##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: September 27, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File Number: 000-03905
 Transcat, Inc.
  Ohio
    
    16-0874418(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 35
Vantage Point Drive, Rochester, New York 14624
  (585) 352-7777
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



Page(s)PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements:Statements of Operations and Comprehensive Income for the Second
Quarter and Six Months Ended September 27, 2008 and September 29,
2007
    
    
    3Balance Sheets as of September 27, 2008 and March 29, 2008
    
    
    4Statements of Cash Flows for the Six Months Ended September 27, 2008
and September 29, 2007
    
    
    5Statements of Shareholders Equity for the Six Months Ended September
27, 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-12Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13-23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    23-24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24-25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26INDEX TO EXHIBITS
    
    
    27EX-3.1EX-10.1EX-10.2EX-10.3EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (Unaudited)
    
    
    (Unaudited)Second Quarter Ended
    
    
    Six Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Product Sales
    
    $
    12,954
    
    
    $
    11,219
    
    
    $
    25,265
    
    
    $
    22,146Service Revenue
    
    
    5,656
    
    
    
    5,406
    
    
    
    11,198
    
    
    
    10,669Net Revenue
    
    
    18,610
    
    
    
    16,625
    
    
    
    36,463
    
    
    
    32,815Cost of Products Sold
    
    
    9,568
    
    
    
    8,089
    
    
    
    18,517
    
    
    
    15,955Cost of Services Sold
    
    
    4,468
    
    
    
    4,290
    
    
    
    8,847
    
    
    
    8,387Total Cost of Products
and Services Sold
    
    
    14,036
    
    
    
    12,379
    
    
    
    27,364
    
    
    
    24,342Gross Profit
    
    
    4,574
    
    
    
    4,246
    
    
    
    9,099
    
    
    
    8,473Selling, Marketing and Warehouse Expenses
    
    
    2,122
    
    
    
    2,018
    
    
    
    4,717
    
    
    
    4,323Administrative Expenses
    
    
    1,713
    
    
    
    1,634
    
    
    
    3,255
    
    
    
    3,107Total Operating Expenses
    
    
    3,835
    
    
    
    3,652
    
    
    
    7,972
    
    
    
    7,430Operating Income
    
    
    739
    
    
    
    594
    
    
    
    1,127
    
    
    
    1,043Interest Expense
    
    
    28
    
    
    
    29
    
    
    
    27
    
    
    
    63Other Expense, net
    
    
    4
    
    
    
    209
    
    
    
    12
    
    
    
    290Total Other Expense
    
    
    32
    
    
    
    238
    
    
    
    39
    
    
    
    353Income Before Income Taxes
    
    
    707
    
    
    
    356
    
    
    
    1,088
    
    
    
    690Provision for Income Taxes
    
    
    277
    
    
    
    162
    
    
    
    430
    
    
    
    258Net Income
    
    
    430
    
    
    
    194
    
    
    
    658
    
    
    
    432Other Comprehensive (Loss) Income
    
    
    (11
    )
    
    
    265
    
    
    
    (3
    )
    
    
    457Comprehensive Income
    
    $
    419
    
    
    $
    459
    
    
    $
    655
    
    
    $
    889Basic Earnings Per Share
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.06Average Shares Outstanding
    
    
    7,282
    
    
    
    7,127
    
    
    
    7,239
    
    
    
    7,099Diluted Earnings Per Share
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.06Average Shares Outstanding
    
    
    7,511
    
    
    
    7,577
    
    
    
    7,453
    
    
    
    7,474
  3




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)September 27,
    
    
    March 29,2008
    
    
    2008ASSETSCurrent Assets:Cash
    
    $
    184
    
    
    $
    208Accounts Receivable, less allowance for doubtful accounts of $70
and $56 as of September 27, 2008 and March 29, 2008, respectively
    
    
    9,105
    
    
    
    9,346Other Receivables
    
    
    938
    
    
    
    370Inventory, net
    
    
    5,844
    
    
    
    5,442Prepaid Expenses and Other Current Assets
    
    
    1,227
    
    
    
    773Deferred Tax Asset
    
    
    462
    
    
    
    248Total Current Assets
    
    
    17,760
    
    
    
    16,387Property and Equipment, net
    
    
    3,563
    
    
    
    3,211Goodwill
    
    
    7,460
    
    
    
    2,967Intangible Asset
    
    
    1,191
    
    
    
    Deferred Tax Asset
    
    
    1,190
    
    
    
