The following discussion is intended to assist in the understanding of our results of operations and our present financial condition. The consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material. Statements in this discussion may be forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed. See Item 1A, "Risk Factors."

For a Company Overview and information on our products as well as general information, see Part I-Item 1. Business.

Overview of our Business

GPIC manufactures and supplies (under the brand names of Paulson®, Bourgogne et Grasset®, and Bud Jones®) casino chips including low frequency and high frequency RFID casino chips, low frequency and high frequency RFID readers, table layouts, playing cards, dice, gaming furniture, roulette wheels, table accessories, and other products that are used with casino table games such as blackjack, poker, baccarat, craps and roulette. GPIC is headquartered in Las Vegas, Nevada, with offices in Beaune, France; San Luis Rio Colorado, Mexico; Atlantic City, New Jersey; and Gulfport, Mississippi. GPIC sells its casino products directly to licensed casinos throughout the world. We operate in one segment and have two operating subsidiaries, GPI USA and GPI SAS, a French subsidiary. Our subsidiaries have the following product and distribution focus:

º •
º GPI USA sells primarily in the United States and Canada. GPI USA sells our full product line. Most of the products sold by GPI USA are manufactured in Mexico with the remainder either manufactured in Las Vegas or France.

º •
º GPI SAS sells internationally, with most sales occurring in Europe and Asia. GPI SAS predominately sells casino chips including both American-style casino chips and European-style casino chips, which are also known as plaques and jetons. Most of the products sold by GPI SAS are manufactured in France.

The Company has historically experienced significant fluctuations in its quarterly operating results and expects such fluctuations to continue. The Company's operating results fluctuate due to a number of factors, but primarily reflect the opening of new casinos, the expansion of existing casinos, and large replacement orders for casino chips-our primary product line, which typically represents over 60% of revenues. The one-time or non-recurring nature of these events necessarily creates variability in revenue and earnings. Further, the timing of these one-time or non-recurring events is difficult to predict and, largely, beyond our ability to influence. While most large projects are pursued years in advance, both large and small sales opportunities arise with little prior notice. An indicator of future sales is found in our backlog report, which reports signed orders that are planned to be shipped in 2009.

                                          Backlog
                                  GPI USA         GPI SAS          Total
           December 31, 2008   $ 3.4 million   $ 9.6 million   $ 13.0 million
           December 31, 2007   $ 7.1 million   $ 4.0 million   $ 11.1 million

A significant part of our strategy is to create new demand for casino chips through the use of RFID technology. A passive microchip with a small antenna is embedded in each chip. When chips are placed above a large antenna, which is embedded in a gaming table or cashier's stand and linked to a reading unit, they receive energy from the reading unit through the large antenna and can communicate with the reading unit. The data collected can allow applications ranging from chip

authentication, accounting, tracking and inventory to more sophisticated applications such as players' tracking and table management.

RFID represents a large portion of our consolidated operations. The following table highlights the importance of RFID casino chips, which have been sold to over 100 casinos and casino groups in North America, Europe, and Asia. The table shows the percentage of revenue from casino chips sales that are RFID casino chips for the last five years.

                                                           Year
                                           2008    2007    2006    2005    2004
             RFID casino chip percentage      34 %    27 %    35 %    13 %     3 %

Overview of our Industry

Much of our growth in recent years has been as a result of the major developments in the gaming industry in Macau. Although the gaming industry has had great success in Macau, we anticipate fewer casino openings. In April 2008, a high-ranking government official in Macau, Edmund Ho, announced a freeze on new development beyond that which was currently underway or in discussion. Asia, primarily Macau, remains an important market and represented 22% of our revenues in 2008, which is a decrease from 32% in 2007.

The general slow down in the gaming industry, which appears attributable to growing economic problems in the United States and abroad, has negatively impacted our casino customers and therefore may be affecting our sales. To the extent these conditions continue, we anticipate our revenues in future quarters could be adversely affected.

