Multimedia Games, Inc.
HOST: Ms. Julia Spencer
DATE: July 24, 2002

OPERATOR: Good morning and welcome, ladies and gentlemen, to the Multimedia Games Third Quarter Earnings conference call. At this time, I would like to inform you that this conference is being recorded for a rebroadcast and that all participants are in a listen-only mode. If you would like to access the rebroadcast, for domestic callers please dial 1-800-428-6051 with pass code 252691. For international callers please dial 1-973-709-2089 with pass code 252691. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to your host, Ms. Julia Spencer. Ma'am, you may begin..

MS. SPENCER: Good morning, everyone, and welcome to Multimedia Games’ Third 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 September 30, 2001, which are incorporated herein by this reference.

Now I'd like to now turn the conference over to Gordon Graves, our Chairman of the Board and CEO. Gordon?

MR. GRAVES: Thanks, Julia. For the past 11 quarters we've made a profit. There's a lot of ways to look at that -- what that percentage increase per quarter has been. But one way to look at it is in terms of the same quarter earnings growth year-to-year. That average has been somewhere 140%. This quarter we did a lot better than that.

Before the write-off of 3 cents per share of expenses associated with our discontinued equity offering, we made 50 cents a share. Including that one-time charge, it was 47 cents per share. Even the 47 cents per share represents 194% growth over the fourth quarter last year, and that exceeds the goal that we set for ourselves at the end of the second quarter by about 6%. The quarter’s performance is particularly impressive in light of the lost revenue and the unexpected expenses that resulted from the way the National Indian Gaming Commission challenged the legality of our most successful New-Generation bingo game, MegaNanza.

We had a good contingency plan in place, and the staff executed that plan very, very well. Because of the particular ways the NIGC challenged MegaNanza, we and a number of tribes went to a federal court and requested a temporary restraining order. The court has not yet decided whether they're going to let tribes get into the lawsuit, but they did grant us a preliminary injunction, which is probably even stronger than the temporary restraining order, and it enjoins the NIGC from taking any further action against MegaNanza at this time.

Consequently, we've been able to continue to install more than 600 New Generation player stations per quarter. And we continued to [do that] this quarter. Craig's going to talk about those in a little more detail here in a few minutes. Most of these new installations are running MegaNanza.

Of course, you never know for sure what's going to happen in a lawsuit, but our past victories in court regarding the legality of our bingo games, the resulting case law coming out of those cases, the new NIGC regulations clarifying what is an allowable bingo game, and the quality of our litigation team, leads us to believe or me to believe and expect that the courts will probably rule eventually that MegaNanza is a legal game.

Nevertheless, there is uncertainty, and that's one of the main reasons we developed and have introduced Reel Time Bingo. Reel Time Bingo, as most of you know, is an electronic bingo game that eliminates that attribute of MegaNanza that was challenged by the NIGC. And we now have more than a thousand Reel Time Bingo games deployed, mostly replacing MegaNanza games which one major tribe was running previously.

Some Reel Time games have been also installed by other tribes as well. Players appear to like the game and hold levels are improving. It normally takes about 60 days for a new game to reach its full earning potential. We don't know exactly how long it'll take us here, but we're optimistic that that time is the general time frame. We do need to speed up the play rate on the game some to reach our goal and I think we know how to do that and we're in the process of doing it as we speak.

We're making good progress on our New York Lottery project and we're optimistic about starting to install a significant number of new bingo player stations in states other than Oklahoma in the near future as well as continuing to increase our player station population in Oklahoma.

Before I hand this meeting over to Craig and Clifton to give you more details, let me say that I think we had a great quarter. I think our people did a great job. I think our customers responded well. I think our outside support staff did a great job and I'm real proud of the performance we've had. Craig?

MR. NOUIS: As Gordon had mentioned, our fully diluted earnings per share for the third quarter of fiscal 2002 was 47 cents per share, a 194% increase over the same quarter in the prior year. I just want to make sure everyone is clear that the offering cost of 3 cents per share was written off during the quarter just as Gordon described. Gross revenues for the quarter were $78.6 million, compared to $35.4 million in the same quarter last year. EBITDA for the quarter was $14.9 million, compared to $6.2 million in the same quarter in the prior year. These increases really are primarily the result of placing our Class II player stations at the rate of our guidance of 200 units per month during the current year.

For the nine months ended June 30,2002, the diluted earnings per share was $1.27, compared to 31 cents for the same nine-month period in 2001. This represented an increase of 310%. This was all based on gross revenues for the nine months of $213.5 million, compared to $84 million for that same period in 2001.

During the last quarter, consistent with our guidance, we installed over 600 new Class II machines. That means 828 MegaNanza or Reel Time Bingo stations were placed and we removed a total of 202 Legacy player stations. As of June 30, 2002, there were 3,579 MegaNanza units, 1,024 Reel Time Bingo units, and 2,472 legacy player stations in place.

In addition, in our Class III video lottery market, we placed 220 units. Therefore as of June 30, 2000, we had 2,093 units installed in the State of Washington. As we had anticipated and disclosed on numerous occasions, the old player stations have continued to decrease during the quarter as we continued to place additional machines. We will continue to install additional player stations until we have an optimal number of units in each of the customers’ facilities. The decrease in hold in the current quarter was also due in part to a temporary decline that occurs whenever new games such as Reel Time Bingo are introduced. Historically, this decrease improves over time as players gain a great familiarity with the new games and as the new player stations are added to the network.

As we stated in our conference call on July 5, 2002, our guidance for fiscal 2002 for diluted earnings per share was $1.60 to $1.70, excluding the 3 cents per share impact of the write-off of the offering cost. Based on our current estimates for the placements of new units and for the hold per player station, we now estimate that diluted earnings per share will fall into the upper end of that range, which includes our 3 cents write off for the offering cost.

Finally I'd like to say that we have addressed all of our Oklahoma state tax issues that we had and we had all those tax returns filed and we're current in terms of the taxes that we owed to the state.

That's really all I have for right now. Clifton, I'd like to turn it over to you.

MR. LIND: Thanks, Craig. As Gordon mentioned, Reel Time Bingo, our newest standard sequence bingo game, has been successfully implemented and is now being played in Oklahoma and Nebraska, and will soon be played in two additional states, which, for competitive reasons we will not identify until those games are operational.

Also, as Gordon mentioned in his remarks, we are very pleased to report that we continue to install electronic player stations at the forecasted rate of 200 net units per month, and expect to meet or exceed that rate for the foreseeable future. This is most significant because of the legal and regulatory challenges encountered in the third quarter. We are grateful to our loyal customers and our hardworking staff who stood together during these tough and uncertain times to continue to deliver exciting games to customers of tribal gaming halls and casinos.

In September, we will begin releasing our next generation of gaming software, which we call Gen IV, at our Class II locations. In October, we will release Gen IV at our Class III locations in Washington State. The Gen IV system is the core of the central system that will be installed for the New York Video Lottery System. This fall, we will also release additional standard sequence bingo games.

As Gordon mentioned, the New York Lottery is currently in the middle of an administrative process. Assuming this process is completed in our favor and the contract award to MGAM is affirm, MGAM expects to begin contract negotiations with the New York Lottery shortly thereafter. In anticipation of the successful contract negotiations we have hired a few key individuals related to our New York Lottery staffing plan.

Specifically we are pleased to announce that Ted Tullos, currently GTECH director of operations for Texas, will soon join MGAM as a project manager for the technical implementation of the New York Video Lottery System. To date, I'm pleased with our progress on the New York Lottery project.

In other personnel-related matters, we have augmented our test systems database and game development staffs and we are confident that we can simultaneously implement new systems and games for multiple markets.