    1,435Other Assets
    
    
    367
    
    
    
    344Total Assets
    
    $
    31,531
    
    
    $
    24,344LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    6,064
    
    
    $
    5,947Accrued Compensation and Other Liabilities
    
    
    2,921
    
    
    
    2,489Income Taxes Payable
    
    
    296
    
    
    
    62Total Current Liabilities
    
    
    9,281
    
    
    
    8,498Long-Term Debt
    
    
    4,347
    
    
    
    302Other Liabilities
    
    
    503
    
    
    
    427Total Liabilities
    
    
    14,131
    
    
    
    9,227Shareholders Equity:Common Stock, par value $0.50 per share, 30,000,000 shares authorized;
7,633,694 and 7,446,223 shares issued as of September 27, 2008 and
March 29, 2008, respectively; 7,357,912 and 7,170,441 shares
outstanding as of September 27, 2008 and March 29, 2008, respectively
    
    
    3,817
    
    
    
    3,723Capital in Excess of Par Value
    
    
    8,183
    
    
    
    6,649Accumulated Other Comprehensive Income
    
    
    433
    
    
    
    436Retained Earnings
    
    
    5,955
    
    
    
    5,297Less: Treasury Stock, at cost, 275,782 shares as of
September 27, 2008 and March 29, 2008
    
    
    (988
    )
    
    
    (988
    )Total Shareholders Equity
    
    
    17,400
    
    
    
    15,117Total Liabilities and Shareholders Equity
    
    $
    31,531
    
    
    $
    24,344
  4




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Unaudited)Six Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Cash Flows from Operating Activities:Net Income
    
    $
    658
    
    
    $
    432Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:Deferred Income Taxes
    
    
    55
    
    
    
    (85
    )Depreciation and Amortization
    
    
    772
    
    
    
    788Provision for (Recovery of) Accounts Receivable and Inventory Reserves
    
    
    84
    
    
    
    (63
    )StockBased Compensation Expense
    
    
    355
    
    
    
    428Changes in Assets and Liabilities:Accounts Receivable and Other Receivables
    
    
    654
    
    
    
    892Inventory
    
    
    (40
    )
    
    
    749Prepaid Expenses and Other Assets
    
    
    (710
    )
    
    
    (602
    )Accounts Payable
    
    
    (269
    )
    
    
    104Accrued Compensation and Other Liabilities
    
    
    (601
    )
    
    
    (595
    )Income Taxes Payable
    
    
    45
    
    
    
    174Net Cash Provided by Operating Activities
    
    
    1,003
    
    
    
    2,222Cash Flows from Investing Activities:Purchase of Property and Equipment
    
    
    (587
    )
    
    
    (999
    )Purchase of Westcon, Inc., net of cash acquired
    
    
    (4,625
    )
    
    
    Net Cash Used in Investing Activities
    
    
    (5,212
    )
    
    
    (999
    )Cash Flows from Financing Activities:Chase Revolving Line of Credit, net
    
    
    4,026
    
    
    
    (1,576
    )Issuance of Common Stock
    
    
    119
    
    
    
    160Excess Tax Benefits Related to StockBased Compensation
    
    
    41
    
    
    
    Net Cash Provided by (Used in) Financing Activities
    
    
    4,186
    
    
    
    (1,407
    )Effect of Exchange Rate Changes on Cash
    
    
    (1
    )
    
    
    15Net Decrease in Cash
    
    
    (24
    )
    
    
    (169
    )Cash at Beginning of Period
    
    
    208
    
    
    
    357Cash at End of Period
    
    $
    184
    
    
    $
    188Supplemental Disclosures of Cash Flow Activity:Cash paid during the period for:Interest
    
    $
    18
    
    
    $
    69Income Taxes, net
    
    $
    260
    
    
    $
    177Supplemental Disclosure of NonCash Investing Activity:Stock Issued in Connection with Business Acquisition
    
    $
    1,113
    
    
    $
    
  5




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 CapitalCommon Stock
    
    
    In
    
    
    Accumulated
    
    
    
    
    
    
    Treasury StockIssued
    
    
    Excess
    
    
    Other
    
    
    
    
    
    
    Outstanding$0.50 Par Value
    
    
    of Par
    
    
    Comprehensive
    
    
    Retained
    
    
    at CostShares
    
    
    Amount
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of March 29, 2008
    
    
    7,446
    
    
    $
    3,723
    
    
    $
    6,649
    
    
    $
    436
    
    
    $
    5,297
    
    
    
