<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 2006 or

[ ]  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: 0-21121

                       TRANSACT TECHNOLOGIES INCORPORATED
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
                DELAWARE                                          06-1456680
     (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)
</TABLE>

<TABLE>
<S>                                                               <C>
      7 LASER LANE, WALLINGFORD, CT                                 06492
(Address of principal executive offices)                          (Zip Code)
</TABLE>

         Registrant's telephone number, including area code 203-859-6800

           Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
          TITLE OF EACH CLASS            NAME OF EXCHANGE ON WHICH REGISTERED
          -------------------            ------------------------------------
<S>                                      <C>
Common Stock, par value $.01 per share       The NASDAQ Stock Market, LLC
</TABLE>

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer (as
defined in Rule 405 of the Securities Act).

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities Act.

Yes [ ] No [X]

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. [ ]

<PAGE>

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. (check
one):

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

As of June 30, 2006 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$93,200,000.

As of February 28, 2007, the registrant had outstanding 9,574,777 shares of
common stock, $0.01 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the Annual Meeting of Shareholders to be held on May 15,
2007 - Part III (Items 10-14).


                                        1

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                                      INDEX

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
<S>                                                                     <C>
PART I.
   Item 1.  Business                                                       3 - 7
   Item 1A. Risk Factors                                                  7 - 10
   Item 1B. Unresolved Staff Comments                                         10
   Item 2.  Properties                                                   10 - 11
   Item 3.  Legal Proceedings                                                 11
   Item 4.  Submission of Matters to a Vote of Security Holders               11

PART II.
   Item 5.  Market for Registrant's  Common Equity, Related
            Stockholder Matters and Issuer Purchases of Equity
            Securities                                                   12 - 13
   Item 6.  Selected Consolidated Financial Data                              14
   Item 7.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                          15 - 27

   Item 7A. Quantitative and Qualitative Disclosures About Market
            Risk                                                              27
   Item 8.  Financial Statements and Supplementary Data                  28 - 51
   Item 9.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure                               52

   Item 9A. Controls and Procedures                                      52 - 53

PART III.
   Item 10. Directors and Executive Officers of the Registrant                53
   Item 11. Executive Compensation                                            53
   Item 12. Security Ownership of Certain Beneficial Owners and
            Management and Related Stockholder Matters                   53 - 54

   Item 13. Certain Relationships and Related Transactions                    54
   Item 14. Principal Accountant Fees and Services                            54

PART IV.
   Item 15. Exhibits and Financial Statement Schedules                   55 - 57
            Signatures                                                        58
</TABLE>

                                     PART I


                                        2

<PAGE>


ITEM 1. BUSINESS.

THE COMPANY

     TransAct was incorporated in June 1996 and began operating as a stand-alone
business in August 1996 as a spin-off of the printer business that was formerly
conducted by certain subsidiaries of Tridex Corporation. We completed an initial
public offering on August 22, 1996.

     TransAct Technologies Incorporated ("TransAct" or the "Company") designs,
develops, assembles, markets and services world-class transaction printers under
the Epic(TM) and Ithaca(R) brand names. Known and respected worldwide for
innovative designs and real-world service reliability, our impact, thermal and
inkjet printers generate top-quality transaction records such as receipts,
tickets, coupons, register journals and other documents. We focus on two core
markets: (1) point-of-sale ("POS") and banking and (2) gaming and lottery. 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. In addition, we
have a strong focus on the after-market side of the business, with a growing
commitment to printer service, supplies and spare parts. We have one primary
operating facility located in Ithaca, NY, five sales offices located in the
United States (including our global gaming and lottery headquarters and western
region service center in Las Vegas, NV), and a European sales and service center
in the United Kingdom. Our executive offices and eastern region service center
are located at 7 Laser Lane, Wallingford, CT 06492, with a telephone number of
(203) 859-6800.

FINANCIAL INFORMATION ABOUT SEGMENTS

     We have determined that we operate in one reportable segment, the design,
development, assembly and marketing of transaction printers and printer-related
service, supplies and spare parts.

PRODUCTS AND SERVICES

Printers

     TransAct designs, develops, assembles and markets a broad array of
transaction-based printers utilizing inkjet, thermal and impact printing
technology for applications requiring up to 60 character columns, primarily in
the POS and banking, and gaming and lottery markets. Our printers are
configurable and offer customers the ability to choose from a variety of
features and functions. Options typically include interface configuration, paper
cutting devices, paper handling capacities and cabinetry color. In addition to
our configurable printers, we design and assemble custom printers for certain
OEM customers. In collaboration with these customers, we provide engineering and
manufacturing expertise for the design and development of specialized printers.

     POS and banking: Our POS and banking printers include hundreds of optional
configurations that can be selected to meet particular customer needs. We
believe that this is a significant competitive strength, as it allows us to
satisfy a wide variety of printing applications that our customers request. In
the POS market, we sell several models of printers utilizing inkjet, thermal and
impact printing technology. Our printers are used primarily by retailers in the
hospitality, restaurant (including fine dining, casual dining, and fast food)
and specialty retail industries to print receipts for consumers, validate
checks, or print on other inserted media. We also sell printers that are used by
banks, credit unions and other financial institutions to print and/or validate
receipts at bank teller stations.

     Gaming and lottery: In the lottery portion of our gaming and lottery
market, we supply lottery printers to GTECH, our largest customer and the
world's largest provider of lottery terminals, with an approximate 70% market
share. These printers are designed for high-volume, high-speed printing of
lottery tickets for various lottery applications.

     In the gaming portion of our gaming and lottery market, we sell several
models of printers used in slot machines and video lottery terminals that print
tickets instead of issuing coins at casinos, racetracks and other gaming
establishments worldwide. These printers utilize thermal printing technology and
can print tickets in monochrome or two-color (depending upon the model), and
offer various other features such as jam resistant bezels and a dual port
interface that will allow casinos to print coupons/promotions. In addition, we
sell printers using thermal and impact printing technology for use in non-casino
gaming establishments, including game types such as Amusements with Prizes
("AWP"), Skills with Prizes ("SWP"), Video lottery terminals ("VLT"), Fixed Odds
Betting Terminals ("FOBT") and other off-premise gaming type machines around the
world.

TransAct Services Group

     Through our TransAct Services Group, we proactively market the sale of
consumable products (including inkjet cartridges, ribbons and receipt paper),
replacement parts and maintenance services for all of our products. Our
maintenance services include the sale of extended warranties, multi-year
maintenance contracts, 24-hour guaranteed replacement product service TransAct
Xpress(SM), and other repair services for our printers. Within the United
States, we provide repair services


                                        3

<PAGE>

through our eastern region service center in Wallingford, CT and our western
region service center in Las Vegas, NV. Internationally, we provide repair
services through our European service center located in Doncaster, United
Kingdom, and through partners strategically located around the world.

     We also provide customers with telephone sales and technical support, and a
personal account representative to handle orders, shipping and general
information. Technical and sales support personnel receive training on all of
our manufactured products and our services.

Product Warranty

     Our printers generally carry up to a two-year limited warranty against
defects in material and workmanship. Defective equipment may be returned to any
of our service centers, or our manufacturing facility in Ithaca, NY for
newly-released printers only, for repair or replacement during the applicable
warranty period.

PRODUCTION, MANUFACTURING AND SOURCES AND AVAILABILITY OF RAW MATERIALS

     We design our products to optimize product performance, quality,
reliability and durability. These designs combine cost efficient materials,
sourcing and assembly methods with high standards of workmanship. We finalize
assembly of our products in our Ithaca, NY facility largely on a
configure-to-order basis using components that have been sourced from around the
world. Our manufacturing engineers work closely with our new product engineers
and vendors during the development of new products. As a result, this
collaboration increases manufacturing efficiency by specifying materials and
designing manufacturing processes in conjunction with new product design.

     We procure component parts and subassemblies for use in the manufacture and
assembly of our products. Critical component parts and subassemblies include
inkjet, thermal and impact printheads, printing/cutting mechanisms, power
supplies, motors, injection molded plastic parts, circuit boards and electronic
components, which are obtained from domestic and foreign suppliers at
competitive prices. In addition, we have begun to procure fully assembled
printers from a foreign supplier. We typically strive to maintain more than one
source for our component parts, subassemblies and fully assembled printers to
reduce the risk of parts shortages or unavailability. However, we could
experience temporary disruption if certain suppliers ceased doing business with
us, as described below.

     Okidata Americas, Inc. ("Okidata"), is the sole supplier for an impact
printer component kit consisting of a printhead, control board and carriage (the
"Oki Kit"), that is used in all of our Ithaca(R) brand impact printers. The loss
of the supply of Oki Kits would have a material adverse effect on TransAct.
However, sales of impact printers continue to decline as sales of these printers
are replaced by sales of thermal and inkjet printers. As such, we believe that
any possible loss of supply of Oki Kits will have less of an impact on TransAct
in 2007 and beyond. Although we do not have a supply agreement with Okidata, our
relationship with Okidata remains strong and we have no reason to believe that
Okidata will discontinue its supply of Oki Kits to us or that their terms to us
will be any less favorable than they have been historically.

     Hewlett-Packard Company ("HP") is the sole supplier of inkjet cartridges
that are used in all of our inkjet printers. The loss of the supply of HP inkjet
cartridges would have a material adverse effect on the sale of our inkjet
printers. Prior to February 2006, we had a supply agreement with HP to purchase
inkjet cartridges at fixed prices. This agreement expired on February 1, 2006
and was not renewed, as HP informed us that they no longer maintain supply
agreements for these inkjet cartridges; however, we continue to purchase inkjet
cartridges from HP. Although we no longer have a supply agreement with HP, our
relationship with HP remains strong and we have no reason to believe that HP
will discontinue its supply of inkjet cartridges to us. The inkjet cartridges we
purchase from HP are used not only in our inkjet printers for the POS and
banking market, but also in other manufacturer's printing devices across several
other markets.

     We currently buy substantially all of our thermal print mechanisms, an
important component of our thermal printers, from one supplier. Although we
believe that other suppliers could provide similar thermal print mechanisms on
comparable terms, a change in suppliers could cause a delay in manufacturing and
possible loss of sales which may have a material adverse effect on our operating
results.


                                        4

<PAGE>

PATENTS AND PROPRIETARY INFORMATION

     We have significantly expanded our patent portfolio over the past six
years, and expect to continue to do so in the future. We also believe our patent
portfolio could provide additional opportunities to license our intellectual
property in the future. We hold 21 United States and nine foreign patents and
have nine United States and 19 foreign patent applications pending pertaining to
our products. The duration of these patents range from 11 to 18 years. The
expiration of any individual patent would not have a significant negative impact
on our business. We regard certain manufacturing processes and designs to be
proprietary and attempt to protect them through employee and third-party
nondisclosure agreements and similar means. It may be possible for unauthorized
third parties to copy certain portions of our products or to reverse engineer or
otherwise obtain and use, to our detriment, information that we regard as
proprietary. Moreover, the laws of some foreign countries do not afford the same
protection to our proprietary rights as do United States laws. There can be no
assurance that legal protections relied upon by the Company to protect our
proprietary position will be adequate or that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technologies.

     During 2004, we signed a cross licensing agreement with Seiko Epson. Under
the agreement, Seiko Epson received a license to three of our patents, and we
received a license to eighteen of Seiko Epson's patents relating to printing
applications for the point of sale and banking markets. In addition, we agreed
to pay $900,000 as a royalty for the usage of certain Seiko Epson technology
prior to January 1, 2003, which was paid in full by January 2005. Under the
agreement, we continue to pay royalties on a quarterly basis related to the
sales of licensed printers, which is reflected in cost of sales.

SEASONALITY

     Retailers typically reduce purchases of new POS equipment in the fourth
quarter, due to the increased volume of consumer transactions in that holiday
period, and our sales of printers in the POS market historically have increased
in the third quarter and decreased in the fourth quarter. Similarly,
installations of lottery terminals are typically reduced in the fourth quarter,
resulting in decreased sales of lottery printers.

CERTAIN CUSTOMERS

     We currently have an ongoing OEM purchase agreement, as amended in February
2006, (the "GTECH Thermal Printer Agreement") with GTECH Corporation ("GTECH")
that provides for the sale of thermal on-line lottery printers and spare parts,
at fixed prices, through June 28, 2012. Firm purchase orders for printers under
the GTECH Thermal Printer Agreement may be placed as required by GTECH. Prior to
this agreement, we had a purchase agreement with GTECH that provided for the
sale of impact on-line lottery printers and spare parts through December 31,
2004. Because our new thermal on-line lottery printer is a replacement for our
impact on-line printer, we do not expect any further shipments of impact on-line
lottery printers. However, we do expect to continue to sell spare parts to GTECH
for the remaining installed base of impact on-line lottery printers, although we
expect such sales to decline as the installed base of impact on-line lottery
printers are replaced with our thermal printer.

BACKLOG

     Our backlog of firm orders was approximately $4,300,000 as of February 28,
2007, compared to $8,300,000 as of February 28, 2006. Based on customers'
current delivery requirements, we expect to ship our entire current backlog
during 2007.

COMPETITION

     The market for transaction-based printers is extremely competitive, and we
expect such competition to continue in the future. We compete with a number of
companies, many of which have greater financial, technical and marketing
resources than us. We believe our ability to compete successfully depends on a
number of factors both within and outside our control, including durability,
reliability, quality, design capability, product customization, price, customer
support, success in developing new products, manufacturing expertise and
capacity, supply of component parts and materials, strategic relationships with
suppliers, the timing of new product introductions by us and our competitors,
general market, economic and political conditions and, in some cases, the
uniqueness of our products.

     In the POS and banking market, our major competitor is Epson America, Inc.,
which holds a dominant market position of the POS markets into which we sell. We
also compete, to a much lesser extent, with Transaction Printer Group, Star
Micronics America, Inc., Citizen -- CBM America Corporation, Pertech Resources,
Inc. and Samsung/Bixolon. Certain competitors of ours have greater financial
resources, lower costs attributable to higher volume production and sometimes
offer lower prices than us.

     In the lottery market (consisting principally of on-line lottery
transaction printing), we hold a leading position, based largely on our
long-term purchase agreement with GTECH, which holds approximately 70% market
share of the worldwide on-line lottery market. We compete in this market based
solely on our ability to provide specialized, custom-engineered products to
GTECH.


                                        5

<PAGE>

     In the gaming market (consisting principally of slot machine and video
lottery terminal transaction printing), we compete with several companies
including FutureLogic, Inc., Nanoptix, Inc., Custom Engineering SPA and others.
Certain of our products sold for gaming applications compete based upon our
ability to provide highly specialized products, custom engineering and ongoing
technical support.

     The TransAct Services Group business is highly fragmented, and we compete
with numerous competitors of various sizes depending on the geographic area.

     Our strategy for competing in our markets is to continue to develop new
products and product line extensions, to increase our geographic market
penetration, to take advantage of strategic relationships, and to lower product
costs by sourcing certain products overseas. Although we believe that our
products, operations and relationships provide a competitive foundation, there
can be no assurance that we will compete successfully in the future. In
addition, our products utilize certain inkjet, thermal and impact printing
technology. If other technologies, or variations to existing technologies were
to evolve or become available to us, it is possible that we would incorporate
these technologies into our products. Alternatively, if such technologies were
to evolve or become available to our competitors, our products could become
obsolete, which would have a significant negative impact on our business.

RESEARCH AND DEVELOPMENT ACTIVITIES

     We spent approximately $2,824,000, $2,726,000 and $2,715,000 in 2006, 2005
and 2004, respectively, on engineering, design and product development efforts
in connection with specialized engineering and design to introduce new products
and to customize existing products.

ENVIRONMENT

     We are not aware of any material noncompliance with federal, state and
local provisions that have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment.

EMPLOYEES

     As of February 28, 2007, TransAct and our subsidiaries employed 185
persons, of whom 172 were full-time and 13 were temporary employees. None of our
employees are unionized, and we consider our relationships with our employees to
be good.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

     We have foreign operations primarily from TransAct Technologies Ltd., a
wholly-owned subsidiary located in the United Kingdom, which had sales to its
customers of $2,722,000, $2,181,000, and $1,000,000, (primarily for the service
of printers used in the British Post Office) in 2006, 2005 and 2004,
respectively. We had export sales from our domestic operations of approximately
$11,416,000, $10,137,000 and $5,423,000 in 2006, 2005 and 2004, respectively.
Total international sales, which include sales from our foreign subsidiary and
export sales from our domestic operations, were approximately $14,138,000,
$12,318,000 and $6,423,000 in 2006, 2005 and 2004, respectively.

ADDITIONAL INFORMATION

     We make available free of charge through our internet website,
WWW.TRANSACT-TECH.COM, our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports as soon
as reasonably practicable after such material is electronically filed with or
furnished to the SEC.

     We maintain a Code of Business Conduct that includes our code of ethics
that is applicable to all employees, including our Chief Executive Officer,
Chief Financial Officer and Controller. This Code, which requires continued
observance of high ethical standards such as honesty, integrity and compliance
with the law in the conduct of our business, is available for public access on
our internet website. Any person may request a copy of our Code of Business
Conduct free of charge by calling (203) 859-6800.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following list is included as an unnumbered item in Part I of this
Report in lieu of being included in the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 15, 2007.


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<PAGE>

The following is a list of the names and ages of all executive officers of the
registrant, indicating all positions and offices with the registrant held by
each such person and each person's principal occupations and employment during
at least the past five years.

<TABLE>
<CAPTION>
        Name          Age                               Position
        ----          ---   ----------------------------------------------------------------
<S>                   <C>   <C>
Bart C. Shuldman      49    Chairman of the Board, President and Chief Executive Officer
Steven A. DeMartino   37    Executive Vice President, Chief Financial Officer, Treasurer and
                            Secretary
Michael S. Kumpf      57    Executive Vice President - Engineering
</TABLE>

     BART C. SHULDMAN has been Chief Executive Officer, President and a Director
of the Company since its formation in June 1996. Previously, Mr. Shuldman served
as President of Magnetec and later the combined operations of Magnetec and
Ithaca Peripherals from August 1993 until June 1996. In February 2001, Mr.
Shuldman was elected Chairman of the Board.

     STEVEN A. DEMARTINO was named as TransAct's Executive Vice President, Chief
Financial Officer, Treasurer and Secretary on June 1, 2004. Previously, Mr.
DeMartino served as Senior Vice President, Finance and Information Technology
from October 2001 to May 2004, Vice President and Corporate Controller from
January 1998 to October 2001, and Corporate Controller from August 1996 to
December 1997. Prior to joining TransAct, Mr. DeMartino was a self-employed
financial consultant from May 1996 to August 1996. Prior to that, Mr. DeMartino
served as Controller of Copart, Inc. from September 1994 to May 1996. Mr.
DeMartino is a certified public accountant.

     MICHAEL S. KUMPF was appointed Executive Vice President of Engineering in
March 2002. He served as Senior Vice President, Engineering from June 1996 to
March 2002 and Vice President, Engineering of Ithaca Peripherals from 1991 until
June 1996.

ITEM 1A.   RISK FACTORS

Investors should carefully consider the risks, uncertainties and other factors
described below, as well as other disclosures in Management's Discussion and
Analysis of Financial Condition and Results of Operations, because they could
have a material adverse effect on our business, financial condition, operating
results, and growth prospects. The risks described below and incorporated by
reference are not the only ones facing our Company. Additional risks not known
to us now or that we currently deem immaterial may also impair our business
operations.

Our success will depend on our ability to sustain and manage growth.

As part of our business strategy, we intend to pursue an aggressive growth
strategy. Assuming this growth occurs, it will require the expansion of
distribution relationships in international markets, the successful development
and marketing of new products, expanded customer service and support, an
increased number of personnel throughout the Company and the continued
implementation and improvement of our operational, financial and management
information systems.

To the extent that we seek growth through acquisitions, our ability to manage
our growth will also depend on our ability to integrate businesses that have
previously operated independently. We may not be able to achieve this
integration without encountering difficulties or experiencing the loss of key
employees, customers or suppliers. It may be difficult to design and implement
effective financial controls for combined operations and differences in existing
controls for each business may result in weaknesses that require remediation
when the financial controls and reporting functions are combined.

There can be no assurance that we will be able to successfully implement our
growth strategy, or that we can successfully manage expanded operations. As the
Company expands, we may from time to time experience constraints that will
adversely affect our ability to satisfy customer demand in a timely fashion.
Failure to manage growth effectively could adversely affect our results of
operations and financial condition.

We compete in a highly competitive market, which is likely to become more
competitive. Competitors may be able to respond more quickly to new or emerging
technology and changes in customer requirements.

We face significant competition in developing and selling our printers and
services. Principal competitors have substantial marketing, financial,
development and personnel resources. To remain competitive, we believe we must
continue to provide:

     -    Technologically advanced printers that satisfy the user demands,

     -    Superior customer service,

     -    High levels of quality and reliability, and

     -    Dependable and efficient distribution networks.


                                        7

<PAGE>
We cannot ensure we will be able to compete successfully against current or
future competitors. Increased competition in printers or supplies may result in
price reductions, lower gross profit margins and loss of market share, and could
require increased spending on research and development, sales and marketing and
customer support. Some competitors may make strategic acquisitions or establish
cooperative relationships with suppliers or companies that produce complementary
products. Any of these factors could reduce our earnings.

We have been dependent on sales to one large customer; the loss of this customer
or reduction in orders from this customer could materially affect our sales.

We expect that sales to one large customer will continue to represent a
significant percentage of our net sales for the foreseeable future. A reduction
or delay in orders from this customer, including reductions or delays due to
market, economic, or competitive conditions in the industries in which we serve,
could have a material adverse effect upon our results of operations.

We rely on resellers to sell our products and services.

We use a variety of distribution channels, including OEMs and distributors, to
market our products. We may be adversely impacted by any conflicts that could
arise between and among our various sales channels.

