The following discussion is intended to assist in the understanding of our results of operations and our present financial condition. The condensed consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material. Statements in this discussion may be forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed. See Item 1A, Risk Factors of the Company's Form 10-K for the period ended December 31, 2008.

For a Company Overview and information on our products as well as general information, see Part I-Item 1. Business of the Company's Form 10-K for the period ended December 31, 2008.

Overview of our Business

GPIC manufactures and supplies (under the brand names of Paulson®, Bourgogne et Grasset®, and Bud Jones®) casino chips including low frequency and high frequency RFID casino chips, low frequency and high frequency RFID readers, table layouts, playing cards, dice, gaming furniture, roulette wheels, table accessories, and other products that are used with casino table games such as blackjack, poker, baccarat, craps and roulette. GPIC is headquartered in Las Vegas, Nevada, with offices in Beaune, France; San Luis Rio Colorado, Mexico; Atlantic City, New Jersey; and Gulfport, Mississippi. GPIC sells its casino products directly to licensed casinos throughout the world. We operate in one segment and have two operating subsidiaries, GPI USA and GPI SAS, a French subsidiary. Our subsidiaries have the following product and distribution focus:

† GPI USA sells primarily in the United States and Canada. GPI USA sells our full product line. Most of the products sold by GPI USA are manufactured in Mexico with the remainder either manufactured in Las Vegas or France or procured from third parties.

† GPI SAS sells internationally, with most sales occurring in Asia and Europe. GPI SAS predominately sells casino chips, including both American-style casino chips and European-style casino chips, which are also known as plaques and jetons. Most of the products sold by GPI SAS are manufactured in France.

The Company has historically experienced significant fluctuations in its quarterly operating results and expects such fluctuations to continue. The Company's operating results fluctuate due to a number of factors, but primarily reflect the opening of new casinos, the expansion of existing casinos, and large replacement orders for casino chips-our primary product line, which typically represents over 60% of revenues. The one-time or non-recurring nature of these events necessarily creates variability in revenue and earnings. Further, the timing of these one-time or non-recurring events is difficult to predict and, largely, beyond our ability to influence. While most large projects are pursued years in advance, both large and small sales opportunities arise with little prior notice. An indicator of future sales is found in our backlog. The signed orders that are planned to be shipped in the fourth quarter are:

                               GPI USA            GPI SAS            Total
      September 30, 2009    $ 4.6  million    $ 7.0  million    $ 11.6  million
      September 30, 2008    $ 6.9  million    $ 2.5  million    $  9.4  million

In addition, we have signed orders that are planned to be shipped in the first half of 2010 that total an additional $5.3 million.

Overview of our Industry

In the United States, the general slow down in the economy and in the gaming industry has negatively impacted our casino customers and therefore our sales. Casinos are working to reduce their costs, including slowing down the typical replacement cycle on consumable products, such as cards, layouts, and dice. In addition, financial strains on casino owners have reduced the near-term likelihood of new casino openings, the expansion of existing casinos, and large replacement orders upon which our casino chip sales are heavily dependent. To the extent these conditions continue, we anticipate our revenues in future quarters will be adversely affected. Local casino markets have not been as adversely affected by the economic downturn as in the gaming destination markets of Las Vegas and Atlantic City.

Internationally, Macau continues to be the dominant gaming market. After a drop in its gaming revenues earlier in the year, Macau has recently posted record gaming revenues. The Chinese government continues to express interest in not allowing gaming to expand too quickly. Newport City in Manila opened in July 2009 and two large casinos, Marina Bay Sands and Sentosa, are expected to open in Singapore in the first half of 2010.

Financial and Operational Highlights

For the third quarter of 2009, our revenues were $13.4 million, a decrease of $0.4 million, or 3%, compared to revenues of $13.8 million for 2008. Our revenues were down only slightly due to our sale of a large casino chip order to Newport City in Manila, which offset declines across our other product lines due to the gaming industry slow down discussed above. For the third quarter of 2009, we had a net loss of $0.3 million compared to net income of $1.2 million for the third quarter of 2008. In the third quarter of 2009, we recognized a one-time, non-cash goodwill impairment charge of $1.6 million ($1.5 million after tax) related to GPI USA. This charge negatively impacted our reported financial results and is a reflection of the slowdown in the domestic gaming market, which we believe can be attributed to the economic environment in the United States. If not for this one-time charge, our operating income would have been $1.5 million, a 15% improvement to the $1.3 million of operating income in the third quarter of 2008. Adjusted operating income is a non-generally accepted accounting principle measure which management believes facilitates a better understanding of the results of operations.

