		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

	October 31,
	Increase (Decrease)		Percentage Change
	2005		2004
Cash, cash equivalents, and investments	$	34,088		$	47,038	$	(12,950	)	(27.5%	)
Working capital	$	57,634		$	65,671	$	(8,037	)	(12.2%	)
Current ratio		4.4			6.2		(1.8	)	(29.0%	)

		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

	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

Exhibit 10.8

EMPLOYMENT AGREEMENT

[Brooke Dunn]

THIS AGREEMENT is made and entered into as of the 9th day of January 2006, by and between Shuffle Master, Inc., a Minnesota corporation (the “Company”), and Brooke Dunn (the “Employee”), a resident of the State of Nevada.

RECITALS:

A. The Company is in the business of developing, manufacturing, distributing and otherwise commercializing card shufflers, table games (both live and electronic) and related gaming equipment and technology systems throughout the world (the “Business”).

B. Company and Employee want to create an at-will employment relationship that protects the Company with appropriate confidentiality and non-compete covenants, and compensates and rewards the Employee for performing his obligations for the full term of this contract or such shorter term, as may be determined in accordance with the terms and conditions of this Agreement.

C. The Company and Employee desire that Employee be employed by the Company on the terms and conditions of this Agreement.

AGREEMENT

In consideration of the mutual promises contained herein, Employee and the Company agree as follows:

1. Employment. The Company hereby employs Employee as its Senior Vice President reporting to the Chief Executive Officer of the Company. Employee shall perform the duties of that position as assigned by the CEO. Subject to the other terms and conditions hereof, Employee’s employment under this Agreement with the Company is for a term of two years (the “Term”), beginning November 1, 2005 (the “Commencement Date”) through October 31, 2007.

2. Salary, Bonus and Benefits.

a. From the Commencement Date and if employed through October 31, 2006, Employee shall be paid an annual base salary of two hundred ten thousand dollars ($210,000) and thereafter, an amount as determined by the Company, but in no event less than $210,000 per year, paid in the same intervals as other employees of the Company; and if employed through October 31, 2006, Employee will also be eligible to receive an executive bonus in accordance with the terms and conditions of the executive bonus program authorized by the Board of Directors of the Company (the “Board”) for other senior management executives of the Company for fiscal year 2006, in a range of percentages, but with a target bonus of 50% of Employee’s base salary.

b. For any subsequent year after the first year of this Agreement, Employee will receive an annual base salary of no less than his annual base salary for the immediately prior year of this Agreement, and will also be eligible to participate in an executive bonus program and/or in an individual performance bonus program as authorized by the Board for said period.

c. Any future stock option or other equity grants, if any, will be at the sole discretion of the Board.

d. Any stock options or other equity grants issued at any time to Employee shall vest in accordance with the terms and conditions set forth in the applicable grant by the Board and, as otherwise may be applicable, with any relevant terms and conditions of Shuffle Master, Inc.’s 2004 Equity Incentive Plan (the “Plan”) or any subsequent plan.

e. The Company agrees to provide Employee with the same benefits it provides all of the other members of its senior management executive team. Employee will not, however, be eligible to participate in the Company’s non-executive bonus program.

f. Employee’s salary is set in the expectation that Employee’s full professional time will be devoted to Employee’s duties hereunder.

g. During Employee’s employment with the Company, the Company will promptly pay or reimburse Employee for reasonable travel and other expenses incurred by Employee in the furtherance of or in connection with the performance of Employee’s duties. Such reimbursement will be in accordance with Company policies in existence from time to time.

h. During the Term, and provided Employee remains employed on a full-time basis with the Company, Employee shall receive a car allowance in the amount of $700.00 per month.

3. Outside Services or Consulting. Employee shall devote Employee’s full professional time and best professional efforts to the Company. Employee may render other professional or consulting services to other persons or businesses from time to time during the Term, only if Employee meets all of the following requirements:

a. The services do not interfere in any manner with the Employee’s ability to fulfill all of his duties and obligations to the Company.

b. The services are not rendered to any business which may compete with the Company in any area of the Business or do not otherwise violate paragraph 4 hereof.

c. The services do not relate to any products or services, which form part of the Business.

d. Employee informs and obtains the prior consent of the Chief Executive Officer of the Company.

4. Non-competition. In consideration of the provisions of this Agreement, Employee hereby agrees that he shall not, during the term of his full-time employment and for a period of twenty-four (24) months thereafter:

a. Directly or indirectly own, manage, operate, participate in, consult with or work for any business, which is engaged in the Business anywhere in the United States or Canada. Notwithstanding the foregoing, it is understood and agreed that Employee may hold up to one percent (1%) of the shares of any publicly traded company.

b. Either alone or in conjunction with any other person, partnership or business, directly or indirectly, solicit, hire, or divert or attempt to solicit, hire or divert any of the Employees, independent contractors, or agents of the Company (or its affiliates or successors) to work for or represent any competitor of the Company (or its affiliates or successors), or to call upon, on behalf of a competitor of or to the Business, any of the customers of the Company (or its affiliates or successors).

c. Directly or indirectly provide any services to any person, company or entity, which is engaged in the Business anywhere in the United States or Canada.

5. Confidentiality; Inventions.

a. Employee shall fully and promptly disclose to the Company all inventions, discoveries, software and writings that Employee may make, conceive, discover, develop or reduce to practice either solely or jointly with others during Employee’s employment with the Company, whether or not during usual work hours. Employee agrees that all such inventions, discoveries, software and writing shall be and remain the sole and exclusive property of the Company, and Employee hereby agrees to assign, and hereby assigns all of Employee’s right, title and interest in and to any such inventions, discoveries, software and writings to the Company. Employee agrees to keep complete records of such inventions, discoveries, software and writings, which records shall be and remain the sole property of the Company, and to execute and deliver, either during or after Employee’s employment with the Company, such documents as the Company shall deem necessary or desirable to obtain such letters patent, utility models, inventor’s certificates, copyrights, trademarks or other appropriate legal rights of the United States and foreign countries as the Company may, in its sole discretion, elect, and to vest title thereto in the Company, its successors, assigns, or nominees.

b. “Inventions,” as used herein, shall include inventions, discoveries, improvements, ideas and conceptions, developments and designs, whether or not patentable, tested, reduced to practice, subject to copyright or other rights or forms of protection, or relating to data processing, communications, computer software systems, programs and procedures.

c. Employee understands that all copyrightable work that Employee may create while employed by the Company is a “work made for hire,” and that the Company is the owner of the copyright therein. Employee hereby assigns all right, title and interest to the copyright therein to the Company.

d. Employee has no inventions, improvements, discoveries, software or writings useful to the Company or its subsidiaries or affiliates in the normal course of business, which were conceived, made or written prior to the date of this Agreement.

e. Employee will not publish or otherwise disclose, either during or after Employee’s employment with the Company, any published or proprietary or confidential information or secret relating to the Company, the Business, the Company’s operations or the Company’s products or services. Employee will not publish or otherwise disclose proprietary or confidential information of others to which Employee has had access or obtained knowledge in the course of Employee’s employment with the Company. Upon termination of Employee’s employment with the Company, Employee will not, without the prior written consent of the Company, retain or take with Employee any drawing, writing or other record in any form or nature which relates to any of the foregoing. Notwithstanding the foregoing, Employee shall have the right, as reasonably necessary, to retain copies of this Agreement, any employee stock option and restricted stock agreements, and any other documents, information or materials related to Employee’s compensation or benefits from the Company, in order to confidentially review such items with Employee’s professional advisors or immediate family members. In addition, and subject to the provisions of paragraph 24 hereof, nothing in this paragraph 5(e) or in paragraph 5(f) below shall be construed to prevent or preclude Employee from responding to legal process or testifying truthfully.

f. Employee understands that Employee’s employment with the Company creates a relationship of trust and confidence between Employee and the Company. Employee understands that Employee may encounter information in the performance of Employee’s duties that is confidential to the Company or its customers. For the Term hereof, and until the information falls into the public domain, Employee agrees to maintain in confidence all information pertaining to the Business or the Company to which Employee has access including, but not limited to, information relating to the Company’s products, inventions, trade secrets, know how, systems, formulas, processes, compositions, customer information and lists, research projects, data processing and computer software techniques, programs and systems, costs, sales volume or strategy, pricing, profitability, plans, marketing strategy, expansion or acquisition or divestiture plans or strategy and information of similar nature received from others with whom the Company does business. Employee agrees not to use, communicate or disclose or authorize any other person to use, communicate or disclose such information orally, in writing, or by publication, either during Employee’s employment with the Company or thereafter except as expressly authorized in writing by the Company unless and until such information becomes generally known in the relevant trade to which it relates without fault on Employee’s part, or as required by law. Subject to the foregoing, Employee shall have the rights set forth in the final two grammatical sentences of paragraph 5(e) above.

6. Termination or Non-Extension by Company Without Just Cause

a. Employee’s employment by the Company is “at will;” therefore, subject to the terms and conditions hereof, the Company may terminate Employee’s full-time employment at any time either with or without just cause. In the event of any termination of Employee’s

full-time employment with the Company without just cause, or in the event that Employee’s full-time employment is not extended or renewed beyond the Term on terms at least as favorable to Employee as Employee is receiving during the last year of the Term, then Employee will remain bound to the covenants not to compete and confidentiality obligations of paragraphs 4 and 5 of this Agreement, according to their terms, and each one of the following shall apply:

i. Employee shall be paid an amount equal to twelve (12) months of his then monthly base salary paid over a period of twenty-four (24) months from Employee’s termination in equal monthly installments and at the same intervals as other Employees of the Company are then being paid their base salaries;

ii. Employee shall continue to receive, during the twenty-four (24) months from Employee’s termination, all medical insurance and any other benefits or insurance coverages which Employee would have received had his employment not been so terminated, or not extended, provided however, if the Employee is not eligible for said medical insurance, the Company shall pay the COBRA premiums for continuation coverage during the said twenty-four (24) month period. (For the avoidance of doubt, the Company and Employee agree that it is the intent of this language and of this paragraph 6(a), and that this language means, that Employee will continue to vest in previous stock option and restricted stock awards during said 24-month period after Employee’s termination);

iii. Employee shall receive, during the twenty-four (24) months from Employee’s termination, additional compensation for his covenant not to compete equal to the average annual bonus which Employee has received for the three most recent fiscal years during which Employee was employed, provided however that if Employee has not been employed for three full fiscal years, then the Company shall use the actual number of full fiscal years that the Employee was employed. The amount due under this paragraph 6(a)(iii) shall be paid in the same intervals as other Employees of the Company are then being paid their base salaries;

iv. Notwithstanding anything else contained herein to the contrary, during the twenty-four (24) month period referred to in this paragraph 6, Employee shall remain a part-time employee of the Company’s and, subject to Employee’s other professional duties, shall be available, by telephone or email, to the Chief Executive Officer of the Company.

b. For purposes hereof, any of the following acts or events shall, at Employee’s option, constitute a termination without just cause under this paragraph 6 (but the following is not the entire list of reasons or event which may constitute a “termination with just cause”):

i. any material diminution or reduction of Employee’s title, position, duties or responsibilities, except as caused by the acts or omissions of Employee; or

ii. any material breach by Company of this Agreement that is not cured within thirty (30) days after written notice by Employee of such breach.

c. In the event that, at the end of the Term, the Company elects not to extend or renew Employee’s full-time employment beyond the Term on terms at least as favorably to Employee as Employee is receiving during the last fiscal year of the Term, then such non-renewal shall be treated as a termination without cause. In such case, the provisions of paragraphs 6(a)(i) through (iv) shall apply and Employee shall be bound to the provisions of paragraphs 4 and 5 hereof for the period of time during which Employee is being paid pursuant to paragraph 6(a).

7. Early Termination by Company for Just Cause. The Company may terminate Employee for just cause. In the event that the Company terminates the Employee for just cause, the Employee will remain bound under the provisions of paragraphs 4 and 5, but will not be entitled to any compensation or benefits following his termination of employment under this Agreement, other than any accrued but unpaid salary or other benefits required by applicable law. Termination for “just cause” shall mean:

a. dishonesty as to a matter which is materially injurious to the Company;

b. the commission of a willful act or omission intended to materially injure the business of the Company;

c. a violation of any of the material provisions of Sections 4 and/or 5 hereof; or

d. a determination in good faith by the Board that the Employee has failed to make a good faith effort to fully perform his duties as assigned by either the CEO or the Board, which failure is not remedied by the Employee within thirty (30) days following the CEO’s specific written notice stating such alleged failure from the Board;

8. Voluntary Termination by Employee.

a. In the event Employee voluntarily terminates his employment with the Company, Employee will remain bound under the provisions of paragraphs 4 and 5 hereof, but will not be entitled to receive any compensation and benefits following his termination of employment except for any accrued but unpaid salary or other benefits required by law.

b. Voluntary termination means an intentional termination by the Employee without good reason and without pressure by the Company; and further, provided that there was not a material breach of this Agreement by the Company, prior to any such termination which remains uncured.

9. Cooperation with Change in Control. Employee will reasonably cooperate with the Company in the event of a change in control.

10. No Conflicting Agreements. Employee has the right to enter into this Agreement, and hereby confirms Employee has no contractual or other impediments to the performance of Employee’s obligations including, without limitation, any non-competition or similar agreement in favor of any other person or entity.

11. Company Policies. During the term of Employee’s employment, Employee shall engage in no activity or employment which may conflict with the interest of the Company, and Employee shall comply with all policies and procedures of the Company including, without limitation, all policies and procedures pertaining to ethics.

12. Independent Covenants. The covenants and agreements on the part of the Employee contained in paragraphs 4 and 5 hereof shall be construed as agreements independent of any other provision in this Agreement; thus, it is agreed that the relief for any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall be measured in damages and shall not constitute a defense or bar to enforcement by the Company of those covenants and agreements.

13. Injunctive Relief. In recognition of the irreparable harm that a violation by Employee of any of the covenants contained in either paragraphs 4 or 5 hereof would cause the Company, the Employee agrees that, in addition to any other relief afforded by law, an injunction (both temporary and permanent) against such violation or violations may be issued against him or her and every other person and entity concerned thereby, it being the understanding of the parties that both damages and an injunction shall be proper modes of relief and are not to be considered alternative remedies; provided, however, that the issue and amount, if any, of damages shall be litigated through arbitration as required by paragraph 20 below. Employee consents to the issuance of such injunctive relief without the posting of a bond or other security. In the event any such alleged violation, THE LOSING PARTY AGREES TO PAY THE COSTS, EXPENSES AND REASONABLE ATTORNEYS’ FEES INCURRED BY THE PREVAILING PARTY IN PURSUING OR DEFENDING ANY OF ITS RIGHTS WITH RESPECT TO SUCH ALLEGED VIOLATIONS, IN ADDITION TO THE ACTUAL DAMAGES SUSTAINED BY THE PREVAILING PARTY AS A RESULT THEREOF.

14. Notice. Any notice sent by registered mail to the last known address of the party to whom such notice is to be given shall satisfy the requirements of notice in this Agreement.

15. Entire Agreement. This Agreement is the entire agreement of the parties hereto concerning the subject matter hereof and supersedes and replaces in its entirety any oral or written existing agreements or understandings between the Company and the Employee relating generally to the same subject matter. Company and Employee hereby acknowledge that there are no agreements, promises, representations or understandings of any nature, oral or written, regarding Employee’s employment, apart from this Agreement, and Employee acknowledges that no promises, representations or agreements not contained in this Agreement have been made or offered by the Company. This Agreement supersedes the employment agreement between the Company and the Employee, dated as of February 1, 2003.

16. Severability. It is agreed and understood by the parties hereto that if any provision of this Agreement should be determined by an arbitrator or court to be unenforceable in whole or in part, it shall be deemed modified to the minimum extent necessary to make it reasonable and enforceable under the circumstances, and the court shall be authorized by the parties to reform this Agreement in the least way necessary in order to make it reasonable and enforceable.

17. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Nevada, without giving effect to the principles of conflicts of laws thereof.

18. Heirs, Successors and Assigns. The terms, conditions, obligations, agreements and covenants hereof shall extend to, be binding upon, and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, assigns, and/or acquirers, including any entity which acquires, merges with, or obtain control of the Company.

19. Waiver of Breach. The waiver by either the Company or the Employee of any breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent breach by either the Company or the Employee.

20. Dispute Resolution. Except for the Company’s right (either pursuant to paragraph 13 hereof or otherwise) to injunctive relief to enforce the provisions of paragraphs 4 and 5 hereof, the exclusive forum for the resolution of any dispute arising under this Agreement or any question of interpretation regarding the provisions of this Agreement (other than disputes relative to paragraphs 4 or 5 hereof) shall be resolved by arbitration, to be held in Clark County, Nevada, in accordance with the rules of the American Arbitration Association (“AAA”). Such arbitration shall be before an arbitrator, chosen in accordance with the rules then in effect of the AAA. In the event the Employee and Company fails within a reasonable period of time to agree on an arbitrator, the arbitrator shall be chosen by the AAA. The decision of the arbitrator shall be final, conclusive and binding upon the Company and Employee.

21. Amendment. This Agreement may be amended only by a document in writing signed by both the Employee and a Corporate Officer (other than Employee) of the Company, and no course of dealing or conduct of the Company shall constitute a waiver of any of the provisions of this Agreement.

22. Fees and Costs. In any action bought by one party against the other pursuant to this Agreement or in the event of any dispute over the meaning of this Agreement, the successful party, in addition to recovering its awarded damages and other relief, shall be entitled to recover its attorney’s fees and costs from the unsuccessful party.

23. D & O Policy. During Employee’s employment with the Company, the Company shall maintain director and officer liability insurance which shall cover, among others, Employee, and in connection therewith, Employee shall be entitled to any applicable indemnification and defense cost provisions, if any, as provided for in the Company’s By-Laws or under any applicable director and officer liability insurance policy.

24. Non-Disparagement and Cooperation.

a. During any period of time wherein the Company is paying any base salary to Employee, whether during the Term hereof or during any time after the termination or expiration of this Agreement, and for a period of three (3) years thereafter, Employee shall not disparage or otherwise make any negative comments about the Company, its policies, products, Employees or management. The Company may enforce these non-disparagement provisions by resort to injunctive relief as set forth in paragraph 13, in addition to any other damages that it may be entitled to under this Agreement or otherwise at law. Notwithstanding the foregoing, nothing in this paragraph 24(a) shall preclude Employee from fully pursuing any legitimate claims he may have or from testifying truthfully in an arbitration or other legal proceeding.

b. Employee agrees to fully cooperate with the Company and its affiliates during the entire scope and duration of any litigation or administrative proceedings involving any matters with which Employee was involved during Employee’s employment with the Company. Such cooperation shall be subject to the reasonable demands of any subsequent employment undertaken by Employee, and Company shall cover any reasonable out-of-pocket expenses of Employee in so cooperating, excluding, any attorney’s fees incurred by Employee, unless said attorney’s fees are expressly authorized, permitted, or required under paragraph 23 hereof.

c. In the event Employee is contacted by parties or their legal counsel involved in litigation adverse to the Company or its affiliates, Employee (i) agrees to provide notice of such contact as soon as practicable; and (ii) acknowledges that any communication with or in the presence of legal counsel for the Company (including without limitation the Company’s outside legal counsel, the Company’s inside legal counsel, and legal counsel of each related or affiliated entity of the Company) shall be privileged to the extent recognized by law and, further, will not do anything to waive such privilege unless and until a court of competent jurisdiction decides that the communication is not privileged. In the event the existence or scope of the privileged communication is subject to legal challenge, then the Company must either waive the privilege or pursue litigation to protect the privilege at the Company’s sole expense.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month and year first above written.

EMPLOYER:		EMPLOYEE:

SHUFFLE MASTER, INC.		BROOKE DUNN

By:	/s/ Mark L. Yoseloff	By:	/s/ Brooke Dunn

Its:	CEO

(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

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)

		Percentage of Total Revenue
Product Line		Percentage of Total Revenue
Product Line		2005	2004	2003
Utility Products:
	Shufflers	55.6%	52.9%	56.4%
	Chippers	2.6%	*	*
	Intelligent Table System and Bloodhound	*	*	*
Entertainment Products:
	Proprietary Table Games	35.4%	44.4%	42.2%
	Table Master	4.3%	1.2%	*
	Rapid Roulette	1.0%	*	*
Other revenue		*	*	*

		100.0%	100.0%	100.0%

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.

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.

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.

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.

		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.

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.

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.

	2005				2004
	High		Low		High		Low
First Quarter	$	32.26	$	26.47	$	16.83	$	13.02
Second Quarter		33.77		23.78		24.41		15.05
Third Quarter		30.00		25.32		26.37		20.72
Fourth Quarter		29.21		22.77		28.11		19.47

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	$	17,808
Sep 1 – Sep 30	370	$	24.26	370	$	8,831
Oct 1 – Oct 31	—	$	—	—	$	8,831

Total	715	$	24.93	715

								Percentage Change
		Year Ended October 31,						Percentage Change
		Year Ended October 31,						05 vs. 04	04 vs. 03
		2005		2004		2003		05 vs. 04	04 vs. 03
Selling, general and administrative		$	30,559	$	22,953	$	15,788	33.1%	45.4%
	Percentage of revenue		27.0%		27.1%		27.1%
Research and development		$	7,784	$	6,185	$	4,183	25.9%	47.9%
	Percentage of revenue		6.9%		7.3%		7.2%
Total operating expenses		$	38,343	$	29,138	$	19,971	31.6%	45.9%
	Percentage of revenue		33.9%		34.4%		34.2%

	2005			2004			2003
Interest income	$	2,336		$	888		$	303
Interest expense		(3,263	)		(1,497	)		(11	)
Foreign currency gain (loss)		215			(992	)		(18	)
Impairment write-down of cost method equity investment		(1,000	)		—			—
Other		55			1			(18	)

	$	(1,657	)	$	(1,600	)	$	256

	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%

		Year Ended October 31,
		2005			2004			2003			2002			2001
		(In thousands, except per share, ratios, and unit amounts)
Operating Results:
Total revenue		$	112,860		$	84,783		$	58,351		$	48,677		$	43,249
Cost of revenue			29,260			19,403			11,599			11,092			10,748

Gross margin			83,600			65,380			46,752			37,585			32,501
Selling, general and administrative			30,559			22,953			15,788			12,890			11,873
Research and development			7,784			6,185			4,183			2,667			2,162

Income from operations			45,257			36,242			26,781			22,028			18,466
Other (expense) income			(1,657	)		(1,600	)		256			650			707

Income from continuing operations before tax			43,600			34,642			27,037			22,678			19,173
Provision for income taxes			14,496			12,125			9,458			7,937			6,711

Income from continuing operations		$	29,104		$	22,517		$	17,579		$	14,741		$	12,462

Earnings per share — continuing operations:
	Basic	$	0.83		$	0.63		$	0.47		$	0.37		$	0.32
	Diluted	$	0.80		$	0.60		$	0.45		$	0.36		$	0.30
Weighted average shares, basic			34,924			35,955			37,626			39,821			38,757
Weighted average shares, diluted			36,378			37,308			38,661			41,211			41,666
Dividends declared		$	—		$	—		$	—		$	—		$	—
Balance Sheet as of October 31:
Cash, cash equivalents, and investments		$	34,088		$	47,038		$	10,425		$	19,422		$	18,703
Working capital		$	57,634		$	65,671		$	25,809		$	31,775		$	19,290
Total assets		$	193,117		$	185,292		$	59,418		$	60,603		$	52,399
Long-term obligations		$	162,659		$	157,648		$	250		$	1,518		$	—
Shareholders' equity		$	13,400		$	14,729		$	47,723		$	50,267		$	40,566
Common shares outstanding			34,527			34,958			37,072			38,871			39,620
Current ratio			4.4			6.2			3.3			4.6			2.6
Book value per share as of October 31		$	0.39		$	0.42		$	1.29		$	1.29		$	1.02
Cash Flow Data:
Cash provided by operating activities		$	34,508		$	26,587		$	20,630		$	18,957		$	18,391
Cash (used) provided by investing activities		$	(6,526	)	$	(56,540	)	$	754		$	(6,006	)	$	(18,407	)
Cash (used) provided by financing activities		$	(35,025	)	$	47,859		$	(22,314	)	$	(12,429	)	$	288
Depreciation and amortization		$	12,179		$	8,042		$	8,126		$	7,406		$	5,816
Capital expenditures		$	(18,969	)	$	(7,143	)	$	(5,584	)	$	(5,976	)	$	(2,818	)
Installed Unit Base by Product:

			Year Ended October 31,
			2005		2004		2003
Revenue
	Utility products		$67,029	59.4%	$45,947	54.2%	$33,092	56.7%
	Entertainment products		45,539	40.3%	38,705	45.7%	25,151	43.1%
	Other		292	0.3%	131	0.1%	108	0.2%

		Total revenue	112,860	100.0%	84,783	100.0%	58,351	100.0%
Cost of revenue			29,260	25.9%	19,403	22.9%	11,599	19.9%

Gross margin			83,600	74.1%	65,380	77.1%	46,752	80.1%
Selling, general and administrative			30,559	27.0%	22,953	27.1%	15,788	27.1%
Research and development			7,784	6.9%	6,185	7.3%	4,183	7.2%

Income from operations			45,257	40.2%	36,242	42.7%	26,781	45.8%
Other income (expense), net			(1,657)	(1.5%)	(1,600)	(1.9%)	256	0.4%

Income from continuing operations before tax			43,600	38.7%	34,642	40.8%	27,037	46.2%
Provision for income taxes			14,496	12.8%	12,125	14.3%	9,458	16.2%

Income from continuing operations			29,104	25.9%	22,517	26.5%	17,579	30.0%
Discontinued operations, net of tax			76	0.1%	1,627	1.9%	(645)	(1.1%)

Net income			$29,180	26.0%	$24,144	28.4%	$16,934	28.9%

			Year Ended October 31,						Percentage Change
			2005		2004		2003		05 vs. 04	04 vs. 03
Revenue:
	Leases and royalties		$	48,571	$	43,115	$	38,627	12.7%	11.6%
	Sales and service			63,997		41,537		19,616	54.1%	111.8%
	Other			292		131		108	122.9%	21.3%

		Total	$	112,860	$	84,783	$	58,351	33.1%	45.3%

Cost of revenue:
	Leases and royalties		$	9,692	$	8,206	$	6,539	18.1%	25.5%
	Sales and service			19,568		11,197		5,060	74.8%	121.3%

		Total	$	29,260	$	19,403	$	11,599	50.8%	67.3%

Gross margin:
	Leases and royalties		$	38,879	$	34,909	$	32,088	11.4%	8.8%
	Sales and service			44,429		30,340		14,556	46.4%	108.4%
	Other			292		131		108	122.9%	21.3%

		Total	$	83,600	$	65,380	$	46,752	27.9%	39.8%

Gross margin percentage:
	Leases and royalties			80.0%		81.0%		83.1%
	Sales and service			69.4%		73.0%		74.2%
		Total		74.1%		77.1%		80.1%

		Year Ended October 31,
		2005			2004			2003
Income from continuing operations		$	29,104		$	22,517		$	17,579
Basic earnings per share, continuing operations		$	0.83		$	0.63		$	0.47
Diluted earnings per share, continuing operations		$	0.80		$	0.60		$	0.45
Weighted average shares data:
	Basic		34,924			35,955			37,626
	Dilutive impact of stock options and restricted stock		1,343			1,353			1,035
	Dilutive effect of contingent convertible notes		111			—			—

	Diluted		36,378			37,308			38,661

Outstanding shares data:
	Shares outstanding, beginning of year		34,958			37,072			38,871
	Options exercised		851			1,445			933
	Shares repurchased		(1,473	)		(4,797	)		(2,732	)
	CARD acquisition		—			1,151			—
	Other		191			87			—

	Shares outstanding, end of year		34,527			34,958			37,072

	2005			2004			2003
Revenues	$	217		$	2,279		$	9,076

Gain (loss) from operations before tax	$	110		$	79		$	(1,380	)
Income tax (expense) benefit		(37	)		(27	)		735

Net income (loss) from operations		73			52			(645	)

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		$	(645	)

	Contract Terminations			Facility Closure			Severance			Other			Total
Exit Costs accrued, initial balance	$	366		$	324		$	187		$	409		$	1,286
Adjustment to accrued Exit Costs		(152	)		(70	)		(24	)		(50	)		(296	)
Cash payments		(114	)		(254	)		(163	)		—			(531	)

Balance, October 31, 2005	$	100		$	—		$	—		$	359		$	459

				Payments Due by Year Ending October 31,
		Total		2006		2007- 2008		2009- 2010		Thereafter
Long-term obligations:
	Contingent convertible notes	$	150,000	$	—	$	—	$	150,000	$	—
	Interest on convertible notes		9,375		1,875		3,750		3,750		—
	VIP note payable		318		64		127		127		—
	ENPAT note payable, including imputed interest		9,000		3,000		6,000		—		—
Purchase commitments			6,254		6,254		—		—		—
SPUR consulting fees			125		25		50		50		—
Operating leases			4,379		1,273		1,674		919		513

Total		$	179,451	$	12,491	$	11,601	$	154,846	$	513

			October 31,
			2005			2004
ASSETS
Current assets:
	Cash and cash equivalents		$	13,279		$	20,580
	Investments			20,809			26,458
	Accounts receivable, net of allowance for bad debts of $283 and $740			17,865			11,205
	Investment in sales-type leases and notes receivable, net			8,219			4,739
	Inventories, net			9,428			5,853
	Prepaid income taxes			—			6,373
	Deferred income taxes			1,837			2,195
	Other current assets			3,255			851

		Total current assets		74,692			78,254
Investment in sales-type leases and notes receivable, net				11,136			7,068
Products leased and held for lease, net				9,163			5,461
Property and equipment, net				4,144			3,507
Intangible assets, net				48,477			47,812
Goodwill				36,017			37,556
Deferred income taxes				2,400			—
Other assets				7,088			5,634

Total assets			$	193,117		$	185,292

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	3,540		$	3,304
	Accrued liabilities			6,547			5,497
	Customer deposits and unearned revenue			3,518			3,532
	Income taxes payable			371			—
	Note payable and current portion of long-term liabilities			3,082			250

		Total current liabilities		17,058			12,583
Long-term liabilities, net of current portion				162,659			157,648
Deferred income taxes				—			332

		Total liabilities		179,717			170,563

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			345			233
	Additional paid-in capital			—			9,593
	Deferred compensation			(5,788	)		(1,765	)
	Retained earnings			17,298			698
	Accumulated other comprehensive income			1,545			5,970

		Total shareholders' equity		13,400			14,729

Total liabilities and shareholders' equity			$	193,117		$	185,292

		Common Stock														Accumulated Other Comprehensive Income			Total Share- holders' Equity
		Common Stock					Additional Paid-in Capital			Deferred Compen- sation			Retained Earnings (Deficit)
		Shares		Amount			Additional Paid-in Capital			Deferred Compen- sation			Retained Earnings (Deficit)
Balance, October 31, 2002		38,871		$	173		$	1,895		$	—		$	48,199		$	—		$	50,267
Net income		—			—			—			—			16,934			—			16,934
Stock repurchased		(2,732	)		(12	)		(8,240	)		—			(17,575	)		—			(25,827	)
Options exercised		933			4			3,684			—			—			—			3,688
Tax benefit from stock options		—			—			2,661			—			—			—			2,661

Balance, October 31, 2003		37,072			165			—			—			47,558			—			47,723
Comprehensive Income:
	Net Income	—			—			—			—			24,144			—			24,144
	Currency translation adjustment	—			—			—			—			—			5,970			5,970