On the regulatory front, we believe the new NIGC rules that went into effect last week will bring additional clarity to the definitions governing Class II games in the Native American market. Further, we believe that the NIGC's recent decision to rescind previously proposed guidelines regarding classification of gaming will further support tribal sovereignty and tribal authority to run self-regulated Class II gaming.

In our lawsuit against the NIGC, which continues to move through the U.S. District Court in the Northern District of Oklahoma, our legal counsel has advised us that it is unlikely that this case will be resolved quickly. It would not be unusual for this case to take 18 to 24 months to get through the system.

We are also dealing with an action initiated against MGAM by the Oneida Tribe concerning alleged patent infringement in the State of Washington. We are told that it could take up to two years to resolve this dispute. As holders of a number of patents ourselves, we take intellectual property challenges very seriously. However our extended legal team and we are very confident in our position and as most of our investors are well aware, the outcome of this litigation is inherently unpredictable.

MGAM's team has never been more enthusiastic about the future of our company. We have not wavered in the execution of our strategic plan for this year, which encompasses developing products for new markets and beginning the implementation and distribution of those new products. We are pleased and excited to expand our current business model to include new sources of recurring revenue from new markets, and are excited about the new products we are developing to serve those new markets.

In closing, on behalf of the Board of Directors, I wish to thank our management team and the entire staff for their outstanding performance during these interesting times. Equally important, we wish to acknowledge the support of our many investors who while not excited about the current market dynamics are excited about the transition that we are in at MGAM to expand into new markets and to obtain new sources of revenue.

With that, I'll turn it back over to Gordon who will open this up for additional questions.

MR. GRAVES: Thanks, Clifton. So at this time, I would like to take questions. We'd like everyone to limit themselves to one question if possible. So I'd like to open that up now.

OPERATOR: Thank you. 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 Dave Scially. Please state your question.

MR. SCIALLY: Hi. I want to know if you can give us the cap[ital] ex[penditures] in the quarter and a break down of the cap ex?

MR. NOUIS: Yes. Let's see, capital expenditures for the third quarter was right at $11 million.

MR. SCIALLY: And can you give us some color as to what the $11 million was spent on?

MR. NOUIS: Primarily spent on the player stations -- that is the majority of that.

MR. SCIALLY: And then secondly, how many shares were repurchased in the last quarter?

MR. NOUIS: There have not been any stock repurchases during the past quarter.

MR. SCIALLY: Thank you. Congratulations as well.

MR. GRAVES: Thanks so much.

OPERATOR: Thank you. Our next question comes from David Bain. Please state your question.

MR. BAIN: Great quarter, guys. With the cash balance right now do you have any near-term plans? I mean you're close to $20 million.

MR. GRAVES: We think we're going to need to use a lot of that for the New York Lottery project.

MR. BAIN: Okay.

MR. GRAVES: As you know, we have some other opportunities and so we anticipate that we'll have opportunities where we can use a high percentage of that. And we might even need to get more capital to fund some of these projects that we are going to need, but we don't think we'll be doing that with equity --

MR. BAIN: Uh-huh.

MR. GRAVES: -- this time.

MR. BAIN: Okay. And can you speak a little bit to some of the methods you used for increasing the hold? I know you mentioned speed. Are there other ways to kind of increase the hold --

MR. GRAVES: I think that's the most important thing right now. By far, that's the most important. I mean, obviously you've got to continue to make sure that the games are as attractive as possible and entertaining as possible. But I think the main thing is --

MR. BAIN: Okay. I have just two more quick questions. I was hoping we could get an update on the charity market, or maybe you guys could talk to the regulatory hurdles there? And also California's renegotiating gaming compact in March -- what your outlook is there.

MR. GRAVES: Clifton, you want to answer both of those questions.

MR. LIND: Sure. Dave, as you know, the charity market is driven by required changes in each state in a rule, a regulation, or a law, unlike Native American gaming, where there is a uniform rule that applies throughout all of the states. Each individual state sets its own bingo law and its bingo rules and its regulations.

We are working in about eight to ten states right now to effect changes in rules, laws, or regulations that would enable us to use our linked interactive system to play charity bingo games. And we're pleased with the progress we're making in some jurisdictions. As you have come to understand, sometimes it takes three or four or five years to get a rule or law or regulation changed because there is always a group that feels it's a zero sum game and they're going to be affected negatively by the change in law. So there are some jurisdictions that have not grown as fast as we had thought, but there are other jurisdictions that are developing faster. And so as I said in my earlier comments, we have developed some new products for the charity bingo market, and we're in the process of implementing those. In some of the locations we’re getting close. We feel that getting a rule or a regulation or a law change will let us play [in] those [locations]. So we remain very optimistic about the installation of MGAM products in charity bingos shortly after the end of this fiscal year.

In relation to California, we believe that Class II gaming will play a role in California. It will play a role in the Compact negotiation, but it is clear that that market will remain primarily a Class III state. But there is room in a number of facilities if the current cap stays in place for Class II gaming, and we're in discussion with several tribes right now about the implementation and possible contracts for games for that marketplace. And as we said earlier, we will report any installations at the time we turn them on, so that we don't lose the competitive advantage in any of the negotiations that we're involved in. But we remain hopeful about the California market.

MR. BAIN: Well, once again, congratulations on a good quarter, guys.

MR. LIND: Thanks.

MR. GRAVES: Thanks so much. Let me add one thing to that and that is that even if the quota on the number of -- limit on the number of Class III machines that tribes can have increases as some people anticipate it will, I think we'll still -- that Class II will still play a big role and it'll still be a big market for Class II machines in California.

MR. BAIN: -- demand out here for them I can tell you that.

MR. GRAVES: All right.

OPERATOR: Thank you. Our next question comes from Ronald Rotter. Please state your question.

MR. ROTTER: Guys, I also wanted to say great quarter especially in light of all the disruptions you had with the NIGC. Could you discuss, I'm sure you had significant legal costs in the quarter. Were they all expensed in the quarter and can you qualify what they were?

And then secondly, can you say has there been any change in the composition of the members of the NIGC? And then thirdly in talking about use of capital and needs for capital, with the stock down here at these levels is there any thought to utilizing capital to buy back stock?

MR. GRAVES: Craig, if you'd answer that first question about legal costs.

MR. NOUIS: In terms of quantifying I will say I don't have the total legal costs in front of me though I do -- it was considerably higher than normal over the past quarter.

MR. ROTTER: More than a million dollars?

MR. GRAVES: No.

MR. ROTTER: Yeah.

MR. NOUIS: No. No. No. But to answer your question, they were all expensed during the quarter. Nothing was capitalized.

MR. ROTTER: Okay.

MR. GRAVES: So the NIGC composition.

MR. ROTTER: Right.

MR. GRAVES: I don't know whether any of us know for sure exactly what that status is. Obviously all three of the members of the commission -- their terms are essentially up or have been up and we're expecting new ones to be appointed and exactly what that status is at this very moment I don't think we really know. Clifton has probably got more insight than I do on that issue.

MR. LIND: One commissioner has left the office, so the chairman and one other commission remain in the office at this time. There have been no confirmations of any appointments at this time, so the commission is down to a two-commissioner commission at this point and time, Ron.

MR. ROTTER: Right. And then the final question is the thought about the utilization of capital to be buying back stock at these levels.

MR. GRAVES: Well, on that issue let me just say that the Board of Directors has authorized management to buy more stock if they think it's appropriate to do that. We're looking at that at the present time and we haven't made a decision on that, Ron.

MR. ROTTER: Okay. Great. Terrific quarter.

MR. GRAVES: Thank you.

