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 markets. Through our webstore, www.transactsupplies.com, and our direct selling team, we address the on-line demand for these products. 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 nine months ended September 30, 2009.

Results of Operations

Three months ended September 30, 2009 compared to three months ended September
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 September
30, 2009 and 2008 were as follows:

                               Three months ended            Three months ended                 Change
(In thousands)                 September 30, 2009            September 30, 2008             $              %
Banking and point-of-sale   $     5,822          32.4 %   $     2,984          17.2 %   $   2,838          95.1 %
Casino and gaming                 4,726          26.3 %         6,681          38.6 %      (1,955 )       (29.3 %)
Lottery                           3,335          18.5 %         4,728          27.3 %      (1,393 )       (29.5 %)
TransAct Services Group           4,099          22.8 %         2,933          16.9 %       1,166          39.8 %
                            $    17,982         100.0 %   $    17,326         100.0 %   $     656           3.8 %

International *             $     3,209          17.8 %   $     2,982          17.2 %   $     227           7.6 %

* 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 third quarter of 2009 increased $656,000, or 4%, from the same period last year due primarily to higher printer sales in our banking and point-of-sale market (an increase of $2,838,000, or 95%), and our TransAct Services Group ("TSG") (an increase of $1,166,000, or 40%) offset by a $1,955,000, or 29% decrease from our casino and gaming markets as well as a $1,393,000, or 30%, decrease from our lottery market. Printer sales volume decreased by 9% while the average selling price of our printers increased by approximately 7% from the

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 $2,838,000, or 95%.

                   Three months ended          Three months ended              Change
(In thousands)     September 30, 2009          September 30, 2008           $           %
Domestic         $    5,590         96.0 %   $    2,798         93.8 %   $ 2,792       99.8 %
International           232          4.0 %          186          6.2 %        46       24.7 %
                 $    5,822        100.0 %   $    2,984        100.0 %   $ 2,838       95.1 %

Domestic banking and POS revenue increased to $5,590,000, representing a $2,792,000, or 100%, increase from the third quarter of 2008 primarily driven by higher sales of our banking printers. Sales of our banking printers increased by over ten times the amount sold in the third quarter of 2008 as we finished shipping against the $4.9 million order we received from a large banking customer in February 2009 as well as additional orders for this same customer. We expect our banking printer sales in the fourth quarter of 2009 to be substantially lower than those reported in the third quarter of 2009 as we finish shipping against the additional orders received from this large banking customer. Although sales of our POS printers decreased by 19% in the third quarter of 2009 compared to the third quarter of 2008, 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), increased by 25% in the third quarter of 2009 compared to the third quarter of 2008. We expect sales of these printer products to remain consistent in the fourth quarter of 2009 as compared to the third quarter of 2009, as McDonalds continues the current pace of its rollout of printers used in its new combined beverage and grill initiatives. The increase in POS printer 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 for the remainder of 2009. Contributing to this decline, sales of our legacy line of POS impact printers decreased by approximately 43%. 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 increased by approximately $46,000, or 25%, to $232,000, due primarily to higher sales to our international distributors in Latin America, Europe and the Middle East somewhat offset by lower sales to distributors in Mexico and Asia.

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 $1,955,000, or 29%, from the third quarter of 2008.

                   Three months ended          Three months ended               Change
(In thousands)     September 30, 2009          September 30, 2008            $            %
Domestic         $    2,112         44.7 %   $    4,052         60.6 %   $ (1,940 )     (47.9 %)
International         2,614         55.3 %        2,629         39.4 %        (15 )      (0.6 %)
                 $    4,726        100.0 %   $    6,681        100.0 %   $ (1,955 )     (29.3 %)

Domestic sales of our casino and gaming printers decreased by $1,940,000, or 48%, due largely to a decrease in sales of our thermal casino printers, which have been impacted by the downturn in the domestic casino market. Although we experienced an increase in domestic casino printer sales in the third quarter of 2009 compared to the second quarter of 2009, 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 by less than 1% to $2,614,000 in the third quarter of 2009. International casino printer sales decreased by 20% due to lower sales in Europe somewhat offset by an increase in casino printer sales to Australia and Canada. The decrease in international casino printer sales was almost entirely offset by a 49% increase in sales of our line of off-premise gaming printers, including our newly launched Epic 880, to our European distributor and a customer in Australia.

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 $1,393,000, or 30%, from the third quarter of 2008, due to
lower sales of lottery printers to GTECH domestically.

