##### Table of Contents



UNITED
STATESSECURITIES 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: June 24, 2006
 or
 o
    
    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: 000-03905
 TRANSCAT, INC.
  Ohio
    
    16-0874418(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 35 Vantage Point Drive, Rochester, New York 14624
 (585) 352-7777
 þ o
  o o þ
 o þ




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##### 



Page(s)PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements (unaudited):Consolidated
Statements of Operations and Comprehensive Income for the First Quarters Ended June 24, 2006 and June 25, 2005
    
    
    3Consolidated Balance Sheets as of June 24, 2006 and March 25, 2006
    
    
    4Consolidated Statements of Cash Flows for the Quarters Ended June 24, 2006
and June 25, 2005
    
    
    5Consolidated Statements of Stockholders Equity for the Quarter Ended June
24, 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    14-22Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    24INDEX TO EXHIBITS
    
    
    25EX-31.1EX-31.2EX-32.1
  2




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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  (Unaudited)First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Product Sales
    
    $
    10,536
    
    
    $
    9,385Service Sales
    
    
    4,983
    
    
    
    4,680Net Sales
    
    
    15,519
    
    
    
    14,065Cost of Products Sold
    
    
    7,829
    
    
    
    7,126Cost of Services Sold
    
    
    3,831
    
    
    
    3,334Total Cost of Products and Services Sold
    
    
    11,660
    
    
    
    10,460Gross Profit
    
    
    3,859
    
    
    
    3,605Selling, Marketing, and Warehouse Expenses
    
    
    2,134
    
    
    
    2,093Administrative Expenses
    
    
    1,389
    
    
    
    1,182Total Operating Expenses
    
    
    3,523
    
    
    
    3,275Operating Income
    
    
    336
    
    
    
    330Interest Expense
    
    
    93
    
    
    
    114Other Expense
    
    
    75
    
    
    
    42Total Other Expense
    
    
    168
    
    
    
    156Income Before Income Taxes
    
    
    168
    
    
    
    174Provision for Income Taxes
    
    
    52
    
    
    
    Net Income
    
    
    116
    
    
    
    174Other Comprehensive Income (Loss):Currency Translation Adjustment
    
    
    87
    
    
    
    (19
    )Comprehensive Income
    
    $
    203
    
    
    $
    155Basic Earnings Per Share
    
    $
    0.02
    
    
    $
    0.03Weighted Average Shares Outstanding
    
    
    6,830
    
    
    
    6,536Diluted Earnings Per Share
    
    $
    0.02
    
    
    $
    0.02Weighted Average Shares Outstanding
    
    
    7,345
    
    
    
    7,233
  3




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TRANSCAT, INC.
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)June
    
    
    March24, 2006
    
    
    25, 2006ASSETSCurrent Assets:Cash
    
    $
    406
    
    
    $
    115Accounts Receivable, less allowance for doubtful accounts of $61
and $63 as of June 24, 2006 and March 25, 2006, respectively
    
    
    7,591
    
    
    
    7,989Other Receivables
    
    
    285
    
    
    
    Finished Goods Inventory, net
    
    
    3,778
    
    
    
    3,952Prepaid Expenses and Deferred Charges
    
    
    791
    
    
    
    732Deferred Tax Asset
    
    
    1,095
    
    
    
    1,038Total Current Assets
    
    
    13,946
    
    
    
    13,826Property, Plant and Equipment, net
    
    
    2,672
    
    
    
    2,637Assets Under Capital Leases, net
    
    
    34
    
    
    
    50Goodwill
    
    
    2,967
    
    
    
    2,967Prepaid Expenses and Deferred Charges
    
    
    90
    
    
    
    113Deferred Tax Asset
    
    
    1,530
    
    
    
    1,624Other Assets
    
    
    269
    
    
    
    271Total Assets
    
    $
    21,508
    
    
    $
    21,488LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    4,223
    
    
    $
    4,219Accrued Payrolls, Commissions, and Other
    
    
    1,262
    
    
    
    2,530Income Taxes Payable
    
    
    31
    
    
    
    102Current Portion of Term Loan
    
    
    645
    
    
    
