorist attacks
or the related heightened security measures, military actions and other efforts
to combat terrorism.
Our
business could be adversely affected by actual or threatened terrorist attacks
or the related heightened security measures, military actions and other efforts
to combat terrorism. It is possible that terrorist attacks could be
directed at important locations for the gaming industry. Heightened security
measures and other efforts to combat terrorism may also have an adverse effect
on the gaming industry by reducing tourism. Any of these developments
could also negatively affect the general economy and consumer
confidence. Any downturn in the economy or in the gaming industry in
particular could reduce demand for our products and adversely affect our
business and results of operations. In addition, heightened security
measures may cause certain governments to restrict the import/export of goods,
which may have an adverse effect on our ability to buy/sell goods.
Additional
risks and uncertainties not presently known to us or that we currently believe
to be immaterial also may adversely impact our business. Should any risks or
uncertainties develop into actual events, these developments could have material
adverse effects on our business, financial condition, and results of
operations.
9
Not
applicable.
Our
corporate headquarters is currently located in Hamden, CT. Our global
engineering and assembly facility is located in Ithaca,
NY. We also maintain a facility in Las Vegas, NV that serves as our
global printer sales headquarters and western region service
center. Our eastern region service center is currently located in New
Britain, CT.
Our
principal facilities as of December 31, 2008 are listed below:
|
Location
|
Operations
Conducted
|
Size
(Approx. Sq.
Ft.)
|
Owned
or
Leased
|
Lease
Expiration
Date
|
|||
|
Hamden,
Connecticut
|
Executive
offices and TransAct Services Group sales office
|
11,100 |
Leased
|
April
23, 2017
|
|||
|
Ithaca,
New York
|
Research,
design and assembly facility
|
73,900 |
Leased
|
June
30, 2012
|
|||
|
Las
Vegas, Nevada
|
Service
center and printer sales headquarters
|
13,700 |
Leased
|
January
31, 2010
|
|||
|
New
Britain, Connecticut
|
Service
center
|
11,500 |
Leased
|
April
1, 2012
|
|||
|
Doncaster,
United Kingdom
|
Sales
office and service center
|
2,800 |
Leased
|
August
1, 2009
|
|||
|
Georgia
and New York
|
Two
regional sales offices
|
300 |
Leased
|
Various
|
|||
| 113,300 | |||||||
We
believe that our facilities generally are in good condition, adequately
maintained and suitable for their present and currently contemplated
uses.
None.
No
matters were submitted to a vote of security holders during the last quarter of
the year covered by this report.
Our
common stock is traded on the NASDAQ Global Market under the symbol
TACT. As of February 28, 2009, there were 575 holders of record of
the common stock. The high and low sales prices of the common stock
reported during each quarter of the years ended December 31, 2008 and 2007 were
as follows:
|
Year
Ended
|
Year
Ended
|
|||||||||||||||
|
December
31, 2008
|
December
31, 2007
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter
|
$ | 5.67 | $ | 3.58 | $ | 10.10 | $ | 6.75 | ||||||||
|
Second
Quarter
|
9.50 | 4.80 | 7.80 | 5.95 | ||||||||||||
|
Third
Quarter
|
13.75 | 6.84 | 6.80 | 5.70 | ||||||||||||
|
Fourth
Quarter
|
8.98 | 3.25 | 6.56 | 4.70 | ||||||||||||
No
dividends on common stock have been declared and we do not anticipate declaring
dividends in the foreseeable future. Our credit agreement with TD
Banknorth, N.A. prohibits the payment of cash dividends on our common stock
for the term of the agreement.
Issuer
Purchases of Equity Securities
On March
25, 2005, the Board of Directors approved a stock repurchase program (“the Stock
Repurchase Program”). Under the Stock Repurchase Program,
we were 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 on March 25, 2008, depending on market conditions, share price and
other factors.
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.
10
The
following table summarizes repurchases of our common stock in the quarter ended
December 31, 2008:
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Approximate
Dollar Value of Shares that May Yet Be Purchased under
the Plans or Programs
|
||||||||||||
|
October
1, 2008 – October 31, 2008
|
- | $ | - | - | $ | 7,005,000 | ||||||||||
|
November
1, 2008 – November 30, 2008
|
130,100 | $ | 4.17 | 130,100 | $ | 6,462,000 | ||||||||||
|
December
1, 2008 – December 31, 2008
|
- | $ | - | - | $ | 6,462,000 | ||||||||||
|
Total
|
130,100 | $ | 4.17 | 130,100 | ||||||||||||
CORPORATE
PERFORMANCE GRAPH
The
following graph compares the cumulative total return on the Company’s Common
Stock from December 31, 2003 through December 31, 2008, with the CRSP Total
Return Index for the Nasdaq Stock Market (U.S.) and the Nasdaq Computer
Manufacturer Stocks Index. The graph assumes that $100 was invested on December
31, 2003 in each of the Company’s common stock, the CRSP Total Return Index for
the Nasdaq Stock Market (U.S.) and the Nasdaq Computer Manufacturer Stocks
Index, and that all dividends were reinvested.
COMPARISON
OF CUMULATIVE TOTAL RETURN AMONG
TRANSACT
TECHNOLOGIES INCORPORATED COMMON STOCK,
THE
CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (U.S.),
AND
THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
|||||||||||||||||||
|
TransAct
Technologies Incorporated Common Stock
|
$ | 100.00 | $ | 131.58 | $ | 48.67 | $ | 51.13 | $ | 29.51 | $ | 28.28 | ||||||||||||
|
CRSP
Total Return Index for the Nasdaq Stock Market (U.S.)
|
$ | 100.00 | $ | 108.83 | $ | 111.14 | $ | 122.12 | $ | 132.43 | $ | 63.87 | ||||||||||||
|
Nasdaq
Computer Manufacturer Stocks Index
|
$ | 100.00 | $ | 130.76 | $ | 133.80 | $ | 137.02 | $ | 199.02 | $ | 83.60 | ||||||||||||
11
The
following is summarized from our audited financial statements of the past five
years:
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Consolidated
Statement of Operations Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 62,207 | $ | 48,766 | $ | 64,328 | $ | 51,091 | $ | 59,847 | ||||||||||
|
Gross
profit
|
20,950 | 15,996 | 22,365 | 15,590 | 22,042 | |||||||||||||||
|
Operating
expenses
|
19,089 | 19,751 | 16,277 | 15,366 | 13,591 | |||||||||||||||
|
Operating
income (loss)
|
1,861 | (3,755 | ) | 6,088 | 224 | 8,451 | ||||||||||||||
|
Net
income (loss)
|
1,444 | (2,274 | ) | 3,916 | 377 | 5,458 | ||||||||||||||
|
Net
income (loss) per share:
|
||||||||||||||||||||
|
Basic
|
0.16 | (0.24 | ) | 0.41 | 0.04 | 0.55 | ||||||||||||||
|
Diluted
|
0.15 | (0.24 | ) | 0.40 | 0.04 | 0.51 | ||||||||||||||
|
December
31,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Total
assets
|
$ | 32,234 | $ | 30,414 | $ | 33,706 | $ | 29,332 | $ | 34,099 | ||||||||||
|
Working
capital
|
15,051 | 11,338 | 16,643 | 15,375 | 20,511 | |||||||||||||||
|
Shareholders’
equity
|
23,282 | 21,608 | 24,290 | 21,257 | 23,715 | |||||||||||||||
This
discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto.
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. All forward-looking statements involve risks and
uncertainties, including, but not limited to those listed in Item 1A of this
Annual Report. 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.
Overview
2008 was
a year of positive achievements for TransAct as compared to
2007. During 2008, we focused on and delivered sales growth and
delivered across the majority of our sales units, both domestically and
internationally. During 2008, we shipped a record 196,000 printers,
led by record sales of our Epic 950® casino printer and significantly higher
sales of our online thermal lottery printer. Our sales success was
also complemented by improved gross margin, operating margin and earnings per
share.
We
continue to focus on sales growth in our core markets (banking and POS, casino
and gaming, lottery, and in our TransAct Services Group) to drive increased
profitability. During 2008, our total net sales increased by 28% to
approximately $62,207,000. See the table below for a breakdown of our
sales by market.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$ | % | ||||||||||||||||||||
|
Banking
and POS
|
$ | 11,866 | 19.1 | % | $ | 11,046 | 22.6 | % | $ | 820 | 7.4 | % | ||||||||||||
|
Casino
and gaming
|
22,299 | 35.8 | % | 19,438 | 39.9 | % | 2,861 | 14.7 | % | |||||||||||||||
|
Lottery
|
15,731 | 25.3 | % | 5,900 | 12.1 | % | 9,831 | 166.6 | % | |||||||||||||||
|
TransAct
Services Group
|
12,311 | 19.8 | % | 12,382 | 25.4 | % | (71 | ) | (0.6 | )% | ||||||||||||||
|
Total
net sales
|
$ | 62,207 | 100.0 | % | $ | 48,766 | 100.0 | % | $ | 13,441 | 27.6 | % | ||||||||||||
12
We
experienced an increase of approximately 7% in sales of Banking and POS printers
in 2008. Sales of our Bankjet® line of inkjet bank teller printers
increased due to incremental sales of our first generation BANKjet® 1500 bank
teller printer as well as initial sales of our newly-launched, next generation
BANKjet® 2500 bank teller printer. In addition to higher banking
printer sales, we also experienced a slight increase in sales from our line of
POS printers due primarily to sales of our two new printer products for
McDonalds – (1) the Ithaca® 8000 thermal receipt/label printer which will be
used to print either a receipt at the front counter or a label at the grill
station and (2) the Ithaca ® 8040 label printer which will be used to print
labels for McDonalds new combined beverage initiative. Sales of our
legacy line of POS impact printers, as these printers continue to be replaced by
our newer thermal and inkjet printers. We expect sales of our legacy
POS impact printers to continue to decline during 2009, as these printers
continue to be replaced by our newer thermal and inkjet
printers.
In our
casino and gaming market, our focus lies primarily in supplying printers for use
in slot machines at casinos and racetracks, as well as in other gaming devices
that print tickets or receipts, primarily in the United States, Europe and
Australia, as well as in the emerging Asian market, including
Macau. During 2008, despite a weak domestic casino market, our
domestic casino and gaming printer sales increased by 12% from 2007 due largely
to International Game Technologies (“IGT”) awarding us default status as default
printer provider, which began in April of 2008. Internationally,
casino and gaming printer sales increased by 20% to $7.9 million, largely due to
sales growth of our off-premise gaming printers to Europe.
On the
lottery side, we continue to hold a leading position based on our long-term
purchase agreement with Lottomatica’s GTECH Corporation (“GTECH”), our largest
customer and the world’s largest provider of lottery terminals, with
approximately a 70% market share. GTECH has been our customer since
1995, and we continue to maintain a good relationship with them. In
fact, our contract with GTECH continues through 2012. Currently, we
fulfill substantially all of GTECH’s printer requirements for lottery terminal
installations and upgrades worldwide. During 2008, we experienced a
record level of sales compared to historical sales levels from GTECH, with total
printer sales increasing by approximately $9,987,000, or 189%, compared to
2007. However, our sales to GTECH each year are directly dependent on
the timing and number of new and upgraded lottery terminal installations GTECH
performs. Our sales to GTECH are not indicative of GTECH’s overall
business or revenue.
Our
TransAct Services Group (“TSG”), which sells service, replacement parts and
consumable products, including receipt paper, ribbons and inkjet cartridges,
continues to offer a substantial growth opportunity and recurring revenue stream
for TransAct. Even with declining sales of replacement parts for
legacy impact printers as the installed base of these printers in the market
declines, TSG domestic revenue continued to increase in 2008 by 17% from
2007. During 2008, our domestic sales benefited from higher inkjet
cartridge sales resulting from the previously signed agreement with a leading
national office supply chain to supply inkjet cartridges in 2006 as well as
expanding sales of paper and other consumable products through our e-commerce
website, TransActSupplies.com. Internationally, TSG sales declined
due to the decrease in maintenance and repair services revenue from a service
contract with a single customer in the United Kingdom. The service
contract, which represented a substantial portion of our U.K. subsidiary’s
revenue in 2007, ended in November 2007 and was not renewed, as the customer
replaced our printers with newer technology that we were unable to
provide.
Operationally,
both our gross margin and operating margin showed marked improvement from
2007. During 2008, our gross margin increased to 33.7% compared to
32.8% in 2007, due primarily to higher sales volume combined with lower product
costs and increased absorption of certain manufacturing overhead expenses as we
continue to transfer our domestic, in-house production of our products to a
lower cost contract manufacturer in China. Our operating margin also
increased to 3.0% in 2008 compared to (7.7%) in 2007, as our operating expenses
decreased by 3% due to cost reduction programs we put in place at the end of
2007 and our sales increased by 28%.
Overall,
we reported net income of $1.4 million and net income per share (diluted) of
$0.15 per share for 2008. We also utilized cash during 2008 to fund
$979,000 of capital expenditures and repurchase $543,000 of our common stock,
and we finished the year with $2.0 million of cash and no debt on our balance
sheet as of December 31, 2008.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared by us
in accordance with accounting principles generally accepted in the United States
of America. These principles require the use of estimates, judgments
and assumptions. Such estimates and judgments are based upon
historical experience and certain assumptions that are believed to be reasonable
in the particular circumstances. Those judgments affect both balance
sheet items and income statement categories. Our estimates include
those related to revenue recognition, allowance for doubtful accounts, inventory
obsolescence, the valuation of deferred tax assets and liabilities, goodwill
impairment, warranty obligations, restructuring accruals, share-based
compensation and contingent liabilities. We evaluate our assumptions
on an ongoing basis by comparing actual results with our
estimates. Actual results may differ from the original
estimates. The following accounting policies are those that we
believe to be most critical in the preparation of our financial
statements.
13
Revenue
Recognition – Our typical contracts include the sale of printers, which
are sometimes accompanied by separately-priced extended warranty
contracts. We also sell spare parts, consumables, and other repair
services (sometimes pursuant to multi-year product maintenance contracts), which
are not included in the original printer sale and are ordered by the customer as
needed. We recognize revenue pursuant to the guidance within SAB 104,
“Revenue Recognition.” Specifically, revenue is recognized when
evidence of an arrangement exists, delivery (based on shipping terms which are
generally FOB shipping point) has occurred, the selling price is fixed and
determinable, and collectablity is reasonably assured. We provide for
an estimate of product returns and price protection based on historical
experience at the time of revenue recognition.
Revenue
related to extended warranty and product maintenance contracts is recognized
pursuant to FASB Technical Bulletin 90-1 (“FTB 90-1”), “Accounting for
Separately Priced Extended Warranty and Product Maintenance
Contracts.” Pursuant to FTB 90-1, revenue related to separately
priced product maintenance contracts is deferred and recognized over the term of
the maintenance period. We record deferred revenue for advance
payments received from customers for maintenance contracts.
Our
customers have the right to return products that do not function properly within
a limited time after delivery. We monitor and track product returns
and record a provision for the estimated future returns based on historical
experience. Returns have historically been within expectations and
the provisions established, but we cannot guarantee that we will continue to
experience return rates consistent with historical patterns.
We offer
some of our customer’s price protection as an incentive to carry inventory of
our product. These price protection plans provide that if we lower
prices, we will credit them for the price decrease on inventory they
hold. Our customers typically carry limited amounts of inventory, and
we infrequently lower prices on current products. As a result, the
amounts paid under these plans have not been material. However, we
cannot guarantee that this minimal level will continue.
We charge
our customers for shipping and handling services. The amounts billed
to customers are recorded as revenue when the product ships. Any
costs incurred related to these services are included in cost of
sales.
Accounts
Receivable – We
have standardized credit granting and review policies and procedures for all
customer accounts, including: credit reviews of all new customer accounts;
ongoing credit evaluations of current customers; credit limits and payment terms
based on available credit information; and adjustments to credit limits based
upon payment history and the customer’s current creditworthiness. We
also provide an estimate of doubtful accounts based on historical experience and
specific customer collection issues. Our allowance for doubtful
accounts as of December 31, 2008 was $55,000, or less than 1.0% of outstanding
accounts receivable, which we feel is appropriate considering the overall
quality of our accounts receivable. While credit losses have
historically been within expectations and the reserves established, we cannot
guarantee that our credit loss experience will continue to be consistent with
historical experience. As of December 31, 2008, we had accounts
receivable balances due from two customers of approximately 20% and 10%,
respectively, of the total balance due, and no other customer accounts
receivable balance exceeded 10%. As of December 31, 2007, we had
accounts receivable balances due from three customers of 13%, 12% and 10% of the
total balance due, respectively, and no other customer accounts receivable
balance exceeded 10%.
Inventory – Our inventories are stated
at the lower of cost (principally standard cost, which approximates actual cost
on a first-in, first-out basis) or market. We review market value
based on historical usage and estimates of future demand. Assumptions
are reviewed at least quarterly and adjustments are made, as necessary, to
reflect changing market conditions. Based on these reviews, inventory
write-downs are recorded, as necessary, to reflect estimated obsolescence,
excess quantities and market value. Should circumstances change and
we determine that additional inventory is subject to obsolescence, additional
write-downs of inventory could result in a charge to income. As of
December 31, 2008, our net inventory included a reserve of $3,050,000, or 23.5%
of gross inventory, to write inventory down to lower of cost or
market.
Goodwill – We test the impairment of
goodwill each year or more frequently if events or changes in circumstances
indicate that the carrying value may not be recoverable. We completed
our last assessment as of December 31, 2008. Factors considered that
may trigger an impairment review are: significant underperformance relative to
expected historical or projected future operating results; significant changes
in the manner of use of acquired assets or the strategy for the overall
business; significant negative industry or economic trends; and significant
decline in market capitalization relative to net book value. Goodwill
amounted to $1,469,000 at December 31, 2008 and we have determined that no
goodwill impairment has occurred.
Income
Taxes – In
preparing our consolidated financial statements, we are required to estimate
income taxes in each of the jurisdictions in which we operate. This
involves estimating the actual current tax exposure together with assessing
temporary differences between the tax basis of certain assets and liabilities
and their reported amounts in the financial statements, as well as net operating
losses, tax credits and other carryforwards. These differences result
in deferred tax assets and liabilities, which are included within our
consolidated balance sheets. We then assess the likelihood that the
deferred tax assets will be realized from future taxable income, and to the
extent that we believe that realization is not likely, we establish a valuation
allowance.
14
Significant
judgment is required in determining the provision for income taxes and, in
particular, any valuation allowance or tax reserves with respect to our deferred
tax assets and uncertain tax positions. On a quarterly basis, we
evaluate the recoverability of our deferred tax assets based upon historical
results and forecasted taxable income over future years, and match this forecast
against the basis differences, deductions available in future years and the
limitations allowed for net operating loss and tax credit carryforwards to
ensure that there is adequate support for the realization of the deferred tax
assets. While we have considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation allowance
or tax reserve, in the event we were to determine that we would not be able to
realize all or part of our deferred tax assets in the future, an adjustment to
the valuation allowance or tax reserves would be charged as a reduction to
income in the period such determination was made. Likewise, should we
determine that we would be able to realize future deferred tax assets in excess
of its net recorded amount, an adjustment to the valuation allowance or tax
reserves would increase net income in the period such determination was
made.
In July
2006, the Financial Accounting Standards Board (the “FASB”) issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, (“FIN 48”). Among other things, FIN 48
prescribes a minimum recognition threshold that an income tax position must meet
before it is recorded in the reporting entity’s financial statements. FIN 48
requires that the effects of such income tax positions be recognized only if, as
of the balance sheet reporting date, it is “more likely than not” (i.e., more
than a 50% likelihood) that the income tax position will be sustained based
solely on its technical merits. When making this assessment,
management must assume that the responsible taxing authority will examine the
income tax position and have full knowledge of all relevant facts and other
pertinent information. The new accounting guidance also clarifies the
method of accruing for interest and penalties when there is a difference between
the amount claimed, or expected to be claimed, on a company’s income tax returns
and the benefits recognized in the financial
statements. Additionally, FIN 48 requires significant new and
expanded footnote disclosures in all annual periods.
