10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 29, 2007

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.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization) 16-0874418
(I.R.S. Employer Identification No.)

35 Vantage Point Drive, Rochester, New York 14624
(Address of principal executive offices) (Zip Code)

(585) 352-7777
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

The number of shares of Common Stock, par value $0.50 per share, of the registrant outstanding as of October 31, 2007 was 7,152,346.

		Page(s)
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Consolidated Statements of Operations and Comprehensive Income for the Second Quarter and Six Months Ended September 29, 2007 and September 23, 2006		3
	Consolidated Balance Sheets as of September 29, 2007 and March 31, 2007		4
	Consolidated Statements of Cash Flows for the Six Months Ended September 29, 2007 and September 23, 2006		5
	Consolidated Statements of Shareholders’ Equity for the Six Months Ended September 29, 2007		6
	Notes to Consolidated Financial Statements		7-10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11-21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		22
Item 4.	Controls and Procedures		22
PART II.	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		22
Item 6.	Exhibits		23
SIGNATURES			24
INDEX TO EXHIBITS			25
EX-3.1
EX-31.1
EX-31.2
EX-32.1

2

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Amounts)

	(Unaudited)				(Unaudited)
	Second Quarter Ended				Six Months Ended
	September 29,		September 23,		September 29,		September 23,
	2007		2006		2007		2006
Product Sales	$	11,219	$	9,880	$	22,146	$	20,417
Service Sales		5,406		4,980		10,669		9,963
Net Sales		16,625		14,860		32,815		30,380
Cost of Products Sold		8,087		7,415		15,952		15,244
Cost of Services Sold		4,276		3,897		8,362		7,728
Total Cost of Products and Services Sold		12,363		11,312		24,314		22,972
Gross Profit		4,262		3,548		8,501		7,408
Selling, Marketing and Warehouse Expenses		1,919		1,807		4,127		3,942
Administrative Expenses		1,749		1,222		3,331		2,610
Total Operating Expenses		3,668		3,029		7,458		6,552
Operating Income		594		519		1,043		856
Interest Expense		29		90		63		184
Other Expense, net		209		46		290		120
Total Other Expense		238		136		353		304
Income Before Income Taxes		356		383		690		552
Provision for Income Taxes		162		137		258		189
Net Income		194		246		432		363
Other Comprehensive Income		265		13		457		94
Comprehensive Income	$	459	$	259	$	889	$	457
Basic Earnings Per Share	$	0.03	$	0.04	$	0.06	$	0.05
Average Shares Outstanding		7,127		6,902		7,099		6,864
Diluted Earnings Per Share	$	0.03	$	0.03	$	0.06	$	0.05
Average Shares Outstanding		7,577		7,425		7,474		7,377

See accompanying notes to consolidated financial statements.

3

TRANSCAT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)

	(Unaudited)
	September 29,			March 31,
	2007			2007
ASSETS
Current Assets:
Cash	$	188		$	357
Accounts Receivable, less allowance for doubtful accounts of $62 and $47 as of September 29, 2007 and March 31, 2007, respectively		7,874			8,846
Other Receivables		858			352
Inventory, net		3,662			4,336
Prepaid Expenses and Other Current Assets		1,108			762
Deferred Tax Asset		955			851
Total Current Assets		14,645			15,504
Property and Equipment, net		3,275			2,814
Goodwill		2,967			2,967
Deferred Tax Asset		769			791
Other Assets		352			346
Total Assets	$	22,008		$	22,422
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	5,411		$	5,307
Accrued Compensation and Other Liabilities		1,931			2,578
Income Taxes Payable		216			42
Total Current Liabilities		7,558			7,927
Long-Term Debt		1,333			2,900
Other Liabilities		411			366
Total Liabilities		9,302			11,193
Shareholders’ Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,413,262 and 7,286,119 shares issued as of September 29, 2007 and March 31, 2007, respectively; 7,137,480 and 7,010,337 shares outstanding as of September 29, 2007 and March 31, 2007, respectively		3,707			3,643
Capital in Excess of Par Value		5,792			5,268
Warrants		329			329
Accumulated Other Comprehensive Income		500			43
Retained Earnings		3,366			2,934
Less: Treasury Stock, at cost, 275,782 shares as of September 29, 2007 and March 31, 2007		(988	)		(988	)
Total Shareholders’ Equity		12,706			11,229
Total Liabilities and Shareholders’ Equity	$	22,008		$	22,422

See accompanying notes to consolidated financial statements.

4

TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

	(Unaudited)
	Six Months Ended
	September 29,			September 23,
	2007			2006
Cash Flows from Operating Activities:
Net Income	$	432		$	363
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Deferred Income Taxes		(85	)		148
Depreciation and Amortization		788			769
Provision for Accounts Receivable and Inventory Reserves		(63	)		43
Stock-Based Compensation Expense		428			328
Changes in Assets and Liabilities:
Accounts Receivable and Other Receivables		892			515
Inventory		749			(46	)
Prepaid Expenses and Other Assets		(602	)		(280	)
Accounts Payable		104			(408	)
Accrued Compensation and Other Liabilities		(595	)		(924	)
Income Taxes Payable		174			(41	)
Net Cash Provided by Operating Activities		2,222			467
Cash Flows from Investing Activities:
Purchase of Property and Equipment		(999	)		(454	)
Net Cash Used in Investing Activities		(999	)		(454	)
Cash Flows from Financing Activities:
Chase Revolving Line of Credit, net		(1,567	)		—
GMAC Revolving Line of Credit, net		—			223
Payments on Other Debt Obligations		—			(368	)
Issuance of Common Stock		160			110
Net Cash Used in Financing Activities		(1,407	)		(35	)
Effect of Exchange Rate Changes on Cash		15			4
Net Decrease in Cash		(169	)		(18	)
Cash at Beginning of Period		357			115
Cash at End of Period	$	188		$	97
Supplemental Disclosures of Cash Flow Activity:
Cash paid during the period for:
Interest	$	69		$	198
Income Taxes, net	$	177		$	85
Supplemental Disclosure of Non-Cash Financing Activity:
Treasury Stock Acquired in Cashless Exercise of Stock Options	$	—		$	50

See accompanying notes to consolidated financial statements.

5

TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)
(Unaudited)

					Capital
	Common Stock				In				Accumulated				Treasury Stock
	Issued				Excess				Other				Outstanding
	$0.50 Par Value				of Par				Comprehensive		Retained		at Cost
	Shares		Amount		Value		Warrants		Income		Earnings		Shares		Amount			Total
Balance as of March 31, 2007		7,286	$	3,643	$	5,268	$	329	$	43	$	2,934		276	$	(988	)	$	11,229
Issuance of Common Stock		98		49		111													160
Stock-Based Compensation						256													256
Issuance of Restricted Stock		29		15		157													172
Comprehensive Income:
Currency Translation Adjustment										453									453
Unrecognized Prior Service Cost, net of tax										4									4
Net Income												432							432
Balance as of September 29, 2007		7,413	$	3,707	$	5,792	$	329	$	500	$	3,366		276	$	(988	)	$	12,706

See accompanying notes to consolidated financial statements.

6

TRANSCAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 1 — GENERAL

Description of Business: Transcat, Inc. (“Transcat” or the “Company”) is a leading distributor of professional grade test, measurement, and calibration instruments and a provider of calibration and repair services, primarily throughout the process, life science and manufacturing industries.

Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of the results to be expected for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 31, 2007 (“fiscal year 2007”) contained in the Company’s 2007 Annual Report on Form 10-K filed with the SEC.

Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of dilutive stock options, warrants, and unvested restricted stock awards. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options, warrants and unvested restricted stock are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For the second quarter and the first six months of the fiscal year ending March 29, 2008 (“fiscal year 2008”), the net additional common stock equivalents had no effect on the calculation of dilutive earnings per share. For the second quarter and the first six months of fiscal year 2007, the net additional common stock equivalents had a $.01 per share effect and no effect, respectively, on the calculation of dilutive earnings per share. The total number of dilutive and anti-dilutive common stock equivalents resulting from stock options, warrants and unvested restricted stock are summarized as follows:

	Second Quarter Ended				Six Months Ended
	September 29,		September 23,		September 29,		September 23,
	2007		2006		2007		2006
Shares Outstanding:
Dilutive		450		523		375		513
Anti-dilutive		626		368		701		378
Total		1,076		891		1,076		891
Range of Exercise Prices per Share:
Options	$	1.50-$7.72	$	0.80-$5.80	$	1.50-$7.72	$	0.80-$5.80
Warrants	$	1.50-$5.80	$	0.97-$5.80	$	1.50-$5.80	$	0.97-$5.80

Stock-Based Compensation: In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment, the Company measures the cost of services received in exchange for all equity awards granted, including stock options, warrants and restricted stock, based on the fair market value of the award as of the grant date. The Company uses the modified prospective application method to record compensation cost related to unvested stock awards as of March 25, 2006 by recognizing the unamortized grant date fair value of the awards over the remaining service periods of those awards with no change in historical reported earnings. Awards granted after March 25, 2006 are valued at fair value and are recognized on a straight line basis over the service periods of each award. Excess tax benefits from the exercise of stock awards are presented in the consolidated statements of cash flows as a financing activity. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not have any stock-based compensation costs capitalized as part of an asset. The Company estimates forfeiture rates based on its historical experience.

