TransAct Technologies Inc (TACT) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the TransAct Technologies second quarter 2007 earnings results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today. A replay will be available approximately two hours following today's call. The replay can be accessed by dialing (877)660-6853, or (201)612-7415. And using account number 3055, conference I.D. Number 246805. The replay will be available through August 13. It is now my pleasure to introduce your host, Mr. David Pasquale. Thank you, sir. You may begin.

Thank you, operator. Good afternoon, and welcome, everyone, to TransAct's second quarter 2007 results conference call. Joining us from the Company are Mr. Bart Shuldman, Chairman, President, and CEO, and Mr. Steve DeMartino, EVP and CFO. The format of the call will be a brief business review by Bart, followed by Steve providing details on the financials. We will then have time for any questions. If you have not yet received a copy of today's results release, you can either call (646)536-7018 and one will be sent to you or you can access it on TransAct's Web site.

Before I begin the formal remarks the Company's attorneys advise that this conference call contains statements about future events and expectations which are forward-looking statements. Any statements in this call that are not a statement of historical fact may be deemed to be a forward-looking statement. Actual results may differ materially depending on a number of risk factors. For a full list of risks inherent in the business of the Company, please refer to the Company's SEC filings, including the Company's most recent annual report, on Form 10-K. The Company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. At this time, I would like to now turn the call over to Mr. Shuldman. Please go ahead, sir.

Thanks, David. And good afternoon, everyone. And thank you for joining us on today's call. We have made good progress in the second quarter of 2007 from the first quarter of this year, increasing revenues by 22% over the first quarter of 2007, and restoring the Company to profitability in what can only be described as a difficult market for TransAct. However, we believe that we have built an excellent foundation and our market position, combined with the strategic initiatives we have put in place, is starting to make us very excited about the prospects for 2008. Revenues for the second quarter of 2007 were $13.9 million, compared to $16.9 million in the same period a year ago. The Company recorded net income of $300,000 in the second quarter of 2007, compared to $900,000 in the same period of 2006. Net income per share for the three months ending June 30, 2007 was $0.03 per diluted share compared to $0.09 per diluted share in the same period a year ago.

During the second quarter, we were able to report positive results despite the difficulties we were seeing in both markets and with some customers. While not an excuse for our results, the year-over-year decline in sales is a result of the variable nature of some large customers and the domestic casino market condition that exists. It is not an affect of our market position. I will explain to you what I see in the near-term, while also giving you insight into what we are starting to see for 2008. This will help you understand why we what we are becoming positive about next year while also explaining why we expect another few quarters of mixed results.

First and foremost, we saw an increase in our gaming sales in the second quarter of 2007, from the first quarter of 2007. Our international gaming sales more than offset the softness in our domestic gaming sales, which shows the success of our efforts to focus on the international gaming market. There is no doubt the domestic casino market is in a lull. And we expect this condition to last until the start of 2008. But our efforts in the international casino market has helped us withstand the domestic decline, and we know we are getting much closer to the beginning of the upgrade cycle here in the United States for server-based gaming and that upgrade cycle will likely have a positive impact on our revenue and profit once it starts, which is the first reason I will explain to you today why we are optimistic and positive about 2008. Regarding the international markets, we are pleased to finally see ticketing approved for slot machines in Australia. We expect to see some ramp-up of orders the remainder of this year, but expect this to have more impact to growing our revenue next year. This adds to the opportunities we see for 2008, and as you know, we have a very large market share of casino printer sales in Australia.

In addition to our expansion in the international market, we designed and started selling new printers for what I term off-premise gaming. These are gaming-type machines you would see in the international markets, such as amusement with prizes machines that you see in places like pubs in the United Kingdom. I am very pleased to report that we won our first large commitment for our Epic 430 with a well-known gaming company. We expect our final engineering and production work to be completed by the end of this year, and for revenue to start early in 2008. This win clearly shows us that our decision and efforts to enter this market was a good one, and we now have continued plans to expand our product offerings. Based on industry statistics, the market size of this opportunity alone is over 1 million gaming-type machines. You can see why we remain positive about this opportunity and I am glad to see our first win. And this adds to our growing opportunities in 2008.

In the lottery market, our one large customer, GTECH, will have a slower year this year than last. As we have told our shareholders many times, this business can be very lumpy, and this year is no different. However, we just landed a deal for a new additional printer for GTECH which is incremental to what we normally do. The design and production of this new printer will take about 10 months, and we should start seeing additional new revenue begin in the second half of 2008. Once again, adding to our revenue opportunities in 2008.