Our dependence upon resellers exposes us to numerous risks, including:

     -    loss of channel and the ability to bring new products to market;

     -    concentration of credit risk, including disruption in distribution
          should the resellers' financial condition deteriorate;

     -    reduced visibility to end user demand and pricing issues which makes
          forecasting more difficult;

     -    resellers leveraging their buying power to change the terms of
          pricing, payment and product delivery schedules; and

     -    direct competition should a reseller decide to manufacture printers
          internally or source printers from a competitor.

We cannot guarantee that resellers will not reduce, delay or eliminate purchases
from us, which could have a material adverse effect upon the business,
consolidated results of operations and financial condition.

Our operating results and financial condition may fluctuate.

Our operating results and financial condition may fluctuate from quarter to
quarter and year to year and are likely to continue to vary due to a number of
factors, many of which are not within our control. If our operating results do
not meet the expectations of securities analysts or investors, who may derive
their expectations by extrapolating data from recent historical operating
results, the market price of our common stock will likely decline. Fluctuations
in our operating results and financial condition may be due to a number of
factors, including, but not limited to, those identified throughout this "Risk
Factors" section:

     -    changes in accounting rules

     -    changes in the amount that we spend to develop, acquire or license new
          products, consumables, technologies or businesses;

     -    changes in the amount we spend to promote our products and services;

     -    changes in the cost of satisfying our warranty obligations and
          servicing our installed base of printers;

     -    delays between our expenditures to develop and market new or enhanced
          printers and consumables and the generation of sales from those
          products;

     -    development of new competitive printers by others;

     -    the geographic distribution of our sales;

     -    our responses to price competition;

     -    the outcome of lawsuits between TransAct and FutureLogic, Inc.

     -    market acceptance of our products, both domestically and
          internationally;

     -    availability of third-party components at reasonable prices;

     -    general economic and industry conditions, including changes in
          interest rates affecting returns on cash balances and investments,
          that affect customer demand;

     -    severe weather events (such as hurricanes) that can disrupt or
          interrupt the operation of our customers facilities; and

     -    our level of research and development activities.

Due to all of the foregoing factors, and the other risks discussed in this
report, quarter-to-quarter comparisons of our operating results may not be an
indicator of future performance.

Our stock price may fluctuate significantly.

                                       8
<PAGE>

The market price of our common stock could fluctuate significantly in response
to variations in quarterly operating results and other factors, such as:

     -    changes in our business, operations or prospects;

     -    developments in our relationships with our customers;

     -    announcements of new products or services by us or by our competitors;

     -    announcement or completion of acquisitions by us or by our
          competitors;

     -    changes in existing or adoption of additional government regulations;

     -    unfavorable or reduced analyst coverage; and

     -    prevailing domestic and international market and economic conditions.

In addition, the stock market has experienced significant price fluctuations in
recent years. Broad market fluctuations, general economic conditions and
specific conditions in the industry in which we operate may adversely affect the
market price of our common stock.

Limited trading volume of our capital stock may contribute to its price
volatility.

Our common stock is traded on the NASDAQ National Market. During the twelve
months ended December 31, 2006, the average daily trading volume for our common
stock as reported by the NASDAQ National Market was approximately 53,900 shares.
We are uncertain whether a more active trading market in our common stock will
develop. In addition, many investment banks no longer find it profitable to
provide securities research on micro-cap and small-cap companies. If analysts
were to discontinue coverage of our common stock, our trading volume may be
further reduced. As a result, relatively small trades may have a significant
impact on the market price of our common stock, which could increase the
volatility and depress the price of our common stock.

Future sales of our common stock may cause our stock price to decline.

In the future, we may sell additional shares of our common stock in public or
private offerings, and we may also issue additional shares of our common stock
to finance future acquisitions. Shares of our common stock are also available
for future sale pursuant to stock options that we have granted to our employees,
and in the future we may grant additional stock options and other forms of
equity compensation to our employees. Sales of our common stock or the
perception that such sales could occur may adversely affect prevailing market
prices for shares of our common stock and could impair our ability to raise
capital through future offerings.

We depend on key personnel, the loss of which could materially impact our
business.

Our future success will depend in significant part upon the continued service of
certain key management and other personnel and our continuing ability to attract
and retain highly qualified managerial, technical and sales and marketing
personnel. There can be no assurance that we will be able to recruit and retain
such personnel. The loss of Bart C. Shuldman, the Company's Chairman of the
Board, President and Chief Executive Officer, or the loss of certain groups of
key employees, could have a material adverse effect on our results of
operations.

We source some of our component parts from sole source suppliers; any
disruptions may impact our ability to manufacture and sell our products.

A disruption in the supply of such component parts could have a material adverse
effect on our operations and financial results.

The inability to protect intellectual property could harm our reputation, and
our competitive position may be materially damaged.

Our intellectual property is valuable and provides us with certain competitive
advantages. Copyrights, patents, trade secrets and contracts are used to protect
these proprietary rights. Despite these precautions, it may be possible for
third parties to copy aspects of our products or, without authorization, to
obtain and use information which we regard as trade secrets.

Infringement on the proprietary rights of others could put us at a competitive
disadvantage, and any related litigation could be time consuming and costly.

Third parties may claim that we violated their intellectual property rights. To
the extent of a violation of a third party's patent or other intellectual
property right, we may be prevented from operating our business as planned and
may be required to pay damages, to obtain a license, if available, or to use a
non-infringing method, if possible, to accomplish our objectives. Any of these
claims, with or without merit, could result in costly litigation and divert the
attention of key personnel. If such claims are successful, they could result in
costly judgments or settlements.

We sell a significant portion of our products internationally and purchase
important components from foreign suppliers. These circumstances create a number
of risks.


                                        9

<PAGE>

We sell a significant amount of our products to customers outside the United
States. Shipments to international customers are expected to continue to account
for a material portion of net sales. Risks associated with sales and purchases
outside the United States include:

     -    Fluctuating foreign currency rates could restrict sales, or increase
          costs of purchasing, in foreign countries.

     -    Foreign governments may impose burdensome tariffs, quotas, taxes,
          trade barriers or capital flow restrictions.

     -    Political and economic instability may reduce demand for our products
          or put our foreign assets at risk.

     -    Restrictions on the export or import of technology may reduce or
          eliminate the ability to sell in or purchase from certain markets.

     -    Potentially limited intellectual property protection in certain
          countries, such as China, may limit recourse against infringing
          products or cause us to refrain from selling in certain geographic
          territories.

We cannot provide any assurance that current laws, or any laws enacted in the
future, will not have a material adverse effect on our business.

Our operations are subject to laws, rules, regulations, including environmental
regulations, government policies and other requirements in each of the
jurisdictions in which we conduct business. Changes in laws, rules, regulations,
policies or requirements could result in the need to modify our products and
could affect the demand for our products, which may have an adverse impact on
our future operating results. In addition, we must comply with new regulations
restricting our ability to include lead and certain other substances in our
products. If we do not comply with applicable laws, rules and regulations we
could be subject to costs and liabilities and our business may be adversely
impacted.

Our business could be adversely affected by actual or threatened terrorist
attacks or the related heightened security measures, military actions and other
efforts to combat terrorism.

Our business could be adversely affected by actual or threatened terrorist
attacks or the related heightened security measures, military actions and other
efforts to combat terrorism. It is possible that terrorist attacks could be
directed at important locations for the gaming industry. Heightened security
measures and other efforts to combat terrorism may also have an adverse effect
on the gaming industry by reducing tourism. Any of these developments could also
negatively affect the general economy and consumer confidence. Any downturn in
the economy or in the gaming industry in particular could reduce demand for our
products and adversely affect our business and results of operations. In
addition, heightened security measures may cause certain governments to restrict
the import/export of goods, which may have an adverse effect on our ability to
buy/sell goods.

     Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial also may adversely impact our business.
Should any risks or uncertainties develop into actual events, these developments
could have material adverse effects on our business, financial condition, and
results of operations.

     We assume no obligation (and specifically disclaim any such obligation) to
update these Risk Factors or any other forward-looking statements contained in
this Annual Report to reflect actual results, changes in assumptions or other
factors affecting such forward-looking statements, except as required by law.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not applicable.

ITEM 2. PROPERTIES.

     Our corporate headquarters is currently located in Wallingford, CT.
However, in November 2006, we entered into a ten-year lease for office space for
a new, approximately 11,000 square feet corporate headquarters located in
Hamden, CT. We expect to move into our corporate headquarters on approximately
May 1, 2007. Concurrent with the signing of this new lease, we executed an
agreement effective May 1, 2007 to terminate the lease agreement for our
existing corporate headquarters and eastern region service center located in
Wallingford, CT (the "Release Agreement"). Our global engineering and
manufacturing center is located in Ithaca, NY. We also maintain a facility in
Las Vegas, NV that serves as our global gaming and lottery headquarters and
western region service center. Our eastern region service center is currently
located in our Wallingford, CT facility, however, we are currently in
negotiations for a new facility location.

     Our principal facilities as of December 31, 2006 are listed below:

<TABLE>
<CAPTION>
                                                                           Size         Owned or   Lease Expiration
Location                    Operations Conducted                    (Approx. Sq. Ft.)    Leased           Date
--------                    --------------------                    -----------------   --------   ----------------
<S>                         <C>                                     <C>                 <C>        <C>
Wallingford, Connecticut    Executive offices and service center          49,000         Leased       May 1, 2007
</TABLE>


                                       10

<PAGE>

<TABLE>
<S>                         <C>                                     <C>                <C>        <C>
Hamden, Connecticut         Executive offices                             11,000         Leased     April 23, 2017

Ithaca, New York            Manufacturing facility                        74,000         Leased      June 30, 2012

Las Vegas, Nevada           Service center and gaming and lottery         13,700         Leased    January 31, 2010
                            sales headquarters

Doncaster, United Kingdom   Sales office and service center                2,800         Leased     August 1, 2009

Georgia (2), New York and
Texas                       Four regional sales offices                      600         Leased         Various
</TABLE>

     We believe that our facilities generally are in good condition, adequately
maintained and suitable for their present and currently contemplated uses.

ITEM 3.    LEGAL PROCEEDINGS.

     On April 28, 2005, we announced that we filed a complaint in Connecticut
Superior Court against FutureLogic, Inc. ("FutureLogic") of Glendale,
California. The complaint charges FutureLogic with disseminating false and
misleading statements, which impugn our business reputation with the intent of
damaging our business. We assert claims of defamation, tortious interference
with contractual relations, tortious interference with business expectancy, and
violation of the Connecticut Unfair Trade Practices Act, and seek an award of
compensatory and punitive damages, attorneys' fees and costs. FutureLogic
removed this action to the United States District Court for the District of
Connecticut and, on June 7, 2005, filed a motion to dismiss the claims for lack
of jurisdiction. On December 7, 2005, we amended our complaint in the action
pending in the District of Connecticut to add claims that FutureLogic's conduct
violated the Lanham Act's bar on false and deceptive advertising.

     On May 20, 2005, FutureLogic filed a complaint in the United States
District Court for the Central District of California against us. The complaint
charges us with false advertising, defamation, trade libel, intentional
interference with prospective economic advantage, common law unfair competition
and statutory unfair competition and seeks an award of compensatory and punitive
damages, attorneys' fees and costs. On August 3, 2005, FutureLogic amended its
complaint in California to seek a declaratory judgment that Patent No. 6,924,903
issued to us by the United States Patent and Trademark Office ("PTO") on August
2, 2005, for our dual-port printer technology, is invalid, and that FutureLogic
is not infringing our patent. We moved to dismiss FutureLogic's action in
California, on the grounds that any claims raised in that action should have
been brought as part of the case filed by us in the District of Connecticut. In
the alternative, we moved to stay the California action pending the resolution
of jurisdictional motions in the Connecticut court.

     On January 20, 2006, the California District Court filed an order granting
our motion to stay the California proceeding pending the resolution of
jurisdictional motions in the Connecticut case. Under the California court's
order, should the Connecticut court find that it has jurisdiction over
FutureLogic, FutureLogic's case will be transferred to the District of
Connecticut for consolidation with the action pending in that forum. On
September 1, 2006, the District of Connecticut dismissed our case because of a
lack of jurisdiction. The decision was not on the merits of our claims, but on
the jurisdiction of the court in which the suit was brought. The California
District Court has been notified of this development. We intend to vigorously
defend TransAct against FutureLogic's claims, which we believe to be without
merit. At this stage in the proceedings we are unable to estimate any potential
or probable liability.

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

     No matters were submitted to a vote of security holders during the last
quarter of the year covered by this report.


                                       11
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.

     Our common stock is traded on the NASDAQ Global Market under the symbol
TACT. As of February 28, 2007, there were 624 holders of record of the common
stock. The high and low sales prices of the common stock reported during each
quarter of the years ended December 31, 2006 and 2005 were as follows:

<TABLE>
<CAPTION>
                     Year Ended          Year Ended
                 December 31, 2006   December 31, 2005
                 -----------------   -----------------
                    High     Low        High     Low
                   ------   -----      ------   -----
<S>              <C>        <C>      <C>        <C>
First Quarter      $ 9.90   $7.80      $22.19   $9.90
Second Quarter      14.87    8.95       10.65    6.71
Third Quarter       11.23    8.49       10.35    6.95
Fourth Quarter       9.38    7.47        8.70    6.09
</TABLE>

     No dividends on common stock have been declared except for a cash dividend
paid in lieu of fractional shares resulting from our three-for-two stock split
in April 2004, and we do not anticipate declaring dividends in the foreseeable
future. Our new credit agreement with TD Banknorth, N.A. restricts the payment
of cash dividends on our common stock for the term of the agreement.

ISSUER PURCHASES OF EQUITY SECURITIES

On March 25, 2005, the Board of Directors approved a stock repurchase program
("the Stock Repurchase Program"). Under the Stock Repurchase Program, we are
authorized to repurchase up to $10 million of our outstanding shares of common
stock from time to time in the open market over a three year period ending on
March 25, 2008, depending on market conditions, share price and other factors.

The following table summarizes repurchases of our common stock in the quarter
ended December 31, 2006:

<TABLE>
<CAPTION>
                                                              Total Number of
                                                                   Shares
                                                                Purchased as     Approximate Dollar
                                                                  Part of             Value of
                                         Total      Average       Publicly      Shares that May Yet
                                       Number of     Price       Announced               Be
                                         Shares    Paid per       Plans or      Purchased under the
Period                                 Purchased     Share        Programs       Plans or Programs
------                                 ---------   --------   ---------------   -------------------
<S>                                    <C>         <C>        <C>               <C>
October 1, 2006 - October 31, 2006           --      $  --             --            $5,281,000
November 1, 2006 - November 30, 2006    126,000      $8.81        126,000            $4,170,000
December 1, 2006 - December 31, 2006     78,000      $8.49         78,000            $3,508,000
                                        -------                   -------
Total                                   204,000      $8.69        204,000
                                        =======                   =======
</TABLE>


                                       12

<PAGE>

CORPORATE PERFORMANCE GRAPH

The following graph compares the cumulative total return on the Company's Common
Stock from December 31, 2001 through December 31, 2006, with the CRSP Total
Return Index for the Nasdaq Stock Market (U.S.) and the Nasdaq Computer
Manufacturer Stocks Index. The graph assumes that $100 was invested on December
31, 2001 in each of the Company's common stock, the CRSP Total Return Index for
the Nasdaq Stock Market (U.S.) and the Nasdaq Computer Manufacturer Stocks
Index, and that all dividends were reinvested.

                   COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
                TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK,
         THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (U.S.),
                AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX

                               (PERFORMANCE GRAPH)

<TABLE>
<CAPTION>
                                     12/31/01   12/31/02   12/31/03   12/31/04   12/31/05   12/31/06
                                     --------   --------   --------   --------   --------   --------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>
TransAct Technologies Incorporated
   Common Stock                       $100.00    $86.18     $442.73    $582.55    $215.45    $226.36
CRSP Total Return Index for the
   Nasdaq Stock Market (U.S.)         $100.00    $69.13     $103.36    $112.49    $114.88    $126.23
Nasdaq Computer Manufacturer
   Stocks Index                       $100.00    $66.27     $ 92.18    $120.53    $123.33    $126.30
</TABLE>


                                       13

<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

The following is summarized from our audited financial statements of the past
five years:

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                  -----------------------------------------------
                                    2006      2005      2004    2003(1)   2002(1)
                                  -------   -------   -------   -------   -------
<S>                               <C>       <C>       <C>       <C>       <C>
Consolidated Statement of
   Operations Data:
   Net sales                      $64,328   $51,091   $59,847   $52,098   $39,461
   Gross profit                    22,365    15,590    22,042    15,543    10,216
   Operating expenses              16,277    15,366    13,591    12,855    11,200
   Operating income (loss)          6,088       224     8,451     2,688      (984)
   Net income (loss)                3,916       377     5,458     1,528      (692)
   Net income (loss) available
      to common shareholders        3,916       377     5,236     1,087    (1,050)
   Net income (loss) per share:
      Basic                          0.41      0.04      0.55      0.13     (0.12)
      Diluted                        0.40      0.04      0.51      0.12     (0.12)
</TABLE>

<TABLE>
<CAPTION>
                                                    December 31,
                                  -----------------------------------------------
                                    2006      2005      2004      2003      2002
                                  -------   -------   -------   -------   -------
<S>                               <C>       <C>       <C>       <C>       <C>
Balance Sheet Data:
   Total assets                   $33,706   $29,332   $34,099   $26,361   $22,030
   Working capital                 16,438    15,375    20,511    11,787     8,798
   Long-term debt, excluding
      current portion                  --        --        --       330     2,791
   Redeemable convertible
      preferred stock                  --        --        --     3,902     3,824
   Shareholders' equity            24,290    21,257    23,715    10,347     6,545
</TABLE>

(1)  Net income (loss) per share amounts have been restated to reflect a
     three-for-two stock split effected in the form of a stock dividend in April
     2004.


                                       14
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     This discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto.

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 this
Annual Report. 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 to
reflect new, changing or unanticipated events or circumstances.

OVERVIEW

     The year 2006 was a successful and much improved year for TransAct as
compared to 2005. During 2006, we marked our tenth year as a publicly traded
company by achieving a record level of sales. We also shipped a record 186,000
printers during 2006, led by our top-selling Epic 950(R) casino printer. In
addition to our financial success, some of our other key accomplishments for
2006 include the following:

     -    Extending our sales contract through 2012 with GTECH for the purchase
          of our lottery printers

     -    Extending our strategic sales alliance through 2009 with Eurocoin, one
          of Europe's leading suppliers of products for the amusement and gaming
          industries, to sell our gaming and casino printers in Europe and
          Africa

     -    Receiving three new patents, including another key patent in
          connection with dual port technology

     -    Partnering with Merley Paper Converters Ltd., the U.K.'s largest
          independent manufacturer of receipt paper rolls, for exclusive U.S.
          distribution rights for thermal receipt paper that has true full color
          images printed on the front or back under our newly-created
          POWEROLL(TM) brand

     -    Signing an agreement with a leading national office supply chain to
          supply inkjet cartridges with an expected annual sales value of $1.4
          million

     We continue to focus on sales growth in our two core markets, POS and
banking and gaming and lottery, and in our TransAct Services Group, to drive
increased profitability. During 2006, our total net sales increased by 26% to
approximately $64,328,000. See the table below for a breakdown of our sales by
market.

<TABLE>
<CAPTION>
                                                                      Change
                              Year ended          Year ended      --------------
(In thousands)            December 31, 2006   December 31, 2005      $        %
                          -----------------   -----------------   -------   ----
<S>                       <C>        <C>      <C>        <C>      <C>       <C>
POS and banking            $16,858    26.2%    $16,410    32.1%   $   448    2.7%
Gaming and lottery          34,677    53.9%     23,634    46.3%    11,043   46.7%
TransAct Services Group     12,793    19.9%     11,047    21.6%     1,746   15.8%
                           -------   -----     -------   -----    -------
   Total net sales         $64,328   100.0%    $51,091   100.0%   $13,237   25.9%
                           =======   =====     =======   =====    =======
</TABLE>

     We experienced an increase of approximately 3% in sales of POS and banking
printers in 2006. Although we experienced increases in sales of our line of
thermal printers and our Bankjet(R) printers to existing banking customers,
these increases were largely offset by lower sales of our legacy line of POS
impact printers, as these printers are being replaced by our newer thermal and
inkjet printers. Our sales into the POS and banking market over the last several
years have been impacted by a market shift in technology from impact printing to
thermal and inkjet printing. This change in technology has resulted in declining
sales of our impact printers that were at higher average selling prices and
increasing sales of our thermal and inkjet printers that are at lower average
selling prices. Although our unit sales volume has increased over the last
several years, the revenue generated from those sales have not increased to the
same extent due to lower average selling prices of thermal and inkjet printers
as compared to impact printers. In fact, since 1996, unit sales of all of our
printers, including POS and banking printers, have more than doubled, while
average selling prices of these printers have declined by approximately 38%. We
expect sales of legacy impact printers to continue to decline. In 2007, we plan
to focus a substantial portion of our engineering and product development
resources on continuing to expand our portfolio of POS printers. With the global
POS printer market of approximately $800 million, we have many opportunities for
market share gains, primarily through increasing and enhancing our product
portfolio, increasing geographic coverage, and growing our customer base.

     Our focus in the gaming and lottery market is two-fold. On the lottery
side, we continue to hold a leading position based on our long-term purchase
agreement with GTECH Corporation ("GTECH"), our largest customer and the world's


                                       15

<PAGE>


largest provider of lottery terminals, with approximately a 70% market share.
GTECH has been our customer since 1995, and we continue to maintain a good
relationship with them. In fact, during 2006, we extended our contract with
GTECH through 2012. Currently, we fulfill substantially all of GTECH's printer
requirements for lottery terminal installations and upgrades worldwide. During
2006, we experienced solid sales growth from GTECH, with total printer sales
increasing by approximately $4,499,000, or 65%, compared to 2005. However, our
sales to GTECH each year are directly dependent on the timing and number of new
and upgraded lottery terminal installations GTECH performs. Our sales to GTECH
are not indicative of GTECH's overall business or revenue.

