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 or procured from third parties.

† 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
        June 30, 2009   $  3.2   million   $ 7.0   million   $ 10.2   million
        June 30, 2008   $ 10.0   million   $ 3.7   million   $ 13.7   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 our 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 six months.

                              6 Months                 Year
                                2009     2008   2007   2006   2005   2004
RFID casino chip percentage     43%      34%    27%    35%    13%     3%

Overview of our Industry

In the United States, the general slow down in the economy and in the gaming industry has negatively impacted our casino customers and therefore our sales. Casinos are working to reduce their costs, including slowing down the typical replacement cycle on consumable products, such as cards, layouts, and dice. To the extent these conditions continue, we anticipate our revenues in future quarters will be adversely affected. 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. Financial strains among casino owners have reduced the near-term likelihood of new casinos openings, the expansion of existing casinos, and large replacement orders , upon which our casino chip sales are heavily dependent.

Internationally, Macau continues to be the dominant gaming market, but it has also seen its gaming revenues fall. Newport City in Manila opened in July 2009 and two large casinos, Marina Bay Sands and Sentosa, are to open in Singapore within four to seven months.

Financial and Operational Highlights

For the second quarter of 2009, we had net income of $0.2 million compared to net income of $1.9 million for the second quarter of 2008. For the second quarter of 2009 our revenues were $11.3 million, a decrease of $7.5 million, or 40%, compared to revenues of $18.8 million for 2008. Our revenues were down primarily due to a decrease in sales of casino chips, which dropped $6.1 million and represented 62% of total revenues in the second quarter of 2009 compared to 70% in the second quarter of 2008. Our casino chip sales are heavily dependent on new casino openings, expansions, and large replacement orders and our sales reflect the lack of activity in the second quarter of 2009 even though City of Dreams in Macau was a major opening in the second quarter.

In July 2009, we shipped an order of $4.6 million to Newport City in Manila. The shipment, which was pending as of June 30, 2009, is reflected in our backlog, inventory, and customer deposits.

GPI SAS uses the euro as its functional currency. As of June 30, 2009 and December 31, 2008, the US dollar to euro exchange rates were 1.4134 and 1.3917, respectively, which represents a 1.6% weaker dollar compared to the euro. The average exchange rates for the six months ended June 30, 2009 and 2008 were 1.3322 and 1.5309, respectively, which represents a 13.0% stronger dollar compared to the euro.

The strengthening of the dollar against the euro this year compared to last year has the effect of reducing, dollar terms, both the revenue and the expenses of GPI SAS, our French subsidiary. The stronger dollar compared with the Mexican peso had a favorable impact of $0.3 million for the quarter as our manufacturing costs were reduced.

Looking Forward

For the full year 2009, we anticipate our revenues and net income will be significantly below our 2008 results due to the ongoing decline in the gaming industry and fewer planned casino openings and expansions. The current economic climate has diminished the prospects for casino openings and expansions in the United States for the next two years. Internationally, Singapore is a bright spot in the near term, but elsewhere, particularly in Macau, the rate of openings and expansions is expected to decline over the next several years.
Given the challenges we face, we are looking for new products and markets to enhance our revenues while we continue to look for ways to reduce costs.

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.

The Company's Board of Directors appointed Gregory Gronau, who is currently Executive Vice President and Chief Operating Officer of the Company, to succeed Gerard Charlier as President and Chief Executive Officer upon Mr. Charlier's retirement on September 12, 2009. Mr. Charlier will continue to serve as a director of the Company.

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        Six Months Ended
                                              June 30,                 June 30,
                                         2009         2008         2009        2008
Revenues                                  100.0%       100.0%      100.0%      100.0%
Cost of revenues                           72.4%        65.7%       72.7%       67.9%
Gross Profit                               27.6%        34.3%       27.3%       32.1%
Selling, general and administrative
expenses                                   26.9%        20.8%       31.4%       25.8%
Operating income (loss)                     0.7%        13.5%      (4.1%)        6.3%
Other income (expense)                    (0.2%)         0.3%        0.5%      (0.5%)
Income (loss) before income taxes           0.5%        13.8%      (3.6%)        5.8%
Income tax expense (benefit)              (1.1%)         3.3%      (1.9%)        1.3%
Net income (loss)                           1.6%        10.5%      (1.7%)        4.6%