OPERATOR: Thank you. Our next question comes from Stephen Mittel. Please state your question.

MR. MITTEL: It's very interesting -- by the way, nice quarter. It was very interesting you were just talking about the repurchase of shares and that the Board of Directors has given you the okay, but you have not made a decision. My question is involved in that also. If you did repurchase shares at this level, what would be the amount of money you would spend on that? Would you use up all your cash or a percentage of your cash or what would be the maximum amount and has the Board said you can go over by borrowing money?

MR. GRAVES: You know, I don't think it's appropriate for us to get into that type of detail. We're not going to spend all of our cash to buy back stock, I don't think. You never know what might happen tomorrow, but I don't think we will. But I don't think it's probably appropriate for us to try to speculate any more than that.

MR. MITTEL: Okay. Well, thank you very much. You know, it seems the stock is really cheap at this level and I thought the company would be out there purchasing stock.

MR. GRAVES: You know, obviously, the value of the stock is a function of the risk and the return, and everybody's got a different profile for that. And we've got to look at it in terms of the use of other funds and our long-term growth and where we want to be, which will have an impact on the risk to change the risk and obviously we've got to take all that into consideration, and I think we're doing a good job of that.

MR. MITTEL: I think you're doing a fantastic job.

MR. GRAVES: Thank you so much.

OPERATOR: Thank you. Our next question comes from Kenneth Green. Please state your question.

MR. GREEN: Yes. Great quarter, Gordon.

MR. GRAVES: Thank you so much.

MR. GREEN: My question pertains to Reel Time Bingo vis-à-vis MegaNanza, the speed-up process, profitability, how far you're going to go with this? Is it a comparable game to MegaNanza? And what makes you feel that it will remain a Class II game if there's some question about MegaNanza? What's the difference between the two games that makes you --

MR. GRAVES: The primary difference between the two games is that for MegaNanza, the cards are sold after the ball draw. With Reel Time Bingo, the cards are sold before the ball draw, and that was the main focus of the NIGC's opinion letter of the assistant head attorney there. That was her main concern. So it eliminates that attribute that they found and felt like was not appropriate for a Class II game. And so it gets rid of that.

I think that my -- I see no technical reason and no legal reason that Reel Time Bingo shouldn't be just as profitable as MegaNanza. I don't know exactly how long that's going to take, but I said, typically it takes 60 days to get a game running up to expectations. It could be a little longer than that. It could be a little shorter than that, but I feel optimistic we're going to get there and it's going to be just as good in a couple of months.

MR. GREEN: Does it employ the same type of presentation to the player --

MR. GRAVES: Yes.

MR. GREEN: -- as with before?

MR. GRAVES: There's a little difference. But by getting out there and getting feedback from the players, we get the feeling that those changes in terms of presentation aren't having any negative impact on the players, and it's completely acceptable. And it's primarily a matter of letting people play faster that like to play faster.

MR. GREEN: Right. And why is the speed not up to it? Is it just unfamiliarity with the game?

MR. GRAVES: Basically, if you don't run the game until you're through selling cards, then you've got a longer wait period.

MR. GREEN: I see. And --

MR. GRAVES: And that's really a queuing problem.

MR. GREEN: So you can speed it up, but it won't be as fast as MegaNanza was.

MR. GRAVES: Oh. I think we'll see it -- my feeling is we'll see it as fast as MegaNanza.

MR. GREEN: Okay. So [with] technology, you can solve that issue, you're saying.

MR. GRAVES: I feel real confident that we can --

MR. GREEN: So the bottom line being, and I don't want to sum it up for you, but correct me if I'm wrong, if you have equal acceptance of this and equal play of this assuming that that will happen, the ruling is moot at this point and time. Whichever way -- you'd love to win it, but you don't have to win it.

MR. GRAVES: What should we say to that?

MR. LIND: Let me take that, Gordon, if I can.

MR. GRAVES: All right.

MR. LIND: As you are aware, we've had three Native American tribes who have attempted to join us in this lawsuit, and the issues that you've just discussed really are joint issues that affect our tribal members as well as us and lead over into tribal sovereignty and self-governance of the game. And, you know, our view of the question you just asked and the collective view of those in the tribes is something that we've just agreed with the tribes that we will not make public comments on --

MR. GREEN: I understand.

MR. LIND: -- it's in process.

MR. GREEN: -- financially at this point and time, if in fact what I stated is true is a possibility? You don't see a great financial impact to us as the shareholders if in fact it goes either way. Psychologically, most certainly you have an impact because you both want to do business in self-governance here without having bad legal opinions put against you by a small group of people. But, you know, financially is what I'm talking about.

MR. GRAVES: I think it's a short-term problem until we can get Reel Time up to doing as well as MegaNanza

MR. GREEN: Very good. Thank you.

MR. LIND: And further, in response to -- as we announced, we are also going to release additional standard sequence bingo games in the fall, and so it's not going to be just a question of Reel Time, but we'll have a stable of games that are linked interactive conventional-sequence games for our customers to come and play and [that] offer diversity to their players in a variety of presentations and games. So there are a number of components that support the statement that you just made.

MR. GREEN: All right. And then Gen IV differences, you know, in this entire technology operating system. Is it a quantum leap in software upgrades, or is it just an evolution?

MR. LIND: I believe that it is -- speaking as a banker who loves to fancy himself as being a technologist, I will say it is a quantum leap. This gives us the flexibility to deploy multiple game engines at a moment's notice without having to rewrite code. This is an even higher level of modularity than we have existing in Gen III, and significant upgrades in the database component of the operations. So it's a very significant operating increase and much more than just a face lift.

MR. GRAVES: Let me add something to that. When Clifton is talking about the gaming platform, it might be worthwhile to talk a minute about the game outcome determination process. We've now got a system with Gen IV, we'll have a system where it's I think easier for us than for anybody else to change the game outcome determination process, where that can be a bunch of gears that are turning slot wheels or that can be a random number generator or that can be a video lottery set of fixed chances, or that can be a bingo game or that can be --

MR. LIND: A keno game.

MR. GRAVES: Or that can be a keno game or that can be a skill game. But that game outcome determination process we can easily change and keep the power of the game -- of the outcome display, how it's presented and how entertaining it is to the customer, we can keep that at the same level and put [on] any of those different front game outcome determination processes. Is that clear what I'm saying?

MR. GREEN: Yeah. I want to try to rephrase it. Multiple gambling positions can be controlled and you can change outcomes if the operator of the system wants to change the outcome at multiple positions at the same time. And you can get data from those multiple positions for marketing purposes and other things?

MR. GRAVES: We can do that, but my real point is that the classification of games for different jurisdictions is normally written, in terms of rules for classification, they are normally written in terms of, “How does the game outcome determination process work?”

MR. GREEN: Right.

MR. GRAVES: What is that process?

MR. GREEN: Right. In other words, when do you want to set the hold at?

MR. GRAVES: -- system and move it from one jurisdictional environment to another one.

MR. GREEN: Right.

MR. GRAVES: -- I think than anybody else.

MR. GREEN: So you can work within those multiple rules a lot better with this Generation IV system --

MR. GRAVES: That's right.

MR. GREEN: -- is what you're saying.

MR. GRAVES: Yes.

MR. GREEN: Okay. Thank you.

MR. GRAVES: You bet.

OPERATOR: Thank you. Our next question comes from Jeff Putterman. Please state your question.

MR. PUTTERMAN: Hi. I have two mathematical questions. The first one is, looking at your guidance, you're suggesting, and I understand that you always like to be on the conservative side, but it looks to me like you're way on the conservative side. You're suggesting a 43 cent quarter for the next quarter, which will be down sequentially and I don't understand how you're going to have a down quarter if you have more machines out there.