We
adopted FIN 48 with an effective date of January 1,
2007. Retrospective application of FIN 48 was
prohibited. 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
Consolidated Balance Sheet as of December 31, 2007.
As of
December 31, 2008, we recorded a net deferred tax asset of approximately
$3,813,000 and a tax reserve of $44,000, primarily on portions of certain tax
credits. We will need to recognize approximately $10.9 million in
future taxable income in order to realize all of our deferred tax assets at
December 31, 2008. In one of the last three years, we have had U.S.
taxable losses and there is no assurance that we will generate future taxable
income sufficient to realize all of our deferred tax assets. However,
based on our current projection of future taxable income as of December 31,
2008, no valuation allowance is considered necessary. Should
circumstances change and we determine that some or all of the deferred taxes
would not be realized, a valuation allowance would be recorded, resulting in a
charge to income in the period such determination is made.
Restructuring
– In February 2001, we announced plans to establish a global engineering and
manufacturing center at our Ithaca, NY facility. As part of this
strategic decision, we undertook a plan to consolidate all manufacturing and
engineering into our existing Ithaca, NY facility and close our Wallingford, CT
manufacturing facility (the “Consolidation”). As of December 31,
2001, we successfully transferred substantially all our Wallingford operations
to Ithaca, NY, with the exception of our corporate headquarters and a service
center that remains in Connecticut. The closing of the Wallingford
manufacturing facility resulted in the termination of employment of
approximately 70 production, administrative and management
employees.
In
connection with the Consolidation of manufacturing facilities in 2001, we
recorded significant accruals. Through December 31,
2007, we recognized approximately $5.5 million of expenses associated with the
Consolidation, including severance pay, stay bonuses, employee benefits, moving
expenses, non-cancelable lease payments, and other costs. Management has made
reasonable estimates of such costs and expenses. During November
2006, we executed an agreement, effective May 1, 2007, to terminate the lease
agreement for our Wallingford, CT facility. As a result, we changed
our estimate of the restructuring accrual and reversed approximately $479,000 of
restructuring expenses in 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 and we do not
expect to incur any additional restructuring expenses related to the
Consolidation.
Warranty – We generally warrant our
products for up to 24 months and record the estimated cost of such product
warranties at the time the sale is recorded. Estimated warranty costs
are based upon actual past experience of product repairs and the related
estimated cost of labor and material to make the necessary
repairs. If actual future product repair rates or the actual costs of
material and labor differ from the estimates, adjustments to the accrued
warranty liability and related warranty expense would be made.
Contingencies – We record an estimated
liability related to contingencies based on our estimates of the probable
outcomes pursuant to FAS 5. On a quarterly basis, we assess the
potential liability related to pending litigation, audits and other
contingencies and confirm or revise estimates and reserves as
appropriate. If the actual liabilities are settled in an amount
greater than those recorded on the balance sheet, a change to income would be
recorded.
15
Share-Based
Compensation –
We calculate share-based compensation expense in accordance with SFAS
123(R), “Share-Based Payment (as amended)” using 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 an option grant, and the stock price volatility, risk-free
interest rate, dividend yield, and forfeiture rate. The determination
of these assumptions is based on past history and future expectations, and is
subject to a high level of judgment. To the extent any of the
assumptions were to change from year to year, the fair value of new option
grants may vary significantly.
Results
of Operations: Year ended December 31, 2008 compared to year ended December 31,
2007
Net
Sales. Net sales, which include printer sales and sales of
spare parts, consumables and repair services, by market for the years ended
December 31, 2008 and 2007 were as follows:
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$
|
%
|
||||||||||||||||||||
|
Banking
and POS
|
$ | 11,866 | 19.1 | % | $ | 11,046 | 22.6 | % | $ | 820 | 7.4 | % | ||||||||||||
|
Casino
and gaming
|
22,299 | 35.8 | % | 19,438 | 39.9 | % | 2,861 | 14.7 | % | |||||||||||||||
|
Lottery
|
15,731 | 25.3 | % | 5,900 | 12.1 | % | 9,831 | 166.6 | % | |||||||||||||||
|
TransAct
Services Group
|
12,311 | 19.8 | % | 12,382 | 25.4 | % | (71 | ) | (0.6 | )% | ||||||||||||||
| $ | 62,207 | 100.0 | % | $ | 48,766 | 100.0 | % | $ | 13,441 | 27.6 | % | |||||||||||||
|
International*
|
$ | 10,126 | 16.3 | % | $ | 10,795 | 22.1 | % | $ | (669 | ) | (6.2 | )% | |||||||||||
|
*
|
International
sales do not include sales of printers made to domestic distributors or
other domestic customers who may in turn ship those printers to
international destinations.
|
Net sales
for 2008 increased $13,441,000, or 28%, from 2007 due to sales increases in
three out of four of our markets: banking and point of sale (“POS”)
(an increase of approximately $820,000, or 7%), casino and gaming (an increase
of approximately $2,861,000, or 15%) and lottery (an increase of approximately
$9,831,000 or 167%). Sales from our TransAct Services Group (“TSG”)
decreased by approximately $71,000, or less than 1%.
Overall, international
sales decreased by $669,000, or 6%. The decrease in international
sales was due largely to the expiration in November 2007 of a service contract
with a single customer in the United Kingdom.
Banking and point of
sale: Revenue
from the banking and POS market includes sales of printers used by banks, credit
unions and other financial institutions to print and/or validate receipts at
bank teller stations. Revenue from this market also includes sales of
inkjet, thermal and impact printers used primarily by retailers in restaurant
(including fine dining, casual dining and fast food), hospitality, and specialty
retail stores to print receipts for consumers, validate checks, or print on
other inserted media. Sales of our banking and POS printers worldwide
increased approximately $820,000, or 7%, from 2007.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$
|
% | ||||||||||||||||||||
|
Domestic
|
$ | 10,664 | 89.9 | % | $ | 9,775 | 88.5 | % | $ | 889 | 9.1 | % | ||||||||||||
|
International
|
1,202 | 10.1 | % | 1,271 | 11.5 | % | (69 | ) | (5.4 | )% | ||||||||||||||
| $ | 11,866 | 100.0 | % | $ | 11,046 | 100.0 | % | $ | 820 | 7.4 | % | |||||||||||||
Domestic
banking and POS printer sales increased to $10,664,000, representing an
$889,000, or 9%, increase from 2007. Banking printer sales increased
by approximately $610,000 due largely to incremental sales of our first
generation BANKjet® 1500 bank teller printer as well as new product sales of our
BANKjet® 2500 bank teller printer in 2008 compared to 2007. Although
we are currently pursuing several banking opportunities, due to the
project-oriented nature of these sales, and the current credit crisis that we
believe is negatively impacting the banking industry’s level of capital
expenditures, we cannot predict the level of future sales. Our
increased banking printer sales were also complemented by new product sales of
our new Ithaca® 8000 and Ithaca® 8040 thermal receipt/label printers for
McDonalds. We also experienced lower sales of our legacy impact
printers, as expected, during 2008 compared to 2007, as these printers continue
to be replaced by our thermal and inkjet printers.
16
International
banking and POS printer shipments decreased by approximately $69,000, or 5%, to
$1,202,000, due primarily to lower sales to our international POS
distributors in Europe and Asia, largely offset by an increase in printer sales
to our international POS distributors in Latin America.
Casino and gaming: Revenue
from the casino and gaming market includes sales of printers used in slot
machines, video lottery terminals (“VLTs”) and other gaming machines that print
tickets or receipts instead of issuing coins (“ticket-in, ticket-out” or “TITO”)
at casinos, racetracks (“racinos”) and other gaming venues
worldwide. Sales of our casino and gaming printers increased by
$2,861,000, or 15%, from 2007, due to increased sales of our thermal casino
and gaming printers both domestically and internationally.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$
|
%
|
||||||||||||||||||||
|
Domestic
|
$ | 14,355 | 64.4 | % | $ | 12,798 | 65.8 | % | $ | 1,557 | 12.2 | % | ||||||||||||
|
International
|
7,944 | 35.6 | % | 6,640 | 34.2 | % | 1,304 | 19.6 | % | |||||||||||||||
| $ | 22,299 | 100.0 | % | $ | 19,438 | 100.0 | % | $ | 2,861 | 14.7 | % | |||||||||||||
Domestic
sales of our casino and gaming printers increased by $1,557,000, or 12%, despite
a weak domestic casino market, due largely to an increase in domestic sales
of our thermal casino printers, including incremental sales beginning in
the second quarter of 2008 resulting from our new status as default printer
provider to International Game Technology (“IGT”). We expect the
domestic casino and gaming market to continue to be weak into 2009 as we believe
the current uncertain economic environment is negatively impacting the casino
industry’s level of capital expenditures. In light of these negative
market conditions, our future sales to the domestic casino and gaming market may
be unpredictable and adversely affected.
International
casino and gaming printer sales increased $1,304,000, or 20%, to $7,944,000 in
2008 compared to 2007. International sales represented 36% and 34% of
total sales into our casino and gaming market during 2008 and 2007,
respectively. This increase was due primarily to increased sales
of our casino and gaming printers in Europe, including growing sales of our new
off-premise gaming printers, as well as increased international casino printer
sales to Australia.
Lottery: Revenue
from the lottery market includes sales of lottery printers to Lottomatica’s
GTECH Corporation (“GTECH”), the world’s largest provider of lottery terminals,
for various lottery applications.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$
|
%
|
||||||||||||||||||||
|
Domestic
|
$ | 15,283 | 97.2 | % | $ | 5,297 | 89.8 | % | $ | 9,986 | 188.5 | % | ||||||||||||
|
International
|
448 | 2.8 | % | 603 | 10.2 | % | (155 | ) | (25.7 | )% | ||||||||||||||
| $ | 15,731 | 100.0 | % | $ | 5,900 | 100.0 | % | $ | 9,831 | 166.6 | % | |||||||||||||
Domestic
and international lottery printer sales to GTECH, which include thermal on-line
and other lottery printers, increased by approximately $9,831,000, or 167%, in
2008 compared to 2007, with domestic sales increasing by approximately
$9,986,000 and international sales declining by approximately
$155,000. 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 and
year-to-year. Our sales to GTECH are not indicative of GTECH’s
overall business or revenue. We expect total sales to GTECH for 2009
to be lower than those reported during 2008.
TransAct Services
Group: Revenue from the
TransAct Services Group (“TSG”) includes sales of consumable products (inkjet
cartridges, ribbons, receipt paper and other transaction-related supplies),
replacement parts, maintenance and repair services, refurbished printers, and
shipping and handling charges. Sales from TSG decreased by
approximately $71,000, or less than 1% from 2007.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$
|
% | ||||||||||||||||||||
|
Domestic
|
$ | 11,779 | 95.7 | % | $ | 10,101 | 81.6 | % | $ | 1,678 | 16.6 | % | ||||||||||||
|
International
|
532 | 4.3 | % | 2,281 | 18.4 | % | (1,749 | ) | (76.7 | )% | ||||||||||||||
| $ | 12,311 | 100.0 | % | $ | 12,382 | 100.0 | % | $ | (71 | ) | (0.6 | )% | ||||||||||||
17
Domestic
revenue from TSG increased by approximately $1,678,000, or 17%, to $11,779,000,
largely due to increased sales of consumable products, including higher sales
of inkjet cartridges as well as growing sales of paper and other
consumable products through our new e-commerce website, www.TransActSupplies.com.
The increase in domestic TSG revenue was also due, to a lesser extent, to
higher maintenance and repair services revenue for 2008 as we renewed and
expanded existing contracts for our service products including extended
warranty contracts and our 24-hour guaranteed replacement product service
called TransAct Xpress™. These increases were partially offset by a
decline in the sales of 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 $1,749,000, or 77%, to $532,000, due
largely to a decrease in maintenance and repair services revenue from a
service contract with a single customer in the United Kingdom. The service
contract, which represented a substantial portion of our U.K. subsidiary’s
revenue in 2007, ended in November 2007 and was not renewed, as the customer
replaced our printers with newer technology that we were unable to
provide.
Gross
Profit. Gross profit information is summarized below (in thousands,
except percentages):
|
December
31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2008
|
2007
|
Change
|
Total
Sales - 2008
|
Total
Sales - 2007
|
||||||||||||||||
|
Year
ended
|
$ | 20,950 | $ | 15,996 | 31.0 | % | 33.7 | % | 32.8 | % | ||||||||||
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 and gross margin increased due primarily to a
higher volume of sales and lower component part and labor costs resulting
from our initiatives to increasingly move production of our products to Asia,
somewhat offset by a less favorable sales mix. Gross
profit for 2008 was also favorably impacted by approximately
$195,000 of increased absorption of certain manufacturing overhead
expenses due to
the transition of more of our production to China compared to 2007.
Gross profit for 2007 was negatively impacted by an incremental inventory
reserve charge of approximately $528,000, or 1.1% of net sales in 2007,
specifically related to certain obsolete electronic components and certain
discontinued printer products.
Engineering and
Product Development. Engineering and product development information
is summarized below (in thousands, except percentages):
|
December
31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2008
|
2007
|
Change
|
Total
Sales - 2008
|
Total
Sales – 2007
|
||||||||||||||||
|
Year
ended
|
$ | 2,942 | $ | 3,129 | (6.0 | )% | 4.7 | % | 6.4 | % | ||||||||||
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 for 2008 decreased by $187,000 or 6.0%, due
to lower outside design, prototype, development and professional consulting
related expenses partially offset by higher employee compensation related
expenses. Engineering and product development expenses decreased as a
percentage of net sales due primarily to higher sales volume coupled with a
lower level of expenses in 2008 compared to 2007.
Selling and
Marketing. Selling and marketing information is summarized below (in
thousands, except percentages):
|
December
31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2008
|
2007
|
Change
|
Total
Sales - 2008
|
Total
Sales - 2007
|
||||||||||||||||
|
Year
ended
|
$ | 6,078 | $ | 6,708 | (9.4 | )% | 9.8 | % | 13.8 | % | ||||||||||
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 expenses
decreased primarily due to a reduced level of sales staff related expenses
resulting from the cost reduction actions we took in late 2007 as well as lower
promotional marketing expenses. Selling and marketing expenses
decreased as a percentage of net sales due primarily to higher sales volume
coupled with a lower level of expenses in 2008 compared to 2007.
18
General and
Administrative. General and administrative information is summarized
below (in thousands, except percentages):
|
December 31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2008
|
2007
|
Change
|
Total
Sales - 2008
|
Total
Sales - 2007
|
||||||||||||||||
|
Year
ended
|
$ | 7,040 | $ | 6,995 | 0.6 | % | 11.3 | % | 14.3 | % | ||||||||||
General
and administrative expenses primarily include: salaries and payroll related
expenses for our executive, accounting, human resource, business development and
information technology staff, expenses for our corporate headquarters,
professional and legal expenses, telecommunication expenses, and other expenses
related to being a publicly-traded company. General and
administrative expenses increased by $45,000, or less than 1%, due primarily to
(1) higher incentive compensation expenses, (2) compensation and travel expenses
related to the hiring of our new Vice President of Business Development in May
2008 and (3) the full year effect of increased rent and facility-related
expenses, including depreciation expense on purchases of office furniture
and leasehold improvements for our new corporate headquarters in Hamden, CT that
we moved into during the second quarter of 2007. These increases were
partially offset by lower legal expenses related to general
corporate matters, recruitment related expenses, and professional
fees. General and administrative expenses decreased as a percentage of net
sales due primarily to higher sales volume in 2008 compared to
2007.
Legal Fees
associated with lawsuit. During
2008, we incurred approximately $3,029,000 of legal fees related to the settled
lawsuit with FutureLogic, Inc. compared to $2,907,000 in 2007. The
substantial increase was due to the settlement of our litigation with
FutureLogic, Inc. in May 2008. As a result of the settlement, we do
not expect to incur any additional legal fees related to the
lawsuit.
Operating Income
(Loss). Operating income (loss) information is summarized below (in
thousands, except percentages):
|
December 31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2008
|
2007
|
Change
|
Total
Sales - 2008
|
Total
Sales - 2007
|
||||||||||||||||
|
Year
ended
|
$ | 1,861 | $ | (3,755 | ) | NM | 3.0 | % | (7.7 | )% | ||||||||||
During
2008, the substantial increase in our operating income and operating margin was
due largely to higher sales and the resulting higher gross profit and lower
operating expenses in 2008 compared to that of 2007.
Interest. We
recorded net interest expense of $11,000 in 2008 compared to net interest income
of $76,000 in 2007. The decrease in our net interest income was
largely due to a lower average cash balance in 2008 as compared to 2007, coupled
with a lower overall rate of return on our invested cash balance due to the
decreasing interest rate environment. See “Liquidity and Capital
Resources” below for more information.
Other
Income. We recorded other income of $368,000 in 2008 compared
to other income of $21,000 in 2007. The increase was due primarily to
transaction exchange gains recorded by our UK subsidiary resulting from the
significant strengthening of the U.S. dollar against the British pound primarily
in the third and fourth quarters of 2008.
Income
Taxes. We recorded an income tax provision of $774,000, at an
effective rate of 34.9% during 2008 compared to an income tax benefit of
$1,384,000, at an effective rate of 37.8% in 2007. The effective tax
rate for 2008 decreased compared to 2007 due largely to a decrease in the
recognition of certain deferred tax credits. We expect our annual
effective tax rate for 2009 to be approximately 35%.
Net Income
(Loss). We reported net
income in 2008 of $1,444,000, or $0.15 per diluted share compared to a net loss
of $(2,274,000), or $(0.24) per diluted share in 2007.
19
Results
of Operations: Year ended December 31, 2007 compared to year ended December 31,
2006
Net
Sales. Net
sales, which include printer sales and sales of spare parts, consumables and
repair services, by market for the years ended December 31, 2007 and 2006 were
as follows:
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2007
|
December
31, 2006
|
$
|
% | ||||||||||||||||||||
|
Banking
and POS
|
$ | 11,046 | 22.6 | % | $ | 16,858 | 26.2 | % | $ | (5,812 | ) | (34.5 | )% | |||||||||||
|
Casino
and gaming
|
19,438 | 39.9 | % | 23,246 | 36.1 | % | (3,808 | ) | (16.4 | )% | ||||||||||||||
|
Lottery
|
5,900 | 12.1 | % | 11,431 | 17.8 | % | (5,531 | ) | (48.4 | )% | ||||||||||||||
|
TransAct
Services Group
|
12,382 | 25.4 | % | 12,793 | 19.9 | % | (411 | ) | (3.2 | )% | ||||||||||||||
| $ | 48,766 | 100.0 | % | $ | 64,328 | 100.0 | % | $ | (15,562 | ) | (24.2 | )% | ||||||||||||
|
International*
|
$ | 10,795 | 22.1 | % | $ | 14,138 | 22.0 | % | $ | (3,343 | ) | (23.6 | )% | |||||||||||
|
*
|
International
sales do not include sales of printers made to domestic distributors or
other domestic customers who may in turn ship those printers to
international destinations.
|
Net sales
for 2007 decreased $15,562,000, or 24%, from 2006 due to sales decreases in each
of our four markets: banking and point of sale (“POS”) (a decrease of
approximately $5,812,000, or 35%), casino and gaming (a decrease of
approximately $3,808,000, or 16%), lottery (a decrease of approximately
$5,531,000, or 48%), and TSG (a decrease of approximately $411,000, or 3%).