7

The estimated fair value of the awards granted during the first six months of fiscal year 2008 was calculated using the Black-Scholes-Merton pricing model (“Black-Scholes”), which produced a weighted average fair value of awards granted of $4.62 per share. During the first six months of fiscal year 2008, the Company recorded, as a non-cash administrative expense in the Consolidated Statement of Operations, stock-based compensation in the amount of $0.4 million.

The following summarizes the assumptions used in the Black-Scholes model during the first six months of fiscal year 2008:

Expected life	6 years
Annualized volatility rate		70.8	%
Risk-free rate of return		4.6	%
Dividend rate		0.0	%

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of return for periods within the contractual life of the award is based on a zero-coupon U.S. government instrument over the contractual term of the equity instrument. Expected volatility is based on historical volatility of the Company’s stock. The expected term of all awards granted is estimated by taking the average of the weighted average vesting term and the contractual term, as illustrated in SEC Staff Accounting Bulletin 107. This methodology is not materially different from the Company’s historical data on exercise timing. Separate groups having similar historical exercise behavior with regard to award exercise timing and forfeiture rates are considered separately for valuation and attribution purposes.

NOTE 2 — DEBT

Description. On November 21, 2006, Transcat entered into a Credit Agreement (the “Chase Credit Agreement”) with JPMorgan Chase Bank, N.A. The Chase Credit Agreement provides for a three-year revolving credit facility in the amount of $10 million (the “Revolving Credit Facility”). The Chase Credit Agreement replaced the Amended and Restated Loan and Security Agreement dated November 1, 2004, as further amended, with GMAC Commercial Finance LLC.

Interest and Commitment Fees. Interest on the Revolving Credit Facility accrues, at Transcat’s election, at either a base rate (defined as the highest of prime, a three month certificate of deposit plus 1%, or the federal funds rate plus ¹/2 of 1%) (the “Base Rate”) or the London Interbank Offered Rate (“LIBOR”), in each case, plus a margin. Commitment fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility. Interest and commitment fees are adjusted on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the Chase Credit Agreement. The Base Rate and the LIBOR rates as of September 29, 2007 were 7.8% and 5.1%, respectively. The Company’s interest rate for the first six months of fiscal year 2008 ranged from 5.8% to 7.6%.

Covenants. The Chase Credit Agreement has certain covenants with which the Company has to comply, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements throughout the first six months of fiscal year 2008.

Other Terms. The Company has pledged all of its U.S. tangible and intangible personal property as collateral security for the loans made under the Revolving Credit Facility.

NOTE 3 — INCOME TAXES

Effective April 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 establishes a single model to address accounting for uncertain tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Upon adoption of FIN 48, the Company had no unrecognized tax benefits. During the first six months of fiscal year 2008, the Company recognized no adjustments for uncertain tax benefits and expects no material changes to unrecognized tax positions within the next twelve months.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in the provision for income taxes. No interest and penalties related to uncertain tax positions were recognized during the first six months of fiscal year 2008 or accrued at September 29, 2007.

The Company files income tax returns in the U.S. federal jurisdiction, various states and Canada. The Company is no longer subject to examination by U.S. federal income tax authorities for the tax years 2004 and prior, by state tax authorities for the tax years 2003 and prior, and by Canadian tax authorities for the tax years 2002 and prior. There are no tax years currently under examination by U.S. federal, state or Canadian tax authorities.

8

In May 2007, the FASB issued Staff Position FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The implementation of this standard did not have an impact on the Company’s Consolidated Financial Statements.

Transcat accounts for certain income and expense items differently for financial reporting purposes than for income tax reporting purposes. Deferred taxes are provided in recognition of these temporary differences. A valuation allowance on net deferred tax assets is provided for items for which it is more likely than not that the benefit of such items will not be realized, in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). SFAS 109 requires an assessment of both positive and negative evidence when measuring the need for a deferred tax valuation allowance.

NOTE 4 — STOCK-BASED COMPENSATION

Stock Options: In June 2003, the Company adopted the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). The 2003 Plan provides for grants of options to directors, officers and key employees to purchase Common Stock at no less than the fair market value at the date of grant. Options generally vest ratably over a period of up to four years and expire up to ten years from the date of grant. Options granted to executive officers during the second quarter of fiscal year 2008 vest using a graded schedule of 0% in the first year, 20% in each of the second and third years, and 60% in the fourth year. The expense relating to these executive officer options is recognized on a straight-line basis over the requisite service period for the entire award.

The following table summarizes the Company’s options as of and for the first six months ended September 29, 2007:

				Weighted		Weighted Average
	Number			Average		Remaining		Aggregate
	Of			Price Per		Contractual		Intrinsic
	Shares			Share		Term (in years)		Value
Outstanding as of March 31, 2007		329		$	3.11
Granted		392			6.94
Exercised		(50	)		1.09
Cancelled/Forfeited		(2	)		1.40
Outstanding as of September 29, 2007		669			5.51		9	$	956
Exercisable as of September 29, 2007		194			3.01		7	$	668

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal year 2008 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on September 29, 2007. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

Total unrecognized compensation cost related to non-vested stock options as of September 29, 2007 was $1.6 million, which is expected to be recognized over a weighted average period of 2 years. The aggregate intrinsic value of stock options exercised during the first six months of fiscal year 2008 was $0.3 million. Cash received from the exercise of options was less than $0.1 million during the first six months of fiscal year 2008.

Warrants: Under the Directors’ Warrant Plan, as amended, warrants have been granted to non-employee directors to purchase Common Stock at the fair market value at the date of grant. Warrants vest over a period of three or four years and expire in five years from the date of grant.

The following table summarizes warrants as of and for the first six months ended September 29, 2007:

				Weighted		Weighted Average
	Number			Average		Remaining		Aggregate
	Of			Price Per		Contractual		Intrinsic
	Shares			Share		Term (in years)		Value
Outstanding as of March 31, 2007		153		$	3.27
Granted		—			—
Exercised		(43	)		1.81
Cancelled/Forfeited		(3	)		5.10
Outstanding as of September 29, 2007		107			3.81		2	$	284
Exercisable as of September 29, 2007		81			3.38		2	$	248

9

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal year 2008 and the exercise price, multiplied by the number of in-the-money warrants) that would have been received by the warrant holders had all warrant holders exercised their warrants on September 29, 2007. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

Total unrecognized compensation cost related to non-vested warrants as of September 29, 2007 was $0.1 million, which is expected to be recognized over a weighted average period of 1 year. The aggregate intrinsic value of warrants exercised during the first six months of fiscal year 2008 was $0.2 million. Cash received from the exercise of warrants was $0.1 million during the first six months of fiscal year 2008.

As of March 31, 2007, all warrants authorized for issuance pursuant to the Directors’ Warrant Plan had been granted. Warrants outstanding on September 29, 2007 continue to vest and be exercisable in accordance with the terms of the Directors’ Warrant Plan. In August 2006, the Company’s shareholders approved an amendment to the 2003 Plan permitting directors to participate. During the second quarter of fiscal year 2008, 36 options were granted to directors and are included in the option table above.

NOTE 5 — SEGMENT INFORMATION

Transcat has two reportable segments: Distribution Products (“Product”) and Calibration Services (“Service”). The Company has no inter-segment sales. The following table presents segment information for the second quarter and the six months ended September 29, 2007 and September 23, 2006:

	Second Quarter Ended				Six Months Ended
	September 29,		September 23,		September 29,		September 23,
	2007		2006		2007		2006
Net Sales:
Product	$	11,219	$	9,880	$	22,146	$	20,417
Service		5,406		4,980		10,669		9,963
Total		16,625		14,860		32,815		30,380
Gross Profit:
Product		3,132		2,465		6,194		5,173
Service		1,130		1,083		2,307		2,235
Total		4,262		3,548		8,501		7,408
Operating Expenses:
Product		2,209		1,856		4,558		3,962
Service		1,459		1,173		2,900		2,590
Total		3,668		3,029		7,458		6,552
Operating Income		594		519		1,043		856
Unallocated Amounts:
Other Expense		238		136		353		304
Provision for Income Taxes		162		137		258		189
Total		400		273		611		493
Net Income	$	194	$	246	$	432	$	363

10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements. This report and, in particular, the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report, contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These include statements concerning expectations, estimates, and projections about the industry, management beliefs and assumptions of Transcat, Inc. (“Transcat”, “we”, “us”, or “our”). Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast. Therefore, our actual results may materially differ from those expressed or forecasted in any such forward-looking statements. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements elsewhere in this report and in any documents incorporated herein by reference. New risks and uncertainties arise from time to time and we cannot predict those events or how they may affect us. For a more detailed discussion of the risks and uncertainties that may affect Transcat’s operating and financial results and its ability to achieve its financial objectives, interested parties should review the “Risk Factors” sections in Transcat’s reports filed with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended March 31, 2007. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Rounding. Certain percentages may vary depending on the basis used for the calculation, such as dollars in thousands or dollars in millions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Accounts Receivable: Accounts receivable represent receivables from customers in the ordinary course of business. These amounts are recorded net of the allowance for doubtful accounts and returns in our Consolidated Balance Sheets. The allowance for doubtful accounts is based upon the expected collectibility of accounts receivable. We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the specific formula may not appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts. The returns reserve is calculated based upon the historical rate of returns applied to sales over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of sales and/or the historical rate of returns.

