The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report, as well as our audited consolidated financial statements for the 53 weeks ended November 2, 2008, contained in our Annual Report on Form 10-K.

This document includes various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events. Statements containing expressions such as "believes," "anticipates," or "expects," used in our press releases and periodic reports on Forms 10-K and 10-Q filed with the SEC, are intended to identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Although we believe our expectations are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurances that actual results will not differ materially from expected results. We caution that these and similar statements included in this report are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. Such factors include those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the 53 weeks ended November 2, 2008, and in this report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof.

OVERVIEW

We design, develop, and market bingo systems, VLT's, slot machines and related software, and server-based wireless gaming systems. VLT's, slot machines and related software are collectively referred to as "box business." We entered the box business in March 2007 with our acquisition of Summit Gaming for $40.9 million in cash.

For the third quarter of 2009, our revenue from box business sales equaled 19% of total revenue, lease revenue from portable bingo systems equaled 64% of total revenue, and lease revenue from fixed-based bingo units equaled 17% of total revenue. During the 39 weeks ended August 2, 2009, revenue from box business sales equaled 17% of total revenue, lease revenue from portable bingo systems equaled 64% of total revenue, and lease revenue from fixed-based bingo units equaled 19% of total revenue.

As of August 2, 2009, we had bingo systems in service in 40 states, one US territory, various Native American locations and five foreign countries. We had box sales in 10 states and various Native American locations. We are marketing new server-based wireless gaming systems where users play a range of games including bingo, video poker, keno and other slot machine games. The Mini™ wireless server-based gaming system was installed in Europe during the second quarter of 2008. The Elite™ server-based gaming system was installed domestically in the third quarter of 2008 and in Europe during the first quarter of fiscal 2009. The European configuration supports wireless bingo and fast action gaming for the European bingo market.

We generate bingo revenue by placing electronic bingo systems in bingo halls under contracts based on (1) a fixed fee per use per session; (2) a fixed weekly fee per terminal; or (3) a percentage of the revenue generated by each terminal. Revenue growth for our bingo systems is affected by player acceptance of electronic bingo as an addition or an alternative to paper bingo. Additionally, our bingo revenue growth is dependent on our ability to expand operations into new markets and our ability to increase our market share in our current markets. Fixed-base bingo terminals generate greater revenue per terminal than portable bingo terminals, but also require a greater initial capital investment.

We typically install our electronic bingo systems at no charge to our customers, and we capitalize the costs. We record depreciation of bingo equipment over either a three- or five-year estimated useful life using the straight-line method of depreciation.

Our box business generates revenue from the sale of boxes (new and used), software conversion kits, content fees, license fees, participation fees, parts, and services. For the 13 and 39 weeks ending August 2, 2009, 94.5% and 94.7%, respectively, of our box business sales were derived from the sale of new and used equipment, conversion kits, and parts compared to 96.0% and 95.9% for the three and nine months ending July 31, 2008. In some instances, we recognize recurring participation revenue in lieu of a one-time machine sale. Increasing market share in existing markets and expanding product placement into new markets drive revenue growth.

Our bingo and box expenses consist primarily of cost of revenue, general and administrative expense, sales and marketing expense, and research and development expense. Cost of revenue consists of expenses associated with technical and operational support of the bingo systems in bingo halls, depreciation and amortization of bingo terminals, cost of sales related to equipment sold, and repair/refurbishment/disposal costs of bingo terminals and related support equipment. General and administrative costs consist of expenses associated with management of our company and the related support including finance and accounting, legal, compliance, information systems, human resources, allowance for doubtful accounts receivable, and amortization of intangible assets acquired from the Summit acquisition. Sales and marketing expenses consist primarily of commissions paid to distributors for promoting and supporting our products, and compensation paid to our internal sales force to manage existing customers, to generate new customers, and sell additional and upgraded equipment. Research and development costs consist of company-sponsored activities to provide customers with new or enhanced games or game themes for our VLT and slot machines, improved bingo terminals, and to develop and test new wireless server-based systems.