Overall, international sales decreased by $3,343,000, or 24%, due largely to
lower international shipments of our banking and POS, casino and 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 $5,812,000, or 35%, from 2006.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2007
|
December
31, 2006
|
$
|
% | ||||||||||||||||||||
|
Domestic
|
$ | 9,775 | 88.5 | % | $ | 15,410 | 91.4 | % | $ | (5,635 | ) | (36.6 | )% | |||||||||||
|
International
|
1,271 | 11.5 | % | 1,448 | 8.6 | % | (177 | ) | (12.2 | )% | ||||||||||||||
| $ | 11,046 | 100.0 | % | $ | 16,858 | 100.0 | % | $ | (5,812 | ) | (34.5 | )% | ||||||||||||
Domestic
banking and POS printer sales decreased to $9,775,000, representing a
$5,635,000, or 37%, decrease from 2006, due largely to the non-recurrence
of significant sales (approximately $2.6 million) of our BANKjet® line of inkjet
bank teller printers to two large banking customers that were made in 2006.
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 slowed and deferred equipment purchases while it
implemented 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 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 are at lower average selling prices.
International
banking and POS printer shipments decreased by approximately $177,000, or 12%,
to $1,271,000, due primarily to lower sales to our international POS
distributors in Latin America and Europe.
Casino and
gaming: Sales of our casino and gaming printers decreased by
$3,808,000, or 16%, from 2006, primarily due to lower casino and other gaming
printer sales, both domestically and internationally.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2007
|
December
31, 2006
|
$
|
% | ||||||||||||||||||||
|
Domestic
|
$ | 12,798 | 65.8 | % | $ | 14,848 | 63.9 | % | $ | (2,050 | ) | (13.8 | )% | |||||||||||
|
International
|
6,640 | 34.2 | % | 8,398 | 36.1 | % | (1,758 | ) | (20.9 | )% | ||||||||||||||
| $ | 19,438 | 100.0 | % | $ | 23,246 | 100.0 | % | $ | (3,808 | ) | (16.4 | )% | ||||||||||||
20
Domestic
sales of our casino and gaming printers decreased by $2,050,000, or 14%, due
primarily to a decrease in sales of our thermal casino printers due to continued
softness in the domestic casino market during 2007 as compared to
2006.
International
casino and gaming printer sales decreased $1,758,000, or 21%, to $6,640,000 in
2007 compared to 2006. Such sales represented 34% and 36% of total
sales into our casino and gaming market during 2007 and 2006, respectively.
This decrease was primarily due to 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, partially offset by
higher sales in Europe and Asia.
Lottery: Sales of our
lottery printers decreased by $5,531,000, or 48%, from 2006, primarily due
to lower sales of lottery printers to GTECH, both domestically and
internationally.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2007
|
December
31, 2006
|
$
|
% | ||||||||||||||||||||
|
Domestic
|
$ | 5,297 | 89.8 | % | $ | 10,350 | 90.5 | % | $ | (5,053 | ) | (48.8 | )% | |||||||||||
|
International
|
603 | 10.2 | % | 1,081 | 9.5 | % | (478 | ) | (44.2 | )% | ||||||||||||||
| $ | 5,900 | 100.0 | % | $ | 11,431 | 100.0 | % | $ | (5,531 | ) | (48.4 | )% | ||||||||||||
Domestic
and international printer sales to GTECH, which include thermal on-line and
other lottery printers, decreased by approximately $5,531,000, or 48%, in
2007 compared to 2006, with domestic sales declining approximately $5,053,000
and international sales declining approximately $478,000. 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.
TransAct Services
Group: Sales by TSG decreased by approximately $411,000, or
3%.
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2007
|
December
31, 2006
|
$
|
% | ||||||||||||||||||||
|
Domestic
|
$ | 10,101 | 81.6 | % | $ | 9,582 | 74.9 | % | $ | 519 | 5.4 | % | ||||||||||||
|
International
|
2,281 | 18.4 | % | 3,211 | 25.1 | % | (930 | ) | (29.0 | )% | ||||||||||||||
| $ | 12,382 | 100.0 | % | $ | 12,793 | 100.0 | % | $ | (411 | ) | (3.2 | )% | ||||||||||||
Domestic
TSG revenue increased by approximately $519,000, or 5%, to $10,101,000, largely
due to increased sales of consumable products, including higher sales of
inkjet cartridges as we benefited 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™. These increases were largely 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 $930,000, or 29%, to $2,281,000, 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
represented 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
contract ended in November 2007 and was not renewed, as the
customer replaced our printers with newer technology that we were unable to
provide.
Gross
Profit. Gross profit information is summarized below (in thousands,
except percentages):
|
December
31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2007
|
2006
|
Change
|
Total
Sales - 2007
|
Total
Sales – 2006
|
||||||||||||||||
|
Year
ended
|
$ | 15,996 | $ | 22,365 | 28.4 | % | 32.8 | % | 34.8 | % | ||||||||||
Gross
profit and gross margin decreased due primarily to a lower volume of sales
and a less favorable sales mix in 2007 compared to 2006, somewhat offset by
lower component part and labor costs resulting from our initiatives to
increasingly move production to Asia. In addition, gross profit for 2007
was negatively impacted by an incremental inventory reserve charge of
approximately $528,000, or 1.1% of net sales, specifically related to certain
obsolete electronic components and certain discontinued printer
products.
21
Engineering and
Product Development. Engineering and product development
information is summarized below (in thousands, except percentages):
|
December
31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2007
|
2006
|
Change
|
Total
Sales - 2007
|
Total
Sales – 2006
|
||||||||||||||||
|
Year
ended
|
$ | 3,129 | $ | 2,824 | 10.8 | % | 6.4 | % | 4.4 | % | ||||||||||
Engineering,
design and product development expenses increased 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. These increases were somewhat
offset by lower expenses related to engineering staffing and other employee
compensation expenses. Engineering and product development expenses
increased as a percentage of net sales due primarily to lower sales volume
in proportion to a higher level of expenses in the 2007 compared to
2006.
Selling and
Marketing. Selling and marketing information is summarized below (in
thousands, except percentages):
|
December
31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2007
|
2006
|
Change
|
Total
Sales - 2007
|
Total
Sales - 2006
|
||||||||||||||||
|
Year
ended
|
$ | 6,708 | $ | 6,892 | (2.7 | )% | 13.8 | % | 10.7 | % | ||||||||||
Selling
and marketing expenses decreased as we incurred lower employee sales commission
expenses based on lower sales volume, lower demonstration printer expenses,
and the non-recurrence of expenses incurred in 2006 related to the redesign of
our website. These decreases were partly offset by increased trade show,
advertising and other promotional marketing expenses compared with
2006. Selling and marketing expenses increased as a percentage of net sales
due primarily to lower sales volume in proportion to a lower level
of expenses in 2007 compared to 2006.
General and
Administrative. General and administrative information is summarized
below (in thousands, except percentages):
|
December 31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2007
|
2006
|
Change
|
Total
Sales - 2007
|
Total
Sales - 2006
|
||||||||||||||||
|
Year
ended
|
$ | 6,995 | $ | 6,925 | 1.0 | % | 14.3 | % | 10.8 | % | ||||||||||
General
and administrative expenses increased 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 rent and
facility-related expenses associated with our new corporate headquarters.
These increases were somewhat offset by a decrease in incentive
compensation expense and 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 2007. General and administrative
expenses for 2007 also included a charge of approximately $187,000 for
severance resulting from the termination of certain employees as part of
cost reduction actions. General and administrative expenses increased
as a percentage of net sales due primarily to lower sales volume in proportion
to a higher level of expenses in 2007 compared to 2006.
Legal
Fees associated with lawsuit. During 2007,
we incurred approximately $2,907,000 of legal fees related to our lawsuit
with FutureLogic, Inc. compared to approximately $115,000 in 2006.
The substantial increase was due primarily to our patent
infringement counterclaim against FutureLogic, Inc. We
settled out litigation with FutureLogic, Inc. in May 2008.
Business
Consolidation and Restructuring. During the fourth quarter of
2006, we executed an agreement, effective May 1, 2007, to terminate the lease
agreement for our existing corporate headquarters and eastern region service
center facility located in Wallingford, CT (the “Release
Agreement”). Prior to the execution of the Release Agreement, we
accrued for the remaining non-cancelable lease payments and other related costs
for 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 old lease, we were released from the legal obligation for lease payments
after May 1, 2007 and, accordingly, we reversed $479,000 of previously accrued
expenses related to the Consolidation in the fourth quarter of
2006. 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.
22
Operating
Income. Operating income (loss) information is summarized
below (in thousands, except percentages):
|
December 31,
|
Percent
|
Percent
of
|
Percent
of
|
|||||||||||||||||
|
2007
|
2006
|
Change
|
Total
Sales - 2007
|
Total
Sales - 2006
|
||||||||||||||||
|
Year
ended
|
$ | (3,755 | ) | $ | 6,088 | (161.7 | )% | (7.7 | )% | 9.5 | % | |||||||||
During
2007, 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 $2.9 million related
to the FutureLogic lawsuit) in 2007 compared to that of 2006.
Interest. We
recorded net interest income of $76,000 in 2007 compared to net interest income
of $104,000 in 2006. The decrease in our net interest income was
largely due to a lower average cash balance being lower in 2007 as compared to
2006.
Other Income
(Expense). We recorded other income of $21,000 in 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 $159,000 in 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 of $1,384,000, at an
effective rate of 37.8% during 2007 compared to an income tax provision of
$2,117,000, at an effective rate of 35.1% in 2006. The effective tax
rate for 2007 increased compared to 2006, due largely to an increase in the
recognition of certain deferred tax credits.
Net Income
(Loss). We reported a net loss in 2007 of $2,274,000, or
($0.24) per diluted share compared to net income of $3,916,000, or $0.40 per
diluted share in 2006.
Liquidity
and Capital Resources
During
2008, our cash flows reflected the results of higher sales volume offset by
legal fees related to the settled lawsuit with FutureLogic, Inc. and increases
in working capital. After funding $979,000 of capital expenditures
and incurring $3,029,000 of legal fees related to the settled lawsuit with
FutureLogic, our cash balance decreased by $561,000 from December 31,
2007. We ended 2008 with approximately $2,000,000 in cash and cash
equivalents and no debt outstanding.
Operating activities: The
following significant factors primarily affected our cash provided by operations
of $701,000 in 2008 as compared to $2,610,000 in 2007.
During
2008:
|
·
|
We
reported net income of $1,444,000.
|
|
·
|
We
recorded depreciation, amortization and non-cash compensation expense of
$2,650,000.
|
|
·
|
We
recorded a non-cash foreign currency exchange transaction gain of $368,000
from our UK subsidiary due to the strengthening of the U.S. dollar against
the British pound.
|
|
·
|
Deferred
taxes decreased by $592,000 primarily due to the utilization of our net
operating loss generated in
2007.
|
|
·
|
Accounts
receivable increased by $2,611,000 due primarily to higher sales volume in
the fourth quarter of 2008 compared to the fourth quarter of
2007.
|
|
·
|
Gross
inventories increased by $1,457,000 due primarily to higher stocking
levels resulting from our initiatives to move increased production to Asia
and increased sales volume.
|
|
·
|
Accounts
payable increased by $178,000 due to higher inventory purchases related to
higher sales volumes during 2008.
|
|
·
|
Accrued
liabilities and other liabilities increased by $19,000 due primarily to
higher incentive compensation accruals largely offset by lower accrued
legal fees related to our settled lawsuit with FutureLogic,
Inc.
|
During
2007:
|
·
|
We
reported a net loss of $2,274,000.
|
|
·
|
We
recorded depreciation, amortization and non-cash compensation expense of
$2,559,000.
|
23
|
·
|
Deferred
taxes increased by $1,839,000 due to our net operating loss during
2007.
|
|
·
|
Accounts
receivable decreased by $5,294,000 due to lower sales during 2007 and
improved collection efforts.
|
|
·
|
Inventory
increased by $2,053,000 due primarily to an increase in consignment
inventory programs with certain of our customers, higher stocking levels
resulting from our initiatives to move increased production to Asia, and
expected increased sales demand in the first quarter of
2008.
|
|
·
|
Accounts
payable increased by $691,000 due to higher inventory purchases and the
timing of payments during the year.
|
|
·
|
Accrued
liabilities and other liabilities decreased by $575,000 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 December 31, 2007 and December 31, 2006, our restructuring accrual
amounted to $0 and $315,000, respectively. The decrease of $315,000
is related largely to final payments made on our Wallingford lease
obligation.
|
Investing activities: Our
capital expenditures were approximately $979,000 and $2,166,000 in 2008 and
2007, respectively. Expenditures in 2008 included approximately
$514,000 for the purchase of new product tooling, $329,000 for the purchase of
computer, networking equipment, and software, $88,000 for the purchase of
manufacturing equipment, and the remaining amount primarily for the purchase of
engineering equipment and leasehold improvements. Expenditures in
2007 included approximately $1,248,000 for the purchase of leasehold
improvements and office furniture for our new corporate headquarters in Hamden,
CT, approximately $135,000 for the purchase of leasehold improvements and office
furniture for our new Eastern Region service center in New Britain, CT,
approximately $338,000 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. We
expect our capital expenditures for 2009 to be approximately $1.2
million.
Financing
activities: We used approximately $229,000 for financing
activities during 2008, largely due to the repurchase of Company stock of
approximately $543,000. The repurchases were offset by proceeds from
stock option exercises of approximately $314,000 during 2008. During
2007, we used approximately $1,360,000 for financing activities largely due to
the repurchase of Company stock of approximately $1,503,000. The
repurchases were offset by proceeds from stock option exercises of approximately
$149,000 during 2007.
Working
Capital
Our
working capital increased to $15,051,000 at December 31, 2008 from $11,338,000
at December 31, 2007. Our current ratio also increased to 2.9 to 1 at
December 31, 2008, compared to 2.4 to 1 at December 31, 2007. The
increase in both our working capital and current ratio was largely due to higher
receivables and inventory balances resulting from higher sales.
Deferred
Taxes
As of
December 31, 2008, we had net deferred tax assets of approximately
$3,813,000. In order to utilize these deferred tax assets, we will
need to generate approximately $10.9 million of taxable income in future
years. In one of the last three years, we have had U.S. taxable
losses and there is no assurance that we will generate future taxable income
sufficient to realize all of our deferred tax assets. However, based
on our current projection of future taxable income as of December 31, 2008, we
believe that it is more likely than not that the existing net deferred tax
assets will be realized. However, if our future projections of
taxable income are less than expected, we may need to establish a valuation
allowance for all or a portion of our net deferred tax assets, which may have a
material adverse effect on our results of operations and financial
condition.
Credit
Facility and Borrowings
On
November 28, 2006, we signed a, five-year $20 million credit facility (the “TD
Banknorth Credit Facility”) with TD Banknorth, N.A. (“TD
Banknorth”). The credit facility provides for a $20 million revolving
credit line expiring on November 28, 2011. Borrowings under the
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 TD Banknorth Credit Facility was
$94,000. The TD Banknorth Credit Facility imposes certain quarterly
financial covenants on us and prohibits the payment of dividends on our common
stock and the creation of other liens. On November 7, 2007, we
amended the TD Banknorth Credit Facility to revise a financial covenant
effective September 30, 2007 through September 30, 2008. We were in
compliance with all financial covenants of the TD Banknorth Credit Facility at
December 31, 2008. The following table lists the financial covenants
and the performance measurements at December 31, 2008.
|
Financial
Covenant
|
Requirement/Restriction
|
Calculation
at December 31, 2008
|
|
Operating
cash flow / Total debt service
|
Minimum
of 1.25 times
|
58.8
times
|
|
Funded
debt / EBITDA
|
Maximum
of 3.25
|
0
times
|
As of
December 31, 2008, we had no balances outstanding on the revolving credit
line. Undrawn commitments under the TD Banknorth Credit facility were
approximately $20,000,000 at December 31, 2008.
24
Stock
Repurchase Program
On March
25, 2005, our Board of Directors approved a stock repurchase program (the “Stock
Repurchase Program”). Under the Stock Repurchase Program, we were
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 on
March 25, 2008, depending on market conditions, share price and other
factors.
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. During 2008, we
repurchased a total of 130,100 shares of common stock for approximately $543,000
at an average price of $4.17 per share. As of December 31, 2008, we
have repurchased a total of 1,164,100 shares of common stock for approximately
$8,538,000, at an average price of $7.33 per share, since the inception of the
Stock Repurchase Program.
Shareholders’
Equity
Shareholders’
equity increased by $1,674,000 to $23,282,000 at December 31, 2008 from
$21,608,000 at December 31, 2007. The increase was primarily due to
net income of $1,444,000, proceeds of approximately $314,000 from the issuance
of approximately 67,000 shares of common stock from stock option exercises, and
compensation expense related to stock options and restricted stock of
$803,000. These increases were offset by treasury stock purchases of
130,100 shares of common stock for approximately $543,000, a decrease in
additional paid-in capital of approximately $98,000 due to a tax charge
resulting from employee stock transactions and foreign currency translation of
approximately $246,000.
Consolidation
Expenses
During
2001 through 2007, we recognized approximately $5.5 million of business
consolidation, restructuring and related expenses as a result of the
Consolidation. These expenses primarily included employee severance
and termination related expenses, facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs) and accelerated depreciation and asset disposal losses on certain
leasehold improvements and other fixed assets.
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 remaining non-cancelable
lease payments related to our Wallingford, CT facility were made. We
paid approximately $327,000 and $399,000 of expenses related to the
Consolidation in 2007 and 2006, respectively.
Contractual
Obligations
TransAct’s
contractual obligations as of December 31, 2008 were as follows:
|
(In
thousands)
|
Total
|
<
1 year
|
1-3
years
|
3-5
years
|
>
5 years
|
|||||||||||||||
|
Operating
lease obligations
|
$ | 4,051 | $ | 970 | $ | 1,626 | $ | 682 | $ | 773 | ||||||||||
|
Purchase
obligations
|
22,056 | 21,488 | 568 | - | - | |||||||||||||||
|
Total
|
$ | 26,107 | $ | 22,458 | $ | 2,194 | $ | 682 | $ | 773 | ||||||||||
Purchase
obligations are for purchases made in the normal course of business to meet
operational requirements, primarily of fully assembled printers and component
part inventory.
Recently
Issued Accounting Pronouncements
Fair Value
Measurements: In September 2006, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“FAS 157”). This statement defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements. FAS 157
defines fair value based upon an exit price model. A fair value
measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability, or,
in the absence of a principal market, the most advantageous market for the
asset or liability. This Statement was effective for the
Company beginning on January 1, 2008, except that FSP 157-2 delayed the
effective date of FAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis, until fiscal years
beginning after November 15, 2008. The Company adopted FAS 157 on
January 1, 2008, with the exception of the application of the Statement to
nonrecurring nonfinancial assets and liabilities measured at fair value
which include: (i) goodwill impairment testing, (ii) initial measurement of
the fair value of asset retirement obligations and (iii) measurement of
impairment of long-lived assets. The implementation of FAS 157 did not
have an effect on the Company’s consolidated financial position, results of
operations or cash flows during 2008, and is not expected to have a material
effect on the Company upon full adoption in future periods.
25
Fair Value Option
for Financial Assets and Financial Liabilities: In February
2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115” (“FAS 159”). This Statement permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair value.
The Company adopted FAS 159 on January 1, 2008 and elected not to measure
any additional financial instruments and other items at fair value. The
adoption did not have a material effect on the Company’s consolidated financial
position, results of operations or cash flows during 2008.