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

                               Three Months Ended                        Six Months Ended
                                    June 30,                                 June 30,
                            2009                2008                 2009                2008
Revenues
United States        $   5,233    46.2%   $ 11,559    61.3%   $  10,812    53.4%   $ 16,812    54.3%
Europe (includes
Russia)                  1,036     9.2%      1,644     8.7%       1,725     8.5%      3,172    10.2%
Asia(1)                  4,266    37.7%   $  4,310    22.9%       5,752    28.4%   $  8,603    27.8%
Other(2)                   777     6.9%      1,343     7.1%       1,967     9.7%      2,394     7.7%
Total                $  11,312   100.0%   $ 18,856   100.0%   $  20,256   100.0%   $ 30,981   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                        Six Months Ended
                                       June 30,                                 June 30,
                               2009                2008                 2009                2008
Casino chips:
American-style casino
chips                   $   3,070    27.1%   $ 10,461    55.4%   $   7,599    37.5%   $ 16,042    51.9%
European-style casino
chips                       3,979    35.2%      2,707    14.4%       4,368    21.6%      4,815    15.5%
Total casino chips          7,049    62.3%     13,168    69.8%      11,967    59.1%     20,857    67.4%

Table layouts               1,084     9.6%      1,196     6.3%       2,242    11.1%      2,420     7.8%
Playing cards               1,147    10.1%      1,013     5.4%       2,203    10.9%      1,998     6.4%
Gaming furniture              489     4.3%        754     4.0%         880     4.3%      1,280     4.1%
Dice                          510     4.5%        516     2.7%         891     4.4%        986     3.2%
Table accessories and
other products                628     5.6%      1,651     8.8%       1,310     6.4%      2,447     7.9%
Shipping                      405     3.6%        558     3.0%         763     3.8%        993     3.2%
Total                   $  11,312   100.0%   $ 18,856   100.0%   $  20,256   100.0%   $ 30,981   100.0%

Revenues For the three months ended June 30, 2009, revenues were $11.3 million, a decrease of $7.5 million, or 40%, compared to revenues of $18.8 million for the three months ended June 30, 2008. In the second quarter of 2009, GPI SAS recorded revenues of $5.7 million, a decrease of $0.6 million, or 10%, compared to $6.3 million in 2008. The decrease in revenues at GPI SAS was primarily attributable to a 14% stronger dollar in relation to the euro during the second quarter of 2009 compared to the second of quarter 2008. In the second quarter of 2009, GPI USA recorded revenues of $5.6 million, a decrease of $7.0 million, or 56%, as compared to revenues of $12.6 million in 2008. The decrease in revenues at GPI USA was primarily attributable to decreased sales of American-style casino chips due to fewer casino openings in the second quarter of 2009 as compared to the second quarter of 2008, but all product lines, except cards, had lower revenues.

For the six months ended June 30, 2009, revenues were $20.3 million, a decrease of $10.7 million, or 35%, compared to revenues of $31.0 million for the six months ended June 30, 2008. For the six months ended June 30, 2009, GPI SAS recorded revenues of $8.1 million, a decrease of $4.5 million, or 36%, compared to $12.6 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. Also contributing to the decrease, the US dollar was 13% stronger in relation to the euro for the six months ended June 30, 2009 compared to same period in 2008. For the six months ended June 30, 2009, GPI USA recorded revenues of $12.1 million, a decrease of $6.2 million, or 34%, as compared to revenues of $18.3 million in 2008. As described above for the second quarter, this decrease was due primarily to slow sales of American-style casino chips as a result of slower casino openings in the first half of 2009 compared to the first half of 2008, but all product lines, except cards, had lower revenues.

Cost of Revenues For the three months ended June 30, 2009, cost of revenues was $8.2 million, a decrease of $4.3 million, or 34%, compared to cost of revenues of $12.5 million for the three months ended June 30, 2008. As a percentage of revenues, the cost of revenues increased to 72.4% for the quarter in 2009 from 66.4% for the quarter in 2008.

