<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, 2005

                                       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                             (I.R.S. Employer
    of 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:

                                      NONE

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

                          COMMON STOCK, $0.01 PAR VALUE
                                (Title of class)

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, 2005 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$79,000,000.

As of February 27, 2006, the registrant had outstanding 9,752,670 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 18,
2006 - 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                                                8 - 10
   Item 1B.   Unresolved Staff Comments                                       10
   Item 2.    Properties                                                      10
   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                                                 11 - 12
   Item 6.    Selected Consolidated Financial Data                            12
   Item 7.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations                        13 - 27
   Item 7A.   Quantitative and Qualitative Disclosures About Market
              Risk                                                       27 - 28
   Item 8.    Financial Statements and Supplementary Data                29 - 52
   Item 9.    Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                             53
   Item 9A.   Controls and Procedures                                    53 - 54

PART III.
   Item 10.   Directors and Executive Officers of the Registrant              54
   Item 11.   Executive Compensation                                          54
   Item 12.   Security Ownership of Certain Beneficial Owners and
              Management and Related Stockholder Matters                 54 - 55
   Item 13.   Certain Relationships and Related Transactions                  55
   Item 14.   Principal Accountant Fees and Services                          55

PART IV.

   Item 15.   Exhibits and Financial Statement Schedules                 56 - 58
              Signatures                                                      59
</TABLE>


                                       2

<PAGE>

                                     PART I

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 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, 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, seven sales offices located in the United States
(including our new 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 assessed our operating and reportable segments and 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. See the Consolidated Financial Statements contained herein.

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. We also sell
printers using impact printing technology for use mainly in video lottery
terminals and other gaming devices.


                                       3

<PAGE>

TransAct Services Group

     Through our recently-established TransAct Services Group, we proactively
market the sale of consumable products (including inkjet cartridges, ribbons and
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"), and other repair services for our printers. Within the United States,
we provide repair services 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 for 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. We typically strive to maintain more than one source for our
component parts and subassemblies 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. We
have a supply agreement with Okidata to provide Oki Kits until June 8, 2006.
Prices under this agreement are fixed, but may be changed by Okidata after
providing 180 days written notice.

     We believe our relationship with Okidata is in good standing and have
received no indication that the supply agreement will not be renewed beyond the
respective expiration date of the current contract. We cannot be certain,
however, that the supply agreement will be renewed, or if renewed, that the
terms will be as favorable as those under the current contract.

     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. 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 printing devices across
several other markets.


                                       4

<PAGE>

PATENTS AND PROPRIETARY INFORMATION

     We have significantly expanded our patent portfolio over the past five
years, and expect to continue to do so in the future. We also believe our patent
portfolio will provide additional opportunities to license our intellectual
property in the future. We currently own fifteen patents, eleven of which we
consider material. The earliest expiration date of these eleven patents is in
2008, with the latest expiration date in 2022. Of the material patents, one
patent covers methods and apparatus for allowing a two-color printer to print
images using single pass technology by printing during both forward and reverse
movement of the print mechanism; another patent relates to our proprietary void
and reprint receipt printing method which is used in certain of our slot machine
printers; two patents prevent ticket jams resulting from player interference in
certain of our slot machine printers; three patents cover a method for
converting a full color image into a two-color image, plus a background color;
one patent for a standard configurable universal serial bus ("USB") device
identifier that enables a printer to be interchanged with another printer from
the same printer model line without requiring reinstallation of the device
driver or reconfiguration of the communication port by the host; two patents
relate to methods and apparatus for automatically stacking printed sheets from a
printer; and one patent covers our dual port technology where in a printer, one
driver or port receives data indicative of voucher information from a local
controller and a second driver or port receives data indicative of coupon
information from a central system controller, thereby allowing the same printer
to be used to print both vouchers and coupons. We also have sought patent
protection for certain design features of 1) printers using inkjet technology,
2) POS printers using thermal technology, and 3) thermal printers for use in
casino slot machines. 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. 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 beyond
2004. However, we do expect to continue to sell spare parts to GTECH for the
significant remaining installed base of impact on-line lottery printers. Firm
purchase orders for printers under the GTECH Thermal Printer Agreement may be
placed as required by GTECH.

BACKLOG

     Our backlog of firm orders was approximately $8,300,000 as of February 28,
2006, compared to $3,250,000 as of March 4, 2005. Based on customers' current
delivery requirements, we expect to ship our entire current backlog during 2006.


                                       5

<PAGE>

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 market, our major competitor is Epson America, Inc., which
controls a dominant portion 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, and Korean Printer Solutions
(makers of Bixolon/Samsung printers). 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 agreements with GTECH, which controls approximately 70% 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.

     In the gaming market (consisting principally of slot machine and video
lottery terminal transaction printing), we and our major competitor,
FutureLogic, Inc., comprise a substantial portion of the market. Certain of our
products sold for gaming applications compete based upon our ability to provide
highly specialized products, custom engineering and ongoing technical support.

     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. We expect to particularly focus on
(1) promoting our line of slot machine printers into the gaming market including
our recently launched Epic 950(TM) thermal casino printer, as well as our new
Epic 430(TM) and Epic 630(TM) printers for the international off-premise gaming
market, (2) increasing sales of our iTHERM(TM) 280 thermal POS printer, new
Ithaca(R) 8000 linerless label printer and our family of printers utilizing
Hewlett Packard's inkjet printing technology, including our BANKjet(R) line of
inkjet printers used in bank teller applications and (3) expanding our
consumables, spare parts and service business. 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.

RESEARCH AND DEVELOPMENT ACTIVITIES

     We spent approximately $2,726,000, $2,715,000 and $2,276,000 in 2005, 2004
and 2003, respectively, on engineering, design and product development efforts
in connection with specialized engineering and design to introduce new products
and to customize existing products. During 2006, we expect to focus the majority
of our research and development activities on the continuing development and
enhancement of (1) our family of printers for the POS and banking market
utilizing inkjet and thermal printing technology and (2) our ticket-issuing
printers for use in the worldwide casino and gaming market.

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 27, 2006, TransAct and our subsidiaries employed 213
persons, of whom 174 were full-time and 39 were temporary employees. None of our
employees is unionized, and we consider our relationships with our employees to
be good.


                                       6

<PAGE>

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 $2,181,000, $1,000,000, and $1,068,000, (primarily for the service
of printers used in the British Post Office) in 2005, 2004 and 2003,
respectively. We had export sales from our domestic operations of approximately
$10,137,000, $5,423,000 and $3,663,000 in 2005, 2004 and 2003, respectively.
Total international sales, which include sales from our foreign subsidiary and
export sales from our domestic operations, were approximately $12,318,000,
$6,423,000 and $4,731,000 in 2005, 2004 and 2003, 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.

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 18, 2006.

     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       48   Chairman of the Board, President and Chief Executive Officer
Steven A. DeMartino    36   Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Michael S. Kumpf       56   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.


                                       7

<PAGE>

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 TransAct's 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 stock price may fluctuate significantly.

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, 2005, the average daily trading volume for our common
stock as reported by the NASDAQ National Market was approximately 131,600
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.

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.


                                       8

<PAGE>

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 implement successfully 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.

We cannot assure 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 source some of our component parts from sole source supplier; 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.


                                       9
<PAGE>

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

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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not  applicable.

ITEM 2. PROPERTIES.

     Our operations are currently conducted at the facilities described below.
In January 2005, we entered a five-year lease for a 13,700 square foot facility
in Las Vegas, NV. This facility serves as our global gaming and lottery
headquarters and houses our west coast POS and Banking sales unit. The facility
also serves as our western region service center to provide service to our large
base of installed printers in the region.

     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 consolidated all manufacturing and engineering from our
Wallingford, CT facility into our existing Ithaca, NY facility. Our corporate
headquarters and our eastern region service center are still located in the
Wallingford, CT facility. Although we are actively seeking to sublease our
Wallingford, CT facility, in 2003 we determined that because of the continuing
regional decline in the commercial real estate market, it was unlikely that we
would be able to sublease our facility. As such, we increased our restructuring
accrual at December 31, 2003 to provide for the remaining non-cancelable lease
payments and other related costs for this facility through the expiration of the
lease (March 31, 2008). The restructuring accrual was further adjusted at
December 31, 2004 based on the estimated facility costs through the end of the
lease.

<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             49,000         Leased     March 31, 2008
                                     service center

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

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

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

Georgia (2), Missouri, New Jersey,   Six regional sales                   900         Leased         Various
New York and Texas                   offices
</TABLE>

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


                                       10

<PAGE>

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 patent case will be transferred to the District of
Connecticut for consolidation with the action pending in that forum. The
jurisdictional motions before the District of Connecticut were fully briefed as
of February 17, 2006 and await the decision of the Connecticut court. Regardless
in what forum we eventually face FutureLogic's patent claims, we intend to
defend against the claims vigorously, as we believe them to be without merit or
factual basis. This action is in the pre-trial motion stage and we are currently
unable to calculate any potential or probable liability associated with this
action at this time.

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.

                                     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 National Market under the symbol
TACT. Prior to September 2004, our stock was traded on the NASDAQ SmallCap
Market. In April 2004, we completed a three-for-two stock split of our common
stock effected in the form of a stock dividend. All amounts in the table below
reflect the stock split on a retroactive basis. As of February 28, 2006, there
were 646 holders of record of the common stock. The high and low sales bid
quotations of the common stock reported during each quarter of the years ended
December 31, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>
                     Year Ended         Year Ended
                 December 31, 2005   December 31, 2004
                 -----------------   -----------------
                    High     Low       High      Low
                   ------   -----     ------   ------
<S>              <C>        <C>      <C>       <C>
First Quarter      $22.19   $9.90     $26.00   $13.67
Second Quarter      10.65    6.71      34.00    19.13
Third Quarter       10.35    6.95      32.89    15.00
Fourth Quarter       8.70    6.09      29.28    19.30
</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 credit agreement with TD Banknorth, N.A. restricts the payment of
cash dividends on our common stock for the term of the agreement.


                                       11

<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

See Part III, Item 12.

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, 2005:

<TABLE>
<CAPTION>
                                                              Total Number
                                                                of Shares       Approximate
                                                              Purchased as    Dollar Value of
                                                                 Part of      Shares that May
                                         Total      Average     Publicly           Yet Be
                                       Number of     Price      Announced     Purchased under
                                         Shares    Paid per     Plans or            the
Period                                 Purchased     Share      Programs     Plans or Programs
------                                 ---------   --------   ------------   -----------------
<S>                                    <C>         <C>        <C>            <C>
October 1, 2005 - October 31, 2005           --      $  --           --          $6,865,000
November 1, 2005 - November 30, 2005     48,200      $7.00       48,200          $6,528,000
December 1, 2005 - December 31, 2005     47,900      $8.24       47,900          $6,133,000
                                         ------      -----       ------
Total                                    96,100      $7.62       96,100
                                         ======      =====       ======
</TABLE>

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,
                                  -----------------------------------------------
                                    2005      2004      2003      2002      2001
                                  -------   -------   -------   -------   -------
<S>                               <C>       <C>       <C>       <C>       <C>
Consolidated Statement of
   Operations Data:
   Net sales                      $51,091   $59,847   $52,098   $39,461   $43,974
   Gross profit                    15,590    22,042    15,543    10,216     9,774
   Operating expenses              15,366    13,591    12,855    11,200    17,060
   Operating income (loss)            224     8,451     2,688      (984)   (7,286)
   Net income (loss)                  377     5,458     1,528      (692)   (4,922)
   Net income (loss) available
      to common shareholders          377     5,236     1,087    (1,050)   (5,280)
   Net income (loss) per share:
      Basic                          0.04      0.55      0.13     (0.12)    (0.63)
      Diluted                        0.04      0.51      0.12     (0.12)    (0.63)
</TABLE>