Business
Combinations: In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141 (revised 2007), “Business Combinations”
(“FAS 141(R)”). FAS 141(R) amends Statement of Financial Accounting
Standards No. 141, “Business Combinations” and provides revised guidance
requiring the acquirer to recognize and measure, at fair value on the
acquisition date, identifiable assets and goodwill acquired, liabilities
assumed, and any non-controlling interest in the
acquiree. Transaction and restructuring costs generally will be
expensed as incurred. The Statement also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. FAS 141(R) is
effective for fiscal years beginning on or after December 15, 2008 and will be
applied prospectively. This
statement is not expected to have any effect on our financial statements until
such time as we acquire a business and its effect on future periods will depend
on the nature and significance of any acquisition.
Derivative
Instruments and Hedging Activities: In March 2008, the FASB
issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities—an amendment of FASB No. 133” (“FAS 161”). This statement
amends FAS No. 133 by requiring enhanced qualitative, quantitative and
credit-risk disclosures about an entity’s derivative instruments and hedging
activities, but does not change FAS No. 133’s scope or
accounting. FAS 161 is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008, with
earlier adoption permitted. As we do not currently engage in
activities accounted for under the provision of FAS No. 133, the adoption of FAS
No. 161 is not expected to have any impact on our financial
statements.
Resource
Sufficiency
We
believe that our cash on hand, cash flows generated from operations and
borrowings available under the TD Banknorth Credit Facility will provide
sufficient resources to meet our working capital needs, finance our capital
expenditures and meet our liquidity requirements through at least the next
twelve months.
Impact
of Inflation
We
believe that our business has not been affected to a significant degree by
inflationary trends during the past three years. However,
inflation is still a factor in the worldwide economy and may increase the cost
of certain raw materials, component parts and labor used in the manufacture of
our products. It also may increase our operating expenses,
manufacturing overhead expenses and the cost to acquire or replace fixed
assets. Despite growing costs of oil, gas and freight over the recent
year, we have generally been able to maintain or improve our profit margins
through productivity and efficiency improvements, cost reduction programs and to
a lesser extent, price increases, and we expect to be able to do the same during
2009. As such, we do not believe that inflation will have a
significant impact on our business during 2009.
Interest
Rate Risk
Our
exposure to market risk for changes in interest rates relates primarily to the
investment of our available cash and cash equivalents. In accordance
with our investment policy, we strive to achieve above market rates of return in
exchange for accepting a prudent amount of incremental risk, which includes the
risk of interest rate movements. Risk tolerance is constrained by an
overriding objective to preserve capital. An effective increase or
decrease of 10% in interest rates would not have a material effect on our
results of operations or cash flows.
Foreign
Currency Exchange Risk
A
substantial portion of our sales are denominated in U.S. dollars and, as a
result, we have relatively little exposure to foreign currency exchange risk
with respect to sales made. This exposure may change over time as
business practices evolve and could have a material adverse impact on our
financial results in the future. We do not use forward exchange
contracts to hedge exposures denominated in foreign currencies or any other
derivative financial instruments for trading or speculative
purposes. We
estimate that the combined translational and transactional impact of a 10%
overall movement in exchange rates from December 31, 2008 (principally the UK
Pound Sterling) is approximately $100,000 on a pre-tax
basis.
The
financial statements and schedule of the Company are annexed to this report as
pages F-2 through F-24. An index to such materials appears on page
F-1.
None.
26
Attached
as exhibits to this Form 10-K are certifications of our Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the
Exchange Act). This “Controls and Procedures” section includes
information concerning the controls and controls evaluation referred to in the
certifications. Part II, Item 8 of this Form 10-K sets forth the
report of PricewaterhouseCoopers LLP, our independent registered public
accounting firm, regarding its audit of TransAct’s internal control over
financial reporting as of December 31, 2008. This section should be read
in conjunction with the CEO and CFO certifications and the
PricewaterhouseCoopers LLP report for a more complete understanding of the
topics presented.
Evaluation
of Disclosure Controls and Procedures
As of
December 31, 2008, the Company, with the participation of its CEO and CFO
conducted an evaluation of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the
Securities Exchange Act of 1934 (the “Exchange Act”). Based on that
evaluation, our CEO and CFO concluded that the Company’s disclosure controls and
procedures (as defined in Rule 13a-15 of the Exchange Act) are
effective.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements.
Management
assessed our internal control over financial reporting as of December 31, 2008.
Management based its assessment on criteria established in Internal
Control–Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).
Based on
our assessment, management has concluded that our internal control over
financial reporting was effective as of December 31, 2008.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.
Inherent
Limitations on Effectiveness of Controls
A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be
met. 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. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or 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 errors or mistakes. 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.
Not
applicable.
The
information in response to this item is incorporated by reference from the Proxy
Statement sections entitled “Election of Directors” and “Executive
Officers.”
27
The
information in response to this item is incorporated by reference from the Proxy
Statement sections entitled “Executive Compensation and Certain Transactions”
and “Compensation Discussion and Analysis.”
The
information in response to this item is incorporated by reference from the Proxy
Statement section entitled “Security Ownership of Certain Beneficial Owners and
Management.”
Information
regarding our equity compensation plans as of December 31, 2008 is as
follows:
|
Plan
category
|
(a)
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
(b)
Weighted
average exercise price of outstanding options, warrants and
rights
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||||
|
Equity
compensation plans approved by security holders:
|
||||||||||||
|
1996
Stock Plan
|
333,838 | $ | 3.28 | - | ||||||||
|
1996
Non-Employee Director Plan
|
153,750 | 11.50 | - | |||||||||
|
2005
Equity Incentive Plan
|
392,250 | 7.18 | 187,250 | |||||||||
|
Total
|
879,838 | $ | 6.46 | 187,250 | ||||||||
|
Equity
compensation plans not approved by security holders:
|
||||||||||||
|
2001
Employee Stock Plan
|
32,661 | $ | 5.18 | - | ||||||||
| 912,499 | $ | 6.41 | 187,250 | |||||||||
The
TransAct Technologies Incorporated 2001 Employee Stock Plan (the “2001 Employee
Plan”) was adopted by our Board of Directors, without approval of our security
holders, effective February 26, 2001. Under the 2001 Employee Plan,
we may issue non-qualified stock options, shares of restricted stock, restricted
units to acquire shares of common stock, stock appreciation rights and limited
stock appreciation rights to key employees of TransAct or any of our
subsidiaries and to non-employees who provide services to TransAct or any of our
subsidiaries. The 2001 Employee Plan is administered by our
Compensation Committee, which has the authority to determine the vesting period
and other similar restrictions and terms of awards, provided that the exercise
price of options granted under the plan may not be less than the fair market
value of the underlying shares on the date of grant.
In May
2005, our shareholders approved the adoption of the 2005 Equity Incentive
Plan. No new awards will be available for future issuance under any
existing TransAct equity plan other than the 2005 Equity Incentive
Plan.
The
information in response to this item is incorporated by reference from the Proxy
Statement section entitled “Certain Relationships and Related
Transactions.”
The
information in response to this item is incorporated by reference from the Proxy
Statement section entitled “Independent Registered Public Accounting Firm’s
Services and Fees.”
The
financial statements and schedule filed as part of this report are listed in the
accompanying Index to Financial Statements and Schedule. The exhibits filed as a
part of this report are listed in the accompanying Index to
Exhibits.
28
Pursuant
to the requirements of Section 13 or 15(d) 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
|
||
|
By:
|
/s/
Bart C. Shuldman
|
|
|
Name:
|
Bart
C. Shuldman
|
|
|
Title:
|
Chairman
of the Board, President and Chief Executive
Officer
|
|
Date:
March 16,
2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|||
|
/s/ Bart C.
Shuldman
|
Chairman
of the Board,
|
March
16,
2009
|
|||
|
Bart
C. Shuldman
|
President
and Chief Executive Officer,
|
||||
|
(Principal
Executive Officer)
|
|||||
|
/s/ Steven A.
DeMartino
|
Executive
Vice President,
|
March
16,
2009
|
|||
|
Steven
A. DeMartino
|
Chief
Financial Officer,
|
||||
|
Treasurer
and Secretary
|
|||||
|
(Principal
Financial and Accounting Officer)
|
|||||
|
/s/ Charles A.
Dill
|
Director
|
March
16,
2009
|
|||
|
Charles
A. Dill
|
|||||
|
/s/
Thomas R. Schwarz
|
Director
|
March
16,
2009
|
|||
|
Thomas
R. Schwarz
|
|||||
|
/s/
Graham Y. Tanaka
|
Director
|
March
16,
2009
|
|||
|
Graham
Y. Tanaka
|
29
INDEX
TO FINANCIAL STATEMENTS AND SCHEDULE
|
Financial
Statements
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
Financial
Statement Schedule
|
|
|
The
following financial statement schedule is included herein:
|
|
|
F-22
|
|
|
All
other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto
|
F-1
To the
Board of Directors and Stockholders of TransAct Technologies
Incorporated:
In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and
comprehensive income (loss) and of cash flows, present fairly, in all material
respects, the financial position of TransAct Technologies Incorporated and its
subsidiaries at December 31, 2008 and December 31, 2007, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these
financial statements, on the
financial statement schedule, and on the Company's internal control over
financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate./s/
PricewaterhouseCoopers LLP
/s/
PricewaterhouseCoopers LLP
Hartford,
Connecticut
March 16,
2009
F-2
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
|
December
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Assets:
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,000 | $ | 2,561 | ||||
|
Receivables,
net
|
8,734 | 6,128 | ||||||
|
Inventories,
net
|
9,919 | 8,665 | ||||||
|
Refundable
income taxes
|
35 | 51 | ||||||
|
Deferred
tax assets
|
2,054 | 1,528 | ||||||
|
Other
current assets
|
352 | 362 | ||||||
|
Total
current assets
|
23,094 | 19,295 | ||||||
|
Fixed
assets, net
|
5,563 | 6,338 | ||||||
|
Goodwill
|
1,469 | 1,469 | ||||||
|
Deferred
tax assets
|
1,759 | 2,830 | ||||||
|
Intangible
and other assets, net of accumulated amortization of $306 and $221,
respectively
|
349 | 482 | ||||||
| 9,140 | 11,119 | |||||||
|
Total
assets
|
$ | 32,234 | $ | 30,414 | ||||
|
Liabilities
and Shareholders’ Equity:
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 4,863 | $ | 4,688 | ||||
|
Accrued
liabilities
|
2,847 | 2,747 | ||||||
|
Deferred
revenue
|
333 | 522 | ||||||
|
Total
current liabilities
|
8,043 | 7,957 | ||||||
|
Deferred
revenue, net of current portion
|
259 | 211 | ||||||
|
Accrued
warranty, net of current portion
|
133 | 91 | ||||||
|
Deferred
rent
|
473 | 507 | ||||||
|
Other
liabilities
|
44 | 40 | ||||||
| 909 | 849 | |||||||
|
Total
liabilities
|
8,952 | 8,806 | ||||||
|
Commitments
and contingencies (Note 11)
|
||||||||
|
Shareholders’
equity:
|
||||||||
|
Preferred
stock, $0.01 par value, 4,800,000 authorized, none issued and
outstanding
|
- | - | ||||||
|
Preferred
stock, Series A, $0.01 par value, 200,000 authorized, none issued and
outstanding
|
- | - | ||||||
|
Common
stock, $0.01 par value, 20,000,000 authorized at December 31, 2008 and
2007; 10,465,588 and 10,399,866 shares issued; 9,301,488 and 9,365,866
shares outstanding, at December 31, 2008 and 2007,
respectively
|
105 | 104 | ||||||
|
Additional
paid-in capital
|
20,890 | 19,872 | ||||||
|
Retained
earnings
|
10,893 | 9,449 | ||||||
|
Accumulated
other comprehensive income (loss), net of tax
|
(68 | ) | 178 | |||||
|
Treasury
stock, 1,164,100 and 1,034,000 shares, at cost
|
(8,538 | ) | (7,995 | ) | ||||
|
Total
shareholders’ equity
|
23,282 | 21,608 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 32,234 | $ | 30,414 | ||||
See
accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
sales
|
$ | 62,207 | $ | 48,766 | $ | 64,328 | ||||||
|
Cost
of sales
|
41,257 | 32,770 | 41,963 | |||||||||
|
Gross
profit
|
20,950 | 15,996 | 22,365 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Engineering,
design and product development
|
2,942 | 3,129 | 2,824 | |||||||||
|
Selling
and marketing
|
6,078 | 6,708 | 6,892 | |||||||||
|
General
and administrative
|
7,040 | 6,995 | 6,925 | |||||||||
|
Legal
fees associated with lawsuit (See Note 11)
|
3,029 | 2,907 | 115 | |||||||||
|
Business
consolidation and restructuring
|
- | 12 | (479 | ) | ||||||||
| 19,089 | 19,751 | 16,277 | ||||||||||
|
Operating
income (loss)
|
1,861 | (3,755 | ) | 6,088 | ||||||||
|
Interest
and other income (expense):
|
||||||||||||
|
Interest
expense
|
(70 | ) | (69 | ) | (44 | ) | ||||||
|
Interest
income
|
59 | 145 | 148 | |||||||||
|
Other,
net
|
368 | 21 | (159 | ) | ||||||||
| 357 | 97 | (55 | ) | |||||||||
|
Income
(loss) before income taxes
|
2,218 | (3,658 | ) | 6,033 | ||||||||
|
Income
tax provision (benefit)
|
774 | (1,384 | ) | 2,117 | ||||||||
|
Net
income (loss)
|
$ | 1,444 | $ | (2,274 | ) | $ | 3,916 | |||||
|
Net
income (loss) per common share:
|
||||||||||||
|
Basic
|
$ | 0.16 | $ | (0.24 | ) | $ | 0.41 | |||||
|
Diluted
|
$ | 0.15 | $ | (0.24 | ) | $ | 0.40 | |||||
|
Shares
used in per-share calculation:
|
||||||||||||
|
Basic
|
9,308 | 9,364 | 9,577 | |||||||||
|
Diluted
|
9,489 | 9,364 | 9,870 | |||||||||
See
accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(LOSS)
(In
thousands, except share data)
|
Common
Stock
|
Additional
Paid-in
|
Retained
|
Unamortized
Restricted Stock
|
Treasury
|
Accumulated
Other Comprehensive
|
Total
Comprehensive
|
||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Compensation
|
Stock
|
Income
(Loss)
|
Total
|
Income
(Loss)
|
||||||||||||||||||||||||||||
|
Balance,
December 31, 2005
|
9,732,010 | $ | 102 | $ | 19,334 | $ | 7,489 | $ | (1,837 | ) | $ | (3,867 | ) | $ | 36 | $ | 21,257 | |||||||||||||||||||
|
Impact
of adoption of new accounting pronouncements
|
- | - | (1,837 | ) | - | 1,837 | - | - | - | |||||||||||||||||||||||||||
|
Cancellation
of restricted stock
|
(11,750 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Issuance
of shares from exercise of stock options
|
136,157 | 2 | 685 | - | - | - | - | 687 | ||||||||||||||||||||||||||||
|
Issuance
of restricted stock
|
15,000 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
|
Tax
benefit related to employee stock sales and vesting of restricted
stock
|
- | - | 342 | - | - | - | - | 342 | ||||||||||||||||||||||||||||
|
Purchase
of treasury stock
|
(296,300 | ) | - | - | - | - | (2,625 | ) | - | (2,625 | ) | |||||||||||||||||||||||||
|
Share-based
compensation expense
|
- | - | 581 | - | - | - | - | 581 | ||||||||||||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||||
|
Foreign
currency translation adj., net of tax
|
- | - | - | - | - | - | 132 | 132 | $ | 132 | ||||||||||||||||||||||||||
|
Net
income
|
- | - | - | 3,916 | - | - | - | 3,916 | 3,916 | |||||||||||||||||||||||||||
|
Balance,
December 31, 2006
|
9,575,117 | 104 | 19,105 | 11,405 | - | (6,492 | ) | 168 | 24,290 | 4,048 | ||||||||||||||||||||||||||
|
Adoption
of FASB Interpretation No. 48
|
- | - | - | 318 | - | - | - | 318 | ||||||||||||||||||||||||||||
|
Opening
balance at January 1, 2007, as adjusted
|
9,575,117 | 104 | 19,105 | 11,723 | - | (6,492 | ) | 168 | 24,608 | |||||||||||||||||||||||||||
|
Cancellation
of restricted stock
|
(9,750 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Issuance
of shares from exercise of stock options
|
33,199 | - | 149 | - | - | - | - | 149 | ||||||||||||||||||||||||||||
|
Tax
charge related to vesting of restricted stock
|
- | - | (97 | ) | - | - | - | - | (97 | ) | ||||||||||||||||||||||||||
|
Purchase
of treasury stock
|
(232,700 | ) | - | - | - | - | (1,503 | ) | - | (1,503 | ) | |||||||||||||||||||||||||
|
Share-based
compensation expense
|
- | - | 715 | - | - | - | - | 715 | ||||||||||||||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||||||
|
Foreign
currency translation adj., net of tax
|
- | - | - | - | - | - | 10 | 10 | 10 | |||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | (2,274 | ) | - | - | - | (2,274 | ) | (2,274 | ) | ||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
9,365,866 | 104 | 19,872 | 9,449 | - | (7,995 | ) | 178 | 21,608 | (2,264 | ) | |||||||||||||||||||||||||
|
Cancellation
of restricted stock
|
(1,250 | ) | - | (4 | ) | - | - | - | - | (4 | ) | |||||||||||||||||||||||||
|
Issuance
of shares from exercise of stock options
|
66,972 | 1 | 313 | - | - | - | - | 314 | ||||||||||||||||||||||||||||
|
Tax
charge related to vesting of restricted stock
|
- | - | (98 | ) | - | - | - | - | (98 | ) | ||||||||||||||||||||||||||
|
Purchase
of treasury stock
|
(130,100 | ) | - | - | - | - | (543 | ) | - | (543 | ) | |||||||||||||||||||||||||
|
Share-based
compensation expense
|
- | - | 807 | - | - | - | - | 807 | ||||||||||||||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||||||
|
Foreign
currency translation adj., net of tax
|
- | - | - | - | - | - | (246 | ) | (246 | ) | (246 | ) | ||||||||||||||||||||||||
|
Net
income
|
- | - | - | 1,444 | - | - | - | 1,444 | 1,444 | |||||||||||||||||||||||||||
|
Balance,
December 31, 2008
|
9,301,488 | $ | 105 | $ | 20,890 | $ | 10,893 | $ | - | $ | (8,538 | ) | $ | (68 | ) | $ | 23,282 | $ | 1,198 | |||||||||||||||||
See
accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 1,444 | $ | (2,274 | ) | $ | 3,916 | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
|
Share-based
compensation expense
|
803 | 715 | 581 | |||||||||
|
Incremental
tax benefits from stock options exercised
|
- | - | (342 | ) | ||||||||
|
Depreciation
and amortization
|
1,847 | 1,844 | 1,568 | |||||||||
|
Deferred
income taxes
|
592 | (1,839 | ) | 583 | ||||||||
|
Provision
for excess and obsolete inventory
|
200 | 955 | 266 | |||||||||
|
(Gain)
loss on sale of fixed assets
|
3 | (14 | ) | - | ||||||||
|
Foreign
currency transaction (gain) loss
|
(368 | ) | 6 | 159 | ||||||||
|
Reversal
of accrued restructuring expense
|
- | - | (479 | ) | ||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Receivables
|
(2,611 | ) | 5,294 | (3,063 | ) | |||||||
|
Inventories
|
(1,457 | ) | (2,053 | ) | (1,797 | ) | ||||||
|
Refundable
income taxes
|
14 | (9 | ) | 253 | ||||||||
|
Other
current assets
|
8 | 144 | (276 | ) | ||||||||
|
Other
assets
|
29 | 40 | (72 | ) | ||||||||
|
Accounts
payable
|
178 | 691 | 1,138 | |||||||||
|
Accrued
liabilities and other liabilities
|
19 | (575 | ) | 1,423 | ||||||||
|
Accrued
restructuring expenses
|
- | (315 | ) | (399 | ) | |||||||
|
Net
cash provided by operating activities
|
701 | 2,610 | 3,459 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchases
of fixed assets
|
(979 | ) | (2,166 | ) | (2,891 | ) | ||||||
|
Proceeds
from sale of assets
|
- | 37 | - | |||||||||
|
Net
cash used in investing activities
|
(979 | ) | (2,129 | ) | (2,891 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Payment
of deferred financing costs
|
- | (6 | ) | (88 | ) | |||||||
|
Proceeds
from stock option exercises
|
314 | 149 | 687 | |||||||||
|
Purchases
of common stock for treasury
|
(543 | ) | (1,503 | ) | (2,625 | ) | ||||||
|
Incremental
tax benefits from stock options exercised
|
- | - | 342 | |||||||||
|
Net
cash used in financing activities
|
(229 | ) | (1,360 | ) | (1,684 | ) | ||||||
|
Effect
of exchange rate changes on cash
|
(54 | ) | 4 | (27 | ) | |||||||
|
Decrease
in cash and cash equivalents
|
(561 | ) | (875 | ) | (1,143 | ) | ||||||
|
Cash
and cash equivalents, beginning of period
|
2,561 | 3,436 | 4,579 | |||||||||
|
Cash
and cash equivalents, end of period
|
$ | 2,000 | $ | 2,561 | $ | 3,436 | ||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | 51 | $ | 51 | $ | 43 | ||||||
|
Income
taxes paid
|
34 | 742 | 1,201 | |||||||||
|
Non-cash
financing activities:
|
||||||||||||
|
Tax
benefit related to employee stock sales and vesting of restricted
stock
|
- | - | 342 | |||||||||
|
Issuance
of restricted stock
|
- | - | 207 | |||||||||
See
accompanying notes to consolidated financial statements.