MR. GRAVES: I think it's primarily a function of how rapidly we get Reel Time Bingo where it's earning as much money as MegaNanza. I think that's the main thing. Obviously, we want to be conservative.

MR. PUTTERMAN: Right. But did I understand you though, that the way to look at the Reel Time Bingo is that most of the Reel Time bingo machines have been put in place of MegaNanzas and that's up a thousand. And basically the MegaNanza number is only down 200 which means that you placed an additional 800 MegaNanzas someplace else during the quarter?

MR. GRAVES: I think the real important thing to focus on is two things. Number one is we took out a large number of our best-performing MegaNanzas --

MR. PUTTERMAN: Okay.

MR. GRAVES: -- and replaced them with Reel Time --

MR. PUTTERMAN: Okay.

MR. GRAVES: -- which is not up to the average yet of MegaNanza.

MR. PUTTERMAN: Okay. Now you were talking about linking the Reel Time [games] into a progressive game?

MR. GRAVES: I think that will happen. Yeah.

MR. PUTTERMAN: Okay. What's the time frame on that or what needs to happen?

MR. GRAVES: I don't think we really know exactly how long that's going to take. It's not really our main focus right now. The main focus is going out there and doing that slot manager job of getting the game where it's giving the best performance it can and is running as fast as it possible can. That's what we're focusing on before we focus too much on -- we're working on the processes, but before we have an update on the progress, we certainly don't want to do anything to interfere [with] getting the game faster where we can get it up to where it's making as much money as the other game.

MR. PUTTERMAN: Okay. And then a different question. Do we have a poison pill in place here?

MR. GRAVES: We have in the past and I think it's still there and I don't know many more details about it than that.

MR. LIND: The answer is yes, it's in place.

MR. PUTTERMAN: Okay. Well, here's my concern. Looking at the balance sheet, looking at the quarter, looking at the cash generation and calculating enterprise value to EBITDA assuming that the last quarter is steady state for the next four quarters, right now we're trading with an enterprise of three and a half times EBITDA and somebody is going to figure that out and make a bid for this company and I don't want to lose the stock here.

MR. GRAVES: We did have a poison pill plan in place. I don't know whether it's appropriate for us to talk about whether we think -- what the adequacy of that is, but it is in place --

MR. PUTTERMAN: Okay. Thank you.

MR. GRAVES: Uh-huh. You bet.

OPERATOR: Thank you. Our next question comes from Bill Brady. Please state your question.

MR. BRADY: Good quarter, you guys.

MR. GRAVES: Thank you.

MR. BRADY: Several questions. Where you're contemplating (indiscernible) maybe there were ten projects underway and these would require helping finance [new halls with] some of the tribes, and they were 1,000, 1,500 [seat] type bingo halls and we haven't heard anything about that with all the regulatory flap in the last quarter. But are these projects still possible? Are they being worked on or have they all been put on hold pending the tribes’ becoming more accustomed to Reel Time Bingo?

MR. GRAVES: We continue to work with some of the tribes on some of those projects and I think Clifton can probably talk about that in more detail. Obviously, there's no question, Bill, that the requirement to get Reel Time up and the impact of the NIGC's activities has defocused those projects with some of the tribes, some more than others. But we still are doing some work and still have some good opportunities out there. Clifton, you want to talk about that?

MR. LIND: Bill, progress continues to be made. All three of the tribes that are attempting to join us in our MegaNanza lawsuit are tribes that would have been users of some of the proceeds of the development funding that we're going to do, so they're obviously focusing on maintaining their sovereign right to do Class II gaming and to self-govern Class II gaming. So certainly there has been some defocus, but there are meetings every week on those and several of those projects are moving ahead quite nicely. And I expect that several of those meaningful projects will get started in a reasonably short period of time. So we still have uses. [That is] one of the uses for the existing cash on hand today, and certainly some of those will become a reality and we will fund some of those from internal sources and we will see project financing on some of those. But they are moving ahead and yes, the focus has changed slightly.

MR. BRADY: Yeah. Now, Clifton, when you say reasonable is that three months, six months --

MR. LIND: I mean we're doing all the feasibility work and the planning work right now. The spending of the money is certainly for -- the actual construction is certainly 90 days away, and so I think that we'll start spending money on construction in that time frame.

MR. BRADY: Yeah. Okay. And then another question. Your temporary injunction in Tulsa, would you expect that to last until the suit with the NIGC is resolved? The definition “temporary” sort of bothers me. What would cause that to -- under what circumstances would the injunction expire?

MR. LIND: Bill, as you recall, we asked for really just a temporary restraining order, and the court thought our case was so compelling that they issued a temporary injunction, which says until the court has the time to fully consider all of the pleadings that are in place, it wants everybody to be in basically a standstill position. But there's no way for us to predict either the rhythm that the court will be in or the length of time that the temporary injunction will stay in place. That is entirely up to the court, and no one but the court controls its progress on those issues. So there's just no way to give you an answer on that and it's not right for us to speculate on that.

MR. BRADY: So there's a process now where hearings are being held or depositions being taken, briefs being held. Is it an ongoing active process or is it --

MR. LIND: It's an ongoing process. There are no depositions being taken at this time, but there certainly are briefs being filed. And the court has issued a settlement conference which has been delayed twice now and so at some point and time in the reasonable future that may take place and it may or may not result in anything. But the court has a number of significant pleadings to consider, including the admission of the three tribes who have sought to join our case. And so there's a lot on the court's plate and we have a great judicial system and they'll proceed at an appropriate pace here.

MR. BRADY: Now just one final question. Did I hear you say, Clifton, that say before the end of the calendar year there would be EPSs in place in charity bingo halls?

MR. LIND: We believe that we will in fact have in place some electronic player stations in some jurisdictions prior to the end of the calendar year.

MR. BRADY: Okay. Thanks a lot. Great quarter.

MR. LIND: Thanks, Bill.

OPERATOR: Thank you. Our next question comes from Joel Ramin. Please state your question.

MR. RAMIN: Hi, Gordon, how is it going?

MR. GRAVES: Great.

MR. RAMIN: I wanted to ask can you quantify at all the difference in the hold between the Reel Time games right now and the MegaNanza games?

MR. GRAVES: No. I don't think we want to do that right now. I think it's -- for competitive reasons primarily I don't think we want to talk about that. I think all we really want to say is we think that, you know, in the some time in the not too distant future, hopefully 60 days we'll have the two where they're making the same. You've also got to look at -- I think that's all we really need to say on that Joe.

MR. RAMIN: Okay. And how about if you leave the Reel Time games out and look just at the MegaNanza games over the last quarter what's going on with the hold as far as just those games go?

MR. GRAVES: Well, let me just say that our average hold for this past quarter was about $160 per machine.

MR. RAMIN: And that includes the Reel Time?

MR. GRAVES: That includes the impact of Reel Time where we took out some of our best-performing machines and replaced them with the game that's not up there yet where it's not yet even doing as well as the average on MegaNanza. And in addition to that remember there was one tribe in which we took out a whole lot of machines --

MR. RAMIN: Okay.

MR. GRAVES: -- that were in an urban area.

MR. RAMIN: Now these 1,024 Reel Times games that are installed now --

MR. GRAVES: Uh-huh.

MR. RAMIN: I know you mentioned Nebraska, but are those basically all installed in Chickasaw halls?

MR. GRAVES: I don't think we can say that.

MR. RAMIN: Okay.

MR. GRAVES: We just can't say that.

MR. RAMIN: Can you give us to date -- those I guess originally on the last call you said that those MegaNanza games had primarily been taken out of the Chickasaw halls. So is it fair to --

MR. GRAVES: I was talking a few minutes ago about urban area was not the Chickasaws.

