UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                 |                                                                                         
|------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended October 31, 2005
|OR                                        
|o                                          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. (0-20820)

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LOGO

SHUFFLE MASTER, INC.(Exact name of registrant as specified in our charter)

|Minnesota(State or other jurisdiction of
incorporation or organization)            |  | 41-1448495(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------- |  | ----------------------------------------------
|1106 Palms Airport Drive
Las Vegas, Nevada(Address of principal executive offices) |  | 89119(Zip Code)                               
|702-897-7150(Registrant's telephone number, including area code)                  

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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share

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Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities
Act.    Yes o No ý

If this report is annual or transition, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934.    Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes o No ý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2).    Yes ý No o

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2).    Yes o No ý

As of February 21, 2006, 34,722,157 shares of Common Stock of the registrant were outstanding. The aggregate market value of Common Stock beneficially owned by
non-affiliates on that date was $825,257,716 based upon the last reported sale price of the Common Stock at that date by The NASDAQ National Market.

DOCUMENTS INCORPORATED BY REFERENCE

Parts II and III of this Annual Report on Form 10-K incorporate by reference information from the Registrant's Proxy Statement for its Annual
Meeting of Shareholders to be held on March 27, 2006 ("Fiscal 2005 Proxy Statement") to be filed with the SEC within 120 days of the end of the fiscal year covered by this report.



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SHUFFLE MASTER, INC.  ANNUAL REPORT OF FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2005    TABLE OF CONTENTS

|           |  |                                                                                                              |  | Page
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|Part I    
|Item 1.    |  | Business                                                                                                     |  | 1   
|Item 1A.   |  | Forward Looking Statements and Risk Factors                                                                  |  | 18  
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 26  
|Item 2.    |  | Properties                                                                                                   |  | 26  
|Item 3.    |  | Legal Proceedings                                                                                            |  | 26  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 26  
|Part II   
|Item 5.    |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 27  
|Item 6.    |  | Selected Financial Data                                                                                      |  | 29  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 31  
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 62  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 62  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 105 
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 105 
|Item 9B.   |  | Other Information                                                                                            |  | 110 
|Part III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                           |  | 111 
|Item 11.   |  | Executive Compensation                                                                                       |  | 111 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 111 
|Item 13.   |  | Certain Relationships and Related Transactions                                                               |  | 111 
|Item 14.   |  | Principal Accounting Fees and Service                                                                        |  | 111 
|Part IV   
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 112 
|Signatures |  | 115                                                                                                         

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PART I  (Dollars in thousands, except per share amounts)

ITEM 1. BUSINESS

OUR IDENTITY

We
are a gaming supply company that specializes in providing our casino customers Utility Products, including automatic card shufflers, intelligent table system components, and roulette chip sorters,
to improve our casino customers' profitability, productivity and security, and Entertainment Products, including proprietary table games and Table Master games, to expand our casino customers' gaming
entertainment content. As of October 31, 2005, we had an installed unit base of approximately 18,589 shufflers and approximately 3,681 table games. Installed base is the sum of the product
units under lease or license agreements and inception-to-date sold units. We believe that installed units is an important gauge of segment performance because it measures
historical market placements of leased and sold units and it provides insights into potential markets for service and next generation products. Some sold units may no longer be in use by our casino
customers or may have been replaced by other models. Accordingly, we are unable to determine precisely the number of units currently in use.

We
are a Minnesota corporation that was formed in 1983. We conducted our initial public offering and became a Nasdaq-listed public company in 1992. Our corporate offices are located at 1106 Palms
Airport Drive, Las Vegas, Nevada 89119 and our telephone number is 702-897-7150.

We
maintain an Internet website at www.shufflemaster.com and we make available on the website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, as soon as reasonably practicable after filing such material electronically with the Securities and Exchange Commission. We also provide a variety of other information
including all of our press releases. We have included our website address in this filing only as a textual reference. The information contained on our website is not incorporated by reference into
this annual report or on Form 10-K.

We
group our product offerings into two business segments, summarized as follows:

1

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The
table below presents our product lines and the percentage of total revenue from continuing operations contributed by each product line in the fiscal years ended October 31:

|                        |                                         | Percentage of Total Revenue
|----------------------- | --------------------------------------- | ---------------------------
|
|
|Utility Products:       |                                         |                            
|                        | Shufflers                               |                            
|                        | Chippers                                |                            
|                        | Intelligent Table System and Bloodhound |                            
|Entertainment Products: |                                         |                            
|                        | Proprietary Table Games                 |                            
|                        | Table Master                            |                            
|                        | Rapid Roulette                          |                            
|Other revenue           |                                         | *                          
|                        |                                         |                            
|                        |                                         | 100.0%                     
|                        |                                         |                            

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*
Less than 1%

For
additional information about our segments, including segment revenue, operating income and assets, see "Item 6. Selected Financial Data," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" included elsewhere in this Annual Report.

OUR STRATEGY

We
are proud of the products that we have developed and market and are pleased with our success as we continue our growth and expansion. Our product strategies, in no particular order, for the future
are:

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OUR UTILITY PRODUCTS SEGMENT

Since
our founding, we have developed and marketed products that increase the productivity, security and operating profits of the table game operations of our casino and other customers. Our automatic
card shufflers were the first such product. We expect to soon add additional modules, such as our automated Bloodhound products, to our Intelligent Table System (described below), now under
development, and we have added our chip sorting and tracking devices to this product segment. We believe that our casino and other customers are seeking to increase the operating returns of their
table game operations. By introducing a combination of technologies our Utility Products increase the profitability, productivity and security for casino and other customers in their table game
operations.

Our Shuffler Products.We currently market a complete range of shufflers, including both batch and
continuous shufflers. Single deck shufflers are generally used on proprietary table games such as our own Let It Ride® and Three Card Poker® games. Multi-deck
shufflers, which include continuous and batch versions, are most commonly used in multi-deck blackjack and mini-baccarat table games. Additionally, we offer a single
deck/double deck shuffler, the Deck Mate®, for use on live stakes poker tables and single or double deck table games.

Our
shufflers significantly reduce the opportunity for card manipulation by dealers, resulting in increased security. By allowing cards to be shuffled continuously or in frequent batches, our
shufflers reduce or eliminate card counting and shuffle tracking. Because our shufflers shuffle one or more decks while a game is being played, down-time related to dealer shuffling is
also significantly reduced, with the potential for a corresponding increase in playing time and win for the casino.

Our
existing shuffler products, in no particular order, are the following:

|ACE® |  | A single deck shuffler using an innovative card distribution mechanism and sophisticated software featuring random number algorithms and movements to shuffle cards and form hands or groups of cards. The ACE was introduced in
January 1999.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                                               

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|Deck Mate® |  | A single deck/double deck batch shuffler where cards are randomly shuffled and placed onto a platform according to computer-generated instructions. The unit may be flush mounted on either a poker table or on an extension to a blackjack table. The
Deck Mate was introduced in October 2002.                                                                                                                                                                                                                                                                                                
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|King®      |  | A multi-deck continuous shuffler using technology similar to the ACE, with up to five decks of shuffled cards that are dealt continuously and directly from the machine and that are reloaded immediately after a hand is played. The King was introduced
in January 2000.                                                                                                                                                                                                                                                                                                                      
|one2six   |  | A shuffler that accommodates up to six decks of cards and can be used for almost every casino card game. Acquired as part of the acquisition of CARD in May 2004, the one2six shuffler was first introduced internationally in 2002.                                                                                                                                                                                                                                                                                                                                                            
|MD1       |  | A multi-deck batch shuffler that shuffles from two to eight decks, used primarily for multiple deck blackjack or mini-baccarat games. The MD1 was introduced in late fiscal 1994.                                                                                                                                                                                                                                                                                                                                                                                                               
|MD2®       |  | Our next generation multi-deck batch shuffler that is faster and quieter and has a more aesthetically pleasing profile and shuffles from two to eight decks. The MD2 also includes the optional feature of optical card recognition. This enhanced
security feature identifies each and every card to verify that the deck or group of decks are intact and integrates with our Intelligent Table System (discussed below). Additionally, the MD2 can operate as a stand-alone workstation that provides
back-of-house deck checking and verification. The MD2 was introduced in September 2003.

Our Chip Sorting Machine Products.As part of the CARD acquisition in May 2004, we acquired a
next generation chip sorting machine, the Easy Chipper. The Easy Chipper simplifies the handling of gaming chips and accurately tracks chip volume and value, which increases the productivity and
security on tables with high chip volume, such as Roulette.

|Easy Chipper® |  | This chip sorting device simplifies the process of handling gaming chips on Roulette tables by directly ejecting the chips from the hopper wheel into the tubes with its state-of-the-art ejection system. It has a color reading system that quickly and
accurately sorts up to ten different colored chips while separating non-programmed ones. When equipped with the optional Intelligent Chip Tree, the Easy Chipper enables accurate tracking of the chip volume and value.
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Other Utility Products.We have acquired or are developing technology to enable casinos and
others to track and analyze play on their table games. This technology combines computer software and hardware, Radio Frequency Identification ("RFID") and the optical card reading features of our
next generation of shufflers.

Our
other Utility Products are the following:

|Intelligent Table System |  | This system is currently under joint development with IGT and PGIC and will be a comprehensive, automated table management solution using complementary capabilities, technologies and resources of the three companies.
|------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |  |                                                                                                                                                                                                                         

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|            |  | Under the terms of the arrangement, we will provide automatic card shufflers, card reading intelligent shoes, card and chip sorters, and verifiers. IGT will provide back-end table gaming management systems including player tracking, patron loyalty
and rewards, as well as bonusing applications. PGIC will provide RFID bet recognition, automated gaming chip tracking and payoff recognition. Each company will cooperatively interface their respective products into a combined product offering known
as the Intelligent Table System. Additionally, the arrangement also provides a framework for the cooperative development of new technologies and products that build on automated table management and real-time monitoring of player
activity.
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bloodhound® |  | In conjunction with our Intelligent Table System products, we are developing a software product that will automatically gather data and enable casinos to track table game players more efficiently and accurately. On February 1, 2006, ownership of
the non-automated version of Bloodhound reverted to Casino Software and Services, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                    

Customers and Marketing.We market our Utility Products to legal casinos and other gaming
establishments around the world with our direct domestic and international sales force and several international distributors.

Our
products and the locations in which we may sell are subject to the licensing and product approval requirements of various national, state, provincial, or tribal jurisdictional agencies that
regulate gaming around the world (see additional discussion under "Gaming Regulation"). We sell and lease our Utility Products. When we lease our products, we generally negotiate a
month-to-month operating lease. When we sell our products, we offer our customers a choice between a sale or a longer-term sales-type lease or other
financing arrangements, depending on the needs of each customer.

Historically,
we marketed our shufflers in the table game areas of the casino. With the commercialization of the Deck Mate shuffler, we have extended the market for shufflers into casino poker rooms
and single deck or double deck blackjack tables. As a result, we now market a full line of shufflers to accommodate virtually all of our customer's shuffler needs.

Competition.We compete with other gaming and entertainment products for space on the casino
customer's floor, as well as for our customer's capital spending. Some of the larger gaming supply companies with whom we compete with in this regard are IGT, Alliance Gaming Corporation, WMS
Industries, Inc., and Aristocrat Leisure Limited.

We
also compete with VendingData Corporation, a U.S. company that markets batch and continuous versions of its multi-deck shuffler, the Random Ejection Shuffler and more
recently their single deck shuffler, the Poker One. Historically, VendingData Corporation has attempted to compete with our shuffler products on the basis of price. We compete on this
basis as well as on the basis of offering a complete line of shufflers, product reliability, a superior service network, the strength of our intellectual property, and the breadth of our sales,
regulatory, and distribution channels. Additionally, other companies may develop and market shufflers and seek to develop and obtain regulatory approvals of additional shuffler products. We cannot
provide assurances that a competitive product will not gain substantial placements or cause price erosion of our shufflers in the future.

With
respect to our recently-introduced Easy Chipper product, several companies also manufacture and sell competitive chipper products. We believe the most successful of these products is the Chipper
Champ Plus, sold by TCS John Huxley.

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Product Supply.We obtain most of the parts for our Utility Products from outside suppliers,
including both off-the-shelf items as well as components manufactured to our specifications. We also manufacture a small number of parts in-house that are used both
for product assembly and for servicing existing products. We generally perform final assembly ourselves and then warehouse and ship our products from our facilities in Las Vegas. Warehousing, quality
control, final assembly and shipping are conducted primarily at our Las Vegas facility, although small inventories are maintained and repairs are performed by our field service employees. Our one2six
and Easy Chipper products are manufactured by a subcontract manufacturer, located in Salzburg, Austria, who also inventories and ships these products. We believe that our sources of supply for
components and raw materials are adequate and that alternative sources of materials are available.

Research and Development.We employ a staff of electrical, mechanical and software engineers to
support, improve and upgrade our existing shufflers, to develop new shufflers, to develop technology and products related to our automated Bloodhound software and the Intelligent Table System and to
explore other potential table-related products. We perform the majority of our domestic research and development ourselves. We also use a foreign, third party developer for certain of our
international product offerings.

OUR ENTERTAINMENT PRODUCTS SEGMENT

Our Entertainment Products segment includes our proprietary table games and our Table Master multi-player video platform. The products in this segment include
proprietary table game content that is delivered on different live-dealt and electronic platforms.

Our
existing proprietary table games, in no particular order, are the following:

|Premium Games      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Let It Ride®       |  | The basic Let It Ride table game is a five-card stud poker game in which players are paid according to a fixed payout schedule. Players place three separate but equal bets and are dealt three cards face down. Two community cards are also dealt face
down in front of the dealer. After looking at their cards, players then have the option to withdraw their first bet. The dealer then turns over one of the community cards, which becomes a common fourth card to all players at the table, and the
players each have the opportunity to withdraw their second bet (the third bet always remains on the table and cannot be withdrawn). The dealer then turns over the second community card, which becomes a common fifth and final card to all players and
winning hands are paid according to a predetermined payout schedule.
|Let It Ride Bonus® |  | The Let It Ride Bonus game provides a format that adds a bonus bet and pay table bonuses to the basic Let it Ride table game. It is played in the same manner as the basic game except that the player has an option to make an additional side wager,
known as the bonus bet. The bonus bet qualifies the player to be eligible to receive large bonus payouts from a separate payout schedule, in addition to the underlying payouts of the basic game. Additionally, we now offer a 3 Card Bonus side
bet which rewards players if their first three cards are a pair or better. This wager is made at the beginning of the game when the standard and Let It Ride Bonus wagers are placed.                                                                                                                                           
|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|Three Card Poker®       |  | Players place wagers on three-card stud hands, with options to bet against the dealer hand, bet on the value of their own hand, or both. Winning hands are paid according to a pre-determined payout schedule and bonus payouts may be earned on certain
high ranking hands.                                                                                                                                           
|----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Four Card Poker®        |  | Players receive five cards to make a best four-card poker hand. The game features head-to-head play versus the dealer and an optional bonus bet. Players may "triple down" against the dealer, providing high game volatility.                                                                                                                                                                                         
|Crazy 4 Poker®          |  | Players receive five cards to make a best four-card poker hand. The game features head-to-head play versus the dealer and an optional bonus bet. Players may "triple down" against the dealer when their hand contains a pair of Aces or higher, providing
high game volatility.                                                                                                                                       
|Ultimate Texas Hold'em |  | Players receive two hole cards that will be combined with five community cards to make their best five-card poker hand. The game features head-to-head play versus the dealer and an optional bonus bet that pays odds if the player's final five-card
hand is a three-of-a-kind or higher and players have the option to check through the river.                                                                     
|Mississippi Stud       |  | Players receive two cards that will be combined with three community cards to make a five-card poker hand. The players compete against a paytable rather than the dealer and win if their hand is a pair of 6s or better.                                                                                                                                                                                              
|Casino War®             |  | Players make a wager and if their card is higher than the dealer's card, they win even money. If a player's card matches the dealer's card, they are at war and can either quit play by surrendering half of their wager or can continue to play by going
to war. If the player chooses to go to war, both the player and the dealer match the original wager and receive another card. The highest card wins the hand.
|Side Bet Games          |  |                                                                                                                                                                                                                                                                                                                                                                                                                        
|Fortune Pai Gow Poker®  |  | Fortune Pai Gow Poker is an optional bonus bet that considers the best hand possible among the player's seven cards. Players may bet any amount within table limits; however, a Fortune bet of at least $5 qualifies them for Envy Bonus payouts. Players
win the Envy Bonus when someone else at the table receives a four of a kind or higher.                                                                       
|Royal Match 21         |  | Royal Match 21 is an optional bonus bet for blackjack that considers the first two cards the player receives. If the cards are the same suit or a Royal Match (a King and Queen in suit), the player wins. An optional Crown Treasure bonus wager may be
made which awards the player if they and the dealer each receive a Royal Match.                                                                               
|Bet the Set "21"       |  | Bet the Set "21" is an optional bonus bet for blackjack that considers the first two cards the player receives. If the player's first two cards are a pair or a suited pair, the player wins.                                                                                                                                                                                                                          
|Fortune Blackjack      |  | Fortune Blackjack is an optional bonus bet for blackjack that considers the first two cards the player receives. If the player's first two cards total 20 or 21, the player wins.                                                                                                                                                                                                                                      
|Dragon Bonus®           |  | Dragon Bonus is an optional bonus bet for baccarat where players win when their selected hand is a natural winner or wins by at least four points.                                                                                                                                                                                                                                                                     
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                        

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|Progressive Jackpot
Pai Gow Poker |  | Progressive Jackpot Pai Gow Poker combines the thrill of a progressive wager with the excitement of traditional pai gow poker. This dynamic combination gives players the opportunity to win all or part of the progressive jackpot with just a $1 side
bet. To begin each round, players make their standard pai gow wagers and a Progressive Jackpot wager. The dealer then follows house rules for traditional pai gow poker. Players win all or part of the Progressive Jackpot when their hand contains a
natural four-of-a-kind or three Aces and a Joker, or better. Players are paid once the winning hand and the jackpot amount is verified. The game is also available in a non-progressive version, Jackpot Pai Gow Poker, which considers a player's
best five-card or "high" hand. The Jackpot wager is made in addition to the standard pai gow wager and wins or loses regardless of whether the traditional bet wins, loses or pushes.
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are continuously developing new table games and have numerous other games in various stages of development to complement our existing offerings and to extend our penetration
of the proprietary table game market.

Our Other Entertainment Products.In addition to our live proprietary table games, we have developed
or acquired other technology or platforms to deliver our or others' proprietary table game content or public domain games. We are developing these platforms to enable the marketing of our table game
content into previously unpenetrated international and domestic racino markets. These different platforms are described below:

|Table Master |  | The Table Master unit is an electronic version of a card table game which features a video screen that projects a virtual video dealer who interacts with players on each of five included betting stations. The unit also possesses a video tabletop that
virtually shows player cards, play and bets and uses a player-activated button panel that simulates the player options of a live table game.                                                                                     
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  | Important features of this product include the ability to offer our table game content without a live dealer and the ease of cost-efficient conversion to different table game content. We acquired this platform as part of our acquisition of certain
assets and intellectual property from Sega Gaming Technology, Inc. ("Sega") in April 2003. In the future, we may develop new gaming products from the other multi-player games acquired from Sega under the Table Master brand name.

Customers and Marketing.We market our Entertainment Products to the same customers to whom we market
our Utility Products. We first began offering table games in 1993 to increase the demand for our shuffler products and we still routinely install shufflers and proprietary table games together. We
design our proprietary table games to have broad appeal to players who enjoy a more casual
and social card game or who are new to or intimidated by traditional table games. Our various table games offer casinos and players a wide variety of betting propositions and risk and reward
trade-offs.

With
the introduction of our recently-developed Table Master product, which does not utilize a live dealer, we are able to market our proprietary table game content in unpenetrated jurisdictions that
only allow slot games, such as racinos (race tracks that also offer slot games). Additionally, we will be able to market our dealer-less Table Master games to casinos who want more
cost-effective table products or who want to offer lower stakes table games.

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We
typically market our table games directly to casinos by licensing the games for a monthly fixed fee. In fiscal 2003, we began selling lifetime licenses of our table games such as Let It Ride and
more recently, Three Card Poker. We also lease our table games in international jurisdictions.

Competition.We compete with other gaming and entertainment products for space on the casino
customer's floor, as well as for our customer's capital spending. Some of the larger gaming supply companies with whom we compete with in this regard are IGT, Alliance Gaming Corporation, WMS
Industries, Inc., and Aristocrat Leisure Limited.

The
market for live table games is characterized by numerous competitors who develop and license proprietary table games. Some of our competitors' widely known proprietary table game titles include
PGIC's Caribbean Stud® and Texas Hold'em Bonus, Galaxy Gaming's Lucky Ladies and Masque Publishing's Spanish 21®, among others.

Competition
in the table game market is typically on the basis of price, brand recognition, and the strength of underlying intellectual property. Smaller developers and vendors are more able to
participate in developing and marketing table games, compared to other gaming products, because of the lower cost and complexity associated with the development of these products. We compete on these
bases, as well as on the strength of our extensive sales, service and distribution channels. We have been able to increase our placements of table games not only because of the growth of the
proprietary table game market, but also by displacing other table game products. In the future, table game competitors could market table games that might displace our products.

There
are also numerous other companies that manufacture and/or sell multi-player games, which are similar to our Table Master product. These companies include, but are not limited to, Stargames
Corporation Pty Limited (additional information regarding our acquisition of Stargames Corporation
Pty Limited is included in Note 18 to our consolidated financial statements), Elektroncek, (also known as Interblock), PokerTek, Inc. and TableMAX Holdings.

Product Supply.We obtain most of the parts for our Entertainment Products from outside suppliers,
including table game felts, signs, and accessories, as well as components for our side bet systems. We also manufacture a small number of parts in-house that are used both for product
assembly and for servicing existing products. We generally perform final assembly ourselves and then warehouse and ship our products from our facilities in Las Vegas. Warehousing, quality control,
final assembly and shipping are conducted primarily at our Las Vegas facility, although small inventories are maintained and repairs are performed by our field service employees. Our Table Master
units are manufactured by a subcontract manufacturer who also inventories and ships this product. We believe that our sources of supply for components and raw materials are adequate and that
alternative sources of materials are available.

Research and Development.Our primary Entertainment Product research and development efforts have
involved re-engineering and improving the Table Master multi-player platform. This development work involved re-engineering the Table Master cabinet, betting stations and
electronics as well as improving video quality and game interface options. Several games are currently available on Table Master including Three Card Poker, Let It Ride Bonus with Three Card Bonus,
Dragon Bonus Baccarat and Royal Match 21 Blackjack, and we are continually developing software to allow our other proprietary table games to operate on this platform.

INTELLECTUAL PROPERTY

We
believe that our patents, trademarks, licenses, copyrights and trade secrets are significant assets that provide us with a competitive advantage and are critical to our future profitability and
growth. We protect our investment in research and development by patenting our technologies. We also acquire patents and other intellectual property and routinely acquire and grant intellectual
property licenses.

9

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Infringement
claims, patent invalidity or expiration, license non-renewal, failure to stop infringers, delays in using our intellectual property to develop products or the costs of
protecting our intellectual property could adversely affect our future results of operations and our financial position.

Patents.We own numerous United States and international patents related to our products and methods,
related to future products that have not yet been introduced, related to potential product modifications and improvements and related to products we have sold or licensed to others. These patents
include internally developed, purchased and licensed patents. In fiscal 2005, we purchased a number of patents to expand our base of proprietary table games, and sold a part interest in our chip
detection equipment and methods to IGT. Most of the patents we own have a life of 20 years from the filing date of the patent application and none of our patents will expire before 2007. A
majority of our patents expire on or after 2010. The patents which expire in 2007 are no longer important to our business. We also have numerous patent applications pending for our existing, planned
and potential products. No assurance can be given that any such patents will be issued or that the patents we currently hold or have licensed or any new patents that we acquire will be or remain valid
or will provide any competitive protection for our products.

Trademarks.We own numerous United States and international trademark registrations and common law
trademarks. The marks include: Shuffle Master, Inc®, the Shuffle Master fanned card logo, Shuffle Master Gaming®, Let It Ride®, Let It Ride Bonus®, Let
It Ride The Tournament®, Three Card Poker® and design, Four Card Poker and design®, Crazy 4 Poker®, Fortune Pai Gow Poker®, Royal Match
21, Casino War®, 61/2 Card Poker, Big Raise Hold "Em®, 6 Card Poker®, Dakota Stud®, Dragon Bonus®,
Jack Magic®, Single 21 and design®, Table Master, ACE®, King®, Deck Mate®, MD2®, one2six, Easy
Chipper®, Bloodhound® and Intelligent Table System. We also use a number of licensed trademarks with the permission of the owners. The trademarks, logos, trade
names, and product names used herein, other than ours, are the property of their respective owners. We also have numerous pending U.S. and foreign trademark applications. We have not only aggressively
sought protection of our current product names and other trademarks, but have also sought protection for a number of names we plan to use in the future.

Intellectual Property Licenses.We both acquire and license intellectual property including patents,
trademarks, copyrights, character rights and technology from third parties. These licenses are subject to various conditions and restrictions and typically involve us paying royalties on a fixed or
unit basis. While we do not believe that any of these current license agreements are in jeopardy of being terminated, we can make no assurance that all of these license agreements will remain in
effect or that such licenses can be extended under terms favorable to us.

In
addition, when we license our products to our customers, we also license the right to use our intellectual property. We typically earn license royalties on a fixed or unit basis and on a lifetime
or periodic basis. We do not license our shuffler or table game intellectual property for their use in shuffler or table game products. In March 2002, the previous owner of the RFID patents granted a
non-exclusive license to use RFID technology to PGIC (formerly Mikohn Gaming Corp.).

Other Intellectual Property.In addition to patents, we also protect much of our intellectual
property with copyrights, trademark registrations, as trade secrets and by using non-disclosure agreements. No assurance can be given that we will be successful in
maintaining the confidentiality of our proprietary information. Further, costs associated with defending and pursuing infringement claims can be substantial. In the absence of valid patent, copyright,
trademark or trade secret protection, we would be vulnerable to competitors who could lawfully copy our products and technology.

Product-Related Agreement.We are party to certain cross-licensing agreements. Under these
agreements, we have certain rights to third party intellectual property. There are no royalty obligations

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with
respect to any of these agreements that are material to our results of operations. Further, none of the royalties that we receive from these agreements are material to our results of operations.

Infringement and Litigation.We do not believe that any of our products, methods or technologies
infringe the patents and other intellectual property rights of others. However, we have been and are subject to litigation claiming that we have infringed the rights of others. We have also brought
actions against others to protect our rights. For a discussion of these cases see "Item 3. Legal Proceedings," included elsewhere in this Annual Report.

GAMING REGULATION

Overview.We are subject to a wide range of complex gaming laws and regulations in over 200
jurisdictions, both foreign and domestic, in which we are licensed or have applications pending. Jurisdictions require us to be licensed, our key personnel to be found suitable, qualified or licensed,
and our products to be reviewed and approved before placement. Additionally, gaming laws and regulations of most jurisdictions provide that beneficial owners of 5% or more of our common stock are
subject to reporting procedures and may be subject to licensure that includes suitability investigations and submission of personal and financial information as required. Furthermore, most
jurisdictions have ongoing reporting requirements for certain transactions and are concerned with our accounting practices, internal controls, business relationships, and the fair operation of our
products. Gaming regulatory requirements vary from jurisdiction to jurisdiction and licensing, approval, and processes related to findings of suitability, qualifications or licensure of the Company,
our products, key personnel, and certain shareholders can be lengthy and expensive.

General Regulatory Licensing and Approvals.We intend to maintain our existing licenses and to seek
the necessary licenses, approvals, qualifications and findings of suitability for us, our products and our management personnel in new jurisdictions where we anticipate sales opportunities. We
have never been denied a license, permit or approval necessary to do business in any jurisdiction, nor had a license suspended or revoked. However, there can be no assurance that new licenses,
approvals, qualifications or findings of suitability will be obtained or that our existing licenses will not be revoked, suspended or conditioned. If a license, approval, qualification or finding of
suitability is required by a regulatory authority and we fail to seek or do not receive the necessary license, qualification or finding of suitability, then we may be prohibited from distributing our
products for use in the respective jurisdiction or may be required to provide our products through other licensed entities at a reduced profit to us. There can also be no assurance that we will be
able to obtain the necessary approvals for our products as they are developed. In addition, changes in legislation or in judicial or regulatory interpretations could occur which could adversely affect
us.

We
are licensed as a manufacturer and distributor of gaming devices, an operator of inter-casino linked systems and a slot route operator in Nevada. We are a gaming-related casino service industry
licensee in New Jersey and hold supplier, manufacturer and distributor licenses in numerous other jurisdictions throughout North America and elsewhere. Due to variations in jurisdictional regulatory
transaction reporting, as well as manufacturer, distributor, and product licensing requirements, only the specifics of Nevada gaming law requirements are provided below as being representative of
gaming regulations to which we are subject in other jurisdictions.

Nevada Regulatory Matters.We are subject to the Nevada Gaming Control Act (the "Nevada Act") and to
the licensing and regulatory control of the Nevada State Gaming Control Board (the "Nevada Board"), the Nevada Gaming Commission (the "Nevada Commission"), and various local, city and county
regulatory agencies (collectively, the "Nevada Gaming Authorities").

The
laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the character of
persons

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having
any direct or indirect involvement with gaming to prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;
(ii) application of appropriate accounting practices and procedures; (iii) maintenance of effective control over the financial practices and financial stability of licensees, including
procedures for internal controls and the safeguarding of assets and revenues; (iv) record-keeping and reporting to the Nevada Gaming Authorities; (v) fair operation of games; and
(vi) the raising of revenues through taxation and licensing fees.

We
are registered with the Nevada Commission as a publicly traded corporation and are licensed as a manufacturer and distributor of gaming devices, an operator of inter-casino linked systems and a
slot route operator. Such licenses are not transferable and require periodic payment of fees. The Nevada Gaming Authorities may limit, condition, suspend or revoke a license, registration, approval or
finding of suitability for any cause deemed reasonable by such licensing agency. If it were
determined that we violated gaming laws, then the approvals and licenses we hold could be limited, conditioned, suspended or revoked, and we, and the individuals involved, could be subject to
substantial fines for each separate violation of the gaming laws at the discretion of the Nevada Commission. Each type of gaming device, slot game, slot game operating system, table game or associated
equipment manufactured, distributed, leased, licensed or sold in Nevada must first be approved by the Nevada Board and, in some cases, the Nevada Commission. We must regularly submit detailed
financial and operating reports to the Nevada Board. Certain loans, leases, sales of securities and similar financing transactions must also be reported to or approved by the Nevada Commission.

Certain
officers, directors and key employees are required to be found suitable by the Nevada Commission and employees associated with gaming must obtain work permits which are subject to immediate
suspension under certain circumstances. An application for suitability may be denied for any cause deemed reasonable by the Nevada Commission. Changes in specified key positions must be reported to
the Nevada Commission. In addition to its authority to deny an application for a license, the Nevada Commission has jurisdiction to disapprove a change in position by an officer, director or key
employee. The Nevada Commission has the power to require licensed gaming companies to suspend or dismiss officers, directors or other key employees and to sever relationships with other persons who
refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities.

