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. 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. All forward-looking statements involve risks and uncertainties, including, but not limited to those listed in Item 1A of our most recently filed Annual Report on 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 ("TransAct") designs, develops and sells market-specific solutions, including printers, terminals, software and other products for transaction-based and other industries. These world-class products are sold under the Epic, EPICENTRALTM, Ithaca® and Printrex® 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 as well as printed logging and plotting of data. We focus on the following core markets: banking and point-of-sale ("POS"), casino and gaming, lottery, oil and gas and medical and mobile. We sell our products to original equipment manufacturers ("OEMs"), value-added resellers ("VARs"), 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 ("TSG") we provide a complete range of supplies and consumables used in the printing and scanning activities of customers in the hospitality, banking, retail, gaming, government and oil and gas exploration 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 providing printer-related services, supplies and spare parts.

On August 19, 2011, we completed the acquisition of Printrex, Inc. ("Printrex") for $4,000,000 in cash and potential future contingent consideration. Printrex is a leading manufacturer of specialty printers primarily sold into the oil and gas exploration and medical and mobile markets. Printrex serves commercial and industrial customers primarily in the United States, Canada, Europe and Asia. This acquisition was completed to complement our existing product offerings.

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 Annual Report on Form 10-K for the year ended December 31, 2011. We have reviewed those policies and determined that they remain our critical accounting policies for the three months ended March 31, 2012.

Revenue recognition: We have developed a new software solution, the EPICENTRALTM Print System ("EPICENTRALTM"), that will enable casino operators to create promotional coupons and marketing messages and to print them in real-time at the slot machine. Revenue arrangements for EPICENTRALTM include multiple deliverables and as a result such arrangements are accounted for in accordance with both ASC 605-25, "Multiple-Element Arrangements" and ASC 985-605, "Software." EPICENTRALTM is primarily comprised of both a software component, which is licensed, and a hardware component, which can either be leased or sold to end users, and both components are integrated to deliver the system's full functionality. Under leasing arrangements, revenue is generally recognized ratably over the lease term, excluding revenue allocated to installation, which is recognized upon completion. In an arrangement where the hardware is purchased, revenue, inclusive of software license fees, is generally recognized upon installation and formal acceptance by the customer. Also, refer to the Revenue Recognition policy included in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Accounting Policies and Estimates," included in our Annual Report on Form 10-K for the year ended December 31, 2011 for further discussion.

Results of Operations: Three months ended March 31, 2012 compared to three months ended March 31, 2011

Net Sales. Net sales, which include printer and software sales as well as sales of replacement parts, consumables and repair services, by market for the three months ended March 31, 2012 and 2011 were as follows (in thousands, except percentages):

                                   Three months ended                            Three months ended                            Change
                                     March 31, 2012                                March 31, 2011                          $               %
Banking and
point-of-sale             $       2,336                    13.3 %       $       2,462                    11.9 %       $      (126 )        (5.1 %)
Casino and gaming                 9,411                    53.6 %               6,954                    33.6 %             2,457          35.3 %
Lottery                           1,030                     5.9 %               7,542                    36.4 %            (6,512 )       (86.3 %)
Printrex                          1,239                     7.0 %                   -                       -               1,239           100 %
TSG                               3,543                    20.2 %               3,736                    18.1 %              (193 )        (5.2 %)
                          $      17,559                   100.0 %       $      20,694                   100.0 %       $    (3,135 )       (15.1 %)

International *           $       6,222                    35.4 %       $       5,422                    26.2 %       $       800          14.8 %

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

Net sales for the first quarter of 2012 decreased $3,135,000, or 15%, from the same period in 2011 due primarily to lower printer sales in our lottery market (a decrease of approximately $6,512,000, or 86%), and to a lesser extent from lower sales in the banking and point-of-sale market and in TSG. These lower sales were partially offset by an increase in sales from our casino and gaming market of approximately $2,457,000, or 35%, and $1,239,000 of sales of printers resulting from the acquisition of Printrex. Printer sales volume decreased 31% to approximately 49,000 units in the first quarter of 2012 compared to the first quarter of 2011. The decrease in unit volume was driven primarily by the lottery market where our unit volume decreased 86% compared to 2011, partially offset by a 33% increase in unit volume from the casino and gaming market as well as the addition of Printrex units. The average selling price of our printers increased 20% in the first quarter of 2012 compared to the first quarter of 2011 due to
(1) significantly lower sales of lottery printers which have lower average selling prices than our other printers and (2) sales of Printrex printers which have significantly higher average selling prices than all our other printers. Overall, international sales increased $800,000, or 15%, primarily driven by higher sales to the casino and gaming market.

