8-K/A

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 2

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 1, 2006

SHUFFLE MASTER, INC.

(Exact name of registrant as specified in its charter)

Minnesota	0-20820	41-1448495
(State or Other Jurisdiction of	(Commission File Number)	(IRS Employer Identification No.)
Incorporation or Organization)

1106 Palms Airport Drive Las Vegas, Nevada	89119-3720
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (702) 897-7150

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE:

On February 1, 2006, Shuffle Master, Inc. (NASDAQ National Market: SHFL) (either the “Company,” “we” or “our”) filed a Current Report on Form 8-K (the “Report”) to report the completion of its acquisition of Stargames Limited (“Stargames”) under Item 2.01 of such Report. The Company hereby amends the Report to provide the required pro forma financial information under Item 9.01 (b) set forth below.

Item 2.01Completion of Acquisition or Disposition of Assets

On February 1, 2006, the Company announced that its wholly owned indirect subsidiary, Shuffle Master Australasia Pty. Ltd., completed its acquisition of Stargames by purchasing 95% of the outstanding Stargames shares for AU $1.55 per share.

The purchase price consisted of an Australian dollar-denominated cash payment of $148,400,000 and was funded by a temporary bridge loan (“Bridge Loan”). The Bridge Loan has a maturity date of April 24, 2006. The Company intends and believes it has the ability to refinance the Bridge Loan on a long-term basis. Financing options currently under consideration, include, but are not limited to (i) extension of the existing Bridge Loan, (ii) senior secured bank credit facility, (iii) convertible debt through the issuance by private placement pursuant to Rule 144A under the Securities Act of 1933 and (iv) secondary equity offering.

On March 8, 2006, the Company completed the compulsory process of acquiring the remaining outstanding shares of Stargames, thereby, giving the Company a 100% ownership interest.

The Stargames acquisition is being accounted for as a business combination, and accordingly, the Company is in the process of determining its preliminary allocation of the total purchase price, including other direct acquisition costs, of approximately  $114,337,000  (US denominated) to the fair value of the assets acquired and liabilities assumed. Stargames’ products have been assigned to the Company’s Entertainment Products segment. Beginning February 1, 2006, Stargames’ operating results will be included in the Company’s consolidated financial statements. Management expects this acquisition to be neutral to the Company’s earnings in fiscal 2006.

Stargames is based in Sydney, Australia and develops, manufactures and distributes a wide range of innovative electronic entertainment gaming products to worldwide markets. Its product offerings include Rapid Table Games™, Vegas Star® Multi-Terminal Gaming Machines, and a broad line of traditional video slot machines designed specifically for the Australian and Asian gaming markets. The Rapid series of games, which the Company already distributes in the Americas and the Caribbean, combines a live dealer with multi-terminal electronic wagering. Current offerings include Rapid Roulette®, Rapid Sic-Bo® and Rapid Big Wheel®. Vegas Star® Multi-Terminal Gaming Machines feature animated dealers and a selection of public domain table games. The Vegas Star® Nova line utilizes Stargames’ existing slot cabinet to extend the number of wagering terminals for a Vegas Star game, while minimizing the footprint required on the gaming floor. Stargames has approximately 190 employees including 80 in design and development.

Item 9.01Financial Statements and Exhibits

The following unaudited pro forma combined financial statements are included as Exhibit 99.2:

(b)Pro Forma Financial Information

·Unaudited pro forma combined balance sheet as of January 31, 2006.

·Unaudited pro forma combined balance sheet as of October 31, 2005.

2

·Unaudited pro forma combined statement of income for the three-months ended January 31, 2006.

·Unaudited pro forma combined statement of income for the twelve-months ended October 31, 2005.

Forward Looking Statements

There are statements herein which are forward-looking statements that are based on management’s beliefs, as well as on assumptions made by and information available to management. We consider such statements to be made under the safe harbor created by the federal securities laws to which we are subject, and, other than as required by law, we assume no obligation to update or supplement such statements.