We also believe that 2008 should be a much better year with our regular thermal printer business with GTECH, as we typically see a good year after a bad one. Once again, this adds to our opportunities for revenue growth in 2008. We have also made progress in POS and Banking as sales increased compared to the first quarter of 2007, despite once again not having a large banking order in the quarter. However, our results were impacted by one of our largest point-of-sale customers, who is having issues getting their new point-of-sale operating system running. This large point-of-sale customer has been planning a major upgrade to their point-of-sale operating system for some months. Due to delays by their software vendor, which is totally out of our control, this new POS operating system will not be ready until Q2 2008. This delay has caused our POS customer to delay or defer purchases of new POS terminals, which in turn impacts how many printers we sell to them right now. The good news is we had a better Q2 than Q1 this year, despite this issue. We are expecting this specific customer issue to continue through the first quarter of 2008, but the pent-up demand that exists once the new point-of-sale system is approved and ready for installation should have a very positive impact to revenue. Once again, this adds to the opportunities for revenue growth for 2008.

In addition, we do have banking sales opportunities that we are waiting to close. The Banking business is also very lumpy and unpredictable but the pipeline is full, and this should also add to the opportunities we will see in 2008. Finally, TransAct Service Group or TSG revenue for the second quarter was up 2% as compared to the second quarter of last year. Revenue growth in the second quarter was driven by increased sales in the two areas we have been focusing the business on, consumables and service products. We also benefited from the ink jet cartridge contract we won with a national supply chain we signed last year. Moreover, this growth was achieved despite declining sales of refurbished printers and spare parts for our Legacy Impact printers. As expected, the first half of 2007 has gotten off to a slow start. However, in the second quarter, we were able to make improvements to the business, ultimately restoring it to profitability. We believe we are nearing the end of the domestic gaming slowdown but we expect to have one or two more quarters of mixed results. That said, for the reasons I just highlighted, we are becoming increasingly optimistic about 2008.

Before I turn the conference call over to Steve DeMartino, I would like to make some comments about our move to manufacture printers in Asia. As most of you know, we started our Asian initiative about four years ago. We first started manufacturing sub assemblies in Malaysia, and have since moved on to building full printers in China. This has had a very positive effect in our margins. Just looking at this second quarter 2007, our gross margin was 35.4%. Comparing that to our results in Q2 last year, our gross margin was only 34% and that was on $3 million more of revenue. So we increased our gross margins by 140 basis points on $3 million less sales. This should clearly show you the positive effect regarding our move to China has had on our business. Currently, about 50% of our printer models have been moved and I would expect that a total of about 80% will be moved over to China by June of next year. That should complete our initiative to Asia as some products will need to be assembled in Ithaca for certain customer requirements. Now, one item that will be impacted by our move is inventory, with the production in China, we need to protect any upside to customer forecasts we get. It takes time to have production shipped from China and if we get incremental orders not expected, we need to protect ourselves to be able to deliver the printers to our customers. So expect our inventory to be somewhat higher than what it has been in the last few years, around the level it is today. Nothing more.

And finally, I would like to make some brief comments about our patent lawsuit with FutureLogic. This was a serious decision on our part, as the legal expense is large. We spent about $175,000 in the second quarter, which was about a $0.01 per share. But it is important that TransAct protect its intellectual property. The coming of server-based gaming and the opportunity to print coupons at the slot machine is real. Our patent and patents are very important to us, as technology such as server-based gaming moves forward. And we have to protect ourselves from what we believe is our competitor infringing on our technology. I am pleased to report that the first initiatives we have taken have proved to deliver positive results for us. We are very pleased with what we are hearing from the judge, and it helps to support our decision to proceed with our patent lawsuit against FutureLogic.

I will be limited in any responses to your questions regarding the lawsuit, but wanted to make sure you knew the impact the lawsuit will have in the short-term, and how positive we feel about it. With that, I would like to turn the call over to Steve, our CFO, for our financial summary. Steve?