    276
    
    
    $
    (988
    )
    
    $
    15,117Issuance of Common Stock
    
    
    188
    
    
    
    94
    
    
    
    1,138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,232Stock-Based Compensation
    
    
    
    
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355Tax Benefit from Stock-Based
Compensation
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Comprehensive Income:Currency Translation
Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Unrecognized Prior Service
Cost, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658
    
    
    
    
    
    
    
    
    
    
    
    658Balance as of September 27, 2008
    
    
    7,634
    
    
    $
    3,817
    
    
    $
    8,183
    
    
    $
    433
    
    
    $
    5,955
    
    
    
    276
    
    
    $
    (988
    )
    
    $
    17,400
  6




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##### Table of Contents



TRANSCAT, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 1  GENERAL
 Description of Business:
 Basis of Presentation:
 Principles of Consolidation:
  Stock-Based Compensation:
   Expected life
    
    6 yearsAnnualized volatility rate
    
    
    61.3
    %Risk-free rate of return
    
    
    3.3
    %Dividend rate
    
    
    0.0
    %
  7




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##### Table of Contents



Foreign Currency Translation and Transactions:
  Earnings Per Share:
  Second Quarter Ended
    
    Six Months EndedSeptember 27,
    
    September 29,
    
    September 27,
    
    September 29,2008
    
    2007
    
    2008
    
    2007Shares Outstanding:Dilutive
    
    
    229
    
    
    
    450
    
    
    
    214
    
    
    
    375Anti-dilutive
    
    
    559
    
    
    
    626
    
    
    
    574
    
    
    
    701Total
    
    
    788
    
    
    
    1,076
    
    
    
    788
    
    
    
    1,076Range of Exercise Prices per
Share:Options
    
    $
    2.20-$7.72
    
    
    $
    1.50-$7.72
    
    
    $
    2.20-$7.72
    
    
    $
    1.50-$7.72Warrants
    
    $
    2.83-$5.80
    
    
    $
    1.50-$5.80
    
    
    $
    2.83-$5.80
    
    
    $
    1.50-$5.80
 Reclassification of Amounts:
 8




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##### Table of Contents



Recently Issued Accounting Pronouncements:
 NOTE 2  DEBT
 Description.
 Interest and Commitment Fees. 1 2
 Covenants.
 Other Terms.
 NOTE 3  STOCK-BASED COMPENSATION
  Stock Options:
  Weighted
    
    
    Weighted AverageNumber
    
    
    Average
    
    
    Remaining
    
    
    AggregateOf
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term (in years)
    
    
    ValueOutstanding as of March 29, 2008
    
    
    656
    
    
    $
    5.64Granted
    
    
    20
    
    
    
    6.75Exercised
    
    
    (1
    )
    
    
    2.89Cancelled/Forfeited
    
    
    (4
    )
    
    
    6.35Outstanding as of September 27, 2008
    
    
    671
    
    
    
    5.68
    
    
    
    8
    
    
    $
    1,068Exercisable as of September 27, 2008
    
    
    287
    
    
    
    4.02
    
    
    
    7
    
    
    
    873
  9




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##### Table of Contents



Restricted Stock:
  WeightedAverageNumber
    
    PriceOf Shares
    
    Per ShareUnvested Balance as of March 29, 2008
    
    
    
    
    
    $
    Granted
    
    
    53
    
    
    
    6.80Vested
    
    
    
    
    
    
    Unvested Balance as of September 27, 2008
    
    
    53
    
    
    
    6.80
  Warrants:
  Weighted
    
    
    Weighted AverageNumber
    
    
    Average
    
    
    Remaining
    
    
    AggregateOf
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term (in years)
    
    
    ValueOutstanding as of March 29, 2008
    
    
    99
    
    
    $
    3.75Granted
    
    
    
    
    
    
    Exercised
    
    
    (30
    )
    
    
    2.55Cancelled/Forfeited
    
    
    (4
    )
    
    
    5.25Outstanding as of September 27, 2008
    
    
    65
    
    
    
    4.23
    
    
    
    2
    
    
    $
    179Exercisable as of September 27, 2008
    
    
    59
    
    
    
    4.09
    
    
    
    2
    
    
    
    173
  10




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NOTE 4  SEGMENT INFORMATION
  Second Quarter Ended
    