Financial and Operational Highlights

Our net income for 2008 was $4.5 million compared to $0.2 million for 2007. Our revenues for 2008 were $60.5 million, an increase of $1.7 million, or 3%, compared to revenues of $58.8 million for 2007. The increase in net income in 2008 compared to 2007 is due to improved operational performance as exhibited by improved gross profit margins and lower selling and administrative expenses, as well as a gain on foreign currency transactions and a lower effective tax rate.

We are particularly pleased with these results given the worldwide economic downturn that has challenged many of our customers. We believe our revenue in 2008 was sustained because our consumable business (dice, cards, and layouts) held relatively steady and our non-consumable business (chips and tables) remained strong due to casino openings in 2008. We were concerned about our consumable business with the slow down in gaming revenues, but consumable products are more affected by number of casino visitors rather than by gaming revenues directly. Therefore, although the number of casino visitors was down in the major domestic markets of Las Vegas and Atlantic City, they were not as far down as gaming revenues. Our casino chip business again surpassed 60% of our total revenues in 2008, of which a significant portion is related to new casino openings and expansions. Despite the downturn in the gaming industry, casino openings and expansions planned for 2008 generally happened as scheduled.

In the second quarter of 2008, we completed the move of plastic injection molding for Bud Jones casinos chips from Las Vegas to our manufacturing facility in Mexico. In the third quarter we began to see the benefits of the move with an improvement in margins for our Bud Jones casino chips.

In the third quarter of 2008, GPI SAS was certified ISO 9001 compliant, which provides external validation to our quality control processes.

GPI SAS uses the euro as its functional currency. As of December 31, 2008 and December 31, 2007, the US dollar to euro exchange rates were 1.3917 and 1.4718, respectively, which represents a

5.4% stronger dollar compared to the euro. The average exchange rates for the years ended December 31, 2008 and 2007 were 1.4706 and 1.3706, which represents a 7.3% weaker dollar compared to the euro.

Looking Forward

For 2009, we do not anticipate we can duplicate the success in revenues or net income we had in 2008 due to the ongoing decline in the gaming industry and fewer planned casino openings. We anticipate our revenues in the first quarter of 2009 will be lower than the first quarter of 2008 and will result in a loss for the quarter. Of the casino openings that will take place in 2009, we believe we are well positioned to win their business as evidenced in the orders we received for the City of Dreams in Macau and Newport City in Manila.

As a reflection of our current backlog, sales projections, and ongoing efforts to align our costs with our sales, we have reduced our workforce level to 621 permanent employees worldwide as of February 28, 2009 from 685 at December 31, 2008 and 785 at September 30, 2008. We continue to look for ways to reduce costs and enhance profitability. With $13.1 million of cash and marketable securities, we feel we have sufficient liquid resources to weather the economic downturn in 2009.

Other Matters

For several years we have worked closely with Progressive Gaming International Corporation (PGIC) to expand the placement of RFID casino chips. PGIC offered chip inventory system software and table management system software. PGIC ceased operations and, in January 2009, sold substantially all of its assets to International Game Technology (IGT). IGT has also promoted RFID in table game use and is the owner of two patents for which we have licenses that grant us the exclusive rights to manufacture and sell RFID casino chips and chip accounting readers in the United States. We are assessing the positive and negative aspects of this development. Ultimately, we believe in the merits of the RFID technology as a benefit to the casinos and expect the industry to continue to expand in this direction.

The Company hired Gregory Gronau in October 2008 as its Executive Vice President and Chief Operating Officer. The appointment of Mr. Gronau is part of a succession plan necessitated by the planned retirement of the Company's President and Chief Executive Officer, Gerard Charlier, in September 2009. While it is the current intention of the Board of Directors to appoint Mr. Gronau to the positions of President and Chief Executive Officer upon the retirement of Mr. Charlier, no assurance can be given that Mr. Gronau will be appointed to such positions.