     On the gaming side, our focus lies primarily in supplying printers for use
in slot machines at casinos and racetracks, as well as in other gaming devices
that print tickets, primarily in the United States, Europe and Australia, as
well as in the emerging Asian market, including Macau. During 2006, our domestic
gaming printer sales increased by 42% from 2005, as we gained market share in
the U.S. casino market due to (1) our strategic alliance agreement with JCM
American Corporation, the worldwide leading bill acceptor company, to sell our
casino printers, (2) increased sales to IGT, the world's largest slot machine
manufacturer, and (3) expanded acceptance of our new Epic 950(R) thermal casino
printer. With the success of our Epic 950(R) thermal casino printer, and our
expanding portfolio of patented technology on this printer, including dual port
technology, we believe we are well positioned to continue to expand our market
share in the North American slot machine market, which now stands at over
850,000 slot machines. In the international gaming market, we experienced our
third consecutive record sales year in 2006, as our international gaming sales
increased by 34% to $8.4 million, largely due to sales growth from the
Australian market. We expect continued strength from gaming sales
internationally during 2007, as markets such as Europe, Australia and Asia
(including Macau) continue to adopt and/or expand ticket printing for slot
machines and other gaming machines, and as our new line of Epic printers
launched in 2005 for the off-premise gaming market begin to take hold.

     Our TransAct Services Group ("TSG"), which sells service, replacement parts
and consumable products, including receipt paper, ribbons and inkjet cartridges,
continues to offer a substantial growth opportunity and recurring revenue stream
for TransAct. Even with declining sales of replacement parts for legacy impact
printers as the installed base of these printers in the market declines, TSG
revenue reached a record $12,793,000 or 20% of net sales in 2006, representing
an increase of 16% from 2005. During 2006, our sales benefited from increased
sales from our maintenance services, including extended warranty contracts and
our innovative 24-hour guaranteed replacement product service called TransAct
Xpress(SM). In addition, our sales benefited from higher inkjet cartridge sales
including incremental sales resulting from the signing of an agreement with a
leading national office supply chain to supply inkjet cartridges. During 2006,
we also partnered with Merley Paper Converters Ltd., the U.K.'s largest
independent manufacturer of receipt paper rolls, to distribute exclusively in
the U.S. specialized thermal receipt paper that will have true full color images
printed on the front or back. This receipt paper, that we will market under our
newly-created POWEROLL(TM) brand, will allow users the ability to leverage the
receipt for branding and marketing purposes, while also helping to reduce copied
receipt fraud. We remain focused on continuing to grow the lucrative TSG in 2007
and expect these initiatives to contribute to our growth.

     Operationally, our gross margin and operating margin showed marked
improvement during 2006, reflecting the investment we made in the growth
elements of our business during 2005. During 2006, our gross margin improved to
34.8% compared to 30.5% in 2005, and our operating margin also improved to 9.5%
compared to just 0.4% in 2005.

     Overall, we reported net income of $3.9 million and earnings per share
(diluted) of $0.40 per share for 2006. We also generated sufficient cash during
2006 to fund $2.9 million of capital expenditures, repurchase $2.6 million of
our common stock (approximately 3% of our common stock outstanding) and finish
the year with $3.4 million of cash and no debt on our balance sheet as of
December 31, 2006.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared by us in accordance with accounting principles generally accepted in
the United States of America. These principles require the use of estimates,
judgments and assumptions. Such estimates and judgments are based upon
historical experience and certain assumptions that are believed to be reasonable
in the particular circumstances. Those judgments affect both balance sheet items
and income statement categories. Our estimates include those related to revenue
recognition, allowance for doubtful accounts, inventory obsolescence, the
valuation of deferred tax assets and liabilities, goodwill impairment, warranty
obligations, restructuring accruals, share-based compensation and contingent
liabilities. We evaluate our assumptions on an ongoing basis by comparing actual
results with our estimates. Actual results may differ from the original
estimates. The following accounting policies are those that we believe to be
most critical in the preparation of our financial statements.


                                       16

<PAGE>

     REVENUE RECOGNITION - Our typical contracts include the sale of printers,
which are sometimes accompanied by separately-priced extended warranty
contracts. We also sell spare parts, consumables, and other repair services
(sometimes pursuant to multi-year product maintenance contracts), which are not
included in the original printer sale and are ordered by the customer as needed.
We recognize revenue pursuant to the guidance within SAB 104, "Revenue
Recognition." Specifically, revenue is recognized when evidence of an
arrangement exists, delivery (based on shipping terms which are generally FOB
shipping point) has occurred, the selling price is fixed and determinable, and
collectibility is reasonably assured. We provide for an estimate of product
returns and price protection based on historical experience at the time of
revenue recognition.

     Revenue related to extended warranty and product maintenance contracts is
recognized pursuant to FASB Technical Bulletin 90-1 ("FTB 90-1"), "Accounting
for Separately Priced Extended Warranty and Product Maintenance Contracts."
Pursuant to FTB 90-1, revenue related to separately priced product maintenance
contracts is deferred and recognized over the term of the maintenance period. We
record deferred revenue for amounts received from customers for maintenance
contracts prior to the maintenance period.

     Our customers have the right to return products that do not function
properly within a limited time after delivery. We monitor and track product
returns and record a provision for the estimated future returns based on
historical experience. Returns have historically been within expectations and
the provisions established, but we cannot guarantee that we will continue to
experience return rates consistent with historical patterns.

     We offer some of our customer's price protection as an incentive to carry
inventory of our product. These price protection plans provide that if we lower
prices, we will credit them for the price decrease on inventory they hold. Our
customers typically carry limited amounts of inventory, and we infrequently
lower prices on current products. As a result, the amounts paid under these
plans have not been material. However, we cannot guarantee that this minimal
level will continue.

     We charge our customers for shipping and handling services. The amounts
billed to customers are recorded as revenue when the product ships. Any costs
incurred related to these services are included in cost of sales.

     ACCOUNTS RECEIVABLE - We have standardized credit granting and review
policies and procedures for all customer accounts, including: credit reviews of
all new customer accounts; ongoing credit evaluations of current customers;
credit limits and payment terms based on available credit information; and
adjustments to credit limits based upon payment history and the customer's
current creditworthiness. We also provide an estimate of doubtful accounts based
on historical experience and specific customer collection issues. Our allowance
for doubtful accounts as of December 31, 2006 was $204,000, or 1.8% of
outstanding accounts receivable, which we feel is appropriate considering the
overall quality of our accounts receivable. While credit losses have
historically been within expectations and the reserves established, we cannot
guarantee that our credit loss experience will continue to be consistent with
historical experience. As of December 31, 2006, we had accounts receivable
balances due from three customers of approximately 14%, 14% and 10%,
respectively, of the total balance due, and no other customer accounts
receivable balance exceeded 10%. As of December 31, 2005, we had accounts
receivable balances due from one customer of 19% of the total balance due, and
no other customer accounts receivable balance exceeded 10%.

     INVENTORY - Our inventories are valued at the lower of cost or market. We
assess market value based on historical usage and estimates of future demand.
Assumptions are reviewed at least quarterly and adjustments are made, as
necessary, to reflect changing market conditions. Should circumstances change
and we determine that additional inventory is subject to obsolescence,
additional write-downs of inventory could result in a charge to income. As of
December 31, 2006, our net inventory included a reserve of $1,900,000, or 20.1%
of gross inventory, to write inventory down to lower of cost or market.

     GOODWILL - We test the impairment of goodwill each year or more frequently
if events or changes in circumstances indicate that the carrying value may not
be recoverable. We completed our last assessment as of December 31, 2006.
Factors considered that may trigger an impairment review are: significant
underperformance relative to expected historical or projected future operating
results; significant changes in the manner of use of acquired assets or the
strategy for the overall business; significant negative industry or economic
trends; and significant decline in market capitalization relative to net book
value. Goodwill amounted to $1,469,000 at December 31, 2006 and we have
determined that no goodwill impairment has occurred.

     INCOME TAXES - In preparing our consolidated financial statements, we are
required to estimate income taxes in each of the jurisdictions in which we
operate. This involves estimating the actual current tax exposure together with
assessing temporary differences between the tax basis of certain assets and
liabilities and their reported amounts in the financial statements, as well as
net operating losses, tax credits and other carryforwards. These differences
result in deferred tax assets


                                       17

<PAGE>

and liabilities, which are included within our consolidated balance sheets. We
then assess the likelihood that the deferred tax assets will be realized from
future taxable income, and to the extent that we believe that realization is not
likely, we establish a valuation allowance.

     Significant judgment is required in determining the provision for income
taxes and, in particular, any valuation allowance or tax reserves with respect
to our deferred tax assets and uncertain tax positions. On a quarterly basis, we
evaluate the recoverability of our deferred tax assets based upon historical
results and forecasted taxable income over future years, and match this forecast
against the basis differences, deductions available in future years and the
limitations allowed for net operating loss and tax credit carryforwards to
ensure that there is adequate support for the realization of the deferred tax
assets. While we have considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation allowance
or tax reserve, in the event we were to determine that we would not be able to
realize all or part of our deferred tax assets in the future, an adjustment to
the valuation allowance or tax reserves would be charged as a reduction to
income in the period such determination was made. Likewise, should we determine
that we would be able to realize future deferred tax assets in excess of its net
recorded amount, an adjustment to the valuation allowance or tax reserves would
increase net income in the period such determination was made.

     In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes", which will be effective the first quarter of 2007. Based on the
"more-likely-than-not" standard under FIN 48, we expect that this guidance may
impact the Company's recognition of tax benefits related to uncertain tax
positions. However, the Company has not yet finalized its assessment of FIN 48.

     As of December 31, 2006, we recorded a net deferred tax asset of
approximately $2,709,000, net of a valuation allowance of $64,000, and a tax
reserve of $333,000, primarily on portions of certain tax credits. We will need
to recognize approximately $6.8 million in future taxable income in order to
realize all of our deferred tax assets at December 31, 2006. Based on our
projection of future taxable income, no additional valuation allowance is
considered necessary. Should circumstances change and we determine that some or
all of the deferred taxes would not be realized, a valuation allowance would be
recorded, resulting in a charge to income in the period such determination is
made.

     RESTRUCTURING - In February 2001, we announced plans to establish a global
engineering and manufacturing center at our Ithaca, NY facility. As part of this
strategic decision, we undertook a plan to consolidate all manufacturing and
engineering into our existing Ithaca, NY facility and close our Wallingford, CT
manufacturing facility (the "Consolidation"). As of December 31, 2001, we
successfully transferred substantially all our Wallingford operations to Ithaca,
NY, with the exception of our Corporate headquarters and a service center that
remains in Connecticut. The closing of the Wallingford manufacturing facility
resulted in the related termination of employment of approximately 70
production, administrative and management employees.

     In connection with the Consolidation of manufacturing facilities in 2001,
we recorded significant accruals. Through December 31, 2006, we have recognized
approximately $5.5 million of expenses associated with the Consolidation,
including severance pay, stay bonuses, employee benefits, moving expenses,
non-cancelable lease payments, and other costs. Management has made reasonable
estimates of such costs and expenses. During November 2006, we executed an
agreement, effective May 1, 2007, to terminate the lease agreement for our
Wallingford, CT facility. As a result, we changed our estimate of the
restructuring accrual and reversed approximately $479,000 of restructuring
expenses in 2006. We do not expect to incur any additional restructuring
expenses related to the Consolidation.

     WARRANTY - We generally warrant our products for up to 24 months and record
the estimated cost of such product warranties at the time the sale is recorded.
Estimated warranty costs are based upon actual past experience of product
repairs and the related estimated cost of labor and material to make the
necessary repairs. If actual future product repair rates or the actual costs of
material and labor differ from the estimates, adjustments to the accrued
warranty liability and related warranty expense would be made.

     CONTINGENCIES - We record an estimated liability related to contingencies
based on our estimates of the probable outcomes pursuant to FAS 5. On a
quarterly basis, we assess the potential liability related to pending
litigation, audits and other contingencies and confirm or revise estimates and
reserves as appropriate. If the actual liabilities are settled in an amount
greater than those recorded on the balance sheet, a change to income would be
recorded.

     SHARE-BASED COMPENSATION - We calculate share-based compensation expense in
accordance with SFAS 123(R), "Share-Based Payment (as amended)" using the
Black-Scholes option-pricing model to calculate the fair value of share-based
awards. The key assumptions for this valuation method include the expected term
of an option grant, and the stock price volatility, risk-free interest rate,
dividend yield, and forfeiture rate. The determination of these assumptions is
based on


                                       18

<PAGE>

past history and future expectations, and is subject to a high level of
judgment. To the extent any of the assumptions were to change from year to year,
the fair value of new option grants may vary significantly.

     (A)  RESULTS OF OPERATIONS

     (I) YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005

     NET SALES. Net sales, which include printer sales and sales of spare parts,
consumables and repair services, by market for the years ended December 31, 2006
and 2005 were as follows:

<TABLE>
<CAPTION>
                                                                        Change
                                Year ended          Year ended      --------------
(In thousands)              December 31, 2006   December 31, 2005      $        %
                            -----------------   -----------------   -------   ----
<S>                         <C>        <C>      <C>        <C>      <C>       <C>
Point of sale and banking    $16,858    26.2%    $16,410    32.1%   $   448    2.7%
Gaming and lottery            34,677    53.9%     23,634    46.3%    11,043   46.7%
TransAct Services Group       12,793    19.9%     11,047    21.6%     1,746   15.8%
                             -------   -----     -------   -----    -------
                             $64,328   100.0%    $51,091   100.0%   $13,237   25.9%
                             =======   =====     =======   =====    =======
International*               $14,138    22.0%    $12,318    24.1%   $ 1,820   14.8%
                             =======   =====     =======   =====    =======
</TABLE>

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

     Net sales for 2006 increased $13,237,000, or 26%, from 2005 due to
significantly higher printer shipments into our gaming and lottery market, as
well as increased sales from our TransAct Services Group and a slight increase
in printer shipments into our POS and banking market. Overall, international
sales increased by $1,820,000, or 15%, due largely to higher international
shipments of our gaming printers, primarily to Australia, somewhat offset by
lower POS printer shipments through our international distributors.

     Point of sale and banking: Revenue from the POS and banking market includes
sales of inkjet, thermal and impact printers used primarily by retailers in the
hospitality, restaurant (including fine dining, casual dining and fast food) and
specialty retail industries to print receipts for consumers, validate checks, or
print on other inserted media. Revenue from this market also includes sales of
printers used by banks, credit unions and other financial institutions to print
and/or validate receipts at bank teller stations. Sales of our POS and banking
printers worldwide increased approximately $448,000, or 3%, from 2005.

<TABLE>
<CAPTION>
                                                             Change
                     Year ended         Year ended       --------------
(In thousands)   December 31, 2006   December 31, 2005      $       %
--------------   -----------------   -----------------   ------   -----
<S>              <C>        <C>      <C>        <C>      <C>      <C>
Domestic          $15,410    91.4%    $14,188    86.5%   $1,222     8.6%
International       1,448     8.6%      2,222    13.5%     (774)  (34.8%)
                  -------   -----     -------   -----    ------
                  $16,858   100.0%    $16,410   100.0%   $  448     2.7%
                  =======   =====     =======   =====    ======
</TABLE>

Domestic POS and banking printer sales increased to $15,410,000, representing a
$1,222,000, or 9%, increase from 2005, due primarily to higher sales of (1) our
line of thermal printers including our new thermal printer launched in 2005
exclusively for POS distributors and (2) our Bankjet(R) line of inkjet printers
to existing banking customers. Although we are currently pursuing additional
banking opportunities, due to the project-oriented nature of these sales, we
cannot predict if and when future sales may occur. These increases were offset
by lower sales of our legacy line of POS impact printers, as expected, as these
printers are being replaced by our newer thermal and inkjet printers. Our sales
into the POS and banking market over the last several years have been impacted
by a shift in technology in the market from impact printing technology to
thermal and inkjet printing technology. This change in technology has resulted
in declining sales of our impact printers that were at higher average selling
prices and increasing sales of our thermal and inkjet printers that are at lower
average selling prices. And, although our unit sales volume has increased over
the last several years, the revenue generated from those sales have not
increased to the same extent due to lower average selling prices of thermal and
inkjet printers as compared to impact printers.

     International POS and banking printer sales decreased by approximately
$774,000, or 35%, due primarily to lower sales of our legacy impact printers to
our international POS distributors in Europe and Latin America, somewhat offset
by higher sales of our iTHERM(R) 280 thermal printer to our distributors in
Latin America.


                                       19

<PAGE>

     Gaming and lottery: Revenue from the gaming and lottery market includes
sales of printers used in slot machines, video lottery terminals ("VLTs") and
other gaming machines that print tickets instead of issuing coins ("ticket-in,
ticket-out" or "TITO") at casinos, racetracks ("racinos") and other gaming
venues worldwide. Revenue from this market also includes sales of lottery
printers to GTECH, the world's largest provider of lottery terminals, for
various lottery applications. Sales of our gaming and lottery printers increased
by $11,043,000, or 47%, from 2005, primarily due to an increase in sales of our
slot machine and other gaming printers, both domestically and internationally,
as well as higher sales of lottery printers to GTECH.

<TABLE>
<CAPTION>
                                                             Change
                     Year ended         Year ended       --------------
(In thousands)   December 31, 2006   December 31, 2005      $        %
                 -----------------   -----------------   -------   ----
<S>              <C>        <C>      <C>        <C>      <C>       <C>
Domestic          $25,198    72.7%    $16,271    68.8%   $ 8,927   54.9%
International       9,479    27.3%      7,363    31.2%     2,116   28.7%
                  -------   -----     -------   -----    -------
                  $34,677   100.0%    $23,634   100.0%   $11,043   46.7%
                  =======   =====     =======   =====    =======
</TABLE>

     Domestic sales of our gaming and lottery printers increased by $8,927,000,
or 55%, from 2005 due largely to a significant increase in both sales of lottery
printers to GTECH and thermal casino printers. Lottery printer sales to GTECH
(excluding any international sales), which include thermal on-line lottery and
other lottery printers, increased by approximately $4,512,000, or 77%, in 2006
compared to 2005. 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 between quarters and years. Our sales to
GTECH are not indicative of GTECH's overall business or revenue.

     Domestic gaming printer sales increased by approximately $4,415,000 driven
primarily by increased market share as we continue to benefit from our sales
relationship with JCM American Corporation.

     International gaming and lottery printer sales increased by approximately
$2,116,000, or 29%, to $9,479,000 in 2006 compared to 2005. Such sales
represented 27% and 31% of total sales into our gaming and lottery market during
2006 and 2005, respectively. This increase was led primarily by continued growth
in international gaming printer sales, primarily in Australia and Asia, as these
international markets continue to expand ticket printing in slot machines and
other gaming machines. In addition, we experienced higher gaming printer sales
in Canada, and slightly lower international lottery printer sales to GTECH.

     TransAct Services Group: Revenue from TSG includes sales of consumable
products (inkjet cartridges, ribbons and receipt paper), replacement parts,
maintenance and repair services, refurbished printers and shipping and handling
charges. Sales by TSG increased by approximately $1,746,000, or 16%.

<TABLE>
<CAPTION>
                                                            Change
                     Year ended          Year ended      -------------
(In thousands)   December 31, 2006   December 31, 2005      $       %
--------------   -----------------   -----------------   ------   ----
<S>              <C>        <C>      <C>        <C>      <C>      <C>
Domestic          $ 9,582    74.9%    $ 8,314    75.3%   $1,268   15.3%
International       3,211    25.1%      2,733    24.7%      478   17.5%
                  -------   -----     -------   -----    ------
                  $12,793   100.0%    $11,047   100.0%   $1,746   15.8%
                  =======   =====     =======   =====    ======
</TABLE>

     Domestic TSG revenue increased by approximately $1,268,000 or 15%, to
$9,582,000 due to revenue generated from service contracts, as well as increased
sales of refurbished printers and consumable products. These increases were
somewhat offset by a decline in the sale of replacement parts for certain legacy
impact printers, as the installed base of these legacy printers in the market
declines. International TSG sales increased by approximately $478,000, or 18%,
to $3,211,000, due largely to an increase in maintenance and repair services
revenue, as well as increased sales of consumable products.

     The primary operations of our United Kingdom subsidiary, a European sales
and service center, relates to revenue generated from a service contract from a
single customer in the United Kingdom. The contract has a termination date of
May 2007. We do not expect that such contract will be renewed at the same volume
of activity as the previous contract. We are currently evaluating the impact
that this may have on our financial results.

     GROSS PROFIT. 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. Gross profit increased by $6,775,000, or 43%, to $22,365,000, and
gross margin increased to 34.8% from 30.5% due primarily to a higher volume of
sales and a more favorable sales mix in 2006 compared to 2005, as well as lower
product costs resulting from increased sourcing of components for our printers
in Asia. In addition, gross profit for 2005 was negatively impacted


                                       20
<PAGE>

by a charge of $600,000, or 1.2% of net sales, related to the write-down of
inventory and accrual for estimated settlement/cancellation payments for
non-cancelable purchase orders for certain excess inventory components related
primarily to our Model 850 casino ticket printer. The charge was largely the
result of the faster than expected acceptance of our new Epic 950(R) casino
ticket printer, which replaces our Model 850 casino ticket printer.

     ENGINEERING AND PRODUCT DEVELOPMENT. 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 by $98,000, or 4%, to $2,824,000, from 2005 as we incurred
higher expenses related to increased engineering staffing and other employee
compensation expenses and product development expenses related to our new line
of off-premise gaming printers, which were largely offset by a decrease in costs
associated with International Game Technology's ("IGT") integration and
attainment of jurisdictional approvals for our Epic 950(R) thermal casino
printer on all of IGT's slot platforms worldwide (the "IGT Integration"). We
incurred approximately $150,000 of IGT Integration costs in 2005 that did not
recur in 2006. Engineering and product development expenses decreased as a
percentage of net sales to 4.4% from 5.3%, primarily due to higher sales volume
in 2006 compared to 2005.

