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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from:_______________to:___________________
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
(Address of principal executive offices)
(Zip Code)
(203) 269-1198
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING NOVEMBER 8, 2002
- ----- ----------------------------
COMMON STOCK,
$.01 PAR VALUE 5,713,048
TRANSACT TECHNOLOGIES INCORPORATED
INDEX
PART I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1 Financial Statements
Consolidated condensed balance sheets as of September 30, 2002 and
December 31, 2001 3
Consolidated condensed statements of operations for the three and nine
months ended September 30, 2002 and 2001 4
Consolidated condensed statements of cash flow for the nine months ended
September 30, 2002 and 2001 5
Notes to consolidated condensed financial statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 17
Item 4 Controls and Procedures 18
PART II. Other Information:
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications 20
2
ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
(In thousands) 2002 2001
---- ----
(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents $ 595 $ 417
Receivables, net 4,087 4,047
Inventories 7,961 10,633
Income tax receivable (Note 4) 1,065 --
Deferred tax assets 1,652 2,382
Other current assets 352 212
-------- --------
Total current assets 15,712 17,691
-------- --------
Fixed assets, net 4,111 5,190
Goodwill, net 1,469 1,469
Deferred tax assets 1,120 1,120
Other assets 279 321
-------- --------
6,979 8,100
-------- --------
$ 22,691 $ 25,791
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ 100
Accounts payable 1,846 2,903
Accrued liabilities 3,892 3,320
Accrued restructuring expenses (Note 5) 1,071 3,002
-------- --------
Total current liabilities 6,909 9,325
-------- --------
Revolving bank loan payable 3,652 4,994
Long-term portion of term loan 275 350
Long-term portion of accrued restructuring (Note 5) 937 --
Other liabilities 266 61
-------- --------
5,130 5,405
-------- --------
Mandatorily redeemable preferred stock 3,805 3,746
-------- --------
Shareholders' equity:
Common stock 57 57
Additional paid-in capital 6,419 6,303
Retained earnings 831 1,649
Unamortized restricted stock compensation (123) (286)
Loan receivable from officer (330) (330)
Accumulated other comprehensive loss (7) (78)
-------- --------
Total shareholders' equity 6,847 7,315
-------- --------
$ 22,691 $ 25,791
======== ========
See notes to consolidated condensed financial statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(In thousands, except per share data) 2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 8,852 $ 13,234 $ 30,298 $ 33,803
Cost of sales 6,550 9,664 22,258 26,017
-------- -------- -------- --------
Gross profit 2,302 3,570 8,040 7,786
-------- -------- -------- --------
Operating expenses:
Engineering, design and product
development expenses 458 753 1,508 2,444
Selling and marketing expenses 952 1,030 3,077 3,485
General and administrative expenses 1,020 1,426 3,304 4,559
Business consolidation and restructuring
expenses (Note 5) 912 470 958 1,916
-------- -------- -------- --------
3,342 3,679 8,847 12,404
-------- -------- -------- --------
Operating loss (1,040) (109) (807) (4,618)
-------- -------- -------- --------
Other income (expense):
Interest, net (59) (105) (148) (287)
Other, net (Note 4) (9) (40) 96 --
-------- -------- -------- --------
(68) (145) (52) (287)
-------- -------- -------- --------
Loss before income taxes (1,108) (254) (859) (4,905)
Income tax benefit (399) (92) (310) (1,766)
-------- -------- -------- --------
Net loss (709) (162) (549) (3,139)
Dividends and accretion charges on
preferred stock (90) (90) (269) (269)
-------- -------- -------- --------
Net loss available to common shareholders $ (799) $ (252) $ (818) $ (3,408)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (0.14) $ (0.05) $ (0.15) $ (0.61)
======== ======== ======== ========
Shares used in per share calculation:
Basic and diluted 5,645 5,584 5,625 5,557
======== ======== ======== ========
See notes to consolidated condensed financial statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
(In thousands) 2002 2001
---- ----
Cash flows from operating activities:
Net loss $ (549) $(3,139)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,678 2,375
Deferred income taxes 730 (1,718)
Loss on disposal of equipment -- 70
Changes in operating assets and liabilities:
Receivables (40) (1,853)
Inventories 2,672 (395)
Refundable income taxes (1,065) --
Other current assets (140) (138)
Other assets (25) (292)
Accounts payable (1,057) 1,143
Accrued liabilities and other liabilities 777 735
Accrued restructuring expenses (Note 5) (994) 1,645
------- -------
Net cash provided by (used in) operating activities 1,987 (1,567)
------- -------
Cash flows from investing activities:
Purchases of fixed assets (374) (1,143)
Proceeds from sale of fixed assets -- 2
------- -------
Net cash used in investing activities (374) (1,141)
------- -------
Cash flows from financing activities:
Revolving bank loan borrowings (repayments), net (1,342) 1,328
Term loan borrowings (repayments), net (75) 475
Proceeds from option exercises 121 233
Payment of cash dividends on preferred stock (210) (210)
------- -------
Net cash provided by (used in) financing activities (1,506) 1,826
------- -------
Effect of exchange rate changes on cash 71 (10)
------- -------
Increase (decrease) in cash and cash equivalents 178 (892)
Cash and cash equivalents at beginning of period 417 992
------- -------
Cash and cash equivalents at end of period $ 595 $ 100
======= =======
See notes to consolidated condensed financial statements.
5
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of TransAct Technologies Incorporated (the
"Company"), the accompanying unaudited consolidated condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly its financial position as of
September 30, 2002, and the results of its operations for the three and
nine months ended September 30, 2002 and 2001, and cash flows for the nine
months ended September 30, 2002 and 2001. The December 31, 2001
consolidated condensed balance sheet has been derived from the audited
financial statements at that date. These interim financial statements
should be read in conjunction with the audited financial statements for
the year ended December 31, 2001 included in the Company's Annual Report
on Form 10-K.