    667Capital Lease Obligations
    
    
    39
    
    
    
    56Revolving Line of Credit
    
    
    4,380
    
    
    
    3,252Total Current Liabilities
    
    
    10,580
    
    
    
    10,826Term Loan, less current portion
    
    
    208
    
    
    
    353Deferred Compensation
    
    
    119
    
    
    
    118Deferred Gain on TPG Divestiture
    
    
    1,544
    
    
    
    1,544Total Liabilities
    
    
    12,451
    
    
    
    12,841Stockholders Equity:Common Stock, par value $0.50 per share, 30,000,000 shares authorized;
7,130,363 and 7,048,028 shares issued as of June 24, 2006 and
March 25, 2006, respectively; 6,864,015 and 6,791,240 shares
outstanding as of June 24, 2006 and March 25, 2006, respectively
    
    
    3,565
    
    
    
    3,524Capital in Excess of Par Value
    
    
    4,846
    
    
    
    4,641Warrants
    
    
    329
    
    
    
    329Unearned Compensation
    
    
    (4
    )
    
    
    (15
    )Accumulated Other Comprehensive Gain
    
    
    268
    
    
    
    181Retained Earnings
    
    
    991
    
    
    
    875Less:
Treasury Stock, at cost, 266,348 and 256,788 shares as of June 24, 2006 and March 25, 2006, respectively
    
    
    (938
    )
    
    
    (888
    )Total Stockholders Equity
    
    
    9,057
    
    
    
    8,647Total Liabilities and Stockholders Equity
    
    $
    21,508
    
    
    $
    21,488
  4




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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Unaudited)For the Quarters EndedJune
    
    
    June24, 2006
    
    
    25, 2005Cash Flows from Operating Activities:Net Income
    
    $
    116
    
    
    $
    174Adjustments
to Reconcile Net Income to Net Cash Used in Operating Activities:Deferred Taxes
    
    
    37
    
    
    
    Depreciation and Amortization
    
    
    358
    
    
    
    288Provision for Doubtful Accounts Receivable
    
    
    17
    
    
    
    40Provision for Returns
    
    
    
    
    
    
    11Provision for Slow Moving or Obsolete Inventory
    
    
    (5
    )
    
    
    Stock-Based Compensation
    
    
    142
    
    
    
    Amortization of Unearned Compensation
    
    
    11
    
    
    
    13Changes in Assets and Liabilities, excluding acquisition:Accounts Receivable and Other Receivables
    
    
    167
    
    
    
    809Inventory
    
    
    179
    
    
    
    722Income Taxes Payable
    
    
    (71
    )
    
    
    Prepaid Expenses, Deferred Charges, and Other
    
    
    (137
    )
    
    
    (215
    )Accounts Payable
    
    
    4
    
    
    
    (1,015
    )Accrued Payrolls, Commissions, and Other
    
    
    (1,268
    )
    
    
    (930
    )Deferred Compensation
    
    
    
    
    
    
    25Net Cash Used in Operating Activities
    
    
    (450
    )
    
    
    (78
    )Cash Flows from Investing Activities:Purchase of Property, Plant and Equipment
    
    
    (273
    )
    
    
    (261
    )Net Cash Used in Investing Activities
    
    
    (273
    )
    
    
    (261
    )Cash Flows from Financing Activities:Revolving Line of Credit, net
    
    
    1,128
    
    
    
    353Payments on Term Loans
    
    
    (167
    )
    
    
    (167
    )Payments on Capital Leases
    
    
    (17
    )
    
    
    (15
    )Issuance of Common Stock
    
    
    54
    
    
    
    144Net Cash Provided by Financing Activities
    
    
    998
    
    
    
    315Effect of Exchange Rate Changes on Cash
    
    
    16
    
    
    
    (19
    )Net Increase (Decrease) in Cash
    
    
    291
    
    
    
    (43
    )Cash at Beginning of Period
    
    
    115
    
    
    
    106Cash at End of Period
    
    $
    406
    
    
    $
    63Supplemental Disclosure of Non-Cash Financing Activity:Treasury Stock Acquired in Cashless Exercise of Stock Options
    
    $
    50
    
    
    $
    
  5




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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
  Accum-Capital
    