For the quarter, we recorded a tax expense of $129 thousand against pre-tax income of $38 thousand, which brought our net loss to $91 thousand or $.01 per share. Year-to-date, we recorded a deferred tax benefit of $0.3 million, which brought our net loss to $0.8 million or $0.07 per share. The net loss of $91 thousand for the 13 weeks ended August 2, 2009, is an improvement of $397 thousand over the net loss of $488 thousand for the three months ended July 31, 2008. Although we experienced a $1.9 million decline in revenue for the third quarter of 2009 compared to the same period of 2008, our gross margin improved from 49.0% to 56.9%. Year to date, we reported a net loss of $842 thousand for the 39 weeks ended August 2, 2009, compared to a net loss of $44 thousand for the nine months ended July 31, 2008. Although we experienced a $5.7 million decline in revenue for the 39 weeks of 2009 compared to the same period of 2008, our gross margin improved from 53.8% to 59.0%. This improvement in gross margin for both the third quarter and year-to-date is the result of aligning service and operating expenses to our revenue and business levels. The decrease in general and administrative ("G&A") expense for the third quarter 2009 is primarily due to a reduction in accounting fees, and lower facility rent as a result of consolidating in to our own corporate headquarters. Although G&A remained flat year-to-date compared to the nine months ended July 31, 2008, cost reductions in accounting and legal fees offset one-time costs of $0.6 million incurred for the relocation to our new corporate headquarters in the second quarter of 2009. Sales and marketing expense remained flat for the third quarter compared to prior year but increased for the 39 weeks of 2009 due to increased promotional costs invested with our distributor to promote revenue growth in Louisiana. Interest expense for the third quarter of 2009 includes a $0.3 million non-cash benefit to adjust for the value of the interest rate swap contract, while year-to-date interest expense includes a $0.6 million non-cash expense adjustment for the value of the interest rate swap contract.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

"Management's Discussion and Analysis of Financial Condition and Results of Operations" discuss our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, bad debts, bingo terminal depreciation, goodwill impairment, obsolescence, provision for income taxes, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are those that are both important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, and complex judgment. These critical accounting policies are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2008 Form 10-K. There have been no changes to our critical accounting policies since the filing of our 2008 Form 10-K.

RESULTS OF OPERATIONS

13 Weeks Ended August 2, 2009, compared to the Three Months Ended July 31, 2008


                                             The following table sets forth certain selected unaudited condensed consolidated financial data for
                                                                                    the periods indicated:

                                                       13 Weeks Ended August 2, 2009 and Three Months Ended July 31, 2008
                                                                                 (In Thousands)
                                               Bingo Equipment                                                  Box Equipment
                             13 Weeks       Three Months            % Change               13 Weeks           Three Months            % Change
                               Ended           Ended               Favorable/               Ended                Ended               Favorable/
                             8/2/2009        7/31/2008            (Unfavorable)            8/2/2009            7/31/2008            (Unfavorable)
Net Revenue                 $     9,281     $     11,004                   -15.7 %       $      2,162         $      2,358                    -8.3 %
Cost of Revenue                   3,425            5,051                    32.2 %              1,509                1,764                    14.5 %
Gross Profit                $     5,856     $      5,953                    -1.6 %       $        653         $        594                     9.9 %
Operating Expenses:
General and
administrative                    1,376            1,784                    22.9 %                988                  719                   -37.4 %
Sales and marketing               2,404            2,524                     4.8 %                189                  102                   -85.3 %
Research and development            826              832                     0.7 %                547                  598                     8.5 %
Total operating expenses          4,606            5,140                    10.4 %              1,724                1,419                   -21.5 %
Income from operations      $     1,250     $        813                    53.8 %       $     (1,071 )       $       (825 )                 -29.8 %

Interest expense                    (56 )             (1 )               -5500.0 %               (260 )               (767 )                  66.1 %
Impairment of investments             -             (102 )                 100.0 %                  -                    -                       0
Other income (expense),
net                                 173              110                    57.3 %                  2                    1                   100.0 %
Income (loss) before
income taxes                $     1,367     $        820                    66.7 %       $     (1,329 )       $     (1,591 )                  16.5 %
Provision (benefit) for
income taxes                         96              570                    83.2 %                 33                 (853 )                -103.9 %
Net income (loss)           $     1,271     $        250                   408.4 %       $     (1,362 )       $       (738 )                 -84.6 %

Net Revenue

Bingo net revenue decreased $1.7 million for the 13 weeks ended August 2, 2009, or 15.7% to $9.3 million from $11.0 million compared to the three months ended July 31, 2008. The decrease in bingo net revenue is primarily due to hall closures and price adjustments from both adverse economic conditions and competition, which was partially offset by an increase in business from new products.