     SELLING AND MARKETING. 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 and other promotional marketing
expenses. Selling and marketing expenses increased by $573,000, or 9%, to
$6,892,000, as we incurred the full year effect in 2006 of expenses related to
the addition of new corporate marketing staff, and new sales staff for our three
strategic sales units, including those for our service centers in Las Vegas, NV
and Wallingford, CT, made throughout 2005. We also incurred increased expenses
related to demonstration printers and the redesign of our website that we
re-launched in August 2006. These increases were somewhat offset by decreased
travel, trade show, advertising, consulting and other promotional marketing
expenses compared with 2005. Selling and marketing expenses decreased as a
percentage of net sales to 10.7% from 12.4%, due primarily to higher sales
volume in proportion to a higher level of expenses in 2006 compared to 2005.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
include: salaries and payroll related expenses for our executive, accounting,
human resource 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 by $719,000, or 11%, due primarily to (1) the
full year effect in 2006 of compensation related expenses associated with the
relocation of our accounting department from Ithaca, NY to Wallingford, CT
during 2005, (2) expenses associated with the Company's Oracle implementation
including data conversion expenses, temporary help, travel and compensation
related expenses, (3) approximately $220,000 of legal and consulting services
related to a potential acquisition that was not consummated, (4) higher
incentive compensation expenses based on the Company's improved performance in
2006 and (5) increased telecommunications expenses associated with the
implementation of our new company-wide phone system. These increases were
partially offset by lower travel expenses and a decrease in recruiting costs
incurred during 2005 related to the relocation of our accounting department and
the increased staffing of the TSG sales unit that did not recur in 2006. General
and administrative expenses decreased as a percentage of net sales to 10.9% from
12.4%, due primarily to increased sales in proportion to higher expenses in 2006
as compared to 2005.

     BUSINESS CONSOLIDATION AND RESTRUCTURING. During the fourth quarter of
2006, we executed an agreement, effective May 1, 2007, to terminate the lease
agreement for our existing corporate headquarters and eastern region service
center facility located in Wallingford, CT (the "Release Agreement"). Prior to
the execution of the Release Agreement, we accrued for the remaining
non-cancelable lease payments and other related costs for this facility through
the expiration date of the lease (March 31, 2008). As a result of the Release
Agreement and the early termination of the old lease, we were released from the
legal obligation for lease payments after May 1, 2007 and, accordingly, we
reversed $479,000 of previously accrued expenses related to the Consolidation in
the fourth quarter of 2006. As of December 31, 2006, we have provided for the
estimated remaining non-cancelable lease payments and other related costs for
this facility through the new termination date of the lease (May 1, 2007).

     We do not expect to incur any further restructuring expenses or to adjust
our restructuring accrual. The restructuring accrual balance will be reduced to
zero as of May 1, 2007.

     OPERATING INCOME. During 2006, we reported operating income of $6,088,000,
or 9.5% of net sales, compared to $224,000, or 0.4% of net sales, in 2005. The
substantial increase in our operating income and operating margin was due
largely to the operating leverage we experienced in 2006 resulting from higher
sales and gross profit, somewhat offset by higher operating expenses, compared
to that of 2005.


                                       21

<PAGE>

     INTEREST. We recorded net interest income of $104,000 in 2006 compared to
net interest income of $73,000 in 2005. Even though our average cash balance was
lower in 2006 compared to 2005 due largely to the repurchase of common stock
under our stock repurchase program, our net interest income still increased as
we substantially improved our overall rate of return on our invested cash
balance. See "Liquidity and Capital Resources" below for more information.

     OTHER EXPENSE. We recorded other expense of $159,000 in 2006 due primarily
to transaction exchange losses recorded by our UK subsidiary in 2006 due to the
weakening of the U.S. dollar against the British pound. We recorded other income
of $32,000 in 2005 due primarily to transaction exchange gains due to the
strengthening of the U.S. dollar against the British pound in 2005.

     INCOME TAXES. We recorded an income tax provision of $2,117,000, at an
effective rate of 35.1% during 2006 compared to an income tax benefit of
$48,000, at an effective rate of (14.6%) in 2005. During 2005, we recorded an
income tax benefit, as compared to an income tax provision in 2006, as we
recognized certain discrete tax benefits and tax credits and reversed certain
valuation allowances during 2005, combined with an unusually low level of income
before taxes.

     NET INCOME. We reported net income in 2006 of $3,916,000, or $0.40 per
diluted share compared to net income of $377,000, or $0.04 per diluted share in
2005.

     (II) YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

     NET SALES. Net sales, which include printer sales and sales of spare parts,
consumables and repair services, by market for the years ended December 31, 2005
and 2004 were as follows:

<TABLE>
<CAPTION>
                                                                        Change
                                Year ended          Year ended      ----------------
(In thousands)              December 31, 2005   December 31, 2004      $         %
                            -----------------   -----------------   -------   ------
<S>                         <C>       <C>       <C>       <C>       <C>       <C>
Point of sale and banking    $16,410    32.1%    $17,659    29.5%   $(1,249)   (7.1%)
Gaming and lottery            23,634    46.3%     31,937    53.4%    (8,303)  (26.0%)
TransAct Services Group       11,047    21.6%     10,251    17.1%       796     7.8%
                             -------   -----     -------   -----    -------
                             $51,091   100.0%    $59,847   100.0%   $(8,756)  (14.6%)
                             =======   =====     =======   =====    =======
International                $12,318    24.1%    $ 6,423    10.7%   $ 5,895    91.8%
                             =======   =====     =======   =====    =======
</TABLE>

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

     Net sales for 2005 decreased $8,756,000, or 15%, from 2004 due to
significantly lower printer shipments into our gaming and lottery market, as
well as lower printer shipments into our POS and banking market. However, sales
from our TransAct Services Group increased by $796,000, or 8%, from 2004, as our
installed base of printers grows and as we continue to aggressively pursue these
after-market sales. Overall, international sales almost doubled to $12,318,000,
due largely to higher international shipments of our gaming printers, primarily
to Europe and Australia, as well as international shipments of lottery printers
to GTECH.

     Point of sale and banking: Sales of our POS and banking printers worldwide
decreased approximately $1,249,000, or 7%, from 2004.

<TABLE>
<CAPTION>
                                                                        Change
                                Year ended          Year ended      ---------------
(In thousands)              December 31, 2005   December 31, 2004      $        %
                            -----------------   -----------------   -------   -----
<S>                         <C>        <C>      <C>        <C>      <C>       <C>
Domestic                     $14,188    86.5%    $15,734    89.1%   $(1,546)  (9.8%)
International                  2,222    13.5%      1,925    10.9%       297   15.4%
                             -------   -----     -------   -----    -------
                             $16,410   100.0%    $17,659   100.0%   $(1,249)  (7.1%)
                             =======   =====     =======   ======   =======
</TABLE>

     Domestic POS and banking printer sales decreased to $14,188,000, or 10%,
due largely to significantly lower shipments of our BANKjet(R) line of inkjet
printers in 2005 as compared to 2004. We experienced this decrease due to the
project-oriented nature of banking printer sales. During 2004, we shipped
banking printers to two top-tier financial services companies. However, during
2005, we shipped banking printers primarily to only one top-tier financial
services company. The decrease in banking printer sales was slightly offset by
increasing sales of our POS printers, primarily our iTHERM(R)


                                       22

<PAGE>

280 thermal printer and our new line of printers exclusively for POS
distributors. Excluding banking printers, sales of our POS printers increased by
2% in 2005 compared to 2004.

     International POS and banking printer sales increased by approximately
$297,000, or 15%, due primarily to higher sales through our growing network of
international POS distributors in Europe and Latin America, somewhat offset by
lower sales to distributors in the Pacific Rim.

     Gaming and lottery: Revenue from the gaming and lottery market includes
sales of printers used in slot machines, video lottery terminals ("VLTs") and
other gaming machines that print tickets instead of issuing coins ("ticket-in,
ticket-out" or "TITO") at casinos, racetracks ("racinos") and other gaming
venues worldwide. Revenue from this market also includes sales of lottery
printers to GTECH, the world's largest provider of lottery terminals, for
various lottery applications. Sales of our gaming and lottery printers decreased
by $8,303,000, or 26%, from 2004, primarily due to a decrease in sales of slot
machine printers in North America, as well as a decrease in sales of lottery
printers to GTECH. This decrease was partially offset by significantly higher
sales of our slot machine and other gaming printers in Europe and Australia.

<TABLE>
<CAPTION>
                                                                        Change
                                Year ended          Year ended      ----------------
(In thousands)              December 31, 2005   December 31, 2004      $         %
                            -----------------   -----------------   --------   -----
<S>                         <C>        <C>       <C>       <C>       <C>        <C>
Domestic                     $16,271    68.8%    $29,692    93.0%   $(13,421)  (45.2%)
International                  7,363    31.2%      2,245     7.0%      5,118   228.0%
                             -------   -----     -------   -----    --------
                             $23,634   100.0%    $31,937   100.0%   $ (8,303)  (26.0%)
                             =======   =====     =======   =====    ========
</TABLE>

     Domestic sales of our gaming and lottery printers declined by $13,421,000,
or 45%, from 2004. Due to the continued decline in slot machine sales into the
domestic casino market, including the effects of Hurricane Katrina, lower
capital spending due to mergers of major casino operators, and the loss of
revenue from a large slot machine manufacturer as it depletes a large inventory
position, we experienced significantly lower sales of our TITO casino printers
throughout North America during 2005.

     Printer sales to GTECH Corporation (a worldwide lottery terminal provider
and major customer), which include impact and thermal on-line lottery printers,
decreased by approximately $1,153,000, or 14%, in 2005 compared to 2004. This
decrease was largely due to shipments of legacy impact printers to GTECH in 2004
that did not recur in 2005.

     International gaming and lottery printer sales more than tripled to
$7,363,000 in 2005 compared to 2004. Such sales represented 31% and 7% of total
sales into our gaming and lottery market during 2005 and 2004, respectively. We
experienced growth in both international gaming and lottery printer sales in
2005 as markets in Europe and Australia continue to adopt and roll out ticket
printing in slot machines and other gaming/amusement machines, and GTECH
installs our lottery printers in its international markets.

     TransAct Services Group: Revenue from TSG includes sales of consumable
products (inkjet cartridges, ribbons and receipt paper), replacement parts,
maintenance and repair services, refurbished printers and shipping and handling
charges. Sales by TSG increased by approximately $796,000, or 8%.

<TABLE>
<CAPTION>
                                                                       Change
                                Year ended          Year ended      ------------
(In thousands)              December 31, 2005   December 31, 2004     $      %
                            -----------------   -----------------   ----   -----
<S>                         <C>       <C>       <C>       <C>       <C>    <C>
Domestic                     $ 8,314    75.3%    $ 7,998    78.0%   $316    4.0%
International                  2,733    24.7%      2,253    22.0%    480   21.3%
                             -------   -----     -------   -----    ----
                             $11,047   100.0%    $10,251   100.0%   $796    7.8%
                             =======   =====     =======   =====    ====
</TABLE>

     Domestic TSG revenue increased by approximately $316,000 or 4%, to
$8,314,000 largely due to higher revenue from maintenance and repair services
and refurbished printer sales, offset by a decline in the sale of spare parts,
mostly for legacy printers. International TSG sales increased by approximately
$480,000, or 21%, to $2,733,000, due primarily to an increase in service
revenue.

     GROSS PROFIT. Gross profit decreased by $6,452,000, or 29%, to $15,590,000,
and gross margin decreased to 30.5% from 36.8% due primarily to lower volume of
sales in 2005 compared to 2004 and a less favorable sales mix. In addition,
gross profit for 2005 was negatively impacted by a charge of $600,000, or 1.2%
of net sales, related to the write-down of inventory and accrual for estimated
settlement/cancellation payments for non-cancelable purchase orders for certain
excess inventory components related primarily to our Model 850 casino ticket
printer. The charge was largely the result of the


                                       23

<PAGE>

faster than expected acceptance of our new Epic 950(R) casino ticket printer,
which replaces our Model 850 casino ticket printer.

     ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased slightly by $11,000, or less than 1%, to
$2,726,000, from 2004 as we incurred higher expenses related to increased
engineering staffing and other employee compensation expenses, which were almost
entirely offset by a decrease in costs associated with IGT's integration and
attainment of jurisdictional approvals for our new Epic 950(R) thermal casino
printer on all of IGT's slot platforms worldwide (the "IGT Integration"). We
incurred approximately $150,000 of IGT Integration costs in 2005 compared to
$350,000 in 2004. Engineering and product development expenses increased as a
percentage of net sales to 5.3% from 4.5%, primarily due to lower sales volume
in 2005 compared to 2004.

     SELLING AND MARKETING. Selling and marketing expenses increased by
$1,208,000, or 24%, to $6,319,000, due primarily to increased expenses related
to (1) the addition of new sales staff for our three business units and our new
service centers in Las Vegas, NV and Wallingford, CT, (2) marketing, promotional
and trade show expenses related to the launch of our new line of printers
exclusively for POS distributors and our increased presence at this year's
Global Gaming Exposition (G2E) trade show in Las Vegas, NV, and (3) the
recruitment and hiring of a Senior Vice President of Marketing during the second
quarter of 2005. Selling and marketing expenses increased as a percentage of net
sales to 12.4% from 8.5%, due primarily to the increases noted above in
proportion to lower sales volume in 2005 compared to 2004.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $331,000, or 6%, due primarily to (1) recruiting and compensation related
expenses associated with the re-location of our accounting department from
Ithaca, NY to Wallingford, CT, (2) higher legal expenses related to our lawsuit
against FutureLogic, Inc., and (3) increased software maintenance, travel,
training and temporary help expenses associated with our Oracle software
implementation. These increases were partially offset by (1) a decrease related
to a one-time listing fee incurred in 2004 resulting from our move back onto the
NASDAQ National Market from the NASDAQ SmallCap Market, (2) lower audit and
professional expenses related to compliance with the Sarbanes-Oxley Act of 2002
incurred during 2005 (our second year of compliance) compared to 2004 (our
initial year of compliance), and (3) expenses incurred in 2004 associated with
our proposed acquisition of TPG, Inc. that was terminated and did not recur in
2005. General and administrative expenses increased as a percentage of net sales
to 12.4% from 10.0%, due primarily to the increased expenses noted above in
proportion to a lower volume of sales in 2005 compared to 2004.

     BUSINESS CONSOLIDATION AND RESTRUCTURING. We recorded a reversal of expense
of $225,000 related to the Consolidation in 2004. This amount was the result of
a revision to our original estimate for non-cancelable lease payments included
in the restructuring accrual.

     OPERATING INCOME. During 2005, we reported operating income of $224,000, or
0.4% of net sales, compared to $8,451,000, or 14.1% of net sales, in 2004. The
significant decrease in our operating income and operating margin was due
largely to lower sales and gross margin, and higher operating expenses
(primarily selling and marketing expenses and general and administrative
expenses).

     INTEREST. We recorded net interest income of $73,000 in 2005 compared to
net interest income of $4,000 in 2004, due to our higher average cash balances
and slightly higher interest rates throughout 2005 as compared to 2004.

     OTHER EXPENSE. We recorded other income of $32,000 in 2005 compared to
other expense of $18,000 in 2004, due primarily to transaction exchange gains
recorded by our UK subsidiary in 2005 due to the weakening of the British pound
against the U.S. dollar as compared to transaction exchange losses recorded in
2004 due to the strengthening of the British pound against the U.S. dollar.

     INCOME TAXES. We recorded an income tax benefit of $48,000, at an effective
rate of (14.6%) during 2005 compared to an income tax provision of $2,979,000,
at an effective rate of 35.3% in 2004. Despite reporting $329,000 of income
before taxes in 2005, we recorded a net income tax benefit, resulting largely
from the recognition of certain discrete tax benefits and tax credits, as well
as the reversal of valuation allowances during the year, combined with an
unusually low level of income before taxes.

     NET INCOME. We reported net income in 2005 of $377,000, or $0.04 per
diluted share compared to net income of $5,458,000, or $0.51 per diluted share
in 2004. Dividends paid in 2004 were approximately $86,000, and there will be no
dividends or allocation of earnings to preferred shareholders beyond 2004, as
the preferred stock was converted to common stock in April 2004. All share and
per share amounts reflect the April 2004 stock split on a retroactive basis.


                                       24

<PAGE>

(B) LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

     Overview: During 2006, our cash flows reflected the results of higher sales
volume, increased investment in infrastructure and our stock repurchase program
as compared to 2005. Even with the repurchase of approximately $2,625,000 of our
common stock, and capital expenditures of $2,891,000, we still finished 2006
with no outstanding bank debt and approximately $3.4 million of cash and cash
equivalents.

     Operating activities: The following significant factors primarily affected
our cash provided by operations of $3,300,000 in 2006:

     -    We reported net income of $3,916,000.

     -    We recorded depreciation, amortization and non-cash compensation
          expense of $2,149,000.

     -    Accounts receivable increased by $3,063,000 due primarily to a higher
          volume of sales in the fourth quarter of 2006 compared to the fourth
          quarter of 2005.

     -    Inventories increased by $1,531,000 and accounts payable increased by
          $1,138,000 due to higher inventory purchases and inventory levels
          related to higher sales volume in the fourth quarter of 2006 compared
          to the fourth quarter of 2005.

     -    Accrued liabilities and other liabilities increased by $1,423,000 due
          to increases in: (1) compensation related accruals, (2) income tax
          accrual based on the increased level of income before taxes, (3)
          deferred revenue balances related to increased sales of extended
          service contracts, (4) accruals for legal fees and (5) consulting
          services accruals related to our Oracle software implementation. These
          increases were partly offset by a decrease in warranty accruals.

     -    Accrued restructuring expenses decreased by $878,000 due to $399,000
          of payments made on our Wallingford, CT lease obligation and the
          reversal of $479,000 of expense related to the execution of an
          agreement effective May 1, 2007 to terminate the lease agreement for
          our existing corporate headquarters located in Wallingford, CT.

     Investing activities: Our capital expenditures were approximately
$2,891,000 and $2,756,000 in 2006 and 2005, respectively. Expenditures in 2006
included approximately $1,058,000 for the purchase of hardware, software and
outside consulting costs related to our Oracle software implementation, $366,000
for the purchase of hardware and consulting costs related to our new phone
system, $244,000 for the purchase of leasehold improvements made on the gaming
and lottery headquarters and western region service center in Las Vegas, NV,
with the remaining amount primarily related to the purchase of new product
tooling.

     Financing activities: We used approximately $1,684,000 from financing
activities during 2006, largely due to the repurchase of Company stock of
approximately $2,625,000, partly offset by proceeds and tax benefits from stock
option exercises of approximately $1,029,000. We also used approximately $88,000
of cash related to deferred financing costs for the new revolving credit
facility we entered into with TD Banknorth during November 2006.

WORKING CAPITAL

     Our working capital increased to $16,438,000 at December 31, 2006 from
$15,375,000 at December 31, 2005. The current ratio decreased to 2.9 to 1 at
December 31, 2006 compared to 3.2 to 1 at December 31, 2005. The decrease in the
current ratio was largely due to higher accounts payable resulting from higher
sales volume and inventory purchases and an increase in income taxes payable
resulting from a higher level of income before taxes, somewhat offset by higher
accounts receivable and inventory levels. In addition, our working capital and
current ratio were impacted by our stock repurchase program, as we continue to
use available cash to repurchase shares of our common stock in the open market.

DEFERRED TAXES

     As of December 31, 2006, we had a net deferred tax asset of approximately
$2,709,000. In order to utilize this deferred tax asset, we will need to
generate approximately $6.8 million of taxable income in future years. Based on
future projections of taxable income, we have determined that it is more likely
than not that the existing net deferred tax asset will be realized.

CREDIT FACILITY AND BORROWINGS

     On November 28, 2006, we signed a new, five-year $20 million credit
facility (the "New TD Banknorth Credit Facility") with TD Banknorth, N.A. ("TD
Banknorth"). The new credit facility provides for a $20 million revolving credit
line expiring on November 28, 2011. The New TD Banknorth Credit facility
replaces a previous $11.5 million credit facility also with TD Banknorth. Due to
TransAct's improved financial performance, our New TD Banknorth Credit Facility
provides substantially improved terms compared to our existing credit facility,
including lower on-going costs, fewer financial covenants, reduced reporting
requirements and a lower interest rate. Borrowings under the new revolving
credit line


                                       25

<PAGE>

bear a floating rate of interest at the prime rate minus one percent
and are secured by a lien on all of our assets. We also pay a fee of 0.25% on
unused borrowings under the revolving credit line. Deferred financing costs
relating to expenses incurred to complete the New TD Banknorth Credit Facility
were $88,000 at December 31, 2006. The New TD Banknorth Credit Facility imposes
certain quarterly financial covenants on us and restricts the payment of
dividends on our common stock and the creation of other liens. We were in
compliance with all financial covenants of the New TD Banknorth Credit Facility
at December 31, 2006.

     As of December 31, 2006, we had no balances outstanding on the revolving
credit line. Undrawn commitments under the New TD Banknorth Credit facility were
approximately $20,000,000 at December 31, 2006.

STOCK REPURCHASE PROGRAM

     On March 25, 2005, the Board of Directors approved a stock repurchase
program ("the Stock Repurchase Program"). Under the Stock Repurchase Program, we
are authorized to repurchase up to $10 million of our outstanding shares of
common stock from time to time in the open market over a three year period
ending on March 25, 2008, depending on market conditions, share price and other
factors. During 2006, we repurchased a total of 296,300 shares of common stock
for approximately $2,625,000 at an average price of $8.86 per share. As of
December 31, 2006, we have repurchased a total of 801,300 shares of common stock
for approximately $6,492,000, at an average price of $8.10 per share.

