The following discussion is intended to assist in the understanding of our results of operations and our present financial condition. The condensed 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 of the Company's Form 10-K for the period ended December 31, 2008.

For a Company Overview and information on our products as well as general information, see Part I-Item 1. Businessof the Company's Form 10-K for the period ended December 31, 2008.

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:

† 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.

† 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, which are signed orders that are planned to be shipped in 2009.

       Backlog
                            GPI USA            GPI SAS            Total
       March 31, 2009   $  2.6   million   $ 9.0   million   $ 11.6   million
       March 31, 2008   $ 11.2   million   $ 2.8   million   $ 14.0   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 can be utilized for applications ranging from chip authentication, accounting, tracking and inventory to more sophisticated applications such as players' tracking and table management.

RFID represents a significant percentage of casino chip sales. 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 six years, with 2009 representing three months.

                              3 Months                 Year
                                2009     2008   2007   2006   2005   2004
RFID casino chip percentage        26%    34%    27%    35%    13%     3%

Overview of our Industry

The general slow down in the worldwide economy and in the gaming industry has negatively impacted our casino customers and therefore is likely affecting our sales. To the extent these conditions continue, we anticipate our revenues in future quarters will be adversely affected, especially to the extent that plans for casino openings are delayed, postponed, or cancelled.

In the United States, local casino markets have not been as adversely affected by the economic downturn as in the gaming destination markets of Las Vegas and Atlantic City. Internationally, Macau continues to be the dominant gaming market, but will not grow at the same rate it has in recent years. Other Asian countries such as the Philippines and Singapore represent future growth opportunities.

Financial and Operational Highlights

For the first quarter of 2009 we had a net loss of $0.5 million compared to a net loss of $0.4 million for the first quarter of 2008. For the first quarter of 2009 our revenues were $8.9 million, a decrease of $3.2 million, or 26 %, compared to revenues of $12.1 million for 2008. Our revenues were down due to a decrease in sales of casino chips, which dropped $2.8 million and represented 55% of total revenues in the first quarter of 2009 compared to 63% in the first quarter of 2008. In particular, our higher margin European-style casino chip business was only 4% of total sales for the first quarter of 2009 compared to 32% for the first quarter of 2008. Our casino chip sales are heavily dependent on new casino openings and our sales reflect limited casino openings in the first quarter of 2009.

The strengthening of the dollar against the euro had a negative impact on our revenues but had a positive impact on the expenses of our French subsidiary, GPI SAS. It also resulted in a favorable swing in our foreign currency transaction account of $0.4 million. The stronger dollar compared with the Mexican peso also had a favorable impact of $0.3 million for the quarter as our manufacturing costs were reduced.

GPI SAS uses the euro as its functional currency. As of March 31, 2009 and December 31, 2008, the US dollar to euro exchange rates were 1.3308 and 1.3917, respectively, which represents a 4.4% stronger dollar compared to the euro. The average exchange rates for the three months ended March 31, 2009 and 2008 were 1.3024 and 1.4995, which represents a 13.1% stronger dollar compared to the euro.

Looking Forward

For 2009, we do not anticipate 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. Of the casino openings that will take place in 2009, we have received orders for the City of Dreams in Macau and Newport City in Manila and believe we are well-positioned to win additional business. Given the challenges we face, we continue to look for ways to reduce costs and enhance profitability. The Company has $16.4 million of cash and marketable securities and feels it has 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). We are continuing to assess this development. 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. 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.

