Multimedia Games, Inc.
HOST: Mr. Gordon Graves
DATE: January 29, 2003

OPERATOR: With us today from the company is the Chairman of the Board and Chief Executive Officer, Mr. Gordon Graves; the Chief Financial Officer, Mr. Craig Nouis; and the President and Chief Operations Officer, Mr. Clifton Lind; Director of Investor Relations, Miss Julia Spencer. Once today's presentations are complete, we will conduct a 30-minute question and answer session. At this time, I'd like to turn the call over to Miss Spencer. Please go ahead.

JULIA SPENCER: Thank you. Good afternoon, everyone, and welcome to Multimedia Games’ conference call and live webcast. Today, we will be discussing our earnings for the first quarter of the 2003 fiscal year. You may access the webcast from our company web site at www.multimediagames.com. The webcast will also be archived and available from the same location. After the management team has presented our quarterly results, we will open up the call to your questions, but will limit the question-and-answer session to 30 minutes. I will now turn the call over to Paul Hurdlow, who will read our Safe Harbor statement – Paul?

PAUL HURDLOW: In today's call, management will make forward-looking statements within the meaning of federal and state securities laws, including statements about regulatory developments, operating results, the competitive environment and business opportunities. These predictions are subject to risks and uncertainties that could cause results to differ materially from those predicted. And many of these risks are described from time to time in our press releases and periodic filings with the Securities and Exchange Commission. Interested parties are encouraged to review those risks prior to making decisions to invest in the company's stock.

JULIA SPENCER: Thank you, Paul. Now, I'd like to introduce Gordon T. Graves, our CEO and Chairman of the Board – Gordon?

GORDON GRAVES: Thanks, Julia. We're happy to report that our first quarter diluted earnings of 50 cents per share marked another healthy increase over the corresponding quarter for the previous year. Gross revenue increased 42%, diluted earnings per share increased 52%, and EBITDA increased 51% over the first quarter of FY 2002. Our earnings were at the high end of our projected range of performance. As a shareholder, I'm very pleased with our performance, especially in the face of the remaining reverberation from the April NIGC ruling that MegaNanza was not a Class II game, and increased Class II competition.

Our gross revenue increased this quarter over the previous quarter that ended in September by an annualized rate of about 36%, even though the December quarter has historically been our weakest and the September quarter our best. Diluted earnings per share increased over the previous quarter at a 25% annualized rate.

I'm very optimistic that clarification of game classification rules will soon increase player station demand and free us up to introduce more game themes in a manner that will compensate for the added competitive pressures that the clarification process is bringing. In addition, we're also starting to see our market segment diversification efforts blossom, both in bringing our Class II games to new jurisdictions, and in bringing our video lottery games to the state lottery market.

Now, to further discuss the company's operations and more detailed first quarter results, it's my pleasure to introduce our President and Chief Operating Officer, and in the next month, our new Chief Executive Officer, Clifton Lind.

CLIFTON LIND: Thank you, Gordon. Our first quarter earnings for fiscal year 2003 came in at the high end of our previous guidance. You might recall that last quarter for the first time we issued guidance as a range of values rather than giving specific earnings projections. Our guidance range was from 47 cents to 50 cents for the quarter and $2.30 to $2.60 for the year. We followed this approach because of the uncertainty of timing of several potential strategic Class II player station placements. I explained that if the expected placements were to occur early in the year, earnings for fiscal 2003 would be at the upper end of that range. Conversely, if multiple major placements did not materialize, or if these placements occurred near the end of the year, our earnings would be more likely at the lower end of the range. While the extraordinary placements above our usual quarterly projections have not yet occurred, we have either reached agreements with or are still actively negotiating with customers and prospects who have requested that we be in a position to deliver a significant number of player stations on short notice. We remain optimistic about the prospects of such placements in the third and fourth quarters of this fiscal year.

If our FY03 diluted earnings per share come in at the lower end of our guidance range, they will represent a 32% increase over FY02. If we attain the upper end of our guidance range, our diluted earnings per share will represent a 49% increase over FY02. It appears that falling anywhere within this range will put us at the top of our peer group.

On a related note, to position the company to rapidly fill large expected orders, our player station inventory still remains higher than we would consider normal. Notwithstanding the current high levels, by the end of the third quarter of FY03, we expect to see inventory levels return to normal levels.

