Forward Looking Statements
Certain statements included in this report, including without limitation statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements generally can be identified by the use of forward-looking terminology, such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "project" or "continue" or the negative thereof or other similar words. Forward-looking statements involve risks and uncertainties, including, but not limited to those listed in Item 1A of our most recently filed Form 10-K. Actual results may differ materially from those discussed in, or implied by, the forward-looking statements. The forward-looking statements speak only as of the date of this report and we assume no duty to update them.

Overview
TransAct Technologies Incorporated designs, develops, assembles, markets and services world-class transaction printers under the Epic and Ithaca® brand names. Known and respected worldwide for innovative designs and real-world service reliability, our thermal, inkjet and impact printers generate top-quality transaction records such as receipts, tickets, coupons, register journals and other documents. We focus on the following core markets: banking and point-of-sale, casino and gaming, and lottery. We sell our products to original equipment manufacturers, value-added resellers, selected distributors, as well as directly to end-users. Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, the Caribbean Islands and the South Pacific. Beyond printers, TransAct is a leader in providing printing supplies to the full transaction printer market. Through our TransAct Services Group we provide a complete range of supplies and consumables items used in the printing and scanning activities of customers in the hospitality, banking, retail, gaming, and government verticals. Through our webstore, www.transactsupplies.com, and an expert direct selling team, we address the rapidly growing on-line demand for this product category. We operate in one reportable segment, the design, development, assembly and marketing of transaction printers and printer-related service, supplies and spare parts.

Critical Accounting Judgments and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, inventory obsolescence, the valuation of deferred tax assets and liabilities, depreciable lives of equipment, warranty obligations, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

For a complete description of our accounting policies, see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Accounting Policies and Estimates," included in our Form 10-K for the year ended December 31, 2008. We have reviewed those policies and determined that they remain our critical accounting policies for the six months ended June 30, 2009.

Results of Operations

Three months ended June 30, 2009 compared to three months ended June 30, 2008

Net Sales. Net sales, which include printer sales and sales of spare parts,
consumables and repair services, by market for the three months ended June 30,
2009 and 2008 were as follows:

                               Three months ended            Three months ended                 Change
(In thousands)                    June 30, 2009                 June 30, 2008               $              %
Banking and point-of-sale   $     5,517          38.7 %   $     3,013          18.5 %   $   2,504          83.1 %
Casino and gaming                 3,459          24.3 %         5,440          33.3 %      (1,981 )       (36.4 %)
Lottery                           1,960          13.8 %         4,786          29.3 %      (2,826 )       (59.0 %)
TransAct Services Group           3,300          23.2 %         3,080          18.9 %         220           7.1 %
                            $    14,236         100.0 %   $    16,319         100.0 %   $  (2,083 )       (12.8 %)

International *             $     2,171          15.3 %   $     2,571          15.8 %   $    (400 )       (15.6 %)

Net sales for the second quarter of 2009 decreased $2,083,000, or 13%, from the same period last year due primarily to lower printer sales in our lottery (a decrease of $2,826,000, or 59%), and casino and gaming markets (a decrease of $1,981,000, or 36%) partially offset by a $2,504,000, or 83% increase from our banking and point-of-sale markets as well as a $220,000, or 7%, increase from our TransAct Services Group ("TSG"). Printer sales volume decreased by 27% while the average selling price of our printers increased by approximately 13% (due primarily to an increase in sales of banking printers with higher average selling prices) from the second quarter of 2008 to the second quarter of

Banking and point-of-sale:
Revenue from the banking and point-of-sale ("POS") market includes sales of printers used by banks, credit unions, and other financial institutions to print and/or validate receipts and checks at bank teller stations. Revenue from this market also includes sales of inkjet, thermal and impact printers used primarily by retailers in the restaurant (including fine dining, casual dining and fast food), hospitality, and specialty retail industries to print receipts for consumers, validate checks, or print on other inserted media. Sales of our banking and POS printers worldwide increased approximately $2,504,000, or 83%.