<TABLE>
<CAPTION>
                                                 December 31,
                               -----------------------------------------------
                                 2005      2004      2003      2002      2001
                               -------   -------   -------   -------   -------
<S>                            <C>       <C>       <C>       <C>       <C>
Balance Sheet Data:
   Total assets                $29,332   $34,099   $26,361   $22,030   $25,791
   Working capital              15,375    20,511    11,787     8,798     8,366
   Long-term debt, excluding
      current portion               --        --       330     2,791     5,344
   Redeemable convertible
      preferred stock               --        --     3,902     3,824     3,746
   Shareholders' equity         21,257    23,715    10,347     6,545     7,315
</TABLE>


                                       12

<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, customer acceptance and market
share gains, both domestically and internationally, in the face of substantial
competition from competitors that have broader lines of products and greater
financial resources; the introduction of new products into the marketplace by
competitors; successful product development; dependence on significant
customers; dependence on significant vendors; the ability to recruit and retain
quality employees as we grow; dependence on third parties for sales outside the
United States including Australia, New Zealand, Europe and Latin America;
economic and political conditions in the United States, Australia, New Zealand,
Europe and Latin America; marketplace acceptance of new products; availability
of third-party components at reasonable prices; the absence of price wars or
other significant pricing pressures affecting our products in the United States
and abroad; and the outcome of lawsuits between TransAct and FutureLogic, Inc.
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 2005 was a challenging year for TransAct. Our 2005 results were
dramatically impacted by an overall slowdown in the domestic gaming market,
including the effect of Hurricane Katrina, an issue at a major gaming OEM
customer as it depletes a large inventory position, lower capital spending due
to mergers of major casino operators, and lower than historical
levels of lottery printer sales to GTECH, our largest customer. Despite our
disappointing financial results and a less than ideal set of market conditions,
we continued on our planned course of making substantial strategic investments
into the growth elements of our business. This led to a number of strategic
successes during 2005 including the following:

     -    Established three Strategic Sales Units to focus on each of our
          markets

     -    Doubled the size of our sales force company-wide

     -    Opened our new Gaming and Lottery headquarters and western regional
          service center in Las Vegas, Nevada

     -    Launched seven new products, including our new line of Epic printers
          for the new off-premise global gaming market, and our new line of
          printers, exclusively for our POS distributors

     -    Entered into a strategic sales alliance with JCM American Corporation
          ("JCM"), the worldwide leading bill acceptor company, to sell our
          casino printers

     -    Grew our international gaming sales by over 193% to $6.6 million

     -    Achieved standard printer status with IGT, including the integration
          of our Epic 950(TM) casino printer in every slot machine platform in
          every jurisdiction in which IGT competes

     -    Received five new patents, including a key one in connection with dual
          port technology

     We continue to focus on sales growth in our two core markets, point of sale
("POS") and banking and gaming and lottery, and in our recently established
TransAct Services Group, to drive increased profitability. During 2005, our
total net sales decreased by 15% to approximately $51,091,000. See the table
below for a breakdown of our sales.

<TABLE>
<CAPTION>
                                                                       Change
                              Year ended         Year ended       ---------------
(In thousands)            December 31, 2005   December 31, 2004      $        %
                          -----------------   -----------------   -------   -----
<S>                       <C>        <C>      <C>       <C>       <C>       <C>
POS 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%
                           -------   -----     -------   -----    -------
   Total net sales         $51,091   100.0%    $59,847   100.0%   $(8,756)  (14.6%)
                           =======   =====     =======   =====    =======
</TABLE>


                                       13

<PAGE>

     We experienced a decrease of approximately 7% in sales of POS and banking
printers in 2005, driven primarily by lower project-oriented banking printer
sales. During 2003, we announced wins from two major financial services
companies for shipments of over 19,000 BANKjet(R) printers to upgrade bank
teller applications, which we began to ship in 2003 and substantially completed
shipping during 2004. During 2005, we announced and shipped approximately 6,000
BANKjet(R) printers for our third major bank win. Excluding the project-oriented
banking market, sales of POS printers increased by 2% from 2004. We expect the
upward trend in the POS market to accelerate during 2006. Given our success over
the last three years, and in light of the renewed focus we see banks placing on
branch banking, we plan to continue proactively to seek opportunities with other
banks and credit unions for upgrading bank teller systems. In 2006, we also plan
to increase our focus on selling through our distribution and reseller channels
in an effort to expand sales of our new line of printers exclusively for these
channels, and to continue to broaden our product portfolio. 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 through 2012 with GTECH Corporation ("GTECH"), our largest customer
and the world's 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. Currently, we fulfill substantially all
of GTECH's printer requirements for lottery terminal installations and upgrades.
During 2005, total printer sales to GTECH were approximately $1,153,000 lower
than in 2004, representing a decrease of approximately 14%. Based on existing
orders and expected future demand for our lottery printers estimated with input
from GTECH, we expect overall sales to GTECH in 2006 to be modestly higher than
the 2005 level. 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 in casinos and racetracks, as well as in other gaming devices
that print tickets, primarily in the United States, Europe and Australia. During
2005, our gaming printer sales were significantly impacted by a weak domestic
casino market, including the effect of Hurricane Katrina, lower capital spending
due to mergers of major casino operators, and an issue at a large gaming OEM
customer as it depletes a large inventory position. As a result, sales of our
gaming printers decreased by 30%. Although we are not projecting a recovery of
the domestic gaming market during 2006, we still expect to see approximately
double digit growth in our worldwide gaming sales in 2006 compared to 2005. We
expect to gain market share in the United States due to (1) our new strategic
alliance agreement with JCM, the worldwide leading bill acceptor company, to
sell our casino printers (2) our relationship with IGT, the world's largest slot
machine manufacturer, and (3) expanded acceptance of our new Epic 950(TM)
thermal casino printer. In addition, we expect a return to more normalized
purchasing levels by the large gaming OEM customer mentioned above beginning in
the second quarter 2006. Overall, we expect to continue to exploit opportunities
for casino printer sales as the rollout of the ticket-in/ticket-out initiative
continues and the size of the North American slot machine market continues to
expand to over 850,000 slot machines. In the international gaming market, we
experienced record sales growth during 2005, as our international gaming sales
almost tripled to $6.6 million. We expect continued strength from gaming sales
internationally during 2006, as markets such as Europe and Australia continue to
adopt ticket printing for their slot machines and other gaming machines, and as
our new line of Epic printer launched in 2005 for the off-premise gaming market
begin to take hold.

     Our TransAct Services Group ("TSG"), which sells service and consumable
products, including printer repairs and the sale of spare parts and consumables
(paper, ribbons and inkjet cartridges), offers a substantial growth opportunity
and recurring revenue stream for TransAct. TSG revenue has grown to $11,047,000
or 21.6% of net sales in 2005, representing an increase of 8% from 2004. During
2006, we plan to continue to actively promote our service and consumable
products in an effort to increase the volume of sales. With the investments we
made in TSG during 2005 - including the addition of four dedicated sales people,
a specialized software system that improved our sales lead tracking and
prospecting processes, and the establishment of two new service centers - a
western region service center in Las Vegas, NV and an eastern region service
center in Wallingford, CT - we believe we are now even better positioned to
accelerate the growth of TSG sales in 2006. In addition, we believe that the
increasing sales of our inkjet printers will lead to a growing installed base
that will drive substantially higher inkjet cartridge sales in 2006 and beyond.

     Operationally, gross margin and operating margin for 2005 were impacted by
lower sales, and our decision to make a strategic investment of $2.5 million in
the growth elements of our business. We made this investment across three areas:
an incremental $1.2 million investment in sales and marketing; a $400,000
incremental investment in engineering expenses for the development and launch of
seven new products; and a $900,000 investment in operating expenses related to
the opening and staffing of our new service center in Las Vegas and the hiring
of additional services personnel in our Wallingford service center. We expect
that, over the long-term, the investment we made in 2005 will accelerate our
revenue growth and with our operating leverage, should lead to improved
operating results beginning in the first quarter 2006.


                                       14

<PAGE>

     Despite the challenging year and our increased level of investment, we
reported net income and positive earnings per share (diluted) for 2005. We also
generated sufficient cash during 2005 to fund $2.8 million of capital
expenditures and repurchase $3.9 million of our common stock (approximately 5%
of our common stock outstanding) and finished the year with $4.6 million of cash
and no debt on our balance sheet as of December 31, 2005.

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 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.

     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 customers 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.

     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, 2005 was $240,000, or 2.8% 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, 2005, we had accounts receivable
balances due from one customer of approximately 19% of the total balance due,
and no other customer accounts receivable balance exceeded 10%. As of December
31, 2004, we had accounts receivable balances due from three customers of 18%,
14% and 10%, respectively, of the total balance due, and no other customer
accounts receivable balance exceeded 10%.


                                       15

<PAGE>

     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, 2005, our net inventory included a reserve of $2,165,000, or 26.4%
of gross inventory to write inventory down to lower of cost or market. During
the fourth quarter of 2005, we recorded a charge of approximately $600,000
related primarily to the write-down of inventory for our Model 850 casino
printer, as demand for this printer is declining due to the faster than expected
acceptance of our new Epic 950(TM) casino printer. We also disposed of
approximately $500,000 of fully-reserved inventory related to discontinued
printer models during the fourth quarter of 2005. As a result, our inventory
reserve at December 31, 2005 increased by only approximately 8% from December
31, 2004.

     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, 2005.
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, 2005 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 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. 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.

     As of December 31, 2005, we recorded a net deferred tax asset of
approximately $3,292,000, net of a valuation allowance of $207,000, and a tax
reserve of $133,000, primarily on portions of certain tax credits. We will need
to recognize approximately $7.9 million in future taxable income in order to
realize all of our deferred tax assets at December 31, 2005. 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"). However, our Company headquarters
and a service center remain in Wallingford, CT. Our technology shift to inkjet
and thermal printing from dot matrix impact printing dramatically reduced the
labor content in our printers, and therefore, lowered the required production
capacity. As of December 31, 2001, we successfully transferred substantially all
our Wallingford product lines to Ithaca, NY, with the exception of 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.


                                       16

<PAGE>

     In connection with the Consolidation of manufacturing facilities in 2001,
we recorded significant accruals. Through December 31, 2005, we have recognized
approximately $6.0 million of expenses associated with the Consolidation,
including severance pay, stay bonuses, employee benefits, moving expenses,
non-cancelable lease payments, and other costs, of which approximately ($0.2
million) and $1.1 million were recognized in 2004 and 2003, respectively. No
additional restructuring expense was recognized in 2005. Management has made
reasonable estimates of such costs and expenses. However, if actual costs differ
from the estimates, charges or credits to income could result in the period the
adjustments are determined. We changed our estimate of the restructuring accrual
related to the Wallingford, CT facility, resulting in additional restructuring
expense in 2003, and a reversal of restructuring expense in 2004. We do not
expect to incur any additional restructuring expenses related to the
Consolidation. See the "Liquidity and Capital Resources" section for a
discussion of the expected impact of the Consolidation on our future results of
operations and cash flows.

     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.

     During the fourth quarter of 2005, we recorded a charge to cost of goods
sold of approximately $135,000 related to estimated settlement/cancellation
payments for non-cancelable purchase orders for certain excess inventory
components related to our Model 850 casino ticket printer. The charge was
largely the result of the faster than expected acceptance of our new Epic
950(TM) casino ticket printer, which replaces our Model 850 casino ticket
printer.

     STOCK-BASED COMPENSATION - We apply the intrinsic value recognition and
measurement principles whereby compensation expense is recognized over the
vesting period to the extent that the fair market value of the underlying stock
on the date of grant exceeds the exercise price of the employee stock option.
Beginning January 1, 2006, we will be required to recognize expense pursuant to
Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment"
("FAS 123R") for stock-based compensation. We will utilize the Black-Scholes
model to value share-based payments and will follow the modified prospective
transition method. The Black-Scholes model uses judgmental inputs such as option
life, expected volatility and expected forfeiture rate. Changes in these inputs
may change the amount of expense recognized for stock options issued during the
period of change.

     (A) RESULTS OF OPERATIONS

     CERTAIN SALES BY MARKET AMOUNTS FOR 2003 AND 2004 HAVE BEEN RECLASSIFIED TO
CONFORM WITH THE CURRENT YEAR PRESENTATION IN THE NARRATIVE BELOW.