We remain on track with our preparations to deploy the central video lottery system for racetracks in the State of New York, and are pleased with our progress to date. As reported earlier, we have executed our contract with the New York lottery and await acceptance of the final agreement by the New York State Comptroller. Next week we will begin testing the third integrated build of the operating system, and still expect on-schedule deployment before the end of the calendar year.

Regarding our core Class II business, we are encountering more opportunities and greater challenges than ever before. These significant opportunities have attracted additional competition and place increased pressure on the margins that we have enjoyed in the past. On the upside, we have signed an agreement to support a casino expansion project for one of our major Oklahoma customers. This project will result in the placement of a significant number of additional player stations in April or May. Obtaining additional agreements, however, will likely be more difficult at this time because of the general uncertainty regarding the policies of the new State Administration in Oklahoma. However, we continue to be actively involved in discussions and negotiations of other opportunities, both within Oklahoma and in other jurisdictions.

I wish to address the fact that the quarters ending June 30, September 30 and December 31st, 2002, exhibited insignificant growth in net revenues and earnings over the quarter ending March 31st of that year. This might mistakenly give the impression that our quarter-to-quarter earnings have reached a plateau. As you are probably aware, the impact of the April 2002 NIGC ruling was substantial in terms of both business interruption and expense incurred. Most disruptive was the impact of porting all of our games to an interim standard sequence bingo game engine, and then subsequently to a more elegant standard sequence engine.

The redirection of our development staff's effort and our longstanding commitment to our strategic partners not to run their games on a platform that has been alleged to be something other than Class II, resulted in a substantial delay in the release of many new proprietary and licensed titles. This delay, the related expenses and the reluctance of our customers and prospects to make new commitments pending the resolution of this issue, resulted in what we believe to be a temporary interruption in our quarter-to-quarter earnings growth. We feel that we are beginning to overcome these concerns and disruptions, and expect to have many new Class II titles in the market in the near future. We believe that these new titles will attract new players to our customers' facilities and provide additional revenue for all of us.

As I have watched our team during these chaotic times, I have become increasingly impressed with the quality of the outstanding management team and staff that we have assembled. I am confident that this great team will provide innovative, exciting new content and products and services to our customers and build solid value for our shareholders. While we remain convinced that Class II and the video lottery gaming will grow substantially over the coming years, we are also focusing substantial efforts on taking technology to new markets and developing new products for new and emerging markets.

Our technology team is committed to being the market leader by providing the industry with the best and most entertaining content, and the most innovative products and services. This should allow us to continue showing both top-line and bottom-line growth, and thereby provide the basis for potential above-average returns for our shareholders.

As all of you are aware, certain aspects of Native American gaming have been the focus of recent negative attention in national publications. Over the last six years, I have personally witnessed the good that has come to the tribes from Class II and Class III gaming activities. I am honored to work with the distinguished tribal leaders who labor diligently to deliver their tribal members the economic and social benefits of gaming, as Congress intended. Contrary to what the articles may indicate, based on our day-to-day experience with the tribal regulators, they are doing an outstanding job of self-regulating tribal gaming activities.

We have been encouraged by the leadership, actions and the positive statements that have been made by NIGC chairman Phil Hogan, and by the level of effort extended by Chairman Hogan and the two associate commissioners to position Class II and Class III gaming activities to provide the economic, educational and health stimulus they intended for the tribes. It is my belief that the NIGC was meant to be a resource for the tribes, and the new commission appears to be approaching its role in a collaborative and consultative manner. While we don't presume to speak for tribal leaders, we find this approach to be positive, refreshing and encouraging. Also contrary to the articles, it is our experience and belief that the NIGC is staffed by competent, dedicated professionals who are doing an extraordinary job with the scarce resources that they have.

As I mentioned before, because of the increased interest in Class II gaming, we're facing an increased level of competition from old and new competitors. It is becoming increasingly important for us not to reveal certain information, such as hold per day, number of placements in our revenue share. We believe that we are the only company in our peer group that has consistently provided this level of detailed insight into our operations. While we understand that this granular information can assist analysts and investors in constructing their detailed models, we have concluded that providing this information to our competitors is not, on balance, in the interest of MGAM and its shareholders. Therefore, in an effort to protect the company's long-term growth, we will no longer be disclosing this information. We trust that all investors will understand and support the reasons for our decision.