                   Three months ended          Three months ended              Change
(In thousands)        June 30, 2009               June 30, 2008             $            %
Domestic         $    5,375         97.4 %   $    2,748         91.2 %   $ 2,627        95.6 %
International           142          2.6 %          265          8.8 %      (123 )     (46.4 %)
                 $    5,517        100.0 %   $    3,013        100.0 %   $ 2,504        83.1 %

Domestic banking and POS revenue increased to $5,375,000, representing a $2,627,000, or 96%, increase from the second quarter of 2008 primarily driven by higher sales of our banking printers. Sales of our banking printers increased by over 800% in the second quarter of 2009 compared to the second quarter of 2008 as we began to ship against the $4.9 million order we received from a large banking customer in February 2009. We expect to finish the shipment for this order in the second half of 2009. Sales of our POS printers remained consistent in the second quarter of 2009 compared to the second quarter of 2008, however, sales of our two new printer products for McDonalds, the Ithaca® 8000 (for McDonald's grill initiative) and Ithaca® 8040 (for McDonald's combined beverage initiative), more than tripled in the second quarter of 2009 compared to the second quarter of 2008. We expect sales of these printer products to remain consistent in the third and fourth quarters of 2009 as compared to the second quarter of 2009, as McDonalds continues the current pace of its rollout of printers used in its new combined beverage initiative. The increase in POS printers sales resulting from sales of the two new printer products for McDonalds was largely offset by a decline in sales of non-McDonalds POS printers due to the general economic slowdown that we believe will continue to adversely impact sales of POS printers to our retail and hospitality customers. Contributing to this decline, sales of our legacy line of POS impact printers decreased by approximately 48%. We expect sales of our legacy impact printers for the remainder of 2009 to continue to be lower than those reported for the comparable 2008 period, as these printers continue to be replaced by our newer thermal and inkjet printers.

International banking and POS printer shipments decreased by approximately $123,000, or 46%, to $142,000, due primarily to lower sales to our international distributors in Asia and Latin America.

Casino and gaming:
Revenue from the casino and gaming market includes sales of printers used in slot machines, video lottery terminals ("VLTs"), and other gaming machines that print tickets or receipts instead of issuing coins ("ticket-in, ticket-out" or "TITO") at casinos and racetracks ("racinos") and other gaming venues worldwide. Revenue from this market also includes sales of printers used in the international off-premise gaming market in gaming machines at non-casino gaming establishments such as Amusement with Prizes ("AWP"), Skills with Prizes ("SWP"), and Fixed Odds Betting Terminals ("FOBT"). Sales of our casino and gaming products decreased by $1,981,000, or 36%, from the second quarter of 2008.

                   Three months ended          Three months ended               Change
(In thousands)        June 30, 2009               June 30, 2008              $            %
Domestic         $    1,778         51.4 %   $    3,515         64.6 %   $ (1,737 )     (49.4 %)
International         1,681         48.6 %        1,925         35.4 %       (244 )     (12.7 %)
                 $    3,459        100.0 %   $    5,440        100.0 %   $ (1,981 )     (36.4 %)

Domestic sales of our casino and gaming printers decreased by $1,737,000, or 49%, due largely to a decrease in sales of our thermal casino printers, which have been impacted by the downturn in the domestic casino market. We expect the domestic casino and gaming market to continue to be weak for the remainder of 2009 as we believe the current uncertain economic environment is negatively impacting the casino industry's level of capital expenditures. In light of these negative market conditions, our future sales to the domestic casino and gaming market could be unpredictable and adversely affected.

International casino and gaming printer sales decreased $244,000, or 13%, to $1,681,000 in the second quarter of 2009. This decrease was due primarily to a 68% decrease in casino printer sales to our European distributor. The decrease was partially offset by a 209% increase of casino printer sales due to the timing of orders to our Australian distributor and a 16% increase in sales of our new line of off-premise gaming printers.

Lottery:
Revenue from the lottery market includes sales of lottery printers to Lottomatica's GTECH Corporation ("GTECH"), the world's largest provider of lottery terminals, for various lottery applications. Sales of our lottery products decreased by $2,826,000, or 59%, from the second quarter of 2008, due to lower sales of lottery printers to GTECH, both domestically and internationally.