These statements can be identified by the fact that they do not relate strictly to historical or current facts, and are based on management’s current beliefs and expectations about future events, as well as on assumptions made by and information available to management. These forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations, and intentions with respect to our financial condition, results of operations, future performance and business, including statements relating to our business strategy and our current and future development plans. When used in this report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “might,” “may,” “could,” “will” and similar expressions or the negative thereof, as they relate to us or our management, identify forward-looking statements.

Forward-looking statements reflect and are subject to risks and uncertainties that could cause actual results to differ materially from expectations. Risk factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:

·changes in the level of consumer or commercial acceptance of our existing products and new products as introduced;

·increased competition from existing and new products for floor space in casinos;

·acceleration and/or deceleration of various product development, promotion and distribution schedules;

·product performance issues;

·higher than expected manufacturing, service, selling, legal, administrative, product development, promotion and/or distribution costs;

·changes in our business systems or in technologies affecting our products or operations;

·reliance on strategic relationships with distributors and technology and manufacturing vendors;

·current and/or future litigation, claims and costs or an adverse judicial finding;

·tax matters including changes in tax legislation or assessments by taxing authorities;

·acquisitions or divestitures by us or our competitors of various product lines or businesses and, in particular, integration of businesses that we may acquire;

·changes to our intellectual property portfolio, such as the issuance of new patents, new intellectual property licenses, loss of licenses, claims of infringement or invalidity of patents;

·regulatory and jurisdictional issues (e.g., technical requirements and changes, delays in obtaining necessary approvals, or changes in a jurisdiction’s regulatory scheme or approach, etc.) involving us and our products specifically or the gaming industry in general;

·general and casino industry economic conditions;

3

·the financial health of our casino and distributor customers, suppliers and distributors, both nationally and internationally;

·our ability to meet debt service obligations and to refinance our indebtedness, including our senior convertible notes and our bridge loan, which will depend on our future performance and other conditions or events and will be subject to many factors that are beyond our control;

·various risks related to our customers’ operations in countries outside the United States, including currency fluctuation risk, which could increase the volatility of our results from such operations; and

·our ability to successfully and economically integrate the operations of any acquired companies, such as Stargames.

Additional information on these and other risk factors that could potentially affect our financial results may be found in other documents filed by us with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K.

4

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SHUFFLE MASTER, INC.

(Registrant)

Date: April 13, 2006

/s/ Mark L. Yoseloff

Mark L. Yoseloff

Chairman of the Board and Chief Executive Officer

5

EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

On February 1, 2006, Shuffle Master, Inc. (NASDAQ National Market: SHFL) (either the “Company,” “we” or “our”) announced that its wholly owned indirect subsidiary, Shuffle Master Australasia Pty. Ltd., completed its acquisition of Stargames Limited (“Stargames”) by purchasing 95% of the outstanding Stargames shares for AU $1.55 per share. Effective March 8, 2006, we had acquired 100% of the outstanding Stargames shares.

The following unaudited pro forma combined financial statements have been prepared from the historical financial statements of the Company and Stargames. The operations of Stargames for the 12-month period ended October 31, 2005 have been combined with the Company’s operations for the fiscal year ended October 31, 2005 and the operations of Stargames for the three-month period ended January 31, 2006  have been combined with the Company’s operations for the three-month period ended January 31, 2006. The pro forma combined statements of income give effect to the combination as if it had occurred on November 1, 2004 and November 1, 2005, respectively. The pro forma combined balance sheet gives effect to the combination as if it had occurred on October 31, 2005 and January 31, 2006, respectively. The pro forma adjustments are described in the accompanying notes presented on the following pages.

The unaudited pro forma combined financial statements also give effect to the disposition of certain non-core assets and liabilities of Stargames’ vending business, Professional Vending Services Pty. Ltd. (“PVS”).

The historical financial information related to Stargames was initially prepared in accordance with accounting principles generally accepted in Australia (“AGAAP”). Stargames fiscal year-end is June 30. The following unaudited pro forma combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), converted to US currency from Australian currency, and presented to align the year-end reporting with the Company’s October 31 fiscal year-end period.

Under the purchase method of accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their relative fair values, with the excess recorded as either goodwill or finite lived intangible assets. These unaudited pro forma combined financial statements reflect preliminary estimates of the fair values of the purchase price, assets acquired and liabilities assumed. The final determination of the purchase price allocation may differ from the amounts assumed in these unaudited pro forma combined financial statements. There can be no assurances given that any adjustments will not be material.