MR. RAMIN: Okay. So is it fair to say that those that did come out of the Chickasaw halls that those were kind of replaced one-for-one with Reel Time games? And I guess did they take any more MegaNanza games back in or did they just replace them kind of one for one with Reel Time games?

MR. GRAVES: Well, of the thousand or however many it was at least -- over 800 and probably 900 of those were replacements of MegaNanza.

MR. RAMIN: Okay.

MR. GRAVES: And then we had the one tribe that remember the 350 plus machines they shut down --

MR. RAMIN: Right.

MR. GRAVES: -- we had to go put those in other places.

MR. RAMIN: Yep.

MR. GRAVES: The lion's share of those were in an urban area where they were doing very well and so we lost that impact. And so those are the two main things I see that brought that hold per machine down where it is. We need to do more work in this area. This is an area where we need to get better and better are really those slot manager jobs and we're working on that real hard.

MR. RAMIN: Help me understand though with the injunction that came down that was in favor of Multimedia Games why would the Chickasaws not replace their game --

MR. GRAVES: First let me say we didn't say it was the Chickasaws here. And the second thing --

MR. RAMIN: -- tribe it was, but why wouldn't they go back to the MegaNanza --

MR. GRAVES: You've got to realize that each of these tribes is a government with elected officials that are making decision. That it's hard for us to sit here and really speculate on why they're making these decisions. I think that all we can really say is we've got full confidence in the tribal leadership that they're making the best decisions that they can for their tribes based on the data they have.

MR. RAMIN: I should have phrased the question differently. Is there any kind of regulatory reason why any particular tribe wouldn't be able to play MegaNanza games right now?

MR. GRAVES: I don't think so.

MR. RAMIN: Okay. So it's sort of just a tribe-by-tribe kind of decision.

MR. GRAVES: That's right.

MR. RAMIN: That's what I was trying to see. And is there -- has the NIGC commented or given you any sort of indication on what their stance is on the Reel Time game?

MR. LIND: We have not had any communication with the NIGC on the Reel Time game.

MR. RAMIN: Okay. And what about the tribes that kind of on their own, you know, through their own commissions have been kind of evaluating the Reel Time game?

MR. LIND: We will not put any game into any location until the tribal gaming commission or gaming authority has reviewed it and has determined it to be a Class II game. So all of the installs have been done on that basis and that's the tribe's – [their] sovereignty gives them the right to self-regulate Class II gaming under IGRA and they do I think an excellent job of doing that, and so we work very closely with the tribes and have confidence in their decisions.

MR. RAMIN: Okay. And as for the sort of 200 new machines a month kind of metric, do we expect those to be Reel Time games or will those still be a mix of MegaNanza and Reel Time games? How do we sort of see that?

MR. LIND: In the future they will probably be not only Reel Time, but some of our other standard sequence games that we're about to bring out. There are a few locations who are continuing to add MegaNanza games and so they will be in the mix. But our marketing focus is on our linked conventional-sequence games.

MR. GRAVES: We don't turn down any orders for the MegaNanza [games].

MR. LIND: Right.

MR. RAMIN: Right. Okay. And then I think somebody else sort of started to ask this question, but I don't think we ever got an answer.

MR. GRAVES: Okay.

MR. RAMIN: If you look at last quarter we had 3,075 MegaNanza games installed. And then about roughly a thousand came out and a thousand of the Reel Time games came in their place and there's still about 800 more games that were added this quarter. So does that mean that we still added net about 800 MegaNanza games in the quarter? Am I thinking about that the right way?

MR. GRAVES: I think you are.

MR. LIND: In general terms yes, but you may be off give or take 100 or 200 units.

MR. RAMIN: Okay. So that would indicate that there's really been no difference then in the rolling out of the MegaNanza.

MR. LIND: No. I think as I understood your question, the 1,000 games are Reel Time Bingo games. The increase has not been in additional MegaNanza games. There have been a few MegaNanza games out there, but rolled into your numbers we count the New-Generation games. They include MegaNanza and they include Reel Time Bingo. And so the majority of the activity during the last of the quarter has been in the switch over of the Reel Time bingo games.

MR. RAMIN: Okay.

MR. LIND: There have been additional MegaNanza games placed.

MR. RAMIN: Replaced by Reel Time Bingo games or additional --

MR. LIND: Placed -- I said placed.

MR. RAMIN: Placed. Okay. That's what I'm trying to understand. And you guys did say earlier that none of the commissioners have left office yet or been replaced.

MR. LIND: No. I said one has in fact resigned and left office as far as our latest information is. There is the Chairman and one commissioner in place now and there have been no Presidential appointments that are --

MR. RAMIN: So they're actually running right now with two commissioners and one sort of empty seat?

MR. LIND: Yes. That's correct.

MR. RAMIN: Okay. And there any sense for when that gets filled?

MR. LIND: As much as I would love to, I will not speak for the President.

MR. RAMIN: Fair enough. That's everything for me. Thank you very much.

MR. LIND: Thank you.

OPERATOR: Thank you. Our next question comes from Jeff Martin. Please state your question.

MR. MARTIN: Hi, guys.

MR. LIND: Hi, Jeff.

MR. MARTIN: I must have gotten lost in the queue there somewhere. Respecting your not wanting to mention specific states, could we discuss what the game potential is and how many states you think you might penetrate in the next 12 to 24 months?

MR. LIND: We have always resisted giving out any guidance on game placement over and above our 200 machines a month and so I won't give you any additional guidance on that at this time.

In the Native American market with our new conventional-sequence bingo games, we expect to be in a number of new jurisdictions in the next 24 months. And I would say that it's fair to speculate that that would be four to eight jurisdictions in that time period in Native America.

It's highly speculative how many jurisdictions we would be in in the charity market because as I said all of those are based on a change of a rule or regulation or a law and it is just impossible to gauge up until the last day of the legislative session or the last day that a state governing regulatory body has to vote how they're going to go. So I just would be uncomfortable speculating how many charity jurisdictions we'll be in.

MR. MARTIN: Okay. But can you help us understand when you have a state what is legal Class III Indian gaming and what the decision factor is to put in Class II?

MR. LIND: Yes. Sure. There are a number of reasons. First there is a limit on the number of Class III compacted machines that a tribe can install and they [have] excess demand. They have incentive to put [in] other forms of gaming, and because of the technological innovations that we've made over the last several years and the change in the presentation and therefore the improvement in the entertainment value of our games, they are now becoming attractive as a backup to Class III games. And we have proven in certain tests that we've run in Class III jurisdictions that they can do a good job of competing with certain forms of compacted gaming that are out there. So there's an advantage in that under IGRA they can add these additional machines, not have to pay revenue share to the state and not be limited in most jurisdictions by the total number of machines that they're able to have in their facility.

In addition to that, many of the tribes have strong bingo programs, and our form of electronic bingo is attractive to the bingo players even if there is a Class III gaming facility right next to it. Even though the video lottery system has been very successful in Washington State, we continue to have avid bingo players and avid fans of our form of electronic bingo up there. And so the bingo hall right across the street or next door to the Class III casino offers bingo-based games. So that's a good market there for us as well.

MR. MARTIN: Back to the question, if it's a matter of Class II and you're not paying taxes on Class II why wouldn't that tribe opt to put in Class II if the economics make sense?

