ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
As of the date of this report, Tridex Corporation ("Tridex") owns 5,400,000 shares, or approximately 80.3%, of the outstanding common stock of Transact. Tridex has announced that on March 31, 1997 it intends to distribute those shares pro rata to persons who are or were Tridex stockholders of record on March 14, 1997, on the basis of approximately one share of Transact for each share of Tridex.
In November 1995, the Board of Directors of Tridex approved a plan to combine the business operations of two wholly-owned subsidiaries, Magnetec Corporation ("Magnetec") and Ithaca Peripherals Incorporated ("Ithaca"), under unified management. Transact was incorporated in Delaware on June 17, 1996 as a wholly-owned subsidiary of Tridex. Following the incorporation, Tridex, Transact, Magnetec and Ithaca entered into a Plan of Reorganization, pursuant to which: (i) Ithaca merged into Magnetec; (ii) Transact transferred to Tridex certain assets of Magnetec used in manufacturing a printer ribbon product line; (iii) Transact issued 5,400,000 shares of its common stock to Tridex in exchange for all the outstanding shares of Magnetec; (iv) Transact sold in an initial public offering 1,322,500 shares or approximately 19.7% of its common stock; (v) Transact repaid $8,500,000 of intercompany indebtedness to Tridex; (vi) Tridex applied to the Internal Revenue Service (the "IRS") for a ruling that the distribution of the 5,400,000 shares of Transact owned by Tridex to Tridex stockholders (the "Distribution") would constitute a tax-free reorganization for federal income tax purposes; and (vii) Tridex agreed to effect the Distribution promptly after receipt of a favorable ruling from the IRS and the satisfaction of certain other conditions.
On August 22, 1996, the Company sold 1,150,000 shares of its common stock at a price of $8.50 per share in an initial public offering (the "Offering"). On September 18, 1996, the Company sold an additional 172,500 shares upon exercise of the underwriters' over-allotment option. Net proceeds from the Offering (including the exercise of the underwriters' over-allotment option) were approximately $9 million after payment of approximately $2.3 million of Offering expenses.
On February 12, 1997, Tridex received a favorable ruling from the IRS confirming the tax-free nature of the Distribution and announced that it would effect the Distribution on March 31, 1997. Upon completion of the Distribution, Tridex will no longer own any shares of Transact capital stock.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Transact presently operates in one industry segment, the design, development, manufacture and marketing of printers and printer peripheral products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
Transact designs, develops, manufactures and markets customizable and custom dot matrix and thermal printers for applications requiring up to 60 character columns in each of its four vertical markets: POS, gaming and lottery, financial services and kiosk. The Company also sells an 80 column laser printer for kiosk applications. The Company's customizable products include several series of printers which offer customers the ability to choose from a variety of features and functions. Options typically include print speeds, paper handling capacities and numbers of print stations. In addition to its customizable printers, Transact manufactures custom printers for certain OEM customers. In collaboration with these customers, the Company provides engineering and manufacturing expertise for the design and development of specialized printers.
In addition to printer products, the Company designs, manufactures, and sells an optical mark-sense reader which uses a light source to read lottery, pari-mutuel betting and other gaming slips marked by customers. The Company also manufactures and sells document transport mechanisms which deliver the finished printed output to the consumer in unattended applications, such as ATMs and kiosks. The Company also offers printer ribbons, paper and replacement parts for all of its products.
The Company provides customers with telephone sales and technical support, a personal account representative for orders, shipping and general information and expedited shipping for orders of its customizable and custom products. Technical and sales support personnel receive training in all of the Company's products and services manufactured at their facility. The Company's printers generally carry a one-year limited warranty; extended warranties are available for purchase on selected printers to supplement the original warranty. The Company's costs to provide services and parts required under warranties historically have not been material.
(ii) STATUS OF PRODUCT REQUIRING MATERIAL INVESTMENT
None.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used in manufacturing are copper wire, magnetic metals, injection molded plastic parts, formed metal parts and electronic components. Although the Company could experience temporary disruption if certain suppliers ceased doing business with the Company, the Company's requirements generally are available from a number of sources. However, the Company is dependent upon Okidata, Division of Oki America, Inc. ("Okidata") for a printer component kit consisting of a printhead, control board and carriage (the "Oki Kit"), which is used in virtually all of the Company's ITHACA brand impact printers. The loss of the supply of Oki Kits would have a material adverse effect on the Company. Transact has a supply agreement with Okidata to provide Oki Kits until August 2000. Transact believes its relations with Okidata are good and has received no indication that the supply agreement will not be renewed beyond the expiration of the current contract. Transact cannot be certain, however, that the supply agreement will be renewed, or if renewed, that the terms will be as favorable as those under the current contract.