F-6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Description of business
TransAct
Technologies Incorporated (“TransAct” or the “Company”), 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® 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.
Summary of significant accounting policies
Principles of
consolidation: The accompanying consolidated financial
statements were prepared on a consolidated basis to include the accounts of
TransAct and its wholly-owned subsidiaries. All intercompany
accounts, transactions and unrealized profit were eliminated in
consolidation.
Reclassifications: Certain
amounts in the prior years’ financial statements have been reclassified to
conform to the current year’s presentation.
Use of
estimates: The accompanying consolidated financial statements were
prepared using estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses, and disclosure of contingent assets
and liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Segment
reporting: We apply the provisions of Statement of Financial
Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and
Related Information” (“FAS 131”). We view our operations and manage
our business as one segment: the design, development, manufacture and sale of
transaction-based printers. Factors used to identify TransAct’s
single operating segment include the organizational structure of the Company and
the financial information available for evaluation by the chief operating
decision-maker in making decisions about how to allocate resources and assess
performance. We operate predominantly in one geographical area, the
United States of America. See Note 17 for information regarding our
international operations. We provide the following disclosures of
revenues from products and services:
|
Year
ended
|
Year
ended
|
Change
|
||||||||||||||||||||||
|
(In
thousands)
|
December
31, 2008
|
December
31, 2007
|
$ | % | ||||||||||||||||||||
|
Banking
and POS
|
$ | 11,866 | 19.1 | % | $ | 11,046 | 22.6 | % | $ | 820 | 7.4 | % | ||||||||||||
|
Casino
and gaming
|
22,299 | 35.8 | % | 19,438 | 39.9 | % | 2,861 | 14.7 | % | |||||||||||||||
|
Lottery
|
15,731 | 25.3 | % | 5,900 | 12.1 | % | 9,831 | 166.6 | % | |||||||||||||||
|
TransAct
Services Group
|
12,311 | 19.8 | % | 12,382 | 25.4 | % | (71 | ) | (0.6 | )% | ||||||||||||||
|
Total
net sales
|
$ | 62,207 | 100.0 | % | $ | 48,766 | 100.0 | % | $ | 13,441 | 27.6 | % | ||||||||||||
Cash and cash
equivalents: We consider all highly liquid investments with a
maturity date of three months or less at date of purchase to be cash
equivalents.
Accounts
receivable and allowance
for doubtful accounts: We
have standardized credit granting and review policies and procedures for all
customer accounts, including:
|
·
|
Credit
reviews of all new customer
accounts,
|
|
·
|
Ongoing
credit evaluations of current
customers,
|
|
·
|
Credit
limits and payment terms based on available credit
information,
|
|
·
|
Adjustments
to credit limits based upon payment history and the customer’s current
creditworthiness.
|
F-7
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of significant accounting policies (continued)
We
establish an allowance for doubtful accounts to ensure trade receivables are
valued appropriately. We maintain an allowance for doubtful accounts
based on a variety of factors, including the length of time receivables are past
due, significant one-time events and historical experience. We record
a specific allowance for individual accounts when we become aware of a
customer’s inability to meet its financial obligations, such as in the case of
bankruptcy filings or deterioration in the customer’s operating results or
financial position. If circumstances related to customers change, we
would further adjust estimates of the recoverability of
receivables. Allowances for doubtful accounts on accounts receivable
balances were $55,000 and $62,000 as of December 31, 2008 and 2007,
respectively.
Inventories: Inventories
are stated at the lower of cost (principally standard cost, which approximates
actual cost on a first-in, first-out basis) or market. We review
market value based on historical usage and estimates of future
demand. Based on these reviews, inventory write-downs are recorded,
as necessary, to reflect estimated obsolescence, excess quantities and market
value. Our net inventory included a reserve of $3,050,000 and
$2,850,000 as of December 31, 2008 and 2007, respectively.
Fixed
assets: Fixed assets are stated at cost. Depreciation is
recorded using the straight-line method over the estimated useful
lives. The estimated useful life of tooling is five years; machinery
and equipment is ten years; furniture and office equipment is five to ten years;
and computer software and equipment is three to seven
years. Leasehold improvements are amortized over the shorter of the
term of the lease or the useful life of the asset. Costs related to
repairs and maintenance are expensed as incurred. The costs of sold or
retired assets are removed from the related asset and accumulated depreciation
accounts and any gain or loss is recognized. Depreciation expense was
$1,744,000, $1,743,000 and $1,466,000 in 2008, 2007 and 2006,
respectively.
Leases: Rent
expense under non-cancelable operating leases with scheduled rent increases or
free rent periods is accounted for on a straight-line basis over the lease term,
beginning on the date of control of physical use of the asset or of initial
possession. The amount of the excess of straight-line rent expense
over scheduled payments is recorded as a deferred
liability. Construction allowances and other such lease incentives
are recorded as deferred credits, and are amortized on a straight-line basis as
a reduction of rent expense beginning in the period they are deemed to be
earned, which generally coincides with the occupancy date.
Goodwill: We
account for goodwill in accordance with the provisions of Statement of Financial
Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“FAS
142”). We test goodwill annually for impairment, or whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. We have performed an impairment test as of December 31,
2008 and determined that no impairment has occurred.
Revenue
recognition: Our typical contracts
include the sale of printers, which are sometimes accompanied by
separately-priced extended warranty contracts. We also sell spare
parts, consumables, and other repair services (sometimes pursuant to multi-year
product maintenance contracts) which are not included in the original printer
sale and are ordered by the customer as needed. We recognize revenue
pursuant to the guidance within SAB 104, “Revenue
Recognition.” Specifically, revenue is recognized when evidence of an
arrangement exists, delivery (based on shipping terms, which are generally FOB
shipping point) has occurred, the selling price is fixed and determinable, and
collectability is reasonably assured. We provide for an estimate of
product returns and price protection based on historical experience at the time
of revenue recognition.
Revenue
related to extended warranty and product maintenance contracts is recognized
pursuant to FASB Technical Bulletin 90-1 (“FTB 90-1”), “Accounting for
Separately Priced Extended Warranty and Product Maintenance
Contracts.” Pursuant to FTB 90-1, revenue related to separately
priced product maintenance contracts is deferred and recognized over the term of
the maintenance period. We record deferred revenue for advance
payments received from customers for maintenance contracts.
Our
customers have the right to return products that do not function properly within
a limited time after delivery. We monitor and track product returns
and record a provision for the estimated future returns based on historical
experience. Returns have historically been within expectations and
the provisions established.
F-8
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of significant accounting policies (continued)
We offer
some of our customer’s price protection as an incentive to carry inventory of
our product. These price protection plans provide that if we lower
prices, we will credit them for the price decrease on inventory they
hold. Our customers typically carry limited amounts of inventory, and
we infrequently lower prices on current products. As a result, the
amounts paid under these plans have not been material.
Concentration of
credit risk: Financial instruments that potentially expose
TransAct to concentrations of credit risk are limited to cash and cash
equivalents held by our banks in excess of insured limits and accounts
receivable.
Accounts
receivable from customers representing 10% or more of total accounts receivable
were as follows:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Customer
A
|
20 | % | 12 | % | ||||
|
Customer
B
|
* | 13 | % | |||||
|
Customer
C
|
10 | % | * | |||||
|
Customer
D
|
* | 10 | % | |||||
|
* -
customer balances were less than 10% of total accounts
receivable
|
||||||||
Sales to
customers representing 10% or more of total net sales were as
follows:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Customer
A
|
28 | % | 14 | % | 20 | % | ||||||
|
Customer
B
|
* | 10 | % | * | ||||||||
|
* -
customer balances were less than 10% of total net sales
|
||||||||||||
Prior to
2008, the primary operations of our United Kingdom subsidiary, a European sales
and service center, related to revenue generated from a service contract with a
single customer in the United Kingdom. The service contract, which
represented 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 service
contract ended in November 2007 and was not renewed, as the customer replaced
our printers with a different technology that we were unable to
provide.
Warranty: We
generally warrant our products for up to 24 months and record the estimated cost
of such product warranties at the time the sale is
recorded. Estimated warranty costs are based upon actual past
experience of product repairs and the related estimated cost of labor and
material to make the necessary repairs.
The
following table summarizes the activity recorded in the accrued product warranty
liability:
|
Year
ended December 31,
|
||||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Balance,
beginning of year
|
$ | 500 | $ | 603 | $ | 644 | ||||||
|
Additions
related to warranties issued
|
263 | 356 | 595 | |||||||||
|
Warranty
costs incurred
|
(370 | ) | (459 | ) | (636 | ) | ||||||
|
Balance,
end of year
|
$ | 393 | $ | 500 | $ | 603 | ||||||
Approximately
$133,000 and $91,000 of the accrued product warranty liability were classified
as long-term at December 31, 2008 and 2007, respectively.
F-9
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of significant accounting policies (continued)
Research and
development expenses: Research and development expenses
include engineering, design and product development expenses incurred in
connection with specialized engineering and design to introduce new products and
to customize existing products, and are expensed as a component of operating
expenses as incurred. We recorded approximately $2,942,000,
$3,129,000 and $2,824,000 of research and development expenses in 2008, 2007 and
2006, respectively.
Advertising: Advertising
costs are expensed as incurred. Advertising expenses, which are
included in selling and marketing expense on the accompanying consolidated
statements of operations, for 2008, 2007 and 2006 totaled $289,000, $136,000 and
$182,000, respectively.
Restructuring: In
2001, we undertook a plan to consolidate all manufacturing and engineering into
our existing Ithaca, NY facility and close our Wallingford, CT manufacturing
facility. 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
restructuring expenses. For all future exit costs, we will apply the
guidance set forth in Statement of Financial Accounting Standard No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities” (“FAS
146”). See Note 8 for additional disclosures related to our
restructuring and exit costs.
Income
taxes: The income tax amounts reflected in the accompanying
financial statements are accounted for under the liability method in accordance
with FAS 109 “Accounting for Income Taxes” (“FAS 109”). Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or
settled. We assess the likelihood that net deferred tax assets will
be realized from future taxable income, and to the extent that we believe that
realization is not likely, we establish a valuation allowance. On
January 1, 2007, we adopted FASB Interpretation 48, Accounting for Uncertainty
in Income Taxes (“FIN 48”). In accordance with FIN 48, we identified,
evaluated and measured the amount of benefits to be recognized for our tax
return positions. See Note 14 for information regarding our
accounting for income taxes.
Foreign currency
translation: The financial position and results of operations of our
foreign subsidiary in the United Kingdom are measured using local currency as
the functional currency. Assets and liabilities of such subsidiary
have been translated into U.S. dollars at the year-end exchange rate, related
revenues and expenses have been translated at the weighted average exchange rate
for the year, and shareholders’ equity has been translated at historical
exchange rates. The resulting translation gains or losses, net of
tax, are recorded in stockholders’ equity as a cumulative translation
adjustment, which is a component of accumulated other comprehensive
income. Foreign currency transaction gains and losses, including
those related to intercompany balances, are recognized in other income
(expense).
Fair value of
financial instruments: The carrying amount for
cash and cash equivalents approximates fair value because of the short maturity
of these instruments. The carrying amount of receivables, accounts
payable and accrued liabilities is a reasonable estimate of fair value because
of the short-term nature of these accounts.
Comprehensive
income: Statement of Financial Accounting Standards No. 130,
“Reporting Comprehensive Income” (“FAS 130”), requires that items defined as
comprehensive income or loss be separately classified in the financial
statements and that the accumulated balance of other comprehensive income or
loss be reported separately from accumulated deficit and additional
paid-in-capital in the equity section of the balance sheet. We
include the foreign currency translation adjustment, net of tax, related to our
subsidiary in the United Kingdom within our calculation of comprehensive
income.
F-10
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of significant accounting policies (continued)
Share-based
Payments: In
December 2004, the Financial Accounting Standards Board (“FASB”) revised
Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (“FAS 123R”), which establishes accounting for share-based awards
exchanged for employee services and requires companies to expense the estimated
fair value of these awards over the requisite employee service
period. We adopted the accounting provisions of FAS 123R beginning in
the first quarter of 2006.
Share-based
compensation expense is measured at the grant date, based on the estimated fair
value of the award, and is recognized as expense over the employee’s requisite
service period. We have no awards with market or performance
conditions.
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, market price of our underlying stock 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 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 are recognized through a
cumulative true-up adjustment in the period of change and also impacts the
amount of compensation expense to be recognized in future
periods.
Net income and
loss per share: We report net income or loss per share in
accordance with Statement of Financial Accounting Standards No. 128, “Earnings
per Share (EPS)” (“FAS 128”). Under FAS 128, basic EPS, which
excludes dilution, is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding for the
period. Unvested restricted stock is excluded from the calculation of
weighted average common shares for basic EPS. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common
stock. Diluted EPS includes restricted stock and in-the-money stock
options using the treasury stock method. During a loss period, the
assumed exercise of in-the-money stock options has an anti-dilutive effect, and
therefore, these instruments are excluded from the computation of dilutive
EPS. See Note 15 for EPS calculation.
3.
Recently issued accounting pronouncements
Fair Value
Measurements: In September 2006, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“FAS 157”). This statement defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements. FAS 157
defines fair value based upon an exit price model. A fair value
measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability, or,
in the absence of a principal market, the most advantageous market for the
asset or liability. This Statement was effective for the
Company beginning on January 1, 2008, except that FSP 157-2 delayed the
effective date of FAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis, until fiscal years
beginning after November 15, 2008. The Company adopted FAS 157 on
January 1, 2008, with the exception of the application of the Statement to
nonrecurring nonfinancial assets and liabilities measured at fair value
which include: (i) goodwill impairment testing, (ii) initial measurement of
the fair value of asset retirement obligations and (iii) measurement of
impairment of long-lived assets. The implementation of FAS 157 did not
have an effect on the Company’s consolidated financial position, results of
operations or cash flows during 2008, and is not expected to have a material
effect on the Company upon full adoption in future periods.
F-11
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
3.
Recently issued accounting pronouncements (continued)
Fair Value Option
for Financial Assets and Financial Liabilities: In February
2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115” (“FAS 159”). This Statement
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. The Company adopted FAS 159 on January 1, 2008 and elected not
to measure any additional financial instruments and other items at fair
value. The adoption did not have a material effect on the Company’s
consolidated financial position, results of operations or cash flows during
2008.
Business
Combinations: In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141 (revised 2007), “Business Combinations”
(“FAS 141(R)”). FAS 141(R) amends Statement of Financial Accounting
Standards No. 141, “Business Combinations” and provides revised guidance
requiring the acquirer to recognize and measure, at fair value on the
acquisition date, identifiable assets and goodwill acquired, liabilities
assumed, and any non-controlling interest in the
acquiree. Transaction and restructuring costs generally will be
expensed as incurred. The Statement also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. FAS 141(R) is
effective for fiscal years beginning on or after December 15, 2008 and will be
applied prospectively. This statement is not expected to have any
effect on our financial statements until such time as we acquire a
business and its
effect on future periods will depend on the nature and significance of any
acquisition.
Derivative
Instruments and Hedging Activities: In March 2008, the FASB
issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities—an amendment of FASB No. 133” (“FAS 161”). This statement
amends FAS No. 133 by requiring enhanced qualitative, quantitative and
credit-risk disclosures about an entity’s derivative instruments and hedging
activities, but does not change FAS No. 133’s scope or
accounting. FAS 161 is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008, with
earlier adoption permitted. As we do not currently engage in
activities accounted for under the provision of FAS No. 133, the adoption of FAS
No. 161 is not expected to have any impact on our financial
statements.
4.
Inventories
The
components of inventories, net of allowances, are:
|
December
31,
|
||||||||
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Raw
materials and purchased component parts
|
$ | 7,207 | $ | 8,019 | ||||
|
Work-in-process
|
27 | 57 | ||||||
|
Finished
goods
|
2,685 | 589 | ||||||
| $ | 9,919 | $ | 8,665 | |||||
5.
Fixed assets
The
components of fixed assets are:
|
December
31,
|
||||||||
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Tooling,
machinery and equipment
|
$ | 13,316 | $ | 12,697 | ||||
|
Furniture
and office equipment
|
1,694 | 1,730 | ||||||
|
Computer
software and equipment
|
4,694 | 4,940 | ||||||
|
Leasehold
improvements
|
1,872 | 1,867 | ||||||
| 21,576 | 21,234 | |||||||
|
Less:
accumulated depreciation and amortization
|
(16,013 | ) | (14,896 | ) | ||||
| $ | 5,563 | $ | 6,338 | |||||
F-12
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6.
Intangible assets
On June
30, 2005, we acquired certain intangible assets related to casino ticket printer
designs and technology from Bally Gaming, Inc. (“Bally”) for $475,000, plus the
costs of effecting the acquisition (approximately $35,000). Prior to
the acquisition, pursuant to the terms of a license agreement, we were required
to pay Bally a royalty on sales of certain gaming printers utilizing the
licensed technology. As a result of the acquisition, effective July
1, 2005, we were no longer required to pay any future royalties to
Bally.
The
purchase price was allocated, based on management’s estimates, to intangible
assets based on their relative fair value at the date of
acquisition. The fair value of the intangibles, comprised of
purchased technology and a covenant not to compete, was determined using the
future discounted cash flows method. The intangible assets are being
amortized on a straight-line basis over six and seven years, respectively, for
the estimated life of the assets.