Banking and POS:
Revenue from the banking and POS market includes sales of printers used by banks, credit unions, and other financial institutions to print and/or validate receipts 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 linerless labels or other inserted media. A summary of sales of our worldwide banking and POS printers for the three months ended March 31, 2012 and 2011 is as follows (in thousands, except percentages):

                  Three months ended          Three months ended              Change
                    March 31, 2012              March 31, 2011             $           %
Domestic        $    2,271         97.2 %   $    2,084         84.6 %   $  187         9.0 %
International           65          2.8 %          378         15.4 %     (313 )     (82.8 %)
                $    2,336        100.0 %   $    2,462        100.0 %   $ (126 )      (5.1 %)

The increase in domestic banking and POS printer revenue from the first quarter of 2011 was primarily driven by higher sales of our banking printers mainly due to the shipment of the first half of a large order for our Ithaca® 280 thermal receipt printer to a new banking customer. We expect to ship the remaining half of the units for this order over the second and third quarters of 2012. This increase in sales of banking printers was largely offset by a decrease in U.S. sales of our two POS printer products to McDonald's, the Ithaca® 8000 and Ithaca® 8040, for its combined beverage initiative and its POS system upgrade which includes grill initiative printer upgrades. We expect U.S. sales for McDonald's to be lower in 2012 compared to 2011 as McDonald's substantially completed the roll out of printers to its 14,000 U.S. stores during 2011. Although we are currently pursuing several banking opportunities, due to the project-oriented nature of these sales, we cannot predict the level of future sales.

International banking and POS printer sales for the first quarter of 2012 decreased 83% from 2011 due primarily to lower sales for the aforementioned McDonald's POS system upgrade and grill initiative as well as the combined beverage initiative to its Canadian stores in 2012 compared to 2011.

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 such as Amusement with Prizes ("AWP"), Skills with Prizes ("SWP") and Fixed Odds Betting Terminals ("FOBT") at non-casino gaming establishments and royalties related to our patented casino and gaming technology. In addition, casino and gaming market revenue includes sales of our new software solution, the EPICENTRALTM print system, that enables casino operators to create promotional coupons and marketing messages and to print them real-time at the slot machine. A summary of sales of our worldwide casino and gaming printers for the three months ended March 31, 2012 and 2011 is as follows (in thousands, except percentages):

                  Three months ended          Three months ended              Change
                    March 31, 2012              March 31, 2011             $           %
Domestic        $    3,827         40.7 %   $    2,350         33.8 %   $ 1,477       62.9 %
International        5,584         59.3 %        4,604         66.2 %       980       21.3 %
                $    9,411        100.0 %   $    6,954        100.0 %   $ 2,457       35.3 %

The increase in domestic sales of our casino and gaming products is primarily due to an increase of 65% in sales of our thermal casino printers. We believe that our increased casino printer sales during the first quarter of 2012 resulted from a combination of new casino openings and continued market share gains. Revenue in the first quarter of 2012 also benefited from the first contribution of EPICENTRALTM software sales. Even though we anticipate improvement in the domestic slot machine replacement cycle in 2012, we expect our domestic casino sales to be higher in 2012 than in 2011 as we expect to continue to gain market share and also benefit from new casino openings we won in 2011 and will install in 2012.

International casino and gaming printer sales increased due primarily to a 20% increase in casino ticket printer sales as the pace of the government-approved installation of approximately 50,000 video lottery terminal ("VLT") gaming machines into Italy increased during the first quarter of 2012 following a significant slowdown during 2011. Although we expect sales of printers for the Italian VLT market to continue in 2012, we cannot predict the future level of these sales as they are dependent on the Italian regulatory environment. In addition to increased casino ticket printer sales, sales of our off-premise thermal gaming printers also increased 24% in the first quarter of 2012 compared to 2011 due primarily to a 91% increase in sales to our European distributor partially offset by a 40% decrease in sales to our customers in Australia and Asia.