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of such subsidiaries have been translated
at end of period exchange rates, and related revenues and expenses have
been translated at weighted average exchange rates. Transaction gains and
losses are included in other income.
The results of operations for the three and nine months ended
September 30, 2002 are not necessarily indicative of the results to be
expected for the full year.
The Company has adopted the provisions of Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("FAS
142") on January 1, 2002. Under FAS 142, goodwill will no longer be
amortized and will be tested for impairment at least annually at the
reporting unit level.
Prior to the adoption of FAS 142 on January 1, 2002, the Company had
been amortizing goodwill related to the acquisition of (1) Ithaca
Peripherals, Inc. ("Ithaca") in 1991 and (2) the ribbon business formerly
conducted by Tridex ("Tridex Ribbon Business"). The original amount
applicable to the Ithaca acquisition totaled $3,536,000 and was being
amortized on the straight-line method over 20 years. The original amount
applicable to the Tridex Ribbon Business acquisition totaled $180,000 and
was being amortized on the straight-line method over five years. The
Company recorded amortization of goodwill of approximately $34,000 and
$101,000, net of taxes, during the three and nine months ended September
30, 2001, respectively.
FAS 142 requires that goodwill be tested annually for impairment.
The Company has performed an impairment test as of January 1, 2002 and
determined that no transition adjustment related to impairment is
necessary.
In September 2002, the FASB issued Statement of Financial Standard
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("FAS 146"). This statement provides guidance on the
recognition and measurement of liabilities associated with exit or
disposal activities and requires that such liabilities be recognized when
incurred. This statement is effective for exit or disposal activities
initiated on or after January 1, 2003 and does not impact the recognition
of costs under the Company's existing programs. The Company plans to early
adopt FAS 146 during the fourth quarter of 2002 and does not expect it to
impact the timing or recognition of costs associated with future exit or
disposal activities.
2. Earnings per share
Basic earnings per common share for the three and nine months ended
September 30, 2002 and 2001 were based on the weighted average number of
shares outstanding during the period. Diluted earnings per share for the
same periods were based on the weighted average number of shares after
consideration of any dilutive effect of stock options and warrants. For
the three and nine months ended September 30, 2002 and 2001, the effects
of potential dilutive securities have been excluded, as they would have
been anti-dilutive.
6
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. Inventories:
The components of inventory are:
September 30, December 31,
(In thousands) 2002 2001
---- ----
Raw materials and component parts $ 7,885 $10,299
Work-in-process 6 25
Finished goods 70 309
------- -------
$ 7,961 $10,633
======= =======
4. Significant transactions
In June 2002, the Company received 2,146 shares of common stock from
its health insurance company, Anthem, Inc., upon its demutualization. The
value of these shares was approximately $145,000 at June 30, 2002, and was
included in Other Income during the second quarter of 2002. The Company
sold these shares in August 2002 for approximately $145,000.
On February 22, 2002, at the request of a major customer, the
Company received a cash payment of approximately $5,824,000 in advance of
printer shipments to be made from March through August 2002. As a result
of this payment, the Company repaid all its outstanding revolving
borrowings under the LaSalle Credit Facility in February 2002. The advance
payment had been classified as a current liability, and was reduced by the
sales value of shipments as they were made. As of September 30, 2002 none
of the original $5.8 million advance remains outstanding.
During the quarter ended September 30, 2002, and in accordance with
changes in the Internal Revenue Code, the Company carried back net
operating losses and applied for an income tax refund of approximately
$1,065,000 for payments made during the 1997 tax year. The Company
received the refund in October, 2002.
5. Business consolidation and restructuring
In February 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part
of this strategic decision, the Company undertook a plan to consolidate
all manufacturing and engineering into its existing Ithaca, NY facility
and close its Wallingford, CT facility (the "Consolidation"). As of
December 31, 2001, substantially all Wallingford product lines were
successfully transferred to Ithaca, NY. The Company currently maintains
one small component production line in Wallingford. The closing of the
Wallingford facility resulted in the termination of employment of
approximately 70 production, administrative and management employees. The
Company has applied the consensus set forth in EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring)" in
recognizing the accrued restructuring expenses.
During the third quarter of 2002, the Company incurred $912,000 of
Consolidation expenses. Approximately $900,000 of these expenses were the
result of a revision to the Company's estimate for non-cancelable lease
payments included in the restructuring accrual. Based on regional softness
in demand in the commercial real estate market, the Company increased its
restructuring accrual by $900,000 to reflect the longer period of time now
projected to sublease its Wallingford, CT facility. The accrual now
includes estimated non-cancelable lease payments and other related costs
through September 30, 2004.
The Company estimates that the non-recurring costs associated with
the Consolidation, including severance pay, stay bonuses, employee
benefits, moving expenses, non-cancelable lease payments, accelerated
depreciation and other costs, will be approximately $5.1 million, of which
approximately $4.1 million was recognized during 2001.
7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Business consolidation and restructuring (continued)
The following table summarizes the activity recorded in the
restructuring accrual during the three and nine months ended September 30,
2002 and 2001.
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2002 2001 2002 2001
Accrual balance, beg. of period $ 1,595 $ 1,385 $ 3,002 $ 105
------- ------- ------- -------
Business consolidation and
restructuring expenses:
Employee severance and
termination expenses(1) -- 385 -- 959
Facility closure and
Consolidation expenses(2) 912 85 958 957
------- ------- ------- -------
912 470 958 1,916
------- ------- ------- -------
Cash payments (499) (105) (1,952) (271)
------- ------- ------- -------
Accrual balance, end of period $ 2,008 $ 1,750 $ 2,008 $ 1,750
======= ======= ======= =======
(1) Employee severance and termination related expenses are the estimated
termination salaries, benefits, outplacement, counseling services and
other related costs expected to be paid to involuntarily terminated
employees.