SHAREHOLDERS' EQUITY

     Shareholders' equity increased by $3,033,000 to $24,290,000 at December 31,
2006 from $21,257,000 at December 31, 2005. The increase was primarily due to
(1) net income of $3,916,000, (2) proceeds of approximately $687,000 from the
issuance of approximately 136,000 shares of common stock from stock option
exercises, (3) an increase in additional paid-in capital of approximately
$342,000 resulting from tax benefits from tax deductions arising from the sale
of employee stock from stock option exercises and vesting of restricted stock,
and (4) non-cash compensation expense of $581,000 related to stock options and
restricted stock, and (5) foreign currency translation adjustments of
approximately $132,000. These increases were offset by treasury stock purchases
of 296,300 shares of common stock for approximately $2,625,000.

CONSOLIDATION EXPENSES

     During 2001 through 2007, we recognized approximately $5.5 million of
business consolidation, restructuring and related expenses as a result of the
Consolidation. These expenses primarily included employee severance and
termination related expenses, facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs) and accelerated depreciation and asset disposal losses on certain
leasehold improvements and other fixed assets.

     In November 2006, we executed an agreement, effective May 1, 2007, to
terminate the lease agreement for our facility located in Wallingford, CT (the
"Release Agreement"). Prior to the execution of the Release Agreement, we
accrued for the remaining non-cancelable lease payments and other related costs
for this facility through the expiration date of the lease (March 31, 2008). As
a result of the Release Agreement and the early termination of the old lease, we
were released from the legal obligation for lease payments after May 1, 2007
and, accordingly, we reversed $479,000 of previously accrued expenses related to
the Consolidation in the fourth quarter of 2006. As of December 31, 2006, we
have provided for the estimated remaining non-cancelable lease payments and
other related costs for this facility through the new termination date of the
lease (May 1, 2007).

     As of December 31, 2006, our restructuring accrual amounted to $315,000
which represents the estimated remaining non-cancelable lease payments and other
related costs for the Wallingford facility through the new termination date of
the lease (May 1, 2007). We do not expect to incur any further restructuring
expenses or to adjust our restructuring accrual. The restructuring accrual
balance will be reduced to zero as of May 1, 2007. We paid approximately
$399,000, $447,000 and $446,000 of expenses related to the Consolidation in
2006, 2005 and 2004, respectively.

CONTRACTUAL OBLIGATIONS

     TransAct's contractual obligations as of December 31, 2006 were as follows:

<TABLE>
<CAPTION>
(In thousands)                 Total    < 1 year   1-3 years   3-5 years   > 5 years
                              -------   --------   ---------   ---------   ---------
<S>                           <C>       <C>        <C>         <C>         <C>
Operating lease obligations   $ 5,622    $   978     $1,743      $1,461      $1,440
Purchase obligations           16,918     16,848         70          --          --
                              -------    -------     ------      ------      ------
Total                         $22,540    $17,826     $1,813      $1,461      $1,440
                              =======    =======     ======      ======      ======
</TABLE>

     Purchase obligations are for purchases made in the normal course of
business to meet operational requirements, primarily of raw material and
component part inventory.


                                       26

<PAGE>

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     ACCOUNTING FOR INCOME TAX UNCERTAINTIES: In July 2006, the FASB issued FASB
Interpretation 48, "Accounting for Income Tax Uncertainties" ("FIN 48"). FIN 48
defines the threshold for recognizing the benefits of tax return positions in
the financial statements as "more-likely-than-not" to be sustained by the taxing
authority. The recently issued literature also provides guidance on the
derecognition, measurement and classification of income tax uncertainties, along
with any related interest and penalties. FIN 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income tax
uncertainties. FIN 48 is effective for fiscal years beginning after December 15,
2006. The differences between the amounts recognized in the statements of
financial position prior to the adoption of FIN 48 and the amounts reported
after adoption will be accounted for as a cumulative-effect adjustment recorded
to the beginning balance of retained earnings. In July 2006, the FASB issued FIN
48, Accounting for Uncertainty in Income Taxes, which will be effective the
first quarter of 2007. Based on the "more-likely-than-not" standard under FIN
48, we expect that this guidance may impact the Company's recognition of tax
benefits related to uncertain tax positions. However, the Company has not yet
finalized its assessment of FIN 48.

     EFFECTS OF PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING CURRENT YEAR
MISSTATEMENTS: In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Current Year Misstatements". SAB No. 108
requires analysis of misstatements using both an income statement (rollover)
approach and balance sheet (iron curtain) approach in assessing materiality and
provides for a one-time cumulative effect transition adjustment. SAB No. 108 is
effective for our fiscal year 2006 annual financial statements. The adoption of
this guidance did not have a material impact on our financial position, results
of operations or cash flows.

     FAIR VALUE MEASUREMENTS: In September 2006, the FASB issued Statement of
Financial Accounting Standards No. 157, "Fair Value Measurements" ("FASB 157")
which is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. This statement defines fair value,
establishes a framework for measuring fair value and expands the related
disclosure requirements. Because the guidance was recently issued, management
has not yet determined the impact, if any, of adopting the provisions of FASB
157 on the Company's financial position and results of operations.

RESOURCE SUFFICIENCY

     We believe that our cash on hand, cash flows generated from operations and
borrowings available under the New TD Banknorth Credit Facility will provide
sufficient resources to meet our working capital needs, including costs
associated with the Consolidation, to finance our capital expenditures, to fund
our Stock Repurchase Program, and meet our liquidity requirements through at
least the next twelve months.

(C) IMPACT OF INFLATION

     TransAct believes that its business has not been affected to a significant
degree by inflationary trends because of the low rate of inflation during the
past three years, nor does it believe it will be significantly affected by
inflation during 2007.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

     Our exposure to market risk for changes in interest rates relates primarily
to the investment of our available cash and cash equivalents. In accordance with
our investment policy, we strive to achieve above market rates of return in
exchange for accepting a prudent amount of incremental risk, which includes the
risk of interest rate movements. Risk tolerance is constrained by an overriding
objective to preserve capital. An effective increase or decrease of 10% in
interest rates would not have a material effect on our results of operations or
cash flows.

FOREIGN CURRENCY EXCHANGE RISK

     A substantial portion of our sales are denominated in U.S. dollars and, as
a result, we have relatively little exposure to foreign currency exchange risk
with respect to sales made. This exposure may change over time as business
practices evolve and could have a material adverse impact on our financial
results in the future. We do not use forward exchange contracts to hedge
exposures denominated in foreign currencies or any other derivative financial
instruments for trading or speculative purposes. The effect of an immediate 10%
change in exchange rates would not have a material impact on our future results
of operations or cash flows.


                                       27

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
Report of Independent Registered Public Accounting Firm                       29

TransAct Technologies Incorporated consolidated financial statements:

   Consolidated balance sheets as of December 31, 2006 and 2005               30

   Consolidated statements of income for the years ended December 31,
      2006, 2005 and 2004                                                     31

   Consolidated statements of changes in shareholders' equity and
      comprehensive income for the years ended December 31, 2006,
      2005 and 2004                                                           32

   Consolidated statements of cash flows for the years ended December
      31, 2006, 2005 and 2004                                                 33

   Notes to consolidated financial statements                              34-50

Financial Statement Schedule

   The following financial statement schedule is included herein:

   Schedule II - Valuation and Qualifying Accounts                            51
</TABLE>

All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto


                                       28

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of TransAct Technologies
Incorporated:

We have completed integrated audits of TransAct Technologies Incorporated's
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2006 in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
TransAct Technologies Incorporated and its subsidiaries (the "Company") at
December 31, 2006 and 2005, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2006 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for share-based compensation in 2006.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Management's Report
on Internal Control Over Financial Reporting appearing under Item 9a, that the
Company maintained effective internal control over financial reporting as of
December 31, 2006 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2006 based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Hartford, CT
March 15, 2007


                                       29
<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                               December 31,   December 31,
                                                                   2006           2005
                                                               ------------   ------------
<S>                                                            <C>            <C>
ASSETS:
Current assets:
   Cash and cash equivalents                                     $ 3,436        $ 4,579
   Receivables, net                                               11,422          8,359
   Inventories                                                     7,567          6,036
   Refundable income taxes                                            42            295
   Deferred tax assets                                             2,167          2,735
   Other current assets                                              552            258
                                                                 -------        -------
      Total current assets                                        25,186         22,262
                                                                 -------        -------
Fixed assets, net                                                  5,938          4,510
Goodwill                                                           1,469          1,469
Deferred tax assets                                                  542            557
Intangible and other assets, net of accumulated amortization
   of $122 and $41, respectively                                     571            534
                                                                 -------        -------
                                                                   8,520          7,070
                                                                 -------        -------
Total assets                                                     $33,706        $29,332
                                                                 =======        =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
   Accounts payable                                              $ 3,997        $ 2,859
   Accrued liabilities                                             4,047          3,198
   Accrued restructuring expenses                                    315            420
   Deferred revenue                                                  389            410
                                                                 -------        -------
      Total current liabilities                                    8,748          6,887
                                                                 -------        -------
Accrued restructuring expenses, net of current portion                --            773
Deferred revenue, net of current portion                             508            270
Accrued warranty, net of current portion                             160            145
                                                                 -------        -------
                                                                     668          1,188
                                                                 -------        -------
   Total liabilities                                               9,416          8,075
                                                                 -------        -------
Commitments and contingencies (Note 11)
Shareholders' equity:
   Preferred stock, $0.01 par value, 4,800,000
      authorized, none issued and outstanding                         --             --
   Preferred stock, Series A, $0.01 par value, 200,000
      authorized, none issued and outstanding                         --             --
   Common stock, $0.01 par value, 20,000,000 authorized at
      December 31, 2006 and 2005; 9,574,777 and
      9,731,670 shares issued; 8,773,477 and 9,226,670
      shares outstanding, at December 31, 2006 and 2005,
      respectively                                                   104            102
   Additional paid-in capital                                     19,105         19,334
   Retained earnings                                              11,405          7,489
   Unamortized restricted stock compensation                          --         (1,837)
   Accumulated other comprehensive income, net of tax                168             36
   Treasury stock, 801,300 and 505,000 shares at cost             (6,492)        (3,867)
                                                                 -------        -------
      Total shareholders' equity                                  24,290         21,257
                                                                 -------        -------
Total liabilities and shareholders' equity                       $33,706        $29,332
                                                                 =======        =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       30

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                  ---------------------------
                                                    2006      2005      2004
                                                  -------   -------   -------
<S>                                               <C>       <C>       <C>
Net sales                                         $64,328   $51,091   $59,847
Cost of sales                                      41,963    35,501    37,805
                                                  -------   -------   -------
Gross profit                                       22,365    15,590    22,042
                                                  -------   -------   -------
Operating expenses:
   Engineering, design and product development      2,824     2,726     2,715
   Selling and marketing                            6,892     6,319     5,111
   General and administrative                       7,040     6,321     5,990
   Business consolidation and restructuring          (479)       --      (225)
                                                  -------   -------   -------
                                                   16,277    15,366    13,591
                                                  -------   -------   -------
Operating income                                    6,088       224     8,451
                                                  -------   -------   -------
Interest and other income (expense):
   Interest expense                                   (44)      (41)      (44)
   Interest income                                    148       114        48
   Other, net                                        (159)       32       (18)
                                                  -------   -------   -------
                                                      (55)      105       (14)
                                                  -------   -------   -------
Income before income taxes                          6,033       329     8,437
Income tax provision (benefit)                      2,117       (48)    2,979
                                                  -------   -------   -------
Net income                                          3,916       377     5,458
   Dividends and accretion charges on preferred
      stock                                            --        --      (111)
   Earnings allocated to preferred shareholders        --        --      (111)
                                                  -------   -------   -------
Net income available to common shareholders       $ 3,916   $   377   $ 5,236
                                                  =======   =======   =======
Net income per common share:
   Basic                                          $  0.41   $  0.04   $  0.55
   Diluted                                        $  0.40   $  0.04   $  0.51
Shares used in per-share calculation:
   Basic                                            9,577     9,849     9,593
   Diluted                                          9,870    10,163    10,231
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED
         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                   Unamortized             Accumulated
                           Common Stock     Additional             Restricted                 Other                   Total
                        ------------------    Paid-in   Retained      Stock     Treasury  Comprehensive           Comprehensive
                          Shares    Amount    Capital   Earnings  Compensation    Stock   Income (Loss)   Total       Income
                        ----------  ------  ----------  --------  ------------  --------  -------------  -------  -------------
<S>                     <C>         <C>     <C>         <C>       <C>           <C>       <C>            <C>      <C>
Balance, December 31,
   2003                  8,952,650     60       8,441     1,769          (30)        --          107      10,347
   Cancellation of
      restricted stock      (3,000)    --         (72)       --           72         --           --          --
   Issuance of shares
      from exercise of
      stock options        321,947      3       1,376        --           --         --           --       1,379
   Issuance of shares
      from employee
      stock purchase
      plan                   3,706     --          47        --           --         --           --         47
   Issuance of shares
      from exercise of
      common stock
      warrants              15,000     --          90        --           --         --           --         90
   Issuance of shares
      from conversion
      of preferred
      stock, net of
      issuance and
      registration
      costs                666,665      6       3,818        --           --         --           --       3,824
   Issuance of
      restricted stock      81,000      1       1,399        --       (1,400)        --           --          --
   Share-based
      compensation
      expense                   --     --          --        --          291         --           --         291
   Tax benefit related
      to employee
      stock sales               --     --       2,332        --           --         --           --       2,332
   Redemption of
      partial shares
      of common stock
      in connection
      with the 3:2
      stock split             (202)    30         (30)       --           --         --           --          --
   Dividends paid on
      preferred stock           --     --          --       (91)          --         --           --         (91)
   Accretion of
      preferred stock
      discount and
      issuance costs            --     --          --       (24)          --         --           --         (24)
   Comprehensive
      income:
      Foreign currency
         translation
         adj.                   --     --          --        --           --         --           62          62         62
      Net income                --     --          --     5,458           --         --           --       5,458      5,458
                        ----------   ----     -------   -------      -------    -------       ------     -------     ------
Balance, December 31,
   2004                 10,037,766    100      17,401     7,112       (1,067)        --          169      23,715      5,520
                                                                                                                     ======
   Cancellation of
      restricted stock        (250)    --          (3)       --            3         --           --          --
   Issuance of shares
      from exercise of
      stock options         71,064      1         323        --           --         --           --         324
   Issuance of shares
      from employee
      stock purchase
      plan                   2,690     --          23        --           --         --           --          23
   Acceleration of
      outstanding
      stock options             --     --          26        --           --         --           --          26
   Issuance of
      restricted stock     125,400      1       1,230        --       (1,231)        --           --          --
   Share-based
      compensation
      expense                   --     --          --        --          458         --           --         458
   Tax benefit related
      to employee
      stock sales and
      vesting of
      restricted stock          --     --         337        --           --         --           --         337
   Purchase of
      treasury stock      (505,000)    --          --        --           --     (3,867)          --      (3,867)
   Expenses related to
      preferred stock
      conversion                --     --          (3)       --           --         --           --          (3)
   Comprehensive
      income:
      Foreign currency
         translation
         adj., net of
         tax                    --     --          --        --           --         --         (133)       (133)      (133)
      Net income                --     --          --       377           --         --           --         377        377
                        ----------   ----     -------   -------      -------    -------       ------     -------     ------
Balance, December 31,
   2005                  9,731,670    102      19,334     7,489       (1,837)    (3,867)          36      21,257        244
                                                                                                                     ======
   Impact of adoption
      of new
      accounting
      pronouncements            --     --      (1,837)       --        1,837         --           --          --
   Cancellation of
      restricted stock     (11,750)    --          --        --           --         --           --          --
   Issuance of shares
      from exercise of
      stock options        136,157      2         685        --           --         --           --         687
   Issuance of
      restricted stock      15,000     --          --        --           --         --           --          --
   Tax benefit related
      to employee
      stock sales and
      vesting of
      restricted stock          --     --         342        --           --         --           --         342
   Purchase of
      treasury stock      (296,300)    --          --        --           --     (2,625)          --      (2,625)
   Share-based
      compensation
      expense                   --     --         581        --           --         --           --         581
   Comprehensive
      income:
      Foreign currency
         translation
         adj., net of
         tax                    --     --          --        --           --         --          132         132        132
      Net income                --     --          --     3,916           --         --           --       3,916      3,916
                        ----------   ----     -------   -------      -------    -------       ------     -------     ------
Balance, December 31,
   2006                  9,574,777   $104     $19,105   $11,405      $    --    $(6,492)      $  168     $24,290     $4,048
                        ==========   ====     =======   =======      =======    =======       ======     =======     ======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       32

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                                 ---------------------------
                                                                   2006      2005      2004
                                                                 -------   -------   -------
<S>                                                              <C>       <C>       <C>
Cash flows from operating activities:
   Net income                                                    $ 3,916   $   377   $ 5,458
   Adjustments to reconcile net income to net cash provided by
      operating activities:
      Share-based compensation expense                               581       484       291
      Incremental tax benefits from stock options exercised         (342)       --        --
      Depreciation and amortization                                1,568     1,493     1,634
      Deferred income taxes                                          583      (648)      380
      Loss (gain) on sale of fixed assets                             --         4        --
      Reversal of accrued restructuring expense                     (479)       --      (225)
      Changes in operating assets and liabilities:
         Receivables                                              (3,063)      551       164
         Inventories                                              (1,531)    2,038       (13)
         Refundable income taxes                                     253       215      (380)
         Other current assets                                       (276)      328      (207)
         Other assets                                                (72)        3        (8)
         Accounts payable                                          1,138      (945)      516
         Accrued liabilities and deferred revenue                  1,423      (580)    1,179
         Accrued restructuring expenses                             (399)     (447)     (446)
                                                                 -------   -------   -------
      Net cash provided by operating activities                    3,300     2,873     8,343
                                                                 -------   -------   -------
Cash flows from investing activities:
   Purchases of fixed assets                                      (2,891)   (2,756)   (1,178)
   Purchase of intangible assets                                      --      (510)       --
                                                                 -------   -------   -------
      Net cash used in investing activities                       (2,891)   (3,266)   (1,178)
                                                                 -------   -------   -------
Cash flows from financing activities:
   Term loan repayments                                               --        --      (420)
   Payment of deferred financing costs                               (88)       --        --
   Proceeds from stock option exercises                              687       347     1,516
   Purchases of common stock for treasury                         (2,625)   (3,867)       --
   Incremental tax benefits from stock options exercised             342
   Payment of cash dividends                                          --        --       (91)
   Payment of preferred stock conversion and registration             --        (3)     (102)
      expense
                                                                 -------   -------   -------
      Net cash (used in) provided by financing activities         (1,684)   (3,523)      903
                                                                 -------   -------   -------
Effect of exchange rate changes                                      132      (133)       62
                                                                 -------   -------   -------
(Decrease) increase in cash and cash equivalents                  (1,143)   (4,049)    8,130
Cash and cash equivalents, beginning of period                     4,579     8,628       498
                                                                 -------   -------   -------
Cash and cash equivalents, end of period                         $ 3,436   $ 4,579   $ 8,628
                                                                 =======   =======   =======
Supplemental cash flow information:
   Interest paid                                                 $    43   $    41   $    44
   Income taxes paid                                               1,201       431       517
Non-cash financing activities:
   Conversion of preferred stock to common stock                 $    --   $    --   $ 3,926
   Tax benefit related to employee stock sales and restricted
      stock                                                          342       337     2,332
   Accretion of preferred stock discount and issuance costs           --        --        24
   Issuance of restricted stock                                      207     1,231     1,400
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       33
<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS

          TransAct Technologies Incorporated ("TransAct"), which has its
     headquarters in Wallingford, CT and its primary operating facility in
     Ithaca, NY, operates in one industry segment, market-specific printers for
     transaction-based industries. These industries include gaming, lottery,
     banking and hospitality. Our printers are designed based on market specific
     requirements and are sold under the Ithaca(R) and Epic(TM) product brands.
     We distribute our products through OEMs, value-added resellers, selected
     distributors, and 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. We also generate revenue from the
     after-market side of the business, providing printer service, supplies and
     spare parts.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          STOCK SPLIT: On March 17, 2004, we effected a three-for-two split of
     our common stock in the form of a 50 percent stock dividend. All share and
     per-share amounts within the accompanying financial statements and
     footnotes reflect the stock split.

          PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
     statements were prepared on a consolidated basis to include the accounts of
     TransAct and its wholly-owned subsidiaries. All intercompany accounts,
     transactions and unrealized profit were eliminated in consolidation.

          RECLASSIFICATIONS: Certain amounts in the prior years' financial
     statements have been reclassified to conform to the current year's
     presentation.

          USE OF ESTIMATES: The accompanying consolidated financial statements
     were prepared using estimates and assumptions that affect the reported
     amounts of assets, liabilities, revenue and expenses, and disclosure of
     contingent assets and liabilities as of the date of the consolidated
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

          SEGMENT REPORTING: We apply the provisions of Statement of Financial
     Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
     and Related Information" ("FAS 131"). We view our operations and manage our
     business as one segment: the design, development, manufacture and sale of
     transaction-based printers. Factors used to identify TransAct's single
     operating segment include the organizational structure of the Company and
     the financial information available for evaluation by the chief operating
     decision-maker in making decisions about how to allocate resources and
     assess performance. We operate predominantly in one geographical area, the
     United States of America. See Note 20 for information regarding our
     international operations. We provide the following disclosures of revenues
     from products and services:

<TABLE>
<CAPTION>
                                  Year ended          Year ended          Year ended
(In thousands)                December 31, 2006   December 31, 2005   December 31, 2004
                              -----------------   -----------------   -----------------
<S>                           <C>        <C>      <C>        <C>      <C>        <C>
POS and banking printers       $16,858    26.2%    $16,410    32.1%    $17,659    29.5%
Gaming and lottery printers     34,677    53.9%     23,634    46.3%     31,937    53.4%
Services, spare parts and
   consumables                  12,793    19.9%     11,047    21.6%     10,251    17.1%
                               -------   -----     -------   -----     -------   -----
Total net sales                $64,328   100.0%    $51,091   100.0%    $59,847   100.0%
                               =======   =====     =======   =====     =======   =====
</TABLE>

     CASH AND CASH EQUIVALENTS: We consider all highly liquid investments with a
maturity date of three months or less at date of purchase to be cash
equivalents.

     ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS: We have
standardized credit granting and review policies and procedures for all customer
accounts, including:

     -    Credit reviews of all new customer accounts,

     -    Ongoing credit evaluations of current customers,

     -    Credit limits and payment terms based on available credit information,

     -    Adjustments to credit limits based upon payment history and the
          customer's current creditworthiness.


                                       34

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          We establish an allowance for doubtful accounts to ensure trade
     receivables are valued appropriately. We maintain an allowance for doubtful
     accounts based on a variety of factors, including the length of time
     receivables are past due, significant one-time events and historical
     experience. We record a specific allowance for individual accounts when we
     become aware of a customer's inability to meet its financial obligations,
     such as in the case of bankruptcy filings or deterioration in the
     customer's operating results or financial position. If circumstances
     related to customers change, we would further adjust estimates of the
     recoverability of receivables. Allowances for doubtful accounts on accounts
     receivable balances were $204,000 and $240,000, as of December 31, 2006 and
     2005, respectively.

          INVENTORIES: Inventories are stated at the lower of cost (principally
     standard cost which approximates actual cost on a first-in, first-out
     basis) or market. We assess market value based on historical usage and
     estimates of future demand in the market.

          FIXED ASSETS: Fixed assets are stated at cost. Depreciation is
     recorded using the straight-line method over the estimated useful lives.
     The estimated useful life of tooling is five years; machinery and equipment
     is ten years; furniture and office equipment is five to ten years; and
     computer software and equipment is three to seven years. Leasehold
     improvements are amortized over the shorter of the term of the lease or the
     useful life of the asset. Costs related to repairs and maintenance are
     expensed as incurred. The costs of sold or retired assets are removed from
     the related asset and accumulated depreciation accounts and any gain or
     loss is recognized. Depreciation expense was $1,466,000, $1,419,000 and
     $1,608,000 in 2006, 2005 and 2004, respectively.

          LEASES: Rent expense under non-cancelable operating leases with
     scheduled rent increases or free rent periods is accounted for on a
     straight-line basis over the lease term, beginning on the date of control
     of physical use of the asset or of initial possession. The amount of the
     excess of straight-line rent expense over scheduled payments is recorded as
     a deferred liability. Construction allowances and other such lease
     incentives are recorded as deferred credits, and are amortized on a
     straight-line basis as a reduction of rent expense beginning in the period
     they are deemed to be earned, which generally coincides with the occupancy
     date.

          GOODWILL: We adopted the provisions of Statement of Financial
     Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("FAS
     142") on January 1, 2002. Under FAS 142, goodwill is no longer amortized
     and is tested for impairment at least annually at the reporting unit level.

          We test goodwill annually for impairment, or whenever events or
     changes in circumstances indicate that the carrying value may not be
     recoverable. We have performed an impairment test as of December 31, 2006
     and determined that no impairment has occurred.

          REVENUE RECOGNITION: Our typical contracts include the sale of
     printers, which are sometimes accompanied by separately-priced extended
     warranty contracts. We also sell spare parts, consumables, and other repair
     services (sometimes pursuant to multi-year product maintenance contracts)
     which are not included in the original printer sale and are ordered by the
     customer as needed. We recognize revenue pursuant to the guidance within
     SAB 104, "Revenue Recognition." Specifically, revenue is recognized when
     evidence of an arrangement exists, delivery (based on shipping terms, which
     are generally FOB shipping point) has occurred, the selling price is fixed
     and determinable, and collectibility is reasonably assured. We provide for
     an estimate of product returns based on historical experience at the time
     of revenue recognition.

          Revenue related to extended warranty and product maintenance contracts
     is recognized pursuant to FASB Technical Bulletin 90-1 ("FTB 90-1"),
     "Accounting for Separately Priced Extended Warranty and Product Maintenance
     Contracts." Pursuant to FTB 90-1, revenue related to separately priced
     product maintenance contracts is deferred and recognized over the term of
     the maintenance period. We record deferred revenue for amounts received
     from customers for maintenance contracts prior to the maintenance period.


                                       35

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          CONCENTRATION OF CREDIT RISK: Financial instruments that potentially
     expose TransAct to concentrations of credit risk are limited to accounts
     receivable.

     Accounts receivable from customers representing 10% or more of total
accounts receivable were as follows:

<TABLE>
<CAPTION>
             December 31,
             ------------
              2006   2005
              ----   ----
<S>          <C>     <C>
Customer A     14%    19%
Customer B     10%      *
Customer C     14%      *
</TABLE>

*    - customer balances were less than 10% of total accounts receivable

     Sales to customers representing 10% or more of total net sales were as
follows:

<TABLE>
<CAPTION>
             Year ended December 31,
             -----------------------
               2006   2005   2004
               ----   ----   ----
<S>          <C>      <C>    <C>
Customer A      20%    17%     16%
Customer B        *    14%       *
Customer C        *      *     14%
</TABLE>

*    - customer balances were less than 10% of total net sales

          The primary operations of our United Kingdom subsidiary, a European
     sales and service center, relates to revenue generated from a service
     contract from a single customer in the United Kingdom. The contract has a
     termination date of May 2007. We do not expect that such contract will be
     renewed at the same volume of activity as the previous contract. We are
     currently evaluating the impact that this may have on our financial
     results.

          WARRANTY: We generally warrant our products for up to 24 months and
     record the estimated cost of such product warranties at the time the sale
     is recorded. Estimated warranty costs are based upon actual past experience
     of product repairs and the related estimated cost of labor and material to
     make the necessary repairs.

          The following table summarizes the activity recorded in the accrued
     product warranty liability:

<TABLE>
<CAPTION>
                                         Year ended December 31,
                                         -----------------------
(In thousands)                             2006    2005    2004
                                          -----   -----   -----
<S>                                      <C>      <C>     <C>
Balance, beginning of year                $ 644   $ 597   $ 495
Additions related to warranties issued      595     613     610
Warranty costs incurred                    (636)   (566)   (508)
                                          -----   -----   -----
Balance, end of year                      $ 603   $ 644   $ 597
                                          =====   =====   =====
</TABLE>

          Approximately $160,000 and $145,000 of the accrued product warranty
     liability were classified as long-term at December 31, 2006 and 2005,
     respectively.

          RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses
     include engineering, design and product development expenses incurred in
     connection with specialized engineering and design to introduce new
     products and to customize existing products, and are expensed as a
     component of operating expenses as incurred. We recorded approximately
     $2,824,000, $2,726,000 and $2,715,000 of research and development expense
     in the years ended December 31, 2006, 2005 and 2004, respectively.

          ADVERTISING: Advertising costs are expensed as incurred. Advertising
     expenses, which are included in selling and marketing on the accompanying
     consolidated statements of income, for the years ended December 31, 2006,
     2005 and 2004 totaled $182,000, $371,000 and $343,000, respectively.


                                       36

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          RESTRUCTURING: In 2001, we undertook a plan to consolidate all
     manufacturing and engineering into our existing Ithaca, NY facility and
     close our Wallingford, CT manufacturing facility. We continue to apply the
     consensus set forth in EITF 94-3, "Liability Recognition for Certain
     Employee Termination Benefits and Other Costs to Exit an Activity
     (Including Certain Costs Incurred in a Restructuring)" in recognizing
     restructuring expenses. See Note 8 for additional disclosures related to
     our restructuring plan.

          INCOME TAXES: The income tax amounts reflected in the accompanying
     financial statements are accounted for under the liability method in
     accordance with FAS 109 "Accounting for Income Taxes." Deferred tax assets
     and liabilities are recognized for the estimated future tax consequences
     attributable to differences between the financial statement carrying
     amounts of existing assets and liabilities and their respective tax bases
     and operating loss and tax credit carryforwards. Deferred tax assets and
     liabilities are measured using enacted tax rates in effect for the year in
     which those temporary differences are expected to be recovered or settled.
     We assess the likelihood that net deferred tax assets will be realized from
     future taxable income, and to the extent that we believe that realization
     is not likely, we establish a valuation allowance.

          FOREIGN CURRENCY TRANSLATION: The financial position and results of
     operations of our foreign subsidiary in the United Kingdom are measured
     using local currency as the functional currency. Assets and liabilities of
     such subsidiary have been translated into U.S. dollars at the year-end
     exchange rate, related revenues and expenses have been translated at the
     weighted average exchange rate for the year, and shareholders' equity has
     been translated at historical exchange rates. The resulting translation
     gains or losses, net of tax, are recorded in stockholders' equity as a
     cumulative translation adjustment, which is a component of accumulated
     other comprehensive income. Foreign currency transaction gains and losses,
     including those related to intercompany balances, are recognized in other
     income (expense).

          FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount for cash and
     cash equivalents approximates fair value because of the short maturity of
     these instruments. The carrying amount of receivables, accounts payable and
     accrued liabilities is a reasonable estimate of fair value because of the
     short-term nature of these accounts.

          COMPREHENSIVE INCOME: Statement of Accounting Standard No. 130,
     "Reporting Comprehensive Income" ("FAS 130"), requires that items defined
     as comprehensive income or loss be separately classified in the financial
     statements and that the accumulated balance of other comprehensive income
     or loss be reported separately from accumulated deficit and additional
     paid-in-capital in the equity section of the balance sheet. We include the
     foreign currency translation adjustment, net of tax, related to our
     subsidiary in the United Kingdom within our calculation of comprehensive
     income.

          SHARE-BASED PAYMENTS: In December 2004, the Financial Accounting
     Standards Board ("FASB") revised Statement of Financial Accounting
     Standards No. 123 (revised 2004), "Share-Based Payment" ("FAS 123R"), which
     establishes accounting for share-based awards exchanged for employee
     services and requires companies to expense the estimated fair value of
     these awards over the requisite employee service period. We adopted the
     accounting provisions of FAS 123R beginning in the first quarter of 2006.
     Prior to January 1, 2006, we accounted for share-based compensation to
     employees in accordance with Accounting Principles Board Opinion No. 25,
     ("APB 25") "Accounting for Stock Issued to Employees," and related
     interpretations. We also followed the disclosure requirements of Statement
     of Financial Accounting Standards No. 123, "Accounting for Stock-Based
     Compensation" ("FAS 123"), as amended by Statement of Financial Accounting
     Standards 148, "Accounting for Stock-Based Compensation - Transition and
     Disclosure" ("FAS 148").

          Under FAS 123R, share-based compensation expense is measured at the
     grant date, based on the estimated fair value of the award, and is
     recognized as expense over the employee's requisite service period. We have
     no awards with market or performance conditions. We adopted the provisions
     of FAS 123R on January 1, 2006, using a modified prospective application
     ("MPA"), which provides for certain changes to the method for valuing
     share-based compensation. Under the MPA, prior periods are not revised for
     comparative purposes. The valuation provisions of FAS 123R apply to new
     awards and to modifications or cancellations of awards that are outstanding
     on the effective date.


                                       37

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          In November 2005, the FASB issued FASB Staff Position No. FAS
     123(R)-3, "Transition Election Related to Accounting for Tax Effects of
     Share-Based Payment Awards." We have elected to adopt the alternative
     transition method provided in this FASB Staff Position for calculating the
     tax effects of share-based compensation pursuant to FAS 123R. The
     alternative transition method includes a simplified method to establish the
     beginning balance of the additional paid-in capital pool related to the tax
     effects of employee share-based compensation, which is available to absorb
     tax deficiencies recognized subsequent to the adoption of FAS 123R.

          We use the Black-Scholes option-pricing model to calculate the fair
     value of share based awards. The key assumptions for this valuation method
     include the expected term of the option, stock price volatility, risk-free
     interest rate, dividend yield and exercise price. Many of these assumptions
     are judgmental and highly sensitive in the determination of compensation
     expense. In addition, we estimate forfeitures when recognizing compensation
     expense, and we will adjust our estimate of forfeitures over the requisite
     service period based on the extent to which actual forfeitures differ, or
     are expected to differ, from such estimates. Changes in estimated
     forfeitures will be recognized through a cumulative true-up adjustment in
     the period of change and will also impact the amount of compensation
     expense to be recognized in future periods.

          On November 2, 2005, the Compensation Committee of the Board of
     Directors approved the acceleration of the vesting of all outstanding
     unvested stock options granted to directors, officers and employees of the
     Company under our applicable stock incentive plans. As a result of the
     acceleration, options to acquire approximately 109,500 shares of our common
     stock, which otherwise would have vested from time to time over the next
     four years, became immediately exercisable. All other terms and conditions
     applicable to the outstanding stock option grants remain in effect. The
     option plans under which accelerated grants were issued are our 1996 Stock
     Plan, 1996 Directors' Stock Plan and the 2001 Employee Stock Plan.

          The Compensation Committee's decision to accelerate the vesting of
     affected stock options was primarily based upon our required adoption of
     FAS 123R effective January 1, 2006. Due to the acceleration of vesting of
     unvested options prior to the adoption of FAS123R, we are only recording
     compensation expense related to stock options granted in 2006 and beyond.
     We recorded approximately $26,000 of compensation expense in the fourth
     quarter of 2005 related to the acceleration of vesting.

          NET INCOME AND LOSS PER SHARE: We report net income or loss per share
     in accordance with Financial Standard No. 128, "Earnings per Share (EPS)"
     ("FAS 128"). Under FAS 128, basic EPS, which excludes dilution, is computed
     by dividing income or loss available to common shareholders by the weighted
     average number of common shares outstanding for the period. Unvested
     restricted stock is excluded from the calculation of weighted average
     common shares for basic EPS. Net income or loss available to common
     shareholders represents reported net income or loss less accretion of
     redeemable convertible preferred stock and allocation of preferred
     earnings. Diluted EPS reflects the potential dilution that could occur if
     securities or other contracts to issue common stock were exercised or
     converted into common stock. Diluted EPS includes restricted stock,
     in-the-money options and warrants using the treasury stock method, and also
     includes the assumed conversion of preferred stock using the if-converted
     method, but only if dilutive. During a loss period, the assumed exercise of
     in-the-money stock options and warrants and the conversion of convertible
     preferred stock has an anti-dilutive effect, and therefore, these
     instruments are excluded from the computation of dilutive EPS. See Note 16
     for EPS calculation.

          Beginning in the second quarter of 2004, the Company applied the
     consensus set forth in EITF 03-06 "Participating Securities and the
     Two-Class Method under FASB Statement No. 128, Earnings Per Share", which
     requires the two-class method of computing earnings per share when
     participating securities, such as our redeemable preferred stock, are
     outstanding. The two-class method is an earnings allocation formula that
     determines earnings per share for common stock and participating securities
     based upon an allocation of earnings as if all of the earnings for the
     period had been distributed in accordance with participation rights on
     undistributed earnings. EITF 03-6 became effective for reporting periods
     beginning after March 31, 2004. The application of EITF 03-06 only impacted
     the calculation of earnings per share for the year ended December 31, 2004
     due to no preferred stock outstanding in 2006 and 2005.


                                       38

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          ACCOUNTING FOR INCOME TAX UNCERTAINTIES: In July 2006, the FASB issued
     FASB Interpretation 48, "Accounting for Income Tax Uncertainties" ("FIN
     48"). FIN 48 defines the threshold for recognizing the benefits of tax
     return positions in the financial statements as "more-likely-than-not" to
     be sustained by the taxing authority. The recently issued literature also
     provides guidance on the derecognition, measurement and classification of
     income tax uncertainties, along with any related interest and penalties.
     FIN 48 also includes guidance concerning accounting for income tax
     uncertainties in interim periods and increases the level of disclosures
     associated with any recorded income tax uncertainties. FIN 48 is effective
     for fiscal years beginning after December 15, 2006. The differences between
     the amounts recognized in the statements of financial position prior to the
     adoption of FIN 48 and the amounts reported after adoption will be
     accounted for as a cumulative-effect adjustment recorded to the beginning
     balance of retained earnings. In July 2006, the FASB issued FIN 48,
     Accounting for Uncertainty in Income Taxes, which will be effective the
     first quarter of 2007. Based on the "more-likely-than-not" standard under
     FIN 48, we expect that this guidance may impact the Company's recognition
     of tax benefits related to uncertain tax positions. However, the Company
     has not yet finalized its assessment of FIN 48.

          EFFECTS OF PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING CURRENT YEAR
     MISSTATEMENTS: In September 2006, the Securities and Exchange Commission
     issued Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects
     of Prior Year Misstatements when Quantifying Current Year Misstatements".
     SAB No. 108 requires analysis of misstatements using both an income
     statement (rollover) approach and balance sheet (iron curtain) approach in
     assessing materiality and provides for a one-time cumulative effect
     transition adjustment. SAB No. 108 is effective for our fiscal year 2006
     annual financial statements. The adoption of this guidance did not have a
     material impact on our financial position, results of operations or cash
     flows.

          FAIR VALUE MEASUREMENTS: In September 2006, the FASB issued Statement
     of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FASB
     157") which is effective for fiscal years beginning after November 15, 2007
     and for interim periods within those years. This statement defines fair
     value, establishes a framework for measuring fair value and expands the
     related disclosure requirements. Because the guidance was recently issued,
     management has not yet determined the impact, if any, of adopting the
     provisions of FASB 157 on the Company's financial position and results of
     operations.

4.   INVENTORIES

          The components of inventories are:

<TABLE>
<CAPTION>
                                                December 31,
                                              ---------------
(In thousands)                                 2006     2005
                                              ------   ------
<S>                                           <C>      <C>
Raw materials and purchased component parts   $7,337   $5,788
Finished goods                                   230      248
                                              ------   ------
                                              $7,567   $6,036
                                              ======   ======
</TABLE>

5.   FIXED ASSETS

     The components of fixed assets are:

<TABLE>
<CAPTION>
                                                      December 31,
                                                  -------------------
(In thousands)                                      2006       2005
                                                  --------   --------
<S>                                               <C>        <C>
Tooling, machinery and equipment                  $ 12,407   $ 13,748
Furniture and office equipment                       1,560      1,553
Computer software and equipment                      4,985      3,515
Leasehold improvements                               1,051        949
                                                  --------   --------
                                                    20,003     19,765
Less: accumulated depreciation and amortization    (14,065)   (15,255)
                                                  --------   --------
                                                  $  5,938   $  4,510
                                                  ========   ========
</TABLE>


                                       39

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   INTANGIBLE ASSETS

          On June 30, 2005, we acquired certain intangible assets related to
     casino ticket printer designs and technology from Bally Gaming, Inc.
     ("Bally") for $475,000, plus the costs of effecting the acquisition
     (approximately $35,000). Prior to the acquisition, pursuant to the terms of
     a license agreement, we were required to pay Bally a royalty on sales of
     certain gaming printers utilizing the licensed technology. As a result of
     the acquisition, effective July 1, 2005, we were no longer required to pay
     any future royalties to Bally.

          The purchase price was allocated, based on management's estimates, to
     intangible assets based on their relative fair value at the date of
     acquisition. The fair value of the intangibles, comprised of purchased
     technology and a covenant not to compete, was determined using the future
     discounted cash flows method. The intangible assets are being amortized on
     a straight-line basis over six and seven years, respectively, for the
     estimated life of the assets.

          The following summarizes the allocation of the purchase price for the
     acquisition of certain intangible assets from Bally (in thousands):

<TABLE>
<S>                       <C>
Purchased technology      $364
Covenant not to compete    146
                          ----
Consideration paid        $510
                          ====
</TABLE>

          Amortization expense associated with the technology purchased from
     Bally was $81,000 and $41,000 for 2006 and 2005, respectively. Amortization
     expense for each of the next five years ending December 31 is expected to
     be as follows: $81,000 in each of 2007 through 2010; and $51,000 in 2011.

7.   ACCRUED LIABILITIES

          The components of accrued liabilities (current portion) are:

<TABLE>
<CAPTION>
                                December 31,
                              ---------------
(In thousands)                 2006     2005
                              ------   ------
<S>                           <C>      <C>
Payroll and fringe benefits   $1,671   $1,219
Income taxes                     710      679
Warranty - current portion       443      499
Rent and occupancy               251      200
Professional and consulting      364       80
Other                            608      521
                              ------   ------
                              $4,047   $3,198
                              ======   ======
</TABLE>

8.   ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING EXPENSES

          In February 2001, we announced plans to establish a global engineering
     and manufacturing center at our Ithaca, NY facility. As part of this
     strategic decision, we undertook a plan to consolidate all manufacturing
     and engineering into our existing Ithaca, NY facility and close our
     Wallingford, CT manufacturing facility (the "Consolidation"). As of
     December 31, 2001, substantially all Wallingford product lines were
     successfully transferred to Ithaca, NY. We currently maintain our corporate
     headquarters and a service center in Wallingford. The closing of the
     Wallingford manufacturing facility resulted in the termination of
     employment of approximately 70 production, administrative and management
     employees. We continue to apply the consensus set forth in EITF 94-3,
     "Liability Recognition for Certain Employee Termination Benefits and Other
     Costs to Exit an Activity (Including Certain Costs Incurred in a
     Restructuring)" in recognizing the accrued restructuring expenses.

          During 2001 through 2003, we recorded expenses of approximately
     $6,182,000 related to costs associated with the Consolidation, including
     severance pay, stay bonuses, employee benefits, moving expenses,
     non-cancelable lease payments, accelerated depreciation and other costs.


                                       40

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING EXPENSES (CONTINUED)

          In December 2004, we determined that certain functions would be
     relocated and/or expanded in our Wallingford, CT corporate offices. In
     order to achieve the benefit of these changes, we expanded our use of space
     in our current facility. Because of this increase in use of space in the
     Wallingford facility, and because we had experienced lower than expected
     operating and maintenance costs than previously estimated, during 2004 we
     reversed $225,000 of previously accrued amounts provided for the remaining
     non-cancelable lease payments and related costs.

          In November 2006, we executed an agreement effective May 1, 2007 to
     terminate the lease agreement for our Wallingford, CT facility (the
     "Release Agreement"). Prior to the execution of the Release Agreement, we
     accrued for the remaining non-cancelable lease payments and other related
     costs for the unused portion of this facility through the expiration date
     of the lease (March 31, 2008). As a result of the Release Agreement and the
     early termination of the lease, we were released from the legal obligation
     for lease payments after May 1, 2007 and, accordingly, we were released
     from the legal obligation for lease payments after May 1, 2007 and,
     accordingly, we reversed approximately $479,000 of previously accrued
     restructuring reserve in the fourth quarter of 2006. As of December 31,
     2006, our restructuring accrual was $315,000, which represents the
     estimated remaining non-cancelable lease payments and other related costs
     for the unused portion of this facility through the new termination date of
     the lease (May 1, 2007).

          The following table summarizes the activity recorded in the
     restructuring accrual:

<TABLE>
<CAPTION>
                                           Year ended December 31,
                                          ------------------------
(In thousands)                             2006     2005     2004
                                          ------   ------   ------
<S>                                       <C>      <C>      <C>
Accrual balance, beginning of year        $1,193   $1,640   $2,311
                                          ------   ------   ------
Business consolidation and
   restructuring expenses:
   Reversal of lease obligation related
      to unused space                       (479)      --     (225)
                                          ------   ------   ------
                                            (479)      --     (225)
                                          ------   ------   ------
Cash payments                               (399)    (447)    (446)
                                          ------   ------   ------
Accrual balance, end of year              $  315   $1,193   $1,640
                                          ======   ======   ======
</TABLE>

          At December 31, 2006 and 2005, $0 and $773,000, respectively, of the
     restructuring accrual was classified as part of long-term liabilities. The
     long-term portion represents the portion of non-cancelable lease
     termination costs and other costs expected to be paid beyond one year.

9.   RETIREMENT SAVINGS PLAN

          On April 1, 1997, we established the TransAct Technologies Retirement
     Savings Plan (the "401(k) Plan"), a defined contribution plan under Section
     401(k) of the Internal Revenue Code. All full-time employees are eligible
     to participate in the 401(k) Plan at the beginning of the calendar quarter
     immediately following their date of hire. We match employees' contributions
     at a rate of 50% of employees' contributions up to the first 6% of the
     employees' compensation contributed to the 401(k) Plan. Our matching
     contributions were $249,000, $225,000 and $201,000 in 2006, 2005 and 2004,
     respectively.


                                       41

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  BORROWINGS

          On November 28, 2006, we signed a new, five-year $20 million credit
     facility (the "New TD Banknorth Credit Facility") with TD Banknorth, N.A.
     ("TD Banknorth"). The new credit facility provides for a $20 million
     revolving credit line expiring on November 28, 2011. The New TD Banknorth
     Credit facility replaces a previous $11.5 million credit facility also with
     TD Banknorth. Borrowings under the new revolving credit line bear a
     floating rate of interest at the prime rate minus one-percent and are
     secured by a lien on all of our assets. We also pay a fee of 0.25% on
     unused borrowings under the revolving credit line. Deferred financing costs
     relating to expenses incurred to complete the New TD Banknorth Credit
     Facility were $88,000 at December 31, 2006. The New TD Banknorth Credit
     Facility imposes certain quarterly financial covenants on us and restricts
     the payment of dividends on our common stock and the creation of other
     liens. We were in compliance with all financial covenants of the New TD
     Banknorth Credit Facility at December 31, 2006.

          As of December 31, 2006, we had no outstanding borrowings on the
     revolving credit line. Undrawn commitments under the New TD Banknorth
     Credit Facility were $20,000,000 at December 31, 2006.

11.  COMMITMENTS AND CONTINGENCIES

          In April 2005, we announced a complaint against FutureLogic, Inc.
     ("FutureLogic") in Connecticut, which charges FutureLogic with
     disseminating false and misleading statements. We assert claims of
     defamation and certain other charges. In May 2005, FutureLogic filed a
     complaint against us in California, asserting false advertising,
     defamation, trade libel and certain other charges. We moved to dismiss
     FutureLogic's action in California, on the grounds that any claims raised
     in that action should have been brought as part of the case filed by us in
     Connecticut. In the alternative, we moved to stay the California action
     pending the resolution of jurisdictional motions in the Connecticut court.
     In January 2006, the California court filed an order granting our motion to
     stay the California proceeding pending the resolution of jurisdictional
     motions in the Connecticut case. Under the California court's order, should
     the Connecticut court find that it has jurisdiction over FutureLogic,
     FutureLogic's case will be transferred to the Connecticut court for
     consolidation with the action pending in that forum. In September 2006, the
     District of Connecticut dismissed our case because of a lack of
     jurisdiction. The decision was not on the merits of our claims, but on the
     jurisdiction of the court in which the suit was brought. The California
     District Court has been notified of this development. The action is
     currently in the pre-trial motion stage and, as of December 31, 2006, we
     are currently unable to estimate any potential liability or range of loss
     associated with this litigation. Accordingly, no amounts have been accrued
     in the financial statements related to this matter.

          At December 31, 2005, we were lessee on operating leases for equipment
     and real property. Rent expense was approximately $1,330,000, $1,294,000
     and $1,098,000 in 2006, 2005 and 2004, respectively. Minimum aggregate
     rental payments required under operating leases that have initial or
     remaining non-cancelable lease terms in excess of one year as of December
     31, 2006 are as follows: $978,000 in 2007; $877,000 in 2008; $867,000 in
     2009; $716,000 in 2010; $745,000 in 2011; and $1,440,000 thereafter. Such
     payments include those related to the lease of our Wallingford, CT
     manufacturing facility, a portion of which has been recognized within the
     restructuring accrual described in Note 8.

12.  PATENT LICENSE FEES

          During 2004, we signed a cross licensing agreement with Seiko Epson.
     Under the agreement, Seiko Epson received a license to three of our
     patents, and we received a license to eighteen of Seiko Epson's patents
     relating to printing applications for the point of sale and banking
     markets. In addition, we agreed to pay $900,000 as a royalty for the usage
     of certain Seiko Epson technology prior to January 1, 2003, which we paid
     in full by January 2005. Under the agreement, we continue to pay royalties
     on a quarterly basis related to the sales of licensed printers, which is
     reflected in cost of sales.


                                       42

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  STOCK INCENTIVE PLANS AND WARRANTS

          STOCK INCENTIVE PLANS. We currently have four primary stock incentive
     plans: the 1996 Stock Plan, which provides for the grant of awards to
     officers and other key employees of the Company; the 1996 Directors' Stock
     Plan, which provides for non-discretionary awards to non-employee
     directors; the 2001 Employee Stock Plan, which provides for the grant of
     awards to key employees of the Company and other non-employees who may
     provide services to the Company; and the 2005 Equity Incentive Plan, which
     provides for awards to executives, key employees, directors and
     consultants. The plans generally provide for awards in the form of: (i)
     incentive stock options, (ii) non-qualified stock options, (iii) restricted
     stock, (iv) restricted stock units, (v) stock appreciation rights or (vi)
     limited stock appreciation rights. However, the 2001 Employee Stock Plan
     does not provide for incentive stock option awards. Options granted under
     these plans have exercise prices equal to 100% of the fair market value of
     the common stock at the date of grant. Options granted have a ten-year term
     and generally vest over a three- to five-year period, unless automatically
     accelerated for certain defined events. Effective upon the approval of the
     2005 Equity Incentive Plan on May 25, 2005, no new awards will be made
     under the 1996 Stock Plan, the 1996 Directors' Stock Plan or the 2001
     Employee Stock Plan. At December 31, 2006, approximately 462,000 shares of
     common stock remained available for issuance under the 2005 Equity
     Incentive Plan.

          EMPLOYEE STOCK PURCHASE PLAN: In May 2000, our shareholders approved
     the Employee Stock Purchase Plan (the "ESPP"), under which 75,000 shares of
     our common stock were available for issuance to employees beginning June 1,
     2000. All full-time employees were eligible to participate in the ESPP at
     the beginning of each six-month period (the "Offering Period"), which began
     on June 1 and December 1. Eligible employees could elect to withhold up to
     5% of their salary to purchase shares of our common stock at a price equal
     to 85% of the fair market value of the stock on the first or last day of
     each Offering Period, whichever is lower. The ESPP was terminated on May
     31, 2005. We issued 2,690 and 3,706, shares of common stock under the ESPP
     during 2005 and 2004, respectively. At December 31, 2006, no shares
     remained available for issuance due to the termination of the ESPP.

          Under the assumptions indicated below, the weighted-average fair value
     of stock option grants for the year ended December 31, 2006 and 2004 was
     $5.91 and $20.64, respectively. No fair value or assumptions have been
     disclosed for the year ended December 31, 2005 as no stock option grants
     were made during this period. The table below indicates the key assumptions
     used in the option valuation calculations for options granted in the twelve
     months ended December 31, 2006 and 2004 and a discussion of our methodology
     for developing each of the assumptions used in the valuation model:

<TABLE>
<CAPTION>
                          Year ended December   Year ended December
                                31, 2006              31, 2004
                          -------------------   -------------------
<S>                       <C>                   <C>
Expected option term           5.2 years             8.9 years
Expected volatility                 78.4%                 81.5%
Risk-free interest rate              4.5%                  3.6%
Dividend yield                         0%                    0%
</TABLE>

          Expected Option Term - This is the weighted average period of time
     over which the options granted are expected to remain outstanding giving
     consideration to our historical exercise patterns. Options granted have a
     maximum term of ten years. An increase in the expected term will increase
     compensation expense.

          Expected Volatility - The stock volatility for each grant is measured
     using the weighted average of historical daily price changes of our common
     stock over the most recent period approximately equal to the expected
     option term of the grant. An increase in the expected volatility factor
     will increase compensation expense.

          Risk-Free Interest Rate - This is the U.S. Treasury rate in effect at
     the time of grant having a term approximately equal to the expected term of
     the option. An increase in the risk-free interest rate will increase
     compensation expense.

          Dividend Yield - We have not made any dividend payments on our common
     stock, and we have no plans to pay dividends in the foreseeable future. An
     increase in the dividend yield will decrease compensation expense.


                                       43

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)

          Prior to adopting the provisions of FAS 123R, we recorded estimated
     compensation expense for employee stock options based upon their intrinsic
     value on the date of grant pursuant to APB 25 and provided the required pro
     forma disclosures of FAS 123. Because we established the exercise price
     based on the fair market value of our common stock at the date of grant,
     the stock options had no intrinsic value upon grant, and therefore no
     expense was recorded prior to adopting FAS 123R. We recorded compensation
     expense for restricted stock at the fair value of the stock at the date of
     grant, recognized over the service period. Each accounting period, we
     reported the potential dilutive impact of stock options in our diluted
     earnings per common share using the treasury-stock method. Out-of-the-money
     stock options (i.e., the average stock price during the period was below
     the strike price of the stock option) were not included in diluted earnings
     per common share as their effect was anti-dilutive.

          For purposes of pro forma disclosures under FAS 123 for the years
     ended December 31, 2005 and 2004, the estimated fair value of the
     share-based awards was assumed to be amortized to expense over the stock
     option's vesting periods. The pro forma effects of recognizing estimated
     compensation expense under the fair value method on net income and net
     income per common share were as follows:

<TABLE>
<CAPTION>
                                                                   Year ended     Year ended
                                                                  December 31,   December 31,
                                                                      2005           2004
(In thousands, except per share data)                             ------------   ------------
<S>                                                               <C>            <C>
Net income available to common shareholders:
   Net income available to common shareholders, as reported         $   377         $5,236
   Add: Stock-based compensation expense included
      in reported net income, net of tax                                315            205
   Deduct: Stock-based compensation expense determined
      under fair value based method for all awards, net
      of tax                                                         (1,294)          (390)
                                                                    -------         ------
   Pro forma net (loss) income available to common shareholders     $  (602)        $5,051
                                                                    =======         ======
Net (loss) income per common share:
   Basic:
      As reported                                                   $  0.04         $ 0.55
      Pro forma                                                     $ (0.06)        $ 0.53
   Diluted:
      As reported                                                   $  0.04         $ 0.51
      Pro forma                                                     $ (0.06)        $ 0.49
</TABLE>

          The fair values used to reflect the pro forma effects of estimated
     share-based compensation expense on net income and earnings per common
     share for the years ended December 31, 2005 and 2004 were estimated at the
     date of grant using the Black-Scholes option-pricing model.


                                       44

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)

          After the adoption of FAS 123R, we recognized compensation expense
     associated with awards granted after January 1, 2006, and the unvested
     portion of previously granted restricted stock awards that were outstanding
     as of January 1, 2006, in our condensed consolidated statement of income
     for the year ended December 31, 2006. During 2006, we recognized
     compensation expense, net of reversal of expense related to forfeitures, of
     $111,000 for stock options and $470,000 for restricted stock, which was
     recorded in our consolidated statement of income. The income tax benefits
     from share-based payments recorded in the income statement totaled $204,000
     for 2006. No compensation expense related to stock options was recorded in
     2005 and $458,000 in compensation expense related to restricted stock was
     recorded in 2005. The following table illustrates the impact of the
     adoption of FAS 123R on reported amounts:

<TABLE>
<CAPTION>
                              Year ended December 31, 2006
                              ----------------------------
                                             Impact of
                                     As       FAS 123R
                                  Reported    Adoption
                                  --------   ---------
<S>                            <C>           <C>
Operating income                   $6,088      $ 111
Income before income taxes          6,033        111
Net income                          3,916         72
Net income per share:
   Basic                           $ 0.41      $0.01
   Diluted                           0.40       0.01
</TABLE>

          For the year ended December 31, 2006, the adoption of FAS 123R
     resulted in tax benefits from stock options exercised in the period being
     classified as financing activities in the 2006 statement of cash flows.
     Shares that are issued upon exercise of employee stock options are newly
     issued shares and not issued from treasury stock. Upon the adoption of FAS
     123R, we also reclassified the unamortized restricted stock compensation
     account of $1,837,000 against additional paid-in capital. This adjustment
     was applied using MPA and, accordingly, has not been reflected in the 2005
     financial statements.


                                       45

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)

          The 1996 Stock Plan, 1996 Directors' Stock Plan, 2001 Employee Stock
     Plan and 2005 Equity Incentive Plan option activity is summarized below:

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                ---------------------------------------------------------------
                                        2006                 2005                  2004
                                -------------------   ------------------   --------------------
                                           Weighted             Weighted               Weighted
                                            Average              Average                Average
                                           Exercise             Exercise               Exercise
                                 Shares      Price     Shares     Price      Shares      Price
                                --------   --------   -------   --------   ---------   --------
<S>                             <C>        <C>        <C>       <C>        <C>         <C>
Outstanding at beginning of
   period:                       741,501    $ 6.10    813,664    $ 5.97    1,123,533    $ 4.50
   Granted                       115,000      8.83         --        --       52,750     26.81
   Exercised                    (136,157)     5.05    (71,064)     4.55     (321,947)     4.28
   Canceled                      (13,000)    10.62     (1,099)     3.93      (40,672)     5.74
                                --------    ------    -------    ------    ---------    ------
Outstanding at end of period     707,344    $ 6.67    741,501    $ 6.10      813,664    $ 5.97
                                ========    ======    =======    ======    =========    ======
Options exercisable at end of
   Period                        602,344    $ 6.29    741,501    $ 6.10      458,382    $ 4.67
                                ========    ======    =======    ======    =========    ======
</TABLE>

<TABLE>
<CAPTION>
                                      Options Outstanding
                           ----------------------------------------       Options Exercisable
                                                         Weighted-    --------------------------
                                            Weighted-     Average                      Weighted-
                           Outstanding at    Average     Remaining    Exercisable at    Average
                            December 31,     Exercise   Contractual    December 31,     Exercise
Range of Exercise Prices        2006          Price         Life           2006          Price
------------------------   --------------   ---------   -----------   --------------   ---------
                                                         (In years)
<S>                        <C>              <C>         <C>           <C>              <C>
$ 2.00 - $ 5.00                423,469        $ 3.70        5.0           423,469        $ 3.70
  5.01 -   7.50                115,875          6.53        4.3           115,875          6.53
  7.51 -  10.00                118,750          8.74        8.2            13,750          8.09
 10.01 -  25.00                 13,500         16.50        5.2            13,500         16.50
 25.01 -  35.00                 35,750         31.66        7.2            35,750         31.66
                               -------                                    -------
                               707,344          6.67        5.6           602,344          6.29
                               =======                                    =======
</TABLE>

          At December 31, 2006, outstanding stock options at the end of the year
     had an intrinsic value of $2,180,000. At December 31, 2006, outstanding
     stock options that are vested or expected to vest were 658,603 at a
     weighted average exercise price of $6.67. In addition, outstanding stock
     options that are vested or expected to vest had an intrinsic value of
     $2,042,000 with a weighted average remaining contractual life of 4.0 years.
     As of December 31, 2006, unrecognized compensation cost related to stock
     options totaled $509,000, which is expected to be recognized over a
     weighted average period of 4.1 years.

          At December 31, 2006, exercisable stock options had an intrinsic value
     of $2,159,000 with a weighted average remaining contractual life of 4.9
     years. In addition, exercisable stock options that are vested or expected
     to vest were 556,417 and had an intrinsic value of $2,022,000 at a
     weighted average exercise price of $6.29.

          The total intrinsic value of stock options exercised was $825,000 for
     the year ended December 31, 2006. No stock options vested during the year
     ended December 31, 2006.

          Cash received from stock option exercises for the year ended December
     31, 2006 was $687,000.


                                       46

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)

          RESTRICTED STOCK: Under the 1996 Stock Plan, 2001 Employee Stock Plan
     and 2005 Equity Incentive Plan, we have granted shares of restricted common
     stock, for no consideration, to our officers, directors and certain key
     employees. Restricted stock activity for the 1996 Stock Plan, 2001 Employee
     Stock Plan and 2005 Equity Incentive Plan is summarized below:

<TABLE>
<CAPTION>
                                             Weighted
                                          Average Grant
                                            Date Fair
                                              Values
                                          -------------
<S>                                       <C>
Nonvested shares at December 31, 2005         $12.23
   Granted                                     13.78
   Vested                                      12.78
   Canceled                                    12.64
Nonvested shares at December 31, 2006          12.22
</TABLE>

<TABLE>
<CAPTION>
                                            Year Ended December 31,
                                          ---------------------------
                                            2006      2005      2004
                                          -------   -------   -------
<S>                                       <C>       <C>       <C>
Nonvested shares at beginning of period   187,550    79,500    16,999
   Granted                                 15,000   125,400    81,000
   Vested                                 (36,684)  (17,100)  (15,499)
   Canceled                               (11,750)     (250)   (3,000)
                                          -------   -------   -------
Nonvested shares at end of period         154,116   187,550    79,500
                                          =======   =======   =======
</TABLE>

          As of December 31, 2006, unrecognized compensation cost related to
     restricted stock totaled $1,426,000, which is expected to be recognized
     over a weighted average period of 3.1 years. The total intrinsic value of
     restricted stock that vested during the twelve months ended December 31,
     2006 was $338,000.

14.  STOCKHOLDER RIGHTS PLAN

          In December 1997, our Board of Directors adopted a Stockholder Rights
     Plan declaring a distribution of one right (the "Rights") for each
     outstanding share of our common stock to shareholders of record at December
     15, 1997. Initially, each of the Rights will entitle the registered holder
     to purchase from the Company one one-thousandth of a share of Series A
     Preferred Stock, $0.01 par value, at a price of $69 per one one-thousandth
     of a share. The Rights, however, will not become exercisable unless and
     until, among other things, any person or group of affiliated persons
     acquires beneficial ownership of 15 percent or more of the then outstanding
     shares of the Company's Common Stock. If a person, or group of persons,
     acquires 15 percent or more of the outstanding Common Stock of the Company
     (subject to certain conditions and exceptions more fully described in the
     Rights Agreement), each Right will entitle the holder (other than the
     person, or group of persons, who acquired 15 percent or more of the
     outstanding Common Stock) to purchase Preferred Stock of the Company having
     a market value equal to twice the exercise price of the Right. The Rights
     are redeemable, under certain circumstances, for $0.0001 per Right and will
     expire, unless earlier redeemed, on December 2, 2007.

          On February 16, 1999, we amended the Stockholder Rights Plan to remove
     the provision in the plan that stipulated that the plan may be modified or
     redeemed only by those members of the Board of Directors who are defined as
     continuing directors.


                                       47
<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  INCOME TAXES

          The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
                                 Year Ended December 31,
                                 -----------------------
(In thousands)                    2006     2005    2004
                                 ------   -----   ------
<S>                              <C>      <C>     <C>
Current:
   Federal                       $  952   $   7   $2,077
   State                             41      68      216
   Foreign                          541     525      306
                                 ------   -----   ------
                                  1,534     600    2,599
                                 ------   -----   ------
Deferred:
   Federal                          552    (634)     363
   State                             31     (14)      17
   Foreign                           --      --       --
                                 ------   -----   ------
                                    583    (648)     380
                                 ------   -----   ------
Income tax provision (benefit)   $2,117   $ (48)  $2,979
                                 ======   =====   ======
</TABLE>

          At December 31, 2006, we have $1,599,000 of state net operating loss
     carryforwards that begin to expire in 2009, and no federal net operating
     loss carryforwards. We also have approximately $129,000 in federal research
     and development tax credit carryforwards that begin to expire in 2011 and
     foreign tax credit carryforwards of approximately $401,000 that begin to
     expire in 2011. We had foreign income before taxes of $1,813,000,
     $1,833,000 and $1,084,000 in 2006, 2005 and 2004, respectively.