    
    
    
    
    
    Un-
    
    
    ulatedCommon Stock
    
    
    In
    
    
    
    
    
    
    earned
    
    
    Other
    
    
    
    
    
    
    Treasury StockIssued
    
    
    Excess
    
    
    
    
    
    
    Comp-
    
    
    Compre-
    
    
    Accum-
    
    
    Outstanding$0.50 Par Value
    
    
    of Par
    
    
    War-
    
    
    ensa-
    
    
    hensive
    
    
    ulated
    
    
    at CostShares
    
    
    Amount
    
    
    Value
    
    
    rants
    
    
    tion
    
    
    Gain
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of March 25, 2006
    
    
    7,048
    
    
    $
    3,524
    
    
    $
    4,641
    
    
    $
    329
    
    
    $
    (15
    )
    
    $
    181
    
    
    $
    875
    
    
    
    257
    
    
    $
    (888
    )
    
    $
    8,647Issuance of Common Stock
    
    
    82
    
    
    
    41
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    (50
    )
    
    
    54Stock Option Compensation
    
    
    
    
    
    
    
    
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142Restricted Stock:Amortization of UnearnedCompensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Comprehensive Income:Currency
Translation Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Balance as of June 24, 2006
    
    
    7,130
    
    
    $
    3,565
    
    
    $
    4,846
    
    
    $
    329
    
    
    $
    (4
    )
    
    $
    268
    
    
    $
    991
    
    
    
    266
    
    
    $
    (938
    )
    
    $
    9,057
  6




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TRANSCAT, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1  NATURE OF BUSINESS AND BASIS OF PRESENTATION
 Description of Business:
 Basis of Presentation:
 NOTE 2  EARNINGS PER SHARE
   First Quarter EndedJune 24
    
    
    June 252006
    
    
    2005Shares Outstanding:Dilutive
    
    
    515
    
    
    
    697Anti-dilutive
    
    
    327
    
    
    
    444Total
    
    
    842
    
    
    
    1,141Range of Exercise Prices per Share:Options
    
    $
    0.80-$4.52
    
    
    $
    0.80-$2.92Warrants
    
    $
    0.97-$4.26
    
    
    $
    0.97-$2.91
 7




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NOTE 3  STOCK-BASED COMPENSATION
     Expected life
    
    3.75  6.00 yrsAnnualized volatility rate
    
    
    86  97
    %Risk-free rate of return
    
    
    3.25  4.54
    %Dividend rate
    
    
    0.0
    %
   8




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First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Net Income, as reported
    
    $
    116
    
    
    $
    174Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
    
    
    122
    
    
    
    13Deduct: Total stock-based employee compensation expense
determined under fair value based method for
all awards,
net of related tax effects
    
    
    (122
    )
    
    
    (36
    )Pro Forma Net Income
    
    $
    116
    
    
    $
    151Earnings Per Share:Basic  as reported
    
    $
    0.02
    
    
    $
    0.03Basic  pro forma
    
    $
    0.02
    
    
    $
    0.02Average Shares Outstanding (in thousands)
    
    
    6,830
    
    
    
    6,536Diluted  as reported
    
    $
    0.02
    
    
    $
    0.02Diluted  pro forma
    
    $
    0.02
    
    
    $
    0.02Average Shares Outstanding (in thousands)
    
    
    7,345
    
    
    
    7,233
   First Quarter FY 2007Number
    
    
    Weighted
    
    
    Weighted Average
    
    
    Aggregateof
    
    
    Average
    
    
    Remaining Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding at March 25, 2006
    
    
    452
    
    
    $
    1.97Add (Deduct):Granted
    
    
    
    
    
    
    Exercised
    
    
    (67
    )
    
    
    0.97Forfeited
    
    
    (2
    )
    
    
    2.09Outstanding at June 24, 2006
    
    
    383
    
    
    
    2.15
    
    
    
    5
    
    
    $
    1,744,161Exercisable at June 24, 2006
    
    
    238
    
    
    $
    1.51
    
    
    