The
Nevada Commission may also require anyone having a material relationship or involvement with us to be found suitable or licensed, in which case those persons are required to pay the costs and fees
of the Nevada Board in connection with the investigation. We customarily reimburse such costs and fees. Any person who acquires more than 5% of our voting securities must report the acquisition to the
Nevada Commission; any person who becomes a beneficial owner of 10% or more of our voting securities is required to apply for a finding of suitability. Under certain circumstances, an "Institutional
Investor," as such term is defined in the regulations of the Nevada Commission, which acquires more than 10% but not more than 15% of our voting securities, may apply to the Nevada Commission for a
waiver of such finding of suitability requirements, provided the Institutional Investor holds the voting securities for investment purposes only. The Nevada Commission has amended its regulations
pertaining to Institutional Investors to temporarily allow an Institutional Investor to beneficially own more than 15%, but not more than 19%, if the ownership percentage results from a stock
repurchase program. These Institutional Investors may not acquire any additional shares and must reduce their holdings within one year from constructive notice of exceeding 15%, or must file a
suitability application. An Institutional Investor will be deemed to hold voting securities for investment purposes only if the voting securities were acquired and are held in the ordinary course of
business as an Institutional Investor and not for the purpose of causing, directly or indirectly, the election of a majority of our board of directors, any change in our corporate charter, bylaws,
management, policies or operations, or any of our gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding our voting securities for investment purposes
only.

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Any
person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission may be found unsuitable based solely on
such failure or refusal. The same restrictions apply to a record owner if the record owner, when requested, fails to identify the beneficial owner. Any security holder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the common stock beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a gross misdemeanor. We are subject to
disciplinary action if, after we receive notice that a person is unsuitable to be a security holder or to have any other relationship with us, we: (i) pay that person any dividend or interest
upon our voting securities; (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; or (iii) give remuneration in
any form to that person. If a security holder is found unsuitable, then we may be found unsuitable if we fail to pursue all lawful efforts to require such unsuitable person to relinquish his or her
voting securities for cash at fair market value.

The
Nevada Commission may also, in its discretion, require any other holders of our equity securities or any holders of our debt securities to file applications, be investigated and be found suitable
to own our debt or equity securities. The applicant security holder is required to pay all costs of such investigation. If the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the regulations of the Nevada Commission, we may be sanctioned, including the loss of our approvals, if, without the prior approval of the Nevada Commission, we:
(i) pay to the unsuitable person any dividends, interest or any distribution whatsoever; (ii) recognize any voting right by such unsuitable person in connection with such securities;
(iii) pay the unsuitable person remuneration in any form; or (iv) make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar
transaction.

We
are required to maintain a current stock ledger in Nevada which may be examined by the Nevada Commission at any time, and to file with the Nevada Commission, at least annually, a list of our
shareholders. The Nevada Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act and the regulations of the Nevada
Commission. However, to date, the Nevada Commission has not imposed such a requirement on us.

We
may not make certain public offerings of our securities without the prior approval of the Nevada Commission. Such approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful.

On
December 22, 2005, the Nevada Commission granted us prior approval to make public offerings for a period of two years, subject to certain conditions (the "Shelf Approval"). However, the
Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval does not constitute a
finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation
to the contrary is unlawful.

Changes
in control of us through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without prior investigation by the Nevada Board
and approval by the Nevada Commission. Entities seeking to acquire control of us must satisfy the Nevada Board and the Nevada Commission concerning a variety of stringent standards prior to assuming
control of us. The Nevada Commission may also require controlling shareholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process of the transaction.

Approvals
are required from the Nevada Commission before we can make exceptional repurchases of voting securities above the current market price and before a corporate acquisition opposed by
management can be consummated. Nevada's gaming regulations also require prior approval by the

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Nevada
Commission if we adopt a plan of recapitalization proposed by our Board of Directors in opposition to a tender offer made directly to our shareholders for the purpose of acquiring control of
us.

We
have formally adopted a compliance plan and appointed a compliance committee in accordance with Nevada Commission requirements. Our compliance committee meets quarterly and is responsible for
implementing and monitoring our compliance with regulatory matters. This committee also reviews information and reports regarding the suitability of potential key employees or other parties who may be
involved in material transactions or relationships with us.

Federal Registration.As a manufacturer and distributor of gaming devices, including Table Master
products and slot machines, we are registered pursuant to and have complied with the Federal Gambling Devices Act of 1962 (the "Federal Act"). In order to manufacture, sell, deliver or operate our
gaming devices, including our Table Master product, we must renew our federal registration annually and comply with its various record-keeping and equipment identification requirements. The Federal
Act makes it unlawful for a person or business entity to manufacture, deliver, receive, operate, lease or sell gaming devices in interstate or foreign commerce unless that person or entity has first
registered with the Attorney General of the United States. Violation of the Federal Act may result in seizure and forfeiture of the equipment, as well as other penalties.

Native American Gaming Regulation.Gaming on Native American lands is governed by the Federal Indian
Gaming Regulatory Act of 1988 ("IGRA") and specific tribal ordinances and regulations. Class III gaming, as defined under IGRA, also requires a Tribal-State Compact, which is a written
agreement between a specific tribe and the respective state. This compact authorizes the type of Class III gaming activity and the standards, procedures and controls under which the
Class III gaming activity must be conducted. The National Indian Gaming Commission ("NIGC") has oversight authority over gaming on Native American lands and generally monitors tribal gaming
including the establishment and enforcement of required minimum internal control standards. Each Tribe is sovereign and must have a tribal gaming commission or office established to regulate tribal
gaming activity to ensure compliance with IGRA, NIGC, and its Tribal-State Compact. We have complied with each of the numerous vendor licensing and specific product approval and shipping notification
requirements imposed by Tribal-State Compacts and enforced by tribal and/or state gaming agencies under IGRA in the Native American lands in which we do business.

Other Jurisdictions.We have obtained or are in the process of obtaining all licenses/permits
required by jurisdictions having legalized gaming. In general, such requirements are similar to Nevada in that there are company approvals as well as individual and product approvals.

Product Approvals.Each of our products is subject to extensive testing and review by multiple state,
jurisdictional or third party laboratories. The detail and extent of the review generally depends upon the classification of the product by the respective gaming authority as a new game, game
variation, associated equipment, gaming equipment or gaming device. The time required for product testing can be extensive and is subject to a wide range of formal and informal standards that can lead
to great uncertainty as to the length of the regulatory approval process. Additionally, product testing is subject to changing standards, as a result of which, we may be required to upgrade or revise
our products. We believe the laboratories responsible for testing are handling a great number of product submissions and are under the pressure of limited funding and resources. Such limitations could
cause our product approvals to be delayed for unknown periods of time. A description of regulatory status and issues related to each of our product segments follows:

Utility ProductsWe have obtained approvals for our shuffler products, excluding developmental
models,in all gaming markets in North America where casino and poker gaming is legalized. We have also received or filed (directly or through our
international distributors) for approval of our shuffler products and related software in additional international jurisdictions where required. Our shufflers and

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related
software are typically classified and approved as associated equipment or as gaming equipment, depending on the particular jurisdiction and their regulations. Associated equipment is equipment
that is not classified as a gaming device or gaming equipment but, which due to its integral relationship to the conduct of licensed gaming, regulatory authorities have discretion to require
manufacturers and distributors to meet licensing or suitability requirements prior to or concurrent with the use of such equipment in the respective jurisdiction. Although the classifications of
shufflers vary among jurisdictions, most, if not all, jurisdictions require specific hardware and software approvals and certain licenses or permits to be held by companies, their key personnel, and
service technicians in connection with the manufacture, distribution, service, and repair of such equipment.

Entertainment ProductsOur Let It Ride and Three Card Poker table games are approved in all major casino gaming markets in North America and
numerous other international
gaming jurisdictions. Four Card Poker, Big Raise Hold'em, Fortune Pai Gow Poker, and Royal Match 21 are approved in most jurisdictions in North America, with additional approvals expected throughout
fiscal 2006. We intend to submit Raise It Up to regulatory laboratories for approvals in the first quarter of fiscal 2006 and expect approval in certain jurisdictions in the second
quarter. Similar approvals will be required for any future table games and related equipment.

Our
Table Master multi-player video table game unit with blackjack was first submitted for regulatory testing in the third quarter of fiscal 2004 and is currently approved in multiple jurisdictions.
Additionally, our Table Master unit with Three Card Poker and Let It Ride Bonus was approved in certain jurisdictions in fiscal 2005. We will continue to submit Table Master with other proprietary
games to various regulatory laboratories for testing during fiscal 2006.

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OTHER BUSINESS INFORMATION

Customer Service.As part of our strategy to maintain and expand our market position, we have made a
commitment to maintain a high level of service to our customers. We have numerous field service centers in the U.S. and internationally, including our most recently opened service center in Macau.
Within our service areas, we provide regular preventative maintenance service and on-demand repair service for our leased equipment, provide service training to our customers, and provide
back-up units to our lessees. For casinos that purchase our products, we offer service contracts providing service benefits similar to those of leased units or parts-only
warranty contracts.

Research and Development Costs.Because we believe that one of our strengths is identifying new
product opportunities and developing new products, we expect to continue to spend a significant portion of our annual revenues on research and development, including the acquisition of intellectual
property from third parties. Our total research and development expenses for continuing operations were $7,784, $6,185 and $4,183 in fiscal 2005, 2004, and 2003, respectively.

Significant Customer Sales, Foreign Sales and Foreign Assets.For the years ended October 31,
2005, 2004 and 2003, sales to customers outside the United States accounted for 23%, 23%, and 17%, respectively, of consolidated revenue. At October 31, 2005, no single customer's balance
exceeded 10% of our trade accounts receivable, net. One U.S. customer accounted for approximately 11% of our investment in sales-type leases and notes receivable. At October 31,
2005, no individual customer accounted for more than 10% of consolidated revenue. As of October 31, 2005, approximately 54% of our long-lived assets, primarily acquired intangible
assets, were outside the United States. Additional information regarding our foreign sales and long-lived assets by geographic region is included in Note 16 to our consolidated
financial statements.

Seasonality and Business Fluctuations.Quarterly revenue and net income may vary based on the timing
of the opening of new gaming jurisdictions, the opening or closing of casinos or the expansion or contraction of existing casinos, gaming regulatory approval or denial of our product and corporate
licenses, the introduction of new products or the seasonality of customer capital budgets.

Employees.As of October 31, 2005, we had approximately 320 employees. We are not subject to
any collective bargaining agreement and we believe that our employee relations are good.

Ameranth Wireless.In August 2005, we entered into a strategic alliance with Ameranth
Wireless, Inc. to promote and distribute Ameranth's poker-room management products throughout the world. Under the terms of the agreement, Ameranth will develop a software interface
between our Deck Mate® poker shuffler and Ameranth's poker-room products to provide poker-room operators broader functionality and a more robust total solution.

Stargames.As discussed in Note 18 to our consolidated financial statements, on
November 15, 2005, in Sydney, Australia (which was November 14, 2005 in the United States) we announced that through our wholly-owned indirect Australian subsidiary, Shuffle Master
Australasia Pty Ltd, we submitted formal takeover offer documents to the Australian Securities and Investments Commission outlining our intent to purchase for cash all of the outstanding shares
of Stargames Limited ("Stargames"), a public company traded on the Australian Stock Exchange, for AU$1.55 (approximately US$1.14) per share.

On
February 1, 2006, our 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. We will begin consolidating Stargames' operating results as of February 1, 2006, and have begun the compulsory acquisition process to obtain all remaining shares,
a process which we anticipate will take approximately 40 days. The shares purchase was funded by temporary bridge financing and we expect to secure permanent financing or an extension of the
bridge financing maturity

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date
prior to the bridge loan's maturity. For additional information on the bridge financing see Note 2 and Note 18 to our consolidated financial statements.

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 most specifically for the Australian and
Asian gaming markets. The Rapid series of games, which we already distribute 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.

Additional
information regarding our completed acquisitions is included in Note 3 to our consolidated financial statements. Additional information regarding our acquisition of Stargames is
included in Note 18 to our consolidated financial statements.

Sona Mobile.In January 2006, we entered into a strategic alliance with Sona
Mobile, Inc. ("Sona") to license, develop, distribute and market "in-casino" wireless handheld gaming content and delivery systems to casinos throughout the world. Under the terms
of the agreement, Sona will develop a Shuffle Master-branded wireless gaming platform for in-casino use that will feature handheld versions of our proprietary table game content as well as
other popular public-domain casino games. Our and Sona's ability to proceed with such "in-casino" wireless gaming is subject to approvals by the relevant regulatory and legislative
authorities.

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ITEM 1A. FORWARD LOOKING STATEMENTS AND RISK FACTORS

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:

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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 and current reports on Form 8-K. We urge you to carefully read the following discussion of specific risks and
uncertainties that could affect our business. These include, but are not limited to, the following:

Our intellectual property may be infringed or misappropriated or subject to claims of infringement or invalidity.

We
protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment
agreements. Because of the differences in foreign patent, trademark and other laws concerning proprietary rights, our intellectual property may not receive the same degree of protection in foreign
countries as they would in the United States. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our
business, results of operations and financial condition.

We
have numerous patents and trademarks, and utilize patent protection in the U.S. relating to certain existing and proposed processes and products. We cannot assure you that all of our existing
patents are valid or will continue to be valid, or that any pending patent applications will be approved. Our competitors have in the past challenged, are currently challenging, and may in the future
challenge the validity or enforceability of our patents. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with
any meaningful protection or commercial advantage. We cannot assure you that competitors will not infringe on any of our patents. Further, we cannot assure you that we will have adequate resources to
enforce our patents.

We
also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To
protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these
agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such
trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

We
rely on our trademarks, trade names, and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot
assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our
trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources advertising and marketing
new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.

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We
also face the risk that we have infringed third parties' intellectual property rights. For example, our competitors in both the U.S. and foreign countries, some of which have substantially greater
resources and have made substantial investments in competing technologies, have applied for and obtained, and may in the future apply for and obtain, patents that may prevent, limit or otherwise
interfere with our ability to make and sell our products.

Significant
litigation regarding intellectual property rights exists in our industry. We have in the past made, are currently making, and may in the future make, enforcement claims against third
parties, and third parties have in the past made, are currently making, and may in the future make, claims of infringement against us or against our licensees or manufacturers in connection with their
use of our technology. For information on Legal Proceedings, see Note 17 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for
the year ended October 31, 2005. As discussed in Note 17 to our consolidated financial statements for the fiscal year ended October 31, 2005, we are currently in litigation over
various intellectual property matters. Any claims, even those made by third parties which are without merit, could:



Any
royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful challenge to or invalidation of one of our patents or trademarks, or a
successful claim of infringement against us or one of our licensees in connection with its use of our technology, could adversely affect our business.

The gaming industry is highly regulated, and we must adhere to various regulations and maintain our licenses to continue our operations.

Our
products are subject to extensive regulation under the laws, rules and regulations of the jurisdictions where they are used. We will also become subject to regulation in any other jurisdiction
where our customers operate in the future. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial
interests in gaming operations, including makers of gaming equipment such as ourselves. Some jurisdictions, however, empower their regulators to investigate participation by licensees in gaming
outside their jurisdiction and require access to and periodic reports concerning gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.
For a summary of gaming regulations that affect our business, see "Gaming Regulation" in Item 1 of this Annual Report on Form 10-K for the year ended October 31, 2005.

In
addition, legislative and regulatory changes may affect the demand for our products. Such changes could affect us in a variety of ways, including the introduction of limitations on our products or
opportunities for the use of our products, and the fostering of competitive games or technologies at our or our customers' expense. For example, current regulations in a number of jurisdictions where
our customers operate limit the amount of space allocable to slot machines, and substantial changes in those regulations may adversely affect demand for our products. We cannot assure you that changes
in current or future laws or regulations or future judicial intervention in any particular jurisdiction would not

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have
a material adverse effect on our existing and proposed foreign and domestic operations. Our business will also suffer if our products became obsolete due to changes in laws or regulations or the
regulatory framework.

Litigation may subject us to significant legal expenses and liability.

We
are currently engaged in litigation on a variety of matters, including, in particular, several suits regarding our intellectual property rights. For information on our current material litigation
and our current assessments, see Note 17 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for the year ended October 31,
2005. As discussed in Note 17 to our consolidated financial statements for the fiscal year ended October 31, 2005, we are currently in litigation over various intellectual property
matters. Our current assessment of each matter may change based on future unknown or unexpected events. Litigation requires the expenditure of significant time and resources, and is inherently
unpredictable. If any litigation were to have an adverse result that we did not expect, there could be a material impact on our results of operations or financial position.

Our products currently in development may not achieve commercial success.

A
number of our products are in various stages of development. We believe that our future success will depend in large part upon our ability to enhance our existing products and to develop, introduce
and market new products and improvements to our existing products. As a result, we expect, as needed, to continue to make a significant investment in product development. Our development of products
is dependent on factors such as reaching definitive agreements with third parties and obtaining requisite governmental approvals.

Future
technological advances in the gaming products industry may result in the availability of new products (or increase the efficiency of existing products). If a technology becomes available that
is more cost-effective or creates a superior product, we may be unable to access such technology or its use may involve substantial capital expenditures which we may be unable to finance.
We cannot assure you that existing, proposed or as yet undeveloped technologies will not render our technology less profitable or less viable, or that we will have available the financial and other
resources to compete effectively against companies possessing such technologies.

While
we are pursuing and will continue to pursue product development opportunities, there can be no assurance that such products will come to fruition or become successful. Furthermore, while a
number of those products are being tested, we cannot provide any definite date by which they will be commercially available. We cannot assure you that these products will prove to be commercially
viable, or that we will be able to obtain the various gaming licenses necessary to distribute them to our customers. We may experience operational problems with such products after commercial
introduction that could delay or defeat the ability of such products to generate revenue or operating profits. Future operational problems could increase our costs, delay our plans or adversely affect
our reputation or our sales of other products which, in turn, could materially adversely affect our success and our ability to satisfy our obligations with respect to our indebtedness, including the
notes. We cannot predict which of the many possible future products will meet evolving industry standards and consumer demands. We cannot assure you that we will be able to adapt to such technological
changes or offer such products on a timely basis or establish or maintain a competitive position.

We compete in a single industry, and our business would suffer if our products become obsolete or demand for them decreases.

We
derive substantially all of our revenues from the sale, lease, licensing and other financing arrangements of products for the gaming industry. Our business would suffer if the gaming industry in
general, and table games in particular, suffered a downturn or loss in popularity, if our products became

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obsolete
or if use of our products decreased. Our operating lease agreements with our customers are typically month-to-month leases and provide that they can be terminated upon
30 days' prior notice by either party. Accordingly, consistent demand for and satisfaction with our products by our customers is critical to our financial condition and future success, and
problems, defects or dissatisfaction with our products could cause us to lose customers or our revenues from leases with minimal notice. Additionally, our success depends on our ability to keep pace
with technological changes and advances in our industry and to adapt and improve our products in response to evolving customer needs and industry trends. If demand for our products weakens due to lack
of market acceptance, technological change, competition or other factors, our business, financial condition and results of operations and our ability to achieve sufficient cash flow to service our
indebtedness, including the senior notes, will be materially adversely affected.

We operate in a very competitive business environment.

There
is intense competition in the gaming products industry. The development of new competitive products or the enhancement of existing competitive products in any market in which we operate could
have a negative impact on our business in that market.

In
general, we compete with other gaming and entertainment products for space on the casino customer's floor, as well as for our customer's capital spending. Some of the larger gaming supply companies
with whom we compete with in this regard are IGT, Alliance Gaming Corporation, WMS Industries, Inc., and Aristocrat Leisure Limited.

In
the Utility Products segment, we compete with VendingData Corporation, a U.S. company that markets batch and continuous versions of its multi-deck shuffler, the Random Ejection
Shuffler and more recently their single deck shuffler, the Poker One. Additionally, other companies may develop and market shufflers and seek to develop and obtain regulatory
approvals of additional shuffler products. We cannot provide assurances that a competitive product will not gain substantial placements or cause price erosion of our shufflers in the future. With
respect to our recently-introduced Easy Chipper product, several companies also manufacture and sell competitive chipper products. We believe the most successful of these products is the Chipper Champ
Plus, sold by TCS John Huxley.

In
our Entertainment Products segment, the market for live table games is characterized by numerous competitors who develop and license proprietary table games. Some of our competitors' widely known
proprietary table game titles include PGIC's Caribbean Stud® and Texas Hold'em Bonus, Galaxy Gaming's Lucky Ladies and Masque Publishing's Spanish
21®, among others. Competition in the table game market is typically on the basis of price, brand recognition, and the strength of underlying intellectual property. Smaller developers and
vendors are more able to participate in developing and marketing table games, compared to other gaming products, because of the lower cost and complexity associated with the development of these
products. In the future, table game competitors could market table games that might displace our products. There are also numerous other companies that manufacture and/or sell multi-player games,
which are similar to our Table Master product. These companies include, but are not limited to, Stargames Corporation Pty Limited (additional information regarding our acquisition of Stargames
Corporation Pty Limited is included in Note 18 to our consolidated financial statements), Elektroncek, (also known as Interblock), PokerTek, Inc. and TableMAX Holdings.

With
respect to our efforts to develop the player tracking and data gathering technologies of our Intelligent Table System, we believe that several existing gaming companies are working to develop
similar competitive technologies. These companies, or others, may own intellectual property that is either superior to ours, has priority over ours or prevents us from marketing our Intelligent Table
System without a license arrangement concerning such intellectual property. We cannot assure you that we will

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be
able to compete effectively in this market, or that our competitors will not develop superior technologies or products.

If we do not retain our key personnel and attract and retain other highly skilled employees our business may suffer.

If
we fail to retain and recruit the necessary personnel, our business and our ability to obtain new customers, develop new products and provide acceptable levels of customer service could suffer. The
success of our business is heavily dependent on the leadership of our key management personnel and on our key employees. Our employment contracts with our corporate officers and certain other key
employees are primarily "at will" employment agreements, under which the employee or we may terminate employment. If any of these persons were to leave our company it could be difficult to replace
them, and our business could be harmed. We do not have key-man life insurance.

Our
success also depends on our ability to recruit, retain and motivate highly skilled service, sales, marketing and engineering personnel. Competition for these persons in our industry is intense and
we may not be able to successfully recruit, train or retain qualified personnel.

A downturn in general economic conditions or in the gaming industry or a reduction in demand for gaming may adversely affect our results of operations.

Our
business operations are affected by international, national and local economic conditions. A recession or downturn in the general economy, or in a region constituting a significant source of our
customers, or a reduction in demand for gaming, could harm the health of casino operators and our other customers, and consequently result in fewer customers purchasing or leasing our products, which
would adversely affect our revenues.

Acts of terrorism as well as other factors affecting discretionary consumer spending and travel, have impacted our industry and may harm our operating
results.

The
terrorist attacks of September 11, 2001 and other recent terrorist incidents have had a significant impact on the travel, tourism and gaming industries in which our customers operate. The
significant reduction in both business and leisure travel following the September 11th event significantly reduced patronage of or visits to our customers' properties,
particularly in Las Vegas, with the result that many of our customers' operating results declined significantly. These events, the potential for future terrorist attacks, the national and
international responses to terrorist attacks and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of
operations. Future acts of terror or hostilities may again reduce our customers' guests' willingness to travel, with the result that our customers' operations will suffer, which could have an impact
on our operating results.

Economic, political and other risks associated with our international sales and operations could adversely affect our operating results.

Since
we sell our products worldwide, our business is subject to risks associated with doing business internationally. Our sales to customers outside the United States, primarily Canada, Europe and
Australasia, accounted for approximately 23% of our consolidated revenue in fiscal 2005. We expect the percentage of our international sales to increase in fiscal 2006 and thereafter due to our
acquisition of CARD in May 2004 and our acquisition of Stargames Limited in Australia effective February 1, 2006. Accordingly, our future results could be harmed by a variety of factors,
including:



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Our
international operations are affected by global economic and political conditions. Changes in economic or political conditions in any of the countries in which we operate could result in exchange
rate movement, new currency or exchange controls or other restrictions being imposed on our operations.

Fluctuations
in the value of the U.S. dollar, the Euro or the Australian dollar may adversely affect our results of operations. Because our financial results are reported in dollars, if we generate
sales or earnings in other currencies, the translation of those results into dollars can result in a significant increase or decrease in the amount of those sales or earnings.

We could face considerable business and financial risk in implementing acquisitions.

As
part of our overall growth strategy, we have in the past acquired, and will continue to seek to acquire, complementary products, assets and businesses. We regularly engage in discussions with
respect to and investigate possible acquisitions. Future acquisitions could result in potentially dilutive issuances of equity securities, significant expenditures of cash, the incurrence of debt and
contingent liabilities and an increase in amortization expenses, which could have a material adverse effect upon our business, financial condition and results of operations.

The
risks associated with acquisitions could have a material adverse effect upon our business, financial condition and results of operations. We cannot assure that we will be successful in
consummating future acquisitions on favorable terms or at all or that any future acquisition will work out as we expect.

Our
acquisition of CARD and Stargames, and any other future potential acquisitions, may not produce the revenues, earnings or business synergies that we anticipate, and the acquisition of Stargames
may not perform as expected for a variety of reasons, including:



24

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Both
Stargames, an Australian company, and CARD, an Austrian company, substantially increase our exposure to the risks of international operations. Additionally, all of the risks applicable to our
business also apply to Stargame and CARD. Any one or a combination of these factors may cause our revenues or earnings to decline.

We have completed our tender offer for shares of Stargames Limited with the proceeds from temporary bridge financing. We anticipate that we will need to
secure permanent financing. Currently, we do not have commitments for such financing and cannot guarantee that we will be able to obtain such financing on terms reasonably satisfactory to us.

On
February 1, 2006, our 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. We will begin consolidating Stargames' operating results as of February 1, 2006, and have begun the compulsory acquisition process to obtain all remaining shares,
a process which we anticipate will take approximately 40 days. For additional information on the Stargames acquisition see Note 18 to our consolidated financial statements.

On
January 25, 2006, we entered into a Credit Agreement with Deutsche Bank AG Cayman Islands Branch, as a Lender, Deutsche Bank AG New York Branch, as Administrative Agent, and Deutsche Bank
Securities Inc., as Sole Arranger and Book Manager (the "Credit Agreement"), pursuant to which we obtained a bridge loan (the "Bridge Loan") in the amount of $115,000, in order to, among other
things, finance the acquisition of Stargames. The Bridge Loan will mature on April 24, 2006. We expect to secure permanent financing or an extension of the bridge financing maturity date prior
to the bridge loan's maturity. For additional information on the bridge loan see Note 2 and Note 18 to our consolidated financial statements.

If our products contain defects, our reputation could be harmed and our results of operations adversely affected.

Some
of our products are complex and may contain undetected defects. The occurrence of defects or malfunctions could result in financial losses for our customers and in turn termination of leases,
cancellation of orders, product returns and diversion of our resources. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and loss of sales.

Our business is subject to quarterly fluctuation.

Historically,
our revenues and earnings are highest in our fourth fiscal quarter ending October 31 and lowest in our first fiscal quarter ending January 31. Quarterly revenue and net
income may vary based on the timing of the opening of new gaming jurisdictions, the opening or closing of casinos or the expansion or contraction of existing casinos, gaming regulatory approval or
denial of our products and corporate licenses, the introduction of new products or the seasonality of customer capital budgets, and our operating results have historically been lower in quarters with
lower sales. As a result, our operating results and stock price could be volatile, particularly on a quarterly basis.

Our ability to meet debt service obligations is subject to many factors that are beyond our control and may affect future operations.

As
of October 31, 2005, we had total consolidated indebtedness of approximately $165,700, including $150,000 of convertible notes. On January 25, 2006, we entered into a credit agreement
that provides for a Bridge Loan in the amount of $115,000. Our ability to meet debt service obligations and to refinance our indebtedness, including our convertible notes and the bridge loan, which
will depend on our future

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performance
and other conditions or events and will be subject to many factors that are beyond our control. Our debt service obligations may:



ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We
lease facilities with approximately 56,000 square feet in Nevada for our corporate headquarters, manufacturing, research and development and field service. In addition, we lease an approximately
5,000 square foot facility in Vienna, Austria and an approximately 2,000 square foot facility in Sydney, Australia. This does not include facilities, principally in Australia, acquired as part of our
acquisition of Stargames Corporation Pty Limited (discussed elsewhere in this Annual Report).

We
have other shuffler research and development and other administration activities located in an approximately 5,000 square foot facility in Minnesota. We also lease other facilities with
approximately 22,000 aggregate square feet for field service centers in various locations in the United States and internationally. These leases are not individually significant.

We
believe that our existing properties are suitable and adequate for our current needs and that additional facilities are available within our current locations to support expansion, if required.

ITEM 3. LEGAL PROCEEDINGS

For
information on Legal Proceedings, see Note 17 to our consolidated financial statements included in Item 8 of this Annual Report.

Litigation
is inherently unpredictable. Our current assessment of each matter may change based on future unknown or unexpected events. If any litigation were to have an adverse result that we did not
expect, there could be a material impact on our results of operations or financial position. We believe costs associated with litigation will not have a material impact on our financial position or
liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by applicable law,
statute or regulation. We believe that the final disposition of these matters will not have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No
matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended October 31, 2005.

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PART II  (Dollars in thousands, except per share amounts)

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Listing.Our common stock is traded on The NASDAQ National Market under the symbol SHFL. As of
February 21, 2006,we had approximately 300 shareholders of record. There are a significantly greater number of shareholders whose shares are
held in street name. Based on information we collected as of February 21, 2006, we estimate that we have approximately 16,000 beneficial holders in total. The following table sets forth
quarterly high and low prices for trades of our common stock during fiscal 2005 and 2004:

|               |  | 2005 |       | 2004
|-------------- |  | ---- | ----- | ----
|
|First Quarter  |  | $    | 32.26 |     
|Second Quarter |  |      | 33.77 |     
|Third Quarter  |  |      | 30.00 |     
|Fourth Quarter |  |      | 29.21 |     

The
closing price of our common stock on February 21, 2006, was $24.48 per share.

Dividend Policy.We have not paid dividends on our common stock.

Transfer Agent.Our stock transfer agent and registrar is Wells Fargo Bank Minnesota, N.A.,
Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota 55075, (800) 468-9716.

Securities Authorized for Issuance Under Equity Compensation Plans.The information under the caption
"Equity Compensation Plan Information" in our 2005 Proxy Statement is incorporated herein by reference.

Stock Splits.In December 2004, our board of directors approved a
three-for-two common stock split, with new shares distributed in the form of a dividend on January 14, 2005, to shareholders of record on January 3, 2005 (the
"January 2005 Split"). Share and per share amounts have been adjusted for all periods presented herein to reflect the January 2005 Split. In connection with the January 2005
Split, we paid cash of $69 for fractional shares and reclassified to common stock the par value of $0.01 per newly issued share.

In
March 2004, our board of directors had earlier approved another three-for-two common stock split, with new shares distributed in the form of a dividend on
April 16, 2004, to shareholders of record on April 5, 2004 (the "April 2004 Split"). Share and per share amounts have been adjusted for all periods presented herein to reflect the
April 2004 Split. In connection with the April 2004 Split, we paid cash of $138 for fractional shares and reclassified to common stock the par value of $0.01 per newly issued share.