For the six months ended June 30, 2009, cost of revenues was $14.7 million, a decrease of $6.3 million, or 30%, compared to cost of revenues of $21.0 million for the six months ended June 30, 2008. As a percentage of revenues, the cost of revenues increased to 72.7% for the six month period ended June 30, 2009 compared to 67.9% for the same period in 2008.

Gross Profit Gross profit for the three months ended June 30, 2009 decreased by $3.2 million, or 51%, compared to 2008. This occurred as a result of the decrease in revenues of $7.5 million and a decrease in cost of revenues of $4.3 million. As a percentage of revenues, our gross margin decreased to 27.6% from 33.6%. The gross margin decrease was primarily driven by substantially lower sales, which required fixed manufacturing costs to be allocated over lower production volumes, lower sales of our higher margin casino chips, and unexpected production problems that increased our costs by $0.4 million. Partially offsetting these factors was the decline in the value of the Mexican peso which reduced our manufacturing costs $0.3 million for the second quarter of 2009 compared to the second quarter of 2008.

Gross profit for the six months ended June 30, 2009 decreased by $4.4 million, or 45%, compared to 2008. This occurred as a result of the decrease in revenues of $10.7 million and a decrease in cost of revenues of $6.3 million. As a percentage of revenues, our gross margin decreased to 27.3% from 32.1%. The gross margin decrease was primarily driven by the same factors as those for the second quarter, namely, substantially lower sales, which required fixed manufacturing costs to be allocated over lower production volumes, lower sales of our higher margin casino chips, and unexpected production problems that increased our costs by $0.4 million. Partially offsetting these factors was the decline of the Mexican peso which reduced our manufacturing costs $0.5 million for the six months ended June 30, 2009 compared to June 30, 2008.

Selling, General, and Administrative Expenses The following table details the selling, general, and administrative expenses for the three months and six months ended June 30 (in thousands):

                              Three Months Ended                              Six Months Ended
                                   June 30,                                       June 30,
                    2009     Revenue %     2008     Revenue %      2009     Revenue %     2008     Revenue %

Product
development       $    79         0.7%   $    36         0.2%    $   222         1.1%   $    90         0.3%
Marketing and
sales               1,080         9.5%     1,151         6.1%      2,063        10.2%     2,314         7.5%
General and
administrative      1,890        16.7%     2,739        14.5%      4,070        20.1%     5,577        18.0%
Total selling,
general, and
administrative
expenses          $ 3,049        26.9%   $ 3,926        20.8%    $ 6,355        31.4%   $ 7,981        25.8%

Selling, general, and administrative expenses decreased by $0.9 million for the three months ended June 30, 2009 compared to 2008, while increasing as a percent of revenue to 26.9% in 2009 from 20.8% in 2008. Marketing and sales decreased by less than $0.1 million. General and administrative expenses decreased $0.8 million. The largest component of this decrease was $0.5 million of costs in the second quarter of 2008 related to compensation expenses. The remaining decrease was due to a variety of factors in the second quarter of 2009 compared to the second quarter of 2008 including the effect of the dollar strengthening against the euro, the reduction of costs related to led in Paulson gaming chips, and lower bad debt expense due to a decrease in revenues..

Selling, general, and administrative expenses decreased by $1.6 million for the six months ended June 30, 2009 compared to 2008, while increasing as a percent of revenue to 31.4% in 2009 from 25.8% in 2008. Marketing and sales decreased by $0.3 million due to lower sales commission expenses and the effect of the dollar strengthening against the euro. General and administrative expenses decreased $1.5 million. The key components of this decrease were $0.6 million in compensation expense and $0.4 million of costs in the first half 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 and lower use tax expenses.

Other Income (Expense) The following table details the Other Income (Expense) items for the three and six months ended June 30 (in thousands:)

                             Three Months Ended                           Six Months Ended
                                  June 30,                                    June 30,
                   2009     Revenue %    2008     Revenue %    2009    Revenue %     2008     Revenue %

Gain (loss) on
foreign
currency
transactions      $ (68)       (0.6%)    $ (9)       (0.1%)   $  25         0.1%   $ (268)       (0.9%)
Interest income       72         0.6%       64         0.4%     121         0.6%       120         0.4%
Interest
expense             (34)       (0.3%)     (37)       (0.2%)    (62)       (0.3%)      (75)       (0.2%)
Other income,
net                    9         0.1%       44         0.2%      26         0.1%        47         0.2%
Total other
income
(expense)         $ (21)       (0.2%)    $  62         0.3%   $ 110         0.5%   $ (176)       (0.5%)

For the three months ended June 30, 2009, other income (expense) decreased by less than $0.1 million compared to the 2008 period.