Now I'd like to turn the meeting over to Craig Nouis, our CFO, to review the quarter's financial highlights. After Craig's discussion, we will take your questions – Craig?

CRAIG NOUIS: Thank you, Clifton. Our first-quarter highlights are as follows. Diluted earnings per share for the first quarter of 2003 were 50 cents per share compared to 33 cents per share for the same quarter of 2002. This represents a 52% increase. This year's first quarter EBITDA was $16.5 million, compared to $10.9 million for the first quarter last year. These increases were driven by a 42% increase in our net revenues, which were primarily the result of new placements of our New Generation player stations, offset in part by a decrease in the number of Legacy games and a decrease in our hold per day. As we've discussed in the past, we expect our hold per day to continue decreasing as we place additional player stations in existing halls, and as the quality of our competitors’ games improves.

Sequentially, our diluted earnings per share increased 6% over the fourth quarter of fiscal 2002, resulting from a 10% increase in net revenues over the previous quarter. This increase in revenue is driven by a 16% increase in the installed base of our player stations, offset by an 8% decrease in our average hold per day. Our placements during the quarters do include some Class II units in California. We are pleased with the player acceptance of our Reel-Time bingo games in California, but as Clifton has indicated, for competitive reasons, we're not discussing any more specific information relating to these placements.

For the first quarter, we had a 4% increase in our operating costs over the fourth quarter of fiscal 2002. This increase was the result of a decrease in SG&A expenses, and an increase in depreciation expense. SG&A expenses decreased from $9.5 million for the fourth quarter of 2002, to $9.1 million for the first quarter of 2003. This was the result of a number of SG&A line items decreasing, including legal and professional fees. As expected, SG&A expense as a percent of net revenue has decreased from 40% to 35% over the same period. In the future, we believe that salaries and wages will continue to rise, as we add staff to meet current demands. However, we expect SG&A expense as a percentage of net revenues to continue to decline as our installed base of player stations increases.

Depreciation expense has increased 14% from $3.9 million for the fourth quarter of 2002, to $4.4 million for the first quarter of 2003. This is due to net property and equipment increasing 15%, from $40.1 million as of September 30th, 2002, to $46.3 million as of December 31st, 2002. During the quarter we had total capital expenditures of $10.4 million, which includes $6.1 million of non-cash transfers of player stations from inventory into property and equipment.

We continue to have a strong balance sheet. Our cash has increased $2.9 million from the previous quarter, and our inventory level has decreased from $14.6 million as of September 2002, to $12.5 million as of December 2002. This decrease in inventory was the result of placing Class II games during the quarter, and minimizing the purchase and production of new player stations.

While we did not place any additional Class III games during the quarter, we do expect to have some Class III placements during the remainder of the fiscal year. Over the next couple of quarters, we also expect our inventory levels to return to normal, as we anticipate one or more significant placements in new facilities.

Consistent with prior guidance, we continue to believe that our earnings per share for the year will fall somewhere in the range from $2.30 to $2.60 per share. We do not expect to see an impact from any of the potential new facilities during the second quarter. As we explained earlier, the range in guidance is due to the uncertainty surrounding the timing of placements in potential new gaming facilities. Now, with that, we'll open the call up to your questions.

OPERATOR: Thank you, sir. Today's question and answer session will be conducted electronically. If you'd like to signal to ask a question, please press the star key followed by the digit one on your touch-tone telephone. Once again, that is star one for questions. And we'll pause for just a moment so everyone has a chance to signal. Our first question comes from Jeff Martin with Roth Capital Partners.

JEFF MARTIN: Thank you. Good morning, Craig, Clifton and Gordon. How are you? Question on the accounts receivable. You had a $3.3 million increase, according to my calculation, from fourth quarter to first quarter. Could you give us a little detail on that and what the composition of the accounts receivable is?

CRAIG NOUIS: Yes. There's actually a good reason for the increase. You know, the end of this current quarter obviously includes the week after Christmas, from December 26th through December 31st. And that is our busiest week of the year. So, first of all, it was driven by an increased level of play on our stations at the end of the quarter. In addition to that, the – most of the tribes' accounting departments closed during that period, and we weren't collecting our receivables during that period, so they were building. But when I checked the receivable balance and the composition of that balance, just the other day, it was back to normal levels, which is about $5 or $6 million.