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Stock Repurchases.The following table provides monthly detail regarding our share repurchases during
the three month period ended October 31, 2005 (in thousands, except per share amounts):

|Period         |  | Total Number of
Shares Purchased |  | Average Price Paid
per Share |       | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs |     | Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs *
|-------------- |  | -------------------------------- |  | ---------------------------- | ----- | -------------------------------------------------------------------------------- | --- | --------------------------------------------------------------------------------------
|Aug 1  Aug 31 |  | 345                              |  | $                            | 25.64 |                                                                                  | 345 |                                                                                       
|Sep 1  Sep 30 |  | 370                              |  | $                            | 24.26 |                                                                                  | 370 |                                                                                       
|Oct 1  Oct 31 |  |                                 |  | $                            |      |                                                                                  |    |                                                                                       
|               |  |                                  |  |                              |       |                                                                                  |     |                                                                                       
|Total          |  | 715                              |  | $                            | 24.93 |                                                                                  | 715 |                                                                                       
|               |  |                                  |  |                              |       |                                                                                  |     |                                                                                       

---

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ITEM 6. SELECTED FINANCIAL DATA

|                                             |         | Year Ended October 31, |        
|-------------------------------------------- | ------- | ---------------------- | -------
|
|
|Operating Results:                           |         |                        |        
|Total revenue                                |         | $                      | 112,860
|Cost of revenue                              |         |                        | 29,260 
|                                             |         |                        |        
|Gross margin                                 |         |                        | 83,600 
|Selling, general and administrative          |         |                        | 30,559 
|Research and development                     |         |                        | 7,784  
|                                             |         |                        |        
|Income from operations                       |         |                        | 45,257 
|Other (expense) income                       |         |                        | (1,657 
|                                             |         |                        |        
|Income from continuing operations before tax |         |                        | 43,600 
|Provision for income taxes                   |         |                        | 14,496 
|                                             |         |                        |        
|Income from continuing operations            |         | $                      | 29,104 
|                                             |         |                        |        
|Earnings per share  continuing operations:  |         |                        |        
|                                             | Basic   |                        | $      
|                                             | Diluted |                        | $      
|Weighted average shares, basic               |         |                        | 34,924 
|Weighted average shares, diluted             |         |                        | 36,378 
|Dividends declared                           |         | $                      |       
|Balance Sheet as of October 31:              |         |                        |        
|Cash, cash equivalents, and investments      |         | $                      | 34,088 
|Working capital                              |         | $                      | 57,634 
|Total assets                                 |         | $                      | 193,117
|Long-term obligations                        |         | $                      | 162,659
|Shareholders' equity                         |         | $                      | 13,400 
|Common shares outstanding                    |         |                        | 34,527 
|Current ratio                                |         |                        | 4.4    
|Book value per share as of October 31        |         | $                      | 0.39   
|Cash Flow Data:                              |         |                        |        
|Cash provided by operating activities        |         | $                      | 34,508 
|Cash (used) provided by investing activities |         | $                      | (6,526 
|Cash (used) provided by financing activities |         | $                      | (35,025
|Depreciation and amortization                |         | $                      | 12,179 
|Capital expenditures                         |         | $                      | (18,969
|Installed Unit Base by Product:              |         |                        |        
|Shufflers                                    |         |                        | 18,589 
|Proprietary Table Games                      |         |                        | 3,681  
|Table Master                                 |         |                        | 102    

Earnings
per share and weighted average share amounts reflect the effect of the January 2005 Split and the April 2004 Split.

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Effective
May 1, 2004, we acquired Casinos Austria Research & Development GmbH & Co KG and its wholly-owned subsidiaries ("CARD"). Effective February 24, 2004, we acquired
certain assets of BET Technology, Inc. ("BTI"). These acquisitions, in addition to less significant acquisitions, are included
in our consolidated financial statements beginning on the effective date of the transactions; see Note 3 to our consolidated financial statements for further detail on our acquisitions.

Installed
Unit Base is the sum of product units under lease or license agreements and inception-to-date sold units. We believe that installed units is an important gauge of
segment performance because it measures historical market placements of leased and sold units and it provides insight into potential markets for service and next generation products. Some sold units
may no longer be in use by our casino customers or may have been replaced by other models. Accordingly, we are unable to determine precisely the number of units currently in use.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS OVERVIEW  (In thousands, except units)

We
develop, manufacture and market technology-based products for the gaming industry for placement on the casino floor. Our products primarily relate to our casino customers' table game activities and
are focused on increasing their profitability, productivity and security. Our Utility Products include a full line of automatic card shufflers for use with the vast majority of card table games and
chip sorting machines for roulette. In addition, we have acquired or are developing other products to automatically gather data and to enable casinos to track table game players, such as our
Bloodhound® and Intelligent Table System products. Our Entertainment Products include our line of live proprietary poker, blackjack, baccarat, and pai gow poker-based table
games and our Table Master product that delivers our popular branded table game content on a multi-player video platform. In January 2005, we formed Shuffle Up
Productions, Inc. ("Shuffle Up") to leverage our intellectual property and develop live and broadcast tournament events as well as merchandise based on our extremely popular gaming
offerings. In June 2005, we announced details related to our Three Card Poker National Championship with a grand prize of $1 million dollars which occurred in late
November 2005.

All
of our product lines compete or will compete with other gaming products, such as slot machines, blackjack tables, keno, craps, and roulette, for space on the casino floor.

We
sell, lease or license our products. When we lease or license our products, we generally negotiate a month-to-month operating lease. When we sell our products, we offer our
customers a choice between a sale and a longer-term
sales-type lease or other interest-bearing financing arrangement. We offer our products worldwide in markets that are significantly regulated. We manufacture the majority of our products
at our headquarters and manufacturing facility in Las Vegas, Nevada. In addition, we outsource the manufacturing of certain of our products, both in the United States, Europe and Asia Pacific.

Our
internet address iswww.shufflemaster.com. Through the "Investor Relations" page on our internet website, our annual report on
Form 10-K, proxy statement, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge, as soon as reasonably practical after such information has been filed or furnished to the
Securities and Exchange Commission. Additional information regarding Shuffle Up can be accessed atwww.shuffleupproductions.com.

Management's
Discussion and Analysis contains forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results
could differ materially because of factors discussed in "Forward Looking Statements and Risk Factors" elsewhere in this annual report.

ACQUISITIONS, DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS

CARD.Effective May 1, 2004, we acquired a 100% ownership interest in CARD Casinos Austria
Research & Development GmbH & Co KG and its wholly-owned subsidiaries ("CARD") from Casinos Austria AG. CARD, which is now a subsidiary of our Shuffle Master International subsidiary,
provides us with a headquarters and direct sales force for international business centrally located in Vienna with a satellite office in New Zealand. CARD develops, manufactures and supplies
innovative casino products including the one2six shuffler which accommodates up to six decks of cards and can be used for almost every casino card game. In addition, CARD's products
include the Easy Chipper®, a next-generation roulette chip sorting machine.

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BTI.On February 24, 2004, we acquired certain assets of BET Technology, Inc. ("BTI"),
a privately held corporation that develops and distributes table games to casinos throughout North America. The acquired assets and operations, which have been assigned to our Entertainment Products
segment, include the Fortune Pai Gow Poker®, Royal Match 21 and Casino War® table games and related patents, trademarks and other intellectual
property, as well as the "BET Technology, Inc." name. The acquired installed base of Fortune Pai Gow Poker, Royal Match 21, and Casino War table games was 1,090 units at the acquisition date
and was 1,174 units as of October 31, 2005.

Patent Purchase Agreement.On June 13, 2005, we entered into a patent purchase agreement (the
"Two-Party Agreement") with International Game Technology ("IGT"). Based on the terms of the Two-Party Agreement, IGT paid us a non-refundable initial cash payment
of $10,510. If IGT desires to continue its rights under the Two-Party Agreement, IGT is required to make a $4,875 payment in June 2007. Under the terms of the Two-Party
Agreement, we sold to IGT an equal ownership interest in our recently acquired radio frequency identification ("RFID") patents from ENPAT Inc. ("ENPAT"), U.S. patent numbers 5,735,742 and
5,651,548, which relate to the use of RFID at gaming tables and throughout a casino. Previously granted licenses to Progressive Gaming International Corporation ("PGIC") and Gaming Partners
International for the use of these RFID patents will remain in effect. In addition, we sold IGT a fifty-percent ownership interest in our Schubert and Fishbine patents, U.S. patent numbers 6,313,871,
5,781,647 and 6,532,297, which relate to the use of optical bet recognition and chip tracking at gaming tables. As part of the equal ownership in the optical patents, IGT has been added as a named
plaintiff in the MP Games I lawsuit (see Note 17 to our consolidated financial statements). Further, and as part of the initial $10,510 payment, IGT reimbursed us for certain legal fees
incurred on the MP Games I lawsuit, for the period prior to May 23, 2005, totaling $1,471. IGT will bear 50% of the legal fees related to the MP Games I lawsuit going forward and share in any
results. The $1,471 reimbursement in legal fees was recorded as a reduction of legal expense and the balance of the proceeds of $9,039 was recorded as a reduction in the carrying value of the patents.
Additionally, the Two-Party Agreement contains certain non-compete provisions related to our ability to market any new optical and/or RFID product for periods of three and six
years, respectively, (subject to shortening, based on certain future events), as discussed in the agreement. As co-owners of the patents, we share with IGT in future royalties associated
with third party licensing of the purchased RFID patents. Finally, if IGT elects not to make the $4,875 payment in June 2007, IGT would lose its ownership rights to the RFID patents, and our
non-compete obligations would be substantially eliminated.

In
conjunction with the Two-Party Agreement, we entered into a separate worldwide product integration agreement (the "Three-Party Agreement") with IGT and PGIC to create a comprehensive,
automated table management solution using complementary capabilities, technologies, and resources of the three companies. Under the terms of the Three-Party Agreement, we will be the provider of
automatic card shufflers, card reading intelligent shoes, card and chip sorters and verifiers. IGT will be the provider of back-end table gaming management systems, including player
tracking, patron loyalty and rewards, as well as bonusing applications. PGIC will be the provider of RFID bet recognition, automated gaming chip tracking and payoff recognition. Each company will
cooperatively interface their respective products into a combined product offering to be known as the Intelligent Table System ("ITS"). The Three-Party Agreement also provides a framework for the
cooperative development of new technologies and products that build on automated table management and real-time monitoring of table game player activity.

These
agreements do not impact our ability to continue to separately market and sell our products which are a part of the projects which are the subject of the Two-Party Agreement and the
Three-Party Agreement.

Bet the Set "21".Effective June 29, 2005, we acquired certain assets from Magnum
Gaming, Inc. The acquired assets, which have been assigned to our Entertainment Products segment, included the Bet the Set "21" side bet table game and related pending patent and trademark
applications, game marks,

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license
and sub-license rights, and other intellectual property, as well as the "Bet the Set" name. The acquired installed base of the Bet the Set "21" side bet table game was 205 units as
of the acquisition date and was 184 units as of October 31, 2005.

The
acquisition price included an initial cash payment of $540 paid in July 2005, and contingent consideration of $560. The contingent consideration consists of quarterly payments of 22.5% of
"adjusted gross revenues," as defined, attributed to the Bet the Set "21" side bet table game up to a maximum of $560. The balance at October 31, 2005, was $549.

Spur Gaming Systems.Effective August 1, 2005, we acquired certain assets from
MultiShift, Inc., dba Spur Gaming Systems ("SPUR"), a privately held corporation that develops and distributes table games and related products to casinos throughout North America. As a result
of the acquisition, we now own the underlying patents and trademarks for five additional proprietary games including Jackpot Pai Gow Poker and Progressive Jackpot Pai Gow Poker as well as a multishift
drop box. The acquired installed base of games was 53 units as of the acquisition date and 51 units as of October 31, 2005.

The
acquisition was accounted for under the purchase method of accounting. The acquisition price included a cash payment of $2,778 paid in August 2005, and consulting fees payable to SPUR,
pursuant to a separate consulting agreement, in the amount of $25 per year, commencing on the closing date or August 1, 2005, and continuing for a period of five years, for a maximum of $125.
Additionally, per the terms of the Asset Acquisition Agreement by and among Shuffle Master, Inc., and SPUR ("Spur Agreement"), contingent royalty payments are due quarterly equal to twenty
percent of any adjusted gross revenues, defined as any revenues or amount received by Shuffle Master, Inc., for placements of the Casino Cribbage Game and the Break Insurance Game. No such
games were placed into service as of October 31, 2005.

VIP Gaming Solutions.In August 2005, we acquired VIP Gaming Solutions Pty. Limited ("VIP"), a
privately held corporation with headquarters located in Sydney, Australia. As a result of the acquisition, we acquired a broader direct sales presence within the Asia-Pacific region and
expanded our product offerings to include a variety of table game related equipment
and accessories. The acquisition price consisted of a cash payment of $404, of which $96 was related to other direct costs, and a note payable of $320.

Stargames.As discussed elsewhere, on February 1, 2006, our 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. We will begin consolidating Stargames'
operating results as of February 1, 2006, and have begun the compulsory acquisition process to obtain all remaining shares, a process which we anticipate will take approximately 40 days.
The shares purchase was funded by temporary bridge financing and we expect to secure permanent financing or an extension of the bridge financing maturity date prior to the bridge loan's maturity. Our
results of operations, liquidity and capitalization will be materially different as a result of the acquisition.

Additional
information regarding our bridge loan is included in Note 2 to our consolidated financial statements. Additional information regarding our acquisitions is included in Note 3
to our consolidated financial statements. Additional information regarding our Stargames acquisition is included in Note 18 to our consolidated financial statements.

33

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DISPOSITIONS

In
December 2003, our board of directors approved and we committed to a plan to divest our North America slot products operations and assets, based on our determination that this product line
was no longer a strategic fit with our refocused core business strategy of providing products and services for the table game area of casinos. Revenues and costs associated with our slot products are
reported as discontinued operations for all periods presented. In January 2004, we entered into agreements pursuant to which we sold substantially all of our slot products' assets and
substantially completed our divestiture plans. A more detailed discussion is included under the heading "Discontinued Operations."

CONSOLIDATED RESULTS OF OPERATIONS  (In thousands, except per share amounts)

|                                             |                        | Year Ended October 31,
|-------------------------------------------- | ---------------------- | ----------------------
|
|Revenue                                      |                        |                       
|                                             | Utility products       |                       
|                                             | Entertainment products |                       
|                                             | Other                  |                       
|                                             |                        |                       
|                                             |                        |                       
|Cost of revenue                              |                        | 29,260                
|                                             |                        |                       
|Gross margin                                 |                        | 83,600                
|Selling, general and administrative          |                        | 30,559                
|Research and development                     |                        | 7,784                 
|                                             |                        |                       
|Income from operations                       |                        | 45,257                
|Other income (expense), net                  |                        | (1,657)               
|                                             |                        |                       
|Income from continuing operations before tax |                        | 43,600                
|Provision for income taxes                   |                        | 14,496                
|                                             |                        |                       
|Income from continuing operations            |                        | 29,104                
|Discontinued operations, net of tax          |                        | 76                    
|                                             |                        |                       
|Net income                                   |                        | $29,180               
|                                             |                        |                       

Our
revenue and results of operations are most affected by unit placements, through sale or lease, of our products. The number and mix of products placed and the average lease or sales price are the
most significant factors affecting our gross margins. These factors are, in turn, affected by the gaming industry generally and our customers' assessment of our products. To a lesser extent, our
overall financial results are affected by fluctuations in selling, general and administrative expenses and our continued investment in research and development activities.

34

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REVENUE AND GROSS MARGIN

|                         |                      | Year Ended October 31, |       | Percentage Change
|------------------------ | -------------------- | ---------------------- | ----- | -----------------
|
|Revenue:                 |                      |                        |       |                  
|                         | Leases and royalties |                        | $     | 48,571           
|                         | Sales and service    |                        |       | 63,997           
|                         | Other                |                        |       | 292              
|                         |                      |                        |       |                  
|                         |                      |                        | Total |                  
|                         |                      |                        |       |                  
|Cost of revenue:         |                      |                        |       |                  
|                         | Leases and royalties |                        | $     | 9,692            
|                         | Sales and service    |                        |       | 19,568           
|                         |                      |                        |       |                  
|                         |                      |                        | Total |                  
|                         |                      |                        |       |                  
|Gross margin:            |                      |                        |       |                  
|                         | Leases and royalties |                        | $     | 38,879           
|                         | Sales and service    |                        |       | 44,429           
|                         | Other                |                        |       | 292              
|                         |                      |                        |       |                  
|                         |                      |                        | Total |                  
|                         |                      |                        |       |                  
|Gross margin percentage: |                      |                        |       |                  
|                         | Leases and royalties |                        |       | 80.0%            
|                         | Sales and service    |                        |       | 69.4%            
|                         |                      |                        | Total |                  

We
earn our revenue in several ways. Either by leasing or licensing our products to casino customers, generally under month-to-month fixed fee contracts (product lease
contracts typically include parts and service) or we offer most of our products for sale with an optional parts and service contract. A more detailed discussion of our revenue components and related
revenue recognition policies is included under the heading "Critical Accounting Policies."

Our
overall revenue growth was due to increases in both leased and sold units installed base in both our product segments. The increase in the number of units leased and sold resulted from the
introduction of new products, greater placements of existing products, acquisitions of products, and to a lesser extent the expansion of legal gaming into new jurisdictions. A more detailed discussion
of our revenue is included for each of our operating segments under the heading "Segment Operating Results."

Fiscal 2005 compared to Fiscal 2004

Overall,
total revenue increased for the year ended October 31, 2005 as compared to the prior year period. Consolidated revenue for the year was $112,860 as compared to $84,783 in the prior
year. Our overall revenue growth of $28,077 is attributable to sales and service revenue in both the Utility and Entertainment segments, and to a lesser extent lease and royalty revenue for both
operating segments. Additionally, a full year of results for CARD contributed to the year over year growth. Revenue contributed by CARD was approximately $16,089 in fiscal 2005 compared to
approximately $7,100 in fiscal 2004. A more detailed discussion of our revenue is included for each of our operating segments under the heading "Segment Operating Results."

Overall
gross margin dollars increased for the year ended October 31, 2005. However, as a percentage of revenue, our gross margin percentage decreased 3.0% for the year ended October 31,
2005 compared to the same prior year period. The decrease in gross margin percentage year over year is primarily attributed to increased sales of our Table Master and Easy Chipper products which carry

35

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slightly
lower margins. Additionally, intellectual property amortization expense associated with products related to our CARD and BTI acquisitions is recorded as cost of sales which reduces our gross
margin percentage. Amortization expense related to these products was $4,090 and $1,832 for the years ended October 31, 2005 and 2004, respectively, which resulted in a 3.6% and 2.2% decrease
in gross margin percentage for the years ended October 31, 2005 and 2004, respectively.

Fiscal 2004 compared to Fiscal 2003

Our
overall revenue growth was primarily due to the increase in both leased and sold units in both our product segments. The increase in the number of units leased and sold resulted from the
introduction of new products, greater placements of existing products and the acquisition of products. Additionally, CARD, which was acquired in May 2004, contributed approximately $7,100 in
revenues for fiscal 2004.

Intellectual
property amortization expense associated with products acquired as part of our CARD and BTI acquisitions is recorded as a cost of sales, as stated above. As a result, although total gross
margin dollars increased, the gross margin as a percentage of revenue declined. Amortization expense associated with these products was $1,832 for fiscal 2004 compared to no expense for fiscal 2003,
representing an approximate 2.2% decline in gross margin percentage.

OPERATING EXPENSES

|                                    |                       |   |        |       |   |        |       | Percentage Change
|----------------------------------- | --------------------- | - | ------ | ----- | - | ------ | ----- | -----------------
|
|
|
|Selling, general and administrative |                       | $ | 30,559 |       | $ | 22,953 |       | $                
|                                    | Percentage of revenue |   |        | 27.0% |   |        | 27.1% |                  
|Research and development            |                       | $ | 7,784  |       | $ | 6,185  |       | $                
|                                    | Percentage of revenue |   |        | 6.9%  |   |        | 7.3%  |                  
|Total operating expenses            |                       | $ | 38,343 |       | $ | 29,138 |       | $                
|                                    | Percentage of revenue |   |        | 33.9% |   |        | 34.4% |                  

Selling, General and Administrative Expenses ("SG&A").SG&A dollars have increased year over year.
However, as a percentage of revenue, SG&A remained consistent with all of the prior year periods presented. For fiscal 2005 compared to fiscal 2004, the dollar increase primarily reflects the
following factors:

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Other
SG&A increased proportionate to our business volume increase.

SG&A
dollars increased for fiscal 2004 compared to fiscal 2003; however, the rate of increase in SG&A during fiscal 2004 was consistent with our rate of increase in revenue. As such, SG&A as a
percentage of revenue remained the same for fiscal 2004 and 2003. The greatest contributor to the
increase in SG&A dollars was legal fees, which were $3,501 for fiscal 2004 compared to $2,077 for fiscal 2003. In addition, the establishment of our European headquarters in Vienna, Austria through
our acquisition of CARD, contributed $1,180 to our fiscal 2004 SG&A expenses.

Research and Development Expenses ("R&D").Our R&D in all periods presented is distributed among all
of our product lines, as we have continued to invest in new product development. For fiscal 2005 compared to fiscal 2004, R&D increased primarily due to ITS product development. Additionally, CARD
products under development contributed $678 in fiscal 2005 compared to $266 in fiscal 2004 R&D expenses. R&D includes amortization of our patents for products still under development. Amortization
related to the RFID patents was $734 for the year ended October 31, 2005, compared to no comparable expense in fiscal 2004. In accordance with the Two-Party Agreement with IGT and
the related sale of a 50% ownership interest in these RFID patents, fiscal 2005 was favorably impacted by an approximate $145 reduction in amortization expense. This reduction will continue to have a
favorable impact on future periods over the life of the RFID patents.

Our
R&D spending increases in fiscal 2004 compared to fiscal 2003 were distributed among all of our product lines, as we invested in new product development, including next generation shufflers and
automated player tracking technologies. In addition, in April 2003, we acquired and began re-engineering our Table Master product line. This activity continued through fiscal 2004.

OTHER INCOME (EXPENSE)

Other
income (expense) is comprised of the following for the years ended October 31:

|                                                       |  | 2005 |        | 2004 |   | 2003   |  
|------------------------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|Interest income                                        |  | $    | 2,336  |      | $ | 888    |  
|Interest expense                                       |  |      | (3,263 | )    |   | (1,497 | )
|Foreign currency gain (loss)                           |  |      | 215    |      |   | (992   | )
|Impairment write-down of cost method equity investment |  |      | (1,000 | )    |   |       |  
|Other                                                  |  |      | 55     |      |   | 1      |  
|                                                       |  |      |        |      |   |        |  
|                                                       |  | $    | (1,657 | )    | $ | (1,600 | )
|                                                       |  |      |        |      |   |        |  

Year-over-year
interest income increased primarily due to increases in our financing activities, which resulted in a greater investment in sales-type lease and
notes receivable balances as of our fiscal year end as compared to the prior year period. Additionally, for the year ended October 31, 2005, interest income includes $502 related to interest on
Federal income tax refunds for the years ended October 31, 2001, 2000 and 1999. For the years ended October 31, 2005, 2004 and 2003, interest income related to sales-type
leases and notes receivable was $948, $480 and $125, respectively.

The
increase in interest expense is due to the issuance of $150,000 of contingent convertible senior notes in April 2004. A more detailed discussion of these Notes is included below under the
heading "Liquidity and Capital Resources."

Prior
to the completion of our CARD acquisition in fiscal 2004, we entered into foreign currency exchange contracts to fix the U.S. dollars estimated to be required to fund the
Euro-denominated cash component of the CARD purchase price which resulted in a foreign currency exchange loss of $703.

37

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Such
contracts did not meet the accounting criteria for hedge accounting, and accordingly, the foreign currency exchange loss was included in our operating results for the year ended
October 31, 2004. As of October 31, 2005, we had no outstanding foreign exchange contracts.

For
the quarter and fiscal year ended October 31, 2005, we recorded a $1,000 impairment write-down related to a cost method equity investment.

INCOME TAXES

Our
effective income tax rate for continuing operations for the years ended October 31 is as follows:

|                                           |  | 2005   |  | 2004   |  | 2003  
|------------------------------------------ |  | ------ |  | ------ |  | ------
|Federal income tax at the statutory rate   |  | 35.0%  |  | 35.0%  |  | 35.0% 
|Permanent differences                      |  | (1.9%) |  | (1.4%) |  | (0.8%)
|State income taxes, net of federal benefit |  | 2.1%   |  | 2.0%   |  | 2.0%  
|Federal tax credits                        |  | (1.8%) |  | (1.4%) |  | (1.7%)
|Effect from foreign tax rate differences   |  | 0.7%   |  | 0.9%   |  | 1.0%  
|Other                                      |  | (0.8%) |  | (0.1%) |  | (0.5%)
|                                           |  |        |  |        |  |       
|Effective tax rate                         |  | 33.3%  |  | 35.0%  |  | 35.0% 
|                                           |  |        |  |        |  |       

The
decline in our effective tax rate from the prior years is primarily attributed to tax provision to tax return true-up related to differences in estimated versus actual State income tax
rates and Federal tax credits.

Looking
forward, our annual effective tax rate may fluctuate due to changes in our amount and mix of U.S. and foreign income, changes in tax legislation and changes in our estimates of federal tax
credits and other tax deductions. We estimate that our fiscal 2006 annual effective tax rate will be approximately 35.0%.

During
each of the years ended October 31, 2005, 2004 and 2003, we recorded income tax benefits of $5,287, $5,388 and $2,661, respectively, related to deductions for employee stock option
exercises. These tax benefits, which reduced income taxes payable and increased additional paid-in capital by an equal amount, had no effect on our provision for income taxes.
Additionally, as part of the fiscal 2004 income tax provision to tax return true-up, we recorded a $229 tax benefit related to employee stock option exercises which reduced income taxes
payable and increased additional paid-in capital by an equal amount.

We
record deferred income taxes to reflect the income tax consequences in future years between the financial reporting and income tax bases of assets and liabilities, and future tax benefits such as
net operating loss carryforwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the
differences are expected to reverse. We provide valuation allowances to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate the likelihood of recovering
our deferred tax assets by estimating sources of future taxable income. The provision for income taxes is the sum of the tax currently payable and the change in deferred taxes during the year.
Additional information regarding income taxes is included in Note 15 to our consolidated financial statements.

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EARNINGS PER SHARE

|                                                  |                                                       | Year Ended October 31, |       
|------------------------------------------------- | ----------------------------------------------------- | ---------------------- | ------
|
|Income from continuing operations                 |                                                       | $                      | 29,104
|Basic earnings per share, continuing operations   |                                                       | $                      | 0.83  
|Diluted earnings per share, continuing operations |                                                       | $                      | 0.80  
|Weighted average shares data:                     |                                                       |                        |       
|                                                  | Basic                                                 |                        |       
|                                                  | Dilutive impact of stock options and restricted stock |                        |       
|                                                  | Dilutive effect of contingent convertible notes       |                        |       
|                                                  |                                                       |                        |       
|                                                  | Diluted                                               |                        |       
|                                                  |                                                       |                        |       
|Outstanding shares data:                          |                                                       |                        |       
|                                                  | Shares outstanding, beginning of year                 |                        |       
|                                                  | Options exercised                                     |                        |       
|                                                  | Shares repurchased                                    |                        |       
|                                                  | CARD acquisition                                      |                        |       
|                                                  | Other                                                 |                        |       
|                                                  |                                                       |                        |       
|                                                  | Shares outstanding, end of year                       |                        |       
|                                                  |                                                       |                        |       

In
December 2004, our board of directors approved a three-for-two common stock split, with new shares distributed in the form of a dividend on January 14, 2005,
to shareholders of record on January 3, 2005 (the "January 2005 Split"). Share and per share amounts have been adjusted for all periods presented herein to reflect the
January 2005 Split.

In
March 2004, our board of directors had earlier approved another three-for-two common stock split, with new shares distributed in the form of a dividend on
April 16, 2004, to shareholders of record on April 5, 2004 (the "April 2004 Split"). Share and per share amounts have been adjusted for all periods presented herein to reflect the
April 2004 Split.

We
account for our contingent convertible notes in accordance with EITF 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share" which requires us to include the
dilutive effect of our outstanding Notes shares in our diluted earnings per share calculation, regardless of whether the market price trigger or other contingent conversion feature has been met.
Because our Notes include a mandatory cash settlement feature for the principal payment, we applied the treasury stock method. This method results in incremental dilutive shares when the average fair
value of our common stock for a reporting period exceeds the initial conversion price per share of $28.07. During fiscal 2005, the average fair value of our common stock exceeded $28.07, resulting in
additional dilutive shares.

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SEGMENT OPERATING RESULTS  (Dollars in thousands, except per unit amounts)

SEGMENT OVERVIEW

We
have two reportable segments which are classified as continuing operations, Utility Products and Entertainment Products. Utility Products include our Shufflers, Chip Sorting Machines and ITS
product lines. Entertainment Products include our Proprietary Table Games, Table Master products and Shuffle Up. Each segment's activities include the design, development, acquisition, manufacture,
marketing, distribution, installation and servicing of its product lines.

Utility Products.Our strategy in the Utility Products segment is the development of products for our
casino customers that enhance table game speed, productivity and security. Currently, Utility Products segment revenue is derived substantially from our automatic card shufflers. We develop and market
a full complement of automatic card shufflers for use with the vast majority of card table games placed in casinos and other gaming locations, including our own proprietary table games. In addition to
selling and servicing, we also lease shufflers, which provides us with recurring revenue. Our current shuffler product portfolio consists of 6 distinct models, including both second and third
generation shufflers, in the categories of single deck, multi-deck batch and multi-deck continuous card shufflers. As of October 31, 2005, our shuffler installed base
totaled 18,589 units, a 21.6% increase from 15,289 as of October 31, 2004. Our growth strategy for our shuffler business is the development and distribution of next generation, patent protected
shufflers which enhance the value proposition for our customers through technological advancements. As a result, we expect to replace our older generation shufflers over time, while at the same time,
increasing the penetration of our shufflers in the marketplace.

As
part of the CARD acquisition in May 2004, we acquired a next generation chip sorting machine, the Easy Chipper. The Easy Chipper simplifies the handling of gaming chips and accurately tracks
chip volume and value, which increases the productivity and security on high volume chip tables such as Roulette. During May 2005, we announced our first Easy Chipper orders, marking the first
release of a new product developed by CARD since the acquisition. During the year ended October 31, 2005, we sold 122 Easy Chipper units, and placed 10 Easy Chipper units on lease. For fiscal
2005, total revenue contribution from the Easy Chipper was approximately $2,600.

Our
ITS products remain in the development stage, including our Intelligent Shoe which increases table game security by reading each card as it is removed from the shoe to reduce game manipulation.

Entertainment Products.Our strategy in the Entertainment Products segment is the development and
delivery of proprietary table game content, which enhances our casino customers' table game operations. Currently, Entertainment Products segment revenue is derived substantially from our live
proprietary table game content. We develop and market a full complement of poker, pai gow poker, baccarat and blackjack table game content. Our current table game portfolio consists of 14 revenue
generating titles, including industry leading brands such as Three Card Poker, Let It Ride, Four Card Poker and Fortune Pai Gow Poker. The majority of these games are licensed to our customers, which
provides us with recurring revenue. In fiscal 2003, we began selling lifetime licenses of certain of our proprietary table games. As of October 31, 2005, our proprietary table game installed
base totaled 3,681 games, a 13.9% increase from 3,233 games as of October 31, 2004. Our growth strategy for our live proprietary table games business is to broaden our content through increased
development and/or acquisition. As a result, we expect to further increase the penetration of our content in the marketplace, as well as create a longer-term replacement opportunity.

In
late fiscal 2004, we expanded on the distribution of our proprietary table game portfolio with the introduction of our Table Master product. Table Master is a five station, electronic table game
featuring a video screen with a virtual dealer who interacts with players. In addition to selling and servicing, we also lease our Table Master product, which provides us with recurring revenue. As of
October 31, 2005, our

40

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Table
Master installed base totaled approximately 102 units, a 410.0% increase from 20 units as of October 31, 2004. For fiscal 2005, total revenue contribution from Table Master was
approximately $4,900. Our growth strategy for Table Master is to position the product as a more cost effective way to offer lower stakes table games to our casino customers. Additionally, our Table
Master platform enables us to offer table game content into markets where live table games are not permitted, such as racino, video lottery and arcade markets.