Stock-Based Compensation: In accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, we measure the cost of services received in exchange for all equity awards granted, including stock options, warrants and restricted stock, based on the fair market value of the award as of the grant date. We use the modified prospective application method to record compensation cost related to unvested stock awards as of March 25, 2006 by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards with no change in historical reported earnings. Awards granted after March 25, 2006 are valued at fair value and are recognized on a straight line basis over the service periods of each award. Excess tax benefits from the exercise of stock awards are presented in the consolidated statements of cash flows as a financing activity. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. We did not have any stock-based compensation costs capitalized as part of an asset. We estimate forfeiture rates based on our historical experience.

Options granted to executive officers during the second quarter of fiscal year 2008 vest using a graded schedule of 0% in the first year, 20% in each of the second and third years, and 60% in the fourth year. In previous years, options granted to executive officers vested ratably over three years. We are recognizing the expense relating to all executive officer options on a straight-line basis over the requisite service period for the entire award.

Revenue Recognition: Sales are recorded when products are shipped or services are rendered to customers. Since we generally have no significant post delivery obligations, our prices are fixed and determinable, collection of the resulting receivable is probable, and returns are reasonably estimated. Provisions for customer returns are provided for in the period the related sales are recorded based upon historical data. We recognize the majority of our service revenue based upon when the calibration or repair activity is performed then shipped and/or delivered to the customer. Some of our service revenue is generated from managing customers’ calibration programs in which we recognize revenue in equal amounts at fixed intervals. Our shipments are generally free on board shipping point and our customers are generally invoiced for freight, shipping, and handling charges.

11

RESULTS OF OPERATIONS

The following table sets forth, for the second quarter and the first six months of fiscal years 2008 and 2007, the components of our Consolidated Statements of Operations as a percentage of our net sales (calculated on dollars in thousands).

	(Unaudited)						(Unaudited)
	Second Quarter Ended						Six Months Ended
	September 29,			September 23,			September 29,			September 23,
	2007			2006			2007			2006
As a Percentage of Net Sales:
Product Sales		67.5	%		66.5	%		67.5	%		67.2	%
Service Sales		32.5	%		33.5	%		32.5	%		32.8	%
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Product Gross Profit		27.9	%		24.9	%		28.0	%		25.3	%
Service Gross Profit		20.9	%		21.7	%		21.6	%		22.4	%
Total Gross Profit		25.6	%		23.9	%		25.9	%		24.4	%
Selling, Marketing and Warehouse Expenses		11.5	%		12.2	%		12.6	%		13.0	%
Administrative Expenses		10.5	%		8.2	%		10.2	%		8.6	%
Total Operating Expenses		22.0	%		20.4	%		22.8	%		21.6	%
Operating Income		3.6	%		3.5	%		3.1	%		2.8	%
Interest Expense		0.2	%		0.6	%		0.2	%		0.6	%
Other Expense		1.3	%		0.3	%		0.9	%		0.4	%
Total Other Expense		1.5	%		0.9	%		1.1	%		1.0	%
Income Before Income Taxes		2.1	%		2.6	%		2.0	%		1.8	%
Provision for Income Taxes		1.0	%		0.9	%		0.8	%		0.6	%
Net Income		1.1	%		1.7	%		1.2	%		1.2	%

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SECOND QUARTER ENDED SEPTEMBER 29, 2007 COMPARED TO SECOND QUARTER ENDED SEPTEMBER 23, 2006 (dollars in millions):

Sales:

	Second Quarter Ended
	September 29,		September 23,
	2007		2006
Net Sales:
Product	$	11.2	$	9.9
Service		5.4		5.0
Total	$	16.6	$	14.9

Net sales increased $1.7 million, or 11.4% (calculated on dollars in millions), from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008.

Our distribution products net sales results, which accounted for 67.5% of our sales in the second quarter of fiscal year 2008 and 66.5% of our sales in the second quarter of fiscal year 2007 (calculated on dollars in thousands), reflect 15.8% year-over-year growth in our direct sales channel (calculated on dollars in thousands) as a result of increased customer response to our sales and marketing activities including orders placed through our transcat.com website. For the same time period, our indirect channel experienced year-over-year sales growth of approximately 1.0%, which exceeded our expectation of a decline in product sales through our indirect channel as a result of reduced discounting and a more disciplined pricing structure. Our fiscal years 2008 and 2007 product sales in relation to prior fiscal year quarter comparisons, is as follows (calculated on dollars in millions):

	FY 2008						FY 2007
	Q2			Q1			Q4			Q3			Q2			Q1
Product Sales Growth		13.1	%		3.8	%		21.0	%		7.0	%		5.3	%		11.7	%

Sales growth occurred in both U.S. and international markets, while Canadian sales experienced a slight year-over-year decrease. In addition to the sales growth, our direct channel gross profit percentage increased 1.5 points as a result of reduced discounting. Within our indirect channel, we experienced greater profitability despite the aforementioned relatively flat year-over-year sales. Sales within this channel are driven by volume-based pricing for each customer and our more disciplined pricing structure, which generated a 5.0 point increase in gross profit percent for our indirect customers. The following table provides the percentage of net sales and the approximate gross profit percentage for significant product distribution channels for the second quarter of fiscal years 2008 and 2007 (calculated on dollars in thousands):

	FY 2008 Second Quarter						FY 2007 Second Quarter
	Percent of			Gross			Percent of			Gross
	Net Sales			Profit % (1)			Net Sales			Profit % (1)
Direct		86	%		27.1	%		85	%		25.6	%
Indirect		14	%		18.0	%		15	%		13.0	%
Total		100	%		25.8	%		100	%		23.7	%

(1) Calculated as net sales less purchase costs divided by net sales.

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Customer product orders include orders for products that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Unshippable product orders are primarily backorders, but also include products that are requested to be calibrated in our calibration laboratories prior to shipment, orders required to be shipped complete, and orders required to be shipped at a future date. Our total unshippable product orders for the second quarter of fiscal year 2008 were $0.4 million lower than the second quarter of fiscal year 2007. This is mainly a result of two significant product orders that were received at the end of the second quarter of fiscal year 2007, but were shipped in future quarters as we awaited the scheduled receipt of the goods from our suppliers. The elimination of these specific orders from backorder is the key factor for the decrease in the percentage of unshippable product orders that are backorders from the second quarter of fiscal year 2007 compared to the second quarter of fiscal year 2008. The following table reflects the percentage of total unshippable product orders that are backorders at the end of each fiscal quarter and our historical trend of total unshippable product orders (calculated on dollars in millions):

	FY 2008						FY 2007
	Q2			Q1			Q4			Q3			Q2			Q1
Total Unshippable Orders	$	1.7		$	1.7		$	1.8		$	2.1		$	2.1		$	1.4
% of Unshippable Orders that Are Backorders		76.5	%		82.4	%		88.9	%		90.5	%		90.5	%		78.6	%

Calibration services net sales increased $0.4 million, or 8.0% (calculated on dollars in millions), from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008. This increase is primarily attributable to an increase in calibration services provided to our customers at one of our in-house laboratories or on-site at a customer’s facility. In addition, within any quarter, while we may add new customers, we may also have customers from the prior year whose calibrations may not repeat during the same quarter for any number of factors. Among those factors are the variations in the timing of customer periodic calibrations on equipment and repair services, customer capital expenditures and customer outsourcing decisions. Our fiscal years 2008 and 2007 calibration services sales in relation to prior fiscal year quarter comparisons, is as follows (calculated on dollars in millions):

	FY 2008						FY 2007
	Q2			Q1			Q4			Q3			Q2			Q1
Service Sales Growth		8.0	%		6.0	%		12.7	%		4.3	%		6.4	%		6.4	%

Gross Profit:

	Second Quarter Ended
	September 29,		September 23,
	2007		2006
Gross Profit:
Product	$	3.1	$	2.5
Service		1.1		1.1
Total	$	4.2	$	3.6

Gross profit increased as a percent of net sales from 23.9% in the second quarter of fiscal year 2007 to 25.6% in the second quarter of fiscal year 2008 (calculated on dollars in thousands).

Distribution products gross profit increased $0.6 million, or 24.0% (calculated on dollars in millions), from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008, primarily attributable to the 13.1% (calculated on dollars in millions) increase in product net sales. As a percentage of product net sales, product gross profit increased 2.4 points (calculated on dollars in millions) from 25.3% in the second quarter of fiscal year 2007 to 27.7% in the second quarter of fiscal year 2008. This was primarily attributable to improved pricing in both our direct and indirect channels, as well as a slightly increased mix of sales into our direct channel. Also contributing to the profitability increase is a combination of $0.2 million more in product purchase rebates achieved and cooperative advertising income received in the second quarter of fiscal year 2008 compared to the second quarter of fiscal year 2007.