Lottery:
Revenue from the lottery market includes sales of thermal on-line and other
lottery printers to GTECH for various lottery applications. A summary of sales
of our worldwide lottery printers for the three months ended March 31, 2012 and
2011 is as follows (in thousands, except percentages):

                  Three months ended          Three months ended               Change
                    March 31, 2012              March 31, 2011              $            %
Domestic        $    1,015         98.5 %   $    7,395         98.1 %   $ (6,380 )     (86.3 %)
International           15          1.5 %          147          1.9 %       (132 )     (89.8 %)
                $    1,030        100.0 %   $    7,542        100.0 %   $ (6,512 )     (86.3 %)

Our 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 and year-to-year and are not indicative of GTECH's overall business or revenue. Based on our backlog of orders, we expect total sales to GTECH for 2012 to be significantly lower than the near record level of sales reported during 2011.

Printrex:
Sales of the Printrex branded printers are sold into markets that include wide format, rack mounted and vehicle mounted thermal printers used by customers to log and plot oil field and down hole well drilling data in the oil and gas exploration industry. Sales in this market also include wide format printers used to print test results in ophthalmology devices in the medical industry, as well as vehicle mounted printers used to print schematics and certain other critical information in emergency services vehicles. A summary of sales of our worldwide Printrex printers is as follows (in thousands, except percentages):

Three months ended
March 31, 2012

Domestic        $    1,075         86.8 %
International          164         13.2 %
                $    1,239        100.0 %

As Printrex was acquired during the third quarter of 2011, no Printrex printer sales were included in our results for the first quarter of 2011. We expect sales of Printrex printers for 2012 to be between approximately $5,000,000 and $5,500,000.

TSG:
Revenue from TSG includes sales of consumable products (inkjet cartridges, ribbons, receipt paper and other printing supplies), replacement parts, maintenance and repair services, paper testing services, refurbished printers, and shipping and handling charges. A summary of sales in our worldwide TSG market for the three months ended March 31, 2012 and 2011 is as follows (in thousands, except percentages):

                  Three months ended          Three months ended             Change
                    March 31, 2012              March 31, 2011             $          %
Domestic        $    3,149         88.9 %   $    3,443         92.2 %   $ (294 )     (8.5 %)
International          394         11.1 %          293          7.8 %      101       34.5 %
                $    3,543        100.0 %   $    3,736        100.0 %   $ (193 )     (5.2 %)

The decrease in domestic revenue from TSG is primarily due to a 20% decrease in sales of consumables from a loss of sales to two OEM customers, partially offset by service revenue from several new contracts for paper testing services that did not occur in the first quarter of 2011 as well as Printrex TSG sales of approximately $103,000. Internationally, TSG revenue increased due primarily to higher sales of replacement parts as compared to the first quarter of 2011. We expect TSG sales in 2012 to be lower than in 2011.

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

Three months ended
March 31, Percent Percent of Percent of 2012 2011 Change Total Sales - 2012 Total Sales - 2011 $ 6,778 $ 6,932 (2.2 %) 38.6 % 33.5 %

Gross profit is measured as revenue less cost of sales, which 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 our contract manufacturers. While gross profit decreased $154,000, or 2%, our gross margin significantly improved by 510 basis points due primarily to a favorable sales mix as we sold more higher margin casino and gaming and Printrex printers, and significantly fewer lower margin lottery printers, in the first quarter of 2012 compared to the first quarter of 2011. We expect our gross margin for the remainder of 2012 to continue to be higher than in 2011.

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

Three months ended
March 31, Percent Percent of Percent of 2012 2011 Change Total Sales - 2012 Total Sales - 2011 $ 1,213 $ 769 57.7 % 6.9 % 3.7 %

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 increased $444,000, or 58%, which was due primarily to the addition of engineering staff and related expenses from the acquisition of Printrex of approximately $166,000 and higher outside testing and pre-production expenses related to new product development as we prepare to launch five new products in the second quarter of 2012. We expect engineering, design and product development expenses to be higher in 2012 than in 2011 due largely to the full year effect of the Printrex acquisition.