In
January 2005, through the formation of Shuffle Up, we broadened the distribution of our branded content and intellectual property outside of our traditional live table game offerings by
developing live and broadcast tournament events and retail merchandise. In June 2005, we commenced with our plans to host a Three Card Poker National Championship offering
participants the chance to compete for a $1 million dollar grand prize. The tournament consisted of a series of regional tournaments, with the finals held in Las Vegas, Nevada in late
November 2005. Additionally,
we have contracted with LMNO Productions to develop and produce a television program based on the tournament, which we expect will air in early calendar 2006. Our long-term strategy
through Shuffle Up is further development of additional distribution channels for our branded content and intellectual property, including "for fun" gaming activities on the internet, cellular phones,
wireless hand-held devices, board games and home computer games.

Segment
revenues include sale, lease or licensing of products within each reportable segment. We measure segment revenue performance in terms of dollars and Installed Unit Base. Installed Unit Base is
the sum of product units under lease or license agreements and inception-to-date sold units. We believe that Installed Unit Base is an important gauge of segment performance
because it measures historical market placements of leased and sold units and it provides insight into potential markets for service and next-generation products. Some sold units may no
longer be in use by our casino customers or may have been replaced by other models or products. Accordingly, we are unable to determine precisely the number of units currently in active use.

Segment
operating income includes revenues and expenses directly and indirectly associated with the product lines included in each segment. Direct expenses primarily include depreciation of leased
assets, amortization of intangible assets, cost of products sold, shipping, installation, commissions, product approval costs, research and development and product related litigation. Indirect
expenses include an activity-based allocation of other general product-related costs, the most significant of which are service and selling expenses and manufacturing overhead. Corporate general and
administrative expenses are not allocated to segments.

41

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UTILITY PRODUCTS SEGMENT OPERATING RESULTS

Fiscal 2005 compared to Fiscal 2004

|                                          |                               | Year Ended October 31,            |        |        |        |       
|----------------------------------------- | ----------------------------- | --------------------------------- | ------ | ------ | ------ | ------
|
|
|Utility Products segment revenue          |                               |                                   |        |        |        |       
|                                          | Lease                         |                                   | $      | 23,721 |        | $     
|                                          | Sales and service             |                                   |        | 43,308 |        |       
|                                          |                               |                                   |        |        |        |       
|                                          |                               |                                   | Total  |        | $      | 67,029
|                                          |                               |                                   |        |        |        |       
|Utility Products segment operating income |                               | $                                 | 32,595 |        | $      | 21,361
|Utility Products segment operating margin |                               |                                   | 48.6%  |        |        | 46.5% 
|Shufflers installed base (end of year)    |                               |                                   |        |        |        |       
|                                          | Lease units                   |                                   |        | 4,809  |        |       
|                                          |                               |                                   |        |        |        |       
|                                          | Sold units, inception-to-date |                                   |        |        |        |       
|                                          |                               | Beginning of year (includes CARD) |        |        | 11,151 |       
|                                          |                               | Sold during year                  |        |        | 3,062  |       
|                                          |                               | Less trade-ins and exchanges      |        |        | (433   | )     
|                                          |                               |                                   |        |        |        |       
|                                          |                               | End of year                       |        |        | 13,780 |       
|                                          |                               |                                   |        |        |        |       
|                                          | Total installed base          |                                   |        | 18,589 |        |       
|                                          |                               |                                   |        |        |        |       

Utility
Products segment revenue is derived substantially from our shuffler product line. Revenue from our former, non-automated Bloodhound product is not material for the periods
presented and our automated Bloodhound and ITS products remain in the development stage.

For
the year ended October 31, 2005, Utility Products segment revenue increased 45.9%, compared to the prior year, primarily due to a 63.2% increase in Utility Products sales and service
revenue. Additionally, Utility Products lease revenue increased 22.2% compared to the prior year.

The
increase in Utility Products lease revenue for the year ended October 31, 2005, compared to the prior year, primarily reflects:

Contributing
to the increases during fiscal 2005 is the sale of 122 units of our Easy Chipper, which contributed approximately $2,600 in sales revenue.

The
increase in Utility Products sales and service revenue for the year ended October 31, 2005, compared to the prior year, primarily reflects:

42

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Utility
Products segment operating income for the year ended October 31, 2005, increased 52.6% compared to the prior year, primarily due to greater volume. Additionally, operating margin
increased 2.1% from the prior year, primarily due to a reduction in legal fees related to the VendingData I legal settlement and the reimbursement of certain legal fees pursuant to the IGT patent
purchase agreement. The reduction in legal fees contributed a 3.3% increase in operating margin for fiscal 2005. This increase was partially offset by amortization expense related to the acquired CARD
products. Amortization expense associated with the one2six shuffler and the Easy Chipper was $2,799 for the year ended October 31, 2005, compared to $1,165 for the prior year.

Fiscal 2004 compared to Fiscal 2003

|                                          |                               | Year Ended October 31,                      |        |        |        |        |       
|----------------------------------------- | ----------------------------- | ------------------------------------------- | ------ | ------ | ------ | ------ | ------
|
|
|Utility Products segment revenue          |                               |                                             |        |        |        |        |       
|                                          | Lease                         |                                             | $      | 19,415 |        | $      | 17,599
|                                          | Sales and service             |                                             |        | 26,532 |        |        | 15,493
|                                          |                               |                                             |        |        |        |        |       
|                                          |                               |                                             | Total  |        | $      | 45,947 |       
|                                          |                               |                                             |        |        |        |        |       
|Utility Products segment operating income |                               | $                                           | 21,361 |        | $      | 16,970 |       
|Utility Products segment operating margin |                               |                                             | 46.5%  |        |        | 51.3%  |       
|Shufflers installed base (end of year)    |                               |                                             |        |        |        |        |       
|                                          | Lease units                   |                                             |        | 4,138  |        |        | 3,584 
|                                          |                               |                                             |        |        |        |        |       
|                                          | Sold units, inception-to-date |                                             |        |        |        |        |       
|                                          |                               | Beginning of year                           |        |        | 7,506  |        |       
|                                          |                               | Sold during year                            |        |        | 2,165  |        |       
|                                          |                               | CARD installed base at the acquisition date |        |        | 1,602  |        |       
|                                          |                               | Less trade-ins and exchanges                |        |        | (122   | )      |       
|                                          |                               |                                             |        |        |        |        |       
|                                          |                               | End of year                                 |        |        | 11,151 |        |       
|                                          |                               |                                             |        |        |        |        |       
|                                          | Total installed base          |                                             |        | 15,289 |        |        | 11,090
|                                          |                               |                                             |        |        |        |        |       

Utility
Products segment revenue is derived substantially from our shuffler product line. Revenue from our former, non-automated Bloodhound and chip sorting products is not material for
the periods presented and our automated Bloodhound and ITS products are in the development stage.

The
increase in shuffler lease revenue for fiscal 2004 primarily reflects:

43

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The
increase in shuffler sales and service revenue for fiscal 2004 primarily reflects:

Utility
Products segment operating income for fiscal 2004 increased when compared to the prior fiscal year due to greater volume; however, as a percentage of revenue, the Utility Products operating
margin declined due to the following factors:

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ENTERTAINMENT PRODUCTS SEGMENT OPERATING RESULTS

Fiscal 2005 compared to Fiscal 2004

|                                                |                                     | Year Ended October 31, |                                              |        |     |       
|----------------------------------------------- | ----------------------------------- | ---------------------- | -------------------------------------------- | ------ | --- | ------
|
|
|Entertainment Products segment revenue          |                                     |                        |                                              |        |     |       
|                                                | Royalties and leases  Table games  |                        | $                                            | 24,119 |     | $     
|                                                | Royalties and leases  Table Master |                        |                                              | 650    |     |       
|                                                | Other                               |                        |                                              | 81     |     |       
|                                                |                                     |                        |                                              |        |     |       
|                                                |                                     |                        | Total royalties and leases                   |        |     | 24,850
|                                                |                                     |                        |                                              |        |     |       
|                                                | Sales  Table games                 |                        |                                              | 15,503 |     |       
|                                                | Sales  Table Master                |                        |                                              | 4,115  |     |       
|                                                | Service and other                   |                        |                                              | 1,071  |     |       
|                                                |                                     |                        |                                              |        |     |       
|                                                |                                     |                        | Total sales and service revenue              |        |     | 20,689
|                                                |                                     |                        |                                              |        |     |       
|                                                |                                     |                        | Total Entertainment Products segment revenue |        | $   | 45,539
|                                                |                                     |                        |                                              |        |     |       
|Entertainment Products segment operating income |                                     | $                      | 33,529                                       |        | $   | 29,586
|Entertainment Products segment operating margin |                                     |                        | 73.6%                                        |        |     | 76.4% 
|Table games installed base (end of year)        |                                     |                        |                                              |        |     |       
|                                                | Royalty units                       |                        |                                              | 2,913  |     |       
|                                                |                                     |                        |                                              |        |     |       
|                                                | Sold units, inception-to-date       |                        |                                              |        |     |       
|                                                |                                     | Beginning of year      |                                              |        | 365 |       
|                                                |                                     | Sold during year       |                                              |        | 403 |       
|                                                |                                     |                        |                                              |        |     |       
|                                                |                                     | Subtotal               |                                              |        | 768 |       
|                                                |                                     |                        |                                              |        |     |       
|                                                | Total installed base                |                        |                                              | 3,681  |     |       
|                                                |                                     |                        |                                              |        |     |       
|Table Master installed base (end of year)       |                                     |                        |                                              |        |     |       
|                                                | Lease units                         |                        |                                              | 40     |     |       
|                                                |                                     |                        |                                              |        |     |       
|                                                | Sold units, inception-to-date       |                        |                                              |        |     |       
|                                                |                                     | Beginning of period    |                                              |        | 15  |       
|                                                |                                     | Sold during period     |                                              |        | 47  |       
|                                                |                                     |                        |                                              |        |     |       
|                                                |                                     | Subtotal               |                                              |        | 62  |       
|                                                |                                     |                        |                                              |        |     |       
|                                                | Total installed base                |                        |                                              | 102    |     |       
|                                                |                                     |                        |                                              |        |     |       

Entertainment
Products segment revenue is derived substantially from our proprietary table game products including Table Master. For fiscal 2005, total revenue contribution from Table Master was
approximately $4,900. During fiscal year 2005, we launched Shuffle Up and held our first Three Card Poker National Championship tournament. Shuffle Up's operating results were not material to fiscal
2005. Effective June 29, 2005, we acquired Bet the Set "21" side bet table game from Magnum Gaming, Inc. The acquired installed base of the Bet the Set "21" side bet table game was 205
units as of the acquisition date and was 184 units as of October 31, 2005. Effective August 1, 2005, we purchased certain assets from SPUR and as a result we own the underlying patents
and trademarks for five

45

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additional
proprietary games including Jackpot Pai Gow Poker and Progressive Jackpot Pai Gow Poker. The acquired installed base of games was 53 units as of the acquisition date and 51 units as of
October 31, 2005.

For
the year ended October 31, 2005, Entertainment Products segment revenue increased 17.7%, compared to the prior year, primarily due to a 37.9% increase in sales revenue related to both our
table games and Table Master products. Additionally, royalty and lease revenue increased 4.9%, compared to the prior year.

The
increase in Entertainment Products royalty and lease revenue for the year ended October 31, 2005, compared to the prior year, primarily reflects:

The
increase in Entertainment Products sales and service revenue for the year ended October 31, 2005, compared to the prior year is primarily attributed to:

Entertainment
Products segment operating income increased 13.3% for the year ended October 31, 2005, compared to the prior year. However, as a percentage of Entertainment Products segment
revenue, operating margin decreased slightly from the prior year period. Operating margin was unfavorably impacted by amortization expense related to the BTI games of $1,291 for fiscal 2005, compared
to $910 for fiscal 2004. This unfavorable impact was partially offset by lower allocated manufacturing overhead and sales expenses in the current period, as these allocated expenses did not increase
at the same rate as revenue. Additionally, we incurred re-engineering and improvement costs related to the Table Master platform during fiscal 2004; such costs were significantly less for
fiscal 2005.

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Fiscal 2004 compared to Fiscal 2003

|                                                |                               | Year Ended October 31, |        |        |     |       
|----------------------------------------------- | ----------------------------- | ---------------------- | ------ | ------ | --- | ------
|
|
|Entertainment Products segment revenue          |                               |                        |        |        |     |       
|                                                | Royalties and leases          |                        | $      | 23,700 |     | $     
|                                                | Sales and service             |                        |        | 15,005 |     |       
|                                                |                               |                        |        |        |     |       
|                                                |                               |                        | Total  |        | $   | 38,705
|                                                |                               |                        |        |        |     |       
|Entertainment Products segment operating income |                               | $                      | 29,586 |        | $   | 20,316
|Entertainment Products segment operating margin |                               |                        | 76.4%  |        |     | 80.8% 
|Table games installed base (end of year)        |                               |                        |        |        |     |       
|                                                | Royalty units                 |                        |        | 2,868  |     |       
|                                                |                               |                        |        |        |     |       
|                                                | Sold units, inception-to-date |                        |        |        |     |       
|                                                |                               | Beginning of year      |        |        | 72  |       
|                                                |                               | Sold during year       |        |        | 293 |       
|                                                |                               |                        |        |        |     |       
|                                                |                               | Subtotal               |        |        | 365 |       
|                                                |                               |                        |        |        |     |       
|                                                | Total installed base          |                        |        | 3,233  |     |       
|                                                |                               |                        |        |        |     |       

Entertainment
Products segment revenue is derived substantially from our proprietary table game products. Revenue from our Table Master products is not material for the periods presented.

The
increase in Entertainment Products lease revenue for fiscal 2004 reflects:

Entertainment
Products sales for fiscal 2004 are primarily the sale of lifetime licenses for our proprietary table games, which we began selling in our fiscal 2003 third quarter.

Entertainment
Products segment operating income for fiscal 2004 increased when compared to the prior fiscal year due to greater volume; however, as a percentage of revenue, the Entertainment Products
operating margin declined due to the following factors:

DISCONTINUED OPERATIONS

As
described above, in December 2003, our board of directors approved and we committed to a plan to divest our North America slot products operations and assets, based on our determination that
this product line was no longer a strategic fit with our refocused core business strategy of providing products

47

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and
services for the table game area of casinos. Revenues and costs associated with our slot products are reported as discontinued operations for all periods presented.

In
January 2004, we entered into agreements pursuant to which we sold substantially all of our slot products assets to IGT. Significant terms of the agreements include:

These
transactions with IGT substantially completed our divestiture of slot products assets. Additionally, during the year ended October 31, 2004, we liquidated additional slot products
inventories, resulting in net proceeds of $411. Remaining slot products assets, including inventory, leased assets, and intangible assets, which do not meet the accounting criteria to classify these
assets as "held for sale," are recorded at their estimated net realizable value, and are not material.

Discontinued
operations consisted of the following for the years ended October 31:

|                                       |  | 2005 |     | 2004 |   | 2003  |  
|-------------------------------------- |  | ---- | --- | ---- | - | ----- | -
|Revenues                               |  | $    | 217 |      | $ | 2,279 |  
|                                       |  |      |     |      |   |       |  
|Gain (loss) from operations before tax |  | $    | 110 |      | $ | 79    |  
|Income tax (expense) benefit           |  |      | (37 | )    |   | (27   | )
|                                       |  |      |     |      |   |       |  
|Net income (loss) from operations      |  |      | 73  |      |   | 52    |  
|                                       |  |      |     |      |   |       |  
|Gain on sale of slot assets            |  |      | 11  |      |   | 3,306 |  
|Exit Costs and other                   |  |      |    |      |   | (883  | )
|Income tax expense                     |  |      | (8  | )    |   | (848  | )
|                                       |  |      |     |      |   |       |  
|Gain on sale of slot assets, net       |  |      | 3   |      |   | 1,575 |  
|                                       |  |      |     |      |   |       |  
|Discontinued operations, net           |  | $    | 76  |      | $ | 1,627 |  
|                                       |  |      |     |      |   |       |  

The
gain on sale of slot assets includes charges totaling $3,107 to adjust the carrying value of remaining slot products inventory, leased and available products, property and equipment and intangible
assets to their estimated net realizable value.

In
connection with the discontinuation of our slot products operations, we accrued estimated expenses of $1,286 for termination of slot-related contracts, closure of our leased slot
products research and development facility in Colorado, and termination of slot products personnel (collectively, "Exit Costs"). The charge for Exit Costs is included in discontinued operations, net
of tax, on our consolidated statements of income. During the year ended October 31, 2004, we substantially completed our exit activities at actual costs lower than our initial estimates. As a
result, we reduced our accrued Exit Costs by $296. Remaining accrued Exit Costs relate to minimum royalty liabilities under abandoned slot license agreements, litigation costs and/or settlement of an
existing legal case. These amounts are expected to be paid over the next several years.

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The
following table summarizes the activity for our accrued Exit Costs as of October 31, 2005:

|                                    |  | Contract
Terminations |      | Facility
Closure |   | Severance |   | Other |      | Total |  
|----------------------------------- |  | --------------------- | ---- | ---------------- | - | --------- | - | ----- | ---- | ----- | -
|Exit Costs accrued, initial balance |  | $                     | 366  |                  | $ | 324       |   | $     | 187  |       | $
|Adjustment to accrued Exit Costs    |  |                       | (152 | )                |   | (70       | ) |       | (24  | )     |  
|Cash payments                       |  |                       | (114 | )                |   | (254      | ) |       | (163 | )     |  
|                                    |  |                       |      |                  |   |           |   |       |      |       |  
|Balance, October 31, 2005           |  | $                     | 100  |                  | $ |          |   | $     |     |       | $
|                                    |  |                       |      |                  |   |           |   |       |      |       |  

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LIQUIDITY AND CAPITAL RESOURCES  (In thousands, except ratios and per share amounts)

Our
primary historical source of liquidity and capital resources has been cash flow generated by our profitable operations. We use cash to fund growth in our operating assets, including accounts
receivable, inventory, sales-type leases and notes receivable and to fund new products through both research and development and strategic acquisitions of businesses and intellectual
property.

In
April 2004, we obtained additional capital resources through the issuance of $150,000 of contingent convertible senior notes due 2024 (the "Notes"). Our net cash proceeds were $145,208,
after deducting note issuance costs. We used $57,500 of the net proceeds from the Notes to repurchase shares of our common stock in open market purchases or privately negotiated transactions, which
included shares sold short by purchasers of the Notes concurrently with and contingent upon their purchase of the Notes. We used $30,788 to fund our cash payment for our acquisition of CARD, excluding
cash acquired and other direct expenses. We used the remainder of the net proceeds from the Notes for general corporate purposes, including additional repurchases of our common stock and acquisitions
of strategic assets.

LIQUIDITY

Working Capital.The following summarizes our cash, cash equivalents and working capital:

|                                        |  | October 31, |        |  |   |        | 
|--------------------------------------- |  | ----------- | ------ |  | - | ------ | 
|
|
|Cash, cash equivalents, and investments |  | $           | 34,088 |  | $ | 47,038 | 
|Working capital                         |  | $           | 57,634 |  | $ | 65,671 | 
|Current ratio                           |  |             | 4.4    |  |   | 6.2    | 

Significant
factors increasing cash and investments during fiscal 2005 include:

Significant
factors decreasing cash and investments during fiscal 2005 include:

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Cash Flows.

Operating ActivitiesSignificant items included in cash flows from operating activities are as follows:

|                                                   |  | Year Ended October 31, |         |   |   |        |  
|-------------------------------------------------- |  | ---------------------- | ------- | - | - | ------ | -
|
|
|Net income                                         |  | $                      | 29,180  |   | $ | 24,144 |  
|Non-cash items                                     |  |                        | 13,028  |   |   | 9,775  |  
|Income tax related items                           |  |                        | 9,614   |   |   | 5,242  |  
|Net gain from disposition of slot products assets  |  |                        |        |   |   | (2,495 | )
|Loss on investment and disposal of assets          |  |                        | 1,066   |   |   |       |  
|Investment in sales-type leases & notes receivable |  |                        | (7,942  | ) |   | (6,719 | )
|Other changes in operating assets and liabilities  |  |                        | (10,438 | ) |   | (3,360 | )
|                                                   |  |                        |         |   |   |        |  
|Cash flow provided by operating activities         |  | $                      | 34,508  |   | $ | 26,587 |  
|                                                   |  |                        |         |   |   |        |  

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Investing ActivitiesSignificant items included in cash flows from investing activities are as follows:

|                                             |  | Year Ended October 31, |         |   |   |         |  
|-------------------------------------------- |  | ---------------------- | ------- | - | - | ------- | -
|
|
|Net maturities (purchases) of investments    |  | $                      | 5,483   |   | $ | (18,707 | )
|Capital expenditures                         |  |                        | (18,969 | ) |   | (7,143  | )
|Business acquisitions, net of cash acquired  |  |                        | (228    | ) |   | (38,594 | )
|Proceeds from sale of leased assests         |  |                        | 1,632   |   |   |        |  
|Net proceeds from disposition of slot assets |  |                        |        |   |   | 8,858   |  
|Net proceeds from sale of intangibles        |  |                        | 9,039   |   |   |        |  
|Other                                        |  |                        | (3,483  | ) |   | (954    | )
|                                             |  |                        |         |   |   |         |  
|Cash flow used by investing activities       |  | $                      | (6,526  | ) | $ | (56,540 | )
|                                             |  |                        |         |   |   |         |  

Financing ActivitiesSignificant items included in cash flows from financing activities are as follows:

|                                                  |  | Year Ended October 31, |         |   |   |          |  
|------------------------------------------------- |  | ---------------------- | ------- | - | - | -------- | -
|
|
|Proceeds from issuance of Notes, net of costs     |  | $                      |        |   | $ | 145,208  |  
|Repurchases of common stock                       |  |                        | (38,643 | ) |   | (100,024 | )
|Proceeds from stock option exercises, net         |  |                        | 6,514   |   |   | 6,780    |  
|Payment of long-term liabilities                  |  |                        | (2,896  | ) |   | (4,105   | )
|                                                  |  |                        |         |   |   |          |  
|Cash flow provided (used) by financing activities |  | $                      | (35,025 | ) | $ | 47,859   |  
|                                                  |  |                        |         |   |   |          |  

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As
discussed in Note 18 to our consolidated financial statements, on February 1, 2006, our 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. We will begin consolidating Stargames' operating results as of February 1, 2006, and have
begun the compulsory acquisition process to obtain all remaining shares, a process which we anticipate will take approximately 40 days.

On
January 25, 2006, we entered into a Credit Agreement among us, Deutsche Bank AG Cayman Islands Branch as a Lender, Deutsche Bank AG New York Branch as Administrative Agent and Deutsche Bank
Securities Inc. as Sole Arranger and Book Manager (the "Credit Agreement"). The Credit Agreement provided for a Bridge Loan (the "Bridge Loan") in the amount of $115,000. The proceeds of this
Bridge Loan were used to finance the acquisition of Stargames. The Bridge Loan matures on April 24, 2006.

Management
intends and believes it has the ability, to refinance the Credit Agreement on a long-term basis. Financing options currently under consideration, include, but are not limited to
(i) an extension of the existing Credit Agreement, (ii) a senior secured bank credit facility and (iii) convertible debt through the issuance by private placement pursuant to
Rule 144A under the Securities Act of 1933.

For
additional information on the bridge loan see Note 2 and Note 18 to our consolidated financial statements.

LONG-TERM LIABILITIES

Contingent Convertible Senior Notes.In April 2004, we issued $150,000 of Notes, due 2024,
through a private placement under Rule 144A of the Securities Act of 1933. The Notes are unsecured and bear interest at a fixed rate of 1.25% per annum. Interest is payable
semi-annually in arrears on April 15 and October 15 of each year, beginning October 15, 2004. We made interest payments of $938 in April and October of fiscal 2005.
After deducting Note issuance costs of $4,792, our net proceeds were $145,208. Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized
as interest expense using the effective interest method over 5 years. Unamortized debt issuance costs are included in other assets on the consolidated balance sheets.

Holders
may convert any outstanding Notes into cash and shares of our common stock at an initial conversion price per share of $28.07. This represents a conversion rate of approximately 35.6210 shares
of common stock per $1,000 in principal amount of Notes. The value of the cash and shares of our common stock, if any, to be received by a holder converting $1,000 principal amount of the Notes will
be determined based on the applicable Conversion Rate, Conversion Value, Principal Return, and other factors, each as defined in the indenture covering these Notes.

The
Notes are convertible, at the holders' option, into cash and shares of our common stock, under any of the following circumstances:

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We
may call some or all of the Notes at any time on or after April 21, 2009, at a redemption price, payable in cash, of 100% of the principal amount of the Notes, plus accrued and unpaid
interest and including liquidated damages, if any, up to but not including the date of redemption. In addition, the holders may require us to repurchase all or a portion of their Notes on
April 15, 2009, 2014 and 2019, at 100% of the principal amount of the Notes, plus accrued and unpaid interest and including liquidated damages, if any, up to but not including the date of
repurchase, payable in cash. Upon a change in control, as defined in the indenture governing the Notes, holders may require us to repurchase all or a portion of their Notes, payable in cash equal to
100% of the principal amount of the Notes plus accrued and unpaid interest and liquidated damages, if any, up to but not including the date of repurchase.

Debt
issuance costs incurred with the issuance of long-term debt are capitalized and amortized as interest expense using the effective interest method over the initial call period ending
April 15, 2009. Amortization of debt issuance costs were $961 and $503 for the years ended October 31, 2005 and 2004, respectively. Unamortized debt issuance costs of $3,327 as of
October 31, 2005, are included in other assets on our consolidated balance sheet.

BTI liabilities.In connection with our acquisition of certain assets from BTI, we recorded an
initial estimated liability of $7,616 for contingent installment payments computed as the excess fair value of the acquired assets over the fixed installments and other direct costs. In
November 2004, we began paying monthly note installments based on a percentage of certain revenue from BTI games for a period of up to ten years, not to exceed $12,000. The balance of this
liability as of October 31, 2005, was $6,167.

ENPAT note payable.In December 2004, we purchased two RFID technology patents from ENPAT for
$12,500. The purchase price was comprised of an initial payment of $2,400 followed by a $1,100 payment in January 2005 and a non-interest bearing note with annual
installments due through December 2007. The balance as of October 31, 2005, of $8,518 represents the discounted present value of the future payments, including imputed interest of
approximately $352. Principal and interest payments of $3,000 each are due in December 2005, 2006, and 2007.

Note payable.In August 2002, we purchased a patent and the Bloodhound product from Casino
Software and Services, LLC for cash of $300 and a note payable for $600. The note bore interest at 2.0% annually and was paid in full in August 2005.

Bet the Set "21" contingent consideration.In connection with our acquisition of Bet the Set "21", we
recorded contingent consideration of $560. The contingent consideration consists of quarterly payments of 22.5% of "adjusted gross revenues," as defined, attributed to the Bet the Set "21" side bet
table games up to a maximum of $560. The balance of this liability as of October 31, 2005, was $549.

VIP note payable.In connection with our acquisition of VIP in August 2005, we recorded a note
payable with equal annual installments due each July through 2010. The balance of the liability as of October 31, 2005 was $318.

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Credit Facility.In connection with the contingent convertible senior notes issuance mentioned above,
on April 13, 2004, we terminated our $15,000 revolving credit agreement that we had maintained with U.S. Bank, N.A.

CAPITAL RESOURCES

Excluding
any significant acquisitions of businesses, and assuming we are successful in obtaining permanent financing related to our recent acquisition of Stargames, we believe our existing cash,
investments, debt financing and projected cash flow from future operations will be sufficient to fund our operations, long-term obligations, capital expenditures, and new product
development for the foreseeable future. Projected cash flows from operations are based on our estimates of revenue and expenses and the related timing of cash receipts and disbursements. If actual
performance differs from estimated performance, projected cash flows could be positively or negatively impacted.

We
have not provided U.S. Federal income tax on $5,556 of book/tax basis differences, including the impact of foreign currency translation adjustments of our foreign subsidiaries because we intend to
permanently reinvest such earnings outside the United States. Upon distribution of these earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes, subject to adjustment
for foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

STOCK REPURCHASE AUTHORIZATIONS

In
December 2004, our board of directors approved a three-for-two common stock split, with new shares distributed in the form of a dividend on January 14, 2005,
to shareholders of record on January 3, 2005 (the "January 2005 Split"). In connection with the January 2005 Split, we paid cash of $69 for fractional shares and reclassified to
common stock the par value of $0.01 per newly issued share.

In
March 2004, our board of directors had earlier approved another three-for-two common stock split, with new shares distributed in the form of a dividend on
April 16, 2004, to shareholders of record on April 5, 2004 (the "April 2004 Split"). In connection with the April 2004 Split, we paid cash of $138 for fractional shares and
reclassified to common stock the par value of $0.01 per newly issued share.

Share
and per share amounts have been adjusted for all periods presented herein to reflect both the January 2005 Split and the April 2004 Split.

Our
board of directors periodically authorizes us to repurchase shares of our common stock. Under our existing board of directors authorizations, during the year ended October 31, 2005, we
repurchased 1,473 shares of our common stock for a total cost of $38,643 at an average price of $26.24. Under our board authorizations, during the years ended October 31, 2004 and 2003, we
repurchased 1,991 and 2,732 shares of our outstanding stock at total costs of $42,524 and $25,827, respectively. We cancel shares that we repurchase. In addition, in April 2004, our board of
directors authorized and we repurchased, in private transactions, an additional 2,806 shares of our common stock at a total cost of $57,500 with funds provided from the issuance of our Notes. As of
October 31, 2005, $8,831 remained outstanding under our board of directors authorizations.

55

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CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations.The following table summarizes our material obligations and commitments to
make future payments under certain contracts, including long-term debt obligations, purchase commitments and operating leases.

|                       |                                                |   |         | Payments Due by Year Ending October 31,
|---------------------- | ---------------------------------------------- | - | ------- | ---------------------------------------
|
|Long-term obligations: |                                                |   |         |                                        
|                       | Contingent convertible notes                   |   | $       | 150,000                                
|                       | Interest on convertible notes                  |   |         | 9,375                                  
|                       | VIP note payable                               |   |         | 318                                    
|                       | ENPAT note payable, including imputed interest |   |         | 9,000                                  
|Purchase commitments   |                                                |   | 6,254   |                                        
|SPUR consulting fees   |                                                |   | 125     |                                        
|Operating leases       |                                                |   | 4,379   |                                        
|                       |                                                |   |         |                                        
|Total                  |                                                | $ | 179,451 |                                        
|                       |                                                |   |         |                                        

Our
contingent convertible notes may be called on April 15, 2009 as discussed in Note 9 to our consolidated financial statements. As such, the table above does not reflect interest
related to the notes of $25,234 which amount would be paid if the notes are outstanding to the maturity in April 2024.

Purchase commitments.From time to time, we enter into commitments with our vendors to purchase
inventory at fixed prices or in guaranteed quantities. As of October 31, 2005, our significant inventory purchase commitments totaled $6,254.

Operating leases.Amounts payable under operating lease agreements relate primarily to our Las Vegas
headquarters and other field service facilities.