CRITICAL ACCOUNTING ESTIMATES

Financial statement preparation requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities. The accompanying condensed consolidated financial statements are prepared using the same critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

RESULTS OF OPERATIONS



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



                                                Three Months Ended
                                                     March 31,
                                                 2009         2008
Revenues                                          100.0%      100.0%
Cost of revenues                                   73.0%       69.8%
Gross Profit                                       27.0%       30.2%
Selling, general and administrative expenses       37.0%       33.5%
Operating loss                                   (10.0%)      (3.3%)
Other income (expense)                              1.4%      (1.9%)
Loss before income taxes                          (8.6%)      (5.2%)
Income tax expense (benefit)                      (2.9%)      (1.8%)
Net loss                                          (5.7%)      (3.4%)

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

                                    Three Months Ended
                                        March 31,
                                 2009               2008
Revenues
United States              $ 5,577    62.4%   $  5,255    43.3%
Europe (includes Russia)       689     7.7%      1,528    12.6%
Asia(1)                      1,486    16.6%      4,292    35.4%
Other(2)                     1,191    13.3%      1,050     8.7%
Total                      $ 8,943   100.0%   $ 12,125   100.0%

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

The following table details the Company's revenues by product line (in thousands):

                                                Three Months Ended
                                                    March 31,
                                             2009               2008
Casino chips:
American-style casino chips            $ 4,555    50.9%   $  3,819    31.5%
European-style casino chips                361     4.0%      3,870    31.9%
Total casino chips                       4,916    54.9%      7,689    63.4%

Table layouts                            1,158    13.0%      1,224    10.1%
Playing cards                            1,057    11.8%        985     8.1%
Gaming furniture                           391     4.4%        526     4.3%
Dice                                       402     4.5%        470     3.9%
Table accessories and other products       661     7.4%        796     6.6%
Shipping                                   358     4.0%        435     3.6%
Total                                  $ 8,943   100.0%   $ 12,125   100.0%

Revenues For the three months ended March 31, 2009, revenues were $8.9 million, a decrease of $3.2 million, or 26%, compared to revenues of $12.1 million for the three months ended March 31, 2008. In the first quarter of 2009, GPI SAS recorded revenues of $2.4 million, a decrease of $4.0 million, or 62%, compared to $6.4 million in 2008. The decrease in revenues was primarily attributable to lower sales of American-style and European-style casino chips to casinos in Macau. The decrease was amplified by the fact that the dollar strengthened by 13% during the first quarter of 2009 compared to the first quarter 2008. In the first quarter of 2009, GPI USA recorded revenues of $6.5 million, an increase of $0.8 million, or 13%, as compared to revenues of $5.7 million in 2008. The increase in revenues at GPI USA was primarily attributable to increased sales of American-style casino chips.

Cost of Revenues For the three months ended March 31, 2009, cost of revenues was $6.5 million, a decrease of $2.0 million, or 23%, compared to cost of revenues of $8.5 million for the three months ended March 31, 2008. As a percentage of revenues, the cost of revenues increased to 73.0% in 2009 from 69.8% in 2008.

Gross Profit Gross profit for the three months ended March 31, 2009 decreased by $1.2 million, or 34%, compared to 2008. This occurred as a result of the decrease in revenues of $3.2 million and a decrease in cost of revenues of $2.0 million. As a percentage of revenues, our gross margin decreased to 27.0% from 30.2%. The gross margin decrease was primarily driven by substantially lower sales of the higher margin European-style casino chips at GPI SAS which required fixed manufacturing costs to be allocated over lower production volumes. Partially offsetting these factors was the decline in the value of the Mexican peso which reduced our manufacturing costs $0.3 million for the first quarter of 2009 compared to the first quarter of 2008.

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

                                                 Three Months Ended
                                                     March 31,
                                    2009       Revenue %       2008      Revenue %

Product development              $      143           1.6%   $     54          0.5%
Marketing and sales                     983          11.0%      1,162          9.6%
General and administrative            2,180          24.4%      2,838         23.4%
Total selling, general, and
administrative expenses          $    3,306          37.0%   $  4,054         33.5%

Selling, general, and administrative expenses decreased by $0.7 million for the three months ended March 31, 2009 compared to 2008, while increasing as a percent of revenue to 37.0% in 2009 from 33.5% in 2008. Marketing and sales decreased by $0.2 million due to lower sales commission expenses and the effect of the dollar strengthening against the euro. General and administrative expenses decreased $0.6 million. The largest component of this decrease was $0.2 million of costs in the first quarter of 2008 related to lead in Paulson gaming chips that did not recur in 2009. The remaining decrease was due to a variety of factors including the effect of the dollar strengthening against the euro, lower use tax expense and a decrease in payroll expense.