The unaudited pro forma combined financial statements are not necessarily indicative of what the financial position or results of operations would have been if the combination had occurred on the above-mentioned dates. Additionally, they are not indicative of future results of operations or financial position and do not reflect any synergies or other changes that may occur as a result of the acquisition. The unaudited pro forma combined financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended October 31, 2005 and the unaudited condensed consolidated financial statements for the three-months ended January 31, 2006, and Stargames’ audited consolidated statements of financial position as of June 30, 2005 and 2004, and the related consolidated statements of financial performance, and cash flows for each of the three years in the period ended June 30, 2005, filed previously as Exhibit 99.1 on Form 8-K/A Amendment No. 1. The financial statements filed as Exhibit 99.1 also include a reconciliation of the audited financial statements from AGAAP to US GAAP.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 2006
 (In thousands, except per share amounts)

	Shuffle Master, Inc.				Stargames (1)				PVS Disposition (2)				Pro Forma Adjustments				Pro Forma Combined
Revenue:
Utility products leases		$	6,010			$	—			$	—			$	—			$	6,010
Utility products sales and service		15,875				—				—				—				15,875
Entertainment products leases and royalties		6,255				—				—				—				6,255
Entertainment products sales and service		5,168				9,643				—				—				14,811
Vending products sales and service		—				654				(654		)		—				—
Other		10				—				—				—				10
Total revenue		33,318				10,297				(654		)		—				42,961
Costs and expenses:
Cost of leases and royalties		2,827				—				—				—				2,827
Cost of sales and service		7,095				6,487				(463		)		705		(a)		13,824
Selling, general and administrative		9,997				5,660				(307		)		353		(a)		15,703
Research and development		1,961				1,117				—				—				3,078
Total costs and expenses		21,880				13,264				(770		)		1,058				35,432
Income (loss) from operations		11,438				(2,967		)		116				(1,058		)		7,529
Other income (expense)		(490		)		(51		)		12				(1,898		)(b)		(2,427		)
Income (loss) from continuing operations before tax		10,948				(3,018		)		128				(2,956		)		5,102
Provision for income tax expense (benefit)		3,730				(992		)		41				(1,029		)(c)		1,750
Income (loss) from continuing operations		7,218				(2,026		)		87				(1,927		)		3,352
Basic earnings per share from continuing operations		$	0.21															$	0.10
Diluted earnings per share from continuing operations		$	0.20															$	0.09
Weighted average shares outstanding:
Basic		34,487																34,487
Diluted		35,692																35,692

(1)Includes the operations of PVS.

(2)Reflects the elmination of PVS.  See Note 3.

The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2005
 (In thousands, except per share amounts)

	Shuffle Master, Inc.				Stargames (1)				PVS Disposition (2)				Pro Forma Adjustments				Pro Forma Combined
Revenue:
Utility products leases		$	23,721			$	—			$	—			$	—		$	23,721
Utility products sales and service		43,308				—				—				—			43,308
Entertainment products leases and royalties		24,850				—				—				—			24,850
Entertainment products sales and service		20,689				50,755				—				—			71,444
Vending products sales and service		—				3,964				(3,964		)		—			—
Other		292				51				—				—			343
Total revenue		112,860				54,770				(3,964		)		—			163,666
Costs and expenses:
Cost of leases and royalties		9,692				—				—				—			9,692
Cost of sales and service		19,568				31,056				(2,805		)		2,865		(a)	50,684
Selling, general and administrative		30,559				14,671				(1,619		)		1,433		(a)	45,044
Research and development		7,784				4,368				(1		)		—			12,151
Total costs and expenses		67,603				50,095				(4,425		)		4,298			117,571
Income (loss) from operations		45,257				4,675				461				(4,298		)	46,095
Other expense		(1,657		)		(195		)		5				(6,750		)(b)	(8,597		)
Income (loss) from continuing operations before tax		43,600				4,480				466				(11,048		)	37,498
Provision for income tax expense (benefit)		14,496				1,177				153				(3,821		)(c)	12,005
Income (loss) from continuing operations		29,104				3,303				313				(7,227		)	25,493
Basic earnings per share from continuing operations		$	0.83														$	0.73
Diluted earnings per share from continuing operations		$	0.80														$	0.70
Weighted average shares outstanding:
Basic		34,924															34,924
Diluted		36,378															36,378

(1)Includes the operations of PVS.