ENPAT note payable.In December 2004, we purchased two RFID technology patents from ENPAT for
$12,500. The purchase price was comprised of an initial payment of $2,400 followed by a $1,100 payment in January 2005 and a non-interest bearing note with annual installments due
through December 2007. The balance as of October 31, 2005, of $8,518 represents the discounted present value of the future payments, including imputed interest of approximately $352.
Principal and interest payments of $3,000 each are due in December 2005, 2006, and 2007.

Spur Gaming Systems.Effective August 1, 2005, we purchased certain assets from SPUR, a
privately held corporation that develops and distributes table games and related products to casinos throughout North America. Pursuant to a separate consulting agreement, consulting fees payable to
SPUR in the amount of $25 per year, commencing on the closing date or August 1, 2005, and continuing for a period of five years, for a maximum of $125.

VIP note payable.In connection with our acquisition of VIP in August 2005, we recorded a note
payable with annual installments due each July through 2010. The balance of the liability as of October 31, 2005 was $318.

BTI liabilities.In connection with our acquisition of certain assets from BTI, we recorded an
initial estimated liability of $7,616 for contingent installment payments computed as the excess fair value of the acquired assets over the fixed installments and other direct costs. In
November 2004, we began paying monthly note installments based on a percentage of certain revenue from BTI games for a period of up to ten years, not to exceed $12,000. The balance of this
liability as of October 31, 2005, was $6,167.

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Bet the Set "21" contingent consideration.In connection with our acquisition of Bet the Set "21", we
recorded contingent consideration of $560. The contingent consideration consists of quarterly payments of 22.5% of "adjusted gross revenues," as defined, attributed to the Bet the Set "21" side bet
table games up to a maximum of $560. The balance of this liability as of October 31, 2005, was $549.

Employment agreements.We have entered into employment contracts with our Corporate Officers and
certain other key employees with durations ranging from one to three years. Significant contract provisions include minimum annual base salaries, healthcare benefits, bonus compensation if performance
measures are achieved, and non-compete provisions. These contracts are primarily "at will" employment agreements, under which the employee or we may terminate employment. If we terminate
any of these employees without cause, then we are obligated to pay the employee severance benefits as specified in their individual contract. As of October 31, 2005, minimum aggregate severance
benefits totaled $4,914.

Off-Balance Sheet Arrangements.We do not have any material off-balance sheet
arrangements with unconsolidated entities or other persons.

IMPACT OF INFLATION

To
date, inflation has not had a material effect on our operations.

CRITICAL ACCOUNTING POLICIES

The
preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires that we adopt accounting policies and make
estimates and assumptions that affect our reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and our reported amounts of revenue and expenses. We
periodically evaluate our policies, estimates and related assumptions, including: revenue recognition; the amortization, depreciation, and valuation of long-lived tangible and intangible
assets; inventory obsolescence and costing methods; provisions for bad debts; accounting for stock-based compensation; and contingencies. We base our estimates on historical experience and
expectations of the future. Actual reported and future amounts could differ from those estimates under different conditions and assumptions.

We
believe that the following accounting policies and related estimates are critical to the preparation of our consolidated financial statements.

Revenue Recognition.We recognize revenue when the following criteria are met:



Specifically,
we earn our revenue in a variety of ways. We offer our products for lease or sale. We also sell service and warranty contracts for our sold equipment. Proprietary table games are sold
under lifetime licensing agreements or licensed on a monthly or daily fee basis.



57

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Some
of our revenue arrangements contain multiple deliverables, such as a product sale combined with a service element or the delivery of a future product. If an arrangement requires the delivery or
performance of multiple elements, we recognize the revenue separately for each element only if the delivered item has stand-alone value to the customer and the fair value of the undelivered item can
be reliably determined. If these criteria are not met, we do not recognize revenue until all essential elements have been delivered.

Certain
of our products contain software, and as such we have considered the guidance contained in Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as modified
by SOP 98-9, Software Revenue Recognition, With Respect to Certain Transactions. Under this guidance when selling or leasing software we consider whether the software component is
incidental to the product as a whole based on the following criteria:



Based
on such guidance we have concluded that 1) the software associated with our shuffler and chipper products is incidental to the product as a whole and 2) the software associated
with our Table Master and Bloodhound products is "off-the-shelf" and we have satisfied the customer-specified objective criteria (e.g., it has been designed and tested to
operate in a similar environment to that of our customers and the product is shipped ready for our customer's to install). In all instances, we recognize revenue when the criteria above are met.

Intangible Assets and Goodwill.We have significant investments in intangible assets and goodwill.
Intangible assets primarily include values assigned to acquired products, patents, trademarks, licenses and games. Significant accounting policies that affect the reported amounts for these assets
include the determination of the assets' estimated useful lives and the evaluation of the assets' recoverability based on expected cash flows and fair value.

Except
for the trademark related to the CARD acquisition, which is not subject to amortization and is tested periodically for impairment, all of our significant intangible assets are definite lived
and amortized over their expected useful lives. We estimate useful lives based on historical experience, estimates of

58

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products'
commercial lives, the likelihood of technological obsolescence, and estimates of the duration of commercial viability for patents, trademarks, licenses and games. We amortize substantially
all of our intangible assets proportionate to the related projected revenue from the utilization of the intangible asset. We believe this method reflects the pattern in which the economic benefits of
the intangible asset are consumed or otherwise used up. For certain other intangibles, we use the straight-line amortization method. Should the actual useful life of an asset differ from
the estimated useful life, future operating results could be positively or negatively affected.

We
review our intangible assets for impairment annually or when circumstances indicate that the carrying amount of an asset may not be fully recoverable from undiscounted estimated future cash flows.
We would record an impairment loss if the carrying amount of the intangible asset is not recoverable and the carrying amount exceeds its estimated fair value.

We
review our goodwill for impairment in October annually using a two step impairment test. The review is performed at the reporting unit level, which we have determined is the equivalent to our
reportable segments. In the first step, we estimate the fair value of the reporting unit and compare it to the book value of the reporting unit, including its goodwill. If the fair value is less than
the book value, then we would perform a second step to compare the implied fair value of the reporting unit's goodwill to its book value. The implied fair value of the goodwill is determined based on
the estimated fair value of the reporting unit less the fair value of the reporting unit's identifiable assets and liabilities. We would record an impairment charge to the extent that the book value
of the reporting unit's goodwill exceeds its fair value.

Tests
for impairment and recoverability of assets involve significant estimates and judgments regarding products' lives and utility and the related expected future cash flows. While we believe that
our estimates are reasonable, different assumptions could materially affect our assessment of useful lives, recoverability and fair values. An adverse change to the estimate of these cash flows could
necessitate an impairment charge that could adversely affect operating results.

Inventory Obsolescence and Costing Methods.We value our inventory at the lower of cost, determined
on a first-in-first-out basis, or market and estimate a provision for obsolete or unsalable inventories based on assumptions about the future demand for our
products and market conditions. If future demand and market conditions are less favorable than our assumptions, additional provisions for obsolete inventory could be required.
Likewise, favorable future demand could positively impact future operating results if fully-reserved-for inventory is sold.

Provisions for Bad Debts.We maintain provisions for bad debts for estimated credit losses that
result from the inability of our customers to make required payments. Provisions for bad debts are estimated based on historical experience and specific customer collection issues. Changes in the
financial condition of our customers could result in the adjustment upward or downward in the provisions for bad debts, with a corresponding impact to our operating results.

Stock Based Compensation.We account for stock options and restricted stock granted to our employees
and directors using the intrinsic value method. Intrinsic value represents the excess, if any, of the market value of the underlying common stock at the date of grant over the exercise price of the
stock option or purchase price, if any, of the restricted stock.



59

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To
estimate the fair value of stock options granted, we use the Black-Scholes option-pricing model, which requires management to make assumptions. The most significant assumptions are the expected
future volatility of our stock price and the expected period of time an optionee will hold an option ("Option Term"). We base these estimates primarily on our historical volatility and Option Term. If
actual future volatility and Option Term differ from our estimates, disclosed amounts for pro forma net income and earnings per share could be significantly different. Further, actual compensation, if
any, ultimately realized by optionees may differ significantly from that estimated using an option valuation model.

Contingencies.We assess our exposures to loss contingencies including legal and income tax matters
and provide for an exposure if it is judged to be probable and reasonably estimable. If the actual loss from a contingency differs from our estimate, there could be a material impact on our results of
operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS

In
December 2004, the FASB reached unanimous consensus on Emerging Issues Task Force ("EITF") 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share." EITF
04-8 requires us to include the dilutive effect of our outstanding contingent convertible notes shares in our diluted earnings per share calculation, regardless of whether the market price
trigger or other contingent conversion feature has been met. Because our notes include a mandatory cash settlement feature for the principal payment, we applied the treasury stock method. This method
results in incremental dilutive shares when the average fair value of our common stock for a reporting period exceeds the initial conversion price per share of $28.07. EITF 04-8 also
requires restatement of all prior periods. Because the average fair value of our common stock did not exceed the initial conversion price in any period prior to the year ended October 31, 2005,
no restatement of prior periods was required. For the year ended October 31, 2005, the average fair value of our common stock exceeded $28.07, and accordingly, the dilutive effect is included
in our diluted shares calculation.

In
November 2004, the FASB issued SFAS No. 151 revising Accounting Research Bulletin ("ARB") No. 43, Chapter 4, which clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs, wasted material (spoilage). This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not
believe that adoption of this statement will have a material impact on our results of operations, financial position or cash flows.

In
December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment ("SFAS 123R"). SFAS 123R focuses primarily on
accounting for transactions in which an entity obtains employee services in share-based payment transactions. On April 14, 2005, the Securities and Exchange Commission ("SEC") announced the
adoption of a rule that defers the required effective date of SFAS 123R. The SEC rule provides that SFAS 123R is now effective for registrants as of the beginning of the first fiscal
year beginning after June 15, 2005, instead of at the beginning of the first quarter after June 15, 2005 (as prescribed by SFAS 123R). We will continue to compute compensation
expense for stock options using the Black-Scholes valuation model and will utilize the modified prospective method for adoption of SFAS 123R. Additionally, in March 2005, the SEC issued
Staff Accounting Bulletin 107, Share-Based Payment ("SAB 107"), to provide interpretative guidance on SFAS 123R valuation methods assumptions used in valuation models and the interaction of
SFAS 123R with existing guidance. SAB 107 also requires the classification of stock compensation expense to the same financial statement line item as cash compensation, and therefore, will
impact cost

60

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of
lease and royalties, cost of sales and service, related gross profits and margins, selling, general and administrative expenses and research and development expenses. Therefore, beginning with our
quarterly period that began November 1, 2005, we will be required to expense the fair value of stock options and similar awards then outstanding or thereafter granted. We estimate that the
expensing of stock options will reduce net income for fiscal year 2006 by approximately $2,300, net of tax, for the unvested options outstanding as of October 31, 2005. This estimate excludes
the impact of any future stock option grants. However, due to the "non-cash" nature of stock option expense, we do not expect the adoption of this statement to have an impact on our
financial position and cash flows.

In
December 2004, the FASB issued SFAS No. 153 ("SFAS 153"), "Exchanges of Nonmonetary Assets", amending APB Opinion No. 29, which treated nonmonetary exchanges of similar
productive assets as an exception from fair value measurement. SFAS 153 replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do
not have commercial substance. Nonmonetary exchanges have commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, which includes our results as of October 31, 2005. The adoption of SFAS 153
had no impact on our results of operations or on our financial position as a result of adopting this statement.

In
December 2004, the FASB issued FASB Staff Position ("FSP") No. 109-1, Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified
Production Activities provided by the American Jobs Creation Act of 2004 ("FSP No. 109-1"). FSP No. 109-1 states that the qualified production activities
deduction should be accounted for as a special deduction in accordance with SFAS No. 109. This statement was effective upon issuance. The adoption of this statement had no material impact on
our results of operations, financial position or cash flows.

In
May 2005, the FASB issued SFAS No. 154 ("SFAS 154"), "Accounting Changes and Error Corrections", a replacement of Accounting Principles Board ("APB") Opinion No. 20 and
SFAS No. 3. SFAS 154 changes the requirement for the accounting for and reporting of a change in accounting principles. SFAS 154 applies to all voluntary changes in accounting
principles. It also applies to changes required by an accounting pronouncement if the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed. The provisions of SFAS 154 will be effective for accounting changes made in fiscal years beginning after December 15, 2005. We have not
yet completed our evaluation, or determined the impact to our results of operations, of adoption of SFAS 154.

61

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We
are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign exchange rates. A discussion of our primary market risks are presented
below.

Interest Rate Risk.Our current investment portfolio primarily consists of fixed income and
investment grade securities. Our investment policy emphasizes return of principal and liquidity and is focused on fixed returns that limit volatility and risk of principal. Because of our investment
policies, the primary market risk associated with our portfolio is interest rate risk. If interest rates were to change by 10%, the net hypothetical change in fair value of our investments would be
$356.

Contingent Convertible Senior Notes.We estimate that the fair value of our Notes, as of
October 31, 2005, is $158,625.The fair value of our Notes is sensitive to changes in both our stock and interest rates. Assuming interest rates
are held constant, we estimate a 10% decrease in our stock price would decrease the fair value of our Notes by $8,550. Assuming our stock price is held constant; we estimate a 10% increase in interest
rates would decrease the fair value of our Notes by $1,110.

Foreign Currency Risk.We operate in numerous countries around the world. Historically, our business
has been denominated in U.S. currency, and accordingly, our exposure to foreign currency risk has been immaterial. With our acquisition of CARD in May 2004 and our recent acquisition of
Stargames, we expect to continue to increase our volume of business that is denominated in foreign currency. As such, we expect an increase in the exposure to our cash flows and earnings that could
result from fluctuations in foreign currency exchange rates. When appropriate, we may attempt to limit our exposure to changing foreign exchange rates by entering into foreign currency exchange
contracts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                                         |  | 63  
|Consolidated Statements of Income
for the years ended October 31, 2005, 2004, and 2003                          |  | 64  
|Consolidated Balance Sheets as of October 31, 2005 and 2004                                                     |  | 65  
|Consolidated Statements of Changes in Shareholders' Equity
for the years ended October 31, 2005, 2004, and 2003 |  | 66  
|Consolidated Statements of Cash Flows
for the years ended October 31, 2005, 2004, and 2003                      |  | 67  
|Notes to Consolidated Financial Statements                                                                      |  | 69  
|Quarterly Financial Data (unaudited)                                                                            |  | 104 

62

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of
Shuffle Master, Inc.

We
have audited the accompanying consolidated balance sheets of Shuffle Master, Inc. and subsidiaries (the "Company") as of October 31, 2005 and 2004, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Shuffle Master, Inc. and subsidiaries as of October 31, 2005
and 2004, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as
of October 31, 2005, based on the criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2006 expressed
an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an adverse opinion on the effectiveness of the Company's internal
control over financial reporting because of a material weakness.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada
February 21, 2006

63

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SHUFFLE MASTER, INC.  CONSOLIDATED STATEMENTS OF INCOME  (In thousands, except per share amounts)

|                                                                     |                                             | Year Ended October 31, |                         
|-------------------------------------------------------------------- | ------------------------------------------- | ---------------------- | ------------------------
|
|Revenue:                                                             |                                             |                        |                         
|                                                                     | Utility products leases                     |                        | $                       
|                                                                     | Utility products sales and service          |                        |                         
|                                                                     | Entertainment products leases and royalties |                        |                         
|                                                                     | Entertainment products sales and service    |                        |                         
|                                                                     | Other                                       |                        |                         
|                                                                     |                                             |                        |                         
|                                                                     |                                             |                        | Total revenue           
|                                                                     |                                             |                        |                         
|Costs and expenses:                                                  |                                             |                        |                         
|                                                                     | Cost of leases and royalties                |                        |                         
|                                                                     | Cost of sales and service                   |                        |                         
|                                                                     | Selling, general and administrative         |                        |                         
|                                                                     | Research and development                    |                        |                         
|                                                                     |                                             |                        |                         
|                                                                     |                                             |                        | Total costs and expenses
|                                                                     |                                             |                        |                         
|Income from operations                                               |                                             |                        | 45,257                  
|Other (expense) income                                               |                                             |                        | (1,657                  
|                                                                     |                                             |                        |                         
|Income from continuing operations before tax                         |                                             |                        | 43,600                  
|Provision for income taxes                                           |                                             |                        | 14,496                  
|                                                                     |                                             |                        |                         
|Income from continuing operations                                    |                                             |                        | 29,104                  
|Discontinued operations, net of tax                                  |                                             |                        | 76                      
|                                                                     |                                             |                        |                         
|Net income                                                           |                                             | $                      | 29,180                  
|                                                                     |                                             |                        |                         
|Basic earnings per share:                                            |                                             |                        |                         
|                                                                     | Continuing operations                       |                        | $                       
|                                                                     | Discontinued operations                     |                        |                         
|                                                                     |                                             |                        |                         
|                                                                     | Net income                                  |                        | $                       
|                                                                     |                                             |                        |                         
|Diluted earnings per share:                                          |                                             |                        |                         
|                                                                     | Continuing operations                       |                        | $                       
|                                                                     | Discontinued operations                     |                        |                         
|                                                                     |                                             |                        |                         
|                                                                     | Net income                                  |                        | $                       
|                                                                     |                                             |                        |                         
|Weighted average shares outstanding (adjusted for any stock splits): |                                             |                        |                         
|                                                                     | Basic                                       |                        |                         
|                                                                     | Diluted                                     |                        |                         

See
notes to consolidated financial statements

64

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SHUFFLE MASTER, INC.  CONSOLIDATED BALANCE SHEETS  (In thousands)

|                                                          |                                                                                                           | October 31, |                           
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ----------- | --------------------------
|
|ASSETS                                                    |                                                                                                          
|Current assets:                                           |                                                                                                           |             |                           
|                                                          | Cash and cash equivalents                                                                                 |             | $                         
|                                                          | Investments                                                                                               |             |                           
|                                                          | Accounts receivable, net of allowance for bad debts of $283 and $740                                      |             |                           
|                                                          | Investment in sales-type leases and notes receivable, net                                                 |             |                           
|                                                          | Inventories, net                                                                                          |             |                           
|                                                          | Prepaid income taxes                                                                                      |             |                           
|                                                          | Deferred income taxes                                                                                     |             |                           
|                                                          | Other current assets                                                                                      |             |                           
|                                                          |                                                                                                           |             |                           
|                                                          |                                                                                                           |             | Total current assets      
|Investment in sales-type leases and notes receivable, net |                                                                                                           |             | 11,136                    
|Products leased and held for lease, net                   |                                                                                                           |             | 9,163                     
|Property and equipment, net                               |                                                                                                           |             | 4,144                     
|Intangible assets, net                                    |                                                                                                           |             | 48,477                    
|Goodwill                                                  |                                                                                                           |             | 36,017                    
|Deferred income taxes                                     |                                                                                                           |             | 2,400                     
|Other assets                                              |                                                                                                           |             | 7,088                     
|                                                          |                                                                                                           |             |                           
|Total assets                                              |                                                                                                           | $           | 193,117                   
|                                                          |                                                                                                           |             |                           
|LIABILITIES AND SHAREHOLDERS' EQUITY                      |                                                                                                          
|Current liabilities:                                      |                                                                                                           |             |                           
|                                                          | Accounts payable                                                                                          |             | $                         
|                                                          | Accrued liabilities                                                                                       |             |                           
|                                                          | Customer deposits and unearned revenue                                                                    |             |                           
|                                                          | Income taxes payable                                                                                      |             |                           
|                                                          | Note payable and current portion of long-term liabilities                                                 |             |                           
|                                                          |                                                                                                           |             |                           
|                                                          |                                                                                                           |             | Total current liabilities 
|Long-term liabilities, net of current portion             |                                                                                                           |             | 162,659                   
|Deferred income taxes                                     |                                                                                                           |             |                          
|                                                          |                                                                                                           |             |                           
|                                                          |                                                                                                           |             | Total liabilities         
|                                                          |                                                                                                           |             |                           
|Contingencies                                             |                                                                                                           |             |                           
|Shareholders' equity:                                     |                                                                                                           |             |                           
|                                                          | Preferred stock, no par value; 507 shares authorized; none outstanding                                    |             |                           
|                                                          | Common stock, $0.01 par value; 151,875 shares authorized; 34,527 and 34,958 shares issued and outstanding |             |                           
|                                                          | Additional paid-in capital                                                                                |             |                           
|                                                          | Deferred compensation                                                                                     |             |                           
|                                                          | Retained earnings                                                                                         |             |                           
|                                                          | Accumulated other comprehensive income                                                                    |             |                           
|                                                          |                                                                                                           |             |                           
|                                                          |                                                                                                           |             | Total shareholders' equity
|                                                          |                                                                                                           |             |                           
|Total liabilities and shareholders' equity                |                                                                                                           | $           | 193,117                   
|                                                          |                                                                                                           |             |                           

See
notes to consolidated financial statements

65

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SHUFFLE MASTER, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY        (In thousands)

|                                      |                                 | Common Stock |   |   |     |   |   |         |   | Accumulated
Other
Comprehensive
Income |        | Total
Share-
holders'
Equity |  
|------------------------------------- | ------------------------------- | ------------ | - | - | --- | - | - | ------- | - | -------------------------------------- | ------ | ---------------------------- | -
|
|
|Balance, October 31, 2002             |                                 | 38,871       |   | $ | 173 |   | $ | 1,895   |   | $                                      |       |                              | $
|Net income                            |                                 |             |   |   |    |   |   |        |   |                                        |       |                              |  
|Stock repurchased                     |                                 | (2,732       | ) |   | (12 | ) |   | (8,240  | ) |                                        |       |                              |  
|Options exercised                     |                                 | 933          |   |   | 4   |   |   | 3,684   |   |                                        |       |                              |  
|Tax benefit from stock options        |                                 |             |   |   |    |   |   | 2,661   |   |                                        |       |                              |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|Balance, October 31, 2003             |                                 | 37,072       |   |   | 165 |   |   |        |   |                                        |       |                              |  
|Comprehensive Income:                 |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|                                      | Net Income                      |              |  |   |     |  |   |         |  |                                        |        |                             |  
|                                      | Currency translation adjustment |              |  |   |     |  |   |         |  |                                        |        |                             |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|                                      | Total comprehensive income      |              |   |   |     |   |   |         |   |                                        |        |                              |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|Stock repurchased                     |                                 | (4,797       | ) |   | (32 | ) |   | (21,357 | ) |                                        |       |                              |  
|Options exercised                     |                                 | 1,445        |   |   | 9   |   |   | 2,339   |   |                                        |       |                              |  
|Tax benefit from stock options        |                                 |             |   |   |    |   |   | 2,107   |   |                                        |       |                              |  
|Issuance of restricted stock          |                                 | 90           |   |   | 1   |   |   | 1,955   |   |                                        | (1,765 | )                            |  
|April 2004 stock split                |                                 | (3           | ) |   | 82  |   |   |        |   |                                        |       |                              |  
|CARD acquisition                      |                                 | 1,151        |   |   | 8   |   |   | 24,549  |   |                                        |       |                              |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|Balance, October 31, 2004             |                                 | 34,958       |   |   | 233 |   |   | 9,593   |   |                                        | (1,765 | )                            |  
|Comprehensive Income:                 |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|                                      | Net Income                      |              |  |   |     |  |   |         |  |                                        |        |                             |  
|                                      | Currency translation adjustment |              |  |   |     |  |   |         |  |                                        |        |                             |  
|                                      | Unrealized loss on investments  |              |  |   |     |  |   |         |  |                                        |        |                             |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|                                      | Total comprehensive income      |              |   |   |     |   |   |         |   |                                        |        |                              |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|Stock repurchased                     |                                 | (1,473       | ) |   | (15 | ) |   | (26,048 | ) |                                        |       |                              |  
|Options exercised                     |                                 | 851          |   |   | 9   |   |   | 6,283   |   |                                        |       |                              |  
|Accelerated vesting of options        |                                 |             |   |   |    |   |   | 60      |   |                                        |       |                              |  
|Tax benefit from stock options        |                                 |             |   |   |    |   |   | 5,287   |   |                                        |       |                              |  
|FY 2004 tax (true-up)                 |                                 |             |   |   |    |   |   | 229     |   |                                        |       |                              |  
|Issuance of restricted stock          |                                 | 193          |   |   | 2   |   |   | 4,781   |   |                                        | (4,297 | )                            |  
|Amortization of deferred compensation |                                 |             |   |   |    |   |   |        |   |                                        | 274    |                              |  
|January 2005 stock split              |                                 | (2           | ) |   | 116 |   |   | (185    | ) |                                        |       |                              |  
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  
|Balance, October 31, 2005             |                                 | 34,527       |   | $ | 345 |   | $ |        |   | $                                      | (5,788 | )                            | $
|                                      |                                 |              |   |   |     |   |   |         |   |                                        |        |                              |  

See
notes to consolidated financial statements

66

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SHUFFLE MASTER, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                     |                                                                               | Year Ended October 31,                               |                                                 
|---------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------
|
|Cash flows from operating activities:                |                                                                               |                                                      |                                                 
|                                                     | Net income                                                                    |                                                      | $                                               
|                                                     | Adjustments to reconcile net income to cash provided by operating activities: |                                                      |                                                 
|                                                     |                                                                               | Depreciation and amortization                        |                                                 
|                                                     |                                                                               | Stock based compensation                             |                                                 
|                                                     |                                                                               | Provision for bad debts                              |                                                 
|                                                     |                                                                               | Provision for inventory obsolescence                 |                                                 
|                                                     |                                                                               | Tax benefit from stock option exercises              |                                                 
|                                                     |                                                                               | Loss on disposal of property                         |                                                 
|                                                     |                                                                               | Loss on investments                                  |                                                 
|                                                     |                                                                               | Gain before tax on slot disposition                  |                                                 
|                                                     | Changes in operating assets and liabilities:                                  |                                                      |                                                 
|                                                     |                                                                               | Accounts receivable                                  |                                                 
|                                                     |                                                                               | Investment in sales-type leases and notes receivable |                                                 
|                                                     |                                                                               | Inventories                                          |                                                 
|                                                     |                                                                               | Accounts payable and accrued liabilities             |                                                 
|                                                     |                                                                               | Customer deposits and unearned revenue               |                                                 
|                                                     |                                                                               | Deferred income taxes                                |                                                 
|                                                     |                                                                               | Prepaid income taxes                                 |                                                 
|                                                     |                                                                               | Other                                                |                                                 
|                                                     |                                                                               |                                                      |                                                 
|                                                     |                                                                               |                                                      | Net cash provided by operating activities       
|                                                     |                                                                               |                                                      |                                                 
|Cash flows from investing activities:                |                                                                               |                                                      |                                                 
|                                                     | Purchases of investments                                                      |                                                      |                                                 
|                                                     | Proceeds from sale and maturities of investments                              |                                                      |                                                 
|                                                     | Proceeds from sale of leased assets                                           |                                                      |                                                 
|                                                     | Payments for products leased and held for lease                               |                                                      |                                                 
|                                                     | Purchases of property and equipment                                           |                                                      |                                                 
|                                                     | Purchases of intangible assets                                                |                                                      |                                                 
|                                                     | Proceeds from sale of intangibles assets                                      |                                                      |                                                 
|                                                     | Acquisition of businesses, net of cash acquired                               |                                                      |                                                 
|                                                     | Proceeds from disposition of slot assets                                      |                                                      |                                                 
|                                                     | Other                                                                         |                                                      |                                                 
|                                                     |                                                                               |                                                      |                                                 
|                                                     |                                                                               |                                                      | Net cash provided (used) by investing activities
|                                                     |                                                                               |                                                      |                                                 
|Cash flows from financing activities:                |                                                                               |                                                      |                                                 
|                                                     | Proceeds from issuance of convertible Notes                                   |                                                      |                                                 
|                                                     | Repurchases of common stock                                                   |                                                      |                                                 
|                                                     | Proceeds from issuances of common stock, net                                  |                                                      |                                                 
|                                                     | Notes issuance costs                                                          |                                                      |                                                 
|                                                     | Payment of long-term liabilities                                              |                                                      |                                                 
|                                                     |                                                                               |                                                      |                                                 
|                                                     |                                                                               |                                                      | Net cash provided (used) by financing activities
|                                                     |                                                                               |                                                      |                                                 
|Effect of exchange rate changes on cash              |                                                                               |                                                      | (256                                            
|Net increase (decrease) in cash and cash equivalents |                                                                               |                                                      | (7,301                                          
|Cash and cash equivalents, beginning of year         |                                                                               |                                                      | 20,580                                          
|                                                     |                                                                               |                                                      |                                                 
|Cash and cash equivalents, end of year               |                                                                               | $                                                    | 13,279                                          
|                                                     |                                                                               |                                                      |                                                 

See
notes to consolidated financial statements

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SHUFFLE MASTER, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

Supplemental Disclosures of Cash Flows Information

|                       |                                                                                                             | Year Ended October 31,
|---------------------- | ----------------------------------------------------------------------------------------------------------- | ----------------------
|
|Non-cash transactions: |                                                                                                             |                       
|                       | Note payable for patent purchase                                                                            |                       
|                       | Note payable and contingent consideration issued in connection with the acquisition of a business or assets |                       
|                       | Common stock issued for acquisition of CARD                                                                 |                       
|                       | Issuance of restricted stock                                                                                |                       
|                       | Unrealized gain on investments, net of tax                                                                  |                       
|Cash paid for:         |                                                                                                             |                       
|                       | Income taxes, net of refunds                                                                                |                       
|                       | Interest                                                                                                    |                       

See
notes to consolidated financial statements

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SHUFFLE MASTER, INC.        Notes to Consolidated Financial Statements        (In thousands, except per share amounts)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business.We develop, manufacture and market technology-based products for the gaming
industry for placement on the casino floor. Our products primarily relate to our casino customers' table game activities and are focused on increasing their profitability, productivity and security.
Our Utility Products include a full line of automatic card shufflers for use with the vast majority of card table games and chip sorting machines for roulette. In addition, we have acquired or are
developing other products to automatically gather data and to enable casinos to track table game play, such as our Bloodhound® and Intelligent Table System products. Our
Entertainment Products include our line of live proprietary poker, blackjack, baccarat, and pai gow poker-based table games and our Table Master product that delivers our popular branded
table game content on a multi-player video platform. In January 2005, we formed Shuffle Up Productions, Inc. ("Shuffle Up") to leverage our intellectual property and develop
live and broadcast tournament events as well as merchandise based on our extremely popular gaming offerings. In June 2005, we announced details related to our Three Card Poker National
Championship with a grand prize of $1 million dollars. All of our product lines compete or will compete with other gaming products, such as slot machines, blackjack tables, keno,
craps, and roulette, for space on the casino floor.

We
sell, lease or license our products. When we sell our products, we offer our customers a choice between a sale and a longer-term sales-type lease or other
long-term financing. When we lease or license our products, we generally negotiate a month-to-month operating lease. We offer our products worldwide in
markets that are significantly regulated. We manufacture the majority of our products at our headquarters and manufacturing facility in Las Vegas, Nevada. In addition, we outsource the manufacturing
of certain of our products in the United States, Europe and Asia Pacific.

Principles of consolidation.Our consolidated financial statements include the accounts of Shuffle
Master, Inc. and our wholly-owned domestic and foreign subsidiaries. All significant inter-company accounts and transactions have been eliminated. We have no unconsolidated subsidiaries.

Effective
May 1, 2004, we acquired CARD Casinos Austria Research & Development GmbH & Co KG and its wholly-owned subsidiaries ("CARD") in Austria. In August 2005, we
acquired VIP Gaming Solutions Pty. Limited ("VIP"), a privately held corporation with headquarters located in Sydney, Australia, which strengthened our direct sales presence in the
Asia-Pacific region. Additional information regarding our acquisitions is included in Note 3. Each of these acquisitions and/or agreements are included in our consolidated financial
statements beginning on the effective date of the transactions.