Box net revenues decreased $0.2 million for the 13 weeks ended August 2, 2009, or 8.3%, to $2.2 million from $2.4 million compared to the three months ended July 31, 2008, primarily due to some delays in releasing new products as we collaborate with regulators to obtain approvals on new software programs and other features in certain markets.

Cost of Revenue

Bingo cost of revenue decreased 32.2% to $3.4 million for the 13 weeks ended August 2, 2009, from $5.1 million for the three months ended July 31, 2008. Bingo equipment depreciation decreased by approximately $0.6 million for the 13 weeks ended August 2, 2009, primarily due to certain products becoming fully depreciated, and service labor decreased by $0.5 million due to aligning expenses to business levels.

Box cost of revenue decreased 14.5% to $1.5 million for the 13 weeks ended August 2, 2009, from $1.8 million for the three months ended July 31, 2008. The decrease in cost of revenue is in part related to the decline in net revenue, and due to a higher than normal write-down of obsolete inventory in the third quarter of 2008.

Gross Profit

Bingo gross profit decreased 1.6% to $5.9 million for the 13 weeks ended August 2, 2009, from $6.0 million for the three months ended July 31, 2008. Bingo gross margin increased to 63.1% of net revenue for the 13 weeks ended August 2, 2009, from 54.1% of net revenue for the three months ended July 31, 2008. The 9.0 point increase in bingo gross margin is related to reduced labor and travel costs in service and operations plus other cost of revenue decreases as described above.

Box gross profit increased 9.9% to $0.7 million for the 13 weeks ended August 2, 2009, from $0.6 million for the three months ended July 31, 2008. Box gross margin increased 5.0 points to 30.2% of net revenue for the 13 weeks ended August 2, 2009, from 25.2% of net revenue for the three months ended July 31, 2008. The increase in box gross profit and margin is due to a higher than normal write-down of obsolete inventory in the third quarter of 2008.

Operating Expenses

Bingo general and administrative costs decreased 22.9% to $1.4 million or 14.8% of net revenue for the 13 weeks ended August 2, 2009, from $1.8 million, or 16.2% of net revenue for the three months ended July 31, 2008. The decline in costs is due to a decrease in outside accounting fees related to costs incurred in the third quarter of 2008 for Sarbanes-Oxley compliance review, and lower facility rent as we consolidate operations in to our own corporate headquarters.
Box general and administrative costs increased $0.3 million for the 13 weeks ended August 2, 2009 when compared to the three months ended July 31, 2008. The increase is due to the increased regulatory and licensing costs for product submissions as we position ourselves for growth in our box business.

Bingo sales and marketing expenses for the 13 weeks ended August 2, 2009 decreased 4.8% when compared to the three months ended July 31, 2008 to $2.4 million. This decrease is due to the decrease in distributor commissions directly related to the decline in bingo revenue.

Box sales and marketing expenses for the 13 weeks ended August 2, 2009 increase 85.3% to $0.2 million over the three months ended July 31, 2008. This increase is primarily due to increased marketing and promotion costs related to positioning ourselves for growth in the box business.

Bingo research and development expenses remained flat at $0.8 million for the 13 weeks ended August 2, 2009, compared to the three months ended July 31, 2008.

Box research and development expenses also remained relatively flat at $547 thousand for the 13 weeks ended August 2, 2009, compared to $598 thousand for the three months ended July 31, 2008.

Interest Expense

Interest expense was $0.3 million for the 13 weeks ended August 2, 2009, compared to $0.8 million for the three months ended July 31, 2008, a decrease of $0.5 million. The decrease is primarily due to a $0.3 million non-cash benefit to adjust for the value of the interest rate swap contract and a lower effective annual borrowing rate of 6.79% for 2009 compared to 9.0% for 2008.

39 Weeks Ended August 2, 2009, compared to the Nine Months Ended July 31, 2008

The following table sets forth certain selected unaudited condensed consolidated financial data for the periods indicated:

                                                        39 Weeks Ended August 2, 2009 and Nine Months Ended July 31, 2008
                                                                                   (In Thousands)
                                                  Bingo Equipment                                                   Box Equipment
                              39 Weeks           Nine Months             % Change               39 Weeks           Nine Months            % Change
                               Ended                Ended               Favorable/               Ended                Ended              Favorable/
                              8/2/2009            7/31/2008            (Unfavorable)            8/2/2009            7/31/2008          (Unfavorable)
Net Revenue                 $     30,448         $     33,222                    -8.3 %       $      6,290         $      9,194                  -31.6 %
Cost of Revenue                   11,052               14,324                    22.8 %              4,018                5,260                   23.6 %
Gross Profit                $     19,396         $     18,898                     2.6 %       $      2,272         $      3,934                  -42.2 %
Operating Expenses:
General and
administrative                     4,582                5,443                    15.8 %              3,258                2,374                  -37.2 %
Sales and marketing                7,662                7,481                    -2.4 %                907                  395                 -129.6 %
Research and development           2,268                2,317                     2.1 %              1,808                1,944                    7.0 %
Total operating expenses          14,512               15,241                     4.8 %              5,973                4,713                  -26.7 %
Income from operations      $      4,884         $      3,657                    33.6 %       $     (3,701 )       $       (779 )                375.1 %

Interest expense                    (320 )                (25 )               -1180.0 %             (2,035 )             (2,125 )                  4.2 %
Impairment of investments              -               (1,079 )                 100.0 %                  -                    -                    0.0 %
Other income (expense),
net                                  (27 )                253                  -110.7 %                 10                   27                  -63.0 %
Income (loss) before
income taxes                $      4,537         $      2,806                    61.7 %       $     (5,726 )       $     (2,877 )                -99.0 %
Provision (benefit) for
income taxes                       1,325                1,075                   -23.3 %             (1,672 )             (1,102 )                 51.7 %
Net income (loss)           $      3,212         $      1,731                    85.6 %       $     (4,054 )       $     (1,775 )               -128.4 %

Net Revenue

Bingo net revenue for the 39 weeks ended August 2, 2009 decreased 8.3% to $30.4 million from $33.2 million compared to the nine months ended July 31, 2008. The decrease in bingo net revenue is primarily due to hall closures and price adjustments from adverse economic conditions and competition, which was partially offset by an increase due to business from new products.

Box net revenue for the 39 weeks ended August 2, 2009 decreased 31.6% to $6.3 million from $9.2 million compared to the nine months ended July 31, 2008. The decrease in box revenues is primarily due to some delays in releasing new product as we collaborate with regulators to obtain approvals on new software programs and other features in certain markets.

Cost of Revenue

Bingo cost of revenue decreased 22.8% to $11.1 million for the 39 weeks ended August 2, 2009, from $14.3 million for the nine months ended July 31, 2008. Bingo equipment depreciation decreased by approximately $1.5 million due to certain product becoming fully depreciated, and service labor decreased by $1.1 million due to aligning expenses to our business levels.

Box business cost of revenue decreased 23.6% to $4.0 million for the 39 weeks ended August 2, 2009, from $5.3 million for the nine months ended July 31, 2008. The decrease in cost of revenue is in part related to the decline in net revenue, and due to a higher mix of software sales in 2008 which have lower product costs.

Gross Profit

Bingo gross profit increased 2.6% to $19.4 million for the 39 weeks ended August 2, 2009, from $18.9 million for the nine months ended July 31, 2008. Bingo gross margin increased to 63.7% of net revenue from 56.9% of net revenue for the nine months ended July 31, 2008. Bingo gross margin increased 6.8 points due to reduced labor and travel costs in service and operations plus other cost of revenue decreases as described above

Box gross profit decreased 42.2% to $2.3 million for the 39 weeks ended August 2, 2009, from $3.9 million for the nine months ended July 31, 2008. Box gross margin decreased 6.7 points to 36.1% of net revenue for the 39 weeks ended August 2, 2009, from 42.8% of net revenue for the nine months ended July 31, 2008. The decline in box gross profit and margin is due to a mix of lower margin sales in 2009 to Louisiana, which is a distributor-based jurisdiction, compounded by a high mix of software sales in 2008 which are higher margin.