MR. LIND: In the past, other forms of electronic bingo have not had the earning capacity that our new games do. And so although we think tribes do an extraordinarily good job of moving quickly, you know, once they commit to have a Class III gaming facility, they sort of digest that before they make a decision to add Class II games into the mix either in the bingo hall or the same facility. So it's something -- we just came back from an extraordinarily positive and successful trade show and we have all three of our major trade shows this quarter, this fiscal quarter we're in and so some of the tribes will get to see some of the new game faces and the new games that we have driven by bingo engines for the first time. So it's an educational process that we have to do with some tribes and also the fact that many of the compacted locations are now just out growing their ability to support all their players with the allocations of Class III machines that they have.

MR. MARTIN: Okay. And are you seeing evidence that tribes are understanding and are more comfortable with the NIGC rules in classifying Class II and Class III? And do you see that driving increased acceptance right off the bat?

MR. LIND: Yeah. I think so.

MR. MARTIN: Okay. And then final question, are you comfortable with the notion that you can have 200 games per month through fiscal '03?

MR. LIND: Yes.

MR. MARTIN: Great. Thanks, guys.

MR. LIND: You bet. Thank you.

OPERATOR: Thank you. The next question comes from Stephen Mitlel. Please state your question.

MR. MITTEL: I already got my question answered and I pushed 1-4. Thank you very much.

MR. GRAVES: Thank you, Stephen.

OPERATOR: Our next question comes from Jeff Putterman. Please state your question.

MR. PUTTERMAN: Hi. I just wanted to make sure I understand something. When you talk about the hold last quarter [being] at $160 per machine, is that just the MegaNanzas and the Reel Times?

MR. GRAVES: Yes, it is.

MR. PUTTERMAN: Okay. Thank you.

MR. GRAVES: You bet.

OPERATOR: Thank you. Our next question comes from Ronald Rotter. Please state your question.

MR. ROTTER: Hi, guys. The question on the average hold for the last quarter was $160. Could you say what that hold was coming down from in the Q2? And then in your backlog of machines could you tell us roughly the mix in the current backlog between MegaNanza and Reel Time Bingo?

MR. GRAVES: I don't know the answer to either of those questions.

MR. LIND: Well, I'll have a stab at it. As far as the mix of machines it's about 85% Reel Time Bingo and 15% MegaNanza.

MR. ROTTER: Okay. So on the existing backlog it's about 85% Reel Time?

MR. LIND: Yeah. And as far as the hold, as you will recall, Ron, we had exceptionally good performance in March and April that was over and above (SIDE ONE ENDS) the hold was remarkably good in the second quarter. It's not a good comparison because of the changes in the mix that we've had out there. But suffices to say that it was down at least -- you can do the math as well as anybody --

MR. ROTTER: It was down about --

MR. LIND: It was down about $20 as I recall, this is strictly from recollection, from the prior quarter. But again as you know better than most, we forecast a decline in the hold per machine throughout the year because of the fact that we're optimizing the number of machines, continuing to add machines to existing venues. And because of the training that we go through with our customers on these new conventional-sequence bingo games as we introduce them and so we have been ahead of our forecast for the hold per machine, and we've been meeting our forecast for placing machines out there. But there are a lot of factors that stimulate or affect play in our regional casinos and bingo halls, and most of those are beyond our control. So we continue to offer the best and most exciting games to the players and, you know, that fact has not changed, but we can't control the national economy.

In the past, you know, the fact is that there have been different views on [how] the economy or downswings in the economy affect gaming, and we can't speculate on those at this time. But we are not going to be surprised. It is in our forecast that as we place additional machines in current venues we expect the hold to continue to go down. And we were pleasantly surprised in the second quarter when that didn't happen.

MR. ROTTER: And let me ask you, you also in that hold you had considerable down time as a result of disruptions and changing out. You had I guess one or two days where you were totally out of the Chickasaw tribe on any machines and then you had the conversion time to the Reel Time Bingo machines.

MR. LIND: Well, we've agreed with all of our customers, Ron, and I know you'll respect this, [that] we're not going to mention any tribe by name. But during the last 15 days of the quarter, [we experienced] considerable down time associated with the decision from a number of tribes to either temporarily suspend playing [our games] or to suspend playing until we've replaced them with Reel Time.

MR. ROTTER: Right. I mean it's a great quarter considering everything that happened to you guys. You had a great quarter.

MR. GRAVES: Thanks very much.

OPERATOR: Thank you. Our next question comes from David Rainey. Please state your question.

MR. RAINEY: Great. Thank you. I have two questions. The first is why has the settlement conference been delayed a couple of times between you all and the NIGC?

MR. GRAVES: One time the government's lawyer couldn't be available and another time our lawyer couldn't be available because of a death in the family.

MR. RAINEY: Okay. So are you still planning to hold a settlement conference by the end of July or not?

MR. GRAVES: I don't know. I'm not very optimistic about what happens there. I think to dwell on it is probably the wrong thing to do. I mean, we're going to go there with the best intentions and hopefully we can accomplish something, but I wouldn't be too optimistic anything is going to happen at the settlement conference.

MR. RAINEY: Okay. Well, the reason I ask is that I understood it had been ordered by Judge Payne out of Oklahoma, so if that request still stands, shouldn't we expect to have one fairly soon?

MR. GRAVES: I would think we'll probably have a settlement conference before too long.

MR. RAINEY: Okay. And is it --

MR. GRAVES: It wasn't a judge -- the judge from Oklahoma City?

MR. RAINEY: From Tulsa?

MR. GRAVES: Yeah.

MR. RAINEY: Right. Payne is the sitting federal judge and/or his magistrate, right?

MR. LIND: Yeah. It was Payne.

MR. RAINEY: Okay. And if --

MR. LIND: Judge Joyner was the magistrate who recommended it and --

MR. RAINEY: And Payne seconded it. So is it necessary that you all sit down and have a good faith effort at a settlement conference before Judge Payne takes up the issue of ruling on his temporary injunction and whether or not he makes it permanent or not?

MR. GRAVES: We really don't know for sure what he'll do, but I think that's probably a good guess as any.

MR. RAINEY: Okay. And the settlement conference and the temporary stay relate to the actions you all filed in June. They don't relate to what you all filed in April. Is that correct?

MR. GRAVES: No. I don't understand your question. It relates to both what we filed in both April and June.

MR. RAINEY: But isn't it a stay of the NIGC's cease and desist order?

MR. GRAVES: That period in between there, the NIGC took some action.

MR. RAINEY: Right.

MR. GRAVES: This changed the whole picture of the risks involved.

MR. RAINEY: Right.

MR. GRAVES: And so that probably had something to do with the court's decisions, but I think that's really about all we can say on that. You know, this is an area where we've got to be real careful. That we are in court and that we just can't talk about it too much.

MR. RAINEY: Right. You know my questions just relate to the different tracks these different lawsuits are going through and what the procedures and next steps --

MR. GRAVES: Well, there's only one lawsuit.

MR. RAINEY: You all have only filed one lawsuit.

MR. GRAVES: That's correct.

MR. RAINEY: And that's the lawsuit that dates back to what the middle of April?

MR. GRAVES: That's correct.

MR. RAINEY: But then the temporary injunction doesn't relate to that lawsuit does it?

MR. GRAVES: Preliminary injunction.

MR. LIND: It relates to the game which was the subject of the deck action that we filed.

MR. RAINEY: Right.

MR. LIND: And so it would be a little bit too broad a statement to say that it does not relate to that.

MR. GRAVES: In fact I think you've got to say it does relate to it.

MR. RAINEY: Okay. Great. And my second question is I believe in either the annual I was reading the other day or a previous 10-Q, you all had discussed the cycle times within the MegaNanza games, basically the delay between game cycles that someone wanted to play in an almost continuous mode could come through and I think it was something like five to six seconds per game. What's that cycle time across the Reel Time machines? And is this what you're talking about the kind of delay in play?