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Our distribution products gross profit can be impacted by a number of factors that can impact quarterly comparisons. Among those factors are sales to certain channels that do not support the margins of our core customer base, periodic rebates on purchases, and cooperative advertising received from suppliers. The following table reflects the quarterly historical trend of our distribution products gross profit as a percent of net sales (calculated on dollars in millions):

	FY 2008						FY 2007
	Q2			Q1			Q4			Q3			Q2			Q1
Product Gross Profit % (1)		25.5	%		25.0	%		24.0	%		24.0	%		23.7	%		22.1	%
Other Income (Expense) % (2)		2.2	%		2.5	%		3.6	%		3.6	%		1.6	%		3.6	%
Product Gross Profit %		27.7	%		27.5	%		27.6	%		27.6	%		25.3	%		25.7	%

(1)	Calculated as net sales less purchase costs divided by net sales.
(2)	Includes vendor rebates, cooperative advertising income, freight billed to customers, freight expenses, and direct shipping costs.

Calibration services gross profit dollars remained flat (calculated on dollars in millions) from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008. As a percentage of service net sales, service gross profit decreased 1.6 points (calculated on dollars in millions) from the second quarter of fiscal year 2007 compared to the second quarter of fiscal year 2008. Our gross profit percentage for calibration services fluctuates on a quarterly basis due to the seasonality of our sales (our fiscal fourth quarter is generally our strongest) and the timing of operating costs associated with our calibration laboratory operations. The following table reflects the quarterly historical trend of our calibration services gross profit as a percent of net sales (calculated on dollars in millions):

	FY 2008						FY 2007
	Q2			Q1			Q4			Q3			Q2			Q1
Service Gross Profit %		20.4	%		22.6	%		24.2	%		18.4	%		22.0	%		24.0	%

Operating Expenses:

	Second Quarter Ended
	September 29,		September 23,
	2007		2006
Operating Expenses:
Selling, Marketing and Warehouse	$	1.9	$	1.8
Administrative		1.7		1.2
Total	$	3.6	$	3.0

Operating expenses increased $0.6 million, or 20.0% (calculated on dollars in millions), from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008. Operating expenses as a percent of total net sales increased from 20.4% in the second quarter fiscal year 2007 to 22.0% in the second quarter fiscal year 2008 (calculated on dollars in thousands). Selling, marketing and warehouse expenses increased $0.1 million, or 5.5% (calculated on dollars in millions), in support of our sales growth. Administrative expenses increased from $1.2 to $1.7 million from the second quarter of fiscal year 2007 compared to the second quarter of fiscal year 2008 due primarily to increases in stock-based compensation expense, professional and bank fees and the timing of bonus accruals.

The increase in stock-based compensation expense was due to an overall increase in options issued, including 0.1 million shares issued in April 2007 to our CEO; a higher Black-Scholes value for options issued in the current fiscal year as compared with the value for options issued in the prior fiscal year; and a change in the vesting of restricted stock. Restricted stock granted during the second quarter of fiscal year 2008 vested immediately while in previous years, one-half vested immediately and the remainder vested at the one year anniversary of the date of grant. As a result, we realized $0.2 million in non-cash stock-based compensation expense relating to the issuance of restricted stock during the second quarter of fiscal year 2008 compared with $0.1 million during the second quarter of fiscal year 2007. Additionally, we will not realize any stock-based compensation expense in the next three fiscal quarters relating to the restricted stock issued during the second quarter of fiscal year 2008.

Professional and bank fees increased in the second quarter of fiscal year 2008 due to additional effort associated with the preparation of our annual proxy statement, which included new compensation discussion and analysis disclosures, an increase in fees charged by our independent accountants for audit and tax services, as well as additional credit card charges

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associated with the growth in sales occurring through our web site. In the second quarter of fiscal year 2008, we met our bonus objectives and, therefore, accrued a pro rata portion of the annual bonus target pay out, compared to the second quarter of fiscal year 2007, when we did not meet our bonus objectives and, therefore, did not accrue any bonus expense.

The aggregate effect of increases in our stock-based compensation expense, professional and bank fees and the timing of bonus accruals was approximately $0.4 million for the second quarter of fiscal year 2008. The remainder of the increase in administrative expenses was due to general increases in employee-related expenses, including benefits.

For the second half of fiscal year 2008, we expect administrative expenses as a percentage of net sales to be consistent with the fiscal year 2007 full year percentage of approximately 9.0%.

Other Expense:

	Second Quarter Ended
	September 29,		September 23,
	2007		2006
Other Expense:
Interest Expense	$	—	$	0.1
Other Expense		0.2		—
Total	$	0.2	$	0.1

Interest expense decreased $0.1 million from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008 as a result of our reduced debt. Other expense increased $0.2 million from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008. This increase was primarily attributable to net losses relating to foreign currency transactions resulting from an appreciation of the Canadian dollar compared to the U.S. dollar of 7.1% during the second quarter of fiscal year 2008.

Taxes:

	Second Quarter Ended
	September 29,		September 23,
	2007		2006
Provision for Income Taxes	$	0.2	$	0.1

In the second quarter of fiscal year 2008, we recognized a $0.2 million provision for income taxes, compared to a $0.1 million provision in the second quarter of fiscal year 2007. The increase in our effective tax rate was primarily due to permanent differences. We continue to evaluate our tax provision on a quarterly basis and make adjustments, as deemed necessary, to our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. When calculating income tax expense, we recognize valuation allowances for deferred tax assets, which may not be realized, using a “more likely than not” approach.

Other Comprehensive Income:

	Second Quarter Ended
	September 29,		September 23,
	2007		2006
Other Comprehensive Income	$	0.3	$	—

Other comprehensive income increased $0.3 million from the second quarter of fiscal year 2007 to the second quarter of fiscal year 2008. This increase was primarily attributable to income relating to our foreign currency translation resulting from an appreciation of the Canadian dollar compared to the U.S. dollar of 7.1% during the second quarter of fiscal year 2008.

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SIX MONTHS ENDED SEPTEMBER 29, 2007 COMPARED TO SIX MONTHS ENDED SEPTEMBER 23, 2006
(dollars in millions):

Sales:

	Six Months Ended
	September 29,		September 23,
	2007		2006
Net Sales:
Product	$	22.1	$	20.4
Service		10.7		10.0
Total	$	32.8	$	30.4

Net sales increased $2.4 million, or 7.9% (calculated on dollars in millions), from the first six months of fiscal year 2007 to the first six months of fiscal year 2008.

Our distribution products net sales results, which accounted for 67.5% of our sales in the first six months of fiscal year 2008 and 67.2% of our sales in the first six months of fiscal year 2007 (calculated on dollars in thousands), reflect 11.5% year-over-year growth in our direct sales channel (calculated on dollars in thousands) as a result of increased customer response to our sales and marketing activities including orders placed through our transcat.com website.

Distribution product net sales have increased 8.3% (calculated on dollars in millions) for the first six months of fiscal year 2008 compared to the first six months of fiscal year 2007. This is a result of growth in both U.S. and international sales, while Canadian sales remained flat year-over-year. In addition to the sales growth, our direct channel gross profit percent increased 1.5 points as a result of reduced discounting. Within our indirect channel, we experienced a 25.6% increase in profitability despite a sales decrease of 7.1% (calculated on dollars in thousands). Sales within this channel are driven by volume-based pricing for each customer and our more disciplined pricing structure, which generated a 4.4 point increase in gross profit percent for our indirect customers and a 3.0 point decline in indirect sales as a percent of total product sales. Our fiscal years 2008 and 2007 product sales in relation to prior fiscal year first six months comparisons, is as follows (calculated on dollars in millions):

	Six Months Ended						Six Months Ended
	September 29, 2007						September 23, 2006
	Percent of			Gross			Percent of			Gross
	Net Sales			Profit % (1)			Net Sales			Profit % (1)
Direct		86	%		26.6	%		83	%		25.1	%
Indirect		14	%		16.9	%		17	%		12.5	%
Total		100	%		25.2	%		100	%		23.0	%

(1) Calculated at net sales less purchase costs divided by net sales.

Calibration services net sales increased $0.7 million, or 7.0% (calculated on dollars in millions), from the first six months of fiscal year 2007 to the first six months of fiscal year 2008. This increase is primarily attributable to an increase in calibration services provided to our customers at one of our in-house laboratories or on-site at a customer’s facility. In addition, within any six month period, while we may add new customers, we may also have customers from the prior year whose calibrations may not repeat during the same period for any number of factors. Among those factors are the variations in the timing of customer periodic calibrations on equipment and repair services, customer capital expenditures and customer outsourcing decisions.

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Gross Profit:

	Six Months Ended
	September 29,		September 23,
	2007		2006
Gross Profit:
Product	$	6.2	$	5.2
Service		2.3		2.2
Total	$	8.5	$	7.4

Gross profit increased as a percent of net sales from 24.4% in the first six months of fiscal year 2007 to 25.9% in the first six months of fiscal year 2008 (calculated on dollars in thousands).

Distribution products gross profit increased $1.0 million, or 19.2% (calculated on dollars in millions), from the first six months of fiscal year 2007 to the first six months of fiscal year 2008, primarily because of the aforementioned 8.3% (calculated on dollars in millions) increase in product net sales. As a percent of product net sales, product gross profit increased 2.7 points (calculated on dollars in thousands) from the first six months of fiscal year 2007 to the first six months of fiscal year 2008. This is primarily attributable to a declining mix of sales into our less profitable indirect channel, improved pricing programs, and a combination of $0.2 million more in rebates achieved and cooperative advertising income received in the first half of fiscal year 2008 compared to the first half of fiscal year 2007.