    
    Six Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Revenue:Product Sales
    
    $
    12,954
    
    
    $
    11,219
    
    
    $
    25,265
    
    
    $
    22,146Service Revenue
    
    
    5,656
    
    
    
    5,406
    
    
    
    11,198
    
    
    
    10,669Total
    
    
    18,610
    
    
    
    16,625
    
    
    
    36,463
    
    
    
    32,815Gross Profit:Product
    
    
    3,386
    
    
    
    3,130
    
    
    
    6,748
    
    
    
    6,191Service
    
    
    1,188
    
    
    
    1,116
    
    
    
    2,351
    
    
    
    2,282Total
    
    
    4,574
    
    
    
    4,246
    
    
    
    9,099
    
    
    
    8,473Operating Expenses:Product
    
    
    2,321
    
    
    
    2,217
    
    
    
    4,735
    
    
    
    4,580Service
    
    
    1,514
    
    
    
    1,435
    
    
    
    3,237
    
    
    
    2,850Total
    
    
    3,835
    
    
    
    3,652
    
    
    
    7,972
    
    
    
    7,430Operating Income
    
    
    739
    
    
    
    594
    
    
    
    1,127
    
    
    
    1,043Unallocated Amounts:Other Expense, net
    
    
    32
    
    
    
    238
    
    
    
    39
    
    
    
    353Provision for Income Taxes
    
    
    277
    
    
    
    162
    
    
    
    430
    
    
    
    258Total
    
    
    309
    
    
    
    400
    
    
    
    469
    
    
    
    611Net Income
    
    $
    430
    
    
    $
    194
    
    
    $
    658
    
    
    $
    432
 NOTE 5  ACQUISITION
     11




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Purchase Price Paid:Cash Paid to Seller at Closing
    
    $
    4,216Westcon Debt Paid by Transcat at Closing
    
    
    466Fair Value of Common Stock Issued
    
    
    1,113Cash Paid to Seller in November 2008
    
    
    1,017Direct Acquisition Costs
    
    
    116Total Purchase Price
    
    $
    6,928Allocation of Purchase Price:Intangible Asset  Customer Base
    
    $
    1,206Goodwill
    
    
    4,4985,704Plus: Current Assets
    
    
    1,675Non-Current Assets
    
    
    274Less: Current Liabilities
    
    
    (658
    )Non-Current Liabilities
    
    
    (67
    )Total Purchase Price
    
    $
    6,928
    (Unaudited)
    
    (Unaudited)Second Quarter Ended
    
    Six Months EndedSeptember 27,
    
    September 29,
    
    September 27,
    
    September 29,2008
    
    2007
    
    2008
    
    2007Net Revenue
    
    $
    19,614
    
    
    $
    19,731
    
    
    $
    39,613
    
    
    $
    37,875Net Income
    
    $
    404
    
    
    $
    364
    
    
    $
    514
    
    
    $
    452Basic Earnings Per Share
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.06Diluted Earnings Per Share
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.06
 NOTE 6  COMMITMENTS
  12




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Accounts Receivable:
 Stock-Based Compensation.
   Revenue Recognition.
 13




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##### Table of Contents



Reclassification of Amounts:
 RESULTS OF OPERATIONS
  (Unaudited)
    
    (Unaudited)Second Quarter Ended
    
    Six Months EndedSeptember 27,
    
    September 29,
    
    September 27,
    
    September 29,2008
    
    2007
    
    2008
    
    2007As a Percentage of Net Revenue:Product Sales
    
    
    69.6
    %
    
    
    67.5
    %
    
    
    69.3
    %
    
    
    67.5
    %Service Revenue
    
    
    30.4
    %
    
    
    32.5
    %
    
    
    30.7
    %
    
    
    32.5
    %Net Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Product Gross Profit
    
    
    26.1
    %
    
    
    27.9
    %
    
    
    26.7
    %
    
    
    28.0
    %Service Gross Profit
    
    
    21.0
    %
    
    
    20.6
    %
    
    
    21.0
    %
    
    
    21.4
    %Total Gross Profit
    
    
    24.6
    %
    
    
    25.5
    %
    
    
    25.0
    %
    
    
    25.8
    %Selling, Marketing and Warehouse Expenses
    
    
    11.4
    %
    
    
    12.1
    %
    
    
    12.9
    %
    
    
    13.2
    %Administrative Expenses
    
    
    9.2
    %
    
    
    9.8
    %
    
    
    8.9
    %
    
    
    9.5
    %Total
Operating Expenses
    
    
    20.6
    %
    
    
    21.9
    %
    
    
    21.8
    %
    
    
    22.7
    %Operating Income
    
    
    4.0
    %
    
    
    3.6
    %
    
    
    3.2
    %
    
    
    3.1
    %Interest Expense
    
    
    0.2
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.2
    %Other Expense, net
    