JEFF MARTIN: OK. Great. And then, on the New York video lottery system rollout, do you have a better handle today on how much of that $14.5 million or so that you'll be able to capitalize?

CRAIG NOUIS: That is still our current estimate.

JEFF MARTIN: You'll be able to capitalize all of it? Or how much will flow through the P&L?

CRAIG NOUIS: Well, we will be capitalizing all of the hardware costs, the equipment costs. And in terms of the software costs, we will be capitalizing, you know, once we documented the development and determined the feasibility, we began capitalizing the software costs, which is the direct labor costs. And so, all of that will be capitalized in addition to the equipment costs.

JEFF MARTIN: OK. And then one more question on your share repurchase. What is your outlook on that? You've got a sizable, you know, allocation. Have you taken any more aggressive stances on looking at (repurchasing) shares?

CLIFTON LIND: The board has currently in place approval for Gordon, Craig and me to buy back stock at our discretion. We have not currently, to this date, chosen to buy any back in the recent past, but that's an option that's open to us.

JEFF MARTIN: OK. Great. Thank you, guys.

CLIFTON LIND: Thank you.

OPERATOR: We'll take our next question from David Bain with Seidler Company.

DAVID BAIN: Hi, guys. Good quarter. For a while now we've used the 600 a quarter [EPS] install target. Now we've broken into California, are we still using that same 600 target?

CLIFTON LIND: David, I – let me say that, consistent with our decision to limit the amount of information that we give our competitors - you know information about the quarterly growth and our quarterly plan we think is better kept to ourselves rather than broadcast for our new and our old competitors to hear. But there, let me say that there has certainly been no reduction in our targets for any of our quarterly placements.

DAVID BAIN: OK. OK. And Clifton you mentioned that the company was going to support a casino expansion in April or May. Can we get an idea of the magnitude of that kind of deal?

CLIFTON LIND: It will involve the placement of a net additional 600, 700 machines for us.

DAVID BAIN: OK, and then, with an article out last night, and the text of the settlement between the NIGC and the Chickasaws, it states that the Chickasaws don't admit to any wrongdoing and the NIGC won’t levy any fines against the tribe in relation to that NOV sent out by the former chairman. It obviously looks like a way for the new Chairman to kind of move on to better things. Can you provide any insights as to this in terms of your business?

CLIFTON LIND: We are not; we, of course, were not a party of that government-to-government negotiation that took place. And I can only say that many of us have heard the very encouraging statements that Chairman Hogan has made about working with the tribes as opposed to penalizing the tribes, and I think that his actions to date have been very collaborative and consultative and that he, there's no question that he is a man of his word so everybody in, all of the tribal leaders in Indian countries that we talk to are very, very positive about his leadership.

DAVID BAIN: OK, OK, well thanks guys.

CLIFTON LIND: Yes, thank you.

OPERATOR: We'll take our next question from Steven Neren with Fahnestock and Co.

STEVEN NEREN: Clifton, last week I noticed when I was at the Cal NIGA conference that Mr. Hogan and his two other Commissioners were there. Can you make any comments about, pending the conference and also especially in light of – sometime on Friday night, let's see it started on Friday morning, there was an item from the Associated Press where Mr. Hogan was quoted as saying that he thought some of the compacts between the tribes and various states might be illegal. And it seemed to be a direct confrontation with the upcoming negotiations of California. Do you have any comments on either one of those things?

CLIFTON LIND: Sure, first Mr. Hogan and the two Associate Commissioners have done a wonderful job of hitting the ground running. They have attended a large number of conferences since they were sworn in in mid-December. And they're out visiting with the tribes, consulting with the tribes, attending these conferences and learning and talking and I think that is just an example of their management style and their approach to working with the tribes. Obviously the conference in California is a very meaningful conference for the western tribes and it was not all that surprising that Mr. Hogan and the other two commissioners were there. It would have been surprising if they had not attended because that's such an important segment of Native American gaming.

On his other comments in the paper, of course I have, I only know what you and I both read in the paper, but it is absolutely correct that the National Indian Gaming Act prohibits states from taxing any form of Indian gaming. However they can participate in a revenue share if they grant privileges to the tribe such as exclusivity or other things. And so the BIA and the NIGC are always very supportive in reviewing any potential contracts to make sure that what the states are doing is just not a tax on the gaming that's being conducted by the tribes. So I found his comments, as other tribal leaders did, to be very supportive of the tribes’ position in the upcoming negotiations, so that's all that I read into that, Steve.