(2) Facility closure and consolidation expenses are the estimated costs to
close the Wallingford, CT facility including lease termination costs and
other related costs, in accordance with the restructuring plan. The
Wallingford facility closure was substantially completed by December 31,
2001.
At September 30, 2002, $937,000 of the restructuring accrual was
classified as a long-term liability. This represents the portion of
non-cancelable lease termination costs and other costs expected to be paid
beyond one year.
The following table summarizes the components of all charges related to
the Consolidation.
Three months ended Nine months ended
September 30, September 30,
(In thousands) 2002 2001 2002 2001
---- ---- ---- ----
Business consolidation and
restructuring expenses $ 912 $ 470 $ 958 $1,916
Accelerated depreciation and
asset disposal losses(1) -- 101 -- 362
------ ------ ------ ------
Total business consolidation,
restructuring and
related charges $ 912 $ 571 $ 958 $2,278
====== ====== ====== ======
(1) Represents accelerated depreciation on certain leasehold improvements and
other fixed assets, due to the closing of the Wallingford facility. These
charges are included in general and administrative expenses.
8
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
6. Subsequent Event
On November 12, 2002, the Company amended the LaSalle Credit
Facility. Under the terms of the amendment ("LaSalle Amendment No. 3"),
LaSalle (1) waived compliance with the minimum EBITDA, minimum tangible
net worth and fixed charge coverage ratio financial covenants as of
September 30, 2002 and (2) revised these covenants to exclude the effect
of $900,000, of the total $912,000, of restructuring charges incurred in
the third quarter. Absent the $900,000 restructuring charge, the Company
would have been in compliance with the above covenants at September 30,
2002. Upon execution of LaSalle Amendment No. 3, the Company paid a fee of
$20,000 to LaSalle.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. All
forward-looking statements involve risks and uncertainties, including, but not
limited to, customer acceptance and market share gains, both domestically and
internationally, in the face of substantial competition from competitors that
have broader lines of products and greater financial resources; introduction of
new products by competitors; successful product development; dependence on
significant customers including GTECH Corporation; dependence on third parties
for sales in Europe and Latin America; economic conditions in the United States,
Europe and Latin America; marketplace acceptance of our new products; risks
associated with foreign operations; our ability to successfully sublease our
facility in Wallingford, CT subsequent to its closing; availability of
third-party components at reasonable prices; and the absence of price wars or
other significant pricing pressures affecting our products in the United States
or abroad. Actual results may differ materially from those discussed in, or
implied by, the forward-looking statements. The forward-looking statements speak
only as of the date of this report and we assume no duty to update them to
reflect new, changing or unanticipated events or circumstances.
PLANT CONSOLIDATION
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 facility
(the "Consolidation"). Our technology shift to inkjet and thermal printing from
dot matrix impact printing has dramatically reduced the labor content in our
printers, and therefore, lowers the required production capacity. As of December
31, 2001, we successfully transferred substantially all our Wallingford product
lines to Ithaca, NY, with the exception of one small production line that
remains in Connecticut. The closing of the Wallingford facility resulted in the
termination of employment of approximately 70 production, administrative and
management employees.
During the third quarter of 2002, we revised our estimate for non-cancelable
lease payments included in the restructuring accrual. Based on regional softness
in demand in the commercial real estate market, we increased the restructuring
accrual by $900,000 to reflect the longer period of time now projected to
sublease our Wallingford, CT facility. The accrual now includes estimated
non-cancelable lease payments and other related costs through September 30,
2004.
We estimate that the non-recurring costs associated with the Consolidation,
including severance pay, stay bonuses, employee benefits, moving expenses,
non-cancelable lease payments, and other costs, will be approximately $5.1
million, of which approximately $4.1 million was recognized during 2001. See the
"Liquidity and Capital Resources" section for a discussion of the expected
impact of the Consolidation on our future results of operations and cash flows.
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared by us in accordance with accounting principles generally accepted in
the United States of America. The presentation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and disclosure of contingent assets
and liabilities. Our estimates include those related to revenue recognition,
inventory, the valuation of deferred tax assets and liabilities, depreciable
lives of equipment, warranty obligations, and restructuring accruals. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. For a complete description of
our accounting policies, see Item 7 of Management's Discussion and Analysis of
Financial Condition and Results of Operations, "Critical Accounting Policies",
included in our Form 10-K for the year ended December 31, 2001.
10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
NET SALES. Net sales by market for the current and prior year's quarter were as
follows:
Three months ended Three months ended
(In thousands, except %) September 30, 2002 September 30, 2001
------------------ ------------------
Point of sale $4,237 47.9% $ 5,432 41.0%
Gaming and lottery 4,245 48.0 7,120 53.8
Other 370 4.1 682 5.2
------ ----- ------- -----
$8,852 100.0% $13,234 100.0%
====== ===== ======= =====
International $1,501 17.0% $ 1,694 12.8%
====== ===== ======= =====
Net sales for the third quarter of 2002 decreased $4,382,000, or 33%, from the
prior year's third quarter due to significantly lower shipments into the gaming
and lottery market, as well lower shipments into the point of sale ("POS") and
other markets. Overall, international sales decreased by $193,000, or 11%,
primarily due to a reduction in kiosk printer shipments for use in a Canadian
government application (approximately $100,000).