     (I) 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.


                                       17

<PAGE>

     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: 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 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(TM) 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.

     We expect sales into the POS and banking market for the first quarter of
2006 to be higher than those reported for the fourth quarter of 2005, due
largely to expected shipments of banking printers to an existing financial
services company. We also expect full year sales for 2006 to be modestly higher
than those reported during 2005, as we expect our initiatives and four new POS
products launched in 2005 to begin to take hold.

     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.


                                       18

<PAGE>
 Although we are not projecting a recovery of the domestic casino market during
2006, we expect sales into the gaming market for the first quarter of 2006 to be
higher than those reported for the fourth quarter of 2005, and also expect full
year sales for 2006 to be modestly higher than those reported during 2005. We
expect growth in our gaming sales during 2006 due to (1) expected continued
market share gains in the domestic market, aided by our new strategic sales
alliance with JCM American Corporation, the worldwide leading bill acceptor
company, to sell our casino printers (2) a return to normalized purchasing
levels by the large slot machine manufacturer mentioned above during the second
quarter 2006, and (3) expanded acceptance of our new Epic 950(TM) casino ticket
printer by casinos.

     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. We do not expect any future orders for legacy impact
printers, as GTECH replaced our legacy impact on-line lottery printer with our
new thermal on-line lottery printer. However, we do expect to continue to sell
spare parts to GTECH for the significant remaining installed base of impact
on-line lottery printers. Based on existing orders and expected future demand
based on input from GTECH, we expect overall sales to GTECH in 2006 to be higher
than those reported for 2005, with more substantial growth expected in the first
half of 2006. Our sales to GTECH each year are directly dependent on the timing
and number of new and upgraded lottery terminal installations GTECH performs and
are not indicative of GTECH's overall business or revenue.

     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. Due to the
significant growth of our international gaming and lottery sales in 2005, we
expect sales levels in 2006 to be relatively consistent with those reported
during 2005. However, we continue to pursue additional opportunities in
international markets, including those related to ticket printing for the new
off-premise gaming market for which we launched two products in 2005.

     TransAct Services Group: Revenue from TSG includes sales of consumable
products (inkjet cartridges, ribbons and 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. With the investments we made in 2005, including our new service centers
in Wallingford, CT and Las Vegas, NV, as well as the addition of a dedicated
direct sales force and a growing installed base of printers, we expect
significant sales growth from TSG during 2006.

     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 overhead expenses. 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 faster than expected
acceptance of our new Epic 950(TM) casino ticket printer, which replaces our
Model 850 casino ticket printer. We expect gross margin for the first quarter of
2006 to be higher than the fourth quarter of 2005 due to the higher expected
volume of sales in the first quarter. We expect gross margin for 2006 also to be
higher than 2005 due to the higher expected volume of sales.


                                       19
<PAGE>

     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 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(TM) 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. We expect engineering and product development expenses to
increase in 2006 as we plan to utilize more contract engineering services to
continue increasing product development to expand our product families for the
POS market and ticket-issuing printers for the gaming market.

     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 $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. We expect selling and marketing expenses to be
higher in 2006 compared to 2005, as we incur the full year effect of our 2005
initiatives. These initiatives included the formation of our three strategic
sales units, the doubling in size of our overall sales force, the addition of a
new Senior Vice President of Marketing, and the establishment of two new service
centers in Las Vegas, NV and Wallingford, CT. We believe these investments made
in 2005 will allow us to achieve our sales growth strategy for 2006 and beyond.

     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; and telecommunication expenses.
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. We expect general and administrative expenses
to increase in 2006 due primarily to annual increases in compensation expenses,
as well as depreciation and other expenses related to our implementation of new
Oracle software.

     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. As of December 31, 2005, we have provided for the
estimated remaining non-cancelable lease payments and other related costs for
this facility through the expiration of the lease (March 31, 2008).

     We do not expect to incur any further restructuring expenses related to the
Consolidation. See "Consolidation Expenses" in Liquidity and Capital Resources.

     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).


                                       20

<PAGE>

     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. We do
not expect to draw on our revolving borrowings as we expect to continue to
generate cash from operations during 2006. During 2006, we expect to report
increasing net interest income as our cash balance increases throughout the
year. See "Liquidity and Capital Resources" below for more information.

     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. We expect to record income taxes at
an effective rate of approximately 36% during 2006.

     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. In
December 2004, the FASB issued Accounting Standard No. 123 (revised 2004),
"Share-Based Payment" ("FAS 123R"), which requires the recognition of
compensation expense for share-based compensation (including shares issued under
employee stock purchase plans, stock options and restricted stock) over the
period in which the share-based compensation vests. Although our Board of
Directors accelerated the vesting of all outstanding unvested stock options
granted under all our stock plans as of November 2, 2005, we will recognize
compensation expense with respect to stock options granted after January 1, 2006
pursuant to FAS 123R.

     (II) YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

     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, 2004
and 2003 were as follows:

<TABLE>
<CAPTION>
                                                                        Change
                                Year ended          Year ended      -------------
(In thousands)              December 31, 2004   December 31, 2003      $       %
                            -----------------   -----------------   ------   ----
<S>                         <C>        <C>      <C>        <C>      <C>      <C>
Point of sale and banking    $17,659    29.5%    $14,027    26.9%   $3,632   25.9%
Gaming and lottery            31,937    53.4%     29,274    56.2%    2,663    9.1%
TransAct Services Group       10,251    17.1%      8,797    16.9%    1,454   16.5%
                             _______   _____     _______   _____    ______
                             $59,847   100.0%    $52,098   100.0%   $7,749   14.9%
                             =======   =====     =======   =====    ======
International                $ 6,423    10.7%    $ 4,731     9.1%   $1,692   35.8%
                             =======   =====     =======   =====    ======
</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 2004 increased $7,749,000, or 15%, from 2003 due to higher
shipments into both our POS and banking and gaming and lottery market. Overall,
international sales increased 36% due largely to increased sales of our casino
printers into Europe and Australia.

     Point of sale and banking: Sales of our POS and banking printers worldwide
increased approximately $3,632,000, or 26%, from 2003.


                                       21

<PAGE>

<TABLE>
<CAPTION>
                                                             Change
                     Year ended          Year ended      --------------
(In thousands)   December 31, 2004   December 31, 2003      $       %
                 -----------------   -----------------   ------   -----
<S>              <C>        <C>      <C>        <C>      <C>      <C>
Domestic          $15,734    89.1%    $11,889    84.8%   $3,845    32.3%
International       1,925    10.9%      2,138    15.2%     (213)  (10.0%)
                  -------   -----     -------   -----    ------
                  $17,659   100.0%    $14,027   100.0%   $3,632    25.9%
                  =======   =====     =======   =====    ======
</TABLE>

     Domestic POS and banking printer sales increased 32% due largely to
significantly higher sales of our POSjet(R) and BANKjet(R) lines of inkjet
printers, and increasing sales of our iTHERM(TM) 280 thermal printer. Sales of
inkjet printers increased by approximately 48% in 2004 compared to 2003, as we
shipped our BANKjet(R) line of inkjet printers to two top-tier financial
services companies to upgrade bank teller stations. We completed almost all
shipments related to the upgrade during 2004.

     International POS and banking printer sales decreased by approximately 10%
due primarily to sales of our thermal fiscal printer in Europe in 2003 that did
not repeat in 2004. We discontinued our thermal fiscal printer in 2004.

     Gaming and lottery: Sales of our gaming and lottery printers increased by
$2,663,000, or 9%, from 2003, primarily due to significantly stronger sales of
our slot machine and VLT printers, somewhat offset by lower sales of lottery
printers to GTECH.

<TABLE>
<CAPTION>
                                                             Change
                     Year ended          Year ended      --------------
(In thousands)   December 31, 2004   December 31, 2003      $       %
                 -----------------   -----------------   ------   -----
<S>              <C>        <C>      <C>        <C>      <C>      <C>
Domestic          $29,692    93.0%    $28,790    98.3%   $  902     3.1%
International       2,245     7.0%        484     1.7%    1,761   363.8%
                  -------   ------    -------   ------   ------
                  $31,937   100.0%    $29,274   100.0%   $2,663     9.1%
                  =======   ======    =======   ======   ======
</TABLE>

     Sales of our domestic gaming printers, which include VLT and slot machine
printers used in racinos, increased 8% from 2003. This increase resulted
primarily from increased installations of our casino printers, as we benefited
from the adoption and rollout of slot machines at casinos throughout North
America that print receipts instead of issuing coins.

     Lottery printer sales to GTECH, which included impact and thermal on-line
lottery printers and impact in-lane lottery printers (primarily found at
checkout counters of certain grocery stores), decreased by approximately
$630,000, or 7%, in 2004 compared to 2003. The decrease was largely due to
shipments of in-lane lottery printers in 2003 that did not recur in 2004. Our
sales to GTECH each year are directly dependent on the timing and number of new
and upgraded lottery terminal installations GTECH performs and are not
indicative of GTECH's overall business or revenue.

     International gaming and lottery printer sales increased $1,761,000, or
364%, to $2,245,000, from 2003. Such sales represented 7% and 2% of total sales
into our gaming and lottery market during 2004 and 2003, respectively. We
experienced growth in international gaming revenue in 2004 as markets in Europe
and Australia began to adopt and roll out ticket printing in slot machines.

     TransAct Services Group: Revenue from TSG includes sales of consumable
products (inkjet cartridges, ribbons and paper), replacement parts, maintenance
and repair services, refurbished printers and shipping and handling charges.
Sales from TSG increased by approximately $1,454,000, or 17%.

<TABLE>
<CAPTION>
                                                              Change
                     Year ended          Year ended       -------------
(In thousands)   December 31, 2004    December 31, 2003      $       %
                 -----------------   ------------------   ------   ----
<S>              <C>        <C>      <C>        <C>       <C>      <C>
Domestic          $ 7,998    78.0%     $6,688    76.0%    $1,310   19.6%
International       2,253    22.0%      2,109    24.0%       144    6.8%
                  -------   ------     ------   -----     ------
                  $10,251   100.0%     $8,797   100.0%    $1,454   16.5%
                  =======   ======     ======   =====     ======
</TABLE>

     Domestic TSG revenue increased by approximately $1,310,000, or 20%, to
$7,998,000 largely due to higher spare parts and consumable product (largely
inkjet cartridges) sales, as well as higher revenue from maintenance and repair
services. Internationally, sales increased by approximately $144,000, or 7%, to
$2,253,000 largely due to an increase in services revenue.


                                       22

<PAGE>

     GROSS PROFIT. Gross profit increased by $6,499,000, or 42%, to $22,042,000,
and gross margin increased to 36.8% from 29.8% due primarily to a more favorable
sales mix of higher margin products and continued reductions in component and
sub-component costs in 2004 compared to 2003. Both gross profit and gross margin
for 2004 benefited from a substantial increase in the volume of sales (15%) and
a more favorable sales mix, including increased sales of higher margin gaming
and lottery printers in 2004 compared to 2003. Gross profit in 2003 was impacted
by a charge of $740,000, or 1.4% of net sales, related to a royalty payable to
Seiko Epson for past usage of certain technology (see "Contingent Liabilities"
in Liquidity and Capital Resources).

     ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $439,000, or 19%, to $2,715,000, primarily due to
(1) compensation related expenses (approximately $100,000) and (2) expenses
incurred in the fourth quarter of 2004 related to the IGT Integration
(approximately $350,000). Engineering and product development expenses increased
as a percentage of net sales to 4.5% from 4.4%, primarily due to expenses
related to the IGT Integration, largely offset by a higher sales volume in 2004
compared to 2003.