STEVEN NEREN: Can we expect clarification from what I would assume, since both the Pechangas and another tribe, the Morongos, have taken on some of your games. Do they expect a clarification from the NIGC that the new Reel Time Bingo is a firstly a Class II game in the not too distant future?

CLIFTON LIND: As you may have noticed, I don't know that you were in the booth at the time, but at the request of a number of California tribes, the Commissioners did personally review Reel Time Bingo for the first time. That was not done at our request. That was done at the request of the tribes. And I think the Commissioners will take what they learned back, and of course the staff is actually in charge of the ultimate review of games when the tribes asked that they be reviewed. So I certainly think that the NIGC will be responsive to the staff's request, but again, that is a result of government-to-government discussions, and I would not presume to know anything about the schedule of those or would not want to indicate to you that they were there at our request because we had nothing to do with their visit to the booth. They came at the request of the tribes.

STEVEN NEREN: Clifton, one other item. Someone just talked about the, you know, placement expansion, but by helping out a tribe in Oklahoma. And you talked about placing 600 to 700 machines possibly in April and May. Is that the final number of machines or is that first in a series, possibly, if this thing, because I know some of these [are] mobile units; and will this particular facility be expanded beyond the initial 600 and 700 machines?

CLIFTON LIND: Steve, the facility I was talking about is not in California.

STEVEN NEREN: No, no. I know. The one in Oklahoma. You referred earlier to it that you were going to help a...

CLIFTON LIND: Well, yes, all of the tribes believe that any expansions that they do now are just a step in, a continued expansion of their facilities. So in the tribes’ mind and our view this would be the first phase and, if the performance of these machines justify it, then the tribe will certainly in its own interest look at expanding the facility and we hope that we will be one of the vendors that benefits from that.

STEVEN NEREN: Could you tell us what's next in Red River?

CLIFTON LIND: Well the, it is certainly a tribe that is near the Texas border so that's, there are some who have referred to those as Red River opportunities, yes.

STEVEN NEREN: Thank you.

OPERATOR: Our next question today comes from David Rainey with Akre Capital.

DAVID RAINEY: Great, thank you very much. Could you give me a sense for what the capitalized expenses were in the quarter that were not related to the manufacture of games?

CLIFTON LIND: The capitalized software costs?

DAVID RAINEY: Well either software or any other costs that you might have capitalized.

CLIFTON LIND: We capitalized probably about a total of $600,000 of software, which relates to both game development software costs for our game themes and a new gaming platform, and for the New York lottery.

DAVID RAINEY: OK, so if you're capitalizing New York lottery software costs you've reached the point of feasibility?

CLIFTON LIND: That's absolutely [right].

DAVID RAINEY: Right.

CLIFTON LIND: Yes.

DAVID RAINEY: OK, great. Can you give me a sense of the level of costs you all have absorbed since the NIGC letter in April that relate to the necessity of switching games from MegaNanza to the Reel Time platform? And kind of when those expenses will be over and how I should be thinking about them, because I tend to think of them not as ongoing but as one-time [expenses]?

CLIFTON LIND: That is true. That is something that we do not track, so I don't have a quantified number at this point.

DAVID RAINEY: OK, are you...

CLIFTON LIND: In response to your question about when will they be over, we think those unusual expenses are over at this time.

DAVID RAINEY: OK, so then that means that those expenses have been included in SG&A for the last nine months, is that right?

CLIFTON LIND: That is correct.

DAVID RAINEY: Or have they been capitalized?

CLIFTON LIND: No, no, no, there's not been anything capitalized.

DAVID RAINEY: OK great. And so you think those are primarily behind you?

CLIFTON LIND: Absolutely.

DAVID RAINEY: OK, and can you give me a share count both average for the quarter and at the end of the quarter on either, on a diluted basis? I didn't see that in a release.

CLIFTON LIND: The share count average, on a [basic] and diluted basis?

DAVID RAINEY: Right, and particularly if end of the quarter is significantly different than the average share count you would have used to calculate...

CLIFTON LIND: OK, as of 9/30/02, the basic share count was 12 million eight [hundred thousand,] almost 12 million nine [hundred thousand,]. The diluted share count was about 14.5 million.

