Multimedia Games, Inc.
HOST: Mr. Gordon Graves
DATE: April 22, 2002

OPERATOR: Good morning and welcome, ladies and gentlemen, to the Multimedia Games Investor Relations Earnings call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode.

A rebroadcast of this conference will be available starting today, April 22nd and running through April 29th until 11:59 p.m. Eastern Time. To access this rebroadcast you will have to dial 1-800-428-6051, international callers 973-709-2089 with the pin number of 238805. At the request of the company, we will open up the conference for questions and answers after the presentation.

I will now turn the conference over to Ms. Julia Spencer. Please go ahead, ma'am.

MS. SPENCER: Good morning, everyone, and welcome to Multimedia Games' Second Quarter Earnings conference call. Before we get started, I'd like to read a short statement.

These comments including any statements predicated upon or preceded by the words "potential," "believe," "expect," and "should" are considered forward-looking statements within the meaning of federal and state securities laws. Such statements are subject to a number of uncertainties that could cause the actual results to differ materially from those expected, including, but not limited to those described under "Item 1. Description of Business - Risk Factors," contained in the Company's Annual Report on Form 10-K for the fiscal year ended Sept. 30, 2001, which are incorporated herein by this reference.

I'd like to now turn the conference over to Gordon Graves. Gordon?

MR. GRAVES: Thanks, Julia, thanks very much. I know that all of you are here to hear about the numbers, so I'm going to turn this call over to Craig Nouis, our Chief Financial Officer here, and we'll get right into it. But first let me say to you, Craig, and to BDO, our auditors, and to your respective teams, you all have done a great job getting the quarterly numbers out this rapidly. I know we spent extra money in getting them out this early, so we could get started on our road show for the offering early. Of course it's now at best, that offering is at best delayed.

I don't know what you plan to do about trying to repeat this type of rapid reporting next quarter. Economically it probably doesn't make too much sense, but from a bragging rights view point it might help us maintain a high P/E ratio if we can have a history of reporting early. I see we beat IGT this quarter. Of course we all want to see you continue to focus more on accuracy than speed. Either way on behalf of all the shareholders, Clifton and I want to say, "Thanks, all of you guys." So with that, Craig, I want to turn the floor over to you.

MR. NOUIS: Thank you, Gordon. We just completed a very successful quarter. The diluted earnings per share for the second quarter of fiscal 2002 were 47 cents per share on gross revenues of $76 million. The diluted earnings per share increased 370% over the same quarter in the prior year and increased 42% over the first quarter of fiscal 2002.

Gross revenues for the quarter were $76 million, compared to $27 million in the same quarter in the prior year and $58.9 million in the first quarter of 2002. EBITDA for the quarter was $14.8 million compared to $4 million in the same quarter in the prior year, and $10.9 million for the first quarter of 2002. These increases really are primarily the result of us placing our Class II player stations at a rate of at least 200 units per month during the current year.

In terms of the six-month information, diluted earnings per share for March 31, 2002 was 80 cents per share, compared to 13 cents for the same six-month period in 2001. This represents an increase of 515%. Gross revenues for the six months ended March 31, 2002 was $134.8 million compared to $48.6 million for the comparable period in 2001.

The installed base of our Class II player stations are as follows. As of March 31, 2002, there were 2,674 Legacy player stations installed, compared to 2,891 as of December 31, 2001. As of March 31, 2002, there were 3,775 New-Generation player stations installed compared to 2,933 as of December 31, 2001. And in terms of our Class III video lottery player stations, as of March 31, 2002, there were 1,873 units compared to 1,630 as of December 31, 2001.

The current quarter diluted earnings per share of 47 cents exceeded our previous guidance for diluted earnings per share of 33 cents by 42%. This increase was primarily the result of higher than expected hold per day on our New-Generation player stations during this quarter. We do, however, continue to believe that over time the hold per day will decrease.

As Gordon had mentioned in the conference call last Friday, the advisory opinion from the NIGC has not changed our current business model. For the remainder of the year, we continue to expect to place at least 200 Class II units per month. In addition, with our current shelf registration statement, we have numerous options if needed for debt or equity financing. We will continue to pursue opportunities to assist expansion of Native American casinos. At this time, we do not know if or how much financing we would raise as this would be a function of a number of opportunities and how much cash we have on hand. Based on the results of the first and second quarters, we feel that we will exceed our current guidance for fiscal 2002. Gordon will discuss and update guidance for the current year shortly. With this, I'll turn the program back over to our chairman and CEO, Gordon Graves.

MR. GRAVES: Thanks, Craig. I think I speak for Clifton and Craig and Gary Loebig and all the team when I say that we are real proud, in fact we're extremely proud to learn that we earned 47 cents per share for the second quarter. These results compare especially well to our earnings during the second quarter last year of 13 cents per share. To repeat what Craig said, this represents a 370% increase in earnings on a 30% increase in revenue.

As you know, last year we started our second quarter without any MegaNanza player stations in place. This year we started the second quarter with about 2,900 of those MegaNanza player stations in place, [on] which we're earning an average of, the best I remember, somewhere up about $185 per machine per day.

We were concerned at the time of the last quarterly teleconference about the impact of losing the revenue from the hundred plus player stations that we'd installed on a test basis in Florida, which were earning an usually high revenue per day during that first quarter. Fortunately our non-Florida player station hold per machine increased in the second quarter relative to the first quarter. And we continue to install a net average of more than 200 additional New-Generation minus Legacy removal games per month.

As most of you know, we've recently filed a registration statement to sell securities with the SEC. And on Friday we converted that registration to a shelf registration and that will enable us to quickly access the public markets when market conditions are appropriate or even free us up to purchase stock ourselves if we so decide. The registration statement [Form S-3/A] provides a very, very extensive and accurate overview of our opportunities and the risk factors that we face. So I'd encourage anybody interested in our company to review our registration statement very carefully. Craig and BDO [Seidman, our auditors]and our legal team got this registration statement converted over in I think it was less than 48 hours while they were finishing up the second quarter report in record time.

I promised you last Friday that we were going to say something about our projected earnings for the rest of the year today. I believe that the probability of us being negatively affected by the NIGC or the Justice Department action is less today than it was the week before last. But we still have some risk that some tribal leader might get enough political pressure because of the letter we received to force some of the operators, [or] some operator, to take out some MGAM player stations. Or, some maverick tribal attorney might do something that's unpredictable that forces some gaming operator to take out some of our games, or our hold per machine could drop for some reason, or we might not continue to install 200 new games per month. Whether we do or don't raise any new money before the end of September and in what form it's raised if we do could make a difference. But with all these uncertainties, I think the most accurate forecast is probably one based on the assumption that these contingencies wash each other out. And with that we're predicting we'll make $1.75 for the year.

The four areas in which we've made the most progress this quarter are: 1) we've significantly advanced the status and availability of a number of our New-Generation gaming systems; 2) we've supported the tribes in their efforts to establish some new models for Class II gaming regulations and ordinances which I want to talk about in a minute; 3) we filled several very key staff positions that we're real proud of; and 4) we're in negotiations with some potential tribal partners concerning facility expansion opportunities that we've talked about before, and these are in or near metropolitan areas that will allow us to install more MegaNanza type player stations or the next generation wherever we are by that time.