Other Income (Expense) The following table details the Other Income (Expense) items for the three months ended March 31 (in thousands:)

                                                           Three Months Ended
                                                               March 31,
                                              2009      Revenue %      2008      Revenue %

Gain(loss) on foreign currency transactions   $  93          1.0%     $ (259 )      (2.1%)
Interest income                                  49          0.5%         56          0.5%
Interest expense                                (28 )      (0.3%)        (38 )      (0.3%)
Other income, net                                17          0.2%          3          0.0%
Total other income (expense)                  $ 131          1.4%     $ (238 )      (1.9%)

For the three months ended March 31, 2009, other income (expense) increased by $0.4 million compared to the 2008 period due primarily to the decrease in the value of the euro compared to the US dollar during the first quarter of 2009 which resulted in a gain on foreign currency transactions in 2009.

Income Taxes Our effective income tax rate for the three months ended March 31, 2009 and March 31, 2008 was 35%. Our corporate tax rate is calculated on a consolidated basis.

Our corporate costs are not allocated to our French subsidiary, GPI SAS.

Income Tax Uncertainties During the year ended December 31, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109(FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. Under the requirements of FIN 48, the Company must review all of its tax positions and make a determination as to whether its position is more likely than not to be sustained upon examination by regulatory authorities. The more-likely-than-not recognition threshold must continue to be met in each reporting period to support continued recognition of a benefit. If a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on the cumulative probability analysis of the amount that is more likely than not to be realized upon ultimate settlement or disposition of the underlying issue. As of March 31, 2009, there has been no change to the balance of unrecognized tax benefits reported at December 31, 2008.

Liquidity and Capital Resources

Overview As of March 31, 2009, we had $7.5 million in cash and cash equivalents and $8.9 million in current marketable securities. Of the cash and cash equivalents and marketable securities, $7.0 million is held by GPI USA and $9.4 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 our 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 Working capital totaled $21.3 million at March 31, 2009 and $21.9 million at December 31, 2008. Working capital decreased due to an increase in current liabilities of $2.9 million offset by an increase in current assets of $2.3 million. The main reason for the increase in current liabilities is due to an increase in customer deposits of $3.3 million. The increase in customer deposits is due to receipt of deposits for upcoming shipments. The increase in current assets was due primarily to an increase of $3.3 million in cash and marketable securities and $1.1 million in inventories offset by a $2.3 million decrease in accounts receivable. The increase in inventories was due primarily to pending shipments and the decrease in accounts receivable is due to lower sales in the first quarter of 2009 compared to the fourth quarter of 2008.

Cash Flow Overall, our cash balance increased from December 31, 2008 to March 31, 2009 by $2.0 million.

Net cash provided by operating activities was $3.8 million during the three months ended March 31, 2009 compared to $2.0 million provided during the same period in 2008. For the period ended March 31, 2009, $0.1 million of cash was used for net income-related activities and $1.0 million of cash was provided by a decrease in operating assets (excluding cash) and $2.9 million was provided by an increase in current liabilities. For the three months ended March 31, 2008, $0.2 million of cash was used for net income related activities; $1.6 million was provided by a decrease in operating assets (excluding cash) and $0.6 million was provided by an increase in current liabilities.

Our investing activities resulted in net cash used of $1.6 million for the three months ended March 31, 2009 compared to $1.7 million in net cash used by investing activities for the same period in 2008. For the three months ended March 31, 2009, increases in the net purchases of marketable securities were $0.3 million and plant, property and equipment purchases were reduced by $0.4 million compared to the three months ended March 31, 2008.

Net cash flow used in financing activities was $0.1 million for the three months ended March 31, 2009 and $0.3 million for the three months ended March 31, 2008. This was primarily due to a 2.6 million euro loan that had its final payment in February 2008.

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.

Long-term Debt 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. The loan was paid off in the first quarter of 2008.

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 (LIBOR) for six-month dollar deposits in the London market based on quotations of major banks, 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 is 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. At March 31, 2009, the remaining balance is 118,000 euros ($157,000).

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 ($665,000 at March 31, 2009). There are no prepayment penalties. At March 31, 2009, the remaining balance is 706,000 euros ($940,000).

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 current corporate headquarters, an approximately 60,000 square foot building located in Las Vegas that also serves as a manufacturing/warehousing facility and sales office. The Las Vegas headquarters secures the $995,000 loan pursuant to the Deed of Trust. See "Long-term Debt" above.

San Luis Rio Colorado, Mexico Facilities In San Luis, we have a lease until December 2013 for two manufacturing facilities totaling approximately 80,000 square feet. The monthly rent amount is $0.35 per square foot or approximately $28,000. We also own an approximately 66,000 square foot manufacturing facility adjacent to the leased building.

Beaune, France Facilities In Beaune, we own an approximately 34,000 square foot manufacturing facility and a 15,000 square foot administrative and sales building located nearby.

Capital Expenditures We currently plan to purchase approximately $1.5 million in capital equipment and improvements in the remainder of 2009.

Cash Dividend The Board of Directors does not intend to declare or pay any dividends for the foreseeable future.

Backlog At March 31, 2009, our backlog of orders, which is expected to be filled in 2009, amounted to $11.6 million, consisting of $2.6 million for GPI USA and $9.0 million for GPI SAS. At March 31, 2008, our backlog was $14.0 million, consisting of $11.2 million for GPI USA and $2.8 million for GPI SAS.

Contractual Obligations and Commercial Commitments

On November 3, 2005, GPI USA entered into an exclusive purchase agreement with a supplier for particular raw materials used to manufacture finished goods. The supplier agreed to not compete in the sale of these finished goods in the United States during the five-year term of the agreement. GPI USA was required to purchase a minimum amount of raw material totaling $569,000 in the first year and $711,000 per year for years two through five of the agreement. The prices negotiated under this agreement represent prevailing market prices at the time of the agreement. On June 18, 2008, the agreement was amended to extend the term five years from August 1, 2008 and to expand the territory in which the supplier would not compete to Europe, South America, and all of North America. Under the amended agreement, our commitment to purchase raw material increased to $923,000 in the first year of the amended agreement and $952,000 per year for years two through five of the amended agreement. On January 22, 2009, the supplier filed a complaint against the Company in Illinois seeking a preliminary injunction in connection with the exclusive purchase agreement alleging a right to pre-payment. On April 7, 2009, the supplier filed an Amended Complaint. On April 24, 2009, the Company filed a motion to dismiss certain claims of the supplier's Amended Complaint and that motion remains pending in the United States District Court for the Southern District of Illinois. For further information refer to Note 6 of the Company's Form 10-Q condensed consolidated notes to the financial statements "Legal Proceedings and Contingencies" and "Commitments".

On February 18, 2009, we issued a notice of termination of the exclusive purchase agreement to the supplier based upon its default in delivering the raw materials pursuant to the agreement, including material already paid for. We are now acquiring the raw materials directly from the manufacturer, who no longer has any exclusive supply agreements with our former supplier.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurement. The provisions of this statement were generally to be applied prospectively in fiscal years beginning after November 15, 2007 and interim periods within that fiscal year. The FASB issued Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157(FSP 157-2), which applies to non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. For items within its scope, FSP 157-2 deferred the effective date of SFAS 157 until fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157, evaluated its impact, and concluded that the impact is immaterial at this time.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities- an amendment of FASB Statement No. 133(SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are . . .