Point of sale: Sales of our POS printers overall decreased by approximately
$1,195,000, or 22% from the same period last year. Due to continued lower
capital spending by users of our POS products and continued softness in demand
from our domestic distributors, domestic POS printer sales declined to
$2,942,000, representing a $994,000, or 25%, decrease from the third quarter of
2001. Despite softness in demand for POS printers, sales of our POSjet line of
inkjet printers increased by approximately 178%.
International POS printer shipments declined by approximately $201,000, or 13%,
to $1,295,000. Shipments of our thermal fiscal printer in Europe declined by
approximately $300,000, to $500,000, in the third quarter of 2002. Although we
continue to pursue sales of our fiscal printer, such sales are principally
project-oriented, and we cannot predict if and when future sales may occur. This
decrease was partially offset by an increase of approximately $100,000 in
service and spare parts revenue for the British Post Office Project. Sales to
ICL Pathway for the British Post Office project, which include printer
shipments, spare parts and service revenue, increased to approximately $400,000
for the third quarter of 2002. We completed shipping printers for the British
Post Office project during the first quarter of 2001, and expect no future sales
for this project, other than spare parts and service of approximately $300,000
in the fourth quarter of 2002. Although we expect continued weakness in our
international POS sales for the remainder of the year, we are actively seeking
additional distribution partners in both Latin America and Europe in order to
increase our breadth of coverage and future sales in these regions.
Due to on-going economic weakness and continued lower capital spending by users
of our POS products, we expect continued worldwide softness in demand for our
POS products for the remainder of 2002. As a result, we expect sales into the
POS market for the fourth quarter of 2002 to be consistent with those reported
for the third quarter of 2002.
Gaming and lottery: Sales of our gaming and lottery printers decreased by
$2,875,000, or 40%, from the third quarter a year ago, primarily due to lower
shipments of our on-line lottery printer, somewhat offset by stronger sales of
our video lottery terminal ("VLT") and slot machine printers.
Shipments to GTECH Corporation ("GTECH") (a worldwide lottery terminal provider
and major customer), which include impact on-line printers and spare parts
revenue, decreased $4,250,000 to approximately $1,850,000 in the third quarter
of 2002. We have orders from GTECH for impact on-line lottery printers, of which
approximately $800,000 will be delivered during the fourth quarter of 2002 and
$500,000 in the first quarter of 2003. We do not expect any further shipments of
impact on-line lottery printers in 2003 beyond the first quarter. In July 2002,
we entered into a 5-year agreement with GTECH to provide a newly-designed
thermal on-line lottery printer. We expect to begin shipping our new thermal
on-line lottery printer in early 2003.
Sales of our gaming printers, which include VLT and slot machine printers, and
related spare parts and repairs, increased by approximately $1,400,000 to
$2,400,000. Because our customers can use these printers for either VLT or
casino applications, and we cannot determine for which application they are
used, we have combined VLT and casino printer sales into a single category,
gaming printer sales, beginning this reporting period. The increase in gaming
printer sales resulted from increased installations of our VLT printers in
several states, including approximately $500,000 of sales of a custom printer to
one customer, and increased sales of our casino printers, primarily for use in
slot machines at casinos throughout North America that print receipts instead of
dropping coins ("ticket-in, ticket-out"). Based on existing orders and sales
opportunities, we expect sales of our casino printers to continue to increase
during the fourth quarter of 2002 and into 2003 as more regulatory approvals are
expected to be obtained and more casinos are expected to convert to ticket-in,
ticket-out slot machines, and sales of our VLT printers to increase in 2003
compared to 2002 due to the VLT initiative in the state of New York.
11
Other: Sales of our printers into other markets decreased by $312,000 or 46%,
from the prior year's comparable quarter. The third quarter of 2001 included
shipments of approximately $100,000 of our thermal kiosk printers for use in a
Canadian government application. No shipments of these printers were made in the
third quarter of 2002. Although the potential for a future order exists, we do
not expect to ship printers for this application during the fourth quarter of
2002. In addition, sales of our other kiosk and banking printers and related
spare parts declined by approximately $200,000. Since printer sales into this
market are principally project-oriented, we cannot predict if and when future
sales may occur.
GROSS PROFIT. Gross profit decreased $1,268,000, or 36%, due primarily to lower
volume of sales. Despite significantly lower sales, the gross margin only
declined by one percentage point to 26.0% from 27.0%. This was largely the
result of an improved sales mix and cost reductions resulting from the
Consolidation. We expect gross margin for the full-year 2002 to be between 26%
and 27%, which is substantially higher that the full-year 2001 gross margin of
22.2%.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $295,000, or 39%, and decreased as a percentage of net sales
to 5.2% from 5.7%. This decrease is primarily due to a reduction in engineering
staff at our Wallingford, CT facility due to the Consolidation.
SELLING AND MARKETING. Selling and marketing expenses decreased $78,000, or 8%.
Such expenses decreased mostly due to lower planned promotional and advertising
expenses and staff reductions resulting from the Consolidation. Selling and
marketing expenses increased as a percentage of net sales to 10.8% from 7.8%,
due to lower volume of sales in the third quarter of 2002 compared to the third
quarter of 2001.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
$406,000, or 28%. The decrease primarily resulted from (1) staff reductions
resulting from the Consolidation and (2) the inclusion in the third quarter of
2001 of $99,000 of accelerated depreciation on certain assets located at the
Company's Wallingford, CT facility (primarily leasehold improvements and
computer equipment) whose useful lives were shortened as a result of the
Consolidation. General and administrative expenses increased as a percentage of
net sales to 11.5% from 10.8% due to lower volume of sales in the third quarter
of 2002 compared to the third quarter of 2001.