As we disclosed in this registration statement, we now have some non-binding letters of intent from a couple of these ventures and there's enough activity on myriad other similar opportunities to assure us that we do have a clear use for the proceeds of a new fundraising effort. We do have enough cash to do some of these projects with no additional financing, but not enough to capitalize all the rapid payback opportunities that we're working on and that we might get an opportunity to do.

We've had a lot of excitement and focus this past week on the question of regulatory uncertainty in Indian country gaming. I think what happened, and how we responded in a matter of hours to what I call the Justice Department arm of the NIGC's challenge to our electronic bingo games was an important event for all of Indian country. I think it shows that all the gaming community in Indian country, the vendors as well as the tribes, are ready to stand up and challenge the root cause of that uncertainty that I talked about. And I think this point will become more and more clear as events unfold here. But this development will probably only be a tiny footnote when compared to what I think is a much more significant development this month. And that was that a coalition of very powerful tribes and leading vendors in Indian country have now written and published a standard regulation that tribes can use to start Class II electronic bingo operations in new jurisdictions, including California and other states.

And these tribes believe that these guidelines will become the standard use through Indian country and thereby speed up the application of new technology to Native American gaming operations in a way that'll be worth billions of dollars to those tribes. And MGAM has played a major role in the development of this new standard and we've very proud to have been a part of that. So now I'd like to turn the conference over to the man, Clifton Lind.

MR. LIND: Thank you, Gordon. It would be incorrect and unfair for Gordon, Craig, or me to take the credit for the financial and operational accomplishments that have been achieved so far this year. They have been the result of the dedicated effort of over 200 members of the team. Also, it would be a mistake to trivialize the effort required to precisely execute the tactics and strategies necessary to achieve the earnings guidance given today or to assume that accomplishing that guidance will be a cakewalk. Everybody on the entire team will need to work diligently in a precisely orchestrated effort to deal with the complexity and to optimize the opportunity that has been created by the events of last week. Even though we have developed a comprehensive set of strategies to deal with various scenarios, there are a number of factors that remain outside of our control. Personally I am convinced that our team is up to the task.

Enough about the challenges of the future, let me acknowledge some incredible efforts thus far this fiscal year. First I want to thank Gary Loebig, Tommy Le Gassick, Glenn Goulet, Rudy Fernandez, and the rest of the customer support and sales and marketing teams for the outstanding contributions that they have made so far this year.

In addition I want to thank our chief technical officer, Brendan O'Connor, as well as Joe Enzminger, Jeff Lind, Bo Willyard, and Troy Jungmann, and the rest of the technology team for putting us in the enviable position of being able to respond to almost any challenge or opportunity resulting from the change in the regulatory or competitive environment. As always, Skip Lannert has done a stellar job managing the Class II product line as well as making significant contributions to the game design process and optimizing our player station installation and reinstallation effort. Finally I want to thank Craig for the outstanding efforts of Frank [Rehanek], Shannon [Brooks] and the entire finance and accounting team.

In our last conference call, I stated that FY 2002 is going to be a year in which we positioned ourselves to enter new markets in 2003. I am delighted to announce that during the second fiscal quarter we filled the majority of the key management positions that will facilitate the 2003 new market expansions. I'd like to mention a few of those on this conference call. First, Dirk Heinen, the founder of a significant technology company, has recently joined us as Executive Vice President of Business Development. He will focus initially on our joint development opportunities with current and potential tribal customers. Valerie Siegrist, formerly with Bingo King and Stuart Entertainment, has joined us as Vice President of Regulatory Compliance and Government Affairs. Randy Cieslewicz, formerly of BDO, has joined as Vice President of Tax and Budgeting, and has already begun making a substantial contribution in these two areas. James Starr, formerly with Cherokee Nation Enterprises, will take over Class II sales and marketing efforts for us shortly. His presence on the team will speed up the process that will allow Tommy Le Gassick to shift his attention to the charity market and help us enter those markets in 2003.

Rick Calinsky, formerly with G-Tech, has filled the position of Director of Sales and Marketing for Lottery and Racetrack Markets. And we're excited about the opportunity these two markets hold and are pleased that during the last quarter we submitted our first major proposal to a major state which fortuitously selected us as one of the few vendors that they asked to give a proposal for an upcoming opportunity. Fred Roll, who has a long and significant history with MGAM, rejoined our management team and will initially be working with Dirk Heinen in support of project development effort. Finally, we've filled several key technical positions, including adding Frank Roan in a full-time capacity; he will assume the position of [head of the] server development group, which will allow Joe Enzminger to focus on our new technology effort. I know that these people, along with many others who I haven't named, will make a valuable contribution to the company in the immediate future and especially in 2003 as we enter new markets. With that, I'd like to turn this back over to you, Gordon.

MR. GRAVES: All right, Clifton, that's very good. So I guess we're ready for questions.

OPERATOR: The question and answer session will begin now. If you are using a speaker phone, please pick up the handset before pressing any numbers. Should you have a question, please press 1 followed by 4 on your pushbutton telephones. Should you wish to withdraw your question, please press 1 followed by 3. Your questions will be taken in the order they are received. Please stand by for your first question. The first question comes from Ray Cheesman. Please state your affiliation followed by your question.

MR. CHEESMAN: Good morning, Gordon, and congratulations on an excellent quarter to you and your whole team.

MR. GRAVES: Thank you.

MR. CHEESMAN: I just wanted to make sure I understood your comments correctly. The $1.75, if I wrote the notes down properly, it says that we should assume that the installs continue at current trend, and that the win per unit basically continues. And that the guys who just wrote this ugly opinion aren't going to influence anybody's actions and that basically the status quo will continue. In a nutshell is that kind of like what you're telling us?

MR. GRAVES: Well, pretty close and I don't know. You're talking more details than I - we've got a lot of contingencies out there and how it all fits together, you know, maybe if nothing else happened and we got the 200 [installs] and everything else stayed the same maybe we - I don't know - There's just so many of those variables that I don't know what to say anymore. I think these are the numbers unless something unusual -

MR. CHEESMAN: Well, let's turn it around. Do you need to do a financing of any kind to hit $1.75?

MR. GRAVES: None.

MR. CHEESMAN: No. And then lastly I always figure that the biggest impact of any announcement like what occurred to you last week is usually something that occurs in the next two, three, four, five, six, seven days; something occurs reasonably quickly. It doesn't sound like from your comments today or last Friday that anybody's called you up waving their arms like a chicken [saying] that the sky is falling. It sounds like there was an opinion issued and we're going to move on and we'll find the full resolution of this at some future date. But it sounds like your business has basically been unimpacted.

MR. GRAVES: Well, let me let Clifton, you know, Clifton has got a lot closer handle on that and so Clifton's probably the best guy to answer that.

MR. LIND: Let me say the worst thing we could do is to assume that our business has not been impacted. Your team is working under the assumption that this is a major new challenge and that behind every corner is an unpleasant surprise that's lurking for us. It would be a correct statement to say that since the announcement came out a week ago that there has not been an impact on orders and that none of the tribes have asked us to take any equipment out. However, one must also assume that our competitors are out there right now calling on as many of our customers that they can trying to use this against us.

And furthermore, today is the day that regulatory comments were due on the proposed new NIGC regulations and we're anxiously awaiting to see whether or not the NIGC will move forward with existing regulations or change it. So we're assuming that we're going to have challenges there to deal with, but we have strategies and tactics available to deal with that as well. But this is an impact. This is not an immediate financial impact because we've not lost any revenue and don't know of any immediate requests that will cause us to lose any revenue. But your team is out there working as if every customer were at risk and as if this particular game were at risk and we're ready to respond if we find out that there is undue competitive pressure out there or if we find that our customers want us to substitute a different game rather than this one.

MR. CHEESMAN: It sounds like there's basically two responses. One is legal, one is software. Which one do you think we'll see the soonest?

MR. LIND: Well, I mean there is no question that we are driven by what our customers ask us to do. I am sure that in some new installations with customers who are not dealing with us today may request that we install some of our new games while this lawsuit is pending. So, I think if that answers your question, one thing that will happen is that at a customer's directive in a new installation in the relatively new near future we will install one of our new gaming engines. We would like that to be further down the road because we want to wait and evaluate what the new NIGC rules are and modify any gaming engine as we might need to in order to address any of these rule changes. But, that will be I think the first impact is that the timing of, the actual roll-out of a new game will not be driven by us, but will be driven by the request of the customer.

MR. CHEESMAN: Well, I know you've certainly risen to some great challenges in the past, I'm sure you'll overcome these as well. Again congrats on a great quarter, Clifton.

MR. LIND: Thank you.

OPERATOR: Our next question comes from David Bain. Please state your affiliation followed by your question.

MR. BAIN: Yes. The Seidler Companies. Congratulations on another excellent quarter, guys.

MR. GRAVES: Thank you.

MR. BAIN: For the quarter can you give us a flavor of the percentage of revenues coming from different jurisdictions in Washington State and Oklahoma?

MR. LIND: Yeah. There's no question that our largest market has been and continues to be Oklahoma. And there's also no question that because of the fact that the New-Generation games have driven revenue up so greatly that as a percentage, Oklahoma, being our primary market, has grown even larger than any other state because it has diminished the impact of our Class III video lottery system in Washington State. So Oklahoma is by far the largest market and will remain our largest market for the foreseeable future until we penetrate some charity markets in our non-Native American gaming states.

MR. BAIN: Uh-huh. Have you seen a variance in the daily hold with regard to the different jurisdictions that you're operating in?

MR. LIND: They're all up.

MR. BAIN: They're all up.

MR. LIND: Yeah.

MR. BAIN: Would you say the State of Oklahoma was yielding $195 versus your [average hold of] $175.

MR. GRAVES: Let me add to that. David, this is Gordon.

MR. BAIN: Hey, Gordon.

MR. GRAVES: We've talked about our hold per machine a lot in the past and we're getting to the point now where we feel from a competitive standpoint we probably shouldn't talk about that as much especially when we start talking about different areas -

MR. BAIN: Sure. Sure.

MR. GRAVES: - that's just something probably - we're getting big enough that we probably just shouldn't talk.

MR. BAIN: I understand. This may also cause a problem from a competitive standpoint, but I was wondering if you had formulated an '03 strategy for charitable bingo operation?

MR. LIND: Yes. We certainly have a strategy. We have been working for at least the past four years in trying to get the states to roll over. David, I think you know that every jurisdiction we go into in any state requires a change in a bingo law, a bingo rule -

MR. BAIN: Uh-huh.

MR. LIND: - or a bingo regulation. So we have an aggressive effort going on in eight different jurisdictions and we'll be greatly disappointed if one of those does not roll. Just like has happened in many of the state jurisdictions where the slot manufacturers were hopeful that they would pass some new law that might allow slot machines or video lotteries to be run at racetracks. We have been disappointed that some of the states that we were working in didn't roll over this year, but we're confident that one of these that we're putting this effort into will roll next year.

And as Gordon said on the last conference call, there are states that for the first time are having to deal with budget deficits, and a number of the states are looking to taxes on gaming revenue in order to help cover part of that deficit. So there are a number of states that could be significant to us - not this year, but in the next year.

MR. BAIN: Sure.

MR. LIND: As you're aware, even after a law passes, in most states [there's a] provision that the law doesn't go into effect for some period of time. In Texas, for example, any law that's passed can't go into effect until the start of its next fiscal year. And so even after we were able to announce that some of the states rolled over, we'll have to temper that a little bit with the fact that there will be some lag before that revenue starts to hit our bottom line.

MR. BAIN: Okay. Have you guys been looking at the table game market at all in Indian country?

MR. LIND: Yeah. There's not any market, David, that we've looked at so far that has offered us the opportunity to keep providing the best interactive games out there. In fact we think the age of interactivity is about to explode and [we] have invested heavily in new technology that will let us take care of that. So it's a little bit hard for us to get excited about taking a rake off of a table game -

MR. BAIN: Sure.

MR. LIND: - when we think there is so much we can do for Indian country in the areas of interactivity that has not been capitalized on at this point.

MR. BAIN: Right. With that being said, can I get an update on Proxy play and possibly MegaBingo?

MR. LIND: The roll-out on MegaBingo continues and we add new halls each month. We are about to go through an additional programming change on MegaBingo that's going to bring in some nationally recognized talent to take part in the game. We can't disclose any of that to you today, but it will make the game more fun for the players to play and will give them more interesting feedback from personalities that, as I said, are nationally recognized. Although that game is not expected to be a major contributor in the Native American market, some version of that game will launch into the charity market in the states where we're not doing Native American gaming.

MR. BAIN: Okay.

MR. LIND: Proxy play, the software has been up and running and is working quite well. The tribe is having tournaments every weekend now. As with all of our business, we're customer-driven and when the tribe feels that it is appropriate for them to make additional filings and move forward with that game, we're here to support them and look forward to trying to get that out there on a broader basis in the near future.

MR. BAIN: Okay. Great. Just two quick things. Thank you so much for holding the call on Friday. That was very helpful and congratulations again. Great job.

MR. GRAVES: Thanks so much.

OPERATOR: Our next question comes from Todor Mitev. Please state your affiliation followed by your question.

MR. MITEV: Baker Street Capital. Most of my questions have been answered, just one question. In the last 10-Q, I saw something like we have not filed state tax returns for the states of California and Oklahoma for the tax years 1995 through 2001. So my question is, why haven't you filed the taxes and why haven't you paid the taxes from '98 to 2001 and do you expect to pay them some time this year?

MR. NOUIS: I'll answer that. We are currently having discussions with the states in order to get into compliance. We've accrued what we believe are our liabilities - everything that we will owe relating to these states - and we plan to get the state taxes filed and be completely up to date over the next three, four months. We'll do it as quickly as we are able to. A lot of what we have to do depends upon the correspondence with the states, and we don't know for certain when they will get back to us.

MR. GRAVES: But it seems like they're pretty cooperative.

MR. NOUIS: Yeah. So hopefully - it's high on our list of things to get done and like I say we've accrued everything that we will need to be paid relating to those state tax returns.

MR. MITEV: And you don't expect to have any penalties?

MR. NOUIS: We are working with the states and our hopes are that we will not be assessed penalties, but that's something we're still in discussions with [them about].

MR. MITEV: Okay. Thanks.

MR. NOUIS: Thank you.

MR. LIND: But I think it is correct to say that we think we have accrued sufficiently to cover both the taxes and any potential penalties that we have.

MR. NOUIS: That's right.

MR. GRAVES: Whatever we owe we're cheerfully going to pay as soon as we can. As soon as we know what it is.

OPERATOR: Our next question comes from Steven Neren. Please state your affiliation followed by your question.

MR. NEREN: Fahnestock and Company. Hi, Gordon. Hi, Clifton. Great numbers. I'd like to go back to a statement I think Gordon made on Friday when he suggested that last time there was a problem, I guess with the NIGC, that orders actually went up. There seemed to be some discussion here that you were concerned that orders may not remain as strong as they are, yet Gordon had referred back to history that when the tribes are concerned about getting enough machines they actually increase their orders. Have you seen in the last few days any indication of that happening?

MR. GRAVES: I don't think so really, Steve, and I think it's just too early to tell. On just a two-day basis it's just not enough time to see what the trend is going to be up or down.

MR. NEREN: You indicated on the release that on March 31 the install base was 3,775 MegaNanza machines. Could you give us a current number?

MR. GRAVES: I don't know whether - Clifton, do you want to talk about that? I don't know that we want to talk about that, Steve, whether we should or not.

MR. LIND: Steve, I just think right now that any of that information because of this lawsuit it's inappropriate for us to put it out there.

MR. GRAVES: It hadn't gone down has it?

MR. LIND: We have met or exceeded our quota every month, so you can pretty well do the math for yourself. But we're going to keep that pretty close to our vest until we get further down the road on this lawsuit.

And let me say the other thing that is slightly different than this time, Steve, remember in the other MegaNanza suit we had the letter from the NIGC saying it was a Class II game and it was actually the Justice Department that conducted the great computer raid. And therefore once we reached the settlement agreement with the court in the Northern District of Oklahoma, the tribes were free to add additional machines and did so knowing that they had a Class II letter on MegaMania. So what I would rather suspect would happen is that current customers will continue to add this new game and our new customers that have not yet ruled MegaNanza to be a Class II game will probably let us put out one of our other substitute games out there, which we're excited about deploying. So I think that rather than a big rush of orders for MegaNanza, what this will actually do is give us a chance to roll out at the right time a variety of New-Generation games that aren't subject to this letter from the NIGC.

MR. NEREN: The last question. On the last conference call, actually on the first quarter release conference call, that is, you had mentioned new areas you were going into and can we get an update on what's happening with those areas, in particular where California stands in terms of initial orders?

MR. LIND: We had the same number of machines in California that we did at our last conference call. The California tribes that we had been working with were very active in the coalition's effort to put together not only a model ordinance, but a model gaming regulation. And now that that has been finally adopted and published, we hope that that will help the Class III tribes that did not in fact have a Class II ordinance or Class II regulation move forward with Class II gaming. It is likely that we'll get to roll out not only some of our Bonanza style bingo games, but also some of our other standard sequence bingo games that we have ready to go when the California market opens up for us. And so I hope that when we have the next quarterly conference call we have some significant progress to report not only on California. But also other jurisdictions that quite frankly, I have held the team off of accepting orders from because of one reason or another, and now at least one of those reasons has gone away. So I think we'll be pretty aggressively entering some markets that we have not been aggressive in the past.

MR. NEREN: Thank you.

OPERATOR: The next question comes from Daniel Davila. Please state your affiliation followed by your question.

MR. DAVILA: Good morning. It's Hibernia South Coast Capital. Good quarter, gentlemen.

MR. GRAVES: Thank you. - always a hard task master.

MR. DAVILA: Well, Gordon, it's our job.

MR. GRAVES: I know. But you do a great job, Danny.

MR. DAVILA: Thank you very much, appreciate that and the feeling is mutual. I wanted to know if on a quarterly basis if we're to assume then that you're going to have a similar cash build, similar or higher cash build on a quarterly basis going forward?

MR. LIND: There are not any efforts underway this next quarter or the last quarter of this year that haven't been underway for the last three quarters. So there is no significant reason why the cash build should deviate. As you know, Danny, we very aggressively modify all of our equipment out in the field to bring it up as quickly as we can to current manufacturing standards and we have that ongoing project underway, but it was also underway in the past.

In addition, many of our tribes do not have good quality electricity delivered to their site, and their play is disrupted on occasion because of voltage - electrical outages are rather significant voltage variances. So, within the scope of past expenditures, we're also undertaking projects in strategic areas to improve the quality of the power that's available to our equipment, which in turn lets the equipment play 24 hours a day more predictably. So the answer to your question is yes. The cash build up assuming no major development undertaking should stay the same.

Now, as you know, one of the reasons disclosed in the S-3 for raising this additional capital was that we have a significant number of development opportunities with tribes. We expect those to continue and we're going to have to fund those one way or the other. As Craig said in his comments, we can fund several of them internally with existing cash and accumulating cash, but if we're going to fund all of the ones that are out there to maximize our long-term earnings then we're going to have to have some additional funding needed through debt or equity and we'll keep looking at that, and those major projects are not anything that we've had in our past capital expenditure budget.

MR. DAVILA: Okay. Thank you very much.

OPERATOR: Our next question comes from Scott Gambill. Please state your affiliation followed by your question.

MR. GAMBILL: Scott Gambill, Emergent Financial Group. Good morning.

MR. GRAVES: Good morning.

MR. GAMBILL: Congratulations, I suppose. Everybody else has already had a chance to tip their hat, but I'd like to say that, too. I was hoping I could ask you guys a question, it's kind of going back, sort of going over the building of Betnet and how that is helping you guys in terms of your ability to reprogram games.

As I recall, back when you had the EverGreen game, you guys pulled that out of service. It required sort of a physical reinventory of the machines and you had reprogrammed them and shipped them out. If I understand correctly or if I recall correctly, the goal of that Betnet among other things, was to make it easier to facilitate these changes in games. As an old game got less popular you could quickly retrofit it, so to speak, by using a network. Was I correct in my understanding on that?

MR. GRAVES: Yeah. You can download the new program. If you're changing the game, you've got to go out and change the glass in the game.

MR. GAMBILL: Yeah. But everything else would be -

MR. GRAVES: The belly glass or whatever your advertising is unless it's a multiplaying machine.

MR. GAMBILL: That seemed rather revolutionary or at least innovative.

MR. GRAVES: Oh. Yeah. It is.

MR. GAMBILL: - following the stock. The question seems to be now is how much leverage does that create with you in terms of getting sales of a game that perhaps some of your customers aren't so certain about exactly what the status is going to be in two years. Do you find that to be a helpful selling tool to them? That their games would not be taken out of service in the worst of all scenarios - that we could quickly reproduce a game that does meet whatever these ultimate legal Class II determinations are going to be?

MR. GRAVES: I think so. I think it helps us.

MR. GAMBILL: Okay.

MR. LIND: Almost more important than that, Scott, is the fact that with our internal policy of purposely obsoleting our games very quickly, you know, I think the tribes, since they depend on us to operate the games, don't worry too much about the technical problems of keeping things operating or changing them. But they like the prospect of knowing that if they're doing business with us that we will aggressively put new games out there as the market changes, and they're not going to end up with competitors' obsolete games and obsolete equipment. So I think that Betnet helps us accomplish that goal of trying to give the best content to the tribes and to give new content to the tribes to bring in new players to the hall. Some of our halls feel that we have now lowered the demographics in their halls by 15 -

MR. GRAVES: The age.

MR. LIND: - the age of their average player by 15 years in the last 15 months. And so certainly the only explanation for the growth in revenue that these halls are seeing is not only that their old customers are finding the games more entertaining, but that we're bringing in more of the Generation Xers and late baby boomers to play games - that people who grew up with computers on their desk and understand computer gaming find our games more entertaining than our competitors'.

MR. GAMBILL: Great. Thank you.

OPERATOR: Our next question comes from Dave Scially. Please state your affiliation followed by your question.

MR. SCIALLY: Hi, it's Dave Scially, West Highland Capital. Thank you. Congratulations on a very, very good quarter.

MR. LIND: Thank you.

MR. SCIALLY: I wanted to ask you, this quarter could you give us the break-out of the costs of the capitalized software?

MR. LIND: Dave, I'm sorry we don't have those numbers.

MR. SCIALLY: Okay.

MR. LIND: Let me tell you, Dave, that since upgrading the content and providing new systems and having planned obsolescence of games of a year, and on systems of 18 months, we very aggressively write off all of our - as much of our software development as good accounting principles and FASB directives allow us to do. So capitalization is something that we don't do a lot of -

MR. GRAVES: Software capitalization.

MR. LIND: - software capitalization is something we don't do a lot of because of our internal goal of obsoleting our games, our content in 12 months, and our systems in 18 months. And obviously the hardware is a different issue, but you won't find - I would guess that there's less than 15%, maybe 20% of the cost at most that gets capitalized for the software and it gets written off very rapidly.

MR. SCIALLY: Okay. Thank you. And then another question that came up during this call maybe and, again, Clifton I apologize for rehashing it. If you can give us some color as to whether or not any of the new NIGC comment period had any language regarding casino Indian gambling standards for holds or anything of that nature.

MR. LIND: All of the language addressed was proposed definition changes of three different definitions that are commonly used in Native American gaming. They didn't have anything to do with addressing casino minimum accounting or compliance standards or environmental standards or any of the other things that NIGC also works with the Native American tribes on. But these definitions are key to the interpretation of what is a Class II game and what is a Class III game. The coalition of tribes as well as many individual tribes, we understand, and the National Indian Gaming Association have all submitted comments to NIGC for the comment period that closes today. And we won't know for some time unless it is announced today that NIGC has extended the comment period, what action the NIGC might take on these proposed rule changes. And the rules could either stay in limbo - they don't have to act on them - or they could adopt them as they are proposed, or they could modify the wording and adopt new wording. And it is our job and something I think we are uniquely qualified and prepared to do to quickly analyze the new rules, understand how we might have to change our games to comply with the new rules and get new games out there in the marketplace.

We also will support our customers if they choose to in some way contest the rules. So it's really just too early to say what impact those proposed rule changes might have, other than that we will promptly respond to them and bring out games that comply with the rules. And then, as we're a customer-driven company, if our customers want to substitute those [new] games for any games that might not comply with the new rules, they'll have the opportunity to do so.

MR. GRAVES: I want to add something to that, Clifton, there's a real good write up on this subject and [our] risk factors in our new offering I believe, isn't there?

MR. LIND: Yes, sir.

MR. SCIALLY: Okay. Thank you, Gordon. And lastly, do you folks have any guidance for what percentage of revenue for the year you might see from the MegaNanza, just as a general statement?

MR. LIND: Well, actually MegaNanza is only one of the family of new games. We are marketing two new games that are also Bonanza bingo style games, but they are called Count Down Bingo and Two Step Bingo; they are within the new generation of games, but we don't consider them MegaNanza.

MR. GRAVES: Although the NIGC probably does.

MR. LIND: Although the NIGC may in fact do it because NIGC's apparent concern is with Bonanza bingo games. So I think that this is a particularly timely question because what we really focus on internally is how many New-Generation games are out there as opposed to a specific game title that we have out there. So we have now crossed over to where the - as we told everybody - this is a year that we'd cross over. That the New-Generation games would be much more important to us than the Legacy games, and we have done that in spades. And, you know, probably 80% of the revenue for this year will come from New-Generation games as opposed to the Legacy games.

MR. SCIALLY: I'm sorry that just without a lack of historical knowledge, Count Down Bingo and Two Step Bingo were introduced when?

MR. LIND: We have marketed them for the last 45 days.

MR. SCIALLY: Terrific.

MR. LIND: And they are more richly featured than the MegaNanza 30 game and actually there were four different versions of MegaNanza. As you can imagine, all of our software is dynamic. We're out there doing surveys every day in halls and listening to the suggestions of the gaming commissioners. So the real advantage of Betnet is the fact that there's not just one version of game software that we put out there; we modify it frequently during the life of the game. And the big advantage that Count Down Bingo and Two Step Bingo have that the other games, the MegaNanza 30 games, did not have is these games support both local and wide-area progressives and also support richly featured player's club applications that the MegaNanza 30 game didn't. So, we were in the process of going back to all of the tribes and asking them to put in Count Down Bingo and Two Step Bingo, so that they could take advantage of these progressive features and also take advantage of the player's club features that we could not offer with MegaNanza 30. So, we are not marketing MegaNanza 30 any more in any version, although we will continue to support the tribes who are playing that software until they convert over to one of the games that has the new progressives. As you are aware, progressives and gaming are so powerful that we think that nearly all of the tribes will choose to convert to the software that supports the progressives.

MR. SCIALLY: Sure. Well, again, congratulations on a terrific quarter.

MR. LIND: Thank you.

MR. GRAVES: Thanks so much.

OPERATOR: Our next question comes from Chad Cooper. Please state your affiliation followed by your question.

MR. COOPER: Roth Capital Partners. Congratulations to the whole team on a great quarter.

MR. GRAVES: Thank you.

MR. COOPER: Just a quick question to follow up actually on the last one with respect to the New-Generation games. What percentage or what number of the $14.7 [million] EBITDA number is attributable to those New-Generation games?

MR. NOUIS: Just about 80%, 75 to 80%.

MR. COOPER: Great. Okay. Thanks very much, guys.

MR. NOUIS: That is for the most current month. That is not how the year started out. That's where we are today.

MR. COOPER: Thank you.

OPERATOR: Our next question comes from Charlie Jobson. Please state your affiliation followed by your question.

MR. JOBSON: Delta Partners. I'd like to add my congratulations as well.

MR. LIND: Thanks, Charlie.

MR. JOBSON: Just a couple of questions. On the charity market - supposing some of the laws get changed, how many placements per hall could you put into some of these larger charities that exist out there?

MR. GRAVES: You might expect the law might limit how many you can put in, but if it's market-driven rather than regulatorily limited I don't know, Clifton, you've looked at this a lot better than I have.

MR. LIND: Well, there's absolutely no question in my mind that the charity markets trends in moving to electronic bingo will not be significantly different from the trends that we've seen in electronic bingo.

MR. GRAVES: Because they have some better locations.

MR. LIND: except that they have significantly better locations. But what we'll start out with is in most jurisdictions where they don't limit it, they'll start off with a small number of machines and then as market demand grows, which we think will grow very rapidly, we think they will grow if they're not prohibited by state regulation to ratios like we see today. In many of the halls where we started out four years ago where they had no electronic bingo, now the electronic bingo stations exceed the paper bingo play. And as far as number of seats - there are metropolitan charity halls out there that are actually commercial halls that conduct charity bingo on behalf of charities. But they have 1,000 to 1,500 seats in them. And so over time if legislation and rules and regulations permit, we expect the charity market to be a larger market for us than the Class II market.

MR. GRAVES: I think one advantage we've got now, Charlie, is that with paper bingo it's real easy to - let me say with paper bingo, the charities don't make a lot of money. You go electronic bingo and you've got a perfect record of every wager that's placed. I think that we're going to see that the charities start getting a higher percentage of the dollars. And when that happens, the charities tell the story how valuable it is to them, I think that we could possibly see the regulators allowing the charities to grow substantially and see some much larger facilities out there in these metropolitan areas. But obviously [there's] lots of speculation here.

MR. JOBSON: Okay. And you expect that the charities would then play two games of bingo? In other words, your bingo game, and also, say, the more traditional bingo with a game-type player station?

MR. GRAVES: Well, I mean right now, there's a lot of states that allow you to use card-minders which are electronic repeaters that you just [use to] play the regular bingo game. And if it follows the way it's happened in the tribes, in the Indian gaming facilities, then some of the facilities will go all electronic and some of them will stay both paper and electronic and there'll be a mixture. But we'll see the electronic revenue far surpassing the paper revenue pretty darn fast once they really get going.

MR. JOBSON: Okay. The second question, the proposed casino joint ventures around Oklahoma City - from Dallas, it's about the same driving time to Shreveport and to Oklahoma City, and Shreveport's got Class III games. What percentage of that casino traffic of the new casinos would be from Dallas and do you think it's a competitive situation with Shreveport or is there plenty of market out there for both of you?

MR. GRAVES: Well, you've got to realize that at least three or four tribes have property right on the Red River. And a couple of them, in fact, I guess at least three of them, already have facilities right on the Red River. And of course right on the Red River is a lot closer than Shreveport. So right now if they had nice big facilities we'd go to "racinos" [racetrack casinos] or not I think is really the big question.

MR. JOBSON: All right. Thanks a lot.

OPERATOR: Our next question comes from Ronald Rotter. Please state your affiliation followed by your question.

MR. ROTTER: RLR Partners -

MR. GRAVES: Well, we'll teach you to go to London.

MR. ROTTER: There you go, there you go. On the hold, I don't want to talk about specific machines or anything, but just overall it appears that your first quarter hold on the new games was $175 and was I correct that you said $185 in the second quarter?

MR. GRAVES: I don't know, Ron, Clifton won't tell me any more.

MR. LIND: No. What we said we started the quarter at $185, Ron.

MR. ROTTER: Yeah.

MR. LIND: That was what the hold average [was for] the last 15 days after we had ended that significant test, the last 15 days of December after we had that significant test in that was going on in Florida.

MR. ROTTER: But you didn't -

MR. LIND: So we did not release it, and for competitive reasons we are not going to be releasing that information in the future.

MR. ROTTER: Okay.

MR. LIND: We find that coming back to haunt us out there in the marketplace.

MR. ROTTER: Okay. Without getting into the specific numbers what about seasonality? Am I correct that you've said in the past that the first two quarters are generally the weakest quarters in terms of seasonality, in terms of hold. So all things being equal, we should see that whatever number that hold was in the first half should increase in the second half.

MR. LIND: It is correct. If you're talking about our fiscal quarters, it is correct that in the past with our Legacy bingo games we have felt that we have seen a big seasonality. However, with our New-Generation games and the fact that we're attracting people of a younger age with more disposable income, we are not seeing that seasonality in our New-Generation bingo games.

MR. ROTTER: Okay.

MR. LIND: In other words, our Legacy games were in the past played by people of an average age of 65 and older. And during the back-to-school season and the Christmas season and the tax season, that seemed to have an impact on what was going on in the bingo halls. With these New-Generation games, they're being played by a younger group that has more disposable income and they do not seem to be impacted by those same seasonality factors.

MR. ROTTER: Okay. I'm just saying in the second half of your fiscal year, the warmer months, does that normally just draw more people to the tribal areas?

MR. LIND: No question about that.

MR. ROTTER: Okay. Thank you, guys.

MR. GRAVES: Thank you.

OPERATOR: Our next question comes from Leonardo Musso. Please state your affiliation followed by your question.

MR. MUSSO: Hello. I'm a stockholder. Hello, gentlemen.

MR. GRAVES: How are you today?

MR. MUSSO: Very good.

MR. GRAVES: Good to see you back today.

MR. MUSSO: Well, I have a lot of questions, I hope you'll bear with me.

MR. GRAVES: Sure will.

MR. MUSSO: Okay. This time I wrote them down so they won't slip my mind. Last week's volume in MGAM - according to the Wall Street Journal, [you have] about a 10 million float, and last week's volume approximated that.

MR. LIND: Yeah. We thought that you must have sold all of your shares.

MR. MUSSO: Actually I was buying frantically. Well, do you care to comment on that?

MR. GRAVES: Only to say we don't know. We don't know what's happened. I mean you're right, it's kind of mind boggling that we had that much volume. And I guess one thing you could speculate is that there are a lot of people out there that bought and sold and bought and sold and rubbed this thing up and down, but we're just not smart enough to figure it out. When we get numbers from shareholders one of these days, we'll probably be able to figure it out and get an update on that, but right now unfortunately we don't know any more than you do. It looks like a heck of a lot doesn't it?

MR. MUSSO: It sure does, I mean it's almost extraordinary.

MR. GRAVES: Yeah. It is extraordinary.

MR. MUSSO: Yeah. [That] the entire float should turn over in one week.

MR. GRAVES: I think we probably got some new investors, by the way. Obviously, it looks like we've got some new investors.

MR. MUSSO: It's my feeling that publicity, whether it'd be negative or positive is good in the long run. It certainly puts the company in front of the public eye.

MR. GRAVES: Well, it's kind of hard to feel that that's the case at the time, but you're probably right.

MR. MUSSO: Going from the biggest gainer in the NASDAQ for the year to the biggest loser one day, you know -

MR. GRAVES: At least we got notoriety.

MR. MUSSO: The more publicity the better.

MR. GRAVES: Well, it put a spotlight on the fact that we've got a heck of management team. We've got a lot of talent here and I think it put a spotlight on that. There was some great planning that had taken place and there was some great execution.

MR. MUSSO: I agree wholeheartedly. Now would you care to comment - can I call you Gordon?

MR. GRAVES: Please do.