Thanks, Bart. From a financial perspective, the second quarter of '07 showed marked improvement compared to the first quarter of '07. Despite a continued soft domestic gaming market, we still made significant financial progress. I'm pleased to report that we returned the Company to profitability in the second quarter. Our net sales for the second quarter of '07 were $13.9 million compared to $16.9 million in the second quarter of '06, down 18%. Gaming and Lottery sales were $7.5 million in the second quarter of '07, compared to $9.1 million in the second quarter of '06. Our sales into the Gaming and Lottery market for the quarter were impacted primarily by lower lottery printer sales to GTECH due to the timing of orders, and lower casino printer sales due largely to continued softness in the domestic casino market. However, we experienced a 13% increase in our international gaming printer sales, led by higher sales in Europe and Asia. POS in Banking sales were $3.1 million in the second quarter of '07, down from $4.4 million in the second quarter of last year. The decrease was largely due to about $900,000 of bank teller printer sales to two large banking customers in the second quarter of '06, that did not recur in the second quarter of '07. Keep in mind, sales of banking printers are project oriented and can fluctuate significantly quarter-to-quarter.

In addition to lower banking printer sales, we also experienced a decline in thermal printer sales, as a large POS customer gets ready to update its operating system. Additionally, sales of our Legacy Impact printers were down. As we stated previously, we expect sales of these printers to continue to decline for the remainder of '07, but at a diminishing rate as these printers continue to be replaced by thermal and ink jet printers. While our overall sales were down in the second quarter, on a year-over-year basis, sales of after-market products from our TransAct Services Group increased by 2% to $3.4 million. This increase was due in large part to growth in consumables and service revenue, the two portions of our after-market business we are committed to and remain focused on.

Our gross margin in the second quarter of '07 increased to 35.4%, up from 34% in the second quarter of '06. As Bart previously mentioned, our improved gross margin resulted primarily from the success of our continued effort to lower product costs through initiatives to move production to Asia. Also noteworthy is that we achieved us 140 basis point increase in margin on almost $3 million of lower sales in the second quarter of '07 compared to the second quarter of '06. Operating expenses for the second quarter of '07 were $4.5 million, up slightly from $4.4 million in the second quarter of '06. Operating expenses for the second quarter of '07 were higher due largely to approximately $175,000 of legal expenses we incurred in the quarter, related to the lawsuit with FutureLogic. We plan to continue to update you on the financial impact of this lawsuit each quarter. And on the bottom line, we recorded net income in the second quarter of this year of about $284,000, or $0.03 per share. This compared to net income of $857,000 or $0.09 per diluted share in the second quarter of '06.

Now, looking at our cash flow, we generated approximately $300,000 of cash from operations during the second quarter of '07, our capital expenditures for the quarter were about $1.3 million, and our capital expenditures should run at a lower level for the remainder of 2007. Even after funding $1.3 million of capital expenditures, our cash balance at the end of the quarter still stood at approximately $2.5 million, and we continued to have no debt outstanding. Our working capital decreased slightly to $16.3 million at the end of the second quarter '07, from $16.6 million at the end of '06. Our current ratio also decreased slightly to 2.8 to 1 at the end of the second quarter '07 from 3 to 1 at the end of '06. These slight declines were due largely to lower accounts receivable from lower sales volume, and a lower cash balance. In addition, our working capital and current ratio were also impacted by stock buys made under our stock repurchase program during the first quarter of '07. Despite a challenging first half of '07, both our working capital and current ratio remain strong.

Our EBITDA for the second quarter of '07 was approximately $1.1 million, compared to $1.9 million in the second quarter of '06. Depreciation and amortization for the second quarter of '07 totaled $500,000, and non-cash comp expense was about $200,000 for the quarter.

Now, let's take a look at our balance sheet at the end of the second quarter. Our total assets were $34.9 million, compared to $33.7 million at the end of the year. As I previously stated, we ended the quarter with about $2.5 million of cash, which compared to $3.4 million of cash at the end of '06. So our cash balance only declined by $900,000, even after incurring $1.6 million in CapEx, and repurchasing 500,000 of our common stock in the first half of '07. Receivables were $10.9 million at the end of the second quarter '07, down from $11.4 million at the end of December '06. The decrease in our receivables reflects reduced sales volume for the second quarter of '07, compared to the fourth quarter of '06. That said, our collection experience continues to be extremely good.