    3
    
    
    $
    1,029,921
    9




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NOTE 4  DEBT
 Description.
     Term Loans.
 Principal Payments Before GivingEffect to Excess Cash Flow PaymentsTerm Loan A
    
    
    Term Loan B
    
    
    TotalFiscal Year 2007 (1)
    
    
    375
    
    
    
    125
    
    
    
    500Fiscal Year 2008
    
    
    332
    
    
    
    21
    
    
    
    353Total
    
    $
    707
    
    
    $
    146
    
    
    $
    853
 
 (1)
    
    Current portion on Balance Sheet includes nine months of
fiscal year 2007 and three months of fiscal year 2008. LOC.
 Balance Sheet Classification of Borrowings
Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause
and a Lock-Box Arrangement
 10




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##### Table of Contents



Interest.
 Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus 0.125% or
    
    Prime Rate plus 0.375%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.875%
    
    
    
    (b) LIBOR plus 2.375%2
    
    1.25 to 1.49
    
    (a) Prime Rate minus 0.125% or
    
    Prime Rate plus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.625%
    
    
    
    (b) LIBOR plus 2.125%3
    
    1.50 or greater
    
    (a) Prime Rate minus 0.375% or
    
    Prime Rate minus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.375%
    
    
    
    (b) LIBOR plus 1.875%
 Covenants.
 Loan Costs. Debtors Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements
 Other Terms.
  11




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NOTE 5  SEGMENT INFORMATION
  First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Net Sales:Product
    
    $
    10,536
    
    
    $
    9,385Service
    
    
    4,983
    
    
    
    4,680Total
    
    
    15,519
    
    
    
    14,065Gross Profit:Product
    
    
    2,707
    
    
    
    2,259Service
    
    
    1,152
    
    
    
    1,346Total
    
    
    3,859
    
    
    
    3,605Operating Expenses:Product
    
    
    2,110
    
    
    
    1,906Service
    
    
    1,413
    
    
    
    1,369Total
    
    
    3,523
    
    
    
    3,275Operating Income (Loss):Product
    
    
    597
    
    
    
    353Service
    
    
    (261
    )
    
    
    (23
    )Total
    
    
    336
    
    
    
    330Unallocated Amounts:Other Expense (including interest)
    
    
    168
    
    
    
    156Provision for Income Taxes
    
    
    52
    
    
    
    Total
    
    
    220
    
    
    
    156Net Income
    
    $
    116
    
    
    $
    174
 NOTE 6  COMMITMENTS
 Unconditional Purchase Obligation:
   12




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NOTE 7  VENDOR CONCENTRATION
  13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements.
 Rounding.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Revenue Recognition:
 Accounts Receivable:
 Stock Options:
 Off-Balance Sheet Arrangements:
 14




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RESULTS OF OPERATIONS
  (Unaudited)First Quarter EndedJune
    
    June24, 2006
    
    25, 2005As a Percentage of Net Sales:Product Sales
    
    
    67.9
    %
    
    
    66.7
    %Service Sales
    
    
    32.1
    %
    
    
    33.3
    %Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Product Gross Profit
    
    
    25.7
    %
    
    
    24.1
    %Service Gross Profit
    
    
    23.1
    %
    
    
    28.8
    %Total Gross Profit
    
    
    24.9
    %
    
    
    25.6
    %Selling, Marketing, and Warehouse Expenses
    
    
    13.8
    %
    
    
    14.9
    %Administrative Expenses
    
    
    9.0
    %
    
    
    8.4
    %Total Operating Expenses
    
    
    22.8
    %
    
    
    23.3
    %Operating Income
    
    
    2.1
    %
    
    
    2.3
    %Interest Expense
    
    
    0.6
    %
    
    
    0.8
    %Other Expense
    
    
    0.5
    %
    
    
    0.3
    %Total Other Expense
    
    
    1.1
    %
    
    
    1.1
    %Income Before Income Taxes
    
    
    1.0
    %
    
    
    1.2
    %Benefit for Income Taxes
    
    
    0.3
    %
    
    
    
    %Net Income
    
    
    0.7
    %
    
    
    1.2
    %
 15




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FIRST QUARTER ENDED JUNE 24, 2006 COMPARED TO FIRST QUARTER ENDED JUNE 25, 2005 (dollars in millions):
 Sales:
 First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Net Sales:Product
    