DAVID RAINEY: OK. Great. And how about as of…

CLIFTON LIND: Twelve/31?

DAVID RAINEY: ... 12/30?

CLIFTON LIND: As of 12/31/02, basic was at 12.9 [million] and the fully diluted was 14.8 [million].

DAVID RAINEY: Fourteen point eight [million]. OK, thank you very much.

CLIFTON LIND: Thank you, David.

OPERATOR: And our next question comes from Ronald Rotter with RLR Partners.

RONALD ROTTER: Thank you guys. I think you know, the market is reacting quite negatively to the fact, and I understand why you're doing it, but nonetheless the market is reacting negatively to the fact that you're no longer giving us the amount of placements and [order] backlog. And it makes it very, very difficult without those numbers to really kind of home in on how well the company is doing and what we should expect going forward. In the past you have given quarterly guidance for the next quarter, and that certainly wouldn't be of any competitive advantage to any of your competition. Is there any particular reason, or do you care to give guidance to what you expect for the March quarter in terms of revenues and in terms of earnings?

CLIFTON LIND: Yes, Ron this is Clifton. We certainly expect there to be growth, quarter-to-quarter growth, first quarter over second quarter. And we...

RONALD ROTTER: You mean second quarter over first quarter.

CLIFTON LIND: Second quarter over first quarter, and we are still sticking with our, with our lower end and upper end of the range for the guidance for the year, and so the time...

RONALD ROTTER: But the question, you understand what I'm saying. We have much less to base it on, you know, since we don't know how many machines we had at the end of the quarter. We don't know the difference between Reel Time and MegaNanza, and in the past you have been very specific about giving quarterly guidance.

CLIFTON LIND: Yes.

RONALD ROTTER: I mean we're really in a major vacuum here without this information, so I don't expect you to do all the work for us, but now we're going from a lot of information to no information.

CLIFTON LIND: Well, let me just say, consistent with our, with our reconfirmation of our previous guidance, you know, we are confident that we will hit the lower range of the guidance, so you can do your own numbers. We are not going to publish guidance for this next quarter or for any of the quarters remaining in the year.

RONALD ROTTER: OK, good.

CLIFTON LIND: OK.

OPERATOR: We'll take our next question from Bill Brady with Presidio.

BILL BRADY: Yes, I was going to ask about the guidance question, but, so we can assume it's going to be north of 50 cents, is that correct?

CLIFTON LIND: Absolutely.

BILL BRADY: And even if you did the lower part, you would have successive increases in the June and September quarter. It gets $2.30 with the peer.

CLIFTON LIND: Yes that is correct.

BILL BRADY: OK now, you said you didn't install any Class III games, so at the end of September you had 5,238 New Generation and 2,398 Legacy, and the pattern has been that Legacy goes down every quarter. So I get multiplying 1.16 times 7,236 gets you to 8,800 electronic play stations, and assuming that Legacy at least stayed even or went down, all our increase would seem to be in the New Generation, which would get you up to maybe 7,000, 6,800, something like that, so it would be ...

CLIFTON LIND: But Bill, we greatly exceeded our goals for placement of net New Generation games. However, one of our casinos that we – our first casino closed down for remodeling and for new management and we lost a higher than expected number of Legacy games there. But, you know, the Legacy games – earnings on the Legacy games is so much less than on the New Generation games. The fact that we exceeded our goals for placement of New Generation games more than overcame the loss of revenue in the – from the – as exceeding slightly our expectation on taking out new – taking out Legacy games.

BILL BRADY: Well, that adds up to, you’re right, greatly exceeding maybe 1,500-1,600 Class – New Generation Class II [games]. So it would look like …

CLIFTON LIND: I don’t – I don’t get that math for the quarter to work that way. That’s not consistent with our numbers. But …

BILL BRADY: Well, I guess we can do this offline, Clifton, but it’s… the math or using the figures that you gave us of 16% increases. But OK, we’ll do it offline.

CLIFTON LIND: Yes, let’s do it offline. You’re talking about – you’re talking about off the press release?

BILL BRADY: Yes.

CRAIG NOUIS: We had a – ask me the question again, if you don’t mind.

BILL BRADY: OK. 1.16 times 7,636.

CRAIG NOUIS: Right.