BUSINESS CONSOLIDATION AND RESTRUCTURING. We incurred $912,000 of expenses
related to the Consolidation in the third quarter of 2002, compared to
approximately $470,000 in the third quarter a year ago. Approximately $900,000
of the expenses incurred during the third quarter of 2002 were the result of a
revision of our estimate for non-cancelable lease payments included in the
restructuring accrual. Based on regional softness in demand in the commercial
real estate market, we increased our restructuring accrual by $900,000 to
reflect the longer period of time now projected to sublease our Wallingford, CT
facility. The accrual now includes estimated non-cancelable lease payments and
other related costs through September 30, 2004.
The expenses incurred during the third quarter of 2001 included a portion of
employee severance and termination expenses incurred during the quarter, and
facility closure and consolidation expenses (including moving expenses,
estimated non-cancelable lease payments and other costs). See Note 5 to the
Consolidated Condensed Financial Statements.
OPERATING LOSS. During the third quarter of 2002 we reported an operating loss
of $1,040,000, or 11.8% of net sales, compared to an operating loss of $109,000,
or 0.8% of net sales in the third quarter of 2001. The increase in our operating
loss was due to lower gross profit on significantly lower sales and the $912,000
restructuring charge taken in third quarter of 2002, primarily reflecting a
longer period of time now projected to sublease our Wallingford, CT facility.
INTEREST. Net interest expense decreased to $59,000 from $105,000 in the third
quarter of 2001 due largely to a significant reduction in our outstanding
borrowings under our revolving bank facility resulting from receipt of an
advance payment from a customer, and to a lesser extent, lower interest rates.
The cash proceeds for the repayment resulted from the receipt of an advance
payment in February 2002 of approximately $5.8 million from a major
12
customer in advance of printer shipments to be made from March through August
2002. None of the original $5.8 million payment remains outstanding at September
30, 2002. We expect revolving borrowings to remain between approximately $3 and
$4 million during the fourth quarter of 2002, and interest expense to be
slightly higher in the fourth quarter of 2002 than in the third quarter of 2002.
See "Liquidity and Capital Resources" below.
OTHER INCOME. Other income for the third quarter of 2002 and 2001 primarily
includes transaction exchange losses recorded by our UK subsidiary during each
quarter.
INCOME TAXES. We recorded an income tax benefit of $399,000 and $92,000 in the
third quarter of 2002 and 2001, respectively, at an effective rate of
approximately 36.0% in each quarter.
NET LOSS. We reported a net loss during the third quarter of 2002 of $709,000,
or $0.14 per share (basic and diluted) after giving effect to $90,000 of
dividends and accretion charges on preferred stock. This compares to a net loss
of $162,000, or $0.05 per share (basic and diluted) for the third quarter of
2001, after giving effect to $90,000 of dividends and accretion charges on
preferred stock. In future quarters, dividends and accretion charges on
preferred stock will be approximately $90,000, assuming no conversion or
redemption of the preferred stock.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
NET SALES. Net sales by market for the current and prior year's nine month
period were as follows:
Nine months ended Nine months ended
(In thousands, except %) September 30, 2002 September 30, 2001
------------------ ------------------
Point of sale $12,471 41.2% $16,372 48.4%
Gaming and lottery 16,557 54.6 13,861 41.0
Other 1,270 4.2 3,570 10.6
------- ---- ------- ----
$30,298 100.0% $33,803 100.0%
======= ===== ======= =====
International $ 3,585 11.8% $ 7,132 21.1%
======= ===== ======= =====
Net sales for the first nine months of 2002 decreased $3,505,000, or 10%, due to
significantly lower sales into the POS and other markets, somewhat offset by
higher shipments into the Company's gaming and lottery market. Overall,
international sales decreased by $3,547,000, or 50%, largely due to a reduction
in (1) revenue related to the British Post Office project (approximately
$450,000), (2) kiosk printer shipments for use in a Canadian government
application (approximately $1,500,000), (3) shipments of our thermal fiscal
printer in Europe (approximately $1,150,000) and (4) POS revenue through
distribution in Europe and Latin America (approximately $600,000).
Point of sale: Sales of our POS printers decreased approximately $3,901,000, or
24%, in the first nine months of 2002 compared to the first nine months of 2001.
International POS printer shipments decreased approximately $2,198,000, or 41%,
to $3,226,000, for several reasons. First, sales to ICL Pathway for the British
Post Office project, which include printer shipments, spare parts and service
revenue, declined by approximately $450,000 to $1,100,000 for the first nine
months of 2002. We completed shipping printers for the British Post Office
project during the first quarter of 2001, and expect no future sales for this
project, other than spare parts and service of approximately $300,000 in the
fourth quarter of 2002. Secondly, shipments of our thermal fiscal printer in
Europe declined by approximately $1,150,000 to $750,000 in the first nine months
of 2002. Although we continue to pursue sales of our fiscal printer, such sales
are principally project-oriented, and we cannot predict if and when future sales
may occur. Lastly, we experienced a decrease of approximately $600,000 in sales
through distribution, primarily in Latin America, and to a lesser extent, in
Europe. Although we expect continued weakness in our international POS sales for
the remainder of the year, we are actively seeking additional distribution
partners in both Latin America and Europe in order to increase our breadth of
coverage and future sales in these regions.
Domestic POS printer sales totaling $9,245,000 fell by $1,703,000, or 16%, as we
experienced softness in demand from our domestic distributors, particularly in
the first and third quarters of 2002. However, sales in the first nine months of
2002 included increasing sales of our POSjet line of inkjet printers.
13
Due to on-going economic weakness and continued lower capital spending by users
of our POS products, we expect continued worldwide softness in demand for our
POS products for the remainder of 2002. As a result, we expect sales into the
POS market for the fourth quarter of 2002 to be consistent with those reported
for the third quarter of 2002.