(2)Reflects the elimination of PVS.  See Note 3.

The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 2006
 (In thousands)

	Shuffle Master, Inc.				Stargames (1)				PVS Disposition (2)				Pro Forma Adjustments				Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents		$	27,820			$	16			$	(1	)		$	(2,190	)(a)		$	25,364
														(281		)(c)
Cash restricted for acquisition		91,291												(91,291		)(a)
Investments		13,152				—				—				—				13,152
Accounts receivable, net		19,261				17,013				(577		)		—				35,697
Investment in sales-type leases and notes receivable, net		8,870				—				—				—				8,870
Inventories, net		8,293				11,780				(1,422		)		—				18,651
Prepaid income taxes		—				1,798				(69		)		—				1,729
Deferred income taxes		2,046				887				(45		)		—				2,888
Other current assets		6,861				991				(88		)		281		(c)		8,045
Total current assets		177,594				32,485				(2,202		)		(93,482		)		114,396
Investment in sales-type leases and notes receivable, net		11,610				—				—				—				11,610
Products leased and held for lease, net		9,506				—				—				—				9,506
Property and equipment, net		3,962				4,861				(234		)		315		(b)		8,904
Intangible assets, net		47,170				—				—				25,387		(b)		72,557
Goodwill		36,554				2,208				—				69,237		(b)		105,791
														(2,208		)(e)
Deferred income taxes		2,387				—				—				—				2,387
Cost method investment		20,856												(20,856		)(b)
Other assets		11,433				754				(279		)		—				11,908
Total assets		$	321,072			$	40,308			$	(2,715	)		$	(21,607	)		$	337,059
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	5,074			$	3,225			$	(515	)		$	—			$	7,784
Accrued liabilities		4,091				13,649				(229		)		600		(d)		18,111
Customer deposits and unearned revenue		5,399				—				—				—				5,399
Income taxes payable		2,837				—				—								2,837
Note payable and current portion of long-term liabilities		117,823				864				(622		)		—				118,065
Total current liabilities		135,224				17,738				(1,366		)		600				152,196
Long-term liabilities, net of current portion		159,688				364				(116		)		—				159,936
Deferred income taxes		62				—				—				—				62
Total liabilities		294,974				18,102				(1,482		)		600				312,194
Contingencies
Shareholders’ equity:
Preferred stock		—				—				—				—				—
Common stock		347				—				—				—				347
Additional paid-in capital		3,378				30,371				(7,459		)		(30,371		)(f)		(4,081		)
Deferred compensation		(5,472		)		—				—								(5,472		)
Retained earnings (deficit)		24,651				(8,165		)		6,226				8,165		(f)		30,877
Accumulated other comprehensive income		3,194				—				—				—				3,194
Total shareholders’ equity (deficit)		26,098				22,206				(1,233		)		(22,207		)		24,865
Total liabilities and shareholders’ equity		$	321,072			$	40,308			$	(2,715	)		$	(21,607	)		$	337,059

(1)Includes the assets, liabilities and shareholders’ equity of PVS.

(2)Reflects the elimination of PVS. See Note 3.

The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 31, 2005
 (In thousands)

	Shuffle Master, Inc.				Stargames (1)				PVS Disposition (2)				Pro Forma Adjustments				Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents		$	13,279			$	16			$	(1	)		$	115,000	(a)		$	13,675
														(114,338		)(b)
														(281		)(c)
Investments		20,809				—				—				—				20,809
Accounts receivable, net		17,865				14,180				(639		)		—				31,406
Investment in sales-type leases and notes receivable, net		8,219				—				—				—				8,219
Inventories, net		9,428				11,576				(1,435		)		—				19,569
Prepaid income taxes		—				646				(131		)		—				515
Deferred income taxes		1,837				1,716				(40		)		—				3,513
Other current assets		3,255				1,313				(120		)		281		(c)		4,729
Total current assets		74,692				29,447				(2,366		)		662				102,435
Investment in sales-type leases and notes receivable, net		11,136				—				—				—				11,136
Products leased and held for lease, net		9,163				—				—				—				9,163
Property and equipment, net		4,144				4,696				(186		)		315		(b)		8,969
Intangible assets, net		48,477				—				—				25,787		(b)		74,264
Goodwill		36,017				2,341				—				70,171		(b)		106,188
														(2,341		)(e)
Deferred income taxes		2,400				—				—				—				2,400
Other assets		7,088				1,424				(369		)		—				8,143
Total assets		$	193,117			$	37,908			$	(2,921	)		$	94,594			$	322,698
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	3,540			$	3,335			$	(629	)		$	—			$	6,246
Accrued liabilities		6,547				7,317				(254		)		600		(d)		14,210
Customer deposits and unearned revenue		3,518				461				—				—				3,979
Income taxes payable		371				2,572				—				—				2,943
Note payable and current portion of long-term liabilities		3,082				2,744				(466		)		—				5,360
Total current liabilities		17,058				16,429				(1,349		)		600				32,738
Long-term liabilities, net of current portion		162,659				305				(73		)		115,000		(a)		277,891
Deferred income taxes		—				168				—				—				168
Total liabilities		179,717				16,902				(1,422		)		115,600				310,797
Contingencies
Shareholders’ equity:
Preferred stock		—				—				—				—				—
Common stock		345				—				—				—				345
Additional paid-in capital		—				30,006				(7,372		)		(30,006		)(f)		(7,372		)
Deferred compensation		(5,788		)						—								(5,788		)
Retained earnings (deficit)		17,298				(9,000		)		5,873				9,000		(f)		23,171
Accumulated other comprehensive income		1,545				—				—				—				1,545
Total shareholders’ equity (deficit)		13,400				21,006				(1,499		)		(21,006		)		11,901
Total liabilities and shareholders’ equity		$	193,117			$	37,908			$	(2,921	)		$	94,594			$	322,698

(1)Includes the assets, liabilities and shareholders’ equity of PVS.

(2)Reflects the elimination of PVS. See Note 3.

The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands, except per share amounts)

1.Basis of Presentation

The accompanying unaudited pro forma condensed combined financial statements present the pro forma results of operations and financial position of Shuffle Master, Inc. (NASDAQ National Market: SHFL) (either the “Company,” “we” or “our”) and Stargames Limited (“Stargames”) on a combined basis based on the historical financial information of each company and after giving effect to the acquisition of Stargames by the Company. The acquisition has been accounted for using the purchase method of accounting, with the Company as the acquirer.

Historical financial information for the Company as of and for the three-months ended January  31, 2006, and the year ended October 31, 2005, has been derived from the Company’s historical financial statements.

Historical financial information for Stargames as of and for the three-months ended January 31, 2006, and the twelve-month period ended October 31, 2005, has been derived from Stargames’ historical financial statements. Certain adjustments to conform to US GAAP presentation, including reclassifications to conform to the Company’s presentation have been made to the historical financial statements of Stargames.

For purposes of the unaudited pro forma condensed combined balance sheet, we assumed the acquisition occurred on October 31, 2005 and January 31, 2006, respectively. For purposes of the unaudited pro forma condensed combined statements of income, we assumed the acquisition occurred on November 1, 2004 and November 1, 2005, respectively.

The unaudited pro forma condensed combined financial statements have been prepared based upon currently available information and assumptions that are deemed appropriate by the Company’s management.  The pro forma information is for informational purposes only and is not intended to be indicative of the actual consolidated financial position or consolidated results that would have been reported had the transactions occurred on the dates indicated, nor does this information represent a forecast of the consolidated financial position at any future date or the combined financial results of the Company and Stargames for any future period.