BILL BRADY: OK. That gives you increase of about 1,200 games. And assuming that none of it came from Legacy then all of it had to come from New Generation. So am I just way off base or …

CLIFTON LIND: I think you’re just starting with wrong number, different than the numbers that we have either in the press release or numbers that we know to be the installed base. So …

BILL BRADY: OK.

CLIFTON LIND: … I mean, we’re happy to work with you on that. We’d certainly get the numbers in line. But that’s incorrect numbers and …

BILL BRADY: Do it offline or I’ll go back and check my figures.

CLIFTON LIND: Yes, yes, yes, yes, yes.

OPERATOR: We have a question from Danny Davila with Hibernia South Coast.

DANNY DAVILA: Good afternoon, gentlemen, how are you?

CLIFTON LIND: Hey, Danny.

DANNY DAVILA: Clifton, I wonder to the extent that – let me – let me go back to Bill’s question for a minute. I think what he was looking at was the 4,900 or so base average that you gave us for the last question. I think that’s a – the upside – or rather the increase – the 16% increase was off of that number, correct?

CLIFTON LIND: That is correct.

DANNY DAVILA: OK. Well, to my question, I mean to the extent that – I mean, what Ron was talking about, where we’re getting very little information now. Maybe you could tell us where the opportunities are where we might could see some upside in the March quarter and the June quarter, and, you know, subsequent quarters relative to whatever expectations are out there?

CLIFTON LIND: There’s – there are upside opportunity, Danny, is every jurisdiction that we talked about in our last conference call, in all the states that we’re working in in Class II. There’s also upside opportunities as well in Class III. In addition to that, not anything that will generate revenue this year, but we’re in the midst of a proposal process for other video lottery systems. And so, I mean, almost every market including the work that we’re doing in charity, which we expect to be a contributor in FY ’04, there are great upside opportunities. But I think that we’ve, you know, mentioned today two of the states, Oklahoma and California, which, depending on the tribe success and their compact negotiations, will be either extremely meaningful for us or just meaningful for us. But in any event, there’s great upside potential for us over where we are today.

DANNY DAVILA: And is it safe to say that your – the inventory that you have built is both to address the demand that you have let’s say in markets like California, as well as the ongoing process of converting your Legacy units to Reel Time Bingo?

CLIFTON LIND: That would be a fair statement. But actually, we have, you know, our excess inventory right now with the machines we have committed just to that one facility, you know, we are currently placing additional orders for the later quarters of this year because we will be out of machines by the end of the second quarter with just what we know about today. I’m sorry, the second calendar quarter, our third fiscal quarter.

DANNY DAVILA: Again, speaking hypothetically, assuming somebody comes down from high off the NIGC mount and, you know, and knowing it’s Reel Time Bingo, a Class II unit, is it your opinion then that you’ll see orders accelerate at that point?

CLIFTON LIND: Oh, I think that will happen. I mean, we have – we have many of our tribal customers today are converting from MegaNanza to Reel Time Bingo. Reel Time Bingo, network wide, is earning more than MegaNanza. So it’s to their financial interest to do it regardless of whether or not there’s any clarification that comes down from the NIGC. But this standard-sequence bingo game, which the market knows as Reel Time Bingo, and the other standard-sequence bingo games that we’re developing, so clearly fall within both the old regulations and the old court cases and the new regulations and definitions that we don’t expect there to be a delay in the tribes’ installation of them.

As you know only so well, the tribes are the primary regulators and approval process. And it’s only in certain situations that they even bother to go to the NIGC and request that they approve the games that – the California tribes are a special situation because they don’t want to do anything that would be detrimental to their compact negotiation effort. But we expect great placements with or without any action from NIGC in a formal sort of way.

DANNY DAVILA: Great. Lastly then, if I understood your dialogue correctly, with respect to earnings, we’ve set a – I think a quarterly floor so we can expect no worse than 50 cents a quarter in earnings power from this company?

CLIFTON LIND: Certainly that’s the case. And, Danny, to achieve – even though I have said that the major placements are going to occur in our third fiscal quarter and our fourth fiscal quarter, you know, certainly there has to be reasonable growth this next quarter in order for us to reconfirm, as we’ve done today, our $2.30 cents floor in the range. And so you certainly can expect quarter-to-quarterly growth. We believe that it’s there.

DANNY DAVILA: Thank you so much.