Our inventories increased to $9 million at the end of the second quarter, from $7.6 million at the end of '06. Our inventories grew primarily due to the unanticipated slowdown of our business in the first quarter of '07, combined with higher inventory stocking levels, due to increased production of our products in China, as Bart explained previously. And lastly, as an update on our stock repurchase program, during the second quarter of '07, we did not repurchase any of our common stock because we were working on the FutureLogic lawsuit and other corporate matters. As you know, under our Insider Trading Policy, we can only repurchase our stock during permitted trading windows and even when we are within a permitted trading window, certain information or knowledge of events or pending events may preclude us from repurchasing our stock. Unfortunately, this is what occurred during our second quarter trading window, so we couldn't repurchase any shares during the quarter. So as of June 30, '07, our total buyback stands at 871,300 shares repurchased for a total of $7 million, which represents about 9% of our total shares outstanding. As a reminder, we are authorized to repurchase up to $10 million of our common stock through March '08. And that ends the financial portion of the discussion and with that I will give it back to Bart. Thank, Steve. Operator at this point, we would like to open up the call to questions.

Thank you. (OPERATOR INSTRUCTIONS). We will take a moment to poll for questions. Our first question comes from the line of Todd Eilers with Roth Capital Partners.

Hi, Bart. Hi, Steve. How are you?

Hi, Todd, how are you doing?

All right. I was wondering if you guys could break down domestic versus international revenue for both the POS and Banking and Gaming and Lottery segments?

Hold on a second. Do we have that, Steve, here?

I don't think I have that with me, Todd. We can get that to you after. It will be in the 10-Q.

Okay. Let's see. You made some comments about the domestic replacement market still, still being soft, at present, and that sounds like expectations for the rest of the year, or for that to kind of continue. Should we kind of view second quarter here as kind of a baseline for the rest of the year? Or is there -- obviously assuming all else is equal, but in terms of just the domestic replacement market, should we kind of assume the second quarter level as kind of what we should expect for the remainder of the year, and then it sounds like your expectation for '08 will be a marked improvement, but just kind of wanted to get your thoughts comparing this quarter for the rest of the year.

It is definitely hard to judge, based on what we see in the market today. I mean clearly what we're hearing about 2008 is very positive. We're hearing that server-based gaming is coming. That-- the ticket-in, ticket-out, that occurred in 2000, and late 2002, '03, and '04, those machines will be five years old and the typical replacement cycle as you know Todd is five, six years and even just the replacement cycle, the fact there was such a accelerated replacement cycle in '03, '04 , the ticket-in, ticket-out will start to just drive replacement cycle in '08, '09, just because the machines are older. And of course we're hearing some positive things about server-based gaming. We're hearing things are finally getting approved through the regulators, so we clearly remain very positive, at least getting into '08. It is difficult to call the rest of the year. Normally, we see a pick-up in '03, a pick-up in '04. The first quarter is always the lowest quarter and second quarter and third quarter, fourth quarter -- third quarter and fourth quarter normally picks up. We don't get orders that go out six or eight months. So we go month-to-month, quarter-to-quarter, on orders, so it is hard to tell. Clearly, we are very pleased with the results that we had, because of the downturn in the marketplace, and how our results were. Clearly, we were very pleased with our international results, and Europe is very strong for us right now. And if you think about it, Australia is just getting started and we had good results out of Asia. So it is difficult to call right now, but we are pleased with the Q2 results, considering the domestic market is as weak as it is and we are really starting to look forward to '08. The other thing that we're starting to see is that "off premise" gaming market and we got our first large order and that is a whole other additional million machines that we can go after for printers. So we somewhat remain very optimistic about how that is going to start flushing in with the rest of our business.

Okay. That helps. You mentioned Australia. Just a replacement cycle potential there with cashless conversion. It sounded like you guys might see some of that in Q4. Did I hear that right? And then can you refresh us on what your market share is in that market, just roughly?

We have probably over 90% market share in Australia right now based on the input that we get. We are starting to see a slight uptick in orders. Clearly, we felt it in Q2. That's why international sales more than overcame the downturn in our domestic business. Which wasn't actually that low, but it was nice to see the international markets uptick. I really think it is an '08 story. I think now that it is approved, you got to get the systems in place. There are some real issues. The funny part about how it all got approved was this rash of robberies that went on. Todd, as you know, most of the slot machines are not in casinos, they're in these clubs, the rugby clubs, the soccer club, the local social club in the town. There was a rash of robberies and they were stealing the change, and now, the government has said with ticket-in, ticket-out, that will remove a lot of the cash that is on the floor. We still got to get through the implementation of the systems, and then seeing the upgrade. From what we're hearing from our customers, '08 should be a very good year. This really takes place in New South Wales and it is about 120,000 machines that can get changed. If it is an accelerated schedule, it will be pretty high. If it is not, it will still be a very good number for us next year.