          Deferred income taxes arise from temporary differences between the tax
     basis of assets and liabilities and their reported amounts in the financial
     statements. Our gross deferred tax assets and liabilities were comprised of
     the following:

<TABLE>
<CAPTION>
                                            December 31,
                                          ---------------
(In thousands)                             2006     2005
                                          ------   ------
<S>                                       <C>      <C>
Gross deferred tax assets:
   Net operating losses                   $   47   $   67
   Accrued restructuring expenses            116      418
   Capitalized research and development      574      790
   Inventory reserves                        702      800
   Deferred revenue                          100      165
   Warranty reserve                          223      238
   Foreign tax and other credits             615      927
   Other liabilities and reserves            516      591
                                          ------   ------
                                           2,893    3,996
Valuation allowance                          (64)    (207)
                                          ------   ------
   Net deferred tax assets                 2,829    3,789
                                          ------   ------
Gross deferred tax liabilities:
   Depreciation                               12      401
   Other                                     108       96
                                          ------   ------
      Net deferred tax liabilities           120      497
                                          ------   ------
Net deferred tax assets                   $2,709   $3,292
                                          ======   ======
</TABLE>


                                       48

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  INCOME TAXES (CONTINUED)

          During 2006 and 2005, we recorded a valuation allowance of $64,000 and
     $207,000 on a portion of our foreign tax credits, research and development
     credits and certain state net operating loss carryforwards. We have
     determined that it is more likely than not that the remaining net deferred
     tax assets will be realized, and no additional valuation allowance is
     considered necessary, as of December 31, 2006 and 2005.

          Differences between the U.S. statutory federal income tax rate and our
     effective income tax rate are analyzed below:

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                  -----------------------
                                                   2006     2005    2004
                                                   ----    -----    ----
<S>                                               <C>      <C>      <C>
Federal statutory tax rate                         34.0%    34.0%   34.0%
State income taxes, net of federal income taxes     1.1     (9.1)    1.0
Tax benefit from tax credits, net of valuation
   allowance                                       (0.7)   (17.5)   (0.8)
Foreign rate differential                            --      9.4    (0.7)
Valuation allowance and tax accruals                0.4    (41.7)     --
Permanent items                                     0.6     13.0      --
Other                                              (0.3)    (2.7)    1.8
                                                   ----    -----    ----
   Effective tax rate                              35.1%   (14.6%)  35.3%
                                                   ====    =====    ====
</TABLE>

16.  EARNINGS PER SHARE

          For the years ended December 31, 2006, 2005 and 2004, earnings per
     share were computed as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                            --------------------------
                                                             2006      2005      2004
                                                            ------   -------   -------
<S>                                                         <C>      <C>       <C>
Net income                                                  $3,916   $   377   $ 5,458
Dividends and accretion on preferred stock                      --        --      (111)
Earnings allocation to preferred shareholders                   --        --      (111)
                                                            ------   -------   -------
Net income available to common shareholders                 $3,916   $   377   $ 5,236
                                                            ======   =======   =======
Shares:
   Basic: Weighted average common shares outstanding         9,577     9,849     9,593
   Add: Dilutive effect of outstanding options and
      warrants as determined by the treasury stock method      293       314       638
                                                            ------   -------   -------
   Diluted: Weighted average common and common
      equivalent shares outstanding
                                                             9,870    10,163    10,231
                                                            ======   =======   =======
Net income per common share:
   Basic                                                    $ 0.41   $  0.04   $  0.55
   Diluted                                                    0.40      0.04      0.51
</TABLE>

          For the years ended December 31, 2006 and 2005, potentially dilutive
     shares that were excluded from the earnings per share calculation,
     consisting of out-of-the-money stock options and warrants, were 101,750 and
     52,250 shares, respectively.


                                       49

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  PREFERRED STOCK

          On April 7, 2000 we sold 4,000 shares of 7% Series B Cumulative
     Convertible Redeemable Preferred Stock (the "Preferred Stock") in
     consideration of $1,000 per share (the "Stated Value"), for a total of
     $4,000,000, less issuance costs. The holders of the Preferred Stock were
     entitled to receive a cumulative annual dividend of $70 per share, payable
     quarterly and had preference to any other dividends, if any, paid by the
     Company. In April 2004, all shareholders of our Series B Preferred Stock
     converted all their preferred shares into common stock. Pursuant to the
     conversion, a total of 666,665 new shares of common stock were issued. We
     recorded the costs of registering and issuing these shares as a deduction
     to Additional Paid-In Capital.

18.  STOCK REPURCHASE PROGRAM

          On March 25, 2005, our Board of Directors approved a stock repurchase
     program ("the Stock Repurchase Program"). Under the Stock Repurchase
     Program, we are authorized to repurchase up to $10 million of our
     outstanding shares of common stock from time to time in the open market
     over a three-year period ending on March 25, 2008, depending on market
     conditions, share price and other factors. As of December 31, 2006, we
     repurchased a total of 801,300 shares of common stock for approximately
     $6,492,000 under this program, at an average price of $8.10 per share. We
     use the cost method to account for treasury stock purchases, under which
     the price paid for the stock is charged to the treasury stock account.

19.  INTERNATIONAL OPERATIONS

          We have foreign operations primarily from TransAct Technologies Ltd.,
     a wholly-owned subsidiary in the United Kingdom, which had sales to its
     customers of approximately $2,722,000, $2,181,000 and $1,000,000 in 2006,
     2005 and 2004, respectively. Tangible assets at foreign locations are not
     material. We had sales from the United States to our customers outside of
     the United States of approximately $11,416,000, $10,137,000 and $5,423,000
     in 2006, 2005 and 2004, respectively. International sales do not include
     sales of printers made to domestic distributors or other domestic customers
     who in turn may ship those printers to international destinations.

20.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

          Our quarterly results of operations for 2006 and 2005 are as follows:

<TABLE>
<CAPTION>
                                                            Quarter Ended
                                           -----------------------------------------------
(In thousands, except per share amounts)   March 31   June 30   September 30   December 31
                                           --------   -------   ------------   -----------
<S>                                        <C>        <C>       <C>            <C>
2006:
   Net sales                                $16,434   $16,905      $15,276       $15,713
   Gross profit                               5,687     5,746        5,438         5,494
   Net income                                 1,057       857        1,019           983
   Net income per share:
      Basic                                    0.11      0.09         0.11          0.10
      Diluted                                  0.11      0.09         0.10          0.10
</TABLE>

<TABLE>
<CAPTION>
                                           March 31   June 30   September 30   December 31
                                           --------   -------   ------------   -----------
<S>                                        <C>        <C>       <C>            <C>
2005:
   Net sales                                $12,036   $12,346      $14,210       $12,499
   Gross profit                               3,677     4,254        4,576         3,083
   Net income (loss)                            163       267          674          (727)
   Net income (loss) per share:
      Basic                                    0.02      0.03         0.07         (0.08)
      Diluted                                  0.02      0.03         0.07         (0.08)
</TABLE>


                                       50

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                                   Schedule II
                        Valuation and Qualifying Accounts
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                              Balance at                                  Balance at
                                             Beginning of               Write-offs, net     End of
Description                                     Period      Provision    of recoveries      Period
-----------                                  ------------   ---------   ---------------   ----------
<S>                                          <C>            <C>         <C>               <C>
Valuation account for accounts receivable:
Year ended December 31, 2006                    $  240         $ --          $ (36)         $  204
Year ended December 31, 2005                    $  175         $ 68          $  (3)         $  240
Year ended December 31, 2004                    $  100         $ 73          $   2          $  175

Valuation account for inventories:
Year ended December 31, 2006                    $2,165         $266          $(531)         $1,900
Year ended December 31, 2005                    $2,010         $995          $(840)         $2,165
Year ended December 31, 2004                    $1,950         $148          $ (88)         $2,010
</TABLE>


                                       51
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURE.

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Attached as exhibits to this Form 10-K are certifications of our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), which are required in
accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended
(the Exchange Act). This "Controls and Procedures" section includes information
concerning the controls and controls evaluation referred to in the
certifications. Part II, Item 8 of this Form 10-K sets forth the report of
PricewaterhouseCoopers LLP, our independent registered public accounting firm,
regarding its audit of TransAct's internal control over financial reporting as
of December 31, 2006 and of management's assessment of internal control over
financial reporting as of December 31, 2006 set forth below in this section.
This section should be read in conjunction with the CEO and CFO certifications
and the PricewaterhouseCoopers LLP report for a more complete understanding of
the topics presented.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     We conducted an evaluation of the effectiveness of the design and operation
of our "disclosure controls and procedures" ("Disclosure Controls") for the
period covered by this Form 10-K. The controls evaluation was conducted under
the supervision and with the participation of management, including our CEO and
CFO. Disclosure Controls are controls and procedures designed to reasonably
assure that information required to be disclosed in our reports filed under the
Exchange Act, such as this Form 10-K, is recorded, processed, summarized and
reported within the time periods specified in the U.S. Securities and Exchange
Commission's (SEC's) rules and forms. Disclosure Controls are also designed to
reasonably assure that such information is accumulated and communicated to our
management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure. Our quarterly evaluation of Disclosure Controls
includes an evaluation of some components of our internal control over financial
reporting, and internal control over financial reporting is also separately
evaluated on an annual basis for purposes of providing the management report
which is set forth below.

     The evaluation of our Disclosure Controls included a review of the
controls' objectives and design, the company's implementation of the controls
and the effect of the controls on the information generated for use in this Form
10-K. In the course of the controls evaluation, we review data errors, control
problems or acts of fraud, if any, and seek to confirm that appropriate
corrective actions, including process improvements, are being undertaken. This
type of evaluation is performed on a quarterly basis so that the conclusions of
management, including the CEO and CFO, concerning the effectiveness of the
Disclosure Controls can be reported in our periodic reports on Form 10-Q and
Form 10-K. Many of the components of our Disclosure Controls are also evaluated
on an ongoing basis by personnel in our finance organization. The overall goals
of these various evaluation activities are to monitor our Disclosure Controls,
and to modify them as necessary. Our intent is to maintain the Disclosure
Controls as dynamic systems that change as conditions warrant.

     Based upon the evaluation of the controls, our CEO and CFO have concluded
that, as of the end of the period covered by this Form 10-K, our Disclosure
Controls were effective to provide reasonable assurance that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified by the SEC, and that
material information relating to TransAct and our consolidated subsidiaries is
made known to management, including the CEO and CFO, particularly during the
period when our periodic reports are being prepared.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     The implementation of our new accounting system, completed effective
January 8, 2007, required us to modify and add certain internal controls and
processes and procedures. Otherwise, no change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the three months ended December 31, 2006 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Our management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.


                                       52
<PAGE>

     Management assessed our internal control over financial reporting as of
December 31, 2006. Management based its assessment on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

     Based on our assessment, management has concluded that our internal control
over financial reporting was effective as of December 31, 2006 based on the COSO
criteria identified above, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with generally accepted accounting
principles.

     Our management's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2006 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

     A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. The design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the company have been detected.

     These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
errors or mistakes. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to
future periods are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information in response to this item is incorporated by reference from
the Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."

ITEM 11. EXECUTIVE COMPENSATION

     The information in response to this item is incorporated by reference from
the Proxy Statement sections entitled "Executive Compensation and Certain
Transactions" and "Compensation Discussion and Analysis."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
     RELATED STOCKHOLDER MATTERS

     The information contained in "Security Ownership of Certain Beneficial
Owners and Management" of the Proxy Statement is hereby incorporated herein by
reference.


                                       53

<PAGE>

     Information regarding our equity compensation plans as of December 31, 2006
is as follows:

<TABLE>
<CAPTION>
                                                                                             (c)
                                                                                    Number of securities
                                                                                     remaining available
                                                  (a)                  (b)           for future issuance
                                         Number of securities    Weighted average        under equity
                                           to be issued upon    exercise price of     compensation plans
                                              exercise of          outstanding      (excluding securities
                                         outstanding options,   options, warrants    reflected in column
              Plan category               warrants and rights       and rights               (a))
              -------------              --------------------   -----------------   ---------------------
<S>                                      <C>                    <C>                 <C>
Equity compensation plans approved by
   security holders:
   1996 Stock Plan                              472,278               $ 2.95                    --
   1996 Non-Employee Director Plan              176,250                10.91                    --
   2005 Equity Incentive Plan                   135,000                 6.86               462,000
                                                -------               ------               -------
Total                                           783,528               $ 5.42               462,000
                                                -------               ------               -------

Equity compensation plans not approved
   by security holders:
   2001 Employee Stock Plan                      77,932               $ 6.03                    --
                                                -------               ------               -------
                                                861,460               $ 5.47               462,000
                                                =======               ======               =======
</TABLE>

     The TransAct Technologies Incorporated 2001 Employee Stock Plan (the "2001
Employee Plan") was adopted by our Board of Directors, without approval of our
security holders, effective February 26, 2001. Under the 2001 Employee Plan, we
may issue non-qualified stock options, shares of restricted stock, restricted
units to acquire shares of common stock, stock appreciation rights and limited
stock appreciation rights to key employees of TransAct or any of our
subsidiaries and to non-employees who provide services to TransAct or any of our
subsidiaries. The 2001 Employee Plan is administered by our Compensation
Committee, which has the authority to determine the vesting period and other
similar restrictions and terms of awards, provided that the exercise price of
options granted under the plan may not be less than the fair market value of the
underlying shares on the date of grant.

     In May 2005, our shareholders approved the adoption of the 2005 Equity
Incentive Plan. No new awards will be available for future issuance under any
existing TransAct equity plan other than the 2005 Equity Incentive Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information contained in "Certain Relationships and Related
Transactions" of the Proxy Statement is hereby incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     The information contained in "Independent Registered Public Accounting
Firm's Fees" of the Proxy Statement is herby incorporated herein by reference.


                                       54

<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF THIS
REPORT:

     (i)  Financial statements

          See Item 8.

     (ii) Financial statement schedules

          All other schedules are omitted since the required information is
          either (a) not present or not present in amounts sufficient to require
          submission of the schedule or (b) included in the financial statements
          or notes thereto.

     (iii) List of exhibits

<TABLE>
<S>       <C>                                                                                      <C>
3.1(a)    Certificate of Incorporation of TransAct Technologies Incorporated ("TransAct" or the    (2)
          "Company"), filed with the Secretary of State of Delaware on June 17, 1996.

3.1(b)    Certificate of Amendment of Certificate of Incorporation of the Company, filed with      (4)
          the Secretary of State of Delaware on June 4, 1997.

3.1(c)    Certificate of Designation, Series A Preferred Stock, filed with the Secretary of        (5)
          State of Delaware on December 2, 1997.

3.1(d)    Certificate of Designation, Series B Preferred Stock, filed with the Secretary of        (8)
          State of Delaware on April 6, 2000.

3.2       Amended and Restated By-laws of the Company.                                             (6)

4.1       Specimen Common Stock Certificate.                                                       (2)

4.2       Amended and Restated Rights Agreement between TransAct and American Stock Transfer &     (5)
          Trust Company dated February 16, 1998.

10.1(x)   1996 Stock Plan, effective July 30, 1996.                                                (3)

10.2(x)   Non-Employee Directors' Stock Plan, effective August 22, 1996.                           (3)

10.3(x)   2001 Employee Stock Plan.                                                                (9)

10.4(x)   2005 Equity Incentive Plan                                                               (14)

10.5(x)   Employment Agreement, dated July 31, 1996, by and between TransAct and Bart C.           (2)
          Shuldman.

10.6(x)   Severance Agreement by and between TransAct and Michael S. Kumpf, dated September 4,     (3)
          1996.

10.7(x)   Severance Agreement by and between TransAct and Steven A. DeMartino, dated June 1,       (13)
          2004.

10.8      Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23,        (2)
          1992.

10.9      Second Amendment to Lease Agreement by and between Bomax Properties and Ithaca, dated    (4)
          December 2, 1996.

10.10     Agreement regarding the Continuation and Renewal of Lease by and between Bomax           (11)
          Properties, LLC and TransAct, dated July 18, 2001.

10.11     Lease Agreement by and between Pyramid Construction Company and Magnetec, dated July     (4)
          30, 1997.

10.12     Lease Addendum by and between Wallingford Warehouse LLC (successor in interest to        (1)
          Pyramid Construction Company) and TransAct dated November 28, 2006.

10.13     Lease Agreement by and between Las Vegas Airport Properties LLC and TransAct dated       (13)
          December 2, 2004.
</TABLE>


                                       55

<PAGE>

<TABLE>
<S>       <C>                                                                                      <C>
10.14     Lease Agreement by and between 2319 Hamden Center I, L.L.C. and TransAct dated           (1)
          November 27, 2006.

10.15     OEM Purchase Agreement by and between GTECH Corporation, TransAct and Magnetec           (7)
          Corporation commencing July 14, 1999. (Pursuant to Rule 24-b-2 under the Exchange Act,
          the Company has requested confidential treatment of portions of this exhibit deleted
          from the filed copy.)

10.16     OEM Purchase Agreement by and between GTECH Corporation and TransAct commencing July     (10)
          2, 2002. (Pursuant to Rule 24-b-2 under the Exchange Act, the Company has requested
          confidential treatment of portions of this exhibit deleted from the filed copy.)

10.17     Amendment to OEM Purchase Agreement by and between GTECH Corporation and TransAct,       (15)
          dated February 17, 2006. (Pursuant to Rule 24-b-2 under the Exchange Act, the Company
          has requested confidential treatment of portions of this exhibit deleted from the
          filed copy.)

10.18     Amended and Restated Revolving Credit and Security Agreement between TransAct and TD     (1)
          Banknorth, N.A. dated November 28, 2006

10.19     License Agreement between Seiko Epson Corporation and TransAct dated May 17, 2004        (12)
          (Pursuant to Rule 24b-2 under the Exchange Act, the Company has requested confidential
          treatment of portions of this exhibit deleted from the filed copy.)

23.1      Consent of PricewaterhouseCoopers LLP.                                                   (1)

31.1      Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley   (1)
          Act of 2002

31.2      Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley   (1)
          Act of 2002

32.1      Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted   (1)
          pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2      Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted   (1)
          pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>


                                       56

<PAGE>

(1)  These exhibits are filed herewith.

(2)  These exhibits, which were previously filed with the Company's Registration
     Statement on Form S-1 (No. 333-06895), are incorporated by reference.

(3)  These exhibits, which were previously filed with the Company's Quarterly
     Report on Form 10-Q for the period ended September 30, 1996 (Commission
     File No. 000-21121), are incorporated by reference.

(4)  These exhibits, which were previously filed with the Company's Annual
     Report on Form 10-K for the year ended December 31, 1997 (Commission File
     No. 000-21121), are incorporated by reference.

(5)  These exhibits, which were previously filed with the Company's Current
     Report on Form 8-K filed February 18, 1999 (Commission File No. 000-21121),
     are incorporated by reference.

(6)  This exhibit, which was previously filed with the Company's Annual Report
     on Form 10-K for the year ended December 31, 1998 (Commission File No.
     000-21121), is incorporated by reference.

(7)  This exhibit, which was previously filed with the Company's Quarterly
     Report on Form 10-Q for the period ended September 25, 1999 (Commission
     File No. 000-21121), is incorporated by reference.

(8)  These exhibits, which were previously filed with the Company's Quarterly
     Report on Form 10-Q for the period ended March 25, 2000, are incorporated
     by reference.

(9)  This exhibit, which was previously filed with the Company's Registration
     Statement on Form S-8 (No. 333-59570), is incorporated by reference.

(10) This exhibit, which was previously filed with the Company's Quarterly
     Report on Form 10-Q for the period ended June 30, 2002, is incorporated by
     reference.

(11) This exhibit, which was previously filed with the Company's Quarterly
     Report on Form 10-Q for the period ended June 30, 2003, is incorporated by
     reference.

(12) This exhibit, which was previously filed with the Company's Quarterly
     Report on Form 10-Q for the period ended June 30, 2004, is incorporated by
     reference.

(13) These exhibits, which were previously filed with the Company's Annual
     Report on Form 10-K for the year ended December 31, 2004, are incorporated
     by reference.

(14) This exhibit, which was previously filed with the Company's Current Report
     on Form 8-K filed June 1, 2005 (Commission File No. 000-21121), is
     incorporated by reference.

(15) These exhibits, which were previously filed with the Company's Annual
     Report on Form 10-K for the year ended December 31, 2005, are incorporated
     by reference.

(x)  Management contract or compensatory plan or arrangement required to be
     filed pursuant to Item 14(c).


                                       57

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                        TRANSACT TECHNOLOGIES INCORPORATED


                                        By: /s/ Bart C. Shuldman
                                            ------------------------------------
                                        Name: Bart C. Shuldman
                                        Title: Chairman of the Board, President
                                               and Chief Executive Officer
                                        Date: March 15, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                                   Title                            Date
---------                                                   -----                            ----
<S>                                     <C>                                             <C>


/s/ Bart C. Shuldman                    Chairman of the Board, President and            March 15, 2007
-------------------------------------   Chief Executive Officer
Bart C. Shuldman                        (Principal Executive Officer)


/s/ Steven A. DeMartino                 Executive Vice President, Chief Financial       March 15, 2007
-------------------------------------   Officer, Treasurer and Secretary
Steven A. DeMartino                     (Principal Financial and Accounting Officer)



/s/ Charles A. Dill                     Director                                        March 15, 2007
-------------------------------------
Charles A. Dill


/s/ Thomas R. Schwarz                   Director                                        March 15, 2007
-------------------------------------
Thomas R. Schwarz


/s/ Graham Y. Tanaka                    Director                                        March 15, 2007
-------------------------------------
Graham Y. Tanaka
</TABLE>


                                       58

<PAGE>

                                  EXHIBIT LIST

The following exhibits are filed herewith.

<TABLE>
<CAPTION>
Exhibit
-------
<S>       <C>
10.12     Lease Addendum by and between Wallingford Warehouse LLC (successor in
          interest to Pyramid Construction Company) and TransAct dated November
          28, 2006.

10.14     Lease Agreement by and between 2319 Hamden Center I, L.L.C. and
          TransAct dated November 27, 2006.

10.18     Amended and Restated Revolving Credit and Security Agreement between
          TransAct and TD Banknorth, N.A. dated November 28, 2006

23.1      Consent of PricewaterhouseCoopers LLP

31.1      Certification of Chief Executive Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002

31.2      Certification of Chief Financial Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002

32.1      Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
          1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002

32.2      Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
          1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002
</TABLE>


                                       59