    $
    10.5
    
    
    $
    9.4Service
    
    
    5.0
    
    
    
    4.7Total
    
    $
    15.5
    
    
    $
    14.1
   FY 2007
    
    
    FY 2006Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Growth
    
    
    11.7
    %
    
    
    
    4.0
    %
    
    
    16.2
    %
    
    
    13.3
    %
    
    
    5.6
    %
  FY 2007 First Quarter
    
    
    FY 2006 First QuarterPercent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (1)
    
    
    Net Sales
    
    Profit % (1)Direct
    
    
    81.0
    %
    
    
    24.9
    %
    
    
    
    86.0
    %
    
    
    25.0
    %Government
    
    
    1.0
    %
    
    
    0.9
    %
    
    
    
    2.0
    %
    
    
    1.9
    %Indirect
    
    
    18.0
    %
    
    
    12.1
    %
    
    
    
    12.0
    %
    
    
    12.7
    %Total
    
    
    100.0
    %
    
    
    22.4
    %
    
    
    
    100.0
    %
    
    
    22.9
    %
 
 (1)
    
    Calculated at net sales less purchase costs. 16




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FY 2007
    
    
    FY 2006Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Total Unshippable Orders
    
    $
    1.4
    
    
    
    $
    1.4
    
    
    $
    1.3
    
    
    $
    1.5
    
    
    $
    1.3% of Unshippable Orders
that
are Backorders
    
    
    78.6
    %
    
    
    
    92.9
    %
    
    
    84.6
    %
    
    
    72.1
    %
    
    
    78.7
    %
  FY 2007
    
    
    FY 2006Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Sales Growth
    
    
    6.4
    %
    
    
    
    0.0
    %
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    6.8
    %
 Gross Profit:
 First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Gross Profit:Product
    
    $
    2.7
    
    
    $
    2.3Service
    
    
    1.2
    
    
    
    1.3Total
    
    $
    3.9
    
    
    $
    3.6
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##### Table of Contents



Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor
 FY 2007
    
    
    FY 2006Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Gross Profit % (1)
    
    
    22.1
    %
    
    
    
    23.1
    %
    
    
    23.9
    %
    
    
    22.6
    %
    
    
    22.8
    %Other Income (Expense) % (2)
    
    
    3.6
    %
    
    
    
    -0.2
    %
    
    
    0.4
    %
    
    
    1.9
    %
    
    
    1.7
    %Product Gross Profit %
    
    
    25.7
    %
    
    
    
    22.9
    %
    
    
    24.3
    %
    
    
    24.5
    %
    
    
    24.5
    %
 
 (1)
    
    Calculated at net sales less purchase costs.(2)
    
    Includes vendor rebates, cooperative advertising income, freight billed to customers,
freight expenses, and direct shipping costs.  FY 2007
    
    
    FY 2006Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Gross Profit %
    
    
    24.0
    %
    
    
    
    29.1
    %
    
    
    23.4
    %
    
    
    27.7
    %
    
    
    27.7
    %
 Operating Expenses:
 First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    2.1
    
    
    $
    2.1Administrative
    
    
    1.4
    
    
    
    1.2Total
    
    $
    3.5
    
    
    $
    3.3
  Other Expense:
 First Quarter EndedJune
    
    
    June24, 2006
    
    
    25, 2005Other Expense:Interest Expense
    
    $
    0.1
    
    
    $
    0.1Other Expense
    
    
    0.1
    
    
    
    Total
    
    $
    0.2
    
    
    $
    0.1
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##### Table of Contents



Taxes:
 First Quarter EndedJune
    
    June24, 2006
    
    25, 2005Benefit for Income Taxes
    
    $
    0.1
    
    
    $
    
  19




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows.
 Three Months EndedJune
    
    June24, 2006
    
    25, 2005Cash (Used in) Provided by:Operating Activities
    
    $
    (449
    )
    
    $
    (78
    )Investing Activities
    
    
    (273
    )
    
    
    (261
    )Financing Activities
    
    
    997
    
    
    