Sure, sure. And then also just moving on to other international markets, in Macao did you guys ship printers to Macao in the quarter? Yyou hada couple of large property openings there, Crown and Venetian, did you guys place any printers in those properties?

I think we got 100% of Crown. We got some of course of Venetian. We've got Wynn that is going to increase their population of slot machines from a little over 450 to 1200. That is the expansion they're going to go through, MGM will open up, and then we have City of Dreams. We're in good position there to get most of that business. And then Wynn is now talking about opening up 50 or 60 acres in Cote. So we're really pleased with what is going on there. It is somewhat of a small market compared to some of the domestic markets that we see. Pennsylvania could be 30,000, and that could be the whole size of Macao. But we are starting to see kind of a domino effect in Asia. Japan is now talking about 10 casinos. And what a lot of the countries in Asia are talking about is a lot of the tourism, a lot of the business meetings that are going on are now being scheduled for Macao because of the casinos, and we're starting to see a lot of countries that a couple of years ago you wouldn't have thought about, really starting to talk about opening up gaming in Asia. Ten casinos in Japan would be wonderful for us, considering we have a great relationship with a very strong partner in Asia, in Japan, so we are starting to see that, and we have seen it in our results.

Okay. And then on the expense side, or in the margin side, you guys talked, obviously, your gross margins were pretty healthy in the quarter, especially on lower revenue, and you mentioned just moving some manufacturing to China, and it sounds like you still have some further potential to save some more there. Can we expect margin expansion through the remainder of this year? And what did you think kind of the potential is for gross margins for you guys, let's say back half of this year, or in '08, with kind of what you've got going on here with your manufacturing outsourcing to China?

I think with the outsourcing, I think the margins will be somewhere right around this level that we're at. The nice thing about Q2, it really shows the impact of our TransAct Services Group and our Gaming and Lottery business being almost 80% of sales. And where the point-of-sale market clearly runs at much larger margins, our other units run at higher margins, and I see -- I think you see the result of that. Plus, you see some of the work that we've done at moving our products over to Asia, and most of those products are Gaming and Lottery, not POS. So those products start moving over shortly. I think the margin will hold here, and then we will -- as volume comes up, I think you will continue to see margin expansion. Remember, as we get into '08, and if we see the revenue growth, the fixed costs, the operating, the planned costs are fixed, so once we get through that absorption, we start dropping a lot -- a pretty hefty amount to the gross profit line, so as that revenue grows, you are going to see that margin expansion, which is -- which should only, of course, grow our margins. The other thing is a lot of the growth that I talked about on the conference call is mostly Gaming and Lottery. I mean we're going to start seeing GTECH -- we should see GTECH at much higher levels next year. We've won our first 430 order, which is a gaming product, which will kick in next year. We've got the Australian ticket-in, ticket-out. We've got this new printer that we just did for GTECH which is incremental, it is not taking place of the existing thermal, so the growth that I mostly talked about is Gaming and Lottery, which is at the higher margin business. So you should see not only from the sales growth, but continue to see that product mix as a favorable product mix in regards to our margin.

Okay. And then just a couple of last questions, just if you could touch on the FutureLogic lawsuit, and I know you can't talk that much about it, but how about in terms of just legal expense, going forward? You had just under $200,000 this quarter. Is that a good number to assume until the lawsuit is resolved? Should we assume that going forward each quarter? Or can you help us kind of -- how should we look at that going forward? And then maybe also what your expectations are for kind of a resolution timing-wise?

The resolution I couldn't even begin to answer, Todd. This is probably one of the stranger cases that I have seen, that our lawyers have seen, and so I couldn't even talk about the resolution. It would be nice to talk about it, but it is clearly -- we're protecting our technology, so it is not us that is infringing. From the expense side, I would think that it is going to be more than $200,000 a quarter, considering we spent about $200,000 in the second quarter, and that wasn't a full quarter.

Okay.

Normally, what happens in cases like this, the first couple of months are much heavier than the last couple of months, because you are doing all of the discovery work and things like that. I got to say, Todd, that we are very positive so far about the things we're hearing from the judge, and hopefully over the next days or weeks, I can inform our investors why we think it has been very positive. But we feel very positive about what the developments that have happened in Court, and things that our shareholders will see that there is a real benefit to this. But I think that expense will probably be a little heavier because we didn't have it for the whole quarter. Don't you agree, Steve?