                   Three months ended          Three months ended               Change
(In thousands)        June 30, 2009               June 30, 2008              $            %
Domestic         $    1,735         88.5 %   $    4,549         95.0 %   $ (2,814 )     (61.9 %)
International           225         11.5 %          237          5.0 %        (12 )      (5.1 %)
                 $    1,960        100.0 %   $    4,786        100.0 %   $ (2,826 )     (59.0 %)

Domestic and international printer sales to GTECH, which include thermal on-line and other lottery printers, decreased $2,826,000, or 59%, in the second quarter of 2009 compared to the second quarter of 2008, due to the timing of orders, with domestic sales decreasing approximately $2,814,000, or 62%, and international sales decreasing approximately $12,000, or 5%. Our quarterly sales to GTECH are directly dependent on the timing and number of new and upgraded lottery terminal installations GTECH performs, and as a result, may fluctuate significantly quarter-to-quarter. Our sales to GTECH are not indicative of GTECH's overall business or revenue. We expect as we ship a $3.6 million order we received from GTECH in April 2009, as well as other orders in our backlog combined with anticipated new future orders, sales to GTECH will increase for the rest of 2009 as compared to the first half of 2009.

TransAct Services Group:
Revenue from TSG includes sales of consumable products (inkjet cartridges,
ribbons, receipt paper and other printing supplies), replacement parts,
maintenance and repair services, refurbished printers, accessories and shipping
and handling charges. Sales from TSG increased $220,000, or 7%.

                   Three months ended          Three months ended             Change
(In thousands)        June 30, 2009               June 30, 2008            $           %
Domestic         $    3,177         96.3 %   $    2,936         95.3 %   $ 241         8.2 %
International           123          3.7 %          144          4.7 %     (21 )     (14.6 %)
                 $    3,300        100.0 %   $    3,080        100.0 %   $ 220         7.1 %

Domestic revenue from TSG increased $241,000, or 8%, largely due to an increase of approximately 30% in sales of consumable products compared to the same period in 2008, including higher sales of inkjet cartridges, as well as growing sales of paper and other consumable products through our new e-commerce website, TransActSupplies.com. The increase was partially offset by a 32% decrease in sales of replacement parts for certain legacy printers, as the installed base of these legacy printers in the market continues to decline.

Internationally, TSG revenue decreased $21,000, or 15%, to $123,000, due primarily to decreased sales of consumables and replacements parts.

Gross Profit. Gross profit information is summarized below (in thousands, except percentages):

                                         June 30,              Percent             Percent of                Percent of
                                    2009          2008          Change         Total Sales - 2009        Total Sales - 2008
Three months ended                $   4,856     $   5,460          (11.1 %)                    34.1 %                    33.5 %

Gross profit is measured as revenue less cost of goods sold. Cost of goods sold includes primarily the cost of all raw materials and component parts, direct labor and the associated manufacturing overhead expenses, and the cost of finished products purchased directly from contract manufacturers. Gross profit decreased $604,000, or 11%, to $4,856,000 from $5,460,000 due primarily to a 13% decrease in sales from the second quarter 2009 compared to the second quarter 2008. Despite a 13% decrease in sales, gross margin increased to 34.1% from 33.5%, due primarily to lower component part and labor costs resulting from our continued focus to increasingly move production of our products to a lower cost contract manufacturer in Asia, as well as approximately $87,000 of lower product warranty expense resulting from improved repair history and a 27% decline in printer shipments in the second quarter of 2009 compared to the second quarter of 2008. Gross profit for the second quarter of 2009 was also favorably impacted from our cost reduction initiatives as well as approximately $150,000 of lower average per unit costs of certain manufacturing overhead expenses due to the transition of more of our production to Asia compared to the second quarter of 2008.