Results of Operations

The following table summarizes selected items from the Company's Consolidated Statements of Income as a percentage of revenues for the years ended December 31:

                                                            2008      2007
         Revenues                                            100.0 %   100.0 %
         Cost of revenues                                     67.2 %    70.3 %

         Gross profit                                         32.8 %    29.7 %
         Selling, general and administrative expenses(1)      24.0 %    28.2 %

         Operating income                                      8.8 %     1.5 %
         Other income (expense)                                 .8 %      .3 %
         Income before income taxes                            9.6 %     1.8 %
         Income tax expense                                    2.2 %     1.4 %

         Net income                                            7.4 %      .4 %

The following table presents certain data by geographic area (in thousands):

                                                  2008                 2007
           Revenues
              United States                $ 36,710      60.6 % $ 31,576      53.7 %
              Europe (includes Russia)        5,704       9.4 %    5,565       9.5 %
              Asia(1)                        13,549      22.4 %   18,712      31.8 %
              Other(2)                        4,583       7.6 %    2,968       5.0 %

                     Total                 $ 60,546     100.0 % $ 58,821     100.0 %

º (2)
º Includes Canada, Africa, Australia, South America, and other countries.

The following table details the Company's revenues by product line for the years ended December 31 (in thousands):

                                                      2008                 2007
      Casino chips:
         American-style casino chips           $ 30,182      49.9 % $ 30,853      52.5 %
         European-style casino chips              8,245      13.6 %    7,049      12.0 %

      Total casino chips                         38,427      63.5 %   37,902      64.5 %
      Table layouts                               5,154       8.5 %    5,016       8.5 %
      Playing cards                               4,149       6.9 %    3,880       6.6 %
      Gaming furniture                            3,580       5.9 %    3,293       5.6 %
      Dice                                        1,901       3.1 %    2,074       3.5 %
      Table accessories and other products        5,226       8.6 %    4,523       7.7 %
      Shipping                                    2,109       3.5 %    2,133       3.6 %

         Total                                 $ 60,546     100.0 % $ 58,821     100.0 %

Comparison of Operations for the Years Ended December 31, 2008 and 2007

Revenues For the year ended December 31, 2008, revenues were $60.5 million, an increase of $1.7 million or 3%, compared to revenues of $58.8 million for the year ended December 31, 2007. In 2008, GPI SAS recorded revenues of $21.1 million, a decrease of $4.6 million, or 18%, compared to $25.7 million in 2007. GPI SAS' revenue would have shown an additional 7% decline if the average annual exchange rate between the euro and the US dollar had not increased by 7% in 2008 compared to 2007. The decrease in GPI SAS' revenues was attributable primarily to lower sales in Asia due to fewer casino openings in 2008 compared to 2007. The sales decline was in American-style casino chips, which was partially offset by an increase in higher sales of European-style casino chips. In 2008, GPI USA recorded revenues of $39.4 million, an increase of $6.3 million, or 19% as compared to revenues of $33.1 million in 2007. The increase in revenues at GPI USA was due to an increase in the number of casino openings in 2008 compared to 2007 in the United States and Canada. This sales increase was primarily in American-style casino chips in 2008 compared to 2007, but all product lines showed an increase in revenues, except for dice.

Cost of Revenues For the year ended December 31, 2008, cost of revenues was $40.7 million, a decrease of $0.7 million, or 2%, compared to cost of revenues of $41.4 million for the year ended December 31, 2007. As a percentage of revenues, the cost of revenues decreased to 67.2% in 2008 compared to 70.3% in 2007.

Gross Profit For the year ended December 31, 2008, gross profit was $19.9 million, an increase of $2.4 million, or 14%, compared to gross profit of $17.5 million for the year ended December 31, 2007. This occurred as a result of the increase in revenues of $1.7 million and a decrease in cost of revenues of $0.7 million. As a percentage of revenues, our gross margin increased to 32.8% from 29.7%. The gross margin increase was primarily driven by the increase in revenues at GPI USA in 2008 compared to 2007, which allowed fixed costs to be allocated over higher production volumes, and a more favorable product mix at both GPI USA and GPI SAS. These favorable impacts were partially offset by a $0.2 million charge related to a quality issue with RFID casino chips incurred in 2008.