Yes, it will be difficult to predict, though, Todd.

Okay. That's fine. That helps a little.

And we are going to break it out, Todd, because there are -- nobody likes to call them one-time charges, or anything, but when it ends, when the lawsuit ends, that won't reoccur, that will go away. This is the only issue that we have and that won't continue.

Sure. Okay. And then just one last question. You didn't buy any stock in the quarter, but you mentioned -- well, I guess is there anything going on that would preclude you from buying stock in the appropriate window going forward in this quarter?

Great question. At this point, I can't answer that. I'm not allowed to answer it. I mean clearly Steve and I feel very strongly about buying back stock, using our cash. I mean even though we had some pretty good CapEx in the second quarter, we bought back stock, we still have cash on the balance sheet. We had a good second quarter, and so that will continue to drive cash. It is just really up to the lawyers to tell us when that window opens whether we can or cannot.

Okay.

The board does say something about other initiatives going on in the Company and making sure that we have -- whether we can or cannot, and have cash or whatever, but clearly from Steve and I's point, we see using our cash to buy back stock at this point to be something we would like to do.

Okay. I mean with the FutureLogic lawsuit, I mean would that be something that would keep you from buying back stock or should we assume that it is some other sort of business development activity or something like that?

The FutureLogic would if there was a development that wasn't public. Clearly, we could not buy stock while we were deciding and working on the lawsuit against FutureLogic. So the lawyers felt that that was non-public information, and it was pretty significant to the business. So if a development did happen that wasn't public, the lawyers would tell us. If there is a corporate matter inside the Corporation, clearly the lawyers will tell us. So it is a different world. We used to be able to buy every day, any time, there wasn't a window, and today, you've got these windows that you have to work with, so it really kind of handcuffs us from what our ability and capability is.

I understand. But that is helpful. Thanks, guys. Good quarter.

Okay, Todd, thanks.

Our next question comes from the line of Peter Caplin, Private Investor.

Hey, Bart, how are you doing?

Peter, how are you, sir?

Good, if you had to target a quarter when you think server-based gaming may become a reality, could you do that? And also do you think the roll out would be pretty quick, like ticket-in, ticket-out or it could spread out a much longer period of time?

It is difficult to say, the quarter, when it's going to happen. If you remember what we did back in '02 and '03, the stock kind of traded off, people were getting kind of antsy, when is ticket-in, ticket-out coming. We told people it wasn't if, it's when, we couldn't tell you when and then of course in May of '03, the orders started coming in and it happened quickly. I kind of see the same scenario that we are in right now. It is coming. There is no doubt about it's coming. What is the catalyst is, there is a lot of chatter in the marketplace, some I can't talk about, that says what the first catalyst will be to drive it. I do believe it's going to be sometime in '08. If anything, the slot machines manufacturers are getting their machines through the gaming approvals so that if they sell a machine, it will be server-based gaming ready. That's a positive. Whether it is a rush like ticket-in ticket-out or not, it is a great question, because some analysts will say no, it is not. There is not this wonderful benefit that you got like ticket-in ticket-out where there was a real savings to the operator. However, if the player really likes it, and a player goes to one casino, because that casino has it, and they like the interaction of the server-based gaming, they like how it is being played, they like the interaction between the game and the player, you know as much as I know that the casinos will run very quickly. I'm very pleased to hear things like Bally's putting out a press release the other day that they're doing something with one of their product lines, but also that casino is re-wiring their floor, getting ready for server-based gaming. I like hearing that stuff, because that is telling us we're getting much closer. So we believe it is '08. We believe that there is a lot of catalyst for '08. We believe we have other catalysts to grow our business despite -- outside of server-based gaming. I mean clearly '09 is going to be very big for server-based gaming. But we think it is sometime next year.

Bart, but clearly there is a financial incentive for the casinos to do this, not just that the player likes it. Can I assume that is correct?

I don't know how it is being priced, so I would imagine that the manufacturers are working with the casinos to give them a benefit to why they should go to server-based gaming. I'm not privy to their negotiations. But we do hear things in the marketplace about certain things that are going on to drive it forward, and we're very pleased, we're pleased with what is going on. It is technology. It has to get approved. It has to go through all of the cycles that you would expect it to go through. It is just like what happened with ticket-in and ticket-out. It is not [if it is one].