     SELLING AND MARKETING. Selling and marketing expenses increased by
$143,000, or 3%, to $5,111,000, due primarily to higher recruitment,
compensation and travel expenses related to additional sales and marketing
staff, including expenses associated with the opening of our new gaming and
lottery headquarters and western region service center in Las Vegas, to support
our growing gaming printer sales (approximately $700,000). Such increases were
largely offset by lower (1) print advertising and other promotional marketing
expense (approximately $110,000), (2) sales commissions (approximately
$180,000), and (3) expenses at our UK facility (approximately $270,000) due
largely to a staff reduction. Selling and marketing expenses decreased as a
percentage of net sales to 8.5% from 9.5%, due primarily to higher volume of
sales in 2004 compared to 2003.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $1,507,000, or 34%, due largely to higher professional expenses, including
those related to initial year compliance with the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley"), and additional finance staff (and associated recruiting
fees) related to Sarbanes Oxley. We incurred approximately $650,000 of external
expenses directly related to compliance with Sarbanes-Oxley during 2004. In
addition, during 2004 we expensed approximately $110,000 of costs we incurred in
conducting due diligence related to a potential acquisition of TPG, Inc., as the
proposed acquisition was terminated. We also incurred approximately $95,000 of
one-time listing fees related to our move back onto the NASDAQ National Market
from the NASDAQ SmallCap Market. General and administrative expenses increased
as a percentage of net sales to 10.0% from 8.6%, due primarily to the factors
listed above, partially offset by a higher volume of sales in 2004 compared to
2003.

     BUSINESS CONSOLIDATION AND RESTRUCTURING. We recorded a reversal of expense
of $225,000, and a charge of $1,128,000 related to the Consolidation in 2004 and
2003, respectively. These amounts were substantially the result of revisions to
our original estimate for non-cancelable lease payments included in the
restructuring accrual. As of December 31, 2004, we provided for the estimated
remaining non-cancelable lease payments and other related costs for this
facility through the expiration of the lease (March 31, 2008).

     OPERATING INCOME. During 2004, we reported operating income of $8,451,000,
or 14.1% of net sales, compared to $2,688,000, or 5.2% of net sales, in 2003.
The significant increase in our operating income and operating margin was due
largely to higher gross profit on higher sales, partially offset by higher
operating expenses (primarily general and administrative expenses) in 2004
compared to 2003. Operating income for 2004 included a reversal of expense
related to the Consolidation ($225,000) and a charge related to the IGT
Integration ($350,000). Operating income for 2003 included a charge related to
the Consolidation ($1,128,000) and a royalty payable to Seiko-Epson for past
usage of certain technology ($740,000).

     INTEREST. We recorded net interest income of $4,000 in 2004 compared to net
interest expense of $210,000 in 2003, as we repaid all outstanding revolving
borrowings at December 31, 2003, and the remaining outstanding balance on our
term loan in January 2004.

     WRITE-OFF OF DEFERRED FINANCING COSTS. In August 2003, we entered into a
new credit facility with TD Banknorth, N.A., which replaced an existing facility
with LaSalle Business Credit, Inc. ("LaSalle"). We recorded a charge of
approximately $103,000 in 2003 related to the write-off of unamortized deferred
financing costs from our prior credit facility with LaSalle. Our new credit
facility with TD Banknorth, N.A. contains more favorable terms than those
contained in our prior facility with LaSalle.


                                       23

<PAGE>

     OTHER EXPENSE. Other expense for 2004 and 2003 primarily included
transaction exchange losses recorded by our UK subsidiary due to the
strengthening of the British pound against the U.S. dollar.

     INCOME TAXES. We recorded an income tax provision of $2,979,000 and
$725,000 in 2004 and 2003, respectively, at an effective rate of 35.3% and
32.2%, respectively. The lower effective rate in 2003 reflects a favorable
outcome of a state tax audit, benefits from certain tax credits, and utilization
of state net operating loss carryforwards not previously anticipated.

     NET INCOME. We reported net income in 2004 of $5,458,000, or $0.51 per
diluted share compared to net income of $1,528,000, or $0.12 per diluted share
in 2003. Earnings per share have been retroactively restated for adoption of
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. 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. 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.

(B) LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

     Overview: During 2005, our cash flow was impacted by lower sales volume and
net income, the repurchase of outstanding common stock (approximately $3.9
million), the purchase of certain intangible assets from Bally Gaming, Inc.
("Bally") (approximately $0.5 million) and increased investment in new systems,
product tooling and our new service center in Las Vegas, NV (approximately $2.7
million). However, we finished the year with no outstanding bank debt and $4.6
million of cash and cash equivalents. Looking forward, we expect to generate
approximately $7 to $8 million in cash from operations during 2006. We also
expect to earn increasing interest income on our available cash balance
throughout 2006.

     Operating activities: The following significant factors primarily affected
our cash provided by operations of $2,874,000 in 2005:

          -    We reported net income of $377,000.

          -    We recorded depreciation, amortization and non-cash compensation
               expense of $1,977,000.

          -    Accounts receivable decreased by $551,000 due primarily to a
               lower volume of sales in the fourth quarter of 2005 compared to
               the fourth quarter of 2004.

          -    Inventories decreased by $2,038,000 due to lower inventory
               purchases related to lower sales volume and continued improved
               inventory management.

          -    Accounts payable decreased by $945,000 due to lower inventory
               purchases related to lower sales volume and the timing of
               payments.

          -    Accrued liabilities and other liabilities decreased by $580,000
               due to the following: (1) lower compensation related accruals,
               (2) lower deferred revenue balances based on the completion of a
               significant prepaid service contract in 2005, (3) lower royalty
               accruals associated with the purchase of intangible assets from
               Bally and a final royalty payment for past usage made to
               Seiko-Epson in 2005.

          -    Accrued restructuring decreased by $447,000 due to continued
               lease payments on our Wallingford, CT facility.

     Investing activities: Our capital expenditures were approximately
$2,756,000 and $1,178,000 in 2005 and 2004, respectively. During 2005, we
invested in two significant projects: (1) the purchase and implementation of a
new Oracle ERP system (including software, hardware and outside consulting fees)
the implementation of which we expect to complete in 2006 (approximately
$900,000) and (2) office renovations to our new gaming and lottery headquarters
and western region service center in Las Vegas, NV (approximately $700,000). We
believe these projects will provide us with improved efficiency and will enable
us to streamline and more cost effectively manage our business as it grows in
size, number of locations and overall complexity. In addition to these projects,
the remaining amount of capital expenditures for 2005 was primarily for the
purchase of new product tooling.


                                       24

<PAGE>

     During the second quarter of 2005, we acquired certain intangible assets
related to casino printer designs and technology from 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 are no
longer required to pay any future royalties to Bally. The elimination of future
royalty payments to Bally resulted in a cost savings to the Company beginning in
the third quarter of 2005.

     We expect our capital expenditures in 2006 to be approximately $2.6
million, largely for the completion of our Oracle system implementation, as well
as component cost reduction initiatives and our continued focus on product
development and the purchase of tooling for new products and enhanced versions
of our existing products.

     Financing activities: We used approximately $3,524,000 from financing
activities during 2005, largely due to repurchases of Company stock
(approximately $3,867,000), although partly offset by proceeds from stock option
exercises and employee stock purchase plan transactions (approximately
$346,000).

WORKING CAPITAL

     Our working capital decreased to $15,375,000 at December 31, 2005 from
$20,511,000 at December 31, 2004. The current ratio also decreased to 3.2 to 1
at December 31, 2005 compared to 3.4 to 1 at December 31, 2004. The decrease in
working capital was largely due to the lower cash balance, resulting largely
from our stock repurchases, and lower inventory levels at December 31, 2005 as
compared to December 31, 2004.

DEFERRED TAXES

     As of December 31, 2005, we had a net deferred tax asset of approximately
$3,292,000. In order to utilize this deferred tax asset, we will need to
generate approximately $7.9 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 August 6, 2003, we entered into a $12.5 million credit facility (the "TD
Banknorth Credit Facility") with TD Banknorth, N.A. The TD Banknorth Credit
Facility provides for an $11.5 million revolving credit line expiring on July
31, 2006, and a $1 million equipment loan facility, which expired in July 2005.
Borrowings under the revolving credit line bear a floating rate of interest at
the prime rate and are secured by a lien on all the assets of the company. The
TD Banknorth Credit Facility imposes certain quarterly financial covenants on
the Company and restricts the payment of dividends on our common stock and the
creation of other liens. We expect to renew the TD Banknorth Credit Facility
during 2006.

     On March 28, 2005, we received a consent from TD Banknorth, N.A. to permit
us to repurchase our common stock pursuant to the terms of the Stock Repurchase
Program as explained below.

     On February 24, 2006, we amended the TD Banknorth Credit Facility to revise
a financial covenant effective December 31, 2005, which resulted in covenant
compliance.

     The borrowing base of the revolving credit line under the TD Banknorth
Credit Facility is based on the lesser of (a) $11.5 million or (b) 85% of
eligible accounts receivable plus (i) the lesser of (1) $5,500,000 and (2) 45%
of eligible raw material inventory plus 50% of eligible finished goods
inventory, less (ii) a $40,000 credit reserve.

     As of December 31, 2005, we had no balances outstanding on the revolving
credit line. Undrawn commitments under the TD Banknorth Credit Facility were
approximately $11,500,000 at December 31, 2005. However, our maximum additional
available borrowings under the facility were limited to approximately $6,500,000
at December 31, 2005 based on the borrowing base of our collateral.

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. As of December 31, 2005, we repurchased a total of 505,000 shares of
common stock for approximately $3,867,000, at an average price of $7.66 per
share.


                                       25

<PAGE>

PREFERRED STOCK

     In connection with our 7% Series B Cumulative Convertible Redeemable
Preferred Stock (the "Preferred Stock"), we paid $70,000 of cash dividends per
quarter. In April 2004, all holders of our Series B Preferred Stock converted
all their preferred shares into common stock. Under the conversion, a total
666,665 new shares of common stock were issued. No dividend payments were
required beyond the second quarter of 2004.

SHAREHOLDERS' EQUITY

     Shareholders' equity decreased by $2,458,000 to $21,257,000 at December 31,
2005 from $23,715,000 at December 31, 2004. The decrease was primarily due to
treasury stock purchases of 505,000 shares of common stock for approximately
$3,867,000 and non-cash compensation expense of $484,000 related to restricted
stock grants and the acceleration of vesting of all outstanding unvested options
granted under all our stock incentive plans, offset by: (1) net income of
$377,000, (2) proceeds of approximately $346,000 from the issuance of
approximately 74,000 shares of common stock from stock option exercises and
purchases from our employee stock purchase plan, and (3) an increase in
additional paid-in capital of approximately $337,000 resulting from tax benefits
from tax deductions arising from the sale of employee stock from stock option
exercises and vesting of restricted stock.

CONSOLIDATION EXPENSES

     During 2001 through 2005, we recognized approximately $6.0 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.

     After expanded efforts to sub-lease our facility in 2003, we determined
that, because of the continuing regional decline in the commercial real estate
market during 2003, it was unlikely that we would be able to sublease our
Wallingford, CT manufacturing facility, which has a lease term that expires in
March 2008. As a result, during 2003, we increased our restructuring accrual by
$1,270,000 to provide for the remaining non-cancelable lease payments and
related costs associated with the manufacturing facility through the lease
expiration date. In 2004, we revised our estimate of the amount of remaining
non-cancelable lease payments and related costs associated with the
manufacturing facility, which resulted in the reversal of approximately $225,000
of accrued restructuring expenses. No additional restructuring expense was
recognized in 2005.

     As of December 31, 2005 and 2004, our restructuring accrual amounted to
$1,007,000 and $1,454,000, respectively. The decrease of $447,000 is related
solely to payments made on our Wallingford, CT facility lease obligation. We
paid approximately $447,000, $446,000 and $721,000 of expenses related to the
Consolidation in 2005, 2004 and 2003, respectively. We continue actively to seek
to sublease this facility, and to consider opportunities to modify or exit our
existing lease. However, there can be no assurance that we will be successful in
these endeavors. Absent our ability to sublease or modify our existing
Wallingford facility lease, we expect to pay approximately $420,000 of these
expenses per year in 2006 and 2007, and the remaining $167,000 in 2008. These
payments from 2006 through 2008 relate primarily to lease obligation costs for
unused space in our Wallingford, CT facility, which terminates March 31, 2008.