    315
  
    
    Inventory/Accounts Payable: Our inventory was $1.4 million less in the first quarter
of fiscal year 2007 compared to the first quarter of fiscal year 2006. The decrease can
be attributed to increased sales as well as a concerted effort by management to reduce
inventory levels. The first quarter of fiscal year 2006 also had significant product
purchases with our key vendor, which temporarily raised inventory levels. Our increase
in accounts payable, as the following table illustrates (dollars in millions), is
primarily the result of the timing of outstanding checks clearing:
 June
    
    June24, 2006
    
    25, 2005Accounts Payable
    
    $
    4.2
    
    
    $
    3.5Inventory, net
    
    $
    3.8
    
    
    $
    5.2Accounts Payable/Inventory Ratio
    
    
    1.11
    
    
    
    0.67
 
    
    Receivables: The increase in our accounts receivable at the end of our first
quarter of fiscal year 2007 compared to the end of the first quarter of fiscal year 2006
is due to sales growth in first quarter of fiscal year 2007. We have continued to maintain
strong collections on our accounts receivable, reflected in our days sales outstanding,
as the following table illustrates (dollars in millions):
 June
    
    June24, 2006
    
    25, 2005Net Sales,
for the last two fiscal months
    
    $
    11.0
    
    
    $
    10.4Accounts Receivable, net
    
    $
    7.6
    
    
    $
    7.1Days Sales Outstanding (based on 60 days)
    
    
    41
    
    
    
    41
   June
    
    
    June24, 2006
    
    
    25, 2005Term Debt
    
    $
    0.9
    
    
    $
    1.6Revolving Line of Credit
    
    $
    4.4
    
    
    $
    5.9Capital Lease Obligations
    
    $
    
    
    
    $
    0.1Total Debt
    
    $
    5.3
    
    
    $
    7.6
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##### Table of Contents



Debt.
  FY 2007
    
    
    FY 2006Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Excess EBITDA
    
    
    19
    %
    
    
    
    14
    %
    
    
    30
    %
    
    
    33
    %
    
    
    23
    %
  Unconditional Purchase Obligation.
   21




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##### Table of Contents



OUTLOOK
      22




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATES
   Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus 0.125% or
    
    Prime Rate plus 0.375%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.875%
    
    
    
    (b) LIBOR plus 2.375%2
    
    1.25 to 1.49
    
    (a) Prime Rate minus 0.125% or
    
    Prime Rate plus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.625%
    
    
    
    (b) LIBOR plus 2.125%3
    
    1.50 or greater
    
    (a) Prime Rate minus 0.375% or
    
    Prime Rate minus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.375%
    
    
    
    (b) LIBOR plus 1.875%
  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 6. EXHIBITS
  23




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##### Table of Contents



SIGNATURES
  TRANSCAT, INC.Date: August 8, 2006
    
    /s/ Carl E. SassanoCarl E. SassanoChairman and Chief Executive OfficerDate: August 8, 2006
    
    /s/ John J. ZimmerJohn J. ZimmerVice President of Finance andChief Financial Officer
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##### Table of Contents



INDEX TO EXHIBITS
 (10)
    
    Material Contracts10.1
    
    
    Form of Amended and Restated Agreement for
Severance Upon Change in Control for Carl
E. Sassano and Charles P. Hadeed is
incorporated herein by reference from
Exhibit 10.1 to the Companys Current
Report on Form 8-K dated April 19, 2006.10.2
    
    
    Certain compensation information for Carl
E. Sassano, Chairman of the Board and Chief
Executive Officer of the Company, and
Charles P. Hadeed, President and Chief
Operating Officer of the Company, is
incorporated herein by reference from the
Companys Current Report on Form 8-K dated
May 16, 2006.10.3
    
    
    Certain compensation information for John
J. Zimmer, Vice President of Finance and
Chief Financial Officer of the Company, is
incorporated herein by reference from the
Companys Current Report on Form 8-K dated
May 23, 2006.10.4
    
    
    Summary of the Transcat, Inc. Post-Retirement Benefits
and Long-Term Care Insurance Plan is
incorporated herein by reference from the
Companys Current Report on Form 8-K dated
July 25, 2006.(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
 25