(iv) PATENTS AND PROPRIETARY INFORMATION
The Company owns several patents, one of which it considers material. That patent covers an automated paper cut-off device, which is a feature offered on certain of the Company's POS printers. The Company regards certain manufacturing processes and designs to be proprietary and attempts to protect them through employee and third-party nondisclosure agreements and similar means. It may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or otherwise obtain and use, to the Company's detriment, information that the Company regards as proprietary. Moreover, the laws of some foreign countries do not afford the same protection to the Company's proprietary rights as do United States laws. There can be no assurance that legal protections relied upon by the Company to protect its proprietary position will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies.
(v), (vi) SEASONALITY AND PRACTICES RELATING TO WORKING CAPITAL ITEMS
Retailers typically reduce purchases of new POS equipment in the fourth quarter, due to the increased volume of consumer transactions in that period, and the Company's sales of printers in the POS market historically have increased in the third quarter and decreased in the fourth quarter. However, the Company has not experienced material seasonality in its total net sales, due to offsetting sales in other markets.
(vi) CERTAIN CUSTOMERS
Sales to GTECH Corporation accounted for approximately 16.0%, 12.4% and 0.9% of net sales for the year ended December 31, 1996, the nine months ended December 31, 1995, and the year ended April 1, 1995, respectively. Sales to Indiana Cash Drawer Company accounted for approximately 7.5%, 8.6% and 13.6% during the same periods. Sales to Ultimate Technologies Corporation accounted for approximately 7.5%, 9.2% and 7.9% during the same periods.
(viii) BACKLOG
The Company's backlog of firm orders was approximately $39,700,000 as of March 22, 1997 and $7,000,000 as of February 24, 1996. Based on customers' current delivery requirements, Transact expects to fill approximately $26,700,000 of its backlog within the current fiscal year, and the remainder within the next fiscal year.
(ix) MATERIAL PORTION OF BUSINESS SUBJECT TO RENEGOTIATION OF PROFITS
None.
(X) COMPETITION
The market for transaction based printers is extremely competitive, and the Company expects such competition to intensify in the future. The Company competes with a number of companies, many of which have greater financial, technical and marketing resources than the Company. Transact believes its ability to compete successfully depends on a number of factors both within and outside its control, including durability, reliability, quality, design capability, product customization, price, customer support, success in developing new products, manufacturing expertise and capacity, supply of component parts and materials, strategic relationships with suppliers, the timing of new product introductions by the Company and its competitors, general market and economic conditions and, in some cases, the uniqueness of its products. Two of the Company's competitors, Epson America, Inc. and Star Micronics America, Inc. together control approximately 50% to 60% of the United States market for POS printers, a market in which the Company's strategy calls for increased market share. Other principal competitors include Axiohm Incorporated, Citizen -- CBM America Corporation and DH Technology Incorporated. Certain competitors of the Company have lower costs, attributable to higher volume production and off-shore manufacturing locations and offer lower prices than the Company from time to time.
In the gaming and lottery, financial services and kiosk markets, no single supplier holds a dominant position. Certain of the Company's products sold for gaming and lottery, kiosk and financial service applications compete based upon the Company's ability to provide highly specialized products, custom engineering and ongoing technical support.
The Company's strategy for competing in its markets is to continue to develop new products and product line extensions, to increase its geographic market penetration and to take advantage of strategic relationships. Although the Company has historically maintained or increased sales with this strategy and believes that its products, operations and relationships provide a competitive foundation, there can be no assurance that the Company will compete successfully in the future.
(xi) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $2,467,000 in the year ended December 31, 1996, $1,533,000 in the nine months ended December 31, 1995 and $1,708,000 in the year ended April 1, 1995, on engineering, design and product development efforts in connection with specialized engineering and design to introduce new products and to customize existing products.
(xii) ENVIRONMENT
The Company is not aware of any material non-compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment.
(xiii) EMPLOYEES
As of February 22, 1997, Transact Technologies and its subsidiaries employed 258 persons, of which 209 were full-time and 49 were temporary employees.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Historically, the Company's export sales and sales originating outside the United States have not been material. Beginning in 1997, the Company expects such sales to become material, especially to the United Kingdom and Canada. See Note 14 to the Consolidated Financial Statements included in this report.
(E) EXECUTIVE OFFICERS OF THE REGISTRANT.