CONTRACTUAL OBLIGATIONS

     TransAct's contractual obligations as of December 31, 2005 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   $ 5,407    $ 1,206     $2,074      $1,288       $839
Purchase obligations           19,750     16,450      3,300           -          -
                              -------    -------     ------      ------       ----
Total                         $25,157    $17,656     $5,374      $1,288       $839
                              =======    =======     ======      ======       ====
</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

     SHARE-BASED PAYMENT: In December 2004, the FASB issued Statement of
Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment"
("FAS 123R"). FAS 123R replaced Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"), and superseded
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). In March 2005, the U.S. Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin No. 107 ("SAB 107"), which
expresses views of the SEC staff regarding the interaction between FAS 123R and
certain SEC rules and regulations, and provides the staff's views regarding the
valuation of share-based payment arrangements for public companies. FAS 123R
will require compensation cost related to share-based payment transactions to be
recognized in the financial statements. FAS 123R requires measurement of the
cost of share-based payment transactions to employees at the fair value of the
award on the grant date and recognition of expense over the requisite service or
vesting period. FAS 123R allows for implementation using a modified prospective
method, under which compensation expense for the unvested portion of previously
granted awards and all new awards will be recognized on or after the date of
adoption. FAS 123R also allows companies to adopt FAS 123R by restating
previously issued financial statements, basing the amounts on the expense
previously calculated and reported in their pro forma footnote disclosures
required under FAS 123. In April 2005, the FASB changed the implementation date
for FAS 123R and the provisions of this statement will now be effective for the
Company during the first quarter of 2006.

     We are currently reviewing the method of adoption, including the transition
method, method of attribution for compensation cost, valuation methods and
support for the assumptions that underlie the valuation of awards. Currently, we
anticipate utilizing the modified prospective application ("MPA") as our
transition method. A company that chooses to utilize the MPA will not restate
its prior financial statements. Because the vesting of all existing stock option
awards was accelerated on November 2, 2005, we will recognize compensation
expense solely for new awards granted after January 1, 2006. The Company
anticipates allocating expense on a straight-line basis over the requisite
service period and using the "short-cut method" for calculating the pool of
windfall tax benefits. In addition, with regard to valuation methods, the
Company also anticipates relying exclusively on historical volatility.

     ACCOUNTING CHANGES AND ERROR CORRECTIONS: In May 2005, FASB issued
Statement of Financial Accounting Standards No. 154, "Accounting Changes and
Error Corrections" ("FAS 154"), a replacement of Accounting Principles Board
Opinion No. 20 "Accounting Changes" and Statement of Financial Accounting
Standards No. 3 "Reporting Accounting Changes in Interim Financial Statements --
An Amendment of APB Opinion No. 28." FAS 154 applies to all voluntary changes in
accounting principle and changes required by an accounting pronouncement where
no specific transition provisions are included. FAS 154 requires retrospective
application to prior period's financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. The provisions of FAS 154 are
effective for accounting changes and correction of errors made in fiscal periods
that begin after December 15, 2005, although early adoption is permitted. We do
not anticipate that the implementation of this standard will have a material
impact on our financial position, results of operations or cash flows.

RESOURCE SUFFICIENCY

     We believe that cash on-hand and cash flows generated from operations will
provide sufficient resources to meet our working capital needs, including costs
associated with the Consolidation, to finance our capital expenditures 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 2006.

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                     30
TransAct Technologies Incorporated consolidated financial statements:
   Consolidated balance sheets as of December 31, 2005 and 2004             31
   Consolidated statements of income for the years ended
   December 31, 2005, 2004 and 2003                                         32
   Consolidated statements of changes in shareholders' equity and
   comprehensive income for                                                 33
   the years ended December 31, 2005, 2004 and 2003
   Consolidated statements of cash flows for the years ended
   December 31, 2005, 2004 and 2003                                         34
   Notes to consolidated financial statements                            35 - 51
Financial Statement Schedule
   The following financial statement schedule is included herein:
   Schedule II - Valuation and Qualifying Accounts                          52
</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 2005
and 2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2005, and an audit of its 2003
consolidated financial statements 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 at December 31, 2005 and
2004, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005 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.

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, 2005 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,
2005, 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, 2006


                                       29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  December 31,   December 31,
                                                                      2005           2004
                                                                  ------------   ------------
<S>                                                               <C>            <C>
ASSETS:
Current assets:
   Cash and cash equivalents                                        $ 4,579        $ 8,628
   Receivables, net                                                   8,359          8,910
   Inventories                                                        6,036          8,074
   Refundable income taxes                                              295            510
   Deferred tax assets                                                2,735          2,370
   Other current assets                                                 258            586
                                                                    -------        -------
      Total current assets                                           22,262         29,078
                                                                    -------        -------
Fixed assets, net                                                     4,510          3,177
Goodwill                                                              1,469          1,469
Deferred tax assets                                                     557            274
Intangible and other assets, net of accumulated amortization of
   $41 and $0, respectively                                             534            101
                                                                    -------        -------
                                                                      7,070          5,021
                                                                    -------        -------
Total assets                                                        $29,332        $34,099
                                                                    =======        =======

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
   Accounts payable                                                 $ 2,859        $ 3,804
   Accrued liabilities                                                3,162          3,209
   Accrued restructuring expenses                                       420            420
   Accrued patent license fees                                           36            417
   Deferred revenue                                                     410            717
                                                                    -------        -------
      Total current liabilities                                       6,887          8,567
                                                                    -------        -------
Accrued restructuring expenses, net of current portion                  587          1,034
Deferred revenue, net of current portion                                270            444
Other liabilities                                                       331            339
                                                                    -------        -------
                                                                      1,188          1,817
                                                                    -------        -------
   Total liabilities                                                  8,075         10,384
                                                                    -------        -------
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,
      9,731,670 and 10,037,766 shares issued and outstanding            102            100
   Additional paid-in capital                                        19,334         17,401
   Retained earnings                                                  7,489          7,112
   Unamortized restricted stock compensation                         (1,837)        (1,067)
   Accumulated other comprehensive income, net of tax                    36            169
   Treasury stock, 505,000 and 0 shares at cost                      (3,867)            --
                                                                    -------        -------
      Total shareholders' equity                                     21,257         23,715
                                                                    -------        -------
Total liabilities and shareholders' equity                          $29,332        $34,099
                                                                    =======        =======
</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,
                                                  ---------------------------
                                                    2005      2004      2003
                                                  -------   -------   -------
<S>                                               <C>       <C>       <C>
Net sales                                         $51,091   $59,847   $52,098
Cost of sales                                      35,501    37,805    36,555
                                                  -------   -------   -------
Gross profit                                       15,590    22,042    15,543
                                                  -------   -------   -------
Operating expenses:
   Engineering, design and product development      2,726     2,715     2,276
   Selling and marketing                            6,319     5,111     4,968
   General and administrative                       6,321     5,990     4,483
   Business consolidation and restructuring            --      (225)    1,128
                                                  -------   -------   -------
                                                   15,366    13,591    12,855
                                                  -------   -------   -------
Operating income                                      224     8,451     2,688
                                                  -------   -------   -------
Other income (expense):
   Interest expense                                   (41)      (44)     (219)
   Interest income                                    114        48         9
   Write-off of deferred financing costs               --        --      (103)
   Other, net                                          32       (18)     (122)
                                                  -------   -------   -------
                                                      105       (14)     (435)
                                                  -------   -------   -------
Income before income taxes                            329     8,437     2,253
Income tax provision (benefit)                        (48)    2,979       725
                                                  -------   -------   -------
Net income                                            377     5,458     1,528
   Dividends and accretion charges on preferred
      stock                                            --      (111)     (358)
   Earnings allocated to preferred shareholders        --      (111)      (83)
                                                  -------   -------   -------
Net income available to common shareholders
                                                  $   377   $ 5,236   $ 1,087
                                                  =======   =======   =======
Net income per common share:
   Basic                                          $  0.04   $  0.55   $  0.13
   Diluted                                        $  0.04   $  0.51   $  0.12
Shares used in per-share calculation:
   Basic                                            9,849     9,593     8,689
   Diluted                                         10,163    10,231     9,335
</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             Loan     Accumulated
                          Common Stock    Additional           Restricted           Receivable     Other                 Total
                       -----------------   Paid-in   Retained     Stock    Treasury    from    Comprehensive         Comprehensive
                         Shares   Amount   Capital   Earnings Compensation   Stock    Officer   Income(Loss)  Total     Income
                       ---------- ------ ----------- -------- ------------ -------- ---------- ------------- ------- -------------
<S>                    <C>        <C>    <C>         <C>      <C>          <C>      <C>        <C>           <C>     <C>
Balance, December 31,
   2002                 8,572,679  $ 57   $  6,308    $  599    $   (97)   $    --    $(330)       $   8     $ 6,545
   Issuance of shares
      from exercise of
      stock options       357,906     3      1,355        --         --         --       --           --       1,358
   Issuance of shares
      from employee
      stock purchase
      plan                  3,130    --          9        --         --         --       --           --           9
   Issuance of shares
      from exercise of
      common stock
      warrants             18,935    --         --        --         --         --       --           --          --
   Amortization of
      restricted stock
      compensation             --    --         --        --         67         --       --           --          67
   Tax benefit related
      to employee
      stock sales              --    --        769        --         --         --       --           --         769
   Dividends paid on
      preferred stock          --    --         --      (280)        --         --       --           --        (280)
   Accretion of
      preferred stock
      discount and
      issuance costs           --    --         --       (78)        --         --       --           --         (78)
   Repayment of loan
      from officer             --    --         --        --         --         --      330           --         330
   Comprehensive
      income:
      Foreign currency
         translation
         adj                   --    --         --        --         --         --       --           99          99        99
      Net income               --    --         --     1,528         --         --       --           --       1,528     1,528
                       ----------  ----   --------    ------    -------    -------    -----        -----     -------    ------
Balance, December 31,
   2003                 8,952,650    60      8,441     1,769        (30)        --       --          107      10,347     1,627
   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)        --       --           --          --
   Amortization of
      restricted stock
      compensation             --    --         --        --        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)        --       --           --          --
   Amortization of
      restricted stock
      compensation             --    --         --        --        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
                       ==========  ====   ========    ======    =======    =======    =====        =====     =======    ======
</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,
                                                                 ---------------------------
                                                                   2005      2004      2003
                                                                 -------   -------   -------
<S>                                                              <C>       <C>       <C>
Cash flows from operating activities:
   Net income                                                    $   377   $ 5,458   $ 1,528
   Adjustments to reconcile net income to net cash provided by
      operating activities:
      Non-cash compensation expense                                  484       291        67
      Write-off of deferred bank financing costs                      --        --       103
      Depreciation and amortization                                1,493     1,634     1,656
      Deferred income taxes                                         (648)      380       162
      Loss (gain) on sale of fixed assets                              4        --        (1)
      Changes in operating assets and liabilities:
         Receivables                                                 551       164    (5,035)
         Inventories                                               2,038       (13)      374
         Refundable income taxes                                     215      (380)       98
         Other current assets                                        328      (207)      (52)
         Other assets                                                  3        (8)       (8)
         Accounts payable                                           (945)      516       305
         Accrued liabilities and deferred revenue                   (199)    1,920     1,212
         Accrued patent license fees                                (381)     (741)      998
         Accrued restructuring expenses                             (447)     (671)      407
                                                                 -------   -------   -------
      Net cash provided by operating activities                    2,873     8,343     1,814
                                                                 -------   -------   -------
Cash flows from investing activities:
   Purchases of fixed assets                                      (2,756)   (1,178)   (1,261)
   Proceeds from sale of fixed assets                                 --        --         1
   Purchase of intangible assets                                    (510)       --        --
   Repayment of loan receivable from officer                          --        --       330
                                                                 -------   -------   -------
      Net cash used in investing activities                       (3,266)   (1,178)     (930)
                                                                 -------   -------   -------
Cash flows from financing activities:
   Revolving bank loan repayments, net                                --        --    (2,541)
   Term loan borrowings                                               --        --       450
   Term loan repayments                                               --      (420)     (380)
   Proceeds from option exercises, employee
      stock purchase plan,                                           347     1,516     1,364
      and common stock warrants
   Purchases of common stock for treasury                         (3,867)       --        --
   Payment of cash dividends                                          --       (91)     (280)
   Payment of preferred stock conversion and
      registration expense                                            (3)     (102)       --
                                                                 -------   -------   -------
      Net cash provided by (used in) financing activities         (3,523)      903    (1,387)
                                                                 -------   -------   -------
Effect of exchange rate changes                                     (133)       62        99
                                                                 -------   -------   -------
Increase (decrease) in cash and cash equivalents                  (4,049)    8,130      (404)
Cash and cash equivalents, beginning of period                     8,628       498       902
                                                                 -------   -------   -------
Cash and cash equivalents, end of period                         $ 4,579   $ 8,628   $   498
                                                                 =======   =======   =======
Supplemental cash flow information:
   Interest paid                                                 $    41   $    44   $   226
   Income taxes paid, net                                            117       379       229
Non-cash financing activities:
   Conversion of preferred stock to common stock                 $    --   $ 3,926   $    --
   Tax benefit related to employee stock
      sales and restricted stock                                     337     2,332       769
   Accretion of preferred stock discount and issuance costs           --        24        78
   Issuance of restricted stock                                    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, transaction-based printers
     and related products. TransAct designs, develops, assembles, markets and
     services world-class transaction printers under the Epic 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 receipts, tickets, coupons, register journals and
     other documents. We focus on two core markets: point-of-sale (POS) and
     banking, and gaming and lottery. We sell our products to original equipment
     manufacturers, value-added resellers and selected distributors, as well as
     directly to end-users. Our product distribution spans across the Americas,
     Europe, the Middle East, Africa, 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 design, develop, manufacture and market a broad array of
     transaction-based printers utilizing inkjet, thermal and impact printing
     technology for applications requiring up to 60 character columns in each of
     our vertical markets. Our printers are configurable, which offer customers
     the ability to choose from a variety of features and functions. Options
     typically include printed circuit board configuration, paper cutting
     devices, paper handling capacities and cabinetry color. In addition to our
     configurable printers, we manufacture 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.