Calibration services gross profit increased $0.1 million, or 4.5% (calculated on dollars in millions). As a percent of calibration services sales, calibration gross profit decreased 0.8 points (calculated on dollars in thousands) from the first six months of fiscal year 2007 compared to the first six months of fiscal year 2008. This percentage decrease is primarily attributed to $0.1 million increase in bonus and profit sharing related expense in the first half of fiscal year 2008, compared to none in the first half of fiscal year 2007.

Operating Expenses:

	Six Months Ended
	September 29,		September 23,
	2007		2006
Operating Expenses:
Selling, Marketing and Warehouse	$	4.1	$	3.9
Administrative		3.3		2.6
Total	$	7.4	$	6.5

Operating expenses increased $0.9 million, or 13.8% (calculated on dollars in millions), from the first six months of fiscal year 2007 to the first six months of fiscal year 2008. Selling, marketing and warehouse expenses increased $0.2 million, or 5.1% (calculated on dollars in millions), primarily in support of revenue growth initiatives. Administrative expenses increased from $2.6 to $3.3 million from the first six months of fiscal year 2007 compared to the first six months of fiscal year 2008 due primarily to increases in stock-based compensation expense, professional and bank fees and the timing of bonus accruals.

The increase in stock-based compensation expense was due to an overall increase in options issued, including 0.1 million shares issued in April 2007 to our CEO; a higher Black-Scholes value for options issued in the current fiscal year as compared with the value for options issued in the prior fiscal year; and a change in the vesting of restricted stock issued. Restricted stock granted during the first six months of fiscal year 2008 vested immediately while in previous years, one-half vested immediately and the remainder vested at the one year anniversary of the date of grant. As a result, we realized $0.2 million in non-cash stock-based compensation expense related to the issuance of restricted stock during the first six months of fiscal year 2008 compared with $0.1 million during the first six months of fiscal year 2007. Additionally, we will not realize any stock-based compensation expense in the next three fiscal quarters relating to the restricted stock issued during the second quarter of fiscal year 2008.

Professional and bank fees increased in the first six months of fiscal year 2008 due to additional effort associated with the preparation of our annual proxy statement, which included new compensation discussion and analysis disclosures, an increase in fees charged by our independent accountants for audit and tax services, as well as additional credit card charges associated with the growth in sales occurring through our web site. In the first six months of fiscal year 2008, we met our bonus objectives and, therefore, accrued a pro rata portion of the annual bonus target pay out compared to the first six months of fiscal year 2007, when we did not meet our bonus objectives and, therefore, did not accrue any bonus expense.

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The aggregate effect of increases in our stock-based compensation expense, professional and bank fees and the timing of bonus accruals was approximately $0.5 million for the first six months of fiscal year 2008. The remainder of the increase in administrative expenses was due to general increases in employee-related expenses, including benefits.

For the second half of fiscal year 2008, we expect administrative expenses as a percentage of net sales to be consistent with the fiscal year 2007 full year percentage of approximately 9.0%.

Other Expense:

	Six Months Ended
	September 29,		September 23,
	2007		2006
Other Expense:
Interest Expense	$	0.1	$	0.2
Other Expense		0.3		0.1
Total	$	0.4	$	0.3

Interest expense decreased $0.1 million from the first six months of fiscal year 2007 to the first six months of fiscal year 2008 as a result of our reduced debt. Other expense increased $0.2 million from the first half of fiscal year 2007 to the first half of fiscal year 2008. This increase was primarily attributable to net losses relating to foreign currency transactions resulting from an appreciation of the Canadian dollar compared to the U.S. dollar of 16.1% during the first six months of fiscal year 2008.

Taxes:

	Six Months Ended
	September 29,		September 23,
	2007		2006
Provision for Income Taxes	$	0.3	$	0.2

In the first half of fiscal year 2008, we recognized a $0.3 million provision for income taxes, compared to a $0.2 million provision in the first half of fiscal year 2007, as a result of a $0.1 million increase in our Income Before Taxes and an increase in our effective tax rate due to permanent differences. We continue to evaluate our tax provision on a quarterly basis and make adjustments, as deemed necessary, to our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. When calculating income tax expense, we recognize valuation allowances for deferred tax assets, which may not be realized, using a “more likely than not” approach.

Other Comprehensive Income:

	Six Months Ended
	September 29,		September 23,
	2007		2006
Other Comprehensive Income	$	0.5	$	0.1

Other comprehensive income increased $0.4 million from the first six months of fiscal year 2007 compared to the first six months of fiscal year 2008. This increase was primarily attributable to income relating to our foreign currency translation resulting from an appreciation of the Canadian dollar compared to the U.S. dollar of 16.1% during the first six months of fiscal year 2008.

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LIQUIDITY AND CAPITAL RESOURCES

Cash Flows. The following table is a summary of our Consolidated Statements of Cash Flows (in thousands):

	Six Months Ended
	September 29,			September 23,
	2007			2006
Cash (Used in) Provided by:
Operating Activities	$	2,222		$	467
Investing Activities		(999	)		(454	)
Financing Activities		(1,407	)		(35	)

Operating Activities: Cash provided by operating activities for the first six months of fiscal year 2008 was $2.2 million, an increase of approximately $1.7 million (calculated on millions of dollars) when compared to the $0.5 million of cash provided by operating activities in the first six months of fiscal year 2007. This is mainly attributable to an approximate $0.8 million increase in cash provided by inventory reductions, $0.4 million more cash provided by receivables reductions, and $0.3 million reduction in cash used in accrued payrolls and commissions in the first six months of fiscal year 2008 compared to the first six months of fiscal year 2007. Significant working capital fluctuations were as follows:

• Inventory/Accounts Payable: Our inventory of $3.7 million on September 29, 2007 is $0.6 million less than our fiscal year 2007 year-end inventory on March 31, 2007 and $0.3 million less than the inventory level on September 23, 2006. The year-over-year decrease is due to refined inventory ordering models and increased focus on lower inventory levels while maintaining consistently high order fulfillment rates. Our $1.6 million increase in accounts payable, as the following table illustrates (dollars in millions), is primarily the result of the timing of payments and inventory purchases made in support of the high quarter-end sales volume during the second quarter of fiscal year 2008:

	September 29,		September 23,
	2007		2006
Accounts Payable	$	5.4	$	3.8
Inventory, net	$	3.7	$	4.0
Accounts Payable/Inventory Ratio		1.46		0.95

• Receivables: The increase in our accounts receivable at the end of our second quarter of fiscal year 2008 compared to the end of the second quarter of fiscal year 2007 is primarily due to sales growth in our fiscal year 2008 second quarter. 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):

	September 29,		September 23,
	2007		2006
Net Sales, for the last two fiscal months	$	12.0	$	10.4
Accounts Receivable, net	$	7.9	$	7.1
Days Sales Outstanding (based on 60 days)		40		41

Investing Activities: The $1.0 million of cash used in investing activities during the first six months of fiscal year 2008, an increase of $0.5 million (calculated on millions of dollars) when compared to the first six months of fiscal year 2007, was primarily the result of capital expenditures incurred in connection with the expansion of our capabilities within our calibration laboratories.

Financing Activities: The $2.9 million decrease in our overall debt, as shown in the table below (dollars in millions), is the result of the $4.4 million of cash provided by operating activities during the last six months of fiscal year 2007 and the first six months of fiscal year 2008. See Note 2 of our Consolidated Financial Statements in this report for further information regarding our debt.

	September 29,		September 23,
	2007		2006
Total Debt	$	1.3	$	4.2

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Debt. On November 21, 2006, we entered into a Credit Agreement (the “Chase Credit Agreement”) with JPMorgan Chase Bank, N.A. The Chase Credit Agreement provides for a three-year revolving credit facility in the amount of $10 million. The Chase Credit Agreement replaced our Amended and Restated Loan and Security Agreement dated November 1, 2004, as further amended, with GMAC Commercial Finance LLC.

The Chase Credit Agreement has certain covenants with which we must comply, including a fixed charge ratio covenant and a leverage ratio covenant. We were in compliance with all loan covenants and requirements throughout the first six months of fiscal year 2008. We expect to meet the covenants on an on-going basis.

See Note 2 of our Consolidated Financial Statements in this report for more information on our debt. See Item 3, Quantitative and Qualitative Disclosures about Market Risk, in this report for a discussion of interest rates on our debt.

OUTLOOK

During the first half of fiscal year 2008, we experienced sales increases in both our Distribution Products and Calibration Services segments. We expect continued growth for the balance of fiscal year 2008, with a sustained increase in operating earnings (excluding the one-time deferred gain of $1.5 million which was recognized in the fiscal year 2007 third quarter) and continued strong cash flow.

Within our Distribution Products segment, we expect net sales within our direct channel to continue to grow in the low double-digit range on a year-over-year basis. At the same time, we anticipate that sales in our indirect channel may be flat or decline slightly when compared to the prior year. Overall, we expect our Distribution Products gross profit margins for the remainder of fiscal year 2008 to be consistent with those reported for the first half of fiscal year 2008.