    
    
    
    
    
    1.3
    %
    
    
    
    
    
    
    0.9
    %Total Other Expense
    
    
    0.2
    %
    
    
    1.5
    %
    
    
    0.1
    %
    
    
    1.1
    %Income Before Income Taxes
    
    
    3.8
    %
    
    
    2.1
    %
    
    
    3.1
    %
    
    
    2.0
    %Provision for Income Taxes
    
    
    1.5
    %
    
    
    1.0
    %
    
    
    1.2
    %
    
    
    0.8
    %Net Income
    
    
    2.3
    %
    
    
    1.1
    %
    
    
    1.9
    %
    
    
    1.2
    %
 14




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##### Table of Contents



SECOND QUARTER ENDED SEPTEMBER 27, 2008 COMPARED TO SECOND QUARTER ENDED SEPTEMBER 29, 2007
(dollars in thousands):
 Revenue:
 Second Quarter EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Net Revenue:Product Sales
    
    $
    12,954
    
    
    $
    11,219Service Revenue
    
    
    5,656
    
    
    
    5,406Total
    
    $
    18,610
    
    
    $
    16,625
   FY 2009
    
    
    FY 2008Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Growth (Decline)
    
    
    15.5
    %
    
    
    12.7
    %
    
    
    
    (2.4
    %)
    
    
    5.8
    %
    
    
    13.6
    %
    
    
    3.7
    %
  FY 2009
    
    
    FY 2008Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Per Business Day
    
    $
    206
    
    
    $
    192
    
    
    
    $
    197
    
    
    $
    213
    
    
    $
    178
    
    
    $
    171
  FY 2009 Second Quarter
    
    
    FY 2008 Second QuarterPercent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (1)
    
    
    Net Sales
    
    Profit % (1)Direct
    
    
    77.6
    %
    
    
    25.8
    %
    
    
    
    84.9
    %
    
    
    27.0
    %Reseller
    
    
    20.8
    %
    
    
    18.2
    %
    
    
    
    13.5
    %
    
    
    18.0
    %Freight Billed to Customers
    
    
    1.6
    %
    
    
    
    
    
    
    
    1.6
    %Total
    
    
    100.0
    %
    
    
    
    
    
    
    
    100.0
    %
 
 (1)
    
    Calculated as net sales less purchase costs divided by net sales. 15




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##### Table of Contents



FY 2009
    
    
    FY 2008Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Total Pending Product Shipments
    
    $
    1,398
    
    
    $
    1,366
    
    
    
    $
    1,419
    
    
    $
    1,411
    
    
    $
    1,689
    
    
    $
    1,678% of Pending Product Shipments
That are Backorders
    
    
    70.7
    %
    
    
    74.7
    %
    
    
    
    81.5
    %
    
    
    78.1
    %
    
    
    74.1
    %
    
    
    81.0
    %
   FY 2009
    
    
    FY 2008Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Revenue Growth
    
    
    4.6
    %
    
    
    5.3
    %
    
    
    
    10.6
    %
    
    
    9.9
    %
    
    
    8.6
    %
    
    
    5.6
    %
  FY 2009 Second
    
    
    
    FY 2008 SecondQuarter
    
    
    
    Quarter% of
    
    
    
    
    
    
    
    % ofService
    
    
    Service
    
    
    
    Service
    
    
    ServiceSegment
    
    
    Segment
    
    
    
    Segment
    
    
    SegmentRevenue
    
    
    Revenue
    
    
    
    Revenue
    
    
    RevenueIn-House
    
    $
    4,441
    
    
    
    78.5
    %
    
    
    $
    4,266
    
    
    
    78.9
    %Outsourced
    
    
    1,065
    
    
    
    18.8
    %
    
    
    
    995
    
    
    
    18.4
    %Freight Billed to
Customers
    
    
    150
    
    
    
    2.7
    %
    
    
    
    145
    
    
    
    2.7
    %Total
    
    $
    5,656
    
    
    
    100.0
    %
    
    
    $
    5,406
    
    
    