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.


                                       34

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          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, 2005   December 31, 2004   December 31, 2003
                              -----------------   -----------------   -----------------
<S>                           <C>        <C>      <C>        <C>      <C>       <C>
POS and banking printers       $16,410    32.1%    $17,659    29.5%    $14,027    26.9%
Gaming and lottery printers     23,634    46.3%     31,937    53.4%     29,274    56.2%
Services, spare parts and
   consumables                  11,047    21.6%     10,251    17.1%      8,797    16.9%
                               -------   -----     -------   -----     -------   -----
Total net sales                $51,091   100.0%    $59,847   100.0%    $52,098   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: 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.

          PROVISIONS FOR LOSSES ON UNCOLLECTIBLE RECEIVABLES: 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 $240,000 and
     $175,000, as of December 31, 2005 and 2004, 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 five 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 $1,419,000, $1,608,000 and
     $1,579,000 in 2005, 2004 and 2003, respectively.


                                       35

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          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, which is generally
     when we enter the space and begin construction build-out. 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, 2005
     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.

          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,
             ------------
              2005   2004
              ----   ----
<S>          <C>     <C>
Customer A     19%    10%
Customer B       *    18%
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,
             -----------------------
                2005   2004   2003
                ----   ----   ----
<S>          <C>       <C>    <C>
Customer A       17%    16%    19%
Customer B       14%      *      *
Customer C         *    14%      *
Customer D         *    --     12%
</TABLE>

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


                                       36

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          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 during 2005, 2004 and 2003:

<TABLE>
<CAPTION>
                                         Year ended December 31,
                                         -----------------------
(In thousands)                             2005    2004    2003
                                          -----   -----   -----
<S>                                      <C>      <C>     <C>
Balance, beginning of year                $ 597   $ 495   $ 644
Additions related to warranties issued      613     610     409
Warranty costs incurred                    (566)   (508)   (558)
                                          -----   -----   -----
Balance, end of year                      $ 644   $ 597   $ 495
                                          =====   =====   =====
</TABLE>

          Approximately $145,000 and $153,000 of the accrued product warranty
     liability were classified as long-term at December 31, 2005 and 2004,
     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 spent approximately
     $2,726,000, $2,715,000 and $2,276,000 on research and development expenses
     in 2005, 2004 and 2003, respectively.

          ADVERTISING: Advertising costs are expensed as incurred. Advertising
     expenses for the years ended December 31, 2005, 2004 and 2003 totaled
     $371,000, $343,000 and $417,000, respectively.

          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
     are recognized in other income (expense) and have not been significant for
     all periods presented.

          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 the transactions.


                                       37

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          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.

          STOCK-BASED COMPENSATION: We have elected to follow Accounting
     Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
     ("APB 25"), and related interpretations in accounting for stock options.
     Since the exercise price of employee stock options granted by the Company
     equals the market price of the underlying stock on the date of grant, no
     compensation expense is recorded. We have adopted the disclosure-only
     provisions of Statement of Financial Accounting Standards No. 123,
     "Accounting for Stock-Based Compensation" ("FAS 123"), as amended by
     Statement of Financial Standards No. 148, "Accounting for Stock-Based
     Compensation - Transition and Disclosure - an amendment of FAS 123" ("FAS
     148"). See Note 13 for additional disclosures related to our stock-based
     compensation plans.

          The following table illustrates the effect on net income (loss),
     compensation expense and net income (loss) per share as if the
     Black-Scholes fair value method described in FAS 123 had been applied to
     our stock plans.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                                  -------------------------
(In thousands, except per share data)                               2005     2004     2003
                                                                  -------   ------   ------
<S>                                                               <C>       <C>      <C>
Net income (loss) available to common shareholders:
   Net income available to common shareholders,
      as reported                                                 $   377   $5,236   $1,087
   Add: Stock-based compensation expense included in
      reported net income, net of tax                                 315      205       43
   Deduct:  Stock-based compensation expense determined
      under fair value based method for all awards, net of tax     (1,294)    (390)    (229)
                                                                  -------   ------   ------
   Pro forma net income (loss) available to common shareholders   $  (602)  $5,051   $  901
                                                                  =======   ======   ======
Net income (loss) per share:
   Basic:
      As reported                                                 $  0.04   $ 0.55   $ 0.13
      Pro forma                                                     (0.06)    0.53     0.10
   Diluted:
      As reported                                                 $  0.04   $ 0.51   $ 0.12
      Pro forma                                                     (0.06)    0.49     0.10
</TABLE>

          Pro forma stock based compensation expense for the year ended December
     31, 2005 includes pro forma compensation expense of approximately $564,000
     related to the acceleration of stock option 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 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.


                                       38

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          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. This guidance impacted the calculation of
     earnings per share for the year ended December 31, 2004 and also required
     retroactive restatement of earnings per share presented for the year ended
     December 31, 2003.

3.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          SHARE-BASED PAYMENT: In December 2004, the FASB issued Statement of
     Financial Accounting Standards No. 123 (revised 2004), "Share-Based
     Payment" ("FAS 123R"). FAS 123R replaced Statement of Financial Accounting
     Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"),
     and superseded Accounting Principles Board Opinion No. 25, "Accounting for
     Stock Issued to Employees" ("APB 25"). In March 2005, the U.S. Securities
     and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 107
     ("SAB 107"), which expresses views of the SEC staff regarding the
     interaction between FAS 123R and certain SEC rules and regulations, and
     provides the staff's views regarding the valuation of share-based payment
     arrangements for public companies. FAS 123R will require compensation cost
     related to share-based payment transactions to be recognized in the
     financial statements. FAS 123R requires measurement of the cost of
     share-based payment transactions to employees at the fair value of the
     award on the grant date and recognition of expense over the requisite
     service or vesting period. FAS 123R allows for implementation using a
     modified prospective method, under which compensation expense for the
     unvested portion of previously granted awards and all new awards will be
     recognized on or after the date of adoption. FAS 123R also allows companies
     to adopt FAS 123R by restating previously issued financial statements,
     basing the amounts on the expense previously calculated and reported in
     their pro forma footnote disclosures required under FAS 123. In April 2005,
     the FASB changed the implementation date for FAS 123R and the provisions of
     this statement will now be effective for the Company during the first
     quarter of 2006.

          We are currently reviewing the method of adoption, including the
     transition method, method of attribution for compensation cost, valuation
     methods and support for the assumptions that underlie the valuation of
     awards. Currently, we anticipate utilizing the modified prospective
     application ("MPA") as our transition method. A company that chooses to
     utilize the MPA will not restate its prior financial statements. Because
     the vesting of all existing stock option awards was accelerated on November
     2, 2005, we will recognize compensation expense solely for new awards
     granted after January 1, 2006. The Company anticipates allocating expense
     on a straight-line basis over the requisite service period and using the
     "short-cut method" for calculating the pool of windfall tax benefits. In
     addition, with regard to valuation methods, the Company also anticipates
     relying exclusively on historical volatility.

          ACCOUNTING CHANGES AND ERROR CORRECTIONS: In May 2005, FASB issued
     Statement of Financial Accounting Standards No. 154, "Accounting Changes
     and Error Corrections" ("FAS 154"), a replacement of Accounting Principles
     Board Opinion No. 20 "Accounting Changes" and Statement of Financial
     Accounting Standards No. 3 "Reporting Accounting Changes in Interim
     Financial Statements -- An Amendment of APB Opinion No. 28." FAS 154
     applies to all voluntary changes in accounting principle and changes
     required by an accounting pronouncement where no specific transition
     provisions are included. FAS 154 requires retrospective application to
     prior period's financial statements of changes in accounting principle,
     unless it is impracticable to determine either the period-specific effects
     or the cumulative effect of the change. The provisions of FAS 154 are
     effective for accounting changes and correction of errors made in fiscal
     periods that begin after December 15, 2005, although early adoption is
     permitted. We do not anticipate that the implementation of this standard
     will have a material impact on our financial position, results of
     operations or cash flows.

4.   INVENTORIES

          The components of inventories are:

<TABLE>
<CAPTION>
                                                December 31,
                                              ---------------
(In thousands)                                 2005     2004
                                              ------   ------
<S>                                           <C>      <C>
Raw materials and purchased component parts   $5,788   $7,869
Finished goods                                   248      205
                                              ------   ------
                                              $6,036   $8,074
                                              ======   ======
</TABLE>


                                       39

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   FIXED ASSETS

          The components of fixed assets are:

<TABLE>
<CAPTION>
                                                      December 31,
                                                  -------------------
(In thousands)                                      2005       2004
                                                  --------   --------
<S>                                               <C>        <C>
Tooling, machinery and equipment                  $ 13,748   $ 12,627
Furniture, office equipment, computer software
   and equipment                                     5,068      3,864
Leasehold improvements                                 949        522
                                                  --------   --------
                                                    19,765     17,013
Less: accumulated depreciation and amortization    (15,255)   (13,836)
                                                  --------   --------
                                                  $  4,510   $  3,177
                                                  ========   ========
</TABLE>

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
     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 $41,000 for the year ended December 31, 2005. Amortization
     expense for each of the next five years ending December 31 is expected to
     be approximately $82,000 per year.

7.   ACCRUED LIABILITIES

          The components of accrued liabilities are:

<TABLE>
<CAPTION>
                                December 31,
                              ---------------
(In thousands)                 2005     2004
                              ------   ------
<S>                           <C>      <C>
Payroll and fringe benefits   $1,208   $1,334
Income taxes                     679      735
Warranty - current portion       499      444
Rent and occupancy               200      150
Other                            576      546
                              ------   ------
                              $3,162   $3,209
                              ======   ======
</TABLE>


                                       40

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, we recorded expenses of approximately $4,096,000 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.

          During 2002, we incurred an additional $958,000 of Consolidation
     expenses, primarily due to a revision to our estimate for non-cancelable
     lease payments included in the restructuring accrual.