Gaming and lottery: Sales into the gaming and lottery market increased by
$2,696,000, or 19%, from the first nine months a year ago, primarily due to
stronger sales of our video lottery terminal ("VLT") and slot machine printers,
and higher sales of lottery printers to GTECH.
Shipments to GTECH, which include on-line and in-lane lottery printers and spare
parts revenue, increased $250,000 to approximately $9,750,000 in the first nine
months of 2002. Sales of impact on-line lottery printers and spare parts totaled
approximately $9,100,000 in the first nine months of 2002, compared to
$9,400,000 in the first nine months of 2001. We have orders from GTECH for
impact on-line lottery printers, of which approximately $800,000 will be
delivered during the fourth quarter of 2002 and $500,000 in the first quarter of
2003. We do not expect any further shipments of impact on-line lottery printers
in 2003 beyond the first quarter. Shipments of in-lane lottery printers totaled
approximately $650,000 in first nine months of 2002 compared to $100,000 in the
first nine months of 2001. Since sales of in-lane lottery printers are
project-oriented, we cannot predict if and when future sales may occur. In July
2002, we entered into a 5-year agreement with GTECH to provide a newly designed
thermal on-line lottery printer. We expect to begin shipping our new thermal
on-line lottery printer in early 2003.
Sales of our gaming printers, which include VLT and slot machine printers, and
related spare parts and repairs, increased by approximately $2,500,000 to
$6,800,000. Because our customers can use these printers for either VLT or
casino applications, and we cannot determine for which application they are
used, we have combined VLT and casino printer sales into a single category,
gaming printer sales, beginning this reporting period. The increase in gaming
printer sales resulted from increased installations of our VLT printers in West
Virginia and other states, including approximately $1,400,000 of sales of a
custom printer to one customer, and increased sales of our casino printers,
primarily for use in slot machines at casinos throughout North America that
print receipts instead of dropping coins ("ticket-in, ticket-out"). Based on
existing orders and sales opportunities, we expect sales of our casino printers
to continue to increase during the fourth quarter of 2002 and into 2003 as more
regulatory approvals are expected to be obtained and more casinos are expected
to convert to ticket-in, ticket-out slot machines, and sales of our VLT printers
to increase in 2003 compared to 2002 due to the VLT initiative in the state of
New York.
Other: Sales of our printers into other markets decreased by $2,300,000 or 64%,
to $1,270,000 from the first nine months of 2001. The first nine months of 2001
included shipments of approximately $1,500,000 of our thermal kiosk printers for
use in a Canadian government application. No shipments of these printers were
made in the first nine months of 2002. Although the potential for a future order
exists, we do not expect to ship printers for this application during the fourth
quarter of 2002. In addition, sales of our other kiosk and banking printers and
related spare parts declined by approximately $800,000. Since printer sales into
this market are principally project-oriented, we cannot predict if and when
future sales may occur.
GROSS PROFIT. Gross profit increased by $254,000, or 3%, to $8,040,000, and the
gross margin also increased to 26.5% from 23.0%. Both gross profit and gross
margin for the first nine months of 2002 benefited from an improved sales mix
and cost reductions resulting from the Consolidation. We expect gross margin for
the full-year 2002 to be between 26% and 27%, which is substantially higher that
the full-year 2001 gross margin of 22.2%.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $936,000, or 38%, and also decreased as a percentage of net
sales to 5.0% from 7.2%. This decrease is primarily due to a reduction in
engineering staff at our Wallingford, CT facility due to the Consolidation.
SELLING AND MARKETING. Selling and marketing expenses decreased $408,000, or
12%, and decreased as a percentage of net sales to 10.1% from 10.3%. Such
expenses decreased mostly due to lower planned promotional and advertising
expenses and staff reductions resulting from the Consolidation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
$1,255,000, or 28%, and decreased as a percentage of net sales to 10.9% from
13.5%. The decrease primarily resulted from (1) staff reductions resulting from
the Consolidation and (2) the inclusion in the first nine months of 2001 of
$296,000 of accelerated depreciation on certain assets located at the Company's
Wallingford, CT facility (primarily leasehold improvements and computer
equipment) whose useful lives were shortened as a result of the Consolidation.
14
BUSINESS CONSOLIDATION AND RESTRUCTURING. We incurred $958,000 of expenses
related to the Consolidation in the first nine months of 2002. These expenses
were substantially the result of a revision to our estimate for non-cancelable
lease payments included in the restructuring accrual at September 30, 2002.
Based on regional softness in demand in the commercial real estate market, we
increased our restructuring accrual by $900,000 to reflect the longer period of
time now projected to sublease our Wallingford, CT facility. The accrual now
includes estimated non-cancelable lease payments and other related costs through
September 30, 2004.
During the first nine months of 2001, we incurred approximately $1,916,000 of
expenses, which included a portion of employee severance and termination
expenses incurred during the period, and facility closure and consolidation
expenses (including moving expenses, estimated non-cancelable lease payments and
other costs). See Note 5 to the Consolidated Condensed Financial Statements.
OPERATING LOSS. During the first nine months of 2002 we reported an operating
loss of $807,000, or 2.7% of net sales, compared to an operating loss of
$4,618,000 in the first nine months of 2001. The reduction in our operating loss
was due to (1) significantly reduced operating expenses as a direct result of
the Consolidation, (2) lower Consolidation expenses and (3) higher gross margin.
INTEREST. Net interest expense decreased to $148,000 from $287,000 in the first
nine months of 2001 due largely to a significant reduction in our outstanding
borrowings under our revolving bank facility resulting from receipt of an
advance payment from a customer, and to a lesser extent, lower interest rates.