Okay. Thank you.

Our next question comes from the line of Mark Glass, a Private Investor.

Hey, Bart, two questions. One, a quick one. Is FutureLogic a public company?

No.

Okay. And secondly, what is your reaction to the impact on TransAct of the recent articles about one of the Connecticut casinos going to video touch screen machines?

Video touch screen? Are you talking like iView, the Bally's touch screen?

I don't know who the manufacturer was, but it is either Foxwood or the Mohican's.

We love it. We love the fact that they're doing things with these video screens on the slot machine, because eventually, what you will do is you will be able to -- the slot machine will be able to communicate to the player, like a pit boss, so the touch screen will say, do you want a drink and what drink would you like, and you press a button and a drink comes over. And then if you are in a bonus round, would you like a meal ticket, would you like a show ticket --.

That was all in the articles in the Current.

That's right. So when you hit that button, our printer will print out the coupon or the voucher or the ticket.

The video screen is not incompatible with the printer but compatible?

Oh, no, it is part -- we believe it is the beginning of the system. We believe it is just the beginning. The challenge that the casinos have is okay, if I tell the customer they got something, that customer has to go some place and either collect it or get it, free dinner, whatever, and that is where our printer comes in. That's where our technology comes in, is to be able to print that coupon, or that ticket. And that's the beauty of marrying the touch screen with the printer. We love hearing about the tough screen coming on, because that is part of this whole server-based gaming, this whole interaction between the casino, the system, the slot machine, and the player. We're the written document that they can take with them to go collect, so this is just part of it. We're very thrilled with it. I mean, it is part of what needs to get done to make this all happen.

Okay. Thanks. My regards, Steve.

Thank you.

Our next question comes from the line of Jack McCullum a Private Investor.

Hello, Bart, how are you doing?

How are you doing?

Very well. Thank you. I don't like to return to this lawsuit but I've had a lot of experience with lawyers. Has anything looked at the economics of this in terms of if you win, how much you can collect, and is this company -- can this company pay whatever the lawsuit -- whatever the judge decides?

I can't comment on FutureLogic's financial status. This is isn't -- I mean look, this is a situation where we've got 20, 21 patents already, 22 patents, as a company, and this is a situation where we not only protect our technology, but there is two options. The option is that we drive them out. We win our battle, we win our lawsuit, and FutureLogic can no longer sell printers that can do dual port printing. That is very important to us, Jack, because if the market goes server-based gaming and dual port printing, we get 100% of the market. So if you want to look at the financial aspects of it, just look at how many machines can go out into the marketplace and realize they are 100% TransAct. Have we analyzed the financial impact of it? Sure we have. It is much, much, much, much bigger than what the lawsuit will cost us. If for some reason FutureLogic decides to license the technology and we decide that that is something we want to do that clearly will have a financial impact to us in the positive side. Because any time you collect a royalty it is pure profit. But at this point, we are suing them for patent infringement and asking the judge to stop them from selling the technology. And we feel very strong about it. We also like what the judge is saying so far. From the financial impact to us, this is a short-term hit for a very large long-term gain.

Okay. I will go along with that. Now, is this the only reason that you're not buying stock or -- well, I think the question was asked earlier, but I didn't really understand the answer.

Okay.

Is this basically the reason that you can't buy stock? And if it is, I don't understand it, because it is part of the public domain now. You're suing them, and it will be adjudicated eventually and what (multiple speakers).

Look, Jack, there is no doubt about it that at the beginning when the window opened up, we were in the middle of formulating a lawsuit against FutureLogic and the lawyers felt that at that point that was not a good idea. That we could not buy back stock. There are other corporate matters that go on in any corporation that will prevent you from buying back stock if you know about it. And whether -- that could be good news or bad news but -- it could be very good news and it stops you from buying back stock because you know something that the public doesn't know. It is a different world now. I mean you used to be able to buy stock any time. The Company would just go out and do it. And now it is like insider. The Company can only buy if it really has no material information available to it at the time. And in any corporation, when that window opens up, the lawyers look at it and say look, you have something over there that is non-public, you can't buy back or they look at it and say you have nothing that the public doesn't know and you can buy it back. In the second quarter, the lawyers said we cannot buy it back. There was clearly the lawsuit. There are other corporate matters going on that the lawyers felt that we couldn't. I can only talk to the second quarter. I can't talk to the third quarter. I'm not allowed to talk about future purchases.