Selling, General and Administrative Expenses The following table details the selling, general, and administrative expenses for the years ended December 31 (in thousands):

                                               Years Ended December 31,
                                                    (in thousands)
                                      2008      Revenue %      2007      Revenue %
           Product development      $    201           0.3 % $    419           0.7 %
           Marketing and sales         4,263           7.1 %    4,303           7.3 %
           General and
           administrative(1)          10,071          16.6 %   11,882          20.3 %

        Total selling, general
        and administrative
        expenses                    $ 14,535          24.0 % $ 16,604          28.3 %

For the year ended December 31, 2008, selling, general and administrative expenses were $14.5 million, a decrease of $2.1 million, or 13%, compared to selling, general and administrative expenses of $16.6 million for the year ended December 31, 2007. Selling, general and administrative expenses decreased as a percent of revenue to 24.0% in 2008 from 28.3% in 2007. The two primary areas of reduced expenses in 2008 compared to 2007 were a $0.6 million decrease in costs associated with issues related to lead in Paulson gaming chips and a $0.6 million decrease in professional fees.

Other Income (Expense) The following table details the Other Income (Expense) items for the years ended December 31 (in thousands):

                                       2008     Revenue %      2007     Revenue %
           Gain (loss) on foreign     $  268           0.4 %  $ (323 )        (0.5 )%
           currency transactions
           Interest income               252           0.4 %     334           0.6 %
           Interest expense             (137 )        (0.2 )%   (190 )        (0.3 )%
           Other income, net             103           0.2 %     374           0.6 %

         Total other income           $  486           0.8 %  $  195           0.4 %
         (expense)

In 2008, there was a gain on foreign currency transactions of $0.3 million compared to a loss of $0.3 million in 2007. This increase of $0.6 million was offset by a decrease in other income, net due to a non-recurring $0.3 million tax refund that GPI SAS received in 2007 from the French Social Security.

Income Taxes During the year ended December 31, 2008, our effective tax rate was 23.0% as compared to 77.3% for the year ended December 31, 2007. The decrease in our effective rate for the year ended December 31, 2008 was primarily a result of the French Research and Development Credit, the absence of foreign dividend inclusions and related valuation of foreign tax credits and the decrease in the FIN 48 reserve. The Company's effective tax rate for the year ended December 31, 2008 differed from the statutory rate as a result of the French Research Credit, reversal of the prior year FIN 48 reserve, and decrease in the valuation allowance related to foreign tax credits. The Company's effective tax rate for the year ended December 31, 2007 differed from the statutory rate as a result of the Company's repatriation of a non-cash dividend from GPI SAS; the related increase in the valuation allowance related to foreign tax credits, which are expected to expire before usage; and the refinement of the Company's previous estimate of the tax basis in fixed assets and intangibles.

Pre-tax income (loss) by taxing jurisdictions for the years ended December 31, (in thousands):

                                                        2008       2007
             United States (GPI USA and Corporate)     $ 3,608   $ (2,051 )
             France (GPI SAS)                            2,218      3,108

                Total pre-tax income                   $ 5,826   $  1,057

Our corporate tax rate is calculated on a consolidated basis. Our corporate costs are not allocated to our French subsidiary, GPI SAS. Our corporate costs include such items as corporate management, regulatory fees, board of director expenses, investor relations expenses, auditing and review fees, and corporate legal expenses. In 2008 and 2007, corporate costs total $1.9 million and $2.6 million, respectively.

Liquidity and Capital Resources

Overview As of December 31, 2008, we had $5.5 million in cash and cash equivalents and $7.6 million in current marketable securities. Of the cash and cash equivalents and marketable securities, $4.0 million is held by GPI USA and $9.1 million is held by GPI SAS. It may be impractical or costly to transfer cash from our French subsidiary to the United States due to unfavorable tax consequences. If our cash needs increase, we will evaluate other cash sources, including lending facilities in the United States and abroad. We believe that the combination of cash flow from operations and cash on hand will be sufficient to fund expenses from routine operations for a minimum of the next twelve months.

Working Capital (See Consolidated Balance Sheets) Working capital totaled $21.9 million at December 31, 2008 compared to $16.9 million at December 31, 2007. Working capital increased by $5.0 million due to an increase in current assets of $2.2 million and a decrease in current liabilities of $2.8 million. The increase in current assets was due primarily to an increase in marketable securities and cash and cash equivalents of $3.8 million offset primarily by a decrease in other current assets of $0.7 million. The decrease in current liabilities was due primarily to decreases in accrued liabilities of $1.3 million and customer deposits of $1.3 million. The decrease in the accrued liabilities is primarily attributable to the $0.6 million payment for the Proposition 65 legal settlement.