The cash proceeds for the repayment resulted from the receipt of an advance
payment in February 2002 of approximately $5.8 million from a major customer in
advance of printer shipments to be made from March through August 2002. See Note
4 to the Consolidated Condensed Financial Statements. None of the original $5.8
million payment remains outstanding at September 30, 2002. We expect revolving
borrowings to remain between approximately $3 and $4 million during the fourth
quarter of 2002, and interest expense to be slightly higher in the fourth
quarter of 2002 than in the third quarter of 2002. See "Liquidity and Capital
Resources" below.
OTHER INCOME. Other income for the first nine months of 2002 includes a one-time
gain of $145,000 resulting from the receipt of 2,146 shares of common stock from
our health insurance company, Anthem, Inc., upon its demutualization. We sold
these shares during the third quarter of 2002. This gain was partially offset by
approximately $50,000 of transaction exchange loss recorded by our UK subsidiary
in the first nine months of the year, due to the strengthening of the British
pound against the dollar, mostly in the second quarter of 2002.
INCOME TAXES. We recorded an income tax benefit of $310,000 and $1,766,000 in
the first nine months of 2002 and 2001, respectively, at an effective rate of
approximately 36.0% in each period.
NET LOSS. We reported a net loss during the first nine months of 2002 of
$549,000, or $0.15 per share (basic and diluted) after giving effect to $269,000
of dividends and accretion charges on preferred stock,. This compares to a net
loss of $3,139,000, or $0.61 per share (basic and diluted) after giving effect
to $269,000 of dividends and accretion charges on preferred stock in the first
nine months of 2001. In future quarters, dividends and accretion charges on
preferred stock will be approximately $90,000, before the effect of any
conversion or redemption of the preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
We generated cash from operations of $1,987,000 in the nine months of 2002,
compared to using cash in operations of $1,567,000 in the first nine months of
2001. The significant increase in cash generated from operations in the first
nine months of 2002 was largely the result of a significantly reduced net loss.
During the first nine months of 2002, we reported a net loss of $549,000
compared to $3,139,000 in the first nine months of 2001.
During the first nine months of 2002, depreciation and amortization totaled
$1,678,000 compared to $2,375,000 in the first nine months of 2001. Such
expenses in the 2001 period included accelerated depreciation and depreciation
on certain leasehold improvements and other fixed assets that were disposed of
during 2001 as a result of the Consolidation. Receivables increased only
slightly from year-end (approximately $40,000). Inventories were reduced in the
first nine months of 2002 by approximately $2,672,000 due to tighter inventory
management. Despite our continued focus on inventory reduction, we expect
inventories to somewhat increase in the fourth quarter of 2002 due primarily to
anticipated increasing sales of our gaming printers. Accrued liabilities and
other liabilities increased by $777,000, primarily due to an increase in
deferred revenue on an extended warranty contract with a certain customer.
15
Offsetting the activities providing cash in the quarter was a net reduction in
the restructuring accrual of $994,000, representing payouts for severance pay
and related benefits of 1,952,000 offset by an additional accrual of $958,000,
primarily for lease termination expenses (See "Consolidation" below). Accounts
payable declined by $1,057,000, largely the result of a significant reduction in
our inventories. We expect accounts payable to increase in the fourth quarter of
2002 in proportion to our expected inventory increase.
Our capital expenditures were approximately $374,000 and $1,143,000 in the first
nine months of 2002 and 2001, respectively. These expenditures for 2002
primarily included new product tooling and computer equipment. We expect capital
expenditures for the fourth quarter of 2002 to be approximately $400,000,
primarily for tooling for our new thermal lottery printer for GTECH.
We used $1,506,000 in financing activities, largely due to repayments on our
revolving credit facility and payments of cash dividends on our preferred stock.
WORKING CAPITAL
Our working capital increased to $8,803,000 at September 30, 2002 from
$8,366,000 at December 31, 2001. The current ratio also increased to 2.27 to 1
at September 30, 2002 from 1.90 to 1 at December 31, 2001. The increase in both
working capital and the current ratio were largely due to (1) lower accounts
payable ($1,057,000) and (2) the classification of $937,000 of our restructuring
accrual as a long-term liability at September 30, 2002. The long-term portion of
the restructuring accrual represents the portion of non-cancelable lease
termination costs and other costs expected to be paid beyond one year.
CREDIT FACILITY AND BORROWINGS
On May 25, 2001, we entered into a three-year, $13.5 million credit facility
(the "LaSalle Credit Facility") with LaSalle Business Credit, Inc. ("LaSalle")
expiring on May 25, 2004 to replace a prior credit facility with Webster Bank.
The LaSalle Credit Facility provides a $12 million revolving credit line, a $0.5
million term loan and a $1 million equipment loan facility. Borrowings under the
LaSalle Credit Facility bear a floating rate of interest based on LaSalle's
prime rate. Under certain circumstances, we may select a fixed interest rate for
a specified period of time of up to 180 days on borrowings based on the current
LIBOR rate.
On October 30, 2001, we amended the LaSalle Credit Facility. Under the terms of
the amendment ("LaSalle Amendment No.1"), LaSalle, in consideration of certain
waivers and other matters, (1) increased the floating rate of interest on
borrowings under the revolving credit line to LaSalle's prime rate plus 1.0%, or
the current LIBOR rate plus 3.5%, and (2) increased the floating rate of
interest on borrowings under the term loan and equipment loan to LaSalle's prime
rate plus 1.5%, or the current LIBOR rate plus 4.0%. Upon execution of LaSalle
Amendment No. 1, we paid a fee of $20,000 to LaSalle.
On December 21, 2001, we amended the LaSalle Credit Facility to reset certain
financial covenants for 2002 and beyond ("LaSalle Amendment No. 2). Upon
execution of LaSalle Amendment No. 2, we paid a fee of $5,000 to LaSalle.