For the six months ended June 30, 2009, other income (expense) increased by $0.3 million compared to the 2008 period. The primary reason was a relatively stable US dollar to euro exchange rate in the first six months of 2009 compared to the first six months of 2008, during which the US dollar weakened against the euro by 13% and resulted in a loss on foreign currency transactions.

Income Taxes Our effective income tax rate for the three months ended June 30, 2009 was (233)% compared to the effective income tax rate of 25% for the three months ended 2008. The Company's effective tax rate for the quarter ended June 30, 2009 differed from the statutory rate as a result of the benefit from a research credit from our French subsidiary, GPI SAS, combined with having small book income before income taxes for the second quarter. The Company's effective tax rate for the quarter ended June 30, 2008 was positively impacted by the release of a prior period reserve for uncertain tax positions, related to the successful resolution of the GPI SAS tax audit by the French Tax Administration.

Our effective income tax rate for the six months ended June 30, 2009 was 54% compared to 22% for the same period of 2008. The Company's effective tax rate for the six months ended June 30, 2009 differed from the statutory rate as a result of the

benefit from a research credit from our French subsidiary, GPI SAS combined with having a net loss before income tax for the six month period. The Company's effective tax rate for the six months ended June 30, 2008 was positively impacted by the release of a prior period reserve for uncertain tax positions, related to the successful resolution of the GPI SAS tax audit by the French Tax Administration.

Our corporate tax rate is calculated on a consolidated basis. Our corporate costs are not allocated to our French subsidiary, GPI SAS.

Liquidity and Capital Resources

Overview As of June 30, 2009, we had $7.1 million in cash and cash equivalents and $10.9 million in current marketable securities. Of the cash and cash equivalents and marketable securities, $6.4 million is held by GPI USA and $11.6 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 $21.2 million at June 30, 2009 and $21.9 million at December 31, 2008. Working capital decreased due to an increase in current liabilities of $5.6 million offset by an increase in current assets of $4.9 million. The increase in current liabilities was primarily due to an increase in customer deposits of $6.3 million. The increase in customer deposits is due to receipt of deposits for upcoming shipments. The main reasons for the increase in current assets are increases in cash and marketable securities of $4.9 million and $0.7 million in other current assets offset by a decrease in accounts receivable of $0.6 million. The decrease in accounts receivable was due primarily to lower sales in the second quarter of 2009 compared to the fourth quarter of 2008.

Cash Flow Overall, our cash balance increased from December 31, 2008 to June 30, 2009 by $1.6 million.

Net cash provided by operating activities was $5.0 million during the six months ended June 30, 2009 compared to $3.6 million provided during the same period in 2008. For the six months ended June 30, 2009, $0.8 million of cash was provided for net income-related activities, $0.8 million was used by an increase in operating assets (excluding cash), and $5.0 million was provided by an increase in current liabilities. For the six months ended June 30, 2008, $2.5 million of cash was provided by net income related activities and $1.0 million was provided by an increase in current liabilities.

Our investing activities resulted in net cash used of $3.2 million for the six months ended June 30, 2009 compared to $1.1 million in net cash used by investing activities for the same period in 2008. For the six months ended June 30, 2009, increases in the net purchases of marketable securities were $2.8 million and property and equipment net purchases were reduced by $0.6 million compared to the six months ended June 30, 2008.

Net cash flow used in financing activities was $0.2 million for the six months ended June 30, 2009 and $0.4 million for the six months ended June 30, 2008. This was primarily due to a 2.6 million euro loan that had its final payment in the first quarter of 2008.

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. At June 30, 2009, the remaining balance is $918,000.

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 manufacturing facility in France. At June 30, 2009, the remaining balance is 105,000 euros ($148,000).

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 ($707,000 at June 30, 2009). There are no prepayment penalties. At June 30, 2009, the remaining balance is 631,000 euros ($891,000).

. . .