Cash Flow (See Consolidated Statements of Cash Flow) Overall, our cash balance increased by $0.9 million from December 31, 2007 to December 31, 2008.

Net cash flow provided by operating activities was $6.2 million during 2008 compared to net cash provided by operating activities of $1.4 million during 2007. In 2008, $7.4 million of cash was provided by net income-related activities and $1.0 million was provided by a decrease in operating assets, excluding cash. These increases were offset by a decrease in current liabilities of $2.2 million. In 2007, $3.8 million of cash was provided by net income-related activities. This was offset by $1.6 million increase in current assets and a decrease in current liabilities of $0.8 million.

Our investing activities resulted in net cash used of $4.5 million for 2008, compared to net cash used of $2.0 million in 2007. This $2.5 million change is primarily attributable to an increase in net purchases of marketable securities of $3.8 million from 2008 compared to 2007 and a decrease in cash spent on acquisitions of property and equipment of $1.3 million.

Net cash flow used in financing activities was $0.7 million during 2008 compared to net cash used in financing activities of $1.0 million during 2007. The change was primarily due to a $0.4 million reduction in long-term debt payments in 2008 compared to 2007.

Line of Credit In September 2008, GPI SAS secured a 1,000,000 euro line of credit for short term needs that expired in February 2009. As of December 31, 2008, this line of credit was fully available.

In February 2001, GPI SAS borrowed 2.6 million euros (approximately $2.4 million in February 2001) from an unaffiliated party. Principal and interest payments were due quarterly until February 2008, at which time the loan was paid off. The loan had a fixed rate of interest of 5.1% per annum. The loan was guaranteed by our majority stockholder, Holding Wilson, S.A.

In March 2002, GPI USA entered into a $995,000 loan transaction secured by a Deed of Trust on its Las Vegas building, at an interest rate equal to the greater of (i) 8% per annum, or (ii) 362.5 basis points over the average of the London Interbank Offered Rates for six-month dollar deposits in the London market based on quotations of major banks, or LIBOR, but may not exceed 12% per annum. This loan is payable in arrears in equal monthly installments through March 2012, at which time the entire remaining principal balance of approximately $875,000 will be due and payable. There is no prepayment penalty.

In May 2004, GPI SAS entered into a 350,000 euro (approximately $423,000 in May 2004) loan transaction with a French bank. The loan has a fixed interest rate of 3.6% per annum, is due in May 2011, and is secured by a mortgage on the building premises.

In June 2006, GPI SAS entered into a 1.5 million euro (approximately $1.9 million in June 2006) loan agreement with a French bank. The loan has a five-year term at a fixed rate of 3.4% per annum. The loan is repayable in fixed quarterly installments. The loan is secured by GPI SAS' marketable securities at the bank. GPI SAS must maintain a minimum balance of at least 500,000 euros ($696,000 at December 31, 2008). There are no prepayment penalties.

Seasonality Seasonality is difficult to determine due to the significant revenue fluctuations we experience on a quarterly basis. Nonetheless, it appears that the first quarter is typically one of the lowest revenue quarters for the year and operations may be impacted in the third quarter of each year as GPI SAS is closed for a substantial part of the month of August due to the traditional French holiday period.

Las Vegas, Nevada Facilities In May 1997, we purchased our corporate headquarters, an approximately 60,000 square foot building. This facility houses the Las Vegas corporate and sales offices, as well as a centralized warehouse, some manufacturing departments, and a graphics art department. Our Las Vegas headquarters secures a deed of trust issued under our outstanding term loan. See "Long-Term Debt" above.

San Luis Rio Colorado, Mexico Facilities We manufacture casino chips, playing cards, dice, plastic products, layouts and tables at three facilities in San Luis Rio Colorado, Mexico. These facilities include a 34,000 square foot leased facility, a 46,000 square feet leased facility, and an approximately . . .