    100.0
    %
 16




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##### Table of Contents



Gross Profit:
 Second Quarter EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Gross Profit:Product
    
    $
    3,386
    
    
    $
    3,130Service
    
    
    1,188
    
    
    
    1,116Total
    
    $
    4,574
    
    
    $
    4,246
   FY 2009
    
    
    FY 2008Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Gross Profit % (1)
    
    
    24.2
    %
    
    
    23.9
    %
    
    
    
    24.1
    %
    
    
    25.1
    %
    
    
    25.8
    %
    
    
    24.6
    %Other Income % (2)
    
    
    1.9
    %
    
    
    3.4
    %
    
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    2.1
    %
    
    
    3.4
    %Product Gross Profit %
    
    
    26.1
    %
    
    
    27.3
    %
    
    
    
    27.1
    %
    
    
    28.1
    %
    
    
    27.9
    %
    
    
    28.0
    %
 
 (1)
    
    Calculated as net sales less purchase costs divided by net sales.(2)
    
    Includes vendor rebates, cooperative advertising income, freight billed to customers,
freight expenses, and direct shipping costs.  FY 2009
    
    
    FY 2008Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Gross
Profit Dollar Growth
(Decline)
    
    
    6.5
    %
    
    
    (0.3
    %)
    
    
    
    32.5
    %
    
    
    14.0
    %
    
    
    5.0
    %
    
    
    3.8
    %
 Operating Expenses:
 Second Quarter EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Operating Expenses:Selling, Marketing and Warehouse
    
    $
    2,122
    
    
    $
    2,018Administrative
    
    
    1,713
    
    
    
    1,634Total
    
    $
    3,835
    
    
    $
    3,652
  17




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##### Table of Contents



Other Expense:
 Second Quarter EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Other Expense:Interest Expense
    
    $
    28
    
    
    $
    29Other Expense, net
    
    
    4
    
    
    
    209Total
    
    $
    32
    
    
    $
    238
  Taxes:
 Second Quarter EndedSeptember 27,
    
    September 29,2008
    
    2007Provision for Income Taxes
    
    $
    277
    
    
    $
    162
  18




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##### Table of Contents



SIX MONTHS ENDED SEPTEMBER 27, 2008 COMPARED TO SIX MONTHS ENDED SEPTEMBER 29, 2007
 (dollars in
thousands):
 Revenue:
 Six Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Net Revenue:Product Sales
    
    $
    25,265
    
    
    $
    22,146Service Revenue
    
    
    11,198
    
    
    
    10,669Total
    
    $
    36,463
    
    
    $
    32,815
    Six Months Ended
    
    
    Six Months EndedSeptember 27, 2008
    
    
    September 29, 2007Percent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (1)
    
    
    Net Sales
    
    Profit % (1)Direct
    
    
    79.7
    %
    
    
    25.5
    %
    
    
    
    84.4
    %
    
    
    26.6
    %Reseller
    
    
    18.7
    %
    
    
    17.9
    %
    
    
    
    14.0
    %
    
    
    16.9
    %Freight Billed to Customers
    
    
    1.6
    %
    
    
    
    
    
    
    
    1.6
    %Total
    
    
    100.0
    %
    
    
    
    
    
    
    
    100.0
    %
 
 (1)
    
    Calculated as net sales less purchase costs divided by net sales.  19




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##### Table of Contents



Gross Profit:
 Six Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Gross Profit:Product
    
    $
    6,748
    
    
    $
    6,191Service
    
    
    2,351
    
    
    
    2,282Total
    
    $
    9,099
    
    
    $
    8,473
    Operating Expenses:
 Six Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Operating Expenses:Selling, Marketing and Warehouse
    
    $
    4,717
    
    
    $
    4,323Administrative
    
    
    3,255
    
    
    
    3,107Total
    
    $
    7,972
    
    
    $
    7,430
  Other Expense:
 Six Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Other Expense:Interest Expense
    
    $
    27
    
    
    $
    63Other Expense
    
    
    12
    
    
    
    290Total
    
    $
    39
    
    
    $
    353
  20




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##### Table of Contents



Taxes:
 Six Months EndedSeptember 27,
    
    September 29,2008
    
    2007Provision for Income Taxes
    
    $
    430
    
    
    $
    258
  21




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Cash Flows .
 Six Months EndedSeptember 27,
    
    September 29,2008
    
    2007Cash Provided by (Used in):Operating Activities
    
    $
    1,003
    
    
    $
    2,222Investing Activities
    
    
    (5,212
    )
    
    
    (999
    )Financing Activities
    
    
    4,186
    
    
    
    (1,407
    )
 Operating Activities:
 
    
    Inventory/Accounts Payable: An aggressive product sales and marketing campaign in
affiliation with one of our primary test and measurement instrument suppliers and
continued efforts to maintain on-hand inventory for our top-selling items contributed
to our use of approximately $0.3 million of operating cash during the first six months
of fiscal year 2009 for inventory and accounts payable compared
to $0.9 million of cash provided in the first six months of fiscal year 2008.
    