The
following summarizes the allocation of the purchase price for the acquisition of
certain intangible assets from Bally (in thousands):
|
Purchased
technology
|
$ | 364 | ||
|
Covenant
not to compete
|
146 | |||
|
Consideration
paid
|
$ | 510 | ||
As of
December 31, 2008 and 2007, the net intangible asset balance associated with the
technology purchased from Bally was $226,000 and $307,000,
respectively. Amortization expense associated with the technology
purchased from Bally was $81,000 in 2008, 2007 and 2006,
respectively. Amortization expense for each of the next four years
ending December 31 is expected to be as follows: $81,000 in each of 2009 through
2010; $54,000 in 2011; and $10,000 in 2012.
7.
Accrued liabilities
The
components of accrued liabilities (current portion) are:
|
December
31,
|
||||||||
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Payroll
and fringe benefits
|
$ | 1,771 | $ | 929 | ||||
|
Income
taxes
|
134 | - | ||||||
|
Warranty
|
260 | 409 | ||||||
|
Professional
and consulting
|
114 | 782 | ||||||
|
Other
|
568 | 627 | ||||||
| $ | 2,847 | $ | 2,747 | |||||
F-13
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
Accrued business consolidation and restructuring expenses
In
February 2001, we announced plans to establish a global engineering and
manufacturing center at our Ithaca, NY facility. As part of this
strategic decision, we undertook a plan to consolidate all manufacturing and
engineering into our existing Ithaca, NY facility and close our Wallingford, CT
manufacturing facility (the “Consolidation”). As of December 31,
2001, we successfully transferred substantially all our Wallingford operations
to Ithaca, NY, with the exception of our corporate headquarters and a service
center that remain in Connecticut. The closing of the Wallingford
manufacturing facility resulted in the termination of employment of
approximately 70 production, administrative and management
employees.
During
2001 through 2004, we recorded expenses of approximately $5,957,000 related to
costs associated with the Consolidation, including severance pay, stay bonuses,
employee benefits, moving expenses, non-cancelable lease payments, accelerated
depreciation and other costs.
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 December 31, 2007, all
non-cancelable lease payments related to our Wallingford, CT facility had
been made.
The
following table summarizes the activity recorded in the restructuring
accrual:
|
Year
ended December 31,
|
||||||||
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Accrual
balance, beginning of year
|
$ | 315 | $ | 1,193 | ||||
|
Business
consolidation and restructuring expenses:
|
||||||||
|
Facility
closure and consolidation expenses
|
12 | - | ||||||
|
Reversal
of lease obligation related to unused space
|
- | (479 | ) | |||||
| 12 | (479 | ) | ||||||
|
Cash
payments
|
(327 | ) | (399 | ) | ||||
|
Accrual
balance, end of year
|
$ | - | $ | 315 | ||||
9.
Retirement savings plan
On April
1, 1997, we established the TransAct Technologies Retirement Savings Plan (the
“401(k) Plan”), a defined contribution plan under Section 401(k) of the Internal
Revenue Code. All full-time employees are eligible to participate in
the 401(k) Plan at the beginning of the calendar quarter immediately following
their date of hire. We match employees’ contributions at a rate of
50% of employees’ contributions up to the first 6% of the employees’
compensation contributed to the 401(k) Plan. Our matching
contributions were $244,000, $247,000 and $249,000 in 2008, 2007 and 2006,
respectively.
10.
Borrowings
On
November 28, 2006, we signed a five-year $20 million credit facility (the “TD
Banknorth Credit Facility”) with TD Banknorth, N.A. (“TD Banknorth”). The credit
facility provides for a $20 million revolving credit line expiring on November
28, 2011. Borrowings under the 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. Deferred financing costs relating to
expenses incurred to complete the TD Banknorth Credit Facility were
$94,000. The TD Banknorth Credit Facility imposes certain quarterly
financial covenants on us and prohibits the payment of dividends on our common
stock and the creation of other liens. On November 7, 2007, we
amended the TD Banknorth Credit Facility to revise a financial covenant
effective September 30, 2007. We were
in compliance with all financial covenants of the TD Banknorth Credit Facility
at December 31, 2008.
As of
December 31, 2008, we had no outstanding borrowings on the revolving credit
line. Undrawn commitments under the TD Banknorth Credit Facility were
$20,000,000 at December 31, 2008.
F-14
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
11.
Commitments and contingencies
We had
been involved in patent litigation with FutureLogic with respect to our patents
U.S. Patent 6,924,903 and U.S. Patent 7,099,035. On May 13, 2008, we
signed a Patent License and Settlement Agreement with FutureLogic that settled
the current patent litigation and all other legal matters outstanding between
the two parties. Under the Patent License and Settlement Agreement,
FutureLogic agreed to license our dual port technology for printers and
upgrade kits that utilize the patented technology. The license grants
FutureLogic worldwide, perpetual rights for U.S. Patent 6,924,903, U.S. Patent
7,099,035, related applications and patents, and foreign
counterparts.
At
December 31, 2008, we were lessee on operating leases for equipment and real
property. Rent expense was approximately $1,030,000, $1,152,000 and
$1,330,000 in 2008, 2007 and 2006, respectively. Minimum aggregate
rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 2008 are as
follows: $970,000 in 2009;
$810,000 in
2010; $816,000 in 2011; $459,000 in 2012;
$223,000 in 2013; and $773,000
thereafter.
12.
Stock incentive plans
Stock incentive
plans. We currently
have four primary stock incentive plans: the 1996 Stock Plan, which provided for
the grant of awards to officers and other key employees of the Company; the 1996
Directors’ Stock Plan, which provided for non-discretionary awards to
non-employee directors; the 2001 Employee Stock Plan, which provided for the
grant of awards to key employees of the Company and other non-employees who
provided services to the Company; and the 2005 Equity Incentive Plan, which
provides for awards to executives, key employees, directors and
consultants. The plans generally provide for awards in the form of:
(i) incentive stock options, (ii) non-qualified stock options, (iii) restricted
stock, (iv) restricted stock units, (v) stock appreciation rights or (vi)
limited stock appreciation rights. However, the 2001 Employee Stock
Plan does not provide for incentive stock option awards. Options
granted under these plans have exercise prices equal to 100% of the fair market
value of the common stock at the date of grant. Options granted have
a ten-year term and generally vest over a three- to five-year period, unless
automatically accelerated for certain defined events. As of May 2005,
no new awards will be made under the 1996 Stock Plan, the 1996 Directors’ Stock
Plan or the 2001 Employee Stock Plan. At December 31, 2008,
approximately 187,250 shares of common stock remained available for issuance
under the 2005 Equity Incentive Plan.
Under the
assumptions indicated below, the weighted-average fair value of stock option
grants for the years ended December 31, 2008, 2007 and 2006 was $5.85,
$5.81 and $5.91, respectively. The table below indicates the key
assumptions used in the option valuation calculations for options granted in the
years ended December 31, 2008, 2007 and 2006 and a discussion of our methodology
for developing each of the assumptions used in the valuation model:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Expected
option term
|
5.7
years
|
6.0
years
|
5.2
years
|
|||||||||
|
Expected
volatility
|
61.7 | % | 71.2 | % | 78.4 | % | ||||||
|
Risk-free
interest rate
|
3.0 | % | 4.5 | % | 4.5 | % | ||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
Expected
Option Term - This is the weighted average period of time over which the options
granted are expected to remain outstanding giving consideration to our
historical exercise patterns. Options granted have a maximum term of
ten years. An increase in the expected term will increase
compensation expense.
Expected
Volatility – The stock volatility for each grant is measured using the weighted
average of historical daily price changes of our common stock over the most
recent period approximately equal to the expected option term of the
grant. An increase in the expected volatility factor will increase
compensation expense.
Risk-Free
Interest Rate - This is the U.S. Treasury rate in effect at the time of grant
having a term approximately equal to the expected term of the
option. An increase in the risk-free interest rate will increase
compensation expense.
Dividend
Yield - We have not made any dividend payments on our common stock, and we have
no plans to pay dividends in the foreseeable future. An increase in
the dividend yield will decrease compensation expense.
F-15
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
12.
Stock incentive plans (continued)
Prior to
adopting the provisions of FAS 123R, we recorded estimated compensation expense
for employee stock options based upon their intrinsic value on the date of grant
pursuant to APB 25 and provided the required pro forma disclosures of FAS
123. Because we established the exercise price based on the fair
market value of our common stock at the date of grant, the stock options had no
intrinsic value upon grant, and therefore no expense was recorded prior to
adopting FAS 123R. We recorded compensation expense for restricted
stock at the fair value of the stock at the date of grant, recognized over the
service period. Each accounting period, we reported the potential
dilutive impact of stock options in our diluted earnings per common share using
the treasury-stock method. Out-of-the-money stock options (i.e., the
average stock price during the period was below the exercise price of the
stock option) were not included in diluted earnings per common share as their
effect was anti-dilutive.
We
recognize compensation expense associated with awards granted after January 1,
2006, and the unvested portion of previously granted restricted stock awards
that were outstanding as of January 1, 2006 in our consolidated statement of
operations. During 2006, we recognized compensation expense of
$111,000 for stock options and $470,000 for restricted stock, which was recorded
in our consolidated statement of operations in accordance with
FAS123R. The income tax benefits from share-based payments recorded
in our consolidated statement of operations totaled $204,000 for
2006.
During
2007, we recognized compensation expense of $225,000 for stock options and
$490,000 for restricted stock, which was recorded in our consolidated statement
of operations in accordance with FAS123R. The income tax benefits
from share-based payments recorded in our consolidated statement of operations
totaled $270,000 for 2007.
During
2008, we recognized compensation expense of
$335,000 for stock
options and $468,000 for restricted stock, which was recorded in our
consolidated statement of operations in accordance with FAS123R. The
income tax benefits from share-based payments recorded in our consolidated
statement of operations totaled $280,000 for
2008.
The 1996
Stock Plan, 1996 Directors’ Stock Plan, 2001 Employee Stock Plan and 2005 Equity
Incentive Plan option activity is summarized below:
|
Year
Ended December 31,
|
||||||||||||||||||||||||
|
2008
|
2007
|
2006
|
||||||||||||||||||||||
|
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||||||||
|
Outstanding
at beginning of period
|
764,696 | $ | 6.95 | 707,344 | $ | 6.67 | 741,501 | $ | 6.10 | |||||||||||||||
|
Granted
|
167,500 | 5.85 | 144,500 | 8.82 | 115,000 | 8.83 | ||||||||||||||||||
|
Exercised
|
(66,972 | ) | 4.68 | (33,199 | ) | 4.49 | (136,157 | ) | 5.05 | |||||||||||||||
|
Forfeited
|
(3,000 | ) | 5.24 | (29,500 | ) | 9.23 | (10,000 | ) | 8.83 | |||||||||||||||
|
Expired
|
(10,575 | ) | 11.25 | (24,449 | ) | 10.25 | (3,000 | ) | 16.62 | |||||||||||||||
|
Outstanding
at end of period
|
851,649 | $ | 6.87 | 764,696 | $ | 6.95 | 707,344 | $ | 6.67 | |||||||||||||||
|
Options
exercisable at end of period
|
530,149 | $ | 6.62 | 565,696 | $ | 6.32 | 602,344 | $ | 6.29 | |||||||||||||||
|
Options
vested or expected to vest
|
828,348 | $ | 6.87 | 755,468 | $ | 6.94 | 704,530 | $ | 6.66 | |||||||||||||||
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||
|
Range
of Exercise Prices
|
Number
Outstanding at December 31, 2008
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining Contractual Life
|
Number
Exercisable at December 31, 2008
|
Weighted-Average
Exercise Price
|
|||||||||||||||
|
(In
years)
|
||||||||||||||||||||
|
$2.00
- $5.00
|
340,149 | $ | 3.63 | 3.1 | 340,149 | $ | 3.63 | |||||||||||||
|
$5.01
- $7.50
|
253,250 | 5.90 | 6.6 | 102,750 | 6.57 | |||||||||||||||
|
$7.51
- $10.00
|
221,000 | 8.93 | 7.9 | 50,000 | 9.06 | |||||||||||||||
|
$10.01
- $25.00
|
2,500 | 18.33 | 5.0 | 2,500 | 18.33 | |||||||||||||||
|
$25.01
- $35.00
|
34,750 | 31.66 | 5.4 | 34,750 | 31.66 | |||||||||||||||
| 851,649 | 6.87 | 5.5 | 530,149 | 6.62 | ||||||||||||||||
F-16
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
12.
Stock incentive plans (continued)
At
December 31, 2008 and 2007, outstanding options had an intrinsic value of
$325,000 and $447,000 with a weighted average remaining contractual life of 5.5
and 5.3 years, respectively. At December 31, 2008 and 2007, options
vested or expected to vest had an intrinsic value of $325,000 and $447,000 with
a weighted average remaining contractual life of 5.4 and 5.3 years,
respectively. In addition, exercisable options at December 31, 2008
and 2007 had an intrinsic value of $325,000 and $447,000 with a weighted average
remaining contractual life of 3.6 and 4.1 years, respectively. Shares
that are issued upon exercise of employee stock options are newly issued shares
and not issued from treasury stock. As of December 31, 2008,
unrecognized compensation cost related to stock options totaled $1,147,000,
which is expected to be recognized over a weighted average period of 3.7
years.
The total
intrinsic value of stock options exercised was $402,000, $61,000 and $825,000
and the total fair value of stock options vested was $247,000, $124,000, and $0
during the year ended December 31, 2008, 2007 and 2006, respectively. As a
result of the exercise of non-qualified stock options, we have net operating
loss carry forwards of approximately $114,000 attributable to excess tax
benefits from stock compensation deductions, which can be used to offset future
taxable income, if any. If and when realized, the related tax
benefits of these net operating losses carry forwards will be credited directly
to paid-in capital.
Restricted
stock: 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:
|
Year
Ended December 31,
|
||||||||||||||||||||||||
|
2008
|
2007
|
2006
|
||||||||||||||||||||||
|
Shares
|
Weighted
Average Grant Date Fair Values
|
Shares
|
Weighted
Average Grant Date Fair Values
|
Shares
|
Weighted
Average Grant Date Fair Values
|
|||||||||||||||||||
|
Nonvested
shares at beginning of period
|
106,683 | $ | 12.10 | 154,116 | $ | 12.22 | 187,550 | $ | 12.23 | |||||||||||||||
|
Granted
|
- | - | - | - | 15,000 | 13.78 | ||||||||||||||||||
|
Vested
|
(44,583 | ) | 12.15 | (37,683 | ) | 13.01 | (36,684 | ) | 12.78 | |||||||||||||||
|
Canceled
|
(1,250 | ) | 7.58 | (9,750 | ) | 10.49 | (11,750 | ) | 12.64 | |||||||||||||||
|
Nonvested
shares at end of period
|
60,850 | $ | 12.15 | 106,683 | $ | 12.10 | 154,116 | $ | 12.22 | |||||||||||||||
As of
December 31, 2008, unrecognized compensation cost related to restricted stock
totaled $363,000, which is expected to be recognized over a weighted average
period of 1.6 years. The total
intrinsic value of restricted stock that vested during 2008, 2007 and 2006 was
$205,000, $180,000 and $338,000, respectively.
13.
Stockholder rights plan
In
December 1997, our Board of Directors adopted a Stockholder Rights Plan
declaring a distribution of one right (the “Rights”) for each outstanding share
of our common stock to shareholders of record at December 15,
1997. Initially, each of the Rights entitled the registered holder to
purchase from the Company one one-thousandth of a share of Series A Preferred
Stock, $0.01 par value, at a price of $69 per one one-thousandth of a
share. The Rights, however, would not become exercisable unless and
until, among other things, any person or group of affiliated persons acquired
beneficial ownership of 15 percent or more of the then outstanding shares of the
Company’s Common Stock. If a person, or group of persons, acquired 15
percent or more of the outstanding Common Stock of the Company (subject to
certain conditions and exceptions more fully described in the Rights Agreement),
each Right entitled the holder (other than the person, or group of persons, who
acquired 15 percent or more of the outstanding Common Stock) to purchase
Preferred Stock of the Company having a market value equal to twice the exercise
price of the Right. The Rights were redeemable, under certain
circumstances, for $0.0001 per Right and expired on December 2,
2007.
F-17
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
14.
Income taxes
The
components of the income tax provision (benefit) are as follows:
|
Year
Ended December 31,
|
||||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | - | $ | (32 | ) | $ | 952 | |||||
|
State
|
16 | 35 | 41 | |||||||||
|
Foreign
|
166 | 452 | 541 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
386 | (1,693 | ) | 552 | ||||||||
|
State
|
207 | (144 | ) | 31 | ||||||||
|
Foreign
|
(1 | ) | (2 | ) | - | |||||||
|
Income
tax provision (benefit)
|
$ | 774 | $ | (1,384 | ) | $ | 2,117 | |||||
At
December 31, 2008, we have $2,119,000 of state net operating loss carryforwards
that begin to expire in 2009, and $393,000 of federal net operating loss
carryforwards that begin to expire in 2027. We also have
approximately $641,000 in federal research and development tax credit
carryforwards that begin to expire in 2024, $118,000 in state tax credit
carryforwards that begin to expire in 2009, and foreign tax credit carryforwards
of approximately $834,000 that begin to expire in 2014. We had
foreign income before taxes of $541,000, $1,486,000 and $1,813,000 in 2008, 2007
and 2006, respectively.
Deferred
income taxes arise from temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial
statements. Our gross deferred tax assets and liabilities were
comprised of the following:
|
December
31,
|
||||||||
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Gross
deferred tax assets:
|
||||||||
|
Net
operating losses
|
$ | 96 | $ | 1,549 | ||||
|
Capitalized
research and development
|
413 | 494 | ||||||
|
Inventory
reserves
|
1,081 | 1,034 | ||||||
|
Deferred
revenue
|
139 | 186 | ||||||
|
Warranty
reserve
|
139 | 181 | ||||||
|
FAS
123R stock compensation expense
|
360 | 147 | ||||||
|
Foreign
tax and other credits
|
1,437 | 781 | ||||||
|
Other
liabilities and reserves
|
456 | 306 | ||||||
|
Net
deferred tax assets
|
4,121 | 4,678 | ||||||
|
Gross
deferred tax liabilities:
|
||||||||
|
Depreciation
|
269 | 236 | ||||||
|
Other
|
39 | 84 | ||||||
|
Net
deferred tax liabilities
|
308 | 320 | ||||||
|
Net
deferred tax assets
|
$ | 3,813 | $ | 4,358 | ||||
During
2008, we recorded a full valuation allowance of $27,000 on the foreign net
operating loss from our Macau subsidiary. The valuation allowance is
included in other liabilities and reserves in the net deferred tax assets table
above.
In order
to utilize our deferred tax assets, we will need to generate approximately $10.9
million of taxable income in future years. In one of the last three
years, we have had U.S. taxable losses and there is no assurance that we will
generate future taxable income sufficient to realize all of our deferred tax
assets. During 2008, we recorded a full valuation allowance of
$27,000 on the foreign net operating loss from our Macau
subsidiary. We have determined that it is more likely than not that
the remaining net deferred tax assets will be realized, and therefore no
additional valuation allowance is considered necessary, as of December 31,
2008. However, if our future projections of taxable income are less
than expected, we may need to establish an additional valuation allowance for
all or a portion of our net deferred tax assets, which may have a material
adverse effect on our results of operations and financial
condition.
F-18
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
14.
Income taxes (continued)
Differences
between the U.S. statutory federal income tax rate and our effective income tax
rate are analyzed below:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Federal
statutory tax rate
|
34.0 | % | (34.0 | )% | 34.0 | % | ||||||
|
State
income taxes, net of federal income taxes
|
6.6 | (2.0 | ) | 1.1 | ||||||||
|
Tax
benefit from tax credits, net of valuation allowance
|
(5.6 | ) | (4.0 | ) | (0.7 | ) | ||||||
|
Foreign
rate differential
|
(2.4 | ) | 0.2 | - | ||||||||
|
Valuation
allowance and tax accruals
|
1.2 | - | 0.4 | |||||||||
|
Permanent
items
|
1.4 | 0.9 | 0.6 | |||||||||
|
Other
|
(0.3 | ) | 1.1 | (0.3 | ) | |||||||
|
Effective
tax rate
|
34.9 | % | (37.8 | )% | 35.1 | % | ||||||
We
adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN
48”), at the beginning of 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 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.