Pro forma stock based compensation expense.We account for stock options and restricted stock granted
to our employees and directors using the intrinsic value method. Intrinsic value represents the excess, if any, of the market value of the underlying common stock at the date of grant over the
exercise price of the stock option or purchase price, if any, of the restricted stock.

Restricted stockDuring the twelve months ended October 31, 2005 and 2004, we issued 193 and 90 shares of restricted stock,
respectively, with an aggregate fair value of $4,781 and $1,955, respectively. The total value of each restricted stock grant, based on the fair market value of the stock on the date of grant, is
initially reported as deferred compensation under shareholders' equity. This deferred compensation is then amortized to compensation expense over the related vesting period. Net income, as reported,
for the twelve months ended October 31, 2005 and 2004, reflects $507 and $124, respectively, net of tax, of amortization of restricted stock compensation. Additionally, we estimate that

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restricted
stock amortization will reduce net income for fiscal year 2006 by approximately $815, net of tax, for the unvested restricted stock outstanding as of October 31, 2005. This estimate
excludes any future restricted stock grants.

Stock optionsNo compensation expense was recorded for stock options in any period presented because all stock options were granted at an
exercise price equal to the market value of our stock on the date of grant. If compensation expense for our stock option grants had been determined based on their estimated fair value at the grant
dates, our net income and
earnings per share would have been as follows for the years ended October 31 (all share and per share amounts presented have been adjusted to reflect our stock splits discussed in
Note 12):

|                                                                                                                                           |             | 2005 |         | 2004 |   | 2003   |     
|------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | ---- | ------- | ---- | - | ------ | ----
|Net income, as reported                                                                                                                    |             | $    | 29,180  |      | $ | 24,144 |     
|Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax benefits |             |      | (10,485 | )    |   | (7,881 | )   
|                                                                                                                                           |             |      |         |      |   |        |     
|Pro forma net income                                                                                                                       |             | $    | 18,695  |      | $ | 16,263 |     
|                                                                                                                                           |             |      |         |      |   |        |     
|Earnings per common share, basic:                                                                                                          |             |      |         |      |   |        |     
|                                                                                                                                           | As reported |      | $       | 0.84 |   | $      | 0.67
|                                                                                                                                           | Pro forma   |      |         | 0.54 |   |        | 0.45
|Earnings per common share, diluted:                                                                                                        |             |      |         |      |   |        |     
|                                                                                                                                           | As reported |      | $       | 0.80 |   | $      | 0.64
|                                                                                                                                           | Pro forma   |      |         | 0.51 |   |        | 0.43
|Weighted average fair value of options granted during the period                                                                           |             | $    | 14.43   |      | $ | 10.11  |     

The
fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions:

|                         |  | 2005      |  | 2004      |  | 2003     
|------------------------ |  | --------- |  | --------- |  | ---------
|Dividend yield           |  | None      |  | None      |  | None     
|Expected volatility      |  | 49.5%     |  | 62.7%     |  | 65.3%    
|Risk-free interest rate  |  | 3.4%      |  | 3.1%      |  | 2.9%     
|Expected term of options |  | 5.3 years |  | 4.8 years |  | 5.9 years

The
most significant of these assumptions are the expected future volatility of our stock price and the expected period of time an optionee will hold an option ("Option Term"). Expected volatility was
estimated using our stock's historical volatility and the implied volatility on its actively-traded options. Option term was estimated using historical grant, exercise and cancellation behavior. If
actual future volatility and Option Term differ from our estimates, disclosed amounts for pro forma net income and earnings per share could be significantly different. Further, actual compensation, if
any, ultimately realized by optionees may differ significantly from that estimated using an option valuation model. The stock-based compensation included in the table above represents the
after-tax amount of pro forma compensation related to our stock incentive plans.

In
February 2004, we granted options to our Chief Executive Officer in connection with the renewal of his employment agreement, extending his employment through October 2007. The
agreement provided for the grant of 371 options, of which 247 options cliff vest on October 31, 2005 and 124 options cliff vest on

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October 31,
2006. The option grants also provided for a vesting acceleration if our common stock prices exceed prices ranging from 30% to 50% over our common stock price on the date of grant.
During April 2004, our common stock price exceeded the 50% threshold, and accordingly, the 371 options granted became fully vested. This resulted in the full Black-Scholes value of the grant of
$3,134, net of tax, being reflected as pro forma compensation expense during the year ended October 31, 2004. Such expense reduced pro forma diluted earnings per share by approximately $0.08,
for the year ended October 31, 2004, and is reflected in the table above.

On
March 9, 2005, our board of directors accelerated the vesting of certain unvested stock options awarded to employees under our 2004 Equity Incentive Plan. As a result of the acceleration,
options to acquire approximately 461 shares of our common stock (representing approximately 12% of the total outstanding options), which otherwise would have vested over the next 60 months,
vested immediately. The exercise price and number of shares subject to the accelerated options were unchanged.

The
board's decision to accelerate the vesting of these options was based upon the issuance by the Financial Accounting Standards Board ("FASB") of Statement of Financial Accounting Standard ("SFAS")
No. 123 Share-Based Payment (revised 2004) ("SFAS 123R"). By accelerating the vesting of these options, we believe that we reduced the impact of compensation expense in future periods
associated with these options. Pro forma compensation expense associated with the accelerated option vesting totaled $6,700, net of tax. Such pro forma expense reduced diluted earnings per share by
approximately $0.13, for the year ended October 31, 2005, and is reflected in the table above.

In
September 2005, we granted 200 options to purchase common stock and 120 shares of restricted stock to our Chief Executive Officer. Both the options and the restricted stock will cliff vest
on September 1, 2011. The option grants and the restricted stock also provided for a vesting acceleration if our common stock price exceeds prices ranging from approximately 50% to
approximately 260%, on various dates, over our common stock price on the date of grant. The restricted stock grants, valued at $2,804, are being amortized to compensation expense over the cliff
vesting period as it was deemed more likely than not that the acceleration criteria will not be achieved. This assessment will be re-evaluated on a quarterly basis.

Beginning
with our quarterly period that began November 1, 2005, we will be required to expense the fair value of director and employee stock options and similar awards then outstanding or
thereafter granted. SAB 107 requires the classification of stock compensation expense to the same financial statement line item as cash compensation, and therefore, will impact cost of lease
and
royalties, cost of sales and service, related gross profits and margins, selling, general and administrative expenses and research and development expenses. We estimate that the expensing of stock
options will reduce net income for fiscal year 2006 by approximately $2,300, net of tax, for the unvested options outstanding as of October 31, 2005. This estimate excludes the impact of any
future stock option grants.

Use of estimates.We use estimates and assumptions in preparing financial statements in accordance
with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.

Inventories.Inventories are stated at the lower of cost, determined on a
first-in-first-out basis, or market. We provide allowances for estimated obsolete or unsalable inventory based on assumptions about future demand for our products
and market conditions.

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Revenue recognition.We recognize revenue when the following criteria are met:



Specifically,
we earn our revenue in a variety of ways. We offer our products for lease or sale. We also sell service and warranty contracts for our sold equipment. Proprietary table games are sold
under lifetime licensing agreements or licensed on a monthly or daily fee basis.



Some
of our revenue arrangements contain multiple deliverables, such as a product sale combined with a service element or the delivery of a future product. If an arrangement requires the delivery or
performance of multiple elements, we recognize the revenue separately for each element only if the delivered item has stand-alone value to the customer and the fair value of the undelivered item can
be reliably determined. If these criteria are not met, we do not recognize revenue until all essential elements have been delivered.

Certain
of our products contain software, and as such we have considered the guidance contained in Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as modified
by SOP No. 98-9, Software Revenue Recognition, With Respect to Certain Transactions. Under this guidance when selling or leasing software we consider whether the software component
is incidental to the product as a whole based on the following criteria:



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Based
on such guidance we have concluded that 1) the software associated with our shuffler and chipper products is incidental to the product as a whole and 2) the software associated
with our Table Master and Bloodhound product is "off-the-shelf" and we have satisfied the customer-specified objective criteria (e.g., it has been designed and tested to
operate in a similar environment to that of our customers and the product is shipped ready for our customer's to install). In all instances, we recognize revenue when the criteria above are met.

Advertising costs.We expense advertising and promotional costs as incurred, which totaled
approximately $576, $1,150 and $791 for the fiscal years ended October 31, 2005, 2004 and 2003, respectively.

Research and development costs.We incur research and development costs to develop our new and
next-generation products. Our products reach technological feasibility when we receive gaming regulatory product approval which occurs concurrent with our products being made available to
our customers. Accordingly, research and development costs are expensed as incurred.

Concentration of credit risk.Our financial instruments that have potential concentrations of credit
risk include cash and cash equivalents, accounts receivable, investments in sales-type leases and notes receivable. We place our cash and cash equivalents with
high credit quality institutions. Accounts receivable, investments in sales-type leases and notes receivable have concentration of credit risk because they all relate to our customers in
the gaming industry. From time to time, we make significant sales to customers that exceed 10% of our then-outstanding accounts receivable balance. At October 31, 2005, no single
customer's balance exceeded 10% of our trade accounts receivable, net. One U.S. customer accounted for approximately 11% of our investment in sales-type leases and notes receivable. At
October 31, 2005, no individual customer accounted for more than 10% of consolidated revenue.

Products leased and held for lease.Our products are primarily leased to customers pursuant to
operating leases. Products leased and held for lease are stated at cost, net of depreciation. Depreciation on leased products is calculated using the straight-line method over a period of
two to five years. We provide maintenance of our products on lease as part of our normal lease agreements. Leases of shufflers generally require prepayment of two months' lease payments, which are
included on the consolidated balance sheets as customer deposits.

Property and equipment.Property and equipment is stated at cost. Depreciation is recorded using the
straight-line method over the estimated useful life of the asset of three to eight years, or lease terms, if shorter, for leasehold improvements.

Intangible assets.Intangible assets include intellectual property for games, patents, trademarks,
copyrights, licenses and non-compete agreements that were purchased separately or acquired in connection with a business combination. Except for the trademark related to the CARD
acquisition, which is not subject to amortization and is tested periodically for impairment, all of our significant intangible assets are definite lived and, accordingly, amortized over their expected
useful lives which range from 2 to 15 years. We amortize substantially all of our intangible assets proportionate to the

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related
projected revenue from the utilization of the intangible asset. We believe this method reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise
used up. For certain other intangibles, we use the straight-line amortization method. See Note 8.

Impairment of long-lived assets.We estimate the useful lives of our
long-lived assets, excluding goodwill, based on historical experience, estimates of products' commercial lives, the likelihood of technological obsolescence, and estimates of the duration
of commercial viability for patents, licenses and games.

We
review our long-lived assets, excluding goodwill, for impairment annually or when circumstances indicate that the carrying amount of an asset or asset group may not be fully
recoverable from related undiscounted estimated future cash flows. We would record an impairment loss if the carrying amount of the asset or asset group is not recoverable and the carrying amount
exceeds its estimated fair value. Fair value is determined based on discounted expected future cash flows.

At
October 31, 2005, the Company analyzed its cost method equity investment using the methodology described above and determined that such equity investment was impaired. Accordingly, the
Company recorded a $1,000 impairment write-down equal to the full amount of the investment. Such impairment charge is reflected in other income (expense). No asset impairments were
recorded in any other period presented. See Note 14.

Goodwill.In accordance with Statement of Financial Accounting Standards SFAS No. 142,
"Goodwill and Other Intangible Assets," goodwill is no longer amortized.

We
review our goodwill for impairment annually, in October, using a two step impairment test. The reviews are performed at the reporting unit level, which we have determined is the equivalent to our
reportable segments. In the first step, we estimate the fair value of the reporting unit and compare it to the book value of the reporting unit, including its goodwill. If the fair value is less than
the book value, then we would perform a second step to compare the implied fair value of the reporting unit's goodwill to its book value. The implied fair value of the goodwill is determined based on
the estimated fair value of the reporting unit less the fair value of the reporting unit's identifiable assets and liabilities. We would record an impairment charge to the extent that the book value
of the reporting unit's goodwill exceeds its fair value. No goodwill impairments were recorded in any period presented.

Deferred revenue.Deferred revenue consists of amounts collected or billed in excess of recognizable
revenue.

Foreign currency translation.Our foreign subsidiaries' asset and liability accounts are translated
into U.S. dollar amounts at the exchange rate in effect at the balance sheet date. Foreign exchange translation adjustments are recorded as a separate component of shareholders' equity. Revenue and
expense accounts are translated at the average exchange rates for the year. Transaction gains and losses, the amounts of which are not significant for all periods presented, are included in other
income (expense) on our consolidated statements of income.

Earnings per common share.Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding and issuable during the year. Diluted earnings per share is similar to basic, except that the weighted average number of shares outstanding is
increased by the potentially dilutive effect of outstanding stock options, restricted stock and contingent convertible notes, if applicable, during the year, using the treasury stock method.

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Recently issued or adopted accounting standards.In December 2004, the FASB reached unanimous
consensus on Emerging Issues Task Force ("EITF") 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share." EITF 04-08 requires us to include the
dilutive effect of our outstanding contingent convertible notes shares in our diluted earnings per share calculation, regardless of whether the market price trigger or other contingent conversion
feature has been met. Because our notes include a mandatory cash settlement feature for the principal payment, we applied the treasury stock method. This method results in incremental dilutive shares
when the average fair value of our common stock for a reporting period exceeds the initial conversion price per share of $28.07. EITF 04-08 also requires restatement of all prior periods.
Because the average fair value of our common stock did not exceed the initial conversion price in any period prior to the year ended October 31, 2005, no restatement of prior periods was
required. For the year ended October 31, 2005, the average fair value of our common stock exceeded $28.07, and accordingly, the dilutive effect is included in our diluted shares calculation.
See Note 11.

In
November 2004, the FASB issued SFAS No. 151 revising Accounting Research Bulletin ("ARB") No. 43, Chapter 4, which clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs, wasted material (spoilage). This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not
believe that adoption of this statement will have a material impact on our results of operations, financial position or cash flows.

In
December 2004, the FASB issued SFAS 123R. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment
transactions. On April 14, 2005, the Securities and Exchange Commission ("SEC") announced the adoption of a rule that defers the required effective date of SFAS 123R. The SEC rule
provides that SFAS 123R is now effective for registrants as of the beginning of the first fiscal year beginning after June 15, 2005, instead of at the beginning of the first quarter
after June 15, 2005 (as prescribed by SFAS 123R). We will continue to compute compensation expense for stock options using the Black-Scholes valuation model and will utilize the modified
prospective method for adoption of SFAS 123R. Additionally, in March 2005, the SEC issued Staff Accounting Bulletin 107, Share-Based Payment ("SAB 107"), to provide interpretative
guidance on SFAS 123R valuation methods assumptions used in valuation models and the interaction of SFAS 123R with existing guidance. SAB 107 also requires the classification of stock
compensation expense to the same financial statement line item as cash compensation, and therefore, will impact cost of lease and royalties, cost of sales and service, related gross profits and
margins, selling, general and administrative expenses and research and development expenses. Therefore, beginning with our quarterly period that began November 1,
2005, we will be required to expense the fair value of stock options and similar awards then outstanding or thereafter granted. We estimate that the expensing of stock options will reduce net income
for fiscal year 2006 by approximately $2,300, net of tax, for the unvested options outstanding as of October 31, 2005. This estimate excludes the impact of any future stock option grants.
However, due to the "non-cash" nature of stock option expense, we do not expect the adoption of this statement to have an impact on our financial position and cash flows.

In
December 2004, the FASB issued SFAS No. 153 ("SFAS 153"), "Exchanges of Nonmonetary Assets", amending APB Opinion No. 29, which treated nonmonetary exchanges of similar
productive assets as an exception from fair value measurement. SFAS 153 replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do
not have commercial substance. Nonmonetary exchanges have commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, which includes our results as

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of
October 31, 2005. The adoption of SFAS 153 had no impact on our results of operations or on our financial position as a result of adopting this statement.

In
December 2004, the FASB issued FASB Staff Position ("FSP") No. 109-1, Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified
Production Activities provided by the American Jobs Creation Act of 2004 ("FSP No. 109-1"). FSP No. 109-1 states that the qualified production activities
deduction should be accounted for as a special deduction in accordance with SFAS No. 109. This statement was effective upon issuance. The adoption of this statement had no material impact on
our results of operations, financial position or cash flows.

In
May 2005, the FASB issued SFAS No. 154 ("SFAS 154"), "Accounting Changes and Error Corrections", a replacement of Accounting Principles Board ("APB") Opinion No. 20 and
SFAS No. 3. SFAS 154 changes the requirement for the accounting for and reporting of a change in accounting principles. SFAS 154 applies to all voluntary changes in accounting
principles. It also applies to changes required by an accounting pronouncement if the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed. The provisions of SFAS 154 will be effective for accounting changes made in fiscal years beginning after December 15, 2005. We have not
yet completed our evaluation, or determined the impact to our results of operations of adoption of SFAS 154.

Reclassifications.Certain prior period amounts have been reclassified to conform to the current
fiscal years' presentation, including the following for all periods presented:

Our
board of directors approved a three-for-two stock split, with new shares distributed in the form of a dividend on January 14, 2005, to shareholders of record on
January 3, 2005 (the "January 2005 Split") and April 16, 2004, to shareholders of record on April 5, 2004 (the "April 2004 Split"). Share and per share amounts have
been adjusted to reflect both of the three-for-two stock splits; see Note 12.

2. SHORT TERM FINANCING OF STARGAMES ACQUISITION

On
January 25, 2006, we entered into a Credit Agreement with Deutsche Bank AG Cayman Islands Branch, as a Lender, Deutsche Bank AG New York Branch, as Administrative Agent, and Deutsche Bank
Securities Inc., as Sole Arranger and Book Manager (the "Credit Agreement"), pursuant to which we obtained a bridge loan (the "Bridge Loan") in the amount of $115,000, in order to, among other
things, finance the acquisition of Stargames Limited ("Stargames"). The Bridge Loan will mature on April 24, 2006. Additional information regarding our acquisition of Stargames and related
financing of the acquisition are included in Note 18.

Management
intends and believes it has the ability, to refinance the Credit Agreement on a long-term basis. Financing options currently under consideration, include, but are not limited to
(i) an extension of the existing Credit Agreement, (ii) a senior secured bank credit facility and (iii) convertible debt through the issuance by private placement pursuant to
Rule 144A under the Securities Act of 1933.

3. ACQUISITIONS, DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS

CARD.Effective May 1, 2004, we acquired a 100% ownership interest in CARD from Casinos
Austria AG. CARD, which is now a subsidiary of our Shuffle Master International subsidiary, provides us with a headquarters and direct sales force for international business centrally located in
Vienna with a satellite office in New Zealand. CARD develops, manufactures and supplies innovative casino products including the one2six shuffler which accommodates up to six decks of
cards and can be used for almost every

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casino
card game. In addition, CARD's recently introduced products include the Easy Chipper®, a next-generation roulette chip sorting machine.

The
acquisition was accounted for using the purchase method of accounting. Consideration to the seller consisted of $30,520 and the issuance of 1,151 (adjusted for stock splits) shares of our common
stock. The common stock issued was valued based on the market value of our common stock at the acquisition date. In addition, total direct acquisition costs, consisting primarily of legal and due
diligence fees, were $1,999, of which $69 was reflected in fiscal 2005. The total purchase price was comprised of the following:

|Cash, net of cash acquired of $268   |  | $ | 30,520
|------------------------------------ |  | - | ------
|Common stock of Shuffle Master, Inc. |  |   | 24,557
|Other direct acquisition costs       |  |   | 1,999 
|                                     |  |  
|Total purchase price                 |  | $ | 57,076
|                                     |  |  

The
allocation of the purchase price, which is based on a valuation of the intangible assets acquired and liabilities assumed, was comprised of the following:

|Historical book value of CARD net assets, excluding cash acquired, as of May 1, 2004 |                                            | $ | 1,309  |       
|------------------------------------------------------------------------------------ | ------------------------------------------ | - | ------ | ------
|Estimated fair value adjustments relating to:                                        |                                            |   |        |       
|                                                                                     | Deferred income taxes                      |   |        | 181   
|                                                                                     | Intangible assets, average life of 7 years |   |        | 25,298
|                                                                                     | Trademark                                  |   |        | 886   
|                                                                                     | Goodwill                                   |   |        | 30,173
|Accrued liabilities                                                                  |                                            |   | (771   | )     
|                                                                                     |                                            |   |       
|                                                                                     |                                            | $ | 57,076 |       
|                                                                                     |                                            |   |       

Intangible
assets relate primarily to acquired products and their related intellectual property, primarily the one2six shuffler and the Easy Chipper roulette chip sorting machine. The values assigned
to acquired products are being amortized over their estimated useful lives on a pro rata basis to the projected revenues. The trademark is not subject to amortization and is tested periodically for
impairment. We have assigned the goodwill from our CARD acquisition to our Utility Products segment, based on our valuation analysis.

Accrued
liabilities were comprised of vendor-related obligations of $412 and an obligation to the seller to provide up to $359 of product at no charge. The deferred income tax asset reflects the
timing difference for book and tax purposes of these accrued liabilities.

BTI.On February 24, 2004, we acquired certain assets of Bet technology, Inc. ("BTI"),
a privately held corporation that develops and distributes table games to casinos throughout North America.

The
acquired assets and operations, which were assigned to our Entertainment Products segment, include the Fortune Pai Gow Poker®, Royal Match 21 and Casino War®
table games and related patents, trademarks and other intellectual property, as well as the "BET Technology, Inc." name. The acquired installed base of Fortune Pai Gow Poker, Royal Match 21,
and Casino War table games was 1,090 units as of the acquisition date.

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The
acquisition price includes fixed installments and a promissory note, which is secured as set forth in the acquisition agreement, with contingent installment payments. The fixed installments
comprise $6,000 that was paid on the closing date and $4,000 that was paid in August 2004. Subject to other terms and conditions, the contingent installments are based on future revenue
performance of Fortune Pai Gow Poker. In November 2004, we began paying monthly note installments based on a percentage of such revenue for a period of up to ten years, not to exceed $12,000.
We funded and expect to fund the acquisition price with existing cash and cash flow from operations.

The
acquisition was accounted for under the purchase method of accounting and, accordingly, the acquired assets were recorded at their estimated fair values. All acquired intangible assets have
definite lives and are being amortized over their estimated useful lives on a pro rata basis to the projected revenues. The cash purchase price of $6,144 includes the initial installment payment to
the sellers of $6,000 and other direct costs in the amount of $144. As of the acquisition date, we recorded an estimated liability of $7,616 for contingent installment payments computed as the excess
fair value of the acquired assets over the fixed installments and other direct costs. Future amounts paid in excess of this estimate of contingent consideration, if any, will be recorded as goodwill.
If future amounts paid are less than estimated contingent consideration, the remaining carrying value of the acquired assets will be reduced.

A
summary of the allocation of the acquisition cost is as follows:

|Fair value of acquired assets:                |                                               |                                                               |        |       
|--------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------- | ------ | ------
|                                              | Patents and games, average life of 11 years   |                                                               | $      | 17,500
|                                              | Trademark and other, average life of 14 years |                                                               |        | 260   
|                                              |                                               |                                                               |       
|                                              |                                               | Total fair value of acquired assets, average life of 11 years |        |       
|Fixed installment to seller, paid August 2004 |                                               |                                                               | (4,000 | )     
|Contingent consideration                      |                                               |                                                               | (7,616 | )     
|                                              |                                               |                                                               |       
|Cash purchase price                           |                                               | $                                                             | 6,144  |       
|                                              |                                               |                                                               |       

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Patent Purchase Agreement.On June 13, 2005, we entered into a patent purchase agreement (the
"Two-Party Agreement") with International Game Technology ("IGT"). Based on the terms of the Two-Party Agreement, IGT paid us a non-refundable initial cash payment
of $10,510. If IGT desires to continue its rights under the Two-Party Agreement, IGT is required to make a $4,875 payment in June 2007. Under the terms of the Two-Party
Agreement, we sold to IGT an equal ownership interest in our recently acquired radio frequency identification ("RFID") patents from ENPAT Inc. ("ENPAT"), U.S. patent numbers 5,735,742 and
5,651,548, which relate to the use of RFID at gaming tables and throughout a casino. Previously granted licenses to Progressive Gaming International Corporation ("PGIC") and Gaming Partners
International for the use of these RFID patents will remain in effect. In addition, we sold IGT a fifty-percent ownership interest in our Schubert and Fishbine patents, U.S. patent numbers 6,313,871,
5,781,647 and 6,532,297, which relate to the use of optical bet recognition and chip tracking at gaming tables. As part of the equal ownership in the optical patents, IGT has been added as a named
plaintiff in the MP Games I lawsuit (see Note 17 to our consolidated financial statements). Further, and as part of the initial $10,510 payment, IGT reimbursed us for certain legal fees
incurred on the MP Games I lawsuit, for the period prior to May 23, 2005, totaling $1,471. IGT will bear 50% of the legal fees related to the MP Games I lawsuit going forward and share in any
results. The $1,471 reimbursement in legal fees was recorded as a reduction of legal expense and the balance of the proceeds of $9,039 was recorded as a reduction in the carrying value of the patents.
Additionally, the Two-Party Agreement contains certain non-compete provisions related to our ability to market any new optical and/or RFID product for periods of three and six
years, respectively, (subject to shortening, based on certain future events), as discussed in the agreement. As co-owners of the patents, we share with IGT in future royalties associated
with third party licensing of the purchased RFID patents. Finally, if IGT elects not to make the $4,875 payment in June 2007, IGT would lose its ownership rights to the RFID patents, and our
non-compete obligations would be substantially eliminated.

In
conjunction with the Two-Party Agreement, we entered into a separate worldwide product integration agreement (the "Three-Party Agreement") with IGT and PGIC to create a comprehensive,
automated table management solution using complementary capabilities, technologies, and resources of the three companies. Under the terms of the Three-Party Agreement, we will be the provider of
automatic card shufflers, card reading intelligent shoes, card and chip sorters and verifiers. IGT will be the provider of back-end table gaming management systems, including player
tracking, patron loyalty and rewards, as well as bonusing applications. PGIC will be the provider of RFID bet recognition, automated gaming chip tracking and payoff recognition. Each company will
cooperatively interface their respective products into a combined product offering to be known as the Intelligent Table System ("ITS"). The Three-Party Agreement also provides a framework for the
cooperative development of new technologies and
products that build on automated table management and real-time monitoring of table game player activity.

These
agreements do not impact our ability to continue to separately market and sell our products which are a part of the projects which are the subject of the Two-Party Agreement and the
Three-Party Agreement.

Bet the Set "21".Effective June 29, 2005, we acquired certain assets from Magnum
Gaming, Inc. The acquired assets, which have been assigned to our Entertainment Products segment, included the Bet the Set "21" side bet table game and related pending patent and trademark
applications, game marks, license and sub-license rights, and other intellectual property, as well as the "Bet the Set" name. The

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acquired
installed base of the Bet the Set "21" side bet table game was 205 units as of the acquisition date and was 184 units as of October 31, 2005.

The
acquisition price included an initial cash payment of $540 paid in July 2005 and contingent consideration of $560. The contingent consideration consists of quarterly payments of 22.5% of
"adjusted gross revenues," as defined, attributed to the Bet the Set "21" side bet table game up to a maximum of $560. The balance at October 31, 2005, was $549.

Spur Gaming Systems.Effective August 1, 2005, we purchased certain assets from
MultiShift, Inc., dba Spur Gaming Systems ("SPUR"), a privately held corporation that develops and distributes table games and related products to casinos throughout North America. As a result
of the acquisition, we now own the underlying patents and trademarks for five additional proprietary games including Jackpot Pai Gow Poker and Progressive Jackpot Pai Gow Poker as well as a multishift
drop box. The acquired installed base of games was 53 units as of the acquisition date and 51 units as of October 31, 2005.

The
acquisition was accounted for under the purchase method of accounting. The acquisition price included a cash payment of $2,778 paid in August 2005, and consulting fees payable to SPUR,
pursuant to a separate consulting agreement, in the amount of $25 per year, commencing on the closing date (August 1, 2005), and continuing for a period of five years, for a maximum of $125.
Additionally, per the terms of the asset acquisition agreement by and among Shuffle Master, Inc., and SPUR ("Spur Agreement"), contingent royalty payments are due quarterly equal to 20% of any
adjusted gross revenues, defined as any revenues or amount received by Shuffle Master, Inc., for placements of the Casino Cribbage Game and the Break Insurance Game. No such games were placed
into service as of October 31, 2005.

VIP Gaming Solutions.In August 2005, we acquired VIP, a privately held corporation with
headquarters located in Sydney, Australia. As a result of the acquisition, we acquired a broader direct sales presence within the Asia-Pacific region and expanded our product offerings to
include a variety of table game related equipment and accessories.

The
acquisition was accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities assumed were recorded at their estimated fair values. The cash purchase
price of $404 includes the initial payment of $308 and other direct costs in the amount of $96. The total purchase price was comprised of the following:

|Cash, net of cash acquired of $177 |  | $ | 131
|---------------------------------- |  | - | ---
|Note payable                       |  |   | 320
|Other direct acquisition costs     |  |   | 96 
|                                   |  |  
|Total purchase price               |  | $ | 547
|                                   |  |  

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The
preliminary allocation of the purchase price, which is subject to change based on a final valuation of the intangible assets acquired and liabilities assumed, is comprised of the following:

|Historical book value of VIP net assets, excluding cash acquired, as of August 18, 2005 |                                            | $ | 68  |     
|--------------------------------------------------------------------------------------- | ------------------------------------------ | - | --- | ----
|Estimated fair value adjustments relating to:                                           |                                            |   |     |     
|                                                                                        | Other current assets, net                  |   |     | 130 
|                                                                                        | Intangible assets, average life of 2 years |   |     | 205 
|                                                                                        | Goodwill                                   |   |     | 385 
|                                                                                        | Accrued liabilities                        |   |     | (241
|                                                                                        |                                            |   |    
|                                                                                        |                                            | $ | 547 |     
|                                                                                        |                                            |   |    

Intangible
assets relate to a non-compete provision that is effective for a period of twenty-four months after the cessation of an employment agreement between the Company and
a key employee at VIP. Under the terms of such employment agreement, we do not expect to begin amortizing the value of this non-compete provision until the years 2011 and 2012.

Accrued
liabilities were comprised of vendor-related obligations, a deferred tax obligation and a loan to shareholder. Other current assets consist of a tax credit claim.

4. DISCONTINUED OPERATIONS

In
December 2003, our board of directors approved and we committed to a plan to divest our North America slot products operations and assets, based on our determination that this product line
was no longer a strategic fit with our refocused core business strategy of providing products and services for the table game area of casinos. Revenues and costs associated with our slot products are
reported as discontinued operations for all periods presented. In January 2004, we entered into agreements pursuant to which we sold substantially all of our slot products assets to IGT.