MR. MUSSO: Gordon, would you care to comment on the fact that the First Call consensus estimate for the quarter was 37 cents a share while your internal estimate was 33 cents a share and how are these guys outguessing you on the upside?

MR. LIND: Since I'm going to get blamed for that, this is Clifton, let me answer that. It was and is our belief that as we saturate the Oklahoma marketplace, which has been and remains our primary marketplace, that we will see revenue per share drop. In addition, we had just ended a very successful test in Florida of our equipment where a very small number of machines had significantly altered our hold per machine during the fall quarter, which is our first quarter. And therefore, we thought that taking out the impact of that and with the very aggressive machine placement we did in the last 15 days of December and in January, that the impact of those heavy placements in the marketplace was going to drive down the average hold per machine -

MR. GRAVES: In fact, it did when we first put them in, right?

MR. LIND: - and it initially did in the month of January. However, again, our surveys of our halls indicate that in February and March, we brought in a significant new group of players with younger demographics into the halls and the hold per machine was much larger than we forecasted it to be. And at least as long as I am Chief Operating Officer, if we're going to miss our numbers, we're going to miss them by exceeding them. And I have in our forecast for the future a continued downward trend.

Now the content team, Skip Lannert and Brendan O'Connor and Jeff, and Joe, and Bo and the group that are out there trying to bring us exciting new content, their goal is to prove me wrong and to prove that they can put out better content than the competitors and they can keep the hold up. And I hope that they're right and that I'm wrong again, but this company is more significantly impacted by a few dollars' variance in the hold per machine than we are by any other variance. I mean it almost doesn't matter what we do with overhead. It almost doesn't matter what we do with machine placements. If we do an extraordinary job on the hold per machine, we will consistently exceed our projections.

I think that the analysts have gotten to know that I put a lot of pressure on Gordon to be conservative in these projections, that I put a lot of pressure on Gordon to make sure that if on balance more unexpected bad things happen during the quarter than unexpected good things happen during the quarter, that we're still not going to disappoint the marketplace. So I feel that the appropriate thing to do is to be conservative rather than to be overly aggressive and hopefully I am the one whom Gordon and you will be blaming next quarter for the same thing.

MR. MUSSO: Listen, you know, this is my second teleconference and I'm already getting the gist that everyone here is very conservative which -

MR. GRAVES: Well, I'm not, but they just won't let me say much.

MR. MUSSO: Okay. Well, I'm going to put you in the spotlight because I have a question that's going to put you in the spotlight.

MR. GRAVES: Okay.

MR. MUSSO: All right. Now in relation to that hold, that brings up another question, I know in Las Vegas or let's say Nevada as well as Atlantic City -

MR. GRAVES: Uh-huh.

MR. MUSSO: - the law specifies. Now you keep talking about games, but you also have a lot of slot machines and I assume when you keep talking about games you're talking about the bingo.

MR. LIND: We have player stations, we don't have any slot machines.

MR. MUSSO: Is that what they call them - player stations?

MR. GRAVES: Yeah. We've got player stations that play interactive electronic bingo games, and electronic video lottery games.

MR. MUSSO: Okay. I was in a slot hall I would call it in New York State where there were plenty of games that looked like electronic slot machines to me.

MR. LIND: Those were bingo games that have as an alternative face an entertaining spinning reels display.

MR. MUSSO: Okay. All right.

MR. LIND: You can choose to play only the bingo card or you can choose to see the bingo card and the spinning reels.

MR. MUSSO: Okay.

MR. LIND: And we don't care whether they're spinning reels or dog races or horse races or canoe races, there's a lot of ways to show outcomes in an entertaining fashion.

MR. MUSSO: Okay. And what do you call those things once more?

MR. LIND: Electronic player stations.

MR. MUSSO: Okay. The electronic player stations.

MR. GRAVES: We call them EPSs because they make EPS.

MR. MUSSO: To get back to that question -

MR. GRAVES: You're saying they have a law and a regulation in the Nevada and in New Jersey having to do with something to do with their electronic player stations which aren't. You know, most of their electronic player stations do have video slot gates.

MR. MUSSO: What I was referring to by law in those two states was the hold. It's not the hold, but the payouts on these machines must be at a minimum of, say, 85%.

MR. GRAVES: Uh-huh.

MR. MUSSO: [For] every $100 that goes into that machine, $85 has to come back. And it can be set higher, but the minimum, for example, is 85%. Now on these machines whatever you might call them -

MR. GRAVES: Yeah.

MR. MUSSO: - on the Indian reservations are there any regulations to that effect?

MR. GRAVES: See, each tribe has their own set of regulations and some tribes probably do, but all of our New-Generation machines are over 90% payout. And some of the older Legacy machines were as low as 85%, but this is an interesting question because if you get the games where they're fast, approaching the speed that you see in Vegas and Atlantic City with their games, if you get that speed fast then the more you pay out in prizes, the higher that percentage payout, and the higher the daily hold. So essentially the volume, as you raise the payout, the volume of play gets higher and you make more money. So it's the price elasticity thing that we all teach when we take macroeconomics and it just works like a charm here. Is that clear?

MR. MUSSO: Oh. Sure. And eventually you just keep feeding that money in whether the payout is 98%, and it's all gone.

MR. GRAVES: Well, yeah. The way I think you've got to look at it is these player stations really are being rented to the players for their enjoyment and they're going to spend $30 or $40 an hour or some amount like that to play the games. That's the average amount they're going to lose. And some guy will typically - you get about 30%, you know, these are some factors that are important in game design, but typically if the players play an hour you'll get about 30% of them to walk away winners. So that's kind of the key. That you go up there and sometimes play where you walk away winners and when you do play, are you going to lose an average amount, how much you going to lose, that makes a difference, and of course this is different for different market segments that you're going after with different games. I've lost where I was going on this, but I think I've already told you more than I know.

MR. MUSSO: No. That's fine. I just wanted to get a picture.

MR. GRAVES: Did that give you a picture?

MR. MUSSO: Absolutely. But I lost a lot more than $30 an hour.

MR. GRAVES: I see. Well, I don't know which game you were playing -

MR. MUSSO: All of them.

MR. GRAVES: Some of them have some strategy and some of them don't. I don't know what the average right now is. The average overall on MegaNanza is - I don't know really what it is.

MR. MUSSO: Okay. That might even be proprietary information -

MR. GRAVES: It is a little bit. It is getting into a little bit of detail. But that's the key, you know, some games are better than others, is figuring out that right combination of payout, the speed of the game and how dramatically and artistically you're going to show the results of that game, and those are the key factors: speed, payout, and how artistically you can show the results.

MR. MUSSO: Okay. I'm glad you made that point, because I have a few comments that I won't mention now about the artistry of this. Now the other question I have is on these games - do you actually invent them yourselves or do you license them? I know you license some machines -

MR. GRAVES: Both ways. Both ways. We do both.

MR. MUSSO: Okay. Good.

MR. LIND: The majority of the games we run are our own games. However we license from others as well.

MR. MUSSO: Okay. So you design the game faces -

MR. LIND: That is correct. The pay tables and the animation and all of the attributes of the game, we do that as well as replicate ones that we license from other suppliers.

MR. MUSSO: Okay. Here's my final question and I'm putting you on the spot, Gordon.