CLIFTON LIND: Thank you, Danny. Thank you for your long-term support.

DANNY DAVILA: You’re welcome.

OPERATOR: And it looks like we have a question from Chad Cooper with Roth Capital. Please go ahead, sir.

CHAD COOPER: Thank you. Good afternoon, guys.

CLIFTON LIND: … Chad.

CHAD COOPER: Given the fact that you’re no longer placing any more MegaNanza games in the field and taking into account the perceived risk of having that installed base out there – kind of referencing the article that was just out there, can you provide quarterly updates going forward on the installed base of MegaNanza games that are still out in the field?

CLIFTON LIND: We can certainly give you a indication of the percentage of games out there that are running on each one of the platforms. But I don’t know what article you were referring to. And again, we firmly believe that the courts will find – if there is a reason to ask the courts, but we don’t see any reason to fight if the tribes all convert to Reel Time Bingo. We believed when we took the game out there that it was Class II. We believe it’s even more clearly Class II under the current definition, and, you know – and would not want to get off this conference call with anyone believing there’s any more perceived risk today with that installed base. In fact, I think there’s less risk because the tribes are converting, you know, of their own economic interest, to the Reel Time Bingo system each week that goes by.

CHAD COOPER: Can you give an indication in terms of timing as far as when it might be that there are no more MegaNanza games out there, that all the …

CLIFTON LIND: I will be – look, these tribes are run by very astute business managers. I will be greatly surprised if five-six months from now there would be any MegaNanza games running out there. Chad Cooper Great, thank you.

OPERATOR: And the question and answer session has now reached its 30-minute mark. I would like to turn the conference back over to our speakers for any additional or closing remarks.

CLIFTON LIND: Especially for the analysts who have been so loyally following our company in the past, I want to assure them as well as the investors that there is no attempt at this point in time to hide the ball from either our investors or our analysts. Conversely, we were very forthcoming when our model was not as complex as it is today. As Danny and David Bain know, you know, three years ago they could build a three-parameter model and fairly accurately predict what our earnings were going to be for the next quarter or even the next year. But as we have expanded into new markets and as we have started investing and developing products for the charity markets and the video lottery markets that three-parameter model is simply less predictable.

We believe that this company is going to be evaluated in the long run by the investment community based on its continued growth quarter to quarter, and earnings per share and net free cash flow. And this management team is dedicated to accomplishing that. And we would not be reconfirming our guidance in the range of $2.00 to $2.60 at this time if we did not believe we were going to be showing consistent quarterly quarter-to-quarter growth.

However, the public information is being used to our great disadvantage with both our customers and to the great advantage of our competitor. And so it’s just appropriate that we go into a mode of disclosing less information that in the long run will hurt us by costing us additional business or affecting our margin. We hope that you all will understand this. And I think I’m being reminded by Craig I might have misspoke. I meant to say $2.30 to $2.60. Craig says I said $2 and I apologize for that.

But in any event, we expected the market to react negatively to the fact that we’re not going to disclose as much information publicly in the future. And I hope that the market will take some comfort in our renewed commitment to quarter-to-quarter growth in earnings and net free cash flow, and will give us a short chance here to prove that the words that we just said are going to be accomplished.

However, after much internal discussion, the entire management team has concluded that we’re just running into our public information too often and that the details are hurting us in nearly all aspects of our business. And I can assure you that we will give guidance which to the best of our knowledge is going to be achieved and that it will be guidance that is reasonable. We’re neither going to high-ball you or low-ball you in order to make our job easy. And so I would invite the investing community to listen carefully to our guidance, because we arrive at that guidance after much analysis and discussion, and would not be saying anything we did not believe we were going to achieve.

With that, let me turn the meeting over to Gordon Graves for any closing comments that he might have. And thank you all for you support and we look forward to the next investors’ conference call with even better information and expectations. Gordon?

GORDON GRAVES: Thanks very much, Clifton.

I don’t think that there’s any question that as a result of a number of things that Clifton has mentioned and that some of the questioners mentioned that the clarification of the ground rules for classifying games is getting clearer and clearer. And I think that that’s going to be – that’s added some competition for us but also I think it adds tremendous growth opportunities and our future’s never looked brighter. Thanks so much for your interest today.

OPERATOR: This does conclude today’s conference call. You may now disconnect.

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