Engineering and Product Development. Engineering and product development information is summarized below (in thousands, except percentages):

June 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 666 $ 691 (3.6 %) 4.7 % 4.2 %

Engineering, design and product development expenses primarily include salary and payroll related expenses for our engineering staff, depreciation and design expenses (including prototype printer expenses, outside design and testing services, and supplies). Such expenses for the second quarter 2009 decreased by $25,000, or 4%, due primarily to lower employee compensation related expenses. Engineering and product development expenses increased as a percentage of net sales due primarily to a lower volume of sales in the second quarter of 2009 compared to the second quarter of 2008.

Selling and Marketing. Selling and marketing information is summarized below (in thousands, except percentages):

June 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 1,455 $ 1,516 (4.0 %) 10.2 % 9.3 %

Selling and marketing expenses primarily include salaries and payroll related expenses for our sales and marketing staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, e-commerce and other promotional marketing expenses. Selling and marketing expenses for the second quarter of 2009 decreased by $61,000, or 4%, due to approximately $31,000 of lower sales commissions resulting from a 13% decrease in sales, approximately $32,000 of lower travel related expenses, and a reduction of approximately $17,000 in promotional marketing expenses due to the cost control initiatives that were put in place for 2009. These decreases were partially offset by approximately $22,000 of higher employee compensation related expenses. Selling and marketing expenses increased as a percentage of net sales due primarily to a lower volume of sales in the second quarter of 2009 compared to the second quarter of 2008.

General and Administrative. General and administrative information is summarized below (in thousands, except percentages):

June 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 1,693 $ 1,722 (1.7 %) 11.9 % 10.6 %

General and administrative expenses primarily include salaries and payroll related expenses for our executives, accounting, human resource, business development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, telecommunication expenses, and other expenses related to being a publicly-traded company. General and administrative expenses decreased by 2%, due primarily to approximately $148,000 of lower employee compensation related expenses, partially offset by $43,000 in increased legal expenses related to general corporate matters, as well as $45,000 in increased depreciation on software purchased in the second quarter of 2009. In addition, general and administrative expenses for the second quarter of 2009 included additional severance charges of approximately $24,000 related to an employee termination. General and administrative expenses increased as a percentage of net sales due primarily to a lower volume of sales in the second quarter of 2009 as compared to the second quarter of 2008.

Legal Fees associated with lawsuit. During the second quarter of 2009, we did not incur any legal fees related to the settled lawsuit with FutureLogic, Inc. compared to $1,132,000 of fees incurred in the second quarter of 2008. We settled our litigation with FutureLogic, Inc. in May 2008 and as a result of this settlement, we do not expect to incur any additional legal fees related to the lawsuit.

Operating Income. Operating income information is summarized below (in thousands, except percentages):

June 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 1,042 $ 399 161.2 % 7.3 % 2.4 %

During the second quarter of 2009, we reported operating income of $1,042,000, or 7.3% of net sales, compared to operating income of $399,000, or 2.4% of net sales in the second quarter of 2008. The increase in our operating income and operating margin was primarily due to lower operating expenses (primarily the absence of legal expense related to the FutureLogic lawsuit), partially offset by lower gross profit resulting from a 13% decline in sales in the second quarter of 2009 as compared to the second quarter of 2008.

Interest. We recorded net interest expense of $18,000 in the second quarter of 2009 compared to $7,000 in the second quarter of 2008. The increase in our net interest expense was largely due to a lack of interest income from a lower average cash balance in the second quarter of 2009 compared to the second quarter of 2008, coupled with a lower overall rate of return on our invested cash balance due to the decreasing interest rate environment. See "Liquidity and Capital Resources" below for more information.

Other Expense. We recorded other expense of $50,000 in the second quarter of 2009 compared to $8,000 in the second quarter of 2008. The increase was primarily due to foreign currency exchange losses recorded by our UK subsidiary resulting from a 16% weakening of the U.S. dollar against the British pound during the second quarter of 2009, as compared to no change between the exchange rates of the U.S. dollar and the British pound in the second quarter of 2008.

Income Taxes. We recorded an income tax provision for the second quarter of 2009 of $325,000 at an effective tax rate of 33.4%, compared to an income tax provision during the second quarter of 2008 of $94,000 at an effective tax rate of 24.5%. The lower effective tax rate for the second quarter of 2008 was largely due to a change in estimated income for the year when we settled our FutureLogic lawsuit. We expect our annual effective tax rate for 2009 to be between 33% and 34%.