Okay. So they haven't -- you can't say whether are you going to be buying stock in the third quarter yet?

No, no, no, I make no comment about the third quarter.

Okay.

I'm really just talking about the second quarter.

Okay.

I am just talking about the second quarter.

It would be a shame not to be able to buy the stock in the third quarter if what you're saying materializes in '08 or begins to materialize toward the end of this year.

There is no doubt about that, Jack. I don't disagree you.

That's all I had, Bart.

Okay, Jack. Thanks a lot.

Once again, if you would like to ask your question, please press star one on your telephone key pad. Seeing that there are no further questions, I would like to turn the call back to management for any concluding remarks.

That's okay. Look, Steve and I would like to thank all of the investors for joining us today, both on the phone and on the Internet. And we clearly --.

Excuse me, we still have one question. Do you have time to take it?

Sure.

It just came in. It is from Frank Abella with Investment Partners Group Inc.

Hi, guys. I'm a recent purchaser of your shares.

Welcome aboard, Frank.

Thank you. I'm wondering whether or not we have made an application to the Court for injunctive relief?

I know we filed for preliminary injunction, but I don't know what that means, so I truly apologize, Frank, this might be above my pay grade. I'm just not sure what injunctive relief means.

What it means is the Court would be persuaded -- if it were to be persuaded to make sure that the offender can't make any printers until there was a resolution, to my understanding, I'm not a lawyer, but having been in enough of these skirmishes in my lifetime, if you were ever able to get an injunctive relief it would probably force the litigants to sit down and really deal with the situation because at that point, there is a Preponderance of the Evidence that would at least indicate that there is a reasonable chance that you are going to win. Now, to that degree, injunctions are very difficult to get in most cases but if you make the application or even on a preliminary injunctive basis, the worst the Court can say is no we're not going to grant it. Let's see more of the evidence as time goes on, but the timing of that would seem to be very crucial.

Yes, Frank, what we did as a company is we did exactly what you just described. We filed a lawsuit against FutureLogic for patent infringement. And asked the Court for a preliminary injunction, to stop them from proceeding further. I can't make comment as to what has gone on. There have been clearly motions and there has been a hearing. And I can't make comment until the judge rules. But it is clearly what we went after, Frank. And we hope to have more information for investors. Steve and I talked about it, as things develop, and as we get anything from the judge that we feel is material, we will immediately share it with our shareholders in a press release.

This is in a California Court, yes?

Yes, it is. It is in the Central District. It is in Los Angeles. And you're not wrong when you say that there has been very few preliminary injunctions ever granted. I think there's been nine in the history of California, in the L.A. Court.

But it would be a strong indicator if we were able to get one. With that being the case, if it looks like the parties would then be at a hearing, is there any reason to think that at this stage, the licensing alternative could be explored?

Frank, I just can't comment, Frank. I truly appreciate the concern as a shareholder. And clearly, I understand the position that you're in, and just by my lawyers have been told that I can't say anything. I can't speculate. I can't go forward. I can only go backwards and tell you what we did, because it is public information. You can go to the Web site in the Court and see what is going on. And I do ask you to go there, because you will see what has been going on between the two companies. But I can't go forward. I can't speculate. I apologize, Frank.

Actually, that would be very helpful, if we can go right to the Web site and actually follow the (multiple speakers).

I believe it is public. It is all public. And that's why once a ruling or anything comes out from the judge, we will clearly share it on our part with the shareholders, but also, ask our shareholders to go to the Web site, go look at what is going on, because I think you will feel as positive as we do about what has occurred so far.

Thank you.

And thanks for joining us, Frank.

Okay. Gentlemen, I will turn it back to you for your closing remarks.

Once again, Steve and I do appreciate you joining us, either on the Internet or on the phone today. And we look forward to talking to you with our third quarter conference call. I would like to say that Steve and I will be at the Roth Capital Partners Conference in September and we will be making a presentation at 8:00. I believe it is 8:00. And we look forward to seeing everybody there. And if anybody wants to do a one on one, please get in touch with Todd Eilers and his staff and they will be glad to set it up. We look forward to joining Roth at the Roth Conference in September. Outside of that I will talk to everybody in October, early November. Thank you for joining us.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation.