FUTURE EXPECTATIONS AND FORWARD-LOOKING STATEMENTS

This Quarterly Report and the information incorporated herein by reference contain various "forward-looking statements" within the meaning of federal and state securities laws, including those identified or predicated by the words "believes," "anticipates," "expects," "plans," "will," "seeking," or similar expressions with forward-looking connotations. Such statements are subject to a number of risks and uncertainties that could cause the actual results to differ materially from those projected. Such factors include, but are not limited to, the uncertainties inherent in the outcome of any litigation of the type described in this Quarterly Report under "Part I - Item 1. Condensed Consolidated Financial Statements - Note 8 - Commitments and Contingencies" and "PART II - Item 1. Legal Proceedings," trends and other expectations described in "PART I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," risk factors disclosed in our earnings and other press releases issued to the public from time to time, as well as those other factors as described under "PART II - Item 1A. Risk Factors" set forth below. Given these uncertainties, readers of this Quarterly Report are cautioned not to place undue reliance upon such statements. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligations to update any such forward-looking statements.

Overview

We are a developer and distributor of comprehensive systems, content, electronic games and gaming player terminals for the casino, charity, international bingo, and video lottery markets. Initially, our customers were located primarily in the Native American gaming sector; however, around 2003, we began diversifying into broader domestic and international gaming markets.

Although we continue to develop systems and products for Native American tribes throughout the United States, we now intend to further expand our efforts to include the development and marketing of products and services for: (i) the various commercial casino markets; (ii) the various domestic and international lotteries; and (iii) the various charity and international bingo and other emerging markets.

Our products cover a broad spectrum of the gaming industry, including:
interactive systems for both server-based and stand-alone gaming operations; interactive electronic bingo games for the Native American Class II and charity gaming markets and for the Class III, stand-alone and video lottery markets; proprietary gaming player terminals in multiple configurations and formats; electronic instant lottery scratch ticket systems; casino management systems, including player tracking, cash and cage, slot accounting and slot management modules; unified currency systems; and other electronic and paper bingo systems. In addition, we provide maintenance, operations support and other services for our customers and products.

We design and develop networks, software and content that provide our customers with, among other things, comprehensive gaming systems, some of which are delivered through a telecommunications network that links our player terminals with one another, both within a single gaming facility or among several gaming facilities.

We derive the majority of our gaming revenue from participation (revenue sharing) agreements, pursuant to which we place systems, player terminals, proprietary and licensed content operated on player terminals, and back-office systems and equipment (collectively referred to as gaming systems) into gaming facilities. To a lesser degree, we earn revenue from the sale or placement of gaming systems (e.g., the opening of a new casino, or a change in the law that allows existing casinos to increase the number of player terminals permitted under prior law) on a lease-purchase basis and from the back-office fees generated by video lottery systems, principally in the Washington State, Class III market. We also generate gaming revenue as consideration for providing the central determinant system for a network of player terminals operated by the New York State Division of the Lottery. In addition, we earn a small portion of our revenue from the sale of lottery systems and the placement of nontraditional gaming products, such as electronic scratch tickets, or linked interactive paper bingo systems. In fiscal 2006, we entered the international electronic bingo market and currently supply bingo systems to three active customers in Mexico, whereby we receive fees based on the net earnings of each system. During fiscal 2009, we have also generated revenue from the sale of non-linked Class III player terminals to Class III Native American markets.

As a prerequisite to conducting business in the major commercial gaming markets, we, our directors, officers, and key employees are required to secure various licenses. It is difficult to properly estimate the amount of time and expense that will be necessary to complete the required licensing process. We are licensed in various tribal jurisdictions for Class II and/or Class III gaming in the following states: California, Washington, Oklahoma, Missouri, Wisconsin, Rhode Island, Texas, Minnesota, Mississippi, Wyoming, Alabama and Florida. We are also licensed in State of Louisiana and Mexico for Bingo and the State of New York and Israel for Lottery based systems. In addition, we are in the process of seeking licensure in Mississippi and Louisiana for manufacturing and distributing commercial slot machines.

Class III Games and Systems for Oklahoma

During 2004, the Oklahoma Legislature, pursuant to a tribal state compact, or the Oklahoma Gaming Compact, passed legislation authorizing certain forms of gaming at racetracks, and additional types of games at tribal gaming facilities. The Oklahoma gaming legislation allows the tribes to sign a compact with the State of Oklahoma to operate an unlimited number of electronic instant bingo games, electronic bonanza-style bingo games, electronic amusement games, and non-house-banked tournament card games. In addition, certain horse tracks in Oklahoma are allowed to operate a limited number of instant and bonanza-style bingo games and electronic amusement games. All vendors placing games at any of the racetracks under the Oklahoma Gaming Compact are required to be licensed by the State of Oklahoma. Pursuant to the Oklahoma Gaming Compact, vendors placing games at tribal facilities have to be licensed by each tribe. All electronic games placed under the compact have to be certified by independent testing laboratories to meet technical specifications. These technical specifications were published by the Oklahoma Horse Racing Commission and the individual tribal gaming authorities in the first calendar quarter of 2005. We are fully licensed in Oklahoma and as of June 30, 2009, we had placed 6,658 player terminals at 39 facilities that are operating under the Oklahoma Gaming Compact. We generally receive a 20% revenue share for the games played under the Oklahoma Gaming Compact.

Class III Games and Systems for Native American and Commercial Casino Markets

During fiscal 2007, we began designing and developing stand-alone Class III player terminals to be sold or placed on a revenue share basis in the large Class III stand-alone gaming market for Native American casinos as well as domestic and international commercial casinos. All player terminals delivered to these markets will have to receive specific jurisdictional approvals from the appropriate testing laboratory and from the appropriate regulatory agency. Our first stand-alone player terminals outside of Oklahoma have been placed in Rhode Island. We believe that additions to our key senior management personnel will help accelerate our entrance into new Class III markets and that we will deliver additional player terminals to other Class III markets in late fiscal 2009 or early fiscal 2010.

Class II Market

We derive our Class II gaming revenues from participation arrangements with our Native American customers. Under these arrangements, we retain ownership of the gaming equipment installed at our customers' tribal gaming facilities, and receive revenue based on a percentage of the win per unit generated by each gaming system. Our portion of the win per unit is reported by us as "Gaming revenue - Class II" and represents the total amount that end users wager, less the total amount paid to end users for prizes, the amounts retained by the facilities for their share of the hold and the accretion of contract rights.

As the Class II market has matured, we have seen an influx of new competitors. New tribal-state compacts, such as the Oklahoma gaming legislation passed by referendum in 2004, have also led to increased competition. Due to this increased competition in Oklahoma, as well the conversion from Class II to Class III, we have experienced a reduction of the overall number of and revenue generated from our Class II unit base. However, we expect to continue to introduce new and more entertaining Class II games with technological enhancements. These games would allow us to maintain or increase our share of the Class II market in Oklahoma, and potentially expand into other domestic and international markets.

Charity Market

Charity bingo and other forms of charity gaming are operated by or for the benefit of nonprofit organizations for charitable, educational and other lawful purposes. These games are typically only interconnected within the gaming facility where the terminals are located. Regulation of charity gaming is vested with each individual state, and in some states, regulatory authority is delegated to county or municipal governmental units.

In Alabama, constitutional amendments have been passed authorizing charity bingo in certain locations. The regulation of charity bingo in Alabama is typically vested with a local governmental authority. However, the Alabama Governor's office has recently commissioned a task force to review the types of games placed in the charitable bingo halls in the state. The Alabama Governor's office and the Alabama Attorney General's office have issued conflicting public statements regarding the legality of certain types of equipment commonly used to play charity bingo within the state of Alabama. (See "Part I - Item 1. Condensed Consolidated Financial Statements - Note 8 - Commitments and Contingencies.")

We ordinarily place player terminals under participation arrangements in the charity market and receive a percentage of the win per unit generated by each of the player terminals. As of June 30, 2009, we had 2,280 high-speed, standard bingo games installed for the charity market in three Alabama facilities.

All Other Gaming Markets

Class III Washington State Market. The majority of our Class III gaming equipment in Washington State has been sold to customers outright, for a one-time purchase price, which is reported in our results of operations as "Gaming equipment, system sale and lease revenue" at the time of proper revenue recognition. Certain game themes we use in the Class III market have been licensed from third parties and are resold to customers along with our Class III player terminals. Historically, revenue from the sale of Class III gaming equipment is recognized when the units are delivered to the customer, and the licensed games installed, or over the contract term when the fair value of undelivered products has not been established. Because we sell new products, systems and services for which fair value has not been established, beginning in the third fiscal quarter of 2009, revenue generated from this market is recognized over the terms of the contracts. To a considerably lesser extent, we also enter into either participation arrangements or lease-purchase arrangements for our Class III player terminals, on terms similar to those used for our player terminals in the Class II market.

We also receive a small back-office fee from both leased and sold gaming equipment in Washington State. Back-office fees cover the service and maintenance costs for back-office servers installed in each facility to run our Class III games, as well as the cost of related software updates.

State Video Lottery Market. In January 2004, we installed our central determinant system for the video lottery terminal network that the New York Lottery operates at licensed New York State racetrack casinos. As payment for providing and maintaining the central determinant system, we receive a small portion of the network-wide win per unit. On June 2, 2009 we were awarded a contract extension by the New York Lottery for the operation of the central determinant system for video lottery terminals throughout the state. The seven year contract extension extends the date of the contract to December 31, 2017. As of June 30, 2009, there were approximately 13,000 video lottery terminals in eight facilities in the state linked to our central determinant system.

International Commercial Bingo Market. In March 2006, we entered into a contract with Apuestas Internacionales, S.A. de C.V., or Apuestas, a subsidiary of Grupo Televisa, S.A., to provide traditional and electronic bingo gaming, technical assistance, and related services for Apuestas' locations in Mexico. Apuestas currently has a permit issued by the Mexican Ministry of the Interior (Secretaria de Gobernación) to open and operate 65 bingo parlors. Apuestas is projecting that all 65 bingo parlors will be open by May 2014. As of June 30, 2009, we had installed 5,357 player terminals at 25 bingo parlors in Mexico under this contract with Apuestas. As of June 30, 2009, all player terminals placed by us in the Apuestas bingo parlors were pursuant to a revenue share arrangement.

As of June 30, 2009, we had entered into separate contracts with three other companies incorporated in Mexico to provide traditional and electronic bingo gaming, technical assistance, and related services for bingo parlors in Mexico. As of June 30, 2009, we had installed 370 player terminals at three parlors in Mexico under these contracts.

Development Agreements

As we seek to continue the growth in our customer base and to expand our installed base of player terminals, a key element of our strategy has become entering into development agreements with various Native American tribes to assist in the funding of new or expansion of existing tribal gaming facilities. Pursuant to these agreements, we advance funds to the tribes for the construction of new tribal gaming facilities or for the expansion of existing facilities.

Amounts advanced that are in excess of those to be reimbursed by such tribes for real property and land improvements are allocated to intangible assets and are generally amortized over the life of the contract on a straight-line basis.

In return for the amounts advanced by us, we receive a commitment for a fixed number of player terminal placements in the facility or a fixed percentage of the available gaming floor space, and a fixed percentage of the win per unit from those terminals over the term of the development agreement. Certain of the agreements contain player terminal performance standards that could allow the facility to reduce a portion of our floor space. In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid.

We have in the past, and may in the future, reduce the number of player terminals in certain of our facilities as a result of ongoing competitive pressures faced by our customers from alternative gaming facilities and pressures faced by our machines from competitors' products. We have in the past, and in the future may also, by mutual agreement and for consideration, amend these contracts in order to reduce the number of player terminals at these facilities.

In the third quarter of fiscal 2008, we fulfilled a commitment to a significant, existing Oklahoma tribal customer to provide approximately 43.8%, or $65.6 million, of the total funding for a facility expansion. (See "Part I - Item 1. Condensed Consolidated Financial Statements - Note 2 - Development Agreements.")

As of June 30, 2009, we have placed approximately 4,920 units in eight facilities in Oklahoma pursuant to development agreements.

Third-Party Software and Technology

Pursuant to letter agreements with WMS Gaming Inc., or WMS, dated as of March 25, 2009 and June 26, 2009, respectively, the Company retains certain rights under the Company's Manufacturing and License Agreement with WMS, dated May 17, 2004, and amended and restated on June 29, 2005, to license and distribute certain WMS products including (i) a limited number of WMS games in Washington until October 31, 2009; and (ii) WMS Class III Cabinets and Games to the Chickasaw Nation in Oklahoma until June 30, 2010. The Company also has the right, by the payment of an annual license fee, to distribute and authorize the use of distributed, licensed games; to transfer licensed games among the markets in which it has deployed WMS Games; and to substitute game themes.

RESULTS OF OPERATIONS

The following tables outline our end-of-period and average installed base of
player terminals for the three and nine months ended June 30, 2009 and 2008.

                                                   At June 30,
                                                2009        2008
End-of-period installed player terminal base
Oklahoma compact games                           6,658       5,325
Class II player terminals
New Generation system - Reel Time Bingo®         1,997       2,132
Legacy system                                      237         303
Mexico                                           5,727       4,294
Other player terminals(1)                        2,582       2,664



                                             Three Months Ended          Nine Months Ended
                                                  June 30,                    June 30,
                                              2009          2008          2009         2008
 Average installed player terminal base:
 Oklahoma compact games                         6,678        5,305          6,345       4,708
 Class II player terminals
 New Generation System - Reel Time Bingo        1,983        2,046          2,126       2,943
 Legacy system                                    253          306            284         330
 Mexico                                         5,408        4,355          5,346       3,717
 Other player terminals(1)                      2,578        2,752          2,640       2,754

Three Months Ended June 30, 2009, Compared to Three Months Ended June 30, 2008

Total revenues for the three months ended June 30, 2009, were $32.1 million, compared to $30.3 million for the three months ended June 30, 2008, a $1.8 million or 6.2% increase.

Gaming Revenue - Oklahoma Compact

† The Oklahoma compact games generated revenue of $15.0 million in the three months ended June 30, 2009, compared to $14.6 million during the same period of 2008, an increase of $483,000, or 3.3%. The average installed base of the Oklahoma Gaming Compact games increased 25.9%, as the conversion of Class II player terminals to compact games continues, while the win per unit decreased 13.5%, due to general economic downturn causing a reduction in play. We expect the rate of conversion from Class II to compact games to decline in the future, as over 88% of the Oklahoma installed base at June 30, 2009, consisted of Oklahoma Gaming Compact units. Accretion of contract rights related to development agreements, which is recorded as a reduction of revenue, increased $484,000, or 59.4%, to $1.3 million, in the three months ended June 30, 2009, compared to $815,000 in the same period of 2008.

Gaming Revenue - Class II

† Class II gaming revenue was $4.7 million in the three months ended June 30, 2009, compared to $6.2 million in the three months ended June 30, 2008, a decrease of $1.5 million or 24.4%. We expect the number of Class II terminals to continue to decrease as they are replaced with higher-earning Oklahoma Gaming Compact player terminals.

† Reel Time Bingo revenue was $4.3 million for the three months ended June 30, 2009, compared to $5.7 million in the three months ended June 30, 2008, a decrease of $1.4 million or 24.0%. The decrease is primarily attributable to a decrease in the average installed base of player terminals of 3.0%. Accretion of contract rights related to development agreements, which is recorded as a reduction of revenue, increased $72,000, or 36.7%, to $267,000 in the three months ended June 30, 2009, compared to $195,000 in the three months ended June 30, 2008.

† Legacy revenue decreased $159,000, or 28.0%, to $407,000 in the three months ended June 30, 2009, from $566,000 in the three months ended June 30, 2008. The average installed base of Legacy player terminals decreased 17.3%, and the win per unit decreased by 17.0%, due to general economic downturn causing a reduction in play.

Gaming Revenue - Charity

† Charity gaming revenues decreased $1.1 million, or 33.1%, to $2.2 million for the three months ended June 30, 2009, compared to $3.3 million for the same period of 2008. The average installed base of charity player terminals decreased 7.1%, and the win per unit decreased 30.2%. The decrease in the win per unit is primarily attributable to competitive factors and to a lesser extent, economic factors. Competitive factors would include, but not be limited to, a significant increase of competitor units added to the gaming floor of our largest charity operation, players reward programs not offered on our player terminals and location of our player terminals on the gaming floor.

Gaming Revenue - All Other

† Class III back-office fees decreased $120,000, or 12.5%, to $838,000 in the three months ended June 30, 2009, from $958,000 during the same period of 2008.

† Revenues from the New York Lottery system increased $156,000, or 8.4%, to $2 million in the three months ended June 30, 2009, from $1.9 million in the three months ended June 30, 2008. Currently, eight of the nine planned racetrack casinos are operating, with approximately 13,000 total terminals. At the current placement levels, we have obtained near break-even operations for the New York Lottery system and expect to achieve profitable operations after all of the facilities are operating.

† Revenues from the Mexico bingo market decreased $68,000, or 2.8% to $2.4 million in the three months ended June 30, 2009, from $2.4 million during the same period of 2008. As of June 30, 2009, we had installed 5,727 player terminals at 28 bingo parlors in Mexico compared to 4,294 player terminals installed at 19 bingo parlors at June 30, 2008. Our revenue share is in the range of the other electronic bingo markets in which we operate.

Gaming Equipment and System Sale and Lease Revenue and Cost of Sales

† Gaming equipment and system sale and lease revenue increased $3.5 million, to $3.8 million for the three months ended June 30, 2009, from $314,000 for the same period of 2008. Gaming equipment and system sale revenue of $3.0 million for the three months ended June 30, 2009, includes $2.7 million for the sale of 560 player terminals and one system for which revenue recognition was deferred in a previous period. Gaming equipment and system sale revenue of $89,000 for the three months ended June 30, 2008 was generated by the sale of gaming equipment. License revenues for the three months ended June 30, 2009, were $762,000, of which $411,000 was related to revenue previously deferred, compared to $225,000 for the three months ended June 30, 2008, an increase of $537,000. Total cost of sales, which includes cost of royalty fees, increased $1.8 million, to $2.1 million, of which $1.5 million was related to the deferred revenue discussed above, in the three months ended June 30, 2009, from $336,000 in the three months ended June 30, 2008. The remaining increase primarily relates to an increase in royalty payments.

Other Revenue

† Other revenues increased $655,000, to $1.0 million for the three months ended June 30, 2009, from $338,000 during the same period of 2008. The increase is primarily due to a commission earned from allowing a vendor to sell player stations directly to one of our customers for which we had an exclusive arrangement to provide the vendor product to that customer.

Selling, General and Administrative Expenses

† Selling, general and administrative expenses, or SG&A, decreased approximately $453,000, or 2.8%, to $15.7 million for the three months ended June 30, 2009, from $16.1 million in the same period of 2008. This decrease was primarily a result of (i) a decrease in salaries and wages and the related employee benefits of $899,000 and (ii) a decrease in legal fees of $885,000. These decreases were partially offset by the accrual of an annual incentive of $815,000 during 2009 and an increase in bad debt expense of $485,000, which was primarily related to smaller customers in Mexico.

Amortization and Depreciation

† Amortization expense decreased $137,000, or 11.4%, to $1 million for the three months ended June 30, 2009, compared to $1.2 million for the same period of 2008. Depreciation expense increased $2.1 million, or 17.0%, to $14.5 million for the three months ended June 30, 2009, from $12.4 million for the corresponding three months ended June 30, 2008, primarily as a result of additional player terminals for the Oklahoma market.

Other Income and Expense

† Interest income decreased $186,000, or 13.8%, to $1.2 million for the three months ended June 30, 2009, from $1.3 million in the same period of 2008. We entered into development agreements with a customer under which approximately $59.4 million has been advanced and is outstanding at June 30, 2009, and for which we impute interest on these interest-free loans. For the three months ended June 30, 2009, we recorded imputed interest of $1.0 million relating to development agreements with an imputed interest rate range of 5.5% to 9.0%, compared to $1.3 million for the three months ended June 30, 2008.

† Interest expense decreased $641,000, or 31.6%, to $1.4 million for the three months ended June 30, 2009, from $2.0 million in the same period of 2008. The decrease in interest expense for the period is a direct result of a decrease in the LIBOR Rate, which governs the calculation of the interest rate on our Credit Facility.

† We had no other income for the three months ended June 30, 2009, compared to $828,000 in the same period of 2008. Other income primarily decreased due to the last distribution from a partnership interest.

Income tax decreased by $497,000 to a benefit of $313,000 for the three months ended June 30, 2009, from an income tax expense of $184,000 in the same period of 2008. These figures represent effective income tax rates of 21.2% and 52.9% for the three months ended June 30, 2009 and 2008, respectively. The effective . . .