Net Income. We reported net income during the second quarter of 2009 of $649,000, or $0.07 per diluted share, compared to net income of $290,000, or $0.03 per diluted share, for the second quarter of 2008.

Six months ended June 30, 2009 compared to six months ended June 30, 2008

Net Sales. Net sales, which include printer sales and sales of spare parts, consumables and repair services, by market for the six months ended June 30, 2009 and 2008 were as follows:

                              Six months ended          Six months ended               Change
(In thousands)                  June 30, 2009             June 30, 2008             $            %
Banking and point-of-sale   $   7,958        30.1 %   $   5,746        18.8 %   $  2,212        38.5 %
Casino and gaming               8,316        31.5 %      10,277        33.6 %     (1,961 )     (19.1 %)
Lottery                         3,066        11.6 %       8,396        27.4 %     (5,330 )     (63.5 %)
TransAct Services Group         7,098        26.8 %       6,185        20.2 %        913        14.8 %
                            $  26,438       100.0 %   $  30,604       100.0 %   $ (4,166 )     (13.6 %)

International *             $   5,841        22.1 %   $   4,753        15.5 %   $  1,088        22.9 %

* International sales do not include sales of printers made to domestic distributors or other customers who in turn ship those printers to international destinations.

Net sales for the first half of 2009 decreased $4,166,000, or 14%, from the same period last year due primarily to lower printer shipments in our lottery (a decrease of $5,330,000, or 64%) and casino and gaming (a decrease of $1,961,000, or 19%) markets, partially offset by a $2,212,000, or 39%, increase from our banking and point-of-sale market as well as a $913,000, or 15%, increase from TSG. Printer sales volume decreased by 28% while the average selling price of our printers increased by approximately 9% (due primarily to an increase in sales of banking printers with higher average selling prices) from the first half of 2008 to the first half of 2009. Overall, international sales increased by $1,088,000, or 23%, largely due to higher international shipments of our casino and gaming printers.

Banking and point-of-sale:
Sales of our banking and POS printers worldwide increased approximately $2,212,000, or 39%.

                   Six months ended          Six months ended              Change
(In thousands)       June 30, 2009             June 30, 2008            $           %
Domestic         $   7,333        92.1 %   $   5,260        91.5 %   $ 2,073       39.4 %
International          625         7.9 %         486         8.5 %       139       28.6 %
                 $   7,958       100.0 %   $   5,746       100.0 %   $ 2,212       38.5 %

Domestic banking and POS revenue increased to $7,333,000, representing a $2,073,000, or 39%, increase from the first half of 2008 primarily driven by higher sales of our banking printers. Sales of our banking printers increased by more than 300% in the first half of 2009 compared to the first half of 2008 as we began to ship against the $4.9 million order we received from a large banking customer in February 2009. We expect to finish the shipment for this order in the second half of 2009. Sales of our POS printers declined by approximately 13% largely due to the general economic slowdown that we believe is currently impacting, and will continue to adversely impact for the remainder of 2009, the capital spending of a number of our retail and hospitality customers. Contributing to the decline in sales of our POS printers, sales of our legacy line of POS impact printers decreased by approximately 52%. We expect sales of our legacy impact printers for the remainder of 2009 to continue to be lower than those reported for the comparable 2008 period, as these printers continue to be replaced by our newer thermal and inkjet printers. Despite these declines, sales of our two new printer products for McDonalds, the Ithaca 8000̉ (for McDonald's grill initiative) and Ithaca 8040® (for McDonald's combined beverage initiative), almost quadrupled during the first half of 2009 compared to the first half of 2008. We expect sales of these printer products to continue to remain consistent in the third and fourth quarters of 2009 as compared to the second quarter of 2009, as McDonalds continues the current pace of its rollout of printers used in its new combined beverage initiative.

International banking and POS printer shipments increased $139,000, or 29%, to . . .