(i) EXECUTIVE OFFICERS OF THE REGISTRANT
BART C. SHULDMAN was appointed Chief Executive Officer, President and a Director of the Company in June 1996. He joined Magnetec as Vice President of Sales and Marketing in April 1993 and has served as President of Magnetec since August 1993 and President of the combined operations of Ithaca and Magnetec since December 1995. Prior to joining Magnetec, he held several management positions with Mars Electronics International, a division of Mars, Incorporated from 1989 to 1993. Most recently, he was Business Manager for the North American Amusement, Gaming and Lottery operations. From 1979 to 1989, he held manufacturing and sales management positions with General Electric Company.
RICHARD L. COTE, was appointed Executive Vice President, Chief Financial Officer, Treasurer, Secretary and a Director in June 1996, and has served as Senior Vice President and Chief Financial Officer of Tridex from September 1993 until August 1996. Mr. Cote joined Tridex as a Vice President in June 1993. From October 1991 to June 1993, he was a self-employed management consultant. From January 1991 to September 1991, he was Vice President and Corporate Controller of Wang Laboratories, Inc. From November 1989 to December 1990, he was Executive Vice President of Capital Resources Management, Inc.
LUCY H. STALEY, Senior Vice President-General Manager (Ithaca, NY facility) since June 1996, served as a Vice President of Ithaca since she joined the Company in 1984. From 1984 until 1990, when Tridex acquired Ithaca, Ms. Staley also served as Treasurer of Ithaca.
JOHN CYGIELNIK, Senior Vice President-General Manager (Wallingford, CT facility) since June 1996, joined Magnetec as Controller in 1992, and has served as Vice President of Finance of Magnetec since 1993. From 1976 until 1992, Mr. Cygielnik was employed by Data General Corporation, a computer hardware manufacturer, where he served in various positions, most recently as Controller for Manufacturing and Field Service Operations.
MICHAEL S. KUMPF, Senior Vice President-Engineering since June 1996, served as Vice President of Engineering of Ithaca since he joined the Company in 1991. From 1973 until 1991, Mr. Kumpf was employed by NCR Corporation, where his most recent position was Director of Engineering-Retail Systems Printer Division.
ITEM 2.

ITEM 2. PROPERTIES.
The Company's operations are currently conducted at the two facilities described below:
The Ithaca facility includes approximately 23,000 square feet of additional leased space that the company expects to occupy by May 1, 1997. The Company believes that its facilities generally are in good condition, adequately maintained and suitable for their present and currently contemplated uses.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the last quarter of the year covered by this report.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
The Company's common stock is traded on the NASDAQ National Market. As of February 28, 1997, there were 69 holders of record of the common stock. The Company completed its initial public offering in the third quarter of 1996. The high and low sales prices of the common stock reported during each quarter of the year ended December 31, 1996, since August 22, 1996, the date of the Offering, were as follows:
No dividends on the common stock have been declared and the Company does not anticipate declaring dividends in the foreseeable future. The Company's credit agreement with Fleet National Bank prohibits the payment of cash dividends for the term of the agreement.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Because the Company was wholly-owned by Tridex until August 22, 1996, the Selected Financial Data which appear in Item 6 and the Consolidated Financial Statements which appear in Item 8

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(A) DIRECTORS.
The information contained in "Information Concerning Nominee for Election as Director" of the Company's Proxy Statement (the "Proxy Statement") for its Annual Meeting of Shareholders which is scheduled to be held on May 1, 1997 is hereby incorporated herein by reference. Also see Item 1(E)(i) above.
(B) EXECUTIVE OFFICERS.
See Item 1(E)(i) above.
(C) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained in "Voting Securities and Principal Holders Thereof Compliance with Section 16(a)" of the Proxy Statement is hereby incorporated by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information contained in "Compensation of Directors and Executive Officers" of the Proxy Statement is hereby incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is hereby incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in "Voting Securities and Principal Holders Thereof Certain Relationships and Related Transactions" of the Proxy Statement is hereby incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF THIS REPORT:
(i) Financial statements See Item 8 on page 12.
(ii) Financial statement schedules See Item 8 on page 12.
(iii) List of Exhibits. See Exhibit Index on page 29.
(B) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
By: /s/ Bart C. Shuldman ----------------------------------------------------- Bart C. Shuldman President, Chief Executive Officer and Director Date: March 24, 1997
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Exhibit Index
* These exhibits, which were previously filed with the Company's Registration Statement on Form S-1 (No. 333-06895), are incorporated by reference. ** These exhibits, which were previously filed with the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1996, are incorporated by reference. *** This exhibit, which was previously filed with the Company's Current Report on Form 8-K filed October 11, 1996, is incorporated by reference.