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

Three months ended
March 31, Percent Percent of Percent of 2012 2011 Change Total Sales - 2012 Total Sales - 2011 $ 1,601 $ 1,519 5.4 % 9.1 % 7.3 %

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. Such expenses increased by 5% in the first quarter of 2012 compared to the first quarter of 2011 primarily due to higher expenses associated with the Printrex acquisition somewhat offset by lower tradeshow and promotional marketing expenses. We expect selling and marketing expenses to be higher in 2012 than in 2011 due to the full year effect of the Printrex acquisition.

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

Three months ended
March 31, Percent Percent of Percent of 2012 2011 Change Total Sales - 2012 Total Sales - 2011 $ 2,000 $ 1,856 7.8 % 11.4 % 9.0 %

General and administrative expenses primarily include salaries and payroll related expenses for our executive, 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 increased $144,000, or 8%, due primarily to amortization of intangible assets acquired in the acquisition of Printrex of approximately $95,000. We expect general and administrative expenses to be higher in 2012 than in 2011 due to the full year effect of the Printrex acquisition.

Business Consolidation and Restructuring. Business consolidation and restructuring information is summarized below (in thousands, except percentages):

Three months ended        Percent of
  March 31, 2012      Total Sales - 2012
     $           54                 0.3%

As disclosed in Note 6 to the Condensed Consolidated Financial Statements, in January 2012, we determined that we no longer needed to maintain the existing Printrex manufacturing facility in San Jose, California, along with certain redundant headcount. During the three months ended March 31, 2012, we recorded a restructuring charge of $54,000 for employee termination benefits related to these employee reductions as well as moving costs. We expect to incur total costs of approximately $151,000 in 2012 in connection with these restructuring activities.

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

Three months ended
March 31, Percent Percent of Percent of 2012 2011 Change Total Sales - 2012 Total Sales - 2011 $ 1,910 $ 2,788 (31.5 %) 10.9 % 13.5 %

The decrease in our operating income and operating margin was primarily due to higher operating expenses attributable to the Printrex acquisition of approximately $418,000 in addition to higher engineering, design and new product development expenses.

Interest. We recorded net interest income of $2,000 in the first quarter of 2012 compared to net interest income of $4,000 in the first quarter of 2011. Interest expense related to the unused revolving credit line fee and amortization of the deferred financing costs on our revolving credit facility with TD Bank remained consistent in the first quarter of 2012 compared to the first quarter of 2011. See "Liquidity and Capital Resources" below for more information.

Other, net. We recorded other expense of $24,000 in the first quarter of 2012 compared to other income of $15,000 in the first quarter of 2011. The change was due to foreign currency transaction exchange losses recorded by our U.K. subsidiary in the first quarter of 2012 compared to gains recorded in the first quarter of 2011.

Income Taxes. We recorded an income tax provision for the first quarter of 2012 of $680,000 at an effective tax rate of 36.0%, compared to an income tax provision during the first quarter of 2011 of $982,000 at an effective tax rate of 35.0%. Our effective tax rate for the first quarter of 2012 is higher because it does not include a benefit from the federal research and development credit, which is normally included in our tax rate, as this credit that expired at the end of 2011. If this credit is not reinstated, we expect our annual effective tax rate for 2012 to be between 36% and 37%.

Net Income. We reported net income during the first quarter of 2012 of $1,208,000, or $0.13 per diluted share, compared to $1,825,000, or $0.19 per diluted share, for the first quarter of 2011.

Liquidity and Capital Resources

Cash Flow
In the first three months of 2012, our cash and cash equivalents balance increased $1,010,000, or 15%, from December 31, 2011 and we ended the first quarter of 2012 with $7,873,000 in cash and cash equivalents and no debt outstanding.

Operating activities: The following significant factors affected our cash provided by operating activities of $1,155,000 in the first three months of 2012 as compared to our cash used in operating activities of $1,258,000 in the first three months of 2011:

During the first three months of 2012:
· We reported net income of $1,208,000.

· We recorded depreciation, amortization, and non-cash compensation expense of $604,000, including $95,000 of amortization related to intangible assets acquired from Printrex.

· Accounts receivable increased $3,238,000 due to a higher concentration of sales made during the latter portion of the quarter.

· Inventories decreased $2,183,000 due to a concerted effort to significantly reduce inventory purchases and to fulfill sales during the quarter with existing inventory stock.

· Accounts payable decreased $175,000 due to lower inventory purchases and the timing of payments during the quarter.

. . .