In the third quarter of 2009, we took advantage of our available cash to pay off a $0.9 million loan that was at 8% interest. Despite this use of funds, we still ended the quarter with cash and marketable securities less customer deposits of $12.9 million.

GPI SAS, our French subsidiary, uses the euro as its functional currency. As of September 30, 2009 and December 31, 2008, the US dollar to euro exchange rates were $1.4643 to one euro and $1.3917 to one euro, respectively, which represents a 5.2% weaker dollar compared to the euro. The average exchange rates for the nine months ended September 30, 2009 and 2008 were 1.3650 and 1.5219, respectively, which represents a 10.3% stronger dollar compared to the euro, which has the effect of reducing, in dollar terms, both the revenue and the expenses of GPI SAS. The stronger dollar compared with the Mexican peso had a favorable impact of $0.3 million for the quarter as our manufacturing costs were reduced.

Looking Forward

Based on our results so far this year, we anticipate our full year 2009 revenues and net income will be significantly below our 2008 results due to the ongoing decline in the gaming industry and fewer planned casino openings and expansions. If in the fourth quarter of 2009, we ship according to our current plan, it will be the strongest quarter of the year. Our current backlog suggests that 2010 will start stronger than 2009. However, due to the uncertainty in the gaming industry, we are unable to anticipate with reasonable certainty what our revenue or income prospects are for 2010.

Given the challenges we face, we are looking for new products, new programs, and new markets to enhance our revenues while we continue to look for ways to improve operations. We are striving to position ourselves in a way that we can be prepared for a rebound in sales or the opportunity to pursue strategic initiatives.

Other Matters

GPIC will be exhibiting at Global Gaming Expo (G2E) in Las Vegas in mid-November 2009 and highlighting its new product offerings such as its expanded RFID table line, extended playing card offerings, and the most durable graphic layout available.

Gregory Gronau was appointed by the Board of Directors as our President and Chief Executive Officer, succeeding Gerard Charlier upon Mr. Charlier's retirement on September 12, 2009. Mr. Gronau was previously the Company's Executive Vice President and Chief Operating Officer.

CRITICAL ACCOUNTING ESTIMATES

Financial statement preparation requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities. The accompanying condensed consolidated financial statements are prepared using the same critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

RESULTS OF OPERATIONS



The following table summarizes selected items from the Company's Consolidated
Statements of Income as a percentage of revenues:



                                        Three Months Ended       Nine Months Ended
                                           September 30             September 30
                                         2009         2008        2009        2008
Revenues                                 100.0%      100.0%      100.0%      100.0%
Cost of revenues                          65.1%       68.0%       69.7%       67.8%
Gross profit                              34.9%       32.0%       30.3%       32.2%
Selling, general and administrative
expenses                                  23.5%       22.3%       28.2%       24.7%
Impairment of goodwill                    11.7%        0.0%        4.7%        0.0%
Operating income (loss)                  (0.3%)        9.7%      (2.6%)        7.5%
Other income (expense)                     0.7%        2.2%        0.6%        0.4%
Income (loss) before income taxes          0.4%       11.9%      (2.0%)        7.9%
Income tax expense (benefit)               2.8%        3.0%        0.0%        1.8%
Net income (loss)                        (2.4%)        8.9%      (2.0%)        6.1%

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

                             Three Months Ended                             Nine Months Ended
                                September 30                                  September 30
                         2009                   2008                   2009                   2008
Revenues
United States     $  4,608     34.3%     $  9,307     67.4%     $ 15,419     45.8%     $ 26,119     58.3%
Europe
(includes
Russia)                655      4.9%        1,175      8.5%        2,381      7.1%        4,347      9.7%
Asia                 7,644     56.9%        2,190     15.8%       13,396     39.8%       10,793     24.1%
Other(1)               518      3.9%        1,148      8.3%        2,485      7.3%        3,542      7.9%
Total             $ 13,425    100.0%     $ 13,820    100.0%     $ 33,681    100.0%     $ 44,801    100.0%

(1) Includes Canada, Africa, Australia, South America, and other countries.

The following table details the Company's revenues by product line (in thousands):

                              Three Months Ended                             Nine Months Ended
                                 September 30                                  September 30
                          2009                   2008                   2009                   2008
Casino chips:
American-style
casino chips       $  6,175     46.0%     $  6,585     47.7%     $ 13,773     40.9%     $ 22,514     50.3%
European-style
casino chips          3,780     28.2%        1,489     10.8%        8,148     24.2%        6,416     14.3%
Total casino
chips                 9,955     74.2%        8,074     58.5%       21,921     65.1%       28,930     64.6%

Table layouts         1,017      7.6%        1,358      9.8%        3,259      9.7%        3,779      8.4%
Playing cards           987      7.3%        1,028      7.4%        3,191      9.5%        3,026      6.8%
Gaming
furniture               264      2.0%        1,149      8.3%        1,144      3.4%        2,429      5.4%
Dice                    462      3.4%          464      3.4%        1,385      4.1%        1,450      3.2%
Table
accessories and
other products          471      3.5%        1,177      8.5%        1,749      5.1%        3,624      8.1%
Shipping                269      2.0%          570      4.1%        1,032      3.1%        1,563      3.5%
Total              $ 13,425    100.0%     $ 13,820    100.0%     $ 33,681    100.0%     $ 44,801    100.0%

Revenues For the three months ended September 30, 2009, revenues were $13.4 million, a decrease of $0.4 million, or 3%, compared to revenues of $13.8 million for the three months ended September 30, 2008. In the third quarter of 2009, GPI SAS recorded revenues of $8.5 million, an increase of $4.5 million, or 113%, compared to $4.0 million in 2008. The increase in revenues at GPI SAS was primarily attributable to the sale to Newport City casino in Manila of American-style and European-style casino chips. In the third quarter of 2009, GPI USA recorded revenues of $4.9 million, a decrease of $4.9 million, or 50%, as compared to revenues of $9.8 million in 2008. The decrease in revenues at GPI USA was primarily attributable to decreased sales of American-style casino chips due to fewer casino openings in the third quarter of 2009 as compared to the third quarter of 2008. Fewer casino openings also negatively impacted our revenue from gaming furniture and table accessories sales which together decreased 68% when compared to third quarter 2008 sales. Other product lines also had lower revenues.

For the nine months ended September 30, 2009, revenues were $33.7 million, a decrease of $11.1 million, or 25%, compared to revenues of $44.8 million for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, GPI SAS recorded revenues of $16.6 million, the same as in 2008. The large sale in the third quarter 2009 to Newport City was offset by lower sales of American-style and European-style casino chips to casinos in Macau earlier in 2009 compared to 2008. The US dollar was 10% stronger in relation to the euro for the nine months ended September 30, 2009 compared to same period in 2008, which means on a euro-denominated basis, GPI SAS' revenues were 10% higher in 2009. For the nine months ended September 30, 2009, GPI USA recorded revenues of $17.1 million, a decrease of $11.1 million, or 39%, as compared to revenues of $28.2 million in 2008. As described above for the third quarter, this decrease was due primarily to slow sales of American-style casino chips as a result of fewer casino openings in the first nine months of 2009 compared to the first nine months of 2008. Fewer casino openings also negatively impacted our revenue from gaming furniture and table accessories sales which together decreased 52% when compared to prior year-to-date sales. Other product lines, except cards, also had lower revenues.

Cost of Revenues For the three months ended September 30, 2009, cost of revenues was $8.7 million, a decrease of $0.7 million, or 7%, compared to cost of revenues of $9.4 million for the three months ended September 30, 2008. As a percentage of revenues, the cost of revenues decreased to 65.1% for the quarter in 2009 from 68.0% for the quarter in 2008.

For the nine months ended September 30, 2009, cost of revenues was $23.5 million, a decrease of $6.9 million, or 23%, compared to cost of revenues of $30.4 million for the nine months ended September 30, 2008. As a percentage of revenues, the cost of revenues increased to 69.7% for the nine month period ended September 30, 2009 compared to 67.8% for the same period in 2008.

Gross Profit Gross profit for the three months ended September 30, 2009 increased by $0.3 million, or 6%, compared to 2008. This occurred as a result of the decrease in revenues of $0.4 million and a decrease in cost of revenues of $0.7 million. As a percentage of revenues, our gross margin increased to 34.9% from 32.0%. The higher gross margin in the third quarter was the result of increased sales of our higher margin casino chips and the decline in the value of the Mexican peso, which reduced our manufacturing costs $0.3 million for the third quarter of 2009 compared to the third quarter of 2008.

Gross profit for the nine months ended September 30, 2009 decreased by $4.2 million, or 29%, compared to 2008. This occurred as a result of the decrease in revenues of $11.1 million and a decrease in cost of revenues of $6.9 million. As a percentage of revenues, our gross margin decreased to 30.3% from 32.2%. The gross margin decrease was primarily driven by substantially lower sales, which required fixed manufacturing costs to be allocated over lower production volumes, lower sales of our higher margin casino chips, and unexpected production problems that increased our costs by $0.4 million in the second quarter. Partially offsetting these factors was the decline in the value of the Mexican peso, which reduced our manufacturing costs $0.8 million for the nine months ended September 30, 2009 compared to September 30, 2008.

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

                               Three Months Ended                         Nine Months Ended
                                  September 30                              September 30
                            2009                 2008                 2009                 2008
Product
development           $    57     0.4%     $    80     0.6%     $   279     0.8%     $   170     0.4%
Marketing and
sales                   1,042     7.8%         834     6.0%       3,105     9.2%       3,147     7.0%
General and
administrative          2,055    15.3%       2,188    15.7%       6,125    18.2%       7,767    17.3%
Total selling,
general, and
administrative
expenses              $ 3,154    23.5%     $ 3,102    22.3%     $ 9,509    28.2%     $ 11,084   24.7%

Selling, general, and administrative expenses changed by less than $0.1 million for the three months ended September 30, 2009 compared to 2008, while increasing as a percent of revenue to 23.5% in 2009 from 22.3% in 2008. Marketing and sales expenses increased by $0.2 million primarily due to higher personnel expenses. General and administrative expenses decreased $0.1 million.

Selling, general, and administrative expenses decreased by $1.6 million for the nine months ended September 30, 2009 compared to 2008, while increasing as a percent of revenue to 28.2% in 2009 from 24.7% in 2008. Marketing and sales expenses decreased by less than $0.1 million. General and administrative expenses decreased $1.7 million. The key components of this decrease were $0.5 million in compensation expense and $0.5 million of costs in the first nine months of 2008 related to lead in Paulson gaming chips that did not recur in 2009. The remaining decrease in general and administrative expenses was due to a variety of factors, including the effect of the dollar strengthening against the euro and lower bad debt expense.

Impairment of Goodwill The following table details impairment of goodwill for the three months and nine months ended September 30 (in thousands):

                                Three Months Ended                              Nine Months Ended
                                   September 30                                   September 30
                            2009                   2008                    2009                   2008

Impairment of
goodwill            $    1,572     11.7%   $        -      0.0%    $   1,572       4.7%   $        -      0.0%
Total
impairment of
goodwill            $    1,572     11.7%   $        -      0.0%    $   1,572       4.7%   $        -      0.0%

In the third quarter of 2009, we recorded a one-time, non-cash impairment of goodwill charge, which is more fully explained in Note 5 in our notes to the condensed consolidated financial statements.

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

                             Three Months Ended                         Nine Months Ended
                                September 30                              September 30
                          2009                 2008                 2009                 2008

Gain on foreign
currency
transactions       $     45      0.4%   $    280      2.0%   $     72      0.2%   $     12      0.0%
Interest income          69      0.5%         61      0.4%        190      0.6%        181      0.4%
Interest expense       (29)    (0.2%)       (30)    (0.2%)       (91)    (0.3%)      (105)    (0.2%)
Other income,
net                       4      0.0%         27      0.2%         29      0.1%         74      0.2%
Total other
income (expense)   $     89      0.7%   $    338      2.4%   $    200      0.6%   $    162      0.4%

For the three months ended September 30, 2009, other income (expense) decreased by $0.2 million compared to the 2008 period. This was due primarily to the decrease in the value of the euro compared to the US dollar which resulted in a gain on foreign currency transactions during the third quarter of 2008.

For the nine months ended September 30, 2009, other income (expense) increased by less than $0.1 million compared to the 2008 period.

Income Taxes Our effective income tax rate for the three months ended September 30, 2009 was 819% compared to the effective income tax rate of 25% for the three months ended September 30, 2008. Without the one-time charge for impairment of goodwill our income would have been approximately $1.6 million and our effective tax rate would have been approximately 23%. The Company's effective tax rate for the quarter ended September 30, 2009 differed from the statutory rate as a result of the benefit from a research credit from our French subsidiary, GPI SAS, combined with having small book income before income taxes for the third quarter and the impairment of goodwill charge which was not tax-deductible.