The total gross
unrecognized tax benefits at December 31, 2008 are $160,000, of which $116,000
is recorded as a reduction of the related deferred tax asset, and $44,000 is
recorded as a long term liability. At December 31, 2008 and
2007, we had approximately $160,000 and $125,000 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. A tabular reconciliation
of the gross amounts of unrecognized tax benefits excluding interest and
penalties at the beginning and end of the year is as follows:
|
2008
|
2007
|
|||||||
|
Unrecognized
tax benefits as of January 1
|
$ | 125 | $ | 79 | ||||
|
Tax
positions taken during prior periods
|
- | 33 | ||||||
|
Tax
positions taken during the current period
|
36 | 21 | ||||||
|
Settlements
|
- | - | ||||||
|
Lapse
of statute of limitations
|
(1 | ) | (8 | ) | ||||
|
Unrecognized
tax benefits as of December 31
|
$ | 160 | $ | 125 | ||||
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. During 2008, a limited scope examination of our 2005 and 2006
federal tax returns was completed. However, our federal tax returns
for the years 2003 through 2007 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 federal, 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 December 31, 2009.
We
recognize interest and penalties related to uncertain tax positions in income
tax expense. As of December 31, 2008 and 2007, we have approximately
$7,000 and $2,000 of accrued interest and penalties related to uncertain tax
positions.
F-19
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
15.
Earnings per share
For 2008,
2007 and 2006, earnings per share were computed as follows (in thousands, except
per share amounts):
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
income (loss)
|
$ | 1,444 | $ | (2,274 | ) | $ | 3,916 | |||||
|
Shares:
|
||||||||||||
|
Basic: Weighted
average common shares outstanding
|
9,308 | 9,364 | 9,577 | |||||||||
|
Add: Dilutive
effect of outstanding options as determined by the treasury stock
method
|
181 | - | 293 | |||||||||
|
Diluted: Weighted
average common and common equivalent shares
outstanding
|
9,489 | 9,364 | 9,870 | |||||||||
|
Net
income (loss) per common share:
|
||||||||||||
|
Basic
|
$ | 0.16 | $ | (0.24 | ) | $ | 0.41 | |||||
|
Diluted
|
0.15 | (0.24 | ) | 0.40 | ||||||||
For the
year ended December 31, 2008, potentially dilutive shares that were excluded
from the earnings per share calculation, consisting of out-of-the-money stock
options, were 258,250 shares.
For the
year ended December 31, 2007, there were 871,379 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 our net
loss in the period.
For the
year ended December 31, 2006, potentially dilutive shares that were excluded
from the earnings per share calculation, consisting of out-of-the-money stock
options, were 101,750 shares.
16.
Stock repurchase program
On March
25, 2005, our Board of Directors approved a stock repurchase program (“the Stock
Repurchase Program”). Under the Stock Repurchase Program, we were
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 on
March 25, 2008, depending on market conditions, share price and other
factors.
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. As of December 31,
2008, we repurchased a total of 1,164,100 shares of common stock for
approximately $8,538,000 under this program, at an average price of $7.33 per
share. We use the cost method to account for treasury stock
purchases, under which the price paid for the stock is charged to the treasury
stock account.
17.
International operations
We have
foreign operations primarily from TransAct Technologies Ltd., a wholly-owned
subsidiary in the United Kingdom, which had sales to its customers of
approximately $120,000, $2,121,000 and $2,722,000 in 2008, 2007 and 2006,
respectively. Tangible assets at foreign locations are not
material. We had sales from the United States to our customers
outside of the United States of approximately $10,006,000, $8,674,000 and
$11,416,000 in 2008, 2007 and 2006, respectively. International sales
do not include sales of printers made to domestic distributors or other domestic
customers who in turn may ship those printers to international
destinations.
F-20
TRANSACT
TECHNOLOGIES INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
18.
Quarterly results of operations (unaudited)
Our
quarterly results of operations for 2008 and 2007 are as follows:
|
Quarter
Ended
|
||||||||||||||||
|
(In
thousands, except per share amounts)
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||||
|
2008:
|
||||||||||||||||
|
Net
sales
|
$ | 14,285 | $ | 16,319 | $ | 17,326 | $ | 14,277 | ||||||||
|
Gross
profit
|
4,779 | 5,460 | 5,894 | 4,817 | ||||||||||||
|
Net
income (loss)
|
(692 | ) | 290 | 1,210 | 636 | |||||||||||
|
Net
income (loss) per share:
|
||||||||||||||||
|
Basic
|
(0.07 | ) | 0.03 | 0.13 | 0.07 | |||||||||||
|
Diluted
|
(0.07 | ) | 0.03 | 0.13 | 0.07 | |||||||||||
|
2007:
|
||||||||||||||||
|
Net
sales
|
$ | 11,468 | $ | 13,947 | $ | 11,737 | $ | 11,614 | ||||||||
|
Gross
profit
|
3,753 | 4,940 | 3,885 | 3,418 | ||||||||||||
|
Net
income (loss)
|
(223 | ) | 284 | (1,016 | ) | (1,319 | ) | |||||||||
|
Net
income (loss) per share:
|
||||||||||||||||
|
Basic
|
(0.02 | ) | 0.03 | (0.11 | ) | (0.14 | ) | |||||||||
|
Diluted
|
(0.02 | ) | 0.03 | (0.11 | ) | (0.14 | ) | |||||||||
F-21
Schedule
II
Valuation
and Qualifying Accounts
(Amounts
in thousands)
|
Description
|
Balance
at Beginning of Period
|
Provision
|
Write-offs,
net of recoveries
|
Balance
at End of Period
|
||||||||||||
|
Valuation
account for accounts receivable:
|
||||||||||||||||
|
Year
ended December 31, 2008
|
$ | 62 | $ | - | $ | (7 | ) | $ | 55 | |||||||
|
Year
ended December 31, 2007
|
$ | 204 | $ | - | $ | (142 | ) | $ | 62 | |||||||
|
Year
ended December 31, 2006
|
$ | 240 | $ | - | $ | (36 | ) | $ | 204 | |||||||
|
Valuation
account for inventories:
|
||||||||||||||||
|
Year
ended December 31, 2008
|
$ | 2,850 | $ | 200 | $ | - | $ | 3,050 | ||||||||
|
Year
ended December 31, 2007
|
$ | 1,900 | $ | 955 | $ | (5 | ) | $ | 2,850 | |||||||
|
Year
ended December 31, 2006
|
$ | 2,165 | $ | 266 | $ | (531 | ) | $ | 1,900 | |||||||
F-22
|
3.1(a)
|
Certificate
of Incorporation of TransAct Technologies Incorporated (“TransAct” or the
“Company”), filed with the Secretary of State of Delaware on June 17,
1996.
|
(2)
|
|
3.1(b)
|
Certificate
of Amendment of Certificate of Incorporation of the Company, filed with
the Secretary of State of Delaware on June 4, 1997.
|
(4)
|
|
3.1(c)
|
Certificate
of Designation, Series A Preferred Stock, filed with the Secretary of
State of Delaware on December 2, 1997.
|
(5)
|
|
3.1(d)
|
Certificate
of Designation, Series B Preferred Stock, filed with the Secretary of
State of Delaware on April 6, 2000.
|
(8)
|
|
3.2
|
Amended
and Restated By-laws of the Company.
|
(6)
|
|
4.1
|
Specimen
Common Stock Certificate.
|
(2)
|
|
10.1(x)
|
1996
Stock Plan, effective July 30, 1996.
|
(3)
|
|
10.2(x)
|
Non-Employee
Directors’ Stock Plan, effective August 22, 1996.
|
(3)
|
|
10.3(x)
|
2001
Employee Stock Plan.
|
(10)
|
|
10.4(x)
|
2005
Equity Incentive Plan.
|
(15)
|
|
10.5(x)
|
Employment
Agreement, dated July 31, 1996, by and between TransAct and Bart C.
Shuldman.
|
(2)
|
|
10.6(x)
|
Severance
Agreement by and between TransAct and Michael S. Kumpf, dated September 4,
1996.
|
(3)
|
|
10.7(x)
|
Severance
Agreement by and between TransAct and Steven A. DeMartino, dated June 1,
2004.
|
(14)
|
|
10.8(x)
|
Severance
Agreement by and between TransAct and James B. Stetson, dated January 24,
2001.
|
(9)
|
|
10.9(x)
|
Severance
Agreement by and between TransAct and Tracey S. Chernay, dated July 29,
2005.
|
(19)
|
|
10.10(x)
|
Amendment
to Employment Agreement, effective
January 1, 2008, by and between TransAct and Bart C.
Shuldman.
|
(1)
|
|
10.11(x)
|
Amendment
to Severance Agreement by and between TransAct and Michael S. Kumpf, effective
January 1, 2008.
|
(1)
|
|
10.12(x)
|
Amendment
to Severance Agreement by and between TransAct and Steven A. DeMartino,
effective
January 1, 2008.
|
(1)
|
|
10.13(x)
|
Amendment
to Severance Agreement by and between TransAct and James B. Stetson, effective
January 1, 2008.
|
(1)
|
|
10.14(x)
|
Amendment
to Severance Agreement by and between TransAct and Tracey S. Chernay,
effective
January 1, 2008.
|
(1)
|
|
10.15
|
Lease
Agreement by and between Bomax Properties and Ithaca, dated as of March
23, 1992.
|
(2)
|
|
10.16
|
Second
Amendment to Lease Agreement by and between Bomax Properties and Ithaca,
dated December 2, 1996.
|
(4)
|
|
10.17
|
Agreement
regarding the Continuation and Renewal of Lease by and between Bomax
Properties, LLC and TransAct, dated July 18, 2001.
|
(12)
|
|
10.18
|
Lease
Agreement by and between Las Vegas Airport Properties LLC and TransAct
dated December 2, 2004.
|
(14)
|
|
10.19
|
Lease
Agreement by and between 2319 Hamden Center I, L.L.C. and TransAct dated
November 27, 2006.
|
(17)
|
|
10.20
|
OEM
Purchase Agreement by and between GTECH Corporation, TransAct and Magnetec
Corporation commencing July 14, 1999. (Pursuant to Rule 24-b-2
under the Exchange Act, the Company has requested confidential treatment
of portions of this exhibit deleted from the filed copy.)
|
(7)
|
|
10.21
|
OEM
Purchase Agreement by and between GTECH Corporation and TransAct
commencing July 2, 2002. (Pursuant to Rule 24-b-2 under the
Exchange Act, the Company has requested confidential treatment of portions
of this exhibit deleted from the filed copy.)
|
(11)
|
|
10.22
|
Amendment
to OEM Purchase Agreement by and between GTECH Corporation and TransAct,
dated February 17, 2006. (Pursuant to Rule 24-b-2 under the
Exchange Act, the Company has requested confidential treatment of portions
of this exhibit deleted from the filed copy.)
|
(16)
|
|
10.23
|
Amended
and Restated Revolving Credit and Security Agreement between TransAct and
TD Banknorth, N.A. dated November 28, 2006
|
(17)
|
|
10.24
|
First
Amendment to Amended and Restated Revolving Credit and Security Agreement
between TransAct and TD Banknorth, N.A. effective September 30,
2007.
|
(18)
|
|
10.25
|
License
Agreement between Seiko Epson Corporation and TransAct dated May 17, 2004
(Pursuant to Rule 24b-2 under the Exchange Act, the Company has requested
confidential treatment of portions of this exhibit deleted from the filed
copy.)
|
(13)
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP.
|
(1)
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
(1)
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
(1)
|
|
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.
|
(1)
|
|
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.
|
(1)
|
|
(1)
|
These
exhibits are filed herewith.
|
|
(2)
|
These
exhibits, which were previously filed with the Company’s Registration
Statement on Form S-1 (No. 333-06895), are incorporated by
reference.
|
|
(3)
|
These
exhibits, which were previously filed with the Company’s Quarterly Report
on Form 10-Q for the period ended September 30, 1996, are incorporated by
reference.
|
|
(4)
|
These
exhibits, which were previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 1997, are incorporated by
reference.
|
|
(5)
|
This
exhibit, which was previously filed with the Company’s Current Report on
Form 8-K filed February 18, 1999, is incorporated by
reference.
|
|
(6)
|
This
exhibit, which was previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 1998, is incorporated by
reference.
|
|
(7)
|
This
exhibit, which was previously filed with the Company’s Quarterly Report on
Form 10-Q for the period ended September 25, 1999, is incorporated by
reference.
|
|
(8)
|
These
exhibits, which were previously filed with the Company’s Quarterly Report
on Form 10-Q for the period ended March 25, 2000, are incorporated by
reference.
|
|
(9)
|
This
exhibit, which was previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2000, is incorporated by
reference.
|
|
(10)
|
This
exhibit, which was previously filed with the Company’s Registration
Statement on Form S-8 (No. 333-59570), is incorporated by
reference.
|
|
(11)
|
This
exhibit, which was previously filed with the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2002, is incorporated by
reference.
|
|
(12)
|
This
exhibit, which was previously filed with the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2003, is incorporated by
reference.
|
|
(13)
|
This
exhibit, which was previously filed with the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2004, is incorporated by
reference.
|
|
(14)
|
These
exhibits, which were previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2004, are incorporated by
reference.
|
|
(15)
|
This
exhibit, which was previously filed with the Company’s Current Report on
Form 8-K filed June 1, 2005, is incorporated by
reference.
|
|
(16)
|
This
exhibit, which was previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2005, is incorporated by
reference.
|
|
(17)
|
These
exhibits, which were previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2006, are incorporated by
reference.
|
|
(18)
|
This
exhibit, which was previously filed with the Company’s Quarterly Report on
Form 10-Q for the period ended September 30, 1997, is incorporated by
reference.
|
|
(19)
|
This
exhibit, which was previously filed with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007, is incorporated by
reference.
|
|
(x)
|
Management
contract or compensatory plan or
arrangement.
|
EXHIBIT
LIST
The
following exhibits are filed herewith.
|
Exhibit
|
|
|
10.10(x)
|
Amendment
to Employment Agreement, effective
January 1, 2008, by and between TransAct and Bart C.
Shuldman.
|
|
10.11(x)
|
Amendment
to Severance Agreement by and between TransAct and Michael S. Kumpf, effective
January 1, 2008.
|
|
10.12(x)
|
Amendment
to Severance Agreement by and between TransAct and Steven A. DeMartino,
effective
January 1, 2008.
|
|
10.13(x)
|
Amendment
to Severance Agreement by and between TransAct and James B. Stetson, effective
January 1, 2008.
|
|
10.14(x)
|
Amendment
to Severance Agreement by and between TransAct and Tracey S. Chernay,
effective
January 1, 2008.
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP.
|
|
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.
|
Exhibit
10.10(x)
December
23, 2008
Bart C.
Shuldman
14
Broadview Road
Westport,
CT 06880
Re: Amendment to Employment
Agreement
Dear Mr.
Shuldman:
Reference
is made to the Employment Agreement by and between you and TransAct
Technologies, Incorporated (the "Company") dated July 31st, 1996 (the
"Agreement"). In order that the Agreement comply in form with the
applicable requirements of Section 409A of the Internal Revenue Code of 1986, as
amended, the following changes to the Agreement are hereby
proposed:
|
1.
|
Adding
the following sentence at the end of Subsection
4(c):
|
"In no
event shall the allowance described in this subsection be paid on a basis such
that it would constitute deferred compensation subject to 409A of the
Code."
|
2.
|
Adding
the following sentence at the end of Subsection
4(d):
|
"Any such
reimbursements shall comply with the Company's expense reimbursement policy as
in effect from time to time."
|
3.
|
Deleting
clause (D) in Subsection 6.1(f) and replacing it with the following
text:
|
"(D) Any
other action or inaction that constitutes a material breach of the Agreement by
the Company, including without limitation Section 16. It is
further understood that a resignation shall qualify as a "terminating event"
only if: (i) the Executive gives the Company notice, within ninety
(90) days of its first existence or occurrence (without the consent of the
Executive) of any or any combination of the events described in this Section
6.1(f)(ii); (ii) the Company fails to cure the eligibility condition(s) within
thirty (30) days of receiving such notice; and (iii) the Executive separates
from service not later than 30 days following the end
of such thirty-day period."
|
4.
|
Adding
a new Subsection 6.1(g) immediately following Subsection 6.1(f), to readas
follows:
|
"(g) Separation from
Service. "Separation from Service" for purposes of the
Agreement shall mean a "separation from service" (as defined at Section
1.409A-1(h) of the Treasury Regulations) from the Company and from all other
corporations and trades or businesses, if any, that would be treated as a single
"service recipient" with the Company under Section 1.409A-1(h)(3) of the
Treasury Regulations."
|
5.
|
Adding
the following sentence at the end of Subsection
6.2(b):
|
"; provided, that this sentence
shall not apply to any portion of the amounts payable under Section 6(b)(i)-(ii)
that constitutes or includes nonqualified deferred compensation subject to
Section 409A of the Internal Revenue Code of 1986, as amended (the
"Code")."
|
6.
|
Adding
the following text at the end of Subsection
6.2(c):
|
"Any such
release must be executed in a form prescribed by or acceptable to the Company
and delivered to the Company not later than sixty (60) days following the
Executive's separation from service. If the Executive's properly
executed release is timely delivered to the Company and the Executive does not
revoke the release within seven (7) days thereafter or within such shorter
period as the Company may prescribe, the severance benefits payable hereunder
shall commence upon the expiration of such seven-day or shorter period; provided, that the first such
payment shall include any amounts that would have been paid earlier but for the
provisions of this subsection (c)."
|
7.
|
Adding
a new Section 16 immediately following Section 15, to read as
follows:
|
"16.
Executive Incentive
Compensation Plan. During the twelve (12) month period
subsequent to any Change in Control, neither the Company, nor, if applicable,
any successor to the Company, will eliminate or the Executive's participation in
the Company's Executive Incentive Compensation Plan or reduce the Executive's
target bonus amount under that plan."
|
8.
|
Adding
a new Section 17 immediately
following new Section 16, to read
asfollows:
|
"17.
Section
409A.
(a) In
General. To the extent any portion of the payments to be made
under the Agreement constitute deferred compensation subject to Section 409A of
the Code, such payments shall be made in accordance with the payment schedule
provided in Section 6.2 of the Agreement, but not earlier than the 67th day
following the date of the Involuntary Termination.
(b) Specified
Employee. Notwithstanding any other provision of the
Agreement, if at the time of separation from service, the Executive is a
specified employee as hereinafter defined, any and all amounts payable in
connection with such separation from service that constitute deferred
compensation subject to Section 409A of the Code, as determined by the Company
in its sole discretion, and that would (but for this sentence) be payable within
six (6) months following such separation from service, shall instead be paid on
the date that follows the date of such separation from service by six (6) months
and one (1) day, without interest. For purposes of the preceding
sentence, the term "specified employee" means an individual who is determined by
the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of
Section 409A of the Code. The Company may, but need not, elect in
writing, subject to the applicable limitations under Section 409A of the Code,
any of the special elective rules prescribed in Section 1.409A-1(i) of the
Treasury Regulations for purposes of determining "specified employee"
status. Any such written election shall be deemed part of the
Agreement."