Operating Expenses

Bingo general and administrative costs decreased 15.8% to $4.6 million or 15.0% of net revenue for the 39 weeks ended August 2, 2009, from $5.4 million, or 16.4% of net revenue for the three months ended July 31, 2008. This decline in costs is due to a decrease in outside accounting fees related to costs incurred in the third quarter of 2008 for Sarbanes-Oxley compliance review, decrease in outside legal fees as cases have been resolved and lower facility rent as we consolidate operations in to our own corporate headquarters.

Box general and administrative costs increased 37.2% to $3.3 million or 51.8% of net revenue in the 39 weeks ended August 2, 2009, from $2.4 million or 25.8% of net revenue for the three months ended July 31, 2008. The increase is due to the increased regulatory and licensing costs for product submissions and jurisdiction expansion as we maximize our position for growth in our box business.

Bingo sales and marketing expenses for the 39 weeks ended August 2, 2009 increased by $181 thousand or 2.4% over the nine months ended July 31, 2008 to $7.7 million. This increase in bingo sales and marketing expenses is primarily due to expanding our sales force and marketing efforts to take advantage of both new markets and competitive opportunities. This increase was offset in part by lower distributor commissions directly related to decrease in bingo revenue.

Box sales and marketing expenses for the 39 weeks ended August 2, 2009 increased 129.6% to $0.9 million from $0.4 million for the nine months ended July 31, 2008. This increase is primarily due to increased promotional costs as we invest and partner with our distributor to promote revenue growth in Louisiana.

Bingo research and development remained flat at $2.3 million for the 39 weeks ended August 2, 2009, compared to the nine months ended July 31, 2008.

Box research and development expenses decreased by $0.1 million to $1.8 million for the 39 weeks ended August 2, 2009, compared to $1.9 million for the nine months ended July 31, 2008. This slight decrease is due to lower costs incurred related to outside pre-testing of our products.

Interest Expense

Interest expense was $2.4 million for the 39 weeks compared to $2.2 million for the nine months, an increase of $0.2 million. Interest increased for the 39 weeks due to a $0.6 million non-cash expense to adjust for the value of the interest rate swap contract, offset by $0.2 million in capitalized interest and a lower effective borrowing rate of 6.79% for 2009 compared to 9.0% for 2008.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations and capital expenditures through cash from operations and other capital sources. As of August 2, 2009, and November 2, 2008, we had a working capital balance of $8.7 million and $9.1 million, respectively. As of August 2, 2009, our principal source of liquidity included cash and cash equivalents of $7.4 million and a $2.0 million revolving credit facility with no amounts drawn. Current liabilities include an accrued liability of $4.0 million in connection with a contingent litigation judgment.

Operating activities provided $8.8 million of cash for the 39 weeks ended August 2, 2009 compared with $11.8 million for the nine months ended July 31, 2008. The $8.8 million consisted of a net loss of $0.8 million, adjusted by $6.1 million for depreciation, amortization, obsolescence provisions, and loss on disposal of equipment, a $0.6 million non-cash benefit adjustment for the interest rate swap, a $1.5 million tax refund, and a reduction in inventory of $1.4 million due to sales. During the nine months ended July 31, 2008, the $11.8 million consisted primarily of a net loss adjusted by $8.3 million for depreciation, amortization, obsolescence provisions, and loss on disposal of bingo terminals and related equipment, a $1.1 million loss on the impairment of investments, and $2.4 million provided by other net changes in operating assets and liabilities.

We used approximately $4.0 million of cash in investing activities during the 39 weeks ended August 2, 2009 compared to $0.6 million of cash provided during the nine months ended July 31, 2008. The $4.0 million consisted of $6.6 million of capital expenditures, offset in part by the use of $2.6 million of restricted cash to fund capital spending on the improvements for our new headquarters. During the nine months ended July 31, 2008, the $0.6 million . . .