Our effective income tax rate for the nine months ended September 30, 2009 was 1% compared to 23% for the same period of 2008. The Company's effective tax rate for the nine months ended September 30, 2009 differed from the statutory rate as a result of the benefit from a research credit from our French subsidiary, GPI SAS, combined with having a net loss before income tax for the nine month period and the impairment of goodwill charge. The Company's effective tax rate for the nine months ended September 30, 2008 was positively impacted by the release of a prior period reserve for uncertain tax positions, related to the successful resolution of the GPI SAS tax audit by the French Tax Administration.

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

Liquidity and Capital Resources

Overview As of September 30, 2009, we had $5.9 million in cash and cash equivalents and $13.2 million in current marketable securities. Of the cash and cash equivalents and marketable securities, $6.1 million is held by GPI USA and $13.0 million is held by GPI SAS. It may be impractical or costly to transfer cash from GPI SAS, our French subsidiary, to the United States due to unfavorable tax consequences. If our cash needs increase, we will evaluate other cash sources, including lending facilities in the United States and abroad. We believe that the combination of our cash flow from operations and cash on hand will be sufficient to fund expenses from routine operations for a minimum of the next twelve months.

Working Capital Working capital totaled $22.4 million at September 30, 2009 and $21.9 million at December 31, 2008. Working capital increased due to an increase in current assets of $4.8 million offset by an increase in current liabilities of $4.3 million. The main reasons for the increase in current assets are increases in cash and marketable securities of $6.0 million and in other current assets of $1.0 million, offset by a decrease in accounts receivable of $1.0 million. The decrease in accounts receivable was due primarily to lower sales in the second quarter of 2009 compared to the fourth quarter of 2008. The increase in current liabilities was primarily due to an increase in customer deposits of $4.8 million. The increase in customer deposits is due to receipt of deposits for upcoming shipments.

Cash Flow Overall, our cash balance increased from December 31, 2008 to September 30, 2009 by $0.4 million.

Net cash provided by operating activities was $6.8 million during the nine months ended September 30, 2009 compared to $4.5 million provided during the same period in 2008. For the nine months ended September 30, 2009, $2.7 million of cash was provided by net income-related activities, $0.6 million was provided by a decrease in operating assets (excluding cash), and $3.5 million was provided by an increase in current liabilities. For the nine months ended September 30, 2008, $4.8 million of cash was provided by net income related activities, $0.2 million was provided by a decrease in operating assets (excluding cash), and $0.5 million was used by a decrease in current liabilities.

Our investing activities resulted in net cash used of $5.1 million for the nine months ended September 30, 2009 compared to $1.8 million in net cash used by investing activities for the same period in 2008. For the nine months ended September 30, 2009, increases in the net purchases of marketable securities were $4.0 million and decreases in net purchases of property and equipment were $0.6 million compared to the nine months ended September 30, 2008.

Net cash flow used in financing activities was $1.3 million for the nine months ended September 30, 2009 and $0.6 million for the nine months ended September 30, 2008. The increase in 2009 was due to an early payoff of a $0.9 million loan balance in the third quarter. In the first quarter of 2008, the final payment was made on a 2.6 million euro loan.

Long-term Debt In February 2001, GPI SAS borrowed 2.6 million euros (approximately $2.4 million in February 2001) from an unaffiliated party. Principal and interest payments were due quarterly until February 2008. The loan was paid off in the first quarter of 2008.

In March 2002, GPI USA entered into a $995,000 loan transaction secured by a Deed of Trust on its Las Vegas building at an interest rate equal to the greater of (i) 8% per annum, or (ii) 362.5 basis points over the average of the London Interbank Offered Rates (LIBOR) for six-month dollar deposits in the London market based on quotations of major banks, but may not exceed 12% per annum. This loan was paid off early in September 2009 rather than through equal monthly installments through March 2012, at which time the entire remaining principal balance would have been due. There was no prepayment penalty.

In May 2004, GPI SAS entered into a 350,000 euro (approximately $423,000 in May 2004) loan transaction with a French bank. The loan has a fixed interest rate of 3.6% per annum, is due in May 2011, and is secured by a mortgage on the manufacturing facility in France. At September 30, 2009, the remaining balance is 91,000 euros ($134,000).

In June 2006, GPI SAS entered into a 1.5 million euro (approximately $1.9 million in June 2006) loan agreement with a French bank. The loan has a five-year term at a fixed rate of 3.4% per annum. The loan is repayable in fixed quarterly installments. The loan is secured by GPI SAS' marketable securities at the bank. GPI SAS must maintain a minimum balance of at least 500,000 euros ($732,000 at September 30, 2009). There are no prepayment penalties. At September 30, 2009, the remaining balance is 554,000 euros ($811,000).

. . .