MR. LIND: The cycle time is what we're talking about and the cycle time varies greatly during the day. There are times during the day when there is a lot of play on the linked game that it actually plays faster than those cycle times and there's predictable times during a 24-hour period when there are fewer players involved that it takes longer than that cycle time to play.

MR. RAINEY: Okay. And does that mean that there's minimum threshold of average players one needs across the series of linked games right now or, you know, a minimum or an average in order to bring the cycle time up? Or if that's not the case, how do you just through technology increase the repetition of play?

MR. LIND: Well, I mean, both of your questions are ones that just help our competitors to design games and so I'm going to ask Gordon not to comment on answers to those.

MR. RAINEY: Okay. Well, then how can we better understand your ability to improve win per day per machine by making it more user friendly as it relates to cycle times?

MR. GRAVES: I wouldn't say it's user friendly in terms of cycle times. In fact some players would like to be able to play faster and they're going to be able to play faster here shortly. And that when they can play faster they'll spend more money because they enjoy playing and playing faster. But the main -- they like the game now as it is and I would say the main impact of speeding it up is that just -- I think you've got to look at play on these player stations in terms of a cost per hour rental to the customer.

MR. RAINEY: Okay.

MR. GRAVES: And once you speed it up so a person can play a lot faster, and say a person can play games in two or three seconds if he wants to play that fast.

MR. RAINEY: Right.

MR. GRAVES: Then once you get there for that type of player that likes to play Reel Time, his cost per hour of playing is going to go up. If that answers your question.

MR. RAINEY: Right. Okay. Thank you.

OPERATOR: Thank you. Our next question comes from Ron LaCoeur. Please state your question, sir.

MR. LACOEUR: Yes. There is a new casino that's being built in Washington State north of Marysville. I'd like to know what kind of connection you have with them, if any, if you'd be putting any machines in there?

MR. GRAVES: Are you talking about -- I don't know which one you're talking about -- -

MR. LACOEUR: (indiscernible)

MR. GRAVES: Are you talking about Tulalip?

MR. LACOEUR: Tulalip?

MR. GRAVES: Is that who you're talking about?

MR. LACOEUR: Yes.

MR. GRAVES: We do a lot of business with them so I would assume so. I don't know the specific numbers or anything like that, but they're one of our customers and they're a good customer.

MR. LACOEUR: This is a huge new facility they're building.

MR. GRAVES: Yeah.

MR. LACOEUR: As big as I've seen.

MR. GRAVES: Yeah.

MR. LACOEUR: And I noticed that you did increase the number of machines last quarter of Class III.

MR. GRAVES: You know Clifton is out of the room right now, and I don't know whether any of those Class III machines were in Tulalip or not. But as we said before, we prefer not to talk about the specific tribes right now and it's a policy that our tribes have asked us in general to not talk about their business, and so we're probably better off not answering that question.

MR. LACOEUR: Okay. I understand. The other question is there's a lot of forest fires out here in the western states.

MR. GRAVES: Uh-huh.

MR. LACOEUR: Is this having any kind of impact either positive or negative on the attendance?

MR. GRAVES: I don't think so. Okay. Let's take another question. Are we getting down? Anybody else?

OPERATOR: Thank you. Our next question comes from Marty Dehen. Please state your question, sir.

MR. DEHEN: Hi, Gordon. It's been an absolute honor to watch you and your team perform over the last ten years through all the adversities since your inception, really. You guys have the highest integrity and it's just a privilege to know you guys.

MR. GRAVES: Thank you, Marty. That means a lot to us.

MR. DEHEN: My question, first of all, I thought of this after the fact, so it'll be a two-question, I know you wanted one. But are you guys close enough to the Bush camp to be able to lobby for any of the appointments in the new NIGC?

And second of all I wanted to try to understand our involvement with Jeff Foxworthy. I know he really plays the Indian casinos real hard and I think he's a really good choice for us to go with and what types of products do you think will come from Jeff Foxworthy's involvement?

MR. GRAVES: First on the first question is no we -- I don't think we will have any impact on the Bush administration's decision.

MR. LIND: No. But we tried.

MR. GRAVES: Yeah. And the second one is – the answer to the second question is that I think we'll see the Jeff Foxworthy theme used across all of our games, from a television bingo game to a version of our new generation high-speed games. And exactly how that whole marketing branding is finalized and that whole plan - we're working on it right now, but I think we'll see a pretty broad branding across different products. We really do like the fact that Jeff Foxworthy is known for his clean-cut entertainment and he's a gentleman and the type of entertainer that we think that we can take advantage of in putting out a game there that our players are going to like.

MR. DEHEN: One other question, Gordon. What city is the National Indian Gaming show going to be at where you'll be introducing your new games this year?

MR. LIND: NIGA in Minneapolis.

MR. DEHEN: Oh. Wonderful. When is that?

MR. LIND: Next month.

[Editor’s note: Actually, NIGA was in San Diego this year, and MGAM introduced some of its new games at the Northwest Indian Gaming Association Conference and Expo in Tacoma, Washington last month.]

MR. DEHEN: Okay. I'll watch for it and I'll probably see you up there then.

MR. LIND: Yeah. I think there is a little casino up there somewhere isn't there, Marty?

MR. DEHEN: There's 19 in this state and there's 3 very large ones that would be nice with these new rules out that they know what they can and can't do. So you guys have done a wonderful with all the smallest casinos in the country. Now that some of the bigger ones know what the rules and regulations are, I think you guys have a really great shot in the future.

MR. LIND: Thanks, Marty, we do too.

MR. GRAVES: All right. Any more questions?

OPERATOR: Thank you. Our next question comes from Ken Wast. Please state your question.

MR. WAST: Hi, guys. I just wanted to say it was a nice quarter, and when are you really going to start making some big numbers for us out here?

MR. GRAVES: Well, that's a good question. Ken, we appreciate that.

MR. WAST: Good. Two quick ones. One is the speed of let's say the Reel Time Bingo, is that a function partly of just the number of machines that you have installed?

MR. GRAVES: A little bit that, but it's more creative than that.

MR. WAST: Okay. I hear you.

MR. GRAVES: We've got the real creative stuff for --

MR. WAST: You've got to tweak it up. The second thing is it sounded like you were really getting ready to spend a bunch of the capital that's sitting there on the sideline kind of a thing and I think that can do nothing but good for us. Is that going to end up significant in the charity market or is that more toward the casino build-out kind of a thing that has been discussed in the past?

MR. GRAVES: I would say it's both of those, but it's probably more than either of those two; it's more probably the lottery.

MR. WAST: So that's a relatively capital intensive business?

MR. GRAVES: Yeah. Uh-huh.

MR. WAST: And in the charity market, even if we get in in the next quarter, which I think would be extremely exciting, would that start to be a significant impact or would that start off very slowly and just build over a series of years?

MR. GRAVES: I personally don't expect to see it have much impact this next year.

MR. WAST: Okay. Thank you very much and it was really a fabulous quarter considering the ugliness that went on on an operational basis. And I'm really surprised that the stock has held up as well as it has on only these fabulous earnings.

MR. GRAVES: Thanks, Ken.

OPERATOR: Thank you. Our next question comes from Louis Corrigan. Please state your question.

MR. GRAVES: Let me say this, let's make one more question after this one our last one.

MR. CORRIGAN: Hello, guys. Congratulations on a nice quarter.

MR. GRAVES: Thank you very much.

MR. CORRIGAN: I had a question. I may have missed it – what was the SG&A for the quarter?

MR. NOUIS: The SG&A for the quarter was $9,600,000.

MR. CORRIGAN: Okay. And you said that capital expenditures were $11 million for the quarter. What were they year to date?