On November 12, 2002, we amended the LaSalle Credit Facility. Under the terms of
the amendment ("LaSalle Amendment No. 3"), LaSalle (1) waived compliance with
the minimum EBITDA, minimum tangible net worth and fixed charge coverage ratio
financial covenants as of September 30, 2002 and (2) revised these covenants to
exclude the effect of $900,000, of the total $912,000, of restructuring charges
incurred in the third quarter. Absent the $900,000 restructuring charge, we
would have been in compliance with the above covenants at September 30, 2002.
Upon execution of LaSalle Amendment No. 3, we paid a fee of $20,000 to LaSalle.
As of September 30, 2002, we had $3,652,000 of outstanding borrowings on the
revolving credit line compared to $4,994,000 outstanding at December 31, 2001.
We expect our outstanding borrowings on the revolving credit line to remain
between approximately $3 to $4 million during the fourth quarter 2002. At
September 30, 2002 we had $375,000 outstanding under the term loan, compared to
$450,000 at December 31, 2001. Annual principal payments on the term loan are
$100,000. There were no borrowings under the equipment loan.
PREFERRED STOCK
In connection with its 7% Series B Cumulative Convertible Redeemable Preferred
Stock (the "Preferred Stock"), we paid $70,000 of cash dividends to Advance
Capital Advisors, L.P. in each of the first three quarters of 2002 and 2001, and
expect to pay $70,000 per quarter for the remainder of 2002. The preferred stock
is redeemable at the option of the holders on April 7, 2005 for an aggregate of
$4,000,000 plus any unpaid dividends.
16
CONSOLIDATION EXPENSES
During 2001, we incurred approximately $4,096,000 of business consolidation,
restructuring and related charges 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. The Consolidation was substantially completed in 2001. We
believe that the Consolidation will significantly lower our cost structure in
2002, with estimated annual cost savings of approximately $4.0 million compared
to 2001. The first nine months of 2002 operating results reflect a significant
portion of these cost savings.
During the third quarter of 2002, we revised our estimate for non-cancelable
lease payments included in the restructuring accrual. Based on regional softness
in demand in the commercial real estate market, we increased the restructuring
accrual by $900,000 to reflect the longer period of time now projected to
sublease our Wallingford, CT facility. The accrual now includes estimated
non-cancelable lease payments and other related costs through September 30,
2004.
For the first nine months of 2002, we've incurred $958,000 of expenses related
to the Consolidation, including $900,000 related to non-cancelable lease
payments described above. We expect to incur an additional $50,000 of
non-recurring costs associated with the Consolidation during the remainder of
2002.
We now estimate that the non-recurring costs associated with the Consolidation,
including severance pay, stay bonuses, employee benefits, moving expenses,
non-cancelable lease payments, and other costs, will be approximately $5.1
million, of which approximately $4.1 million was recognized during 2001. Of the
total of $5,100,000 of expenses, approximately $4,400,000 require cash outlays.
We paid approximately $1,952,000 of these costs in the first nine months of
2002, and $400,000 in 2001. We expect to pay the remaining $2 million of accrued
expenses at September 30, 2002 as follows: approximately $300,000 in the fourth
quarter of 2002; $700,000 in 2003; and $1,000,000 in 2004.
RESOURCE SUFFICIENCY
We believe that cash flows generated from operations and borrowings available
under the LaSalle Credit Facility, as amended, will provide sufficient resources
to meet our working capital needs, including costs associated with the
Consolidation, finance our capital expenditures and meet our liquidity
requirements through December 31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily to
borrowings under our Credit Facility with LaSalle Business Credit. These
borrowings bear interest at variable rates and the fair value of this
indebtedness is not significantly affected by changes in market interest rates.
An effective increase or decrease of 10% in the current effective interest rates
under the Credit Facility would not have a material effect on our results of
operations or cash flow.
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. The effect of an immediate 10%
change in exchange rates would not have a material impact on our future results
of operations or cash flow.
17
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days of the filing of this report, an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
was conducted under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures were adequate and designed to
ensure that information required to be disclosed by the Company in this report
is recorded, processed, summarized and reported in a timely manner, including
that such information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
There were no significant changes in internal controls or in other factors that
could significantly affect internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses in internal
controls, subsequent to the evaluation described above.
Reference is made to the Certifications of the Chief Executive Officer and Chief
Financial Officer about these and other matters following the signature page of
this report.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits filed herein
Exhibit 10.28 Waiver and Amendment No. 3 to Loan
and Security Agreement dated as of
May 25, 2001 among TransAct
Technologies Incorporated, LaSalle
Business Credit, Inc. and the
institutions from time to time a
party hereto.
Exhibit 11.1 Computation of earnings per share
Exhibit 99.1 Certification pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to
section 906 of the Sarbanes-Oxley
Act of 2002
b. Reports on Form 8-K
Reports on Form 8-K were filed on July 8, 2002 and
July 31, 2002 to report under Item 9 press releases
pursuant to Rule 100(e) of Regulation FD.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
(Registrant)
November 13, 2002 /s/ Richard L. Cote
------------------------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Steven A. DeMartino
------------------------------------
Steven A. DeMartino
Senior Vice President, Finance and
Information Technology
(Principal Accounting Officer)
19
CERTIFICATION
I, Bart C. Shuldman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TransAct Technologies
Incorporated;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Bart C. Shuldman
Bart C. Shuldman
Chairman, President and Chief Executive Officer
20
CERTIFICATION
I, Richard L. Cote, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TransAct Technologies
Incorporated;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Richard L. Cote
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
21
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
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10.28 Waiver and Amendment No. 3 to Loan and Security Agreement dated as of May 25, 2001
among TransAct Technologies Incorporated, LaSalle Business Credit, Inc. and the
institutions from time to time a party hereto.
11.1 Computation of earnings per share.
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002