          After expanded efforts in 2003, we determined that because of the
     continuing regional decline in the commercial real estate market during
     2003, it was unlikely that we would be able to sublease our Wallingford, CT
     manufacturing facility, which has a lease term that expires in March 2008.
     As a result, during 2003, we increased our restructuring accrual by
     $1,270,000 to provide for the remaining non-cancelable lease payments and
     related costs associated with the manufacturing facility. This increase
     represented the reversal of estimated sublease income for the remainder of
     the lease term. In addition, we did not terminate certain employees
     originally included in the Consolidation. As a result, we reversed the
     remaining $142,000 of accrued restructuring expenses in 2003 related to
     employee severance and termination expenses, as we completed all required
     payments for such expenses by December 31, 2003.

          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 useful space in the
     Wallingford facility, and because we had experienced lower than expected
     operating and maintenance costs than previously estimated, we reversed
     $225,000 of previously accrued amounts provided for the remaining
     non-cancelable lease payments and related costs.


                                       41
<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING EXPENSES (CONTINUED)

          The following table summarizes the activity recorded in the
     restructuring accrual during 2005, 2004 and 2003.

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                                 ------------------------
(In thousands)                                    2005     2004     2003
                                                 ------   ------   ------
<S>                                              <C>      <C>      <C>
Accrual balance, beginning of year               $1,454   $2,125   $1,718
                                                 ------   ------   ------
Business consolidation and
   restructuring expenses:
   Employee severance and
      termination expenses                 (1)       --       --     (142)
   Facility closure and consolidation
      expenses                             (2)       --     (225)   1,270
                                                 ------   ------   ------
                                                     --     (225)   1,128
                                                 ------   ------   ------
Cash payments                                      (447)    (446)    (721)
                                                 ------   ------   ------
Accrual balance, end of year                     $1,007   $1,454   $2,125
                                                 ======   ======   ======
</TABLE>

(1)  Employee severance and termination related expenses are the estimated
     termination salaries, benefits, outplacement, counseling services and other
     related expenses expected to be paid to employees who are involuntarily
     terminated.

(2)  Facility closure and consolidation expenses are the estimated costs to
     close the Wallingford, CT facility including lease termination expenses and
     other related expenses, in accordance with the restructuring plan. The
     Wallingford facility closure was substantially completed by December 31,
     2001.

          At December 31, 2005 and 2004, $587,000 and $1,034,000, 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 $225,000, $201,000 and $174,000 in 2005, 2004 and 2003,
     respectively.

10. BORROWINGS

          On August 6, 2003, we entered into a $12.5 million credit facility
     (the "TD Banknorth Credit Facility") with TD Banknorth, N.A. The TD
     Banknorth Credit Facility provides for an $11.5 million revolving credit
     line expiring on July 31, 2006, and a $1 million equipment loan facility
     which, as amended, was available through July 2005. The equipment loan
     facility expired in July 2005. Borrowings under the revolving credit line
     bear a floating rate of interest at the prime rate and are collateralized
     by a lien on all the assets of the company. Under certain circumstances, we
     may select a fixed interest rate for a specified period of time of up to
     180 days on borrowings based on the current LIBOR rate plus 2.75% under the
     revolving credit facility. We also pay a fee of 0.25% on unused borrowings
     under the revolving credit line. The TD Banknorth Credit Facility imposes
     certain quarterly financial covenants on the Company and restricts the
     payment of dividends on our common stock and the creation of other liens.
     In 2003, we recorded interest expense of approximately $103,000 related to
     the write-off of unamortized deferred financing costs from the prior credit
     facility.


                                       42

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. BORROWINGS (CONTINUED)

          Concurrent with the signing of the TD Banknorth Credit Facility, we
     borrowed $450,000 under the equipment loan facility, which was paid in full
     in 2004.

          On March 28, 2005, we received a consent from TD Banknorth, N.A. to
     permit us to repurchase our common stock pursuant to the terms of the Stock
     Repurchase Program as explained in Note 19.

          On February 24, 2006, we amended the TD Banknorth Credit Facility to
     revise a financial covenant effective December 31, 2005, which resulted in
     debt covenant compliance.

          The borrowing base of the revolving credit line under the TD Banknorth
     Credit Facility is based on the lesser of (a) $11.5 million or (b) 85% of
     eligible accounts receivable plus (i) the lesser of (1) $5,500,000 and (2)
     45% of eligible raw material inventory plus 50% of eligible finished goods
     inventory, less (ii) $40,000 credit reserve.

          As of December 31, 2005, we had no outstanding borrowings on the
     revolving credit line. Undrawn commitments under the TD Banknorth Credit
     Facility were approximately $11,500,000 at December 31, 2005. However, our
     maximum additional available borrowings under the facility were limited to
     approximately $6,500,000 at December 31, 2005 based on the borrowing base
     of our collateral.

11. COMMITMENTS AND CONTINGENCIES

          In April 2005, we announced a complaint against FutureLogic, Inc.
     ("FutureLogic"), 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, asserting
     false advertising, defamation, trade libel and certain other charges. The
     action is currently in the pre-trial motion stage, and, as of December 31,
     2005, 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.


                                       43

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

          During the fourth quarter of 2005, we recorded an expense to cost of
     goods sold of approximately $135,000 related to estimated
     settlement/cancellation payments for non-cancelable purchase orders for
     certain excess inventory components related primarily to our Model 850
     casino ticket printer.

          At December 31, 2005, we were lessee on operating leases for equipment
     and real property. The terms of certain leases provide for escalating rent
     payments in later years of the lease as well as payment of minimum rent and
     real estate taxes. The Company records rent expense related to leases with
     escalating rent payments or periods of free rent on a straight-line basis
     over the term of the lease. Rent expense was approximately $1,294,000,
     $1,098,000 and $1,096,000 in 2005, 2004 and 2003, 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, 2005 are as follows: $1,206,000 in 2006; 1,222,000 in 2007;
     $853,000 in 2008; $717,000 in 2009; $571,000 in 2010; and $839,000
     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.

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 are at 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, 2005, approximately 582,000 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, 3,706, and 3,130 shares of common stock under
     the ESPP during 2005, 2004 and 2003, respectively. At December 31, 2005, no
     shares remained available for issuance due to the termination of the ESPP.


                                       44

<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,
                                   ----------------------------------------------------------------
                                          2005                  2004                   2003
                                   ------------------   --------------------   --------------------
                                             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:                         813,664     $5.97    1,123,533    $ 4.50    1,418,079     $4.20
   Granted                              --        --       52,750     26.81      102,000      5.84
   Exercised                       (71,064)     4.55     (321,947)     4.28     (357,906)     3.79
   Canceled                         (1,099)     3.93      (40,672)     5.74      (38,640)     3.81
                                   -------     -----    ---------    ------    ---------     -----
Outstanding at end of period       741,501     $6.10      813,664    $ 5.97    1,123,533     $4.50
                                   =======     =====    =========    ======    =========     =====
   Options exercisable at end of
      Period                       741,501     $6.10      458,382    $ 4.67      542,630     $4.72
                                   =======     =====    =========    ======    =========     =====
</TABLE>

<TABLE>
<CAPTION>
                                            Options Outstanding                          Options Exercisable
                           ----------------------------------------------------   ---------------------------------
                           Outstanding at                      Weighted-Average   Exercisable at
                            December 31,    Weighted-Average      Remaining        December 31,    Weighted-Average
Range of Exercise Prices        2005         Exercise Price    Contractual Life        2005         Exercise Price
------------------------   --------------   ----------------   ----------------   --------------   ----------------
                                                                  (In years)
<S>                        <C>              <C>                <C>                <C>              <C>
$ 2.00 - $ 5.00                461,414           $ 3.67               6.0             461,414           $ 3.67
  5.01 -   7.50                213,587             6.15               3.3             213,587             6.15
  7.51 -  10.00                 14,250             8.12               2.0              14,250             8.12
 10.01 -  25.00                 16,500            16.52               6.6              16,500            16.52
 25.01 -  35.00                 35,750            31.66               8.4              35,750            31.66
                               -------             ----               ---             -------           ------
                               741,501             6.10               5.3             741,501             6.10
                               =======             ====               ===             =======           ======
</TABLE>

          The fair value of each option grant is estimated on the date of grant
     using the Black-Scholes option pricing model with the following assumptions
     used for the grants made during the years ended December 31, 2005, 2004 and
     2003. No stock option grants were made in 2005.

<TABLE>
<CAPTION>
                                      Year Ended December 31,
                                      ---------------------
                                         2004        2003
                                      ---------   ---------
<S>                                   <C>         <C>
Risk-free interest rate                     3.6%        2.6%
Dividend yield                                0%          0%
Expected volatility factor                 81.5%       82.1%
Expected option term                  8.9 years   5.8 years
Weighted average fair value
   of options granted during period   $   20.64       $6.09
</TABLE>


                                       45

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)

          On November 2, 2005, the Compensation Committee of the Board of
     Directors approved accelerating the vesting of all outstanding unvested
     stock options granted to directors, officers and employees of the Company
     under our applicable stock incentive plans. The closing price of our common
     stock on the NASDAQ National Market Quotation System to be used for
     measurement of compensation as of the date of acceleration was $6.99. 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, become immediately exercisable. All other terms
     and conditions applicable to 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. We believe that the acceleration of
     vesting of unvested options will eliminate the need to recognize any future
     compensation expense in our income statement with respect to these options.
     We will recognize compensation expense with respect to stock options
     granted after January 1, 2006 pursuant to FAS 123R. We recorded
     approximately $26,000 of compensation expense in the fourth quarter of 2005
     related to the acceleration of vesting.

          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>
                                              Year Ended December 31,
                                            ---------------------------
                                              2005      2004      2003
                                            -------   -------   -------
<S>                                         <C>       <C>       <C>
Outstanding shares at beginning of period    79,500    16,999    69,999
   Granted                                  125,400    81,000        --
   Vested                                   (17,100)  (15,499)  (53,000)
   Canceled                                    (250)   (3,000)       --
Outstanding shares at end of period         187,550    79,500    16,999
</TABLE>

          We granted 125,400 shares of restricted stock during 2005 at weighted
     average grant price of $9.82. We granted 81,000 shares of restricted stock
     during 2004 at weighted average grant price of $17.28. No restricted stock
     was granted during 2003. Of the 187,550 shares of restricted stock
     outstanding at December 31, 2005, 169,550 shares vest over the original
     five-year vesting period, 4,000 shares vest over the original four-year
     vesting period and 14,000 shares vest over the original three-year vesting
     period. Under certain conditions such as a change in control as defined by
     the Plans, vesting may be automatically accelerated.

          Unearned compensation for restricted stock award grants is recorded on
     the date of grant based on the fair value of such awards. Such unearned
     compensation is expensed, using the straight-line method, over the period
     during which the related restrictions on such stock lapse. Upon termination
     of employment, unvested restricted stock awards are forfeited and the
     related compensation expense and unearned compensation previously
     recognized are reversed. Compensation expense resulting from these
     restricted shares was $458,000, $291,000 and $67,000 during 2005, 2004 and
     2003, respectively. Upon adoption of FAS 123R in the first quarter of 2006,
     the Company will reverse all amounts previously recorded in Unamortized
     Restricted Stock Compensation and continue to record expense as the
     restricted stock vests. In the first quarter of 2006, the Company will also
     measure a cumulative effect adjustment for estimated forfeitures on
     previously recognized restricted stock compensation.