Discontinued
operations consisted of the following for the years ended October 31:

|                                       |  | 2005 |     | 2004 |   | 2003  |  
|-------------------------------------- |  | ---- | --- | ---- | - | ----- | -
|Revenues                               |  | $    | 217 |      | $ | 2,279 |  
|                                       |  |      |     |      |   |       |  
|Gain (loss) from operations before tax |  | $    | 110 |      | $ | 79    |  
|Income tax (expense) benefit           |  |      | (37 | )    |   | (27   | )
|                                       |  |      |     |      |   |       |  
|Net income (loss) from operations      |  |      | 73  |      |   | 52    |  
|                                       |  |      |     |      |   |       |  
|Gain on sale of slot assets            |  |      | 11  |      |   | 3,306 |  
|Exit Costs and other                   |  |      |    |      |   | (883  | )
|Income tax expense                     |  |      | (8  | )    |   | (848  | )
|                                       |  |      |     |      |   |       |  
|Gain on sale of slot assets, net       |  |      | 3   |      |   | 1,575 |  
|                                       |  |      |     |      |   |       |  
|Discontinued operations, net           |  | $    | 76  |      | $ | 1,627 |  
|                                       |  |      |     |      |   |       |  

In
fiscal 2004, the gain on sale of slot assets included charges totaling $3,107 to adjust the carrying value of remaining slot products inventory, leased and available products, property and
equipment and intangible assets to their estimated net realizable value.

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In
connection with the discontinuation of our slot products operations, we accrued estimated expenses of $1,286 for termination of slot-related contracts, closure of our leased slot
products research and development facility in Colorado, and termination of slot products personnel (collectively, "Exit Costs"). The charge for Exit Costs is included in discontinued operations, net
of tax, on our consolidated statements of income. During the year ended October 31, 2004, we substantially completed our exit activities at actual costs lower than our initial estimates. As a
result, we reduced our accrued Exit Costs by $296. Remaining accrued Exit Costs relate to minimum royalty liabilities under abandoned slot license agreements, litigation costs and settlement of an
existing legal case.

The
following table summarizes the activity for our accrued Exit Costs as of October 31, 2005:

|                                    |  | Contract
Terminations |      | Facility Closure |   | Severance |   | Other |      | Total |  
|----------------------------------- |  | --------------------- | ---- | ---------------- | - | --------- | - | ----- | ---- | ----- | -
|Exit Costs accrued, initial balance |  | $                     | 366  |                  | $ | 324       |   | $     | 187  |       | $
|Adjustment to accrued Exit Costs    |  |                       | (152 | )                |   | (70       | ) |       | (24  | )     |  
|Cash payments                       |  |                       | (114 | )                |   | (254      | ) |       | (163 | )     |  
|                                    |  |                       |      |                  |   |           |   |       |      |       |  
|Balance, October 31, 2005           |  | $                     | 100  |                  | $ |          |   | $     |     |       | $
|                                    |  |                       |      |                  |   |           |   |       |      |       |  

5. FINANCIAL INSTRUMENTS

Cash and cash equivalents.Cash and cash equivalents include short-term investments with
maturities of three months or less from their date of purchase. We maintain cash balances that exceed federally insured limits; however, we have incurred no losses on such accounts.

Investments.We classify all of our securities as available-for-sale. Our
investments are recorded at fair market value, which, as of October 31, 2005 and 2004, approximated amortized cost.

Investments
at fair value consisted of the following as of October 31:

|                                                |  | 2005 |        | 2004
|----------------------------------------------- |  | ---- | ------ | ----
|United States government and agency obligations |  | $    | 20,809 |     
|                                                |  |      |        |     

Fair value disclosures of financial instruments.We estimate that the fair values of accounts
receivable, investment in sales-type leases, notes receivable and accounts payable approximate their carrying values due to the relatively short-term nature of the instruments.

We
estimate that the fair value of our Contingent Convertible Senior Notes as of October 31, 2005, is $158,625 based on quoted market prices.

Fair
value of investments includes $165 and $0 of unrealized gains as of October 31, 2005 and 2004, respectively.

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6. RECEIVABLES AND INVESTMENT IN SALES-TYPE LEASES

The
following provides additional disclosure for accounts receivable, notes receivable and investment in sales-type leases as of October 31:

|                              |  | 2005 |        | 2004 |  
|----------------------------- |  | ---- | ------ | ---- | -
|Accounts receivable, net:     |  |      |        |      |  
|Trade receivables             |  | $    | 18,148 |      | $
|Less: allowance for bad debts |  |      | (283   | )    |  
|                              |  |      |        |      |  
|                              |  | $    | 17,865 |      | $
|                              |  |      |        |      |  

|                                                                       |                                                  | 2005 |        | 2004   |  
|---------------------------------------------------------------------- | ------------------------------------------------ | ---- | ------ | ------ | -
|Investment in sales-type leases and notes receivable, net:             |                                                  |      |        |        |  
|Minimum sales-type lease payments                                      |                                                  | $    | 13,329 |        | $
|Notes receivabletable game licenses                                   |                                                  |      | 10,269 |        |  
|                                                                       |                                                  |      |        |        |  
|                                                                       | Sub-total sales-type leases and notes receivable |      |        | 23,598 |  
|                                                                       |                                                  |      |        |        |  
|Less: interest sales-type leases                                       |                                                  |      | (1,579 | )      |  
|Less: deferred service revenue                                         |                                                  |      | (2,033 | )      |  
|Less: allowance for bad debts                                          |                                                  |      | (631   | )      |  
|                                                                       |                                                  |      |        |        |  
|Investment in sales-type leases and notes receivable, net              |                                                  |      | 19,355 |        |  
|                                                                       |                                                  |      |        |        |  
|Less: current portion sales-type leases                                |                                                  |      | (3,929 | )      |  
|Less: current portion notes receivable  table game licenses           |                                                  |      | (4,290 | )      |  
|                                                                       |                                                  |      |        |        |  
|Long-term portion investment in sales-type leases and notes receivable |                                                  | $    | 11,136 |        | $
|                                                                       |                                                  |      |        |        |  

We
maintain provisions for bad debts for estimated credit losses that result from the inability of our customers to make required payments. The provisions for bad debts are estimated based on
historical experience and specific customer collection issues.

Sales-type
leases are interest-bearing at market interest rates, require monthly installment payments over periods ranging generally from 30 to 60 months and contain bargain
purchase options. Notes receivable includes financing arrangements for sales of our intellectual property products. Amounts are interest-bearing at market interest rates and require monthly
installments ranging generally from 30 to 60 months. Future minimum lease payments (principal, deferred revenue and interest) to be received for both sales-type leases and notes
receivable are as follows:

|Year ending October 31, |  |  
|----------------------- |  | -
|2006                    |  | $
|2007                    |  |  
|2008                    |  |  
|2009                    |  |  
|2010                    |  |  
|                        |  |  
|                        |  | $
|                        |  |  

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7. OTHER BALANCE SHEET DATA

The following provides additional disclosure for selected balance sheet accounts as of October 31:

|                                                   |  | 2005 |         | 2004 |  
|-------------------------------------------------- |  | ---- | ------- | ---- | -
|Inventories:                                       |  |      |         |      |  
|Raw materials and component parts                  |  | $    | 5,482   |      | $
|Work-in-process                                    |  |      | 820     |      |  
|Finished goods                                     |  |      | 4,613   |      |  
|                                                   |  |      |         |      |  
|                                                   |  |      | 10,915  |      |  
|Less: allowance for inventory obsolescence         |  |      | (1,487  | )    |  
|                                                   |  |      |         |      |  
|                                                   |  | $    | 9,428   |      | $
|                                                   |  |      |         |      |  
|Products leased and held for lease, net:           |  |      |         |      |  
|Utility products                                   |  | $    | 18,091  |      | $
|Entertainment products                             |  |      | 3,183   |      |  
|                                                   |  |      |         |      |  
|                                                   |  |      | 21,274  |      |  
|Less: accumulated depreciation                     |  |      | (12,111 | )    |  
|                                                   |  |      |         |      |  
|                                                   |  | $    | 9,163   |      | $
|                                                   |  |      |         |      |  
|Property and equipment, net:                       |  |      |         |      |  
|Office furniture and computer equipment            |  | $    | 3,860   |      | $
|Leasehold improvements                             |  |      | 2,629   |      |  
|Production equipment and other                     |  |      | 3,923   |      |  
|                                                   |  |      |         |      |  
|                                                   |  |      | 10,412  |      |  
|Less: accumulated depreciation                     |  |      | (6,268  | )    |  
|                                                   |  |      |         |      |  
|                                                   |  | $    | 4,144   |      | $
|                                                   |  |      |         |      |  
|Other assets, net:                                 |  |      |         |      |  
|Debt issuance costs                                |  | $    | 4,792   |      | $
|Deposits                                           |  |      | 3,331   |      |  
|Equity Investment, at cost                         |  |      |        |      |  
|Other                                              |  |      | 429     |      |  
|                                                   |  |      |         |      |  
|                                                   |  |      | 8,552   |      |  
|Less: accumulated amortization debt issuance costs |  |      | (1,464  | )    |  
|                                                   |  |      |         |      |  
|                                                   |  | $    | 7,088   |      | $
|                                                   |  |      |         |      |  

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8. INTANGIBLE ASSETS AND GOODWILL

Amortized intangible assets.All of our recorded intangible assets, excluding goodwill and the CARD
trademark, are subject to amortization. Amortization expense was $5,954, $3,308 and $2,075 for each of the years ended October 31, 2005, 2004, and 2003, respectively. Amortized intangible
assets are comprised of the following as of October 31:

|                             |                                | Weighted Avg
Useful Life |          | 2005 |        | 2004   |       
|---------------------------- | ------------------------------ | ------------------------ | -------- | ---- | ------ | ------ | ------
|Amortized intangible assets: |                                |                          |          |      |        |        |       
|                             | Patents, games and products    |                          | 10 years |      | $      | 55,552 |       
|                             | Less: accumulated amortization |                          |          |      |        | (9,478 | )     
|                             |                                |                          |          |      |        |        |       
|                             |                                |                          |          |      | 46,074 |        |       
|                             |                                |                          |          |      |        |        |       
|                             | Licenses and other             |                          | 6 years  |      |        | 3,053  |       
|                             | Less: accumulated amortization |                          |          |      |        | (1,536 | )     
|                             |                                |                          |          |      |        |        |       
|                             |                                |                          |          |      | 1,517  |        |       
|                             |                                |                          |          |      |        |        |       
|                             |                                | Total                    |          |      |        | $      | 47,591
|                             |                                |                          |          |      |        |        |       

Estimated
amortization expense related to recorded intangible assets, excluding the CARD trademark, is as follows:

|Year ending October 31, |  |  
|----------------------- |  | -
|2006                    |  | $
|2007                    |  |  
|2008                    |  |  
|2009                    |  |  
|2010                    |  |  
|Thereafter              |  |  
|                        |  |  
|                        |  | $
|                        |  |  

Trademark.Intangibles with an indefinite life consisting of the CARD trademark are not amortized and
were $886 as of October 31, 2005 and 2004.

Goodwill.Changes in the carrying amount of goodwill for the year ended October 31, 2005, are
as follows:

|Balance at October 31, 2004 |                                         | $ | 37,556 |       
|--------------------------- | --------------------------------------- | - | ------ | ------
|                            | CARD purchase accounting adjustment     |   |        | 124   
|                            | Foreign currency translation adjustment |   |        | (2,048
|                            | Acquisition of VIP                      |   |        | 385   
|                            |                                         |   |       
|Balance at October 31, 2005 |                                         | $ | 36,017 |       
|                            |                                         |   |       

All
of our goodwill originated from the acquisitions of foreign subsidiaries. For foreign income tax purposes, goodwill is amortized using the straight-line method and deducted over its
statutory fifteen year life. We have assigned all goodwill to our Utility Products segment, as defined under SFAS 131.

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9. NOTE PAYABLE AND LONG-TERM LIABILITIES

Note
payable and long-term liabilities consisted of the following as of October 31:

|                                                                             |  | 2005 |         | 2004 |  
|---------------------------------------------------------------------------- |  | ---- | ------- | ---- | -
|Contingent convertible senior notes, fixed rate interest at 1.25%, due 2024  |  | $    | 150,000 |      | $
|Note payable, fixed rate interest at 2.00%, due in installments through 2005 |  |      |        |      |  
|BTI acquisition contingent consideration                                     |  |      | 6,167   |      |  
|ENPAT note payable, non-interest bearing, due in installments through 2007   |  |      | 8,518   |      |  
|Bet the Set "21" contingent consideration                                    |  |      | 549     |      |  
|VIP note payable                                                             |  |      | 318     |      |  
|Other                                                                        |  |      | 189     |      |  
|                                                                             |  |      |         |      |  
|                                                                             |  |      | 165,741 |      |  
|Less: current portion                                                        |  |      | (3,082  | )    |  
|                                                                             |  |      |         |      |  
|                                                                             |  | $    | 162,659 |      | $
|                                                                             |  |      |         |      |  

Contingent convertible senior notes.In April 2004, we issued $150,000 of contingent
convertible senior notes due 2024 (the "Notes") through a private placement under Rule 144A of the Securities Act of 1933. The Notes are unsecured and bear interest at a fixed rate of 1.25% per
annum. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, beginning October 15, 2004.

Holders
may convert any outstanding Notes into cash and shares of our common stock at an initial conversion price per share of $28.07. This represents a conversion rate of approximately 35.6210 shares
of common stock per $1,000 in principal amount of Notes. The value of the cash and shares of our common stock, if any, to be received by a holder converting $1,000 principal amount of the
Notes will be determined based on the applicable Conversion Rate, Conversion Value, Principal Return, and other factors, each as defined in the indenture covering these Notes.

The
Notes are convertible, at the holders' option, into cash and shares of our common stock, under any of the following circumstances:



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We
may call some or all of the Notes at any time on or after April 21, 2009, at a redemption price, payable in cash, of 100% of the principal amount of the Notes, plus accrued and unpaid
interest and including liquidated damages, if any, up to but not including the date of redemption. In addition, the holders may require us to repurchase all or a portion of their Notes on
April 15, 2009, 2014 and 2019, at 100% of the principal amount of the Notes, plus accrued and unpaid interest and including liquidated damages, if any, up to but not including the date of
repurchase, payable in
cash. Upon a change in control, as defined in the indenture governing the Notes, holders may require us to repurchase all or a portion of their Notes, payable in cash equal to 100% of the principal
amount of the Notes plus accrued and unpaid interest and liquidated damages, if any, up to but not including the date of repurchase.

Debt
issuance costs incurred with the issuance of long-term debt are capitalized and amortized as interest expense using the effective interest method over the initial call period ending
April 15, 2009. Amortization of debt issuance costs were $961 and $503 for the year ended October 31, 2005 and 2004, respectively. Unamortized debt issuance costs of $3,328 as of
October 31, 2005, are included in other assets on the consolidated balance sheets.

BTI liabilities.In connection with our acquisition of certain assets from BTI, we recorded an
initial estimated liability of $7,616 for contingent installment payments computed as the excess fair value of the acquired assets over the fixed installments and other direct costs. In
November 2004, we began paying monthly note installments based on a percentage of certain revenue from BTI games for a period of up to ten years, not to exceed $12,000. The balance of this
liability as of October 31, 2005, was $6,167.

ENPAT note payable.In December 2004, we purchased two RFID technology patents from ENPAT for
$12,500. The purchase price was comprised of an initial payment of $2,400 followed by a $1,100 payment in January 2005 and non-interest bearing annual installments through
December 2007. The balance as of October 31, 2005, of $8,518 represents the discounted present value of the future payments, including imputed interest of approximately $352. Principal
and interest payments of $3,000 each are due in December 2005, 2006, and 2007.

Bet the Set "21" contingent consideration.In connection with our acquisition of Bet the Set "21", we
recorded contingent consideration of $560. The contingent consideration consists of quarterly payments of 22.5% of "adjusted gross revenues," as defined, attributed to the Bet the Set "21" side bet
table games up to a maximum of $560. The balance of this liability as of October 31, 2005, was $549.

VIP note payable.In connection with our acquisition of VIP in August 2005, we recorded a note
payable with annual installments due each July through 2010. The balance of this liability as of October 31, 2005 was $318.

Note payable.In August 2002, we purchased a patent and the Bloodhound product from Casino
Software and Services, LLC for cash of $300 and a note payable for $600. The note bore interest at 2.0% annually and was paid in full in August 2005.

Credit facility.In connection with the contingent convertible senior notes issuance mentioned above,
on April 13, 2004, we terminated our $15,000 revolving credit agreement that we had maintained with U.S. Bank, N.A.

87

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Maturities
of long-term debt, excluding contingent consideration, for the five fiscal years ending subsequent to October 31, 2005, are as follows:

|Year ending October 31, |  |  
|----------------------- |  | -
|2006                    |  | $
|2007                    |  |  
|2008                    |  |  
|2009                    |  |  
|2010                    |  |  
|                        |  |  
|Total                   |  | $
|                        |  |  

10. EQUITY INCENTIVE PLANS

In
February 2004, our board of directors adopted and, in March 2004, our shareholders approved the Shuffle Master, Inc. 2004 Equity Incentive Plan (the "2004 Plan") and the
Shuffle Master, Inc. 2004
Equity Incentive Plan for Non-Employee Directors (the "2004 Directors' Plan"). These approved plans replaced our prior plans and no further options may be granted from the prior plans.
Both the 2004 Plan and the 2004 Directors' Plan provide for the grant of stock options, stock appreciation rights (none issued), and restricted stock, individually or in any combination (collectively
referred to as "Awards"). Stock options may not be granted at an exercise price less than the market value of our common stock at the date of grant and may not be subsequently repriced. Options
granted under the 2004 Plan generally vest in equal increments over four years and expire in ten years. Options granted under the 2004 Directors' Plan generally vest immediately and expire in ten
years.

The
2004 Plan provides for the grants of Awards to our officers, other employees and contractors. The maximum number of Awards which may be granted is 2,700 of which no more than 1,890 may be granted
as restricted stock. The 2004 Directors' Plan provides for the grants of Awards to our non-employee directors. The maximum number of Awards which may be granted is 1,125 of which no more
than 788 may be granted as restricted stock.

As
of October 31, 2005, 1,270 and 928 shares are available for grant under the 2004 Plan and 2004 Directors' Plan, respectively.

Restricted stockDuring the twelve months ended October 31, 2005 and 2004, we issued 193 and 90 shares of restricted stock,
respectively, with an aggregate fair value of $4,781 and $1,955, respectively. The total value of each restricted stock grant, based on the fair market value of the stock on the date of grant, is
initially reported as deferred compensation under shareholders' equity. This deferred compensation is then amortized to compensation expense over the related vesting period. Net income, as reported,
for the year ended October 31, 2005 and 2004, reflects $507 and $124, respectively, net of tax, of amortization of restricted stock compensation.

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Stock optionsA summary of stock option activity and weighted average exercise prices for the years ended October 31 is as follows:

|                               |  | 2005  |   | 2004 |       | 2003
|------------------------------ |  | ----- | - | ---- | ----- | ----
|
|Outstanding, beginning of year |  | 3,789 |   | $    | 11.77 |     
|Granted                        |  | 983   |   |      | 29.25 |     
|Exercised                      |  | (851  | ) |      | 7.28  |     
|Forfeited                      |  | (99   | ) |      | 21.29 |     
|                               |  |       |   |      |       |     
|Outstanding, end of year       |  | 3,822 |   |      | 17.01 |     
|                               |  |       |   |      |       |     
|Exercisable, end of year       |  | 2,332 |   | $    | 17.22 |     

The
following table summarizes information concerning options outstanding and options exercisable as of October 31, 2005:

|  |               | Outstanding |       | Exercisable
|- | ------------- | ----------- | ----- | -----------
|
|$ | -$  3.06      |             | 2     |            
|  | 3.07-    6.11 |             | 98    |            
|  | 6.12-    9.17 |             | 422   |            
|  | 9.18-  12.22  |             | 738   |            
|  | 12.23-  15.28 |             | 1,032 |            
|  | 15.29-  18.34 |             | 74    |            
|  | 18.35-  21.39 |             | 310   |            
|  | 21.40-  24.45 |             | 208   |            
|  | 24.46-  27.50 |             | 65    |            
|  | 27.51-  30.56 |             | 873   |            
|  |               |             |       |            
|  |               |             | 3,822 |            
|  |               |             |       |            

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11. EARNINGS PER SHARE

Shares
used to compute basic and diluted earnings per share from continuing operations for the years ended October 31 are as follows (all share and per share amounts have been restated to
reflect our three-for-two stock split in April 2004 and January 2005):

|                                  |                                                             | 2005 |        | 2004   |   | 2003  
|--------------------------------- | ----------------------------------------------------------- | ---- | ------ | ------ | - | ------
|Income from continuing operations |                                                             | $    | 29,104 |        | $ | 22,517
|                                  |                                                             |      |        |        |   |       
|Basic:                            |                                                             |      |        |        |   |       
|                                  | Weighted average shares                                     |      |        | 34,924 |   |       
|                                  |                                                             |      |        |        |   |       
|Diluted:                          |                                                             |      |        |        |   |       
|                                  | Weighted average shares, basic                              |      |        | 34,924 |   |       
|                                  | Dilutive impact of options and restricted stock outstanding |      |        | 1,343  |   |       
|                                  | Dilutive effect of contingent convertible notes             |      |        | 111    |   |       
|                                  |                                                             |      |        |        |   |       
|                                  | Weighted average shares, diluted                            |      |        | 36,378 |   |       
|                                  |                                                             |      |        |        |   |       
|Basic earnings per share          |                                                             | $    | 0.83   |        | $ | 0.63  
|Diluted earnings per share        |                                                             | $    | 0.80   |        | $ | 0.60  

We
account for our Notes in accordance with EITF 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share" which requires us to include the dilutive effect of our
outstanding Notes shares in our diluted earnings per share calculation, regardless of whether the market price trigger or other contingent conversion feature has been met. Because our Notes include a
mandatory cash settlement feature for the principal payment, we applied the treasury stock method. This method results in incremental dilutive shares when the average fair value of our common stock
for a reporting period exceeds the initial conversion price per share of $28.07. EITF 04-8 also requires restatement of all prior periods. Because the average fair value of our common
stock did not exceed the initial conversion price in any period prior to the year ended October 31, 2005, no restatement of prior periods was required. For the year ended October 31,
2005, the average fair value of our common stock exceeded $28.07, and accordingly, the dilutive effect is included in our diluted shares calculation.

12. SHAREHOLDERS' EQUITY

Stock splits.In December 2004, our board of directors approved a
three-for-two common stock split, with new shares distributed in the form of a dividend on January 14, 2005, to shareholders of record on January 3, 2005 (the
"January 2005 Split"). In connection with the January 2005 Split, we paid cash of $68 for fractional shares and reclassified to common stock the par value of $0.01 per newly issued
share.

In
March 2004, our board of directors had earlier approved another three-for-two common stock split, with new shares distributed in the form of a dividend on
April 16, 2004, to shareholders of record on April 5, 2004 (the "April 2004 Split"). In connection with the April 2004 Split, we paid cash of $138 for fractional shares and
reclassified to common stock the par value of $0.01 per newly issued share.

Share
and per share amounts have been adjusted for all periods presented herein to reflect both the January 2005 Split and the April 2004 Split.

Common stock repurchases.Our board of directors periodically authorizes us to repurchase shares of
our common stock. Under our existing board authorizations, during the year ended October 31, 2005, we repurchased 1,473 shares of our common stock for a total cost of $38,643 at an average
price of

90

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$26.24
per share. Under our board authorizations, during the years ended October 31, 2004 and 2003, we repurchased 1,991 and 2,732 shares of our outstanding stock at total costs of $42,524 and
$25,827, respectively. We cancel shares that we repurchase. In addition, in April 2004, our board of directors authorized and we repurchased, in private transactions, an additional 2,806 shares
of our common stock at a total cost of $57,500 with funds provided from the issuance of our contingent convertible senior notes. As of October 31, 2005, $8,831 remained outstanding under our
board authorizations.

Tax benefit from stock option exercises.During each of the years ended October 31, 2005, 2004
and 2003, we recorded income tax benefits of $5,287, $5,388 and $2,661, respectively, related to deductions for employee stock option exercises. These tax benefits, which reduced income taxes payable
and increased additional paid-in capital by an equal amount, had no effect on our provision for income taxes. Additionally, as part of the fiscal 2004 income tax provision to tax return
true-up, we recorded a $229 tax benefit related to employee stock option exercises which reduced income taxes payable and increased additional paid-in capital by an equal
amount.

Class A preferred stock.On June 26, 1998, in connection with the adoption of our
shareholder rights plan, our board of directors designated and established 506,409 (as currently adjusted) shares of no par value Class A Preferred Stock (the "Preferred Stock"). Holders of our
Preferred Stock are entitled to one hundred votes on any matters submitted to vote by our shareholders, an aggregate dividend of one hundred times any dividend declared on our common stock and a
liquidation preference of one hundred times any liquidation payment amount to our common shareholders. No shares of Preferred Stock have been issued.

Preferred stock purchase rights.In February 2005, we amended our Shareholder Rights
Agreement, dated June 26, 1998 (the "Rights Agreement"). As more fully described therein, and subject to the terms thereof, the Rights Agreement, as amended, generally gives holders of our
common stock rights to acquire shares of our preferred stock upon the occurrence of specified events. The amendment (a) eliminated all requirements in the Rights Agreement that actions,
approvals and determinations to be taken or made by our board of directors be taken or made by a majority of the "Continuing Directors," and (b) reflects the change of the name of our stock
transfer agent to Wells Fargo Bank, N.A. The amendment eliminated from the Rights Agreement those provisions commonly referred to as "dead hand" provisions.

The
Shareholder Rights Agreement was implemented by distributing one preferred share purchase right (a "Right") for each outstanding share of our common stock held of record as of July 10,
1998. Additionally, we further authorized and directed the issuance of one Right with respect to each share of our common stock that shall become outstanding thereafter until the Rights become
exercisable or they expire as described below. Each Right initially entitles holders of our common stock to buy one one-hundredth of a share of our Preferred Stock at a price of $5.33 (as
currently adjusted), subject to adjustment. The Rights will generally become exercisable after a person or group acquires beneficial ownership of 20% or more of our common stock or announces a tender
offer upon consummation of which such person or group would own 20% or more of our common stock.

If
any person or group becomes the owner of 20% or more of our common stock, then, in lieu of the right to purchase any Preferred Stock, each Right will therefore entitle its holder (other than an
acquiring person or member of an acquiring group) to purchase shares of our common stock in an amount equal to the exercise price ($5.33, as currently adjusted) of one one-hundredth share
of the preferred stock divided by 50% of the then-current market price of one share of common stock.

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In
addition, if we are acquired in a merger or other business combination transaction, or sell 20% or more of our assets or earnings power then, in lieu of the right to purchase Preferred Stock, each
Right will thereafter generally entitle its holder to purchase common shares of the acquiring company using the same formula as for our common stock.

The
Rights expire in June 2008 unless earlier redeemed or terminated. At the option of our board of directors, we generally may amend the Rights or redeem the Rights at $0.01 per Right at any
time prior to the time a person or group has acquired 20% of our common stock.

13. EMPLOYEE BENEFIT PLANS

U.S. defined contribution plan.We sponsor a defined contribution plan, which qualifies under
Section 401(k) of the Internal Revenue Code and covers U.S. employees who meet certain age and service requirements. We may make matching contributions to the plan based on a percentage of
employee compensation and actual contributions. In the years ended October 31, 2005, 2004 and 2003, we elected to make matching contributions of 50% of employee contributions up to 4% of
compensation, totaling $234, $194, and $164, respectively.

Austrian pension commitments.In April and May 2004, we formalized our defined contribution
pension agreements with certain Austrian employees. We pay contributions to an external pension fund administered by ÖPAG Pensionskassen AG. Aggregate pension expense relating to our
Austrian agreements in the years ended October 31, 2005, 2004 and 2003 were $36, $25 and $0, respectively.

14. OTHER INCOME (EXPENSE)

Other
income (expense) is comprised of the following for the years ended October 31:

|                                                       |  | 2005 |        | 2004 |   | 2003   |  
|------------------------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|Interest income                                        |  | $    | 2,336  |      | $ | 888    |  
|Interest expense                                       |  |      | (3,263 | )    |   | (1,497 | )
|Foreign currency gain (loss)                           |  |      | 215    |      |   | (992   | )
|Impairment write-down of cost method equity investment |  |      | (1,000 | )    |   |       |  
|Other                                                  |  |      | 55     |      |   | 1      |  
|                                                       |  |      |        |      |   |        |  
|                                                       |  | $    | (1,657 | )    | $ | (1,600 | )
|                                                       |  |      |        |      |   |        |  

For
the year ended October 31, 2005, interest income includes $502 related to Federal income tax refunds for the years ended October 31, 2001, 2000 and 1999. For the years ended
October 31, 2005, 2004 and 2003 interest income related to sales-type leases and notes receivable was $948, $480 and $125, respectively.

Prior
to the completion of our CARD acquisition in fiscal 2004, we entered into foreign currency exchange contracts to fix the U.S. dollars estimated to be required to fund the
Euro-denominated cash component of the CARD purchase price which resulted in a foreign currency exchange loss of $703. Such contracts do not meet the accounting criteria for hedge
accounting, and accordingly, the foreign currency exchange loss is included in our operating results for the year ended October 31, 2004. As of October 31, 2005, we had no outstanding
foreign exchange contracts.

The
increase in interest expense is primarily due to the issuance of $150,000 of Notes due in April 2024. Accrued interest of $83 and $78 is included in accrued liabilities on the consolidated
balance sheet as of October 31, 2005 and 2004, respectively.

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For
the quarter and fiscal year ended October 31, 2005, we recorded a $1,000 impairment write-down related to a cost method equity investment.

15. INCOME TAXES

We
record deferred income taxes to reflect the income tax consequences in future years between the financial reporting and income tax bases of assets and liabilities, and future tax benefits such as
net operating loss carryforwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the
differences are expected to reverse. We provide valuation allowances to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate the likelihood of recovering
our deferred tax assets by estimating sources of future taxable income. The provision for income taxes is the sum of the tax currently payable and the change in deferred taxes during the year.

The
income tax provision (benefit) attributable to our continuing and discontinued operations is as follows for the years ended October 31:

|                        |  | 2005 |        | 2004 |   | 2003   | 
|----------------------- |  | ---- | ------ | ---- | - | ------ | 
|Continuing operations   |  | $    | 14,496 |      | $ | 12,125 | 
|Discontinued operations |  |      | 44     |      |   | 876    | 
|                        |  |      |        |      |   |        | 
|Total                   |  | $    | 14,540 |      | $ | 13,001 | 
|                        |  |      |        |      |   |        | 

The
components of the provision for income taxes from continuing operations are as follows for the years ended October 31:

|          |         | 2005 |        | 2004   |   | 2003   |      
|--------- | ------- | ---- | ------ | ------ | - | ------ | -----
|Current:  |         |      |        |        |   |        |      
|          | Federal |      | $      | 16,364 |   | $      | 9,447
|          | State   |      |        | 1,210  |   |        | 1,082
|          | Foreign |      |        | (526   | ) |        | 526  
|          |         |      |        |        |   |        |      
|          |         |      | 17,048 |        |   | 11,055 |      
|          |         |      |        |        |   |        |      
|Deferred: |         |      |        |        |   |        |      
|          | Federal |      |        | (2,980 | ) |        | 718  
|          | State   |      |        | (312   | ) |        |     
|          | Foreign |      |        | 740    |   |        | 352  
|          |         |      |        |        |   |        |      
|          |         |      | (2,552 | )      |   | 1,070  |      
|          |         |      |        |        |   |        |      
|Total     |         | $    | 14,496 |        | $ | 12,125 |      
|          |         |      |        |        |   |        |      

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Deferred
tax assets and liabilities consisted of the following as of October 31:

|                                     |                                             | 2005 |       | 2004  |  
|------------------------------------ | ------------------------------------------- | ---- | ----- | ----- | -
|Deferred tax assets:                 |                                             |      |       |       |  
|                                     | Inventories                                 |      | $     | 976   |  
|                                     | Accounts receivable                         |      |       | 368   |  
|                                     | Employee benefits                           |      |       | 234   |  
|                                     | Deferred revenue                            |      |       | 44    |  
|                                     | Investment impairment reserves              |      |       | 376   |  
|                                     | Other reserves                              |      |       | 415   |  
|                                     | Restricted stock                            |      |       | 380   |  
|                                     | Depreciation                                |      |       | 87    |  
|                                     | Foreign net operating loss carryforward     |      |       | 407   |  
|                                     | Contingent consideration on patent purchase |      |       | 2,525 |  
|                                     | Other                                       |      |       | 133   |  
|                                     |                                             |      |       |       |  
|Total gross deferred tax assets      |                                             |      | 5,945 |       |  
|Less: valuation allowance            |                                             |      | (363  | )     |  
|                                     |                                             |      |       |       |  
|Deferred tax assets                  |                                             |      | 5,582 |       |  
|                                     |                                             |      |       |       |  
|Deferred tax liabilities:            |                                             |      |       |       |  
|                                     | Goodwill                                    |      |       | 908   |  
|                                     | Depreciation                                |      |       |      |  
|                                     | Intangible amortization                     |      |       | 273   |  
|                                     | Other                                       |      |       | 164   |  
|                                     |                                             |      |       |       |  
|Total gross deferred tax liabilities |                                             |      | 1,345 |       |  
|                                     |                                             |      |       |       |  
|Net deferred tax assets              |                                             | $    | 4,237 |       | $
|                                     |                                             |      |       |       |  

As
of October 31, 2005, we have available $1,210 of Australian net operating losses which can be carried forward indefinitely. We have recorded a deferred tax asset of $363 related to these
operating losses and a corresponding valuation allowance of $363 to fully provide for this deferred income tax benefit that may not be realized.