MR. LIND: I'm so glad you said Gordon.

MR. MUSSO: You're Clifton?

MR. LIND: I'm Clifton.

MR. MUSSO: Right.

MR. GRAVES: He's the one with the bad answers. I'm the one with the good answers.

MR. MUSSO: Who is the gentleman, sorry if I missed it, who gave the $1.75 new guidance?

MR. LIND: That was Gordon.

MR. MUSSO: Okay. Gordon, I thought so. Gordon, the way I read the earnings, which I might say everyone complimented you on how good they were, but I would call it a blow-out quarter. I don't think their adjectives were strong enough.

MR. GRAVES: Thank you very much.

MR. MUSSO: There was a little bit of an extraordinary gain this quarter from some machines that you sold outright.

MR. LIND: We would not consider that an extraordinary gain. That is about the level of Class III machine sales that we would expect for the next two quarters.

MR. MUSSO: Okay. So you came in at 14 cents above your guidance for the quarter. 14 times 3 added to $1.33 is exactly $1.75. Are you saying to me right now that that $1.75 is a very conservative figure?

MR. GRAVES: If I say that all these guys in this room are going to beat me up. It is it's hard for us. What can I say? As I said, we've got some uncertainty out there and I guess you always do and you always think you've got more uncertainty than anybody else. But I think what we said is probably about as much as we ought to say.

MR. MUSSO: All right. That's fine, although I think it's conservative.

MR. GRAVES: Clifton left the room by the way, I wish he was here to hear me say that. I'm just kidding. Thank you very much. We appreciate your support by the way.

MR. MUSSO: Okay. I'm done.

MR. GRAVES: Thank you.

OPERATOR: Our next question comes from Jeff Martin. Please state your affiliation followed by your question.

MR. MARTIN: Thank you. Jeff Martin, Roth Capital Partners. Good morning, Clifton. Good morning, Gordon.

MR. GRAVES: Good morning.

MR. MARTIN: A couple of quick questions for you. Are you assuming any charity revenues in the second-half of fiscal '02 and if not, when do you anticipate them in fiscal '03?

MR. LIND: We do not assume any in fiscal '02 and we'll be strongly disappointed if don't have it by the second fiscal quarter of '03.

MR. MARTIN: Okay. Could you give us an idea of what percentage of revenues might be during that year?

MR. LIND: Very small. Very small.

MR. MARTIN: So less than 5%, less than 10%?

MR. LIND: Less than 5%.

MR. MARTIN: Okay. Great. And could you also give us an idea of what you expect the third quarter, fourth quarter revenue break downs to be? Is that, say, a percentage of the total second half? I'm just trying to get an idea, because on your first quarter call, you'd mentioned that the fourth quarter is typically down from the third quarter.

MR. LIND: Yeah. We had sort of been having some extraordinarily quarter-to-quarter growth here in revenue as we rolled out New-Generation games and replaced Legacy machines with the New-Generation games. Obviously we've gotten the base so large now in New-Generation games that you're going to see a dazzling effect go into place. Unless we install major new jurisdictions, we're not going to show that kind of quarter-to-quarter growth until we get into new markets. So we expect rather nominal growth from the third quarter to the fourth quarter, you know, just reflecting the addition of 200 plus machines a month. And if you add that to the base of machines that's already out there, from a percentage standpoint that's not a tremendous growth. But we're all going to be disappointed if we don't do an extraordinary job and -

MR. MARTIN: Okay. And you also had mentioned that you anticipated a 25% decrease in the holds from the first quarter to the end of the fiscal year. Would you anticipate such a decline from the second quarter now?

MR. LIND: No.

MR. MARTIN: What kind of decline are you figuring in?

MR. LIND: We expect it to be more moderate and to - we have changed our model to anticipate that a decrease is at a smaller rate than we had in there in the past.

MR. MARTIN: Okay. Would you be still anticipating a double-digit percentage decline -

MR. LIND: Over the -

MR. MARTIN: - extremely moderate.

MR. LIND: The last six months, I think it would be reasonable to anticipate a very small double-digit decline.

MR. MARTIN: Okay. Great.

MR. LIND: The total.

MR. MARTIN: The final question. Where specifically was the suit filed against the NIGC, was that in Oklahoma?

MR. LIND: In the Northern District of Oklahoma.

MR. MARTIN: Okay. And do you know the judge assigned to that case?

MR. LIND: That has been assigned to Judge Kerr.

MR. GRAHAM: No. Excuse me, Clifton, this is Tony, it's been assigned to Judge Paine.

MR. LIND: Paine, I'm sorry, Tony. Thank you for correcting me.

MR. GRAVES: But Judge Paine was involved in the MegaMania case as a mediator of some type I believe. Was that right?

MR. MARTIN: He is familiar with that case, then.

MR. LIND: He is familiar with the MegaMania case.

MR. MARTIN: Yes.

MR. GRAVES: It's the whole question of Class II versus Class III -

MR. MARTIN: Great. Thank you very much.

OPERATOR: Our next question comes from David Ehlers. Please state your affiliation followed by your question.

MR. EHLERS: Las Vegas Investment Advisors. Guys, congratulations on not only an excellent quarter, but a quarter that I'm sure many of us feel it was virtually impossible to attain. If somebody had asked me how your cash would have gotten to $17.5 million, I would have said there was simply no way. So it's really a phenomenal job and I'm sure everybody very much appreciates the tremendous efforts that you made getting the company there.

I just have one question. I noticed that the net win per day per New-Generation machine was [based on] an average number of 2,191 games outstanding, and this quarter appears to be about 2,282. Am I correct in assuming that that number is exactly 30% of your gross win or your share of the gross win per day during the quarter?

MR. LIND: On the New-Generation, that is correct.

MR. EHLERS: Are you surprised that it came in this way? It would have seemed to me like particularly in view of the inclusion of the Florida numbers in the December quarter it's really surprising that this number came back by almost 4%.

MR. LIND: Yeah. Dave, as we said in responding to the question about why was our former guidance was low, the answer was that the earnings per day per machine were much higher than we had anticipated.

MR. EHLERS: Well again, fellows, on behalf of a lot of grateful shareholders an absolutely unbelievable quarter, congratulations.

MR. GRAVES: Thanks, Dave. You know that means a lot to us.

MR. EHLERS: Keep up the good work, guys.

OPERATOR: Our last question again comes from Daniel Davila. Please restate your affiliation followed by your question.

MR. DAVILA: Hibernia SouthCoast Capital. Gordon, I didn't have another question, but I thought I heard you say for me to get back on the line.

MR. GRAVES: That's right. That's exactly right. I didn't want you to hear Clifton say that he was conservative.

MR. DAVILA: Okay. I heard that, thank you.

MR. GRAVES: Well, we really appreciate everybody's support and we'll talk to everybody soon.

OPERATOR: Ladies and gentlemen, that concludes our conference for today. Again a rebroadcast of this call will be available starting today, April 22 running through April 29th until 11:59 p.m. Eastern Time. To access this rebroadcast, you will have to dial 1-800-428-6051, international dialers 973-709-2089 with a pin number of 238805. Thank you all for participating and have a nice day. All parties may now disconnect.

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