MR. NOUIS: Year-to-date capital expenditures were just under $23 million.

MR. CORRIGAN: Okay. I'm assuming that some of your MegaNanzas are not going to be able to be redeployed. Is there any risk that you may have to take a write-off charge for that?

MR. LIND: None.

MR. CORRIGAN: Pardon?

MR. LIND: None.

MR. CORRIGAN: No risk of that. Okay. Looking at the PP&E versus the depreciation, depreciation was pretty much flat sequentially and the PPE was up quite a bit. What explains that and what kind of guidance can you give on that?

MR. NOUIS: Well, you know, our position has always been -- when you say flat are you talking about in terms of percentage of the average outstanding balance?

MR. CORRIGAN: No. It actually was much lower on an average basis. It was $3.6 million versus $3.6 million last quarter and the PP&E was up about I don't know about $8.6 million sequentially. So it seems like you would have seen an up-tick in the depreciation and amortization by, you know, in the order of $720,000 if you were just kind of tracking the PP&E. So I'm curious what happened there.

MR. LIND: We had completely written off or fully depreciated some of the equipment that was put on the books 36 months ago. So the fact that there are in essence some hidden assets there and that these are still out in play and they're no longer being depreciated and hitting the income statement in any form I think is masking the growth that we had here this last quarter. I think you can expect to have it return to a normal pattern that would be associated with the growth in the number of player stations that we have.

MR. NOUIS: Our depreciation policy remains consistent in terms of the length that we're writing off the -- depreciating the player stations and that's really what drives it obviously. And in terms of this past quarter, you know, a lot of these machines weren't placed in until the middle of the quarter and so you wouldn't see the full impact during this quarter.

MR. CORRIGAN: So you essentially added more capital later in the quarter without even beginning to depreciate some of that?

MR. LIND: No. No. Certainly we took an appropriate percentage of depreciation on it. But we also had some other capital equipment that was not depreciated on the same 36-month basis that we're currently doing the player stations, that was fully depreciated during this last quarter. And so you're just seeing a funny transition at this time that we have all the capital equipment that was on the five-year depreciation roll-off and we're replacing it with the player stations which we depreciate on a much shorter basis. But anyway that anomaly should not repeat itself in the future.

MR. CORRIGAN: I guess I'm still confused because if you're rolling off stuff that is depreciated on a five-year basis and you're adding stuff that is depreciated on a three-year basis, it seems like your depreciation would have gone up as a percent of PP&E.

MR. LIND: We would be -- I'm sure Craig would be delighted to spend more time going through the percent of the depreciation --

MR. CORRIGAN: I'll do that offline.

MR. LIND: -- off of this deal, but the depreciation is as we expected it to be.

MR. CORRIGAN: What would explain the fact though that the PP&E I guess was up? You know if you added $11 million in capital expenditures in the quarter and you took the $3.6 million in depreciation, it seems like you get the PP&E of$ 36.2 and you've got $37.8 on the PP&E line.

MR. LIND: We can't track the numbers that you're using so --

MR. CORRIGAN: Okay. I'll ask that offline.

MR. LIND: -- Craig will go into detail with you.

MR. CORRIGAN: Okay. A final question, actually two more questions. I understand that Liz Homer was the NIGC commissioner who had resigned and I heard that you all were in discussions with her maybe about becoming a consultant? Has that happened? Have you been talking to her at all?

MR. GRAVES: No. We have not. And that's an area that we just don't talk about any more, but no,we haven't.

MR. CORRIGAN: Okay. But she hasn't in the past been any sort of consultant or been paid by you guys in cash or stock in any way?

MR. GRAVES: Not that I know of.

MR. CORRIGAN: Okay. It seems it would be great to bring her on since she has clearly been an advocate for you guys.

MR. GRAVES: Well, you know, there's positives and there's negatives.

MR. CORRIGAN: Right.

MR. GRAVES: And we've all got to look at those types of things, but that's not our general policy to do anything like that.

MR. CORRIGAN: Okay. And finally regarding insider buying, I believe that I the last call Clifton indicated that his family had been buying some stock. And the only filing I've seen in terms of insider trading is a 2,000 share buy by Clifton and I guess a 12,750 sell by your Board member John Winkelman. Has there been any other insider buying or selling in the last six weeks?

MR. GRAVES: In the last six weeks I don't know for sure. I know that I myself bought 75,000 shares under a warrant that I had that was expiring last month I think it was, and so I went ahead and bought those. I think when Clifton was talking about his family that those were people that under the law aren't really considered insiders. As you said, Clifton has bought a little bit more stock himself and Craig has bought a little bit of stock. And that's all I really know about. And some of the directors, which I think all of the directors have reported on theirs.

MR. CORRIGAN: So has there been any additional insider selling besides the 12,700 by John Winkelman?

MR. GRAVES: Not that I know of.

MR. CORRIGAN: So you held onto your 75,000 shares?

MR. GRAVES: I beg your pardon?

MR. CORRIGAN: You held onto your 75,000 shares?

MR. GRAVES: Oh, yeah. Sure.

MR. CORRIGAN: Thanks very much.

MR. GRAVES: You bet.

OPERATOR: Thank you. Our next question comes from Andrew George. Please state your question.

MR. GRAVES: We'll make this our last question. This is going to have be our last question. Andrew.

MR. GEORGE: I'm sorry. My question was on some third-party related [-party selling] back in 1997.

MR. GRAVES: Uh-huh.

MR. GEORGE: The company, Multimedia, sold about $2.4 million worth of gaming machines to Equipment Purchasing LLC --

MR. GRAVES: Uh-huh.

MR. GEORGE: -- which is an affiliate of Gordon Graves.

MR. GRAVES: Uh-huh.

MR. GEORGE: And then the company repurchased 356 of the machines in October 1998 for $4.5 million I believe. Is that true?

MR. GRAVES: I don't remember all of those numbers. I think on that subject there what we've said so far is really all we think is appropriate to say, since it's a transaction [that was completed] some time ago. There's been since we started this company -- as the founder of this company, I've participated in most [of the] investment opportunities and most of the time if we've raised money I've participated in those. A couple of times I've been the only person to participate. We've always offered it to other people the same terms. We all think that all those transactions were fair transactions. And obviously the very first one I was the only one to invest, but we offered other people the same deal at that time. So, you know, those deals. We've talked about it and we don't think it's really necessary to say anything else about it except what's in our public documents. It's in three of our 10-Ks. It was discussed in great length, so you can kind of look at that. So that's kind of deal there.

MR. GEORGE: So was that the only third-party related dealing that --

MR. GRAVES: Well, I just got through saying that I've participated in eight of them -- you know, we've had a number of fundings and most of them I participated in. I was a related party. A couple of them I was the only party.

MR. GEORGE: Right. Because there was another one back in the second and third quarters of 1998 with Equipment Purchasing LLC.

MR. GRAVES: Well, we've said all that we're going to say on that subject.

MR. GEORGE: Okay. Very good. Thank you.

MR. GRAVES: All right. We thank you very much, everybody. We appreciate everybody's support and I think this company is going to continue to see growth in business and growth in earnings per share and we're optimistic. And we think that if our people just keep on the ball here and focus on continuing to grow this business that once that this terrible market situation is over with that everybody is going to be pleased with where MGAM stands. So thank you so much for your support.

OPERATOR: Ladies and gentlemen, that concludes our conference for today. Once again if you would like to access the rebroadcast for today's, please dial 1-800-428-6051, and enter passcode 252691 for domestic callers. And for international callers please dial 973-709-2089 with a pass code 252691. Thank you all for participating and have a nice day. All parties may now disconnect.

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