During the first six months of fiscal year 2008, laboratory expenses grew at a faster rate than net sales. However, we expect growth in our Calibration Services net sales to increase at a faster rate than laboratory costs in the second half of fiscal year 2008 with a corresponding increase in gross profit percentage.

For the second half of fiscal year 2008, we expect administrative expenses as a percentage of net sales to be consistent with the fiscal year 2007 full year percentage of approximately 9.0%.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATES

Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by less than $0.1 million assuming our average-borrowing levels remained constant. On September 29, 2007 and September 23, 2006, we had no hedging arrangements in place to limit our exposure to upward movements in interest rates.

Under our Chase Credit Agreement described in Note 2 of our Consolidated Financial Statements in this report, interest is adjusted on a quarterly basis based upon our calculated leverage ratio. The base rate, as defined in the Chase Credit Agreement, and the London Interbank Offered Rate as of September 29, 2007 were 7.8% and 5.1%, respectively. Our interest rate for the first six months of fiscal year 2008 ranged from 5.8% to 7.6%.

FOREIGN CURRENCY

Approximately 90% of our net sales for the six months ended September 29, 2007 and September 23, 2006 were denominated in United States dollars, with the remainder denominated in Canadian dollars. A 10% change in the value of the Canadian dollar to the United States dollar would impact our net sales by approximately 1%. We monitor the relationship between the United States and Canadian currencies on a continuous basis and adjust sales prices for products and services sold in Canadian dollars as we believe to be appropriate. On September 29, 2007 and September 23, 2006, we had no hedging arrangements in place to limit our exposure to foreign currency fluctuations.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer, President and Chief Operating Officer (our principal executive officer) and our Vice President of Finance and Chief Financial Officer (our principal financial officer) evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer, President and Chief Operating Officer and our Vice President of Finance and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

(b) Changes in Internal Controls over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter covered by this quarterly report (our second fiscal quarter) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On August 21, 2007, our shareholders voted on the proposals set forth below at the annual meeting.

Proposal 1:

Charles P. Hadeed, Nancy D. Hessler and Paul D. Moore were elected as directors of the Company, each to serve until the annual meeting of shareholders to be held in 2010. The number of shares that voted for the election of each director nominee and the number of shares that withheld authority to vote for each director nominee are as follows:

Nominees	Votes For		Votes Withheld
Charles P. Hadeed		6,775,888		21,110
Nancy D. Hessler		6,771,936		25,062
Paul D. Moore		6,772,241		24,757

The other directors, whose terms of office continued after the meeting, are Francis R. Bradley, E. Lee Garelick, Richard J. Harrison, Cornelius J. Murphy, Harvey J. Palmer, John T. Smith, Alan H. Resnick and Carl E. Sassano.

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In a letter dated October 23, 2007, Cornelius J. Murphy, age 77, informed the Company of his voluntary resignation from the board of directors after 16 years of service on the board, effective as of October 23, 2007. There were no disagreements between Mr. Murphy and the Company on any matter relating to the Company’s operations, policies or practices that resulted in Mr. Murphy’s resignation. Mr. Murphy’s term as a director was scheduled to expire at the 2009 annual meeting of shareholders. The vacancy created by Mr. Murphy’s resignation will remain open until a candidate that meets the criteria established by the corporate governance and nominating committee is identified and elected.

Proposal 2:

The amendment to the Transcat, Inc. Code of Regulations (or bylaws) to permit the issuance of uncertificated shares was approved. The number of shares that voted for, against and abstained from voting on this proposal are as follows:

Votes For:	6,575,588
Votes Against:	146,567
Votes Abstained:	74,842
Broker Non-Votes	—

Proposal 3:

The selection of BDO Seidman, LLP as the Company’s independent auditors for the fiscal year ending March 29, 2008 was ratified. The number of shares that voted for, against and abstained from voting on this proposal are as follows:

Votes For:	6,767,630
Votes Against:	22,938
Votes Abstained:	6,429
Broker Non-Votes:	—

ITEM 6. EXHIBITS

See Index to Exhibits.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TRANSCAT, INC.
Date: November 9, 2007	/s/ Charles P. Hadded
	Charles P. Hadeed
	Chief Executive Officer, President and Chief Operating Officer
Date: November 9, 2007	/s/ John J. Zimmer
	John J. Zimmer
	Vice President of Finance and Chief Financial Officer

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INDEX TO EXHIBITS

(3)(ii)	By-laws
		3.1	Code of Regulations, as amended
(31)	Rule 13a-14(a)/15d-14(a) Certifications
		31.1	Certification of Chief Executive Officer
		31.2	Certification of Chief Financial Officer
(32)	Section 1350 Certifications
		32.1	Section 1350 Certifications

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EX-3.1

Exhibit 3.1

CODE OF REGULATIONS
OF
TRANSCAT, INC.

(with all amendments through August 21, 2007)

ARTICLE I
MEETING OF SHAREHOLDERS

     Section 1. Annual Meeting. The annual meeting of shareholders shall be held on the third Tuesday in August in each year (or, if that be a legal holiday, on the next succeeding business day), at such hour as may from time to time be designated by the Board of Directors and specified in the Notice of Meeting.

     Section 2. Special Meetings. Special meetings of the shareholders for any purpose or purposes may be called by the President or by order of the Board of Directors and it shall be the duty of the Secretary to call such a meeting upon a request in writing therefor stating the purpose or purposes thereof delivered to the Secretary signed by the holders of record of not less than twenty-five percent (25%) of the shares outstanding and entitled to vote.

     Section 3. Place of Meetings. Meetings of the shareholders may be held at such place within or without the State of Ohio, as the Board of Directors may from time to time determine.

     Section 4. Notice of Meetings. Notice of the annual or of any special meeting of shareholders, stating the time, place and purposes thereof, shall be given to each shareholder of record entitled to vote at such meeting, by mailing the same to his address as the same appears on the records of the Corporation or of its Transfer Agent, or Agents, at least ten (10) and not more than fifty (50) days before any such meeting; provided, however, that no failure or irregularity of notice of any annual meeting shall invalidate the same or any proceeding thereat. All notices with respect to any shares to which persons are jointly entitled may be given to that one of such persons who is named first upon the books of the Corporation and notice so given shall be sufficient notice to all the holders of such shares. Any shareholder, or his attorney thereunto authorized, may waive notice of any meeting either before or after the meeting.

     Section 5. Quorum. At all meetings of shareholders the holders of record of a majority of the issued and outstanding voting shares of the Corporation, present in person or by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, the holders of a majority of the voting shares present or represented may adjourn the meeting by resolution to a date fixed therein, and no further notice thereof shall be required. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called.

     Section 6. Proxies. Any shareholder entitled to vote at a meeting of shareholders may be represented and vote thereat by proxy appointed by an instrument in writing, subscribed by such shareholder, or by his duly authorized attorney, and submitted to the Secretary at or before such meeting.

ARTICLE II
BOARD OF DIRECTORS

     Section 1. Number. The number of directors shall be not less than three (3) nor more than twelve (12) as may be fixed, from time to time, by resolution duly adopted by a majority of the shares which are represented at any annual meeting or special meeting called for that purpose provided a quorum is present. No reduction in the number of directors shall have the effect of removing any director prior to the expiration of his term of office.

     Section 2. Election and Classification. The election of directors shall be held at the annual meeting of the shareholders or at a special meeting called for that purpose. The directors shall be classified with respect to the terms for which they shall hold office by dividing them into three classes, each consisting of one-third of the whole number of the Board of Directors, or, if such number shall not be a multiple of three, then such division shall be as nearly equal as the total number of directors will permit. The term of office of the first class shall expire at the first annual meeting of the corporation subsequent to their election, the term of office of the second class shall expire at the second annual meeting subsequent to their election, and the term of office of the third class shall expire at the second annual meeting subsequent to their election, and the term of office of the third class shall expire at the third annual meeting subsequent to their election. At the first annual meeting at which directors are classified, each person shall be nominated as a director to the first, second or third class and no person shall be nominated as a candidate for more than one class. At each annual meeting after the election of the classified Board, directors shall be elected for a term of three years to replace those whose terms expire. If, at any time the number of directors is increased or decreased, the increase or decrease shall be apportioned among the classes as to make all classes as nearly equal in number as possible. In the event of a decrease, one or more directors shall be reclassified by vote of a majority of the Board if such action is required to balance the classes of directors, even though this may have the effect of shortening the term of office to which such director was elected by the shareholders. Any vacancy created in the Board of Directors may be filled by the majority vote of the remaining directors. Any person so elected to fill a vacancy shall serve for the unexpired term of that director whose vacancy is being filled.

     Section 3. Removal. All of the directors of a particular class, or any individual director may be removed from office without assigning any cause, by the vote of the holders of seventy-five percent (75%) of the outstanding shares entitled to vote thereon at any meeting of shareholders called for that purpose. In case of any such removal, a new director may be elected at the same meeting for the unexpired term of each director removed. Failure to elect a director to fill the unexpired term of any director removed shall be deemed to create a vacancy in the Board.

     Section 4. Place of Meetings. The Board of Directors shall hold its meetings at such places within or without the State of Ohio as it may decide.

     Section 5. Regular Meetings. The Board of Directors by resolution may establish regular periodic meetings and notice of such meetings need not be given.