                   Three months ended          Three months ended               Change
(In thousands)     September 30, 2009          September 30, 2008            $            %
Domestic         $    3,231         96.9 %   $    4,636         98.1 %   $ (1,405 )     (30.3 %)
International           104          3.1 %           92          1.9 %         12        13.0 %
                 $    3,335        100.0 %   $    4,728        100.0 %   $ (1,393 )     (29.5 %)

Domestic and international printer sales to GTECH, which include thermal on-line and other lottery printers, decreased $1,393,000, or 30%, in the third quarter of 2009 compared to the third quarter of 2008, due to the timing of orders, with domestic sales decreasing approximately $1,405,000, or 30%, and international sales increasing approximately $12,000, or 13%. 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 sales to GTECH for the fourth quarter of 2009 to be consistent with those of the third quarter 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 $1,166,000, or 40% from the third
quarter of 2008.

                   Three months ended          Three months ended              Change
(In thousands)     September 30, 2009          September 30, 2008           $            %
Domestic         $    3,840         93.7 %   $    2,858         97.4 %   $   982        34.4 %
International           259          6.3 %           75          2.6 %       184       245.3 %
                 $    4,099        100.0 %   $    2,933        100.0 %   $ 1,166        39.8 %

Domestic revenue from TSG increased $982,000, or 34%, largely due to an increase of approximately 67% in sales of consumable products mostly due to significantly higher inkjet cartridge sales to a large customer for a project that was substantially completed in the third quarter of 2009 as well as recurring sales of inkjet cartridges based on the growing installed base of our line of inkjet printers. As a result, we expect TSG sales for the fourth quarter of 2009 to be lower than those for the third quarter of 2009.

Internationally, TSG revenue increased $184,000, or 245%, to $259,000, due primarily to increased sales of replacements parts.

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

                                       September 30,           Percent             Percent of                Percent of
                                    2009          2008          Change         Total Sales - 2009        Total Sales - 2008
Three months ended                $   5,525     $   5,894           (6.3 %)                    30.7 %                    34.0 %

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 $369,000, or 6%, to $5,525,000 from $5,894,000 and gross margin decreased to 30.7% from 34.0%. The decreases were due primarily to (1) higher sales of lower margin products and (2) higher material and labor costs as we depleted a substantial portion of our higher cost domestic inventory in preparation for the completion of the transition of full production of 70% of our printers to China. With our higher cost domestic inventories nearly depleted, we will begin to source lower cost product from China beginning in the fourth quarter of 2009. As a result, we expect our gross margin to begin to improve in the fourth quarter of 2009 compared to the third quarter of 2009.

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

September 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 683 $ 713 (4.2 %) 3.8 % 4.1 %

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

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

September 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 1,434 $ 1,430 0.3 % 8.0 % 8.3 %

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 third quarter of 2009 remained consistent as compared to the third quarter of 2008, as approximately $15,000 of higher employee compensation related expenses and $14,000 of higher tradeshow related expenses were offset by a reduction of approximately $19,000 in promotional marketing expenses. We expect selling and marketing expenses in the fourth quarter of 2009 to be higher than the third quarter of 2009 due to expenses related to trade shows occurring in the fourth quarter.

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

September 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 1,614 $ 1,838 (12.2 %) 8.9 % 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 $224,000 or 12%, due primarily to approximately $153,000 of lower employee compensation related expenses, $46,000 of lower recruitment related expenses, $21,000 of lower professional fees, and $26,000 of lower legal fees. In addition, general and administrative expenses for the third quarter of 2009 included severance charges of approximately $19,000 related to an employee termination.

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

September 30, Percent Percent of Percent of 2009 2008 Change Total Sales - 2009 Total Sales - 2008 Three months ended $ 1,794 $ 1,913 (6.2 %) 10.0 % 11.0 %

During the third quarter of 2009, we reported operating income of $1,794,000, or 10.0% of net sales, compared to operating income of $1,913,000, or 11.0% of net sales in the third quarter of 2008. The decrease in our operating income and operating margin was primarily due to lower gross margin and the resulting gross profit, partially offset by lower operating expenses in the third quarter of 2009 as compared to the third quarter of 2008.

Interest. We recorded net interest expense of $15,000 in the third quarter of 2009 compared to $3,000 in the third quarter of 2008. The increase in our net interest expense was largely due to lower interest income resulting from a lower overall rate of return on our invested cash balance due to the decreasing interest rate environment. Interest expense related to the unused line fee and amortization of deferred financing costs on our revolving credit facility with TD Bank remained consistent in the third quarter of 2009 compared to the third quarter of 2008. See "Liquidity and Capital Resources" below for more information.