If the
foregoing proposed changes to the Agreement are acceptable to you, please so
indicate in the space indicated below, whereupon the Agreement shall be so
amended effective as of January 1, 2008.
|
TRANSACT
TECHNOLOGIES INCORPORATED
|
||
|
By:
|
/s/ Steven A. DeMartino
|
|
|
Date:
|
12/30/2008
|
|
|
Agreed:
|
|
|
/s/ Bart
C. Shuldman
|
|
|
Bart
C. Shuldman
|
Exhibit
10.11(x)
December
23, 2008
Michael
S. Kumpf
716
Bowling Green
Cortland,
NY 13045
Re:
Amendment to Severance Agreement
Dear Mr.
Kumpf:
Reference
is made to the Severance Agreement by and between you and TransAct Technologies,
Incorporated (the "Company") dated September 4, 1996 (the
"Agreement"). In order that the Agreement comply in form with the
applicable requirements of Section 409A of the Internal Revenue Code of 1986, as
amended, the following changes to the Agreement are hereby
proposed:
Deleting
clause (D) in Subsection 1(d) and replacing it with the following
text:
"(D) Any
other action or inaction that constitutes a material breach of the Agreement by
the Company, including without limitation Section 13. It is
further understood that a resignation shall qualify as a "terminating event"
only if: (i) the Executive gives the Company notice, within ninety
(90) days of its first existence or occurrence (without the consent of the
Executive) of any or any combination of the events described in this Section
1(e)(ii); (ii) the Company fails to cure the eligibility condition(s) within
thirty (30) days of receiving such notice; and (iii) the Executive separates
from service not later than 30 days following the end of such thirty-day
period."
Adding a
new Subsection 1(e) immediately following Subsection 1(d), to read as
follows:
"(e) "Separation
from Service" for purposes of the Agreement shall mean a "separation from
service" (as defined at Section 1.409A-1(h) of the Treasury Regulations) from
the Company and from all other corporations and trades or businesses, if any,
that would be treated as a single "service recipient" with the Company under
Section 1.409A-1(h)(3) of the Treasury Regulations."
Adding
the following sentence at the end of Subsection 2(b):
";
provided, that this sentence shall not apply to any portion of the amounts
payable under Section 2(b)(i)-(ii) that constitutes or includes nonqualified
deferred compensation subject to Section 409A of the Internal Revenue Code of
1986, as amended (the "Code")."
Adding
the following text at the end of Subsection 2(c):
"Any such
release must be executed in a form prescribed by or acceptable to the Company
and delivered to the Company not later than sixty (60) days following the
Executive's separation from service. If the Executive's properly
executed release is timely delivered to the Company and the Executive does not
revoke the release within seven (7) days thereafter or within such shorter
period as the Company may prescribe, the severance benefits payable hereunder
shall commence upon the expiration of such seven-day or shorter period;
provided, that the first such payment shall include any amounts that would have
been paid earlier but for the provisions of this subsection (c)."
Adding a
new Section 13 immediately following Section 12, to read as
follows:
"13
Executive Incentive Compensation Plan. During the twelve (12) month
period subsequent to any Change in Control, neither the Company, nor, if
applicable, any successor to the Company, will eliminate the Executive's
participation in the Company's Executive Incentive Compensation Plan or reduce
the Executive's target bonus amount under that plan."
Adding a
new Section 14 immediately following new Section 13, to read as
follows:
"14
Section 409A.
(a) In
General. To the extent any portion of the payments to be made under
the Agreement constitute deferred compensation subject to Section 409A of the
Code, such payments shall be made in accordance with the payment schedule
provided in Section 2 of the Agreement, but not earlier than the 67th day
following the date of the Involuntary Termination.
(b)
Specified Employee. Notwithstanding any other provision of the
Agreement, if, at the time of separation from service, the Executive is a
specified employee as hereinafter defined, any and all amounts payable in
connection with such separation from service that constitute deferred
compensation subject to Section 409A of the Code, as determined by the Company
in its sole discretion, and that would (but for this sentence) be payable within
six (6) months following such separation from service, shall instead be paid on
the date that follows the date of such separation from service by six (6) months
and one (1) day, without interest. For purposes of the preceding
sentence, the term "specified employee" means an individual who is determined by
the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of
Section 409A of the Code. The Company may, but need not, elect in
writing, subject to the applicable limitations under Section 409A of the Code,
any of the special elective rules prescribed in Section 1.409A-1(i) of the
Treasury Regulations for purposes of determining "specified employee"
status. Any such written election shall be deemed part of the
Agreement."
If the
foregoing proposed changes to the Agreement are acceptable to you, please so
indicate in the space indicated below, whereupon the Agreement shall be so
amended effective as of January 1, 2008.
|
TRANSACT
TECHNOLOGIES INCORPORATED
|
||
|
By:
|
/s/ Steven
A. DeMartino
|
|
|
Date:
|
12/30/2008
|
|
|
Agreed:
|
|
|
/s/ Michael
S. Kumpf
|
|
|
Michael
S. Kumpf
|
Exhibit
10.12(x)
December
23, 2008
Steven A.
DeMartino
47
Agerola Road
Durham,
CT 06422
Re:
Amendment to Severance Agreement
Dear Mr.
DeMartino:
Reference
is made to the Severance Agreement by and between you and TransAct Technologies,
Incorporated (the "Company") dated June 1, 2004 (the "Agreement"). In
order that the Agreement comply in form with the applicable requirements of
Section 409A of the Internal Revenue Code of 1986, as amended, the following
changes to the Agreement are hereby proposed:
Deleting
clause (D) in Subsection 1(d) and replacing it with the following
text:
"(D) Any
other action or inaction that constitutes a material breach of the Agreement by
the Company, including without limitation Section 11. It is
further understood that a resignation shall qualify as a "terminating event"
only if: (i) the Executive gives the Company notice, within ninety
(90) days of its first existence or occurrence (without the consent of the
Executive) of any or any combination of the events described in this Section
1(e)(ii); (ii) the Company fails to cure the eligibility condition(s) within
thirty (30) days of receiving such notice; and (iii) the Executive separates
from service not later than 30 days following the end of such thirty-day
period."
Adding a
new Subsection 1(e) immediately following Subsection 1(d), to read as
follows:
"(e) "Separation
from Service" for purposes of the Agreement shall mean a "separation from
service" (as defined at Section 1.409A-1(h) of the Treasury Regulations) from
the Company and from all other corporations and trades or businesses, if any,
that would be treated as a single "service recipient" with the Company under
Section 1.409A-1(h)(3) of the Treasury Regulations."
Adding
the following sentence at the end of Subsection 2(b):
";
provided, that this sentence shall not apply to any portion of the amounts
payable under Section 2(b)(i)-(ii) that constitutes or includes nonqualified
deferred compensation subject to Section 409A of the Internal Revenue Code of
1986, as amended (the "Code")."
Adding
the following text at the end of Subsection 2(c):
"Any such
release must be executed in a form prescribed by or acceptable to the Company
and delivered to the Company not later than sixty (60) days following the
Executive's separation from service. If the Executive's properly
executed release is timely delivered to the Company and the Executive does not
revoke the release within seven (7) days thereafter or within such shorter
period as the Company may prescribe, the severance benefits payable hereunder
shall commence upon the expiration of such seven-day or shorter period;
provided, that the first such payment shall include any amounts that would have
been paid earlier but for the provisions of this subsection (c)."
Adding a
new Section 11 immediately following Section 12, to read as
follows:
"11
Executive Incentive Compensation Plan. During the twelve (12) month
period subsequent to any Change in Control, neither the Company, nor, if
applicable, any successor to the Company, will eliminate the Executive's
participation in the Company's Executive Incentive Compensation Plan or reduce
the Executive's target bonus amount under that plan."
Adding a
new Section 12 immediately following new Section 11, to read as
follows:
"12
Section 409A.
(a) In
General. To the extent any portion of the payments to be made under
the Agreement constitute deferred compensation subject to Section 409A of the
Code, such payments shall be made in accordance with the payment schedule
provided in Section 2 of the Agreement, but not earlier than the 67th day
following the date of the Involuntary Termination.
(b)
Specified Employee. Notwithstanding any other provision of the
Agreement, if, at the time of separation from service, the Executive is a
specified employee as hereinafter defined, any and all amounts payable in
connection with such separation from service that constitute deferred
compensation subject to Section 409A of the Code, as determined by the Company
in its sole discretion, and that would (but for this sentence) be payable within
six (6) months following such separation from service, shall instead be paid on
the date that follows the date of such separation from service by six (6) months
and one (1) day, without interest. For purposes of the preceding
sentence, the term "specified employee" means an individual who is determined by
the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of
Section 409A of the Code. The Company may, but need not, elect in
writing, subject to the applicable limitations under Section 409A of the Code,
any of the special elective rules prescribed in Section 1.409A-1(i) of the
Treasury Regulations for purposes of determining "specified employee"
status. Any such written election shall be deemed part of the
Agreement."
If the
foregoing proposed changes to the Agreement are acceptable to you, please so
indicate in the space indicated below, whereupon the Agreement shall be so
amended effective as of January 1, 2008.
|
TRANSACT
TECHNOLOGIES INCORPORATED
|
||
|
By:
|
/s/ Bart
C. Shuldman
|
|
|
Date:
|
12/23/2008
|
|
|
Agreed:
|
|
|
/s/ Steven
A. DeMartino
|
|
|
Steven
A. DeMartino
|
Exhibit
10.13(x)
December
23, 2008
James B.
Stetson
2224
Avalon Haven Drive
North
Haven, CT 06473
Re:
Amendment to Severance Agreement
Dear Mr.
Stetson:
Reference
is made to the Severance Agreement by and between you and TransAct Technologies,
Incorporated (the "Company") dated January 24, 2001 (the
"Agreement"). In order that the Agreement comply in form with the
applicable requirements of Section 409A of the Internal Revenue Code of 1986, as
amended, the following changes to the Agreement are hereby
proposed:
Deleting
clause (D) in Subsection 1(d) and replacing it with the following
text:
"(D) Any
other action or inaction that constitutes a material breach of the Agreement by
the Company, including without limitation Section 11. It is
further understood that a resignation shall qualify as a "terminating event"
only if: (i) the Executive gives the Company notice, within ninety
(90) days of its first existence or occurrence (without the consent of the
Executive) of any or any combination of the events described in this Section
1(e)(ii); (ii) the Company fails to cure the eligibility condition(s) within
thirty (30) days of receiving such notice; and (iii) the Executive separates
from service not later than 30 days following the end of such thirty-day
period."
Adding a
new Subsection 1(e) immediately following Subsection 1(d), to read as
follows:
"(e) "Separation
from Service" for purposes of the Agreement shall mean a "separation from
service" (as defined at Section 1.409A-1(h) of the Treasury Regulations) from
the Company and from all other corporations and trades or businesses, if any,
that would be treated as a single "service recipient" with the Company under
Section 1.409A-1(h)(3) of the Treasury Regulations."
Adding
the following sentence at the end of Subsection 2(b):
";
provided, that this sentence shall not apply to any portion of the amounts
payable under Section 2(b)(i)-(ii) that constitutes or includes nonqualified
deferred compensation subject to Section 409A of the Internal Revenue Code of
1986, as amended (the "Code")."
Adding
the following text at the end of Subsection 2(c):
"Any such
release must be executed in a form prescribed by or acceptable to the Company
and delivered to the Company not later than sixty (60) days following the
Executive's separation from service. If the Executive's properly
executed release is timely delivered to the Company and the Executive does not
revoke the release within seven (7) days thereafter or within such shorter
period as the Company may prescribe, the severance benefits payable hereunder
shall commence upon the expiration of such seven-day or shorter period;
provided, that the first such payment shall include any amounts that would have
been paid earlier but for the provisions of this subsection (c)."
Adding a
new Section 11 immediately following Section 12, to read as
follows:
"11
Executive Incentive Compensation Plan. During the twelve (12) month
period subsequent to any Change in Control, neither the Company, nor, if
applicable, any successor to the Company, will eliminate the Executive's
participation in the Company's Executive Incentive Compensation Plan or reduce
the Executive's target bonus amount under that plan."
Adding a
new Section 12 immediately following new Section 11, to read as
follows:
"12
Section 409A.
(a) In
General. To the extent any portion of the payments to be made under
the Agreement constitute deferred compensation subject to Section 409A of the
Code, such payments shall be made in accordance with the payment schedule
provided in Section 2 of the Agreement, but not earlier than the 67th day
following the date of the Involuntary Termination.
(b)
Specified Employee. Notwithstanding any other provision of the
Agreement, if, at the time of separation from service, the Executive is a
specified employee as hereinafter defined, any and all amounts payable in
connection with such separation from service that constitute deferred
compensation subject to Section 409A of the Code, as determined by the Company
in its sole discretion, and that would (but for this sentence) be payable within
six (6) months following such separation from service, shall instead be paid on
the date that follows the date of such separation from service by six (6) months
and one (1) day, without interest. For purposes of the preceding
sentence, the term "specified employee" means an individual who is determined by
the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of
Section 409A of the Code. The Company may, but need not, elect in
writing, subject to the applicable limitations under Section 409A of the Code,
any of the special elective rules prescribed in Section 1.409A-1(i) of the
Treasury Regulations for purposes of determining "specified employee"
status. Any such written election shall be deemed part of the
Agreement."
If the
foregoing proposed changes to the Agreement are acceptable to you, please so
indicate in the space indicated below, whereupon the Agreement shall be so
amended effective as of January 1, 2008.
|
TRANSACT
TECHNOLOGIES INCORPORATED
|
||
|
By:
|
/s/ Steven
A. DeMartino
|
|
|
Date:
|
12/23/2008
|
|
|
Agreed:
|
|
|
/s/ James
B. Stetson
|
|
|
James
B. Stetson
|
Exhibit
10.14(x)
December
23, 2008
Tracey S.
Chernay
2066
Fountain City Street
Hendersonville,
NV 89052
Re:
Amendment to Severance Agreement
Dear Ms.
Chernay:
Reference
is made to the Severance Agreement by and between you and TransAct Technologies,
Incorporated (the "Company") dated July 29, 2005 (the
"Agreement"). In order that the Agreement comply in form with the
applicable requirements of Section 409A of the Internal Revenue Code of 1986, as
amended, the following changes to the Agreement are hereby
proposed:
Deleting
clause (D) in Subsection 1(d) and replacing it with the following
text:
"(D) Any
other action or inaction that constitutes a material breach of the Agreement by
the Company, including without limitation Section 11. It is
further understood that a resignation shall qualify as a "terminating event"
only if: (i) the Executive gives the Company notice, within ninety
(90) days of its first existence or occurrence (without the consent of the
Executive) of any or any combination of the events described in this Section
1(e)(ii); (ii) the Company fails to cure the eligibility condition(s) within
thirty (30) days of receiving such notice; and (iii) the Executive separates
from service not later than 30 days following the end of such thirty-day
period."
Adding a
new Subsection 1(e) immediately following Subsection 1(d), to read as
follows:
"(e) "Separation
from Service" for purposes of the Agreement shall mean a "separation from
service" (as defined at Section 1.409A-1(h) of the Treasury Regulations) from
the Company and from all other corporations and trades or businesses, if any,
that would be treated as a single "service recipient" with the Company under
Section 1.409A-1(h)(3) of the Treasury Regulations."
Adding
the following sentence at the end of Subsection 2(b):
";
provided, that this sentence shall not apply to any portion of the amounts
payable under Section 2(b)(i)-(ii) that constitutes or includes nonqualified
deferred compensation subject to Section 409A of the Internal Revenue Code of
1986, as amended (the "Code")."
Adding
the following text at the end of Subsection 2(c):
"Any such
release must be executed in a form prescribed by or acceptable to the Company
and delivered to the Company not later than sixty (60) days following the
Executive's separation from service. If the Executive's properly
executed release is timely delivered to the Company and the Executive does not
revoke the release within seven (7) days thereafter or within such shorter
period as the Company may prescribe, the severance benefits payable hereunder
shall commence upon the expiration of such seven-day or shorter period;
provided, that the first such payment shall include any amounts that would have
been paid earlier but for the provisions of this subsection (c)."
Adding a
new Section 11 immediately following Section 10, to read as
follows:
"11
Executive Incentive Compensation Plan. During the twelve (12) month
period subsequent to any Change in Control, neither the Company, nor, if
applicable, any successor to the Company, will eliminate the Executive's
participation in the Company's Executive Incentive Compensation Plan or reduce
the Executive's target bonus amount under that plan."
Adding a
new Section 12 immediately following new Section 11, to read as
follows:
"12 Section
409A.
(a) In
General. To the extent any portion of the payments to be made under
the Agreement constitute deferred compensation subject to Section 409A of the
Code, such payments shall be made in accordance with the payment schedule
provided in Section 2 of the Agreement, but not earlier than the 67th day
following the date of the Involuntary Termination.
(b)
Specified Employee. Notwithstanding any other provision of the
Agreement, if, at the time of separation from service, the Executive is a
specified employee as hereinafter defined, any and all amounts payable in
connection with such separation from service that constitute deferred
compensation subject to Section 409A of the Code, as determined by the Company
in its sole discretion, and that would (but for this sentence) be payable within
six (6) months following such separation from service, shall instead be paid on
the date that follows the date of such separation from service by six (6) months
and one (1) day, without interest. For purposes of the preceding
sentence, the term "specified employee" means an individual who is determined by
the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of
Section 409A of the Code. The Company may, but need not, elect in
writing, subject to the applicable limitations under Section 409A of the Code,
any of the special elective rules prescribed in Section 1.409A-1(i) of the
Treasury Regulations for purposes of determining "specified employee"
status. Any such written election shall be deemed part of the
Agreement."
If the
foregoing proposed changes to the Agreement are acceptable to you, please so
indicate in the space indicated below, whereupon the Agreement shall be so
amended effective as of January 1, 2008.
|
TRANSACT
TECHNOLOGIES INCORPORATED
|
||
|
By:
|
/s/ Steven
A. DeMartino
|
|
|
Date:
|
12/29/2008
|
|
|
Agreed:
|
|
|
/s/ Tracey
S. Chernay
|
|
|
Tracey
S. Chernay
|
Exhibit
23.1
CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statement on Form
S-8 (Nos. 333-32703, 333-32705, 333-49530, 333-49532, 333-49540, 333-49570, and
333-62269) of TransAct Technologies Incorporated of our report dated March 16,
2009 relating to the financial statements, financial statement schedule and the
effectiveness of internal control over financial reporting, which appears in
this Form 10-K.
|
/s/
PricewaterhouseCoopers
LLP
|
|
|
Hartford,
Connecticut
March
16,
2009
|
Exhibit
31.1
CERTIFICATION
I, Bart
C. Shuldman, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of TransAct Technologies
Incorporated;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: March 16,
2009
|
/s/
Bart C. Shuldman
|
|
|
Bart
C. Shuldman
|
|
|
Chairman,
President and Chief Executive Officer
|
Exhibit
31.2
CERTIFICATION
I, Steven
A. DeMartino, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of TransAct Technologies
Incorporated;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a.
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
b.
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c.
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d.
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
a.
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b.
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: March
16,
2009
|
/s/
Steven A. DeMartino
|
|
|
Steven
A. DeMartino
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of TransAct Technologies Incorporated (the
“Company”) on Form 10-K for the period ending December 31, 2008, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
Bart C. Shuldman, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Date: March
16,
2009
|
/s/
Bart C. Shuldman
|
|
|
Bart
C. Shuldman
Chief
Executive Officer
|
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of TransAct Technologies Incorporated (the
“Company”) on Form 10-K for the period ending December 31, 2008, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
Steven A. DeMartino, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Date: March
16,
2009
|
/s/
Steven A. DeMartino
|
|
|
Steven
A. DeMartino
Chief
Financial Officer
|