                                       46

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

15.  INCOME TAXES

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

<TABLE>
<CAPTION>
                         Year Ended December 31,
                         -----------------------
(In thousands)            2005    2004     2003
                         -----   ------   ------
<S>                      <C>     <C>      <C>
Current:
   Federal               $   7   $2,077   $1,121
   State                    68      216       94
   Foreign                 525      306      131
                         -----   ------   ------
                           600    2,599    1,346
                         -----   ------   ------
Deferred:
   Federal                (634)     363     (554)
   State                   (14)      17      (67)
   Foreign                  --       --       --
                         -----   ------   ------
                          (648)     380     (621)
                         -----   ------   ------
Income tax
   provision (benefit)   $ (48)  $2,979   $  725
                         =====   ======   ======
</TABLE>

          At December 31, 2005, we have $2,274,000 of state net operating loss
     carryforwards that begin to expire in 2009, and no federal net operating
     loss carryforwards. We also have approximately $383,000 in federal research
     and development tax credit carryforwards that begin to expire in 2011. We
     also have foreign tax credit carryforwards of approximately $483,000 that
     begin to expire in 2011. We had foreign income before taxes of $1,833,000,
     $1,084,000 and $475,000 in 2005, 2004 and 2003, respectively.


                                       47

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. INCOME TAXES (CONTINUED)

          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)                              2005      2004
                                          -------   -------
<S>                                       <C>       <C>
Gross deferred tax assets:
   Net operating losses                    $   67    $  423
   Accrued restructuring expenses             418       605
   Capitalized research and development       790        --
   Inventory reserves                         800       742
   Deferred revenue                           165       429
   Foreign tax and other credits              927       649
   Other liabilities and reserves             829       636
                                           ------    ------
                                            3,996     3,484
Valuation allowance                          (207)     (193)
                                           ------    ------
   Net deferred tax assets                  3,789     3,291
                                           ------    ------
Gross deferred tax liabilities:
   Depreciation                               401       540
   Other                                       96       107
                                           ------    ------
      Net deferred tax liabilities            497       647
                                           ------    ------
Net deferred tax assets                    $3,292    $2,644
                                           ======    ======
</TABLE>

          During 2005 and 2004, we recorded a valuation allowance of $207,000
     and $193,000 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, 2005 and 2004.

          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,
                                                  --------------------
                                                   2005    2004   2003
                                                  -----    ----   ----
<S>                                               <C>      <C>    <C>
Federal statutory tax rate                         34.0%   34.0%  34.0%
State income taxes, net of federal income taxes    (9.1)    1.0    1.2
Tax benefit from tax credits, net of valuation    (17.5)   (0.8)    --
allowance
Foreign rate differential                           9.4    (0.7)    --
Reversal of valuation allowance and tax accruals  (41.7)     --     --
Permanent item                                     13.0      --     --
Other                                              (2.7)    1.8   (3.0)
                                                  -----    ----   ----
   Effective tax rate                             (14.6%)  35.3%  32.2%
                                                  =====    ====   ====
</TABLE>


                                       48

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  EARNINGS PER SHARE

          For the years ended December 31, 2005, 2004 and 2003, earnings per
     share were computed as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                           --------------------------
                                                             2005      2004     2003
                                                           -------   -------   ------
<S>                                                        <C>       <C>       <C>
Net income                                                 $   377   $ 5,458   $1,528
Dividends and accretion on preferred stock                      --      (111)    (358)
Earnings allocation to preferred shareholders                   --      (111)     (83)
                                                           -------   -------   ------
Net income available to common shareholders                $   377   $ 5,236   $1,087
                                                           =======   =======   ======
Shares:
   Basic: Weighted average common shares outstanding         9,849     9,593    8,690
   Add: Dilutive effect of outstanding options and
     warrants as determined by the treasury stock method       314       638      645
                                                           -------   -------   ------
   Diluted: Weighted average common and common
      equivalent shares outstanding                         10,163    10,231    9,335
                                                           =======   =======   ======
Net income per common share:
   Basic                                                   $  0.04   $  0.55   $ 0.13
   Diluted                                                    0.04      0.51     0.12
</TABLE>

          Unvested restricted stock is excluded from the calculation of weighted
     average common shares for basic EPS. For diluted EPS, weighted average
     common shares include the impact of restricted stock using the treasury
     method.

          For the years ended December 31, 2005 and 2004, potentially dilutive
     shares that were excluded from the earnings per share calculation,
     consisting of out-of-the-money stock options and warrants, were 52,250
     and 35,750 shares, respectively. In April 2004, we completed a
     three-for-two stock split of our common stock effected in the form of a
     stock dividend. All amounts in the table above reflect the stock split on a
     retroactive basis.

17.  LOAN TO OFFICER

          On February 23, 1999, with the Board of Directors' approval, we
     provided a $330,000 loan to an officer of the Company. The loan was payable
     on February 23, 2004, and was a full recourse obligation to the officer
     collateralized by 154,000 shares of our common stock, which included 50,000
     shares of restricted stock. The principal amount of the loan was recorded
     as a deduction from shareholders' equity. In June 2003, the officer of the
     Company repaid the outstanding loan of $330,000, plus accrued interest of
     $113,000.

18.  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. Under 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
     in Additional Paid-In Capital.


                                       49

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.  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, 2005, we
     repurchased a total of 505,000 shares of common stock for approximately
     $3,867,000, at an average price of $7.66 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.

20.  INTERNATIONAL OPERATIONS

          We have foreign operations primarily from TransAct Technologies Ltd.,
     a wholly-owned subsidiary, which had sales to its customers of
     approximately $2,181,000, $1,000,000 and $1,068,000 in 2005, 2004 and 2003,
     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 $10,137,000, $5,423,000 and $3,663,000 in 2005, 2004 and
     2003, respectively. 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.

21.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

          Our quarterly results of operations for 2005 and 2004 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>
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) available to common shareholders       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>

<Table>
<Caption>

                                                        March 31   June 30   September 30   December 31
                                                        --------   -------   ------------   -----------
2004:
<S>                                                     <C>        <C>       <C>            <C>
   Net sales                                            $15,075    $14,694      $15,482       $14,596
   Gross profit                                           5,418      5,617        5,897         5,110
   Net income                                             1,342      1,465        1,625         1,026
   Net income available to common shareholders            1,165      1,421        1,625         1,026
   Net income per share:
      Basic                                                0.13       0.15         0.16          0.10
      Diluted                                              0.12       0.14         0.15          0.10

</TABLE>


                                       50

<PAGE>

                       TRANSACT TECHNOLOGIES INCORPORATED
                                   Schedule II
                        Valuation and Qualifying Accounts
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                              Balance at                Write-offs,   Balance at
                                             Beginning of                  net of       End of
Description                                     Period      Provision    recoveries     Period
-----------                                  ------------   ---------   -----------   ----------
<S>                                          <C>            <C>         <C>           <C>
Valuation account for accounts receivable:
Year ended December 31, 2005                    $  175          $ 68       $  (3)       $  240
Year ended December 31, 2004                    $  100          $ 73       $   2        $  175
Year ended December 31, 2003                    $   78          $ 76       $ (54)       $  100

Valuation account for inventories:
Year ended December 31, 2005                    $2,010          $995       $(840)       $2,165
Year ended December 31, 2004                    $1,950          $148       $ (88)       $2,010
Year ended December 31, 2003                    $2,027          $441       $(518)       $1,950

</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, 2005 and of management's assessment of internal control over
financial reporting as of December 31, 2005 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.

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.

     Management assessed our internal control over financial reporting as of
December 31, 2005. 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, 2005 based on the COSO
criteria identified above, to provide reasonable assurance regarding the
reliability


                                       52

<PAGE>

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, 2005 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.

     Some of 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 contained in "Executive Compensation" other than the
"Compensation Committee Report on Executive Compensation" of the Proxy Statement
is hereby incorporated herein by reference.

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, 2005
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                             614,374               $3.12                     --
    1996 Non-Employee Director Plan             206,250                9.99                     --
    2005 Equity Incentive Plan                   18,000                  --                582,000
                                                -------               -----                -------
Total                                           838,624               $4.74                582,000
                                                -------               -----                -------
Equity compensation plans not approved
by security holders:
    2001 Employee Stock Plan                     90,427               $6.05                     --
                                                -------               -----                -------
                                                929,051               $4.87                582,000
                                                =======               =====                =======
</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:

          Financial statements

     (i)  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 "Company"), filed with the Secretary of State of
          Delaware on June 17, 1996.                                                (2)

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

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

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

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 & Trust Company dated February 16, 1998.                   (5)

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)   2000 Employee Stock Purchase Plan.                                        (9)

10.4(x)   2001 Employee Stock Plan.                                                (10)

10.5(x)   2005 Equity Incentive Plan                                               (17)

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

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

10.8(x)   Severance Agreement by and between TransAct and Steven A. DeMartino,
          dated June 1, 2004.                                                      (15)

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

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

10.11     Agreement regarding the Continuation and Renewal of Lease by and
          between Bomax Properties, LLC and TransAct, dated July 18, 2001.         (12)

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

10.13     Lease Agreement by and between Las Vegas Airport Properties LLC and      (15)
          TransAct dated December 2, 2004.
</TABLE>


                                       55

<PAGE>

<TABLE>
<S>       <C>                                                                      <C>
10.14     OEM Purchase Agreement by and between GTECH Corporation, TransAct and
          Magnetec 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.)       (7)

10.15     OEM Purchase Agreement by and between GTECH Corporation and TransAct
          commencing July 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.)                               (11)

10.16     Amendment to OEM Purchase Agreement by and between GTECH Corporation
          and TransAct, 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.)                    (1)

10.17     OEM Sales Agreement by and between Okidata Americas, Inc. and
          TransAct, dated June 8, 2005. (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.)                    (1)

10.18     Revolving Credit, Equipment Loan and Security Agreement between
          TransAct and TD Banknorth, N.A. dated August 6, 2003.                    (12)

10.19     First Amendment to Revolving Credit, Equipment Loan and Security
          Agreement dated as of November 12, 2004 between TransAct and TD
          Banknorth, N.A.                                                          (14)

10.20     Consent by TD Banknorth, N.A. dated as of March 28, 2005 to permit
          stock repurchases under the Revolving Credit, Equipment Loan and
          Security Agreement.                                                      (16)

10.21     Second Amendment to Revolving Credit, Equipment Loan and Security
          Agreement dated as of February 24, 2006 between TransAct and TD
          Banknorth, N.A.                                                           (1)

10.22     License Agreement between Seiko Epson Corporation and TransAct dated
          May 17, 2004 (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.)                                    (13)

10.23     Preferred Stock Purchase Agreement and Certificate of Designation
          dated as of March 20, 2000 between TransAct and Advance Capital
          Partners, L.P. and affiliate                                              (8)

23.1      Consent of PricewaterhouseCoopers LLP.                                    (1)

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

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

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                                                                      (1)

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                                                                      (1)
</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. 333-49540), is incorporated by reference.

(10)   This exhibit, which was previously filed with the Company's Registration
       Statement on Form S-8 (No. 333-59570), 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, 2002, 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, 2003, is incorporated
       by reference.

(13)   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.

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

(16)   This exhibit, which was previously filed with the Company's Quarterly
       Report on Form 10-Q for the period ended March 31, 2005, is incorporated
       by reference.

(17)   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.

(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, 2006

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, 2006
-------------------------------------   Chief Executive Officer
Bart C. Shuldman                        (Principal Executive Officer)


/s/ Steven A. DeMartino                 Executive Vice President, Chief Financial      March 15, 2006
-------------------------------------    Officer, Treasurer and Secretary
Steven A. DeMartino                     (Principal Financial and Accounting Officer)


/s/ Charles A. Dill                     Director                                       March 15, 2006
-------------------------------------
Charles A. Dill


/s/ Thomas R. Schwarz                   Director                                       March 15, 2006
-------------------------------------
Thomas R. Schwarz


/s/ Graham Y. Tanaka                    Director                                       March 15, 2006
-------------------------------------
Graham Y. Tanaka
</TABLE>


                                       58

<PAGE>

                                  EXHIBIT LIST

The following exhibits are filed herewith.

<TABLE>
<Caption>
Exhibit
-------
<S>     <C>
10.16   Amendment to OEM Purchase Agreement by and between GTECH Corporation and
        TransAct, 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.)

10.17   OEM Sales Agreement by and between Okidata Americas, Inc. and TransAct,
        dated June 8, 2005. (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.)

10.21   Second Amendment to Revolving Credit, Equipment Loan and Security
        Agreement dated as of February 24, 2006 between TransAct and TD
        Banknorth, N.A.

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