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     Section 6. Special Meetings. Special Meetings of the Board of Directors shall be called by the Secretary or an Assistant Secretary whenever ordered by the Board of Directors or requested in writing by the President or any two other directors. Such meetings shall be held at the principal office of the Corporation except as otherwise specified in the notice. Notice of each Special Meeting shall be mailed to each director, addressed to his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to such address by telegraph, or be given personally or by telephone, not later than one (1) day before the day on which the meeting is to be held.

     Section 7. Quorum. A majority of the members of the Board of Directors then in office shall constitute a quorum at all meetings thereof. In the absence of a quorum of the Board of Directors, a majority of the members present may adjourn the meeting from time to time until a quorum be had, and no notice of any such adjournment need be given.

     Section 8. Fees. The Board of Directors may from time to time, irrespective of any personal interest of any of them, establish reasonable compensation for services to the Corporation by directors and officers. The Board of Directors may reimburse directors for travel and other expenses incidental to their attendance at meetings of the Board, and, from time to time, may prescribe reasonable annual directors’ fees or reasonable fees for their attendance at meetings of the Board. Members of either executive or special committees may be reimbursed, by resolution of the Board, for travel and other expense incidental to their attendance at meetings of such committees, and may be allowed such compensation as the Board of Directors may determine for attending such meetings.

ARTICLE III
EXECUTIVE AND OTHER COMMITTEES

     Section 1. How Constituted and the Powers Thereof. The Board of Directors by the vote of a majority of the entire Board, may designate three or more directors to constitute an Executive Committee, who shall serve at the pleasure of the Board of Directors. Except as otherwise provided by law, by these regulations or by resolution adopted by a majority of the entire Board of Directors, the Executive Committee shall possess and may exercise during the intervals between the meetings of the Board, all of the powers of the Board of Directors in the management of the business, affairs and property of the Corporation, including the power to cause the seal of the Corporation to be affixed to all papers that may require it.

     Section 2. Organization, etc. The Executive Committee shall choose its own Chairman and its Secretary and may adopt rules for its procedure. The Committee shall keep a record of its acts and proceedings and report the same from time to time to the Board of Directors.

     Section 3. Meetings. Meetings of the Executive Committee may be called by the Chairman of the Committee and shall be called by him at the request of any member of the Committee, or such meetings may be called by any member if there shall be no Chairman. Notice of each meeting of the Committee shall be sent to each member of the Committee by mail at least two days before the meeting is to be held, or given personally or by telegraph or

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telephone at least one day before the day on which the meeting is to be held. Notice of any meeting may be waived before or after the meeting.

     Section 4. Quorum and Manner of Acting. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at the meeting at which a quorum is present shall be the act of the Executive Committee.

     Section 5. Removal. Any member of the Executive Committee may be removed, with or without cause, at any time, by the Board of Directors.

     Section 6. Vacancies. Any vacancy in the Executive Committee shall be filled by the Board of Directors.

     Section 7. Other Committees. The Board of Directors may by resolution provide for such other standing or special committees to consist of not less than three directors as it deems desirable, and discontinue the same at its pleasure. Each Committee shall have such powers and perform such duties, not inconsistent with law, as may be assigned to it by the Board of Directors.

ARTICLE IV
OFFICES AND OFFICERS

     Section 1. Officers – Number. The officers of the Corporation shall be a President, a Vice-President, a Secretary and a Treasurer. The Board of Directors may from time to time, in its discretion, appoint any or all of the following: a Chairman of the Board, one or more additional Vice-Presidents one of whom may be designated Executive Vice-President, a Controller, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers and assistant officers as may be deemed necessary. Any two or more offices may be held by the same person.

     Section 2. Election and Term of Office. All officers of the Corporation shall be appointed annually by the Board of Directors at the first meeting of the Board of Directors in each year held next after the annual meeting of shareholders and each officer shall hold office until his successor shall have been duly chosen and shall have qualified, or until he shall resign or shall have been removed. At said first meeting, the Board of Directors shall also designate and appoint such subordinate officers and employees as it shall determine.

     Section 3. Vacancies. If any vacancy shall occur in any office of the Corporation, such vacancy shall be filled by the Board of Directors.

ARTICLE V
DUTIES OF OFFICERS

     Section 1. Chairman of the Board. The Chairman of the Board, if one be appointed, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may be prescribed by the Board of Directors.

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     Section 2. President. The President shall be the chief executive officer of the Corporation and shall have general direction of its business, affairs and property and over its several officers. He shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if the same shall not have been appointed, shall also preside at meetings of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect, and he shall have the power to execute in the name of the Corporation all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and in general, he shall perform all duties incident to the office of a president of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors. He shall be ex officio a member of all committees. He shall from time to time report to the Board of Directors all matters within his knowledge which the interest of the Corporation may require to be brought to their notice.

     Section 3. Vice-Presidents. The Vice-President or Vice-Presidents of the Corporation, under the direction of the President, shall have such powers and perform such duties as the Board of Directors or the President may from time to time prescribe, and shall perform such other duties as may be prescribed in these regulations. In case of the absence or inability of the President to act, then the Vice-Presidents, in the order designated therefor by the Board of Directors, shall have the powers and discharge the duties of the President.

     Section 4. Secretary. The Secretary shall attend all meetings of the shareholders of the Corporation and of its Board of Directors and shall keep the minutes of all such meetings in a book or books kept by him for that purpose. He shall keep in safe custody the seal of the Corporation, and, when authorized by the Board of Directors, he shall affix such seal to any instrument requiring it. In the absence of a Transfer Agent or a Registrar, the Secretary shall have charge of the stock certificate books and the Secretary shall have charge of such other books and papers as the Board of Directors may direct. He shall also have such other powers and perform such other duties as pertain to his office, or as the Board of Directors or the President may from time to time prescribe.

     Section 5. Assistant Secretaries. In the absence or disability of the Secretary, the Assistant Secretaries, in the order designated by the Board of Directors, shall perform the duties of the Secretary, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary. They shall also perform such other duties as from time to time may be assigned to them by the Board of Directors of the President.

     Section 6. Treasurer. The Treasurer shall establish and execute programs for the provision of the capital required by the Corporation including negotiating the procurement of capital and maintaining the required financial arrangements. He shall maintain adequate sources for the Corporation’s current borrowings from commercial banks and other lending institutions. He shall maintain banking arrangements to receive, have custody of and disburse the Corporation’s monies and securities. He shall invest the Corporation’s funds as required, establish and coordinate policies for investment in pension and other similar trusts, and provide insurance coverage as required. He shall direct the granting of credit and the collection of accounts due the Corporation, including the supervision of required special arrangements for

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financing sales such as time payment and leasing plans. He shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

     Section 7. Assistant Treasurers. In the absence of or disability of the Treasurer, the Assistant Treasurers, in the order designated by the Board of Directors, shall perform the duties of the Treasurer, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the Treasurer. They shall also perform such other duties as from time to time may be assigned to them by the Board of Directors or the President.

     Section 8. Controller. The Board of Directors may appoint a Controller. Subject to the control and supervision of the Board of Directors and the President, or such officer as the President may designate, the Controller shall establish, coordinate and administer an adequate plan for the control of operations. The plan shall include profit planning, programs for capital investing and for financing, sales forecasts, expense budgets and cost standards, together with the necessary procedures to effectuate the plan. The Controller shall compare performance with operating plans and standards and shall report and interpret the results of operations to all levels of management. This function includes the formulation of accounting policy, the coordination of systems and procedures, the preparation of operating data and of special reports as required. He shall establish and administer tax policies and procedures, supervise and coordinate the preparation of reports to government agencies, assure protection for the assets of the Corporation through internal control and auditing, and insurance coverage, and appraise economic and social forces and government influences and their effect upon the business. He shall consult with all segments of management responsible for policy or action concerning any phase of the operation of the company as it relates to the attainment of objectives and the effectiveness of policies, organization structure and procedures. He shall have such other powers and duties as may be prescribed by these regulations or by the Board of Directors and such usual powers and duties as pertain to this office.

ARTICLE VI
INDEMNIFICATION

     Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or his testator or intestate (a) is or was a director or officer of the Corporation or (b) is or was a director or officer of the Corporation who serves or served, in any capacity, any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise at the request of the Corporation (hereinafter an “indemnitee”), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Ohio law against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators; provided, however, that, except as provided in Section 3 of this Article VI with respect to proceedings to enforce rights to indemnification or to advancement of expenses, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by

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the Board of Directors of the Corporation. The rights conferred by this Article VI shall be contract rights, which shall not be abrogated by any amendment or repeal of this Article VI with respect to events occurring prior to such amendment or repeal.

     Section 2. Advancement of Expenses. The right to indemnification conferred by Section 1 of this Article VI shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding as they are incurred in advance of final disposition of such proceeding (hereinafter an “advancement of expenses”); provided, however, that such advancement of expenses shall be made only upon delivery to the Corporation of the appropriate undertaking, if any, required by the General Corporation Law of Ohio (hereinafter an “undertaking”), made by or on behalf of such indemnitee, to repay such amounts; and provided further that a determination that the indemnitee must repay such amounts pursuant to the terms of an undertaking may be made only by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”).