    Receivables: We continue to generate positive operating cash flow and maintain
strong collections on our accounts receivable. The following table illustrates our
days sales outstanding from fiscal year 2008 to fiscal year 2009:
 September 27,
    
    September 29,2008
    
    2007Net Sales, for the last two fiscal months
    
    $
    13,517
    
    
    $
    12,010Accounts Receivable, net
    
    $
    9,105
    
    
    $
    7,874Days Sales Outstanding (based on 60 days)
    
    
    40
    
    
    
    39
 Investing Activities:
 Financing Activities:
 Debt.
  OUTLOOK
  22




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATES
   FOREIGN CURRENCY
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  23




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##### Table of Contents



Our Acquisitions Or Future Acquisition Efforts, Which Are Important To Our Growth, May Not Be
Successful, Which May Limit Our Growth Or Adversely Affect Our Results Of Operations And Financial
Condition
  Our Recently Completed Acquisition Of Westcon Makes Evaluating Our Operating Results Difficult
Given The Significance To Our Operations, And Our Historical Results Do Not Give You An Accurate
Indication Of How We Will Perform In The Future
  The Financing Of Any Future Acquisitions We Make May Result In
Dilution To Your Stock Ownership
And/Or Could Increase Our Leverage And Our Risk Of Defaulting On Our Bank Debt
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Proposal 1
  Nominees
    
    Votes For
    
    Votes WithheldRichard J. Harrison
    
    
    6,921,670
    
    
    
    43,721Harvey J. Palmer
    
    
    6,919,670
    
    
    
    45,721John T. Smith
    
    
    6,625,699
    
    
    
    339,692
  Proposal 2
  24




---



##### Table of Contents



Votes For:
    
    
    6,869,581Votes Against:
    
    
    73,261Votes Abstained:
    
    
    22,550Broker Non-Votes
    
    
    
 Proposal 3
  Votes For:
    
    
    4,623,661Votes Against:
    
    
    430,852Votes Abstained:
    
    
    16,552Broker Non-Votes*
    
    
    1,894,327
 
 
 Proposal 4
  Votes For:
    
    
    6,753,385Votes Against:
    
    
    182,835Votes Abstained:
    
    
    29,170Broker Non-Votes
    
    
    
 Proposal 5
  Votes For:
    
    
    6,925,429Votes Against:
    
    
    19,507Votes Abstained:
    
    
    20,456Broker Non-Votes:
    
    
    
 
 ITEM 5.  OTHER INFORMATION
   
 ITEM 6. EXHIBITS
  25




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##### Table of Contents



SIGNATURES
  TRANSCAT, INC.Date:
November 12, 2008
    
    /s/ Charles P. HaddedCharles P. HadeedChief Executive Officer, President and Chief Operating OfficerDate:
November 12, 2008
    
    /s/ John J. ZimmerJohn J. ZimmerVice President of Finance and Chief Financial Officer
 26




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##### Table of Contents



INDEX TO EXHIBITS
 (3)
    
    Articles of Incorporation and Bylaws3.1
    
    
    Code of Regulations, as amended(10)
    
    Material Contracts10.1
    
    
    Amendment Number One to Credit Agreement
dated as of August 14, 2008 between
Transcat, Inc. and JPMorgan Chase Bank,
N.A.10.2
    
    
    Agreement and Plan of Merger by and among
Transcat Acquisition Corp., Westcon, Inc.
and David Goodhead dated as of August 14,
200810.3
    
    
    Lease Addendum between Gallina Development
Corporation and Transcat, Inc. dated June
2, 2008(31)
    
    Rule 13a-14(a)/15d-14(a) Certifications31.1
    
    
    Certification of Chief Executive Officer31.2
    
    
    Certification of Chief Financial Officer(32)
    
    Section 1350 Certifications32.1
    
    
    Section 1350 Certifications
 27