Historical financial information for Stargames for the three-months ended January 31, 2006 includes certain non-recurring expenses of approximately $2,000 included in selling, general, and administrative expenses. These expenses include a “success fee” related to the ultimate sale of Stargames to the Company and the expense related to a potential Australian Good and Services Tax liability associated with export sales in the period December 2001 through November 2005. Additionally, the three-month period ended January 31 has historically been a seasonally slower period for Stargames.

Key Accounting Differences in US GAAP versus AGAAP

As a result of the conversion of the Stargames financial information to US GAAP from AGAAP, revenue of $5,600 for the twelve-months ended October 31, 2005 and $600 for the three-months ended January 31, 2006, was reversed and the associated costs are reflected in inventory for the respective period.

Under AGAAP, revenue from the sale of goods is recognized when control of the goods has passed to the buyer and it is probable that economic benefits will flow to the entity.

Under US GAAP, revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.

Stargames revenue was adjusted primarily due to bill and hold sales that did not meet the delivery criteria under US GAAP. Staff Accounting Bulletin No. 104 (“SAB104”), Revenue Recognition, was issued in December 2003, and provides guidance for the recognition of bill and hold sales. In accordance with SAB 104, delivery generally is not considered to have occurred unless the product has been delivered to the

customer’s place of business or another site specified by the customer. If the customer specifies an intermediate site but a substantial portion of the sales price is not payable until delivery is made to a final site, then revenue should not be recognized until final delivery has occurred.

Other revenue adjustments included timing differences resulting from sales cut-off. Stargames shipping terms for domestic sales have historically been FOB destination. Under AGAAP, domestic sales are recorded upon shipment (deemed to be the point at which control passes to the buyer) while under US GAAP, such sales are recorded at the time of customer receipt (consistent with the contractual terms of the sale).

2.Preliminary Purchase Price Allocation

Consideration to Stargames consists of an Australian-denominated cash payment of AU$148,441 or $112,147 US denominated. In addition, the Company estimates its total direct acquisition costs, consisting primarily of legal and due diligence fees, to be approximately $2,190. The following table sets forth the determination of the consideration paid for Stargames at the date of acquisition:

Cash	$	112,147
Other direct acquisition costs	2,190
Total purchase price	$	114,337

The preliminary pro forma allocation of the purchase price is as follows:

Historical book value of Stargames net assets as of January 31, 2006	$	19,998
Estimated fair value adjustments relating to:
Land	315
Intangible assets, average life of 6 years	25,387
Goodwill	69,237
PVS disposition	(600		)
	$	114,337

The preliminary purchase price allocation used for the purpose of this pro forma financial information is based on Stargames’ book value of assets and liabilities as of January 31, 2006. The final purchase price and its allocation will be based on independent appraisals, discounted cash flows, and estimates by management and will be completed within one year from closing of the transaction.

Finite-Lived Intangible Assets

Intangible assets relate primarily to acquired products and their related intellectual property, primarily the Electronic Gaming Machines, the Rapid products, the Vegas Star product, and other patents and trademarks.

Indefinite-Lived Assets

We have not assessed the value of potential indefinite-lived intangible assets for purposes of the preliminary purchase price allocation. Allocation of the purchase price to such indefinite-lived intangible assets, which may include tradenames and trademarks, is currently reflected in goodwill, and any recharacterization would not have any impact on pro forma depreciation and amortization expense.

In-Process Research and Development

We have not assessed the value of potential in-process research and development (“IPR&D”) for purposes of the preliminary purchase price allocation. Allocation of the purchase price to such IPR&D is currently reflected in goodwill, and any recharacterization would not have any impact on pro forma research and development expense since such amounts would be expensed immediately upon acquisition.

In the identification of intangible assets, consideration will be given to whether any technology that is identified is developed or in-process. The AICPA Practice Aid “Assets Acquired in a Business Combination to Be Used in Research and Development Activities: A Focus on Software, Electronic Devices and Pharmaceuticals Industries” gives guidance on the factors that should be considered when identifying IPR&D.

IPR&D is defined as a development project that has been initiated and achieved material progress but has not yet resulted in a commercially viable product. The fair value will be determined using the income approach on a project-by-project basis. This method is based on the present value of earnings attributable to the asset or costs avoided as a result of owning the assets. This method includes risk factors, which include applying an appropriate discount rate that reflects the project’s stage of completion, the nature of the product, the scientific data associated with the technology, the current patent situation and market competition.

The forecast of future cash flows require the following assumptions to be made:

·Revenue that is likely to result from specific IPR&D projects, including the likelihood of approval of the product, estimated number of units to be sold, estimated selling prices, estimated market penetration and estimated market share and year-over-year rates over the product life cycles;

·Cost of sales related to the potential products using historical data, industry data or other sources of market data;

·Sales and marketing expense using historical data, industry data or other market data;

·General and administrative expenses; and

·Research and development expenses.

3. Disposition of PVS

Professional Vending Services Pty Ltd. (“PVS”), a wholly-owned subsidiary of Stargames and headquartered in Sydney, Australia, designs, develops, and manufacturers automatic vending machines. PVS offers exclusive equipment in all main vending segments including snacks, cold drinks, food (hot and cold), coffee and cigarettes.

The Company has determined that the operations of PVS are non-core to its gaming entertainment and utility operating segments. Accordingly, the Company has entered into a preliminary agreement to sell the assets and liabilities of PVS. The pro forma adjustments have valued the assets and liabilities in accordance with the preliminary sales agreement.

4. Pro Forma Statements of Income Adjustments

The following are brief descriptions of the pro forma adjustments to the statements of income to reflect the Company’s acquisition of Stargames. Estimated useful lives and amortization periods of property, equipment and intangible assets will be determined during the purchase price allocation and adjusted accordingly.

(a)Adjustment to record amortization of intangible assets based on the method described above assuming these assets were acquired on November 1, 2005 and November 1, 2004, respectively. The amortization expense of these assets has been applied on a straight-line basis over an estimated 6 year life.

(b)Adjustment to record pro forma interest expense related to new borrowings used to fund the Stargames acquisition.In January 2006, the Company borrowed $115,000 funded by a temporary bridge loan (the “Bridge Loan”) with a 90 day maturity. The Bridge Loan is unsecured and bears interest at a rate of 5.625% per annum over the initial 90 term of the Bridge Loan. The Company used the proceeds from the Bridge Loan to fund the Stargames purchase price. The pro forma adjustment reflects a pro rata allocation of interest expense and amortization of debt issuance

costs assuming the Bridge Loan had been issued on November 1, 2005. The Company intends and believes it has the ability to refinance the Bridge Loan on a long-term basis. Financing options currently under consideration, include, but are not limited to (i) extension of the existing Bridge Loan, (ii) senior secured bank credit facility, (iii) convertible debt through the issuance by private placement pursuant to Rule 144A under the Securities Act of 1933 and (iv) secondary equity offering. A 0.125% change in the estimated interest rate would result in a $144 change in pro forma interest expense for the year ended October 31, 2005 and a $36 change in pro forma interest expense for the three-month period ended January 31, 2006.

(c)Adjustment to record the tax effect of intangible asset amortization at Stargames’ statutory rate of 30% and interest expense based on the Company’s federal statutory rate of 35% plus a state income tax rate of 2.6%.

5.Pro Forma Balance Sheets Adjustments

(a)Records the Bridge Loan and related proceeds used to finance the acquisition.

(b)Records the acquisition of 100% of Stargames and reflects as goodwill and other intangible assets the excess of the purchase price over the estimated  fair value of net tangible assets acquired and liabilities assumed.

(c)Records the deferred financing costs incurred related to the Bridge Loan used to finance the acquisition.

(d)Records disposal liability related to PVS vending business.

(e)Records the write-off of historical Stargames goodwill.

(f)Records the elimination of Stargames shareholders’ equity.

6.Cost Savings, Merger-Related Charges and Operational Efficiencies

The unaudited pro forma condensed combined financial statements do not reflect any benefit from revenue opportunities, including enhanced distribution channels or the integration of products, as well as cost savings related to duplicative departments and redundant infrastructure, and the benefit of operational efficiencies.

The unaudited pro forma condensed combined financial statements do not reflect any restructuring or other acquisition-related charges and liabilities resulting from actions taken as a result of the integration of Stargames, such as certain exit activities, contract terminations or severance, expect for the disposition of PVS as described above.