Other Income. We recorded other income of $2,000 in the third quarter of 2009 compared to $102,000 in the third quarter of 2008. Other income for the third quarter of 2009 was low as we significantly reduced the balances of our U.K. subsidiary that are exposed to foreign currency fluctuations. Other income for the third quarter of 2008 primarily included foreign currency exchange gains recorded by our U.K. subsidiary resulting from a 9% strengthening of the U.S. dollar against the British pound.

Income Taxes. We recorded an income tax provision for the third quarter of 2009 of $597,000 at an effective tax rate of 33.5%, compared to $802,000 at an effective tax rate of 39.9% in 2008. The effective tax rate for the third quarter of 2008 was abnormally high as it did not include any benefit from the federal research and development credit that expired at the end of 2007 and was not reinstated until October 2008. We expect our annual effective tax rate for 2009 to be between 33% and 34%.

Net Income. We reported net income during the third quarter of 2009 of $1,184,000, or $0.13 per diluted share, compared to net income of $1,210,000, or $0.13 per diluted share, for the third quarter of 2008.

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

                                Nine months ended             Nine months ended                 Change
(In thousands)                 September 30, 2009            September 30, 2008             $              %
Banking and point-of-sale   $    13,780          31.0 %   $     8,730          18.2 %   $   5,050          57.8 %
Casino and gaming                13,042          29.4 %        16,958          35.4 %      (3,916 )       (23.1 %)
Lottery                           6,401          14.4 %        13,124          27.4 %      (6,723 )       (51.2 %)
TransAct Services Group          11,197          25.2 %         9,118          19.0 %       2,079          22.8 %
                            $    44,420         100.0 %   $    47,930         100.0 %   $  (3,510 )        (7.3 %)

International *             $     9,050          20.4 %   $     7,735          16.1 %   $   1,315          17.0 %

* 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 nine months of 2009 decreased $3,510,000, or 7%, from the same period last year due primarily to lower printer shipments in our lottery (a decrease of $6,723,000, or 51%) and casino and gaming (a decrease of $3,916,000, or 23%) markets, partially offset by a $5,050,000, or 58%, increase from our banking and point-of-sale market as well as a $2,079,000, or 23%, increase from TSG. Printer sales volume decreased by 21% while the average selling price of our printers increased by approximately 8% (due primarily to an increase in sales of banking printers with higher average selling prices) from the first nine months of 2008 to the first nine months of 2009. Overall, international sales increased by $1,315,000, or 17%, 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 $5,050,000, or 58%.

                    Nine months ended           Nine months ended              Change
(In thousands)     September 30, 2009          September 30, 2008           $           %
Domestic         $    12,923        93.8 %   $     8,058        92.3 %   $ 4,865       60.4 %
International            857         6.2 %           672         7.7 %       185       27.5 %
                 $    13,780       100.0 %   $     8,730       100.0 %   $ 5,050       57.8 %

Domestic banking and POS revenue increased to $12,923,000, representing a $4,865,000, or 60%, increase from the first nine months of 2008 primarily driven by higher sales of our banking printers. Sales of our banking printers increased by more than 500% in the first nine months of 2009 compared to the first nine months of 2008 as we finished shipping against the $4.9 million order we received from a large banking customer in February 2009 as well as additional orders from this same customer. Sales of our POS printers declined by approximately 15% largely due to the general economic slowdown that we believe is currently impacting, and will continue to adversely impact 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 50%. We expect sales of our legacy impact printers for the fourth quarter 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), increased by approximately 150% during the first nine months of 2009 compared to the first nine months of 2008.

International banking and POS printer shipments increased $185,000, or 28%, to $857,000, due primarily to higher POS printer sales to our international distributors in Latin America.

Casino and gaming:
Sales of our casino and gaming products decreased by $3,916,000, or 23%, from the first nine months of 2008.

                    Nine months ended           Nine months ended               Change
(In thousands)     September 30, 2009          September 30, 2008            $            %
Domestic         $     5,830        44.7 %   $    10,606        62.5 %   $ (4,776 )     (45.0 %)
International          7,212        55.3 %         6,352        37.5 %        860        13.5 %
                 $    13,042       100.0 %   $    16,958       100.0 %   $ (3,916 )     (23.1 %)

Domestic sales of our casino and gaming printers decreased by $4,776,000, or . . .