We
have not provided U.S. Federal income tax on $5,556 of undistributed earnings of our foreign subsidiaries because we intend to permanently reinvest such earnings outside the United States. Upon
distribution of these earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes, subject to adjustment for foreign tax credits. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

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The
reconciliation of the federal statutory rate to our effective income tax rate for continuing operations for the years ended October 31 is as follows:

|                                           |  | 2005   |  | 2004   |  | 2003  
|------------------------------------------ |  | ------ |  | ------ |  | ------
|Federal income tax at the statutory rate   |  | 35.0%  |  | 35.0%  |  | 35.0% 
|Permanent differences                      |  | (1.9)% |  | (1.4)% |  | (0.8)%
|State income taxes, net of federal benefit |  | 2.1%   |  | 2.0%   |  | 2.0%  
|Federal tax credits                        |  | (1.8)% |  | (1.4)% |  | (1.7)%
|Effect from foreign tax rate differences   |  | 0.7%   |  | 0.9%   |  | 1.0%  
|Other                                      |  | (0.8)% |  | (0.1)% |  | (0.5)%
|                                           |  |        |  |        |  |       
|Effective tax rate                         |  | 33.3%  |  | 35.0%  |  | 35.0% 
|                                           |  |        |  |        |  |       

The
decline in our effective tax rate from the prior years is primarily attributed to tax provision to tax return true-up related to differences in estimated versus actual State income tax
rates and Federal tax credits.

16. OPERATING SEGMENTS

We
have five primary product lines: Shufflers, Proprietary Table Games, Table Master, Intelligent Table System ("ITS") and Chip Sorting Machines. Our Shufflers and Proprietary Table Games are each
significant to our operating results. Our Table Master and ITS product lines, while important to our strategic direction, consist primarily of research and development activities to date. We added
Chip Sorting Machines to our product offerings in May 2004 with our acquisition of CARD.

As
a result of our redefined product strategy and the divestiture of our slot products, beginning in fiscal year 2004, we realigned our reportable segments. We have two reportable segments which are
classified as continuing operations, Utility Products and Entertainment Products. Utility Products includes our Shufflers, ITS and Chip Sorting Machine product lines. Entertainment Products includes
our Proprietary Table Games and Table Master product lines. Each segment's activities include the design, development, acquisition, manufacture, marketing, distribution, installation and servicing of
its product lines.

Segment
revenues include sale, lease or licensing of products within each reportable segment. Segment operating income includes revenues and expenses directly and indirectly associated with the
product lines included in each segment. Direct expenses primarily include depreciation of leased assets, amortization of intangible assets, cost of products sold, shipping, installation, commissions,
product approval costs, research and development and product related litigation. Indirect expenses include an activity-based allocation of other general product-related costs, the most significant of
which are service and selling expenses and manufacturing overhead. Corporate general and administrative expenses are not allocated to segments. Corporate assets are comprised primarily of cash and
cash equivalents, investments, property and equipment, and prepaid and deferred income taxes.

Goodwill
of $36,017 and $37,556 as of October 31, 2005 and 2004, respectively, has been allocated to the Utility product segment. No goodwill has been allocated to the Entertainment product
segment.

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The following provides financial information concerning our reportable segments of our continuing operations for the years ended October 31:

|                               |                        | 2005 |         | 2004    |   | 2003    |        
|------------------------------ | ---------------------- | ---- | ------- | ------- | - | ------- | -------
|Revenue:                       |                        |      |         |         |   |         |        
|                               | Utility products       |      | $       | 67,029  |   | $       | 45,947 
|                               | Entertainment products |      |         | 45,539  |   |         | 38,705 
|                               | Corporate              |      |         | 292     |   |         | 131    
|                               |                        |      |         |         |   |         |        
|                               |                        | $    | 112,860 |         | $ | 84,783  |        
|                               |                        |      |         |         |   |         |        
|Income (Loss) from operations: |                        |      |         |         |   |         |        
|                               | Utility products       |      | $       | 32,595  |   | $       | 21,362 
|                               | Entertainment products |      |         | 33,529  |   |         | 29,586 
|                               | Corporate              |      |         | (20,867 | ) |         | (14,706
|                               |                        |      |         |         |   |         |        
|                               |                        | $    | 45,257  |         | $ | 36,242  |        
|                               |                        |      |         |         |   |         |        
|Depreciation and amortization: |                        |      |         |         |   |         |        
|                               | Utility products       |      | $       | 7,186   |   | $       | 3,606  
|                               | Entertainment products |      |         | 2,364   |   |         | 1,767  
|                               | Corporate              |      |         | 2,629   |   |         | 1,846  
|                               |                        |      |         |         |   |         |        
|                               |                        | $    | 12,179  |         | $ | 7,219   |        
|                               |                        |      |         |         |   |         |        
|Capital expenditures:          |                        |      |         |         |   |         |        
|                               | Utility products       |      | $       | 11,395  |   | $       | 3,705  
|                               | Entertainment products |      |         | 5,203   |   |         | 787    
|                               | Corporate              |      |         | 2,371   |   |         | 2,628  
|                               |                        |      |         |         |   |         |        
|                               |                        | $    | 18,969  |         | $ | 7,120   |        
|                               |                        |      |         |         |   |         |        
|Assets, end of year:           |                        |      |         |         |   |         |        
|                               | Utility products       |      | $       | 99,265  |   | $       | 88,019 
|                               | Entertainment products |      |         | 40,979  |   |         | 30,868 
|                               | Corporate              |      |         | 52,873  |   |         | 66,405 
|                               |                        |      |         |         |   |         |        
|                               |                        | $    | 193,117 |         | $ | 185,292 |        
|                               |                        |      |         |         |   |         |        

Revenues
by geographic area are determined based on the location of our customer. For the years ended October 31, 2005, 2004 and 2003, sales to customers outside the United States accounted for
23%, 23%, and 17% of consolidated revenue, respectively. No individual customer accounted for more than 10% of consolidated revenue.

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The
following provides financial information concerning our operations by geographic area for the years ended October 31:

|                                |                     | 2005 |         | 2004   |        | 2003 
|------------------------------- | ------------------- | ---- | ------- | ------ | ------ | -----
|Revenue:                        |                     |      |         |        |        |      
|                                | United States       |      | $       | 87,250 |        | 77.3%
|                                | Canada              |      |         | 5,303  |        | 4.7% 
|                                | Other North America |      |         | 2,214  |        | 2.0% 
|                                | Europe              |      |         | 8,147  |        | 7.2% 
|                                | Australasia         |      |         | 9,071  |        | 8.0% 
|                                | Other               |      |         | 875    |        | 0.8% 
|                                |                     |      |         |        |        |      
|                                |                     | $    | 112,860 |        | 100.0% |      
|                                |                     |      |         |        |        |      
|Long-lived assets, end of year: |                     |      |         |        |        |      
|                                | United States       |      | $       | 56,143 |        | 47.4%
|                                | Austria             |      |         | 53,799 |        | 45.4%
|                                | Australia           |      |         | 6,617  |        | 5.6% 
|                                | Other               |      |         | 1,866  |        | 1.6% 
|                                |                     |      |         |        |        |      
|                                |                     | $    | 118,425 |        | 100.0% |      
|                                |                     |      |         |        |        |      

17. COMMITMENTS AND CONTINGENCIES

Operating leases.We lease office, production, warehouse and service facilities, and service vans
under operating leases. The facility leases are for periods ranging from one to ten years, include renewal options, and include an allocation of real estate taxes and other operating expenses. Total
rent expense under operating leases was approximately $1,116, $979 and $997 for the years ended October 31, 2005, 2004, and 2003, respectively.

Estimated
future minimum lease payments under operating leases as of October 31, 2005, are as follows:

|Year ending October 31, |  |  
|----------------------- |  | -
|2006                    |  | $
|2007                    |  |  
|2008                    |  |  
|2009                    |  |  
|2010                    |  |  
|Thereafter              |  |  
|                        |  |  
|                        |  | $
|                        |  |  

Purchase commitments.From time to time, we enter into commitments with our vendors to purchase
inventory at fixed prices or in guaranteed quantities. As of October 31, 2005, our significant inventory purchase commitments totaled $6,254.

Employment agreements.We have entered into employment contracts with our Corporate Officers and
certain other key employees with durations ranging from one to three years. Significant contract

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provisions
include minimum annual base salaries, healthcare benefits, bonus compensation if performance measures are achieved, and non-compete provisions. These contracts are primarily "at
will" employment agreements, under which the employee or we may terminate employment. If we terminate any of these employees without cause, then we are obligated to pay the employee severance benefits
as specified in their individual contract. As of October 31, 2005, minimum aggregate severance benefits totaled $4,914.

Tax contingencies.The Company has open tax years with various significant taxing jurisdictions
including the United States, Austria, and Canada. Such open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the
amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit period. As of October 31, 2005, the Company has established a liability of $572
for those matters where the amount of loss is probable and reasonably estimable. The amount of the liability is based on management's best estimate given the Company's history with similar matters and
interpretations of current laws and regulations.

Legal proceedings.Our current material litigation and our current assessments are described below.
Litigation is inherently unpredictable. Our assessment of each matter may change based on future unknown or unexpected events. Subject to the foregoing, we believe we will prevail in each of the
material litigation actions described below. If any litigation were to have an adverse result that we did not expect, there could be a material impact on our results of operations or financial
position. We believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We
assume no obligation to update the status of pending litigation, except as may be required by applicable law, statute or regulation.

Certain
of our litigation relate to products or patents associated with our discontinued slot products operations. Legal expenses and settlement proceeds or payments associated with these matters, if
any, are included in the Discontinued Operations caption on our condensed consolidated statements of income.



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99

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100

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In
the ordinary course of conducting our business, we are, from time to time, involved in other litigation, administrative proceedings and regulatory government investigations. We believe that the
final

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disposition
of any of these or other matters will not have a material adverse effect on our financial position, results of operations or liquidity.

18. SUBSEQUENT EVENTS

Stargames.On November 15, 2005, in Sydney, Australia (which was November 14, 2005 in
the United States) we announced that through our wholly owned indirect Australian subsidiary, Shuffle Master Australasia Pty Ltd, we submitted formal takeover offer ("Offer") documents to the
Australian Securities and Investments Commission outlining our intent to acquire for cash all of the outstanding shares of Stargames, a public company traded on the Australian Stock Exchange, for
AU$1.55 (approximately US$1.14) per share. The transaction is subject to Stargames' shareholders' acceptance, regulatory approvals, and the satisfaction of certain other conditions. The purchase price
is approximately US$112,000. In addition, concurrently with the execution of the formal takeover Offer documents, we also signed two option agreements with CVC Limited and another subsidiary of CVC
Limited which, collectively, grant us an exclusive option to acquire 17.83% of Stargames' shares for AU$1.55, which are the subject of the Offer and which were then owned by the two CVC entities.

As
of December 20, 2005, we received all necessary legal and regulatory approvals. This includes all approvals required by gaming sector regulatory authorities in the Australian jurisdictions
of New South Wales, Victoria and South Australia.

On
January 9, 2006, in Sydney, we waived the remaining unsatisfied conditions to our Offer to acquire the Stargames shares. We have now received shareholder acceptances, including the CVC
shares, under the Offer representing in excess of 95% of Stargames shares. The closing date of our Offer occurred on January 30, 2006.

On
February 1, 2006, our 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. We will begin consolidating Stargames' operating results as of February 1, 2006, and have begun the compulsory acquisition process to obtain all remaining shares,
a process which we anticipate will take approximately 40 days. The shares purchase was funded by temporary bridge financing and we expect to secure permanent financing or an extension of the
bridge financing maturity date prior to the bridge loan's maturity.

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 most specifically for the Australian and
Asian gaming markets. The Rapid series of games, which we already distribute 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.

Deutsche Bank Loan.On January 25, 2006, we entered into a Credit Agreement with Deutsche Bank
AG Cayman Islands Branch, as a Lender, Deutsche Bank AG New York Branch, as Administrative Agent, and Deutsche Bank Securities Inc., as Sole Arranger and Book Manager (the "Credit Agreement"),
pursuant to which we obtained a bridge loan (the "Bridge Loan") in the amount of $115,000, in order to,

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among
other things, finance the acquisition of Stargames. The Bridge Loan will mature on April 24, 2006. The interest rate under the Credit Agreement is based on the sum of the relevant Base
Rate or Eurodollar Rate plus the Applicable Margin, as defined, each as in effect from time to time. The Bridge Loan is unsecured. The obligations under the Bridge Loan are guaranteed by each wholly-
owned domestic subsidiary of the Company that is not an immaterial subsidiary and each wholly-owned domestic subsidiary that is not an immaterial subsidiary of the Company established, created or
acquired after January 25, 2006, if any. The Credit Agreement contains customary affirmative and negative covenants for transactions of this nature.

Sona Mobile.In January 2006, we entered into a strategic alliance with Sona
Mobile, Inc. ("Sona") to license, develop, distribute and market "in casino" wireless handheld gaming content and delivery systems to casinos throughout the world. Under the terms of the
agreement, Sona will develop a Shuffle Master-branded wireless gaming platform for in-casino use that will feature handheld versions of our proprietary table game content as well as other
popular public-domain casino games. Our and Sona's ability to proceed with such "in-casino" wireless gaming is subject to approvals by the relevant regulatory and legislative authorities.

On
January 25, 2006, we completed a private equity investment and purchased approximately 2,300 shares of Sona Mobile Holdings Corp.'s common stock at the price of $1.30 per share for
approximately $3,000. This private equity investment is pursuant to a stock option agreement between Sona and the Company dated December 29, 2005. Additionally, as part of our investment in
Sona, we will receive one seat on the Sona Board of Directors.

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SHUFFLE MASTER, INC.        QUARTERLY FINANCIAL DATA        (Unaudited, in thousands except per share amounts)

|      |                                             | Quarter Ended              
|----- | ------------------------------------------- | ---------------------------
|
|2005: |                                             |                            
|      | Revenue                                     |                            
|      | Gross profit                                |                            
|      | Income from continuing operations           |                            
|      | Net income                                  |                            
|      | Earnings per share  continuing operations: |                            
|      |                                             | Earnings per share, basic  
|      |                                             | Earnings per share, diluted
|2004: |                                             |                            
|      | Revenue                                     |                            
|      | Gross profit                                |                            
|      | Income from continuing operations           |                            
|      | Net income                                  |                            
|      | Earnings per share  continuing operations: |                            
|      |                                             | Earnings per share, basic  
|      |                                             | Earnings per share, diluted

In
December 2003, our board of directors approved and we committed to a plan to divest our slot products operations and assets, based on our determination that this product line was no longer a
strategic fit with our refocused core business strategy of providing products and services for the table game area of casinos. Revenues and costs associated with our slot products are reported as
discontinued operations for all periods presented. In January 2004, we entered into agreements pursuant to which we sold substantially all of our slot products assets and substantially
completed our divestiture plans.

In
December 2004, our board of directors approved a three-for-two common stock split, with new shares distributed in the form of a dividend on January 14, 2005,
to shareholders of record on January 3, 2005. Additionally, our board of directors approved a three-for-two stock split, with new shares distributed in the form of a
dividend on April 16, 2004, to shareholders of record on April 5, 2004. Share and per share amounts have been adjusted to reflect these splits. See Note 12.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We
are required to maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange
Act of 1934 is recorded, processed, summarized, and reported within the time period specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As
required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and
operating effectiveness as of October 31, 2005 of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation our
Chief Executive Officer and Chief Financial Officer concluded that, because of the material weakness in our internal control over financial reporting described below, as of October 31, 2005 our
disclosure
controls and procedures were not effective. As a result, additional review, evaluation and oversight were required on the part of management to ensure we adequately compensated for the weakness in our
internal control over financial reporting.

Notwithstanding
management's assessment that our internal control over financial reporting was ineffective as of October 31, 2005 and the material weakness described below, we believe that the
consolidated financial statements included in this Annual Report on Form 10-K correctly present our financial condition, results of operations and cash flows for the fiscal years covered thereby in
all material respects.

Internal Control over Financial Reporting

Management's Report on Internal Control Over Financial Reporting

Internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management is responsible for
establishing and maintaining adequate internal control over our financial reporting.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, the application of any evaluation of effectiveness to future periods is
subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate.

We
have evaluated the effectiveness of our internal control over financial reporting as of October 31, 2005. This evaluation was performed using the internal control evaluation framework
developed by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on such evaluation, management identified deficiencies that were determined to be a material weakness.
Our evaluation of and conclusion on the effectiveness of internal control over financial reporting excludes

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certain
businesses acquired in fiscal year 2005. These businesses contributed approximately 0.1% of our total revenue and 0.5% of our total assets at October 31, 2005.

A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Because of the material weaknesses described below, management concluded that our internal control over financial reporting was not effective as of
October 31, 2005.

The
specific material weakness identified by management is described as follows:

Inadequate controls for non-routine transactions:We did not have appropriate internal
controls specific to the recognition of revenue related to the identification and communication of non-standard transactions. This included the lack of a comprehensive process to address
the sales, legal and financial functions', identification and communication, of such non-standard transactions. The controls in place were not adequate to identify and evaluate the
appropriate accounting treatment for revenue transactions with non-standard terms, including extended payment terms, future commitments and establishment of reasonable assurance of
collectibility that affected the timing and amount of revenue recognized. This deficiency of the design and operating effectiveness of internal control over financial reporting resulted in a material
weakness. Management's material weakness determination was based upon the likelihood and potential magnitude of a misstatement to the annual or interim financial statements being greater than
inconsequential and more than remote.

As
a result of the identification subsequent to fiscal year end of a material weakness in our internal controls for the year ended October 31, 2005, we performed additional analysis and
post-closing procedures in order to prepare the consolidated financial statements in accordance with generally accepted accounting principles in the United States of America. These
procedures were performed to test the propriety of revenue recognition and included the following:



Deloitte &
Touche LLP has issued an attestation report on management's assessment of our internal control over financial reporting. This report follows this Item 9A.

Changes in Internal Control Over Financial Reporting

There
have been no changes in our internal control over financial reporting that occurred during our fiscal quarter ended October 31, 2005, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

Remediation Plan

Subsequent
to October 31, 2005, we have undertaken, and will continue to undertake, extensive work to remedy the material weakness described above, including identifying specific remediation
initiatives. As of February 24, 2005, we have identified and begun to implement the following actions:



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The
implementation of these initiatives and additional procedures being developed is a priority for us in fiscal year 2006.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of
Shuffle Master, Inc.

We
have audited management's assessment, included in the accompanyingManagement's Report on Internal Control Over Financial Reporting, that Shuffle
Master, Inc. and Subsidiaries (the "Company") did not maintain effective internal control over financial reporting as of October 31, 2005, because of the effect of the material weakness
identified in management's assessment based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO"). As described in Management's Report on Internal Control Over Financial Reporting, management excluded from their assessment the internal
control over financial reporting of certain businesses acquired in fiscal 2005 whose financial statements reflect total assets and revenues constituting 0.5% and 0.1% percent, respectively, of the
related consolidated financial statement amounts as of and for the year ended October 31, 2005. Accordingly, our audit did not include the internal control over financial reporting for these
acquired businesses. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing
similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A
material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements

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will
not be prevented or detected. The following material weakness has been identified and included in management's assessment:



This
material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended
October 31, 2005 of the Company and this report does not affect our report on such consolidated financial statements.

In
our opinion, management's assessment that the Company did not maintain effective internal control over financial reporting as of October 31, 2005, is fairly stated, in all material respects,
based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained
effective internal control over financial reporting as of October 31, 2005, based on the criteria established inInternal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended
October 31, 2005 of the Company and our report dated February 21, 2006, expressed an unqualified opinion on those consolidated financial statements.

/s/ Deloitte & Touche LLP

Las
Vegas, Nevada
February 21, 2006

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ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

The
information under the captions "Executive Compensation," "Compensation of Directors," "Report of Compensation Committee on Executive Compensation," and "Stock Performance Graph" in our Fiscal 2005
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The
information under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in our Fiscal 2005 Proxy Statement is incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The
information under the caption "Certain Relationships and Related Party Transactions" in our Fiscal 2005 Proxy Statement is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information
regarding our principal accountant fees and services and the Audit Committee's approval policies and procedures appears in our Fiscal 2005 Proxy Statement under the captions "Independent
Auditor" and "Report of the Audit Committee" and is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

|(a) |  | 1. |  | Financial Statements                                                                                                                                                                
|--- |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |    |  | See index to consolidated financial statements included as Item 8 to this Annual Report.                                                                                            
|    |  | 2. |  | Financial Statement Schedules                                                                                                                                                       
|    |  |    |  | All financial statement schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
|    |  | 3. |  | Management Contracts, Compensatory Plans and Arrangements                                                                                                                           
|    |  |    |  | Management contracts, compensatory plans and arrangements are listed as exhibits 10.1 through 10.18 included in Item 15(b) of this Annual Report.                                   



|(b) |  | Exhibits |                                                                                                                                                                                                                                                                                                     
|--- |  | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 3.1      | Articles of Incorporation of Shuffle Master, Inc. as amended July 15, 1992 (Incorporated by reference to exhibit 3.2 in our Annual Report on Form 10-K for the year ended October 31, 1995).                                                                                                        
|    |  | 3.2      | Articles of Amendment to Articles of Incorporation of Shuffle Master, Inc., effective January 14, 2005 (incorporated by reference to exhibit 3.2 to our Annual Report on Form 10-K, filed January 13,
 2005).                                                                                       
|    |  | 3.3      | Articles of Correction of Articles of Amendment of Articles of Incorporation of Shuffle Master, Inc., effective March 15, 2005 (incorporated by reference to exhibit 3.1 to our Current Report on
Form 8-K, filed March 18, 2005).                                                                  
|    |  | 3.4      | Bylaws of Shuffle Master, Inc., as amended and restated (Incorporated by reference to exhibit 3.2 in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2002).                                                                                                                        
|    |  | 3.5      | Amendment to Shuffle Master's Corporate Bylaws, as adopted by our board of directors on January 11, 2005 (incorporated by reference to exhibit 3.4 to our Annual Report on Form 10-K filed January 13,
2005).                                                                                       
|    |  | 4.1      | Shareholder Rights Plan dated June 26, 1998 (Incorporated by reference to our Current Report on Form 8-K dated June 26, 1998).                                                                                                                                                                      
|    |  | 4.2      | Amendment No. 1 to Rights Agreement dated January 25, 2005 (Incorporated by reference to our Current Report on Form 8-K dated February 10, 2005).                                                                                                                                                   
|    |  | 4.3      | Registration Rights Agreement dated May 13, 2004, by and between Casinos Austria AG on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to exhibit 10.2 in our Quarterly
Report on Form 10-Q for the quarter ended April 30, 2004).                               
|    |  | 4.4      | Agreement and Guaranty dated May 12, 2004, by and between Casinos Austria AG and Cai Casinoinvest Middle East GMBH on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to
exhibit 10.3 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
|    |  | 4.5      | Purchase Agreement, dated April 15, 2004, among Shuffle Master, Inc. and Deutsche Bank Securities, Inc. relating to the 1.25% Contingent Convertible Senior Notes due 2024 (Incorporated by reference to
exhibit 10.4 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).   
|    |  |          |                                                                                                                                                                                                                                                                                                     

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| |  | 4.6   | Registration Rights Agreement dated April 21, 2004, among Shuffle Master, Inc. and Deutsche Bank Securities, Inc. and Goldman, Sachs & Co relating to the 1.25% Contingent Convertible Senior Notes
due 2024 (Incorporated by reference to exhibit 10.5 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).                                                                       
| |  | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 4.7   | Indenture, dated as of April 21, 2004, between Shuffle Master, Inc. and Wells Fargo Bank, N. A. relating to the 1.25% Contingent Convertible Senior Notes due 2024 (Incorporated by reference to exhibit 10.6
in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).                                                                                                                 
| |  | 10.1  | Shuffle Master, Inc. 2002 Stock Option Plan (Incorporated by reference to Exhibit B in our Proxy Statement dated February 11, 2002).                                                                                                                                                                                                                                                                      
| |  | 10.2  | Amendment to the Shuffle Master, Inc. 2002 Stock Option Plan (Incorporated by reference to exhibit 10.33 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2002).                                                                                                                                                                                                                      
| |  | 10.3  | Shuffle Master, Inc. Restated Outside Directors' Option Plan dated January 24, 2002 (Incorporated by reference to Exhibit 10.32 in our Annual Report on Form 10-K for the year ended October 31,
2001).                                                                                                                                                                                                   
| |  | 10.4  | Shuffle Master, Inc. 2004 Equity Incentive Plan (Incorporated by reference to our Proxy Statement dated February 23, 2004).                                                                                                                                                                                                                                                                               
| |  | 10.5  | Shuffle Master, Inc. 2004 Equity Incentive Plan for Non-Employee Directors (Incorporated by reference to our Proxy Statement dated February 23, 2004).                                                                                                                                                                                                                                                    
| |  | 10.6  | Employment Agreement, by and between Shuffle Master, Inc. and Mark Yoseloff, dated February 23, 2004 (Incorporated by reference to exhibit 10.1 in our Quarterly Report on Form 10-Q for the quarter
ended January 31, 2004).                                                                                                                                                                             
| |  | 10.7  | Covenant Not to Compete by and between Shuffle Master, Inc. and Mark L. Yoseloff, dated February 23, 2004 (Incorporated by reference to exhibit 10.2 in our Quarterly Report on Form 10-Q for the quarter
ended January 31, 2004).                                                                                                                                                                        
| |  | 10.8  | Employment Agreement, by and between Shuffle Master, Inc. and Brooke Dunn, dated January 9, 2006.                                                                                                                                                                                                                                                                                                         
| |  | 10.9  | Employment Agreement, by and between Shuffle Master, Inc. and Richard L. Baldwin, dated September 20, 2004 (Incorporated by reference to exhibit 10.1 in our Current Report on Form 8-K dated
September 20, 2004).                                                                                                                                                                                        
| |  | 10.10 | Employment Agreement by and between Shuffle Master, Inc. and Paul Meyer dated October 31, 2005 (Incorporated by reference to exhibit 10.1 in our Current Report on Form 8-K filed on November 4,
2005).                                                                                                                                                                                                   
| |  | 10.11 | Patent Purchase Agreement by and between International Game Technology and Shuffle Master, Inc. dated June 13, 2005 (request for confidential treatment filed with SEC) (Incorporated by reference to
exhibit 10.1 of our Quarterly Report on Form 10-K, filed September 9, 2005).                                                                                                                        
| |  | 10.12 | Product Development and Integration Agreement by and among Shuffle Master, Inc., Progressive Gaming International Corporation and International Game Technology dated June 13, 2005 (request for confidential
treatment filed with SEC) (Incorporated by reference to exhibit 10.2 of our Quarterly Report filed September 6, 2006 (confidential Treatment requested under 17 C. F. R. Section 240.24b-2).
| |  | 10.13 | Distributorship Agreement by and between Machines Games Automatics, S.A. and Shuffle Master GMBH & CO KG dated May 17, 2005 (request for confidential treatment filed with SEC) (filed as exhibit 10.1 to
our Current Report on Form 8-K filed September 16, 2005)                                                                                                                                        
| |  | 10.14 | Call Option Deed by and between Shuffle Master, Inc. and CVC Limited dated November 15, 2005 (Incorporated by reference to exhibit 10.1 of our Current Report on Form 8-K filed November 15,
2005).                                                                                                                                                                                                       
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                           

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| |  | 10.15 | Call Option Deed by and between Shuffle Master, Inc. and CVC Communication and Technology Pty Ltd. dated November 15, 2005 (Incorporated by reference to exhibit 10.2 of our Current Report on
Form 8-K filed November 15, 2005).                                                      
| |  | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.16 | Pre-Bid Agreement between Shuffle Master, Inc. and Stargames Corporation Pty Limited dated November 15, 2005 (Incorporated by reference to exhibit 10.3 of our Current Report on Form 8-K filed
November 15, 2005).                                                                    
| |  | 10.17 | Shuffle Master Australasia Pty Ltd's Bidder Statement, along with Stargames' Target Statement, each dated November 15, 2005 (Incorporated by reference to exhibit 10.4 of our Current Report on Form 8-K
filed November 15, 2005).                                                     
| |  | 10.18 | Credit Agreement, dated January 25, 2006, among Shuffle Master, Inc., Deutsche Bank AG Cayman Islands Branch, Deutsche Bank AG New York Branch and Deutsche Bank Securities, Inc. (Incorporated by reference
to exhibit 10.1 of our Current Report on Form 8-K filed January 27, 2006).
| |  | 21    | Subsidiaries of Registrant                                                                                                                                                                                                                                                             
| |  | 23    | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                               
| |  | 31.1  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    
| |  | 31.2  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    
| |  | 32.1* | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    
| |  | 32.2* | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    

---

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) 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.
|------------------------------- |  | --------------------
|Dated:        February 27, 2006 |  | By:                 

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:

|Signature                               |  | Title                                                                               |  | Date             
|--------------------------------------- |  | ----------------------------------------------------------------------------------- |  | -----------------
|                                        |  |                                                                                     |  |                  
|/s/MARK L. YOSELOFFMark L. Yoseloff     |  | Chairman and Chief Executive Officer (Principal Executive Officer)                  |  | February 27, 2006
|/s/PAUL C. MEYERPaul Meyer              |  | President and Chief Operating Officer                                               |  | February 27, 2006
|/s/RICHARD L. BALDWINRichard L. Baldwin |  | Chief Financial Officer and Chief Accounting Officer
(Principal Accounting Officer) |  | February 27, 2006
|/s/LOUIS CASTLELouis Castle             |  | Director                                                                            |  | February 27, 2006
|/s/KEN ROBSONKenneth J. Robson          |  | Director                                                                            |  | February 27, 2006
|/s/GARRY W. SAUNDERSGarry W. Saunders   |  | Director                                                                            |  | February 27, 2006

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