     Section 3. Suit by Indemnitee to Enforce Rights to Indemnification or by the Corporation to Recover an Advancement of Expenses. If a claim under this Article VI is not paid in full by the Corporation within sixty days after a written demand therefor has been received by the Corporation (except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days), the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If he is successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by an indemnitee to enforce a right to indemnification hereunder (other than a suit brought by an indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee is not entitled to indemnification under Section 1 of this Article VI. In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, pursuant to the terms of the undertaking, the indemnitee must repay such advancement of expenses. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or shareholders) to have made a determination prior to the commencement of such suit that the indemnitee is entitled to indemnification under Section 1 of this Article VI or that the indemnitee is not required to repay an advancement of expenses pursuant to the terms of an undertaking, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or shareholders) that the indemnitee is not entitled to indemnification under Section 1 of this Article VI or that the indemnitee must repay an advancement of expenses pursuant to the terms of an undertaking, shall (a) create a presumption that the indemnitee is not entitled to indemnification under Section 1 of this Article VI or that the indemnitee must repay an advancement of expenses pursuant to the terms of an undertaking, or (b) in the case of a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the indemnitee is not entitled to such indemnification or to such advancement of expenses, under this Article VI or otherwise, shall be on the Corporation. In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden or proving that the indemnitee must repay such advancement of expenses pursuant to the terms of such undertaking shall be on the Corporation.

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     Section 4. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred by this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation’s Articles of Incorporation, these Regulations, any agreement, any vote of shareholders or of disinterested directors, or otherwise.

     Section 5. Insurance. The Corporation may purchase and maintain insurance or furnish similar protection, including without limitation trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, non-profit or for profit, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Article VI or applicable law. Such insurance may be purchased or maintained with a person or entity in which the Corporation has a financial interest.

     Section 6. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors in the specific case, grant to any employee or agent of the Corporation rights to indemnification and advancement of expenses to such extent as the Board of Directors may so determine, up to and including the fullest extent of the provisions of this Article VI pertaining to indemnification of and advancement of expenses to directors and officers of the Corporation.

     Section 7. Retroactive Application. This Article VI shall, to the fullest extent permitted by law, be applied retroactively to events occurring prior to the adoption of this Article VI.

ARTICLE VII
INTERDEALING

     No officer, director or shareholder of this Corporation shall be disqualified by his office, membership or stock ownership from dealing or contracting with the Corporation, whether as vendor, purchaser, employee, agent or in any other similar or dissimilar capacity, nor shall any transaction, contract or act of the Corporation be either void or voidable or in any other way affected or invalidated by reason of the fact that any such officer, director or shareholder of the Corporation, any firm of which he may be a member or any other corporation of which he may be an officer, director or shareholder is in any way interested in such transaction, contract or act, provided the interest of such officer, director or shareholder is disclosed to or known by the Board of Directors of this Corporation or such members thereof as shall be present at any meeting at which action is taken upon any such transaction, contract or act. Neither shall any such officer, director or shareholder be accountable or otherwise responsible to the Corporation for or in connection with any such act, contract or transaction or for any gains or profits realized by him by reason of the fact that he, any firm of which he is a member or any other corporation of which he is an officer, director or shareholder, is interested in such contract, transaction or act. Any such officer, director or shareholder, if he is a director, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall

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authorize or take action upon any such transaction, contract or act and he may vote at any such meeting to authorize, adopt, ratify or approve any such transaction, contract or act to the same extent as if he, any firm of which he is a member or any other corporation of which he is an officer, director or shareholder, were not interested in such transaction, contract or act.

ARTICLE VIII
CHECKS, DRAFTS, ETC.

     All checks, drafts or orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents, person or persons, to whom the Board of Directors by resolution shall have delegated the power, but under such conditions and restrictions as in said resolution may be imposed. The signature of any officer upon any of the foregoing instruments may be a facsimile whenever authorized by the Board of Directors.

ARTICLE IX
CERTIFICATES FOR SHARES

     Section 1. Issue of Certificates. The shares of capital stock of the Corporation may be represented by certificates or they may be uncertificated. If the shares are to be represented by certificates, then the Board of directors shall provide for the issue and transfer of the certificates of capital stock of the Corporation, and shall prescribe the form of such certificates. Every owner of stock of the Corporation shall be entitled to a certificate of stock which shall be under the seal of the Corporation (which seal may be a facsimile, engraved or printed), specifying the number of shares owned by him, and which certificate shall be signed by the President or Vice-President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation. Said signatures may, wherever permitted by law, be facsimile, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates shall have been delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical.

     Section 2. Transfer Agents and Registrars. The Corporation may have one or more Transfer Agents and one or more Registrars of its stock, whose respective duties the Board of Directors may, from time to time, prescribe. If the Corporation shall have a Transfer Agent, no certificate of stock shall be valid until countersigned by such Transfer Agent, and if the Corporation shall have a Registrar, until registered by the Registrar. The duties of the Transfer Agent and Registrar may be combined.

     Section 3. Transfer of Shares. The shares of the Corporation shall be transferable only upon it books and by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the

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Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers or to such other person as the Board of Directors may designate for such purpose, and new certificates shall thereupon be issued.

     Section 4. Addresses of Shareholders. Every shareholder shall furnish the Transfer Agent, or in the absence of a Transfer Agent, the Registrar, or in the absence of a Transfer Agent and a Registrar, the Secretary, with an address at or to which notices of meetings and all other notices may be served upon or mailed to him, and in default thereof, notices may be addressed to him at the office of the Corporation.

     Section 5. Closing of the Transfer Books; Record Date. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding fifty (50) days and not less than ten (10) days prior to the date of any meeting of shareholders; provided, however, that in lieu of closing the stock transfer books as aforesaid the Board of Directors may fix a date not exceeding fifty (50) days and not less than ten (10) days prior to the date of any such meeting as the time as of which shareholders entitled to notice of and to vote at such meeting shall be determined, and all persons who were holders of record of voting stock at such time and no other shall be entitled to notice of and to vote at such meeting.

     The Board of Directors shall also have the power to close the stock transfer books of the Corporation for a period not exceeding fifty (50) days preceding the date fixed for the payment of any dividend or the making of any distribution or for the delivery of any evidence of right or evidence of interest; provided, however, that in lieu of closing the stock transfer books as aforesaid the Board of Directors may fix a date not exceeding fifty (50) days preceding the date fixed for the payment of any such dividend or the making of any such distribution or for the delivery of any such evidence of right or interest as a record time for the determination of the shareholders entitled to receive any such dividend, distribution or evidence of right or interest, and in such case only shareholders of record at the time so fixed shall be entitled to receive such dividend, distribution or evidence of right or interest.

     In no event shall the Board of Directors fix a record date for any purpose which shall be a date earlier than the date on which the record date is fixed.

     Section 6. Lost, Stolen and Destroyed Certificates. The Board of Directors may direct a new certificate or certificates of stock to be issued in the place of any certificate or certificates theretofore issued and alleged to have been lost, stolen or destroyed; but the Board of Directors when authorizing such issue of a new certificate or certificates, may in its discretion require the owner of the stock represented by the certificate so lost, stolen or destroyed or his legal representative to furnish proof by affidavit or otherwise to the satisfaction of the Board of Directors of the ownership of the stock represented by such certificate alleged to have been lost, stolen or destroyed and the facts which tend to prove its loss, theft or destruction. The Board of Directors may also require such person to execute and deliver to the Corporation a bond, with or without sureties, in such sum as the Board of Directors may direct, indemnifying the Corporation against any claim that may be made against it by reason of the issue of such new certificate. The Board of Directors, however, may in its discretion, refuse to issue any such new certificate, except pursuant to court order.

10

ARTICLE X
SEAL

     The Corporate Seal of the Corporation shall be circular in form and shall contain the name of the Corporation, and the words “SEAL OHIO” or words of similar import. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.

ARTICLE XI
AMENDMENTS

     This Code of Regulations may be amended, at any meeting of shareholders called for that purpose, by the affirmative votes of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or, without a meeting, by the written consent of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, except that Article II, Sections 1, 2 and 3, and this Article XI may not be amended or repealed without the affirmative vote or consent in writing of the holders of record of shares entitling them to exercise seventy-five percent (75%) of the shares entitled to vote or consent to such proposal.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Charles P. Hadeed, Chief Executive Officer, President and Chief Operating Officer of Transcat, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2007	/s/ Charles P. Hadeed
	Charles P. Hadeed
	Chief Executive Officer, President and Chief Operating Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John J. Zimmer, Vice President of Finance and Chief Financial Officer of Transcat, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2007	/s/ John J. Zimmer
	John J. Zimmer
	Vice President of Finance and Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

Charles P. Hadeed, the Chief Executive Officer of Transcat, Inc. and John J. Zimmer, the Chief Financial Officer of Transcat, Inc. certify that (i) the quarterly report on Form 10-Q for the second quarter ended September 29, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the quarterly report on Form 10-Q for the second quarter ended September 29, 2007 fairly presents, in all material respects, the financial condition and results of operations of Transcat, Inc.

Date: November 9, 2007	/s/ Charles P. Hadeed
	Charles P. Hadeed
	Chief Executive Officer, President and Chief Operating Officer
Date: November 9, 2007	/s/ John J. Zimmer
	John J. Zimmer
	Vice President of Finance and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Transcat, Inc. and will be retained by Transcat, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.