	Total comprehensive income																			30,114

Stock repurchased		(4,797	)		(32	)		(21,357	)		—			(78,635	)		—			(100,024	)
Options exercised		1,445			9			2,339			—			4,570			—			6,918
Tax benefit from stock options		—			—			2,107			—			3,281			—			5,388
Issuance of restricted stock		90			1			1,955			(1,765	)		—			—			191
April 2004 stock split		(3	)		82			—			—			(220	)		—			(138	)
CARD acquisition		1,151			8			24,549			—			—			—			24,557

Balance, October 31, 2004		34,958			233			9,593			(1,765	)		698			5,970			14,729
Comprehensive Income:
	Net Income	—			—			—			—			29,180			—			29,180
	Currency translation adjustment	—			—			—			—			—			(4,260	)		(4,260	)
	Unrealized loss on investments	—			—			—			—			—			(165	)		(165	)

	Total comprehensive income																			24,755

Stock repurchased		(1,473	)		(15	)		(26,048	)		—			(12,580	)		—			(38,643	)
Options exercised		851			9			6,283			—			—			—			6,292
Accelerated vesting of options		—			—			60			—			—			—			60
Tax benefit from stock options		—			—			5,287			—			—			—			5,287
FY 2004 tax (true-up)		—			—			229			—			—			—			229
Issuance of restricted stock		193			2			4,781			(4,297	)		—			—			486
Amortization of deferred compensation		—			—			—			274			—			—			274
January 2005 stock split		(2	)		116			(185	)		—			—			—			(69	)

Balance, October 31, 2005		34,527		$	345		$	—		$	(5,788	)	$	17,298		$	1,545		$	13,400

		2005			2004			2003
Net income, as reported		$	29,180		$	24,144		$	16,934
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	)		(4,350	)

Pro forma net income		$	18,695		$	16,263		$	12,584

Earnings per common share, basic:
	As reported	$	0.84		$	0.67		$	0.45
	Pro forma		0.54			0.45			0.33
Earnings per common share, diluted:
	As reported	$	0.80		$	0.64		$	0.44
	Pro forma		0.51			0.43			0.33
Weighted average fair value of options granted during the period		$	14.43		$	10.11		$	9.79

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

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

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		17,760
Fixed installment to seller, paid August 2004				(4,000	)
Contingent consideration				(7,616	)

Cash purchase price			$	6,144

Cash, net of cash acquired of $177	$	131
Note payable		320
Other direct acquisition costs		96

Total purchase price	$	547

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

		2005			2004
United States government and agency obligations		$	20,809		$	26,458

	2005			2004
Accounts receivable, net:
Trade receivables	$	18,148		$	11,945
Less: allowance for bad debts		(283	)		(740	)

	$	17,865		$	11,205

		2005			2004
Investment in sales-type leases and notes receivable, net:
Minimum sales-type lease payments		$	13,329		$	7,774
Notes receivable—table game licenses			10,269			6,516

	Sub-total sales-type leases and notes receivable		23,598			14,290

Less: interest sales-type leases			(1,579	)		(1,053	)
Less: deferred service revenue			(2,033	)		(939	)
Less: allowance for bad debts			(631	)		(491	)

Investment in sales-type leases and notes receivable, net			19,355			11,807

Less: current portion sales-type leases			(3,929	)		(2,651	)
Less: current portion notes receivable — table game licenses			(4,290	)		(2,088	)

Long-term portion investment in sales-type leases and notes receivable		$	11,136		$	7,068

	2005			2004
Inventories:
Raw materials and component parts	$	5,482		$	3,912
Work-in-process		820			415
Finished goods		4,613			3,227

		10,915			7,554
Less: allowance for inventory obsolescence		(1,487	)		(1,701	)

	$	9,428		$	5,853

Products leased and held for lease, net:
Utility products	$	18,091		$	13,959
Entertainment products		3,183			2,398

		21,274			16,357
Less: accumulated depreciation		(12,111	)		(10,896	)

	$	9,163		$	5,461

Property and equipment, net:
Office furniture and computer equipment	$	3,860		$	4,321
Leasehold improvements		2,629			2,571
Production equipment and other		3,923			2,967

		10,412			9,859
Less: accumulated depreciation		(6,268	)		(6,352	)

	$	4,144		$	3,507

Other assets, net:
Debt issuance costs	$	4,792		$	4,792
Deposits		3,331			219
Equity Investment, at cost		—			1,000
Other		429			126

		8,552			6,137
Less: accumulated amortization debt issuance costs		(1,464	)		(503	)

	$	7,088		$	5,634

			Weighted Avg Useful Life	2005			2004
Amortized intangible assets:
	Patents, games and products		10 years	$	55,552		$	50,589
	Less: accumulated amortization				(9,478	)		(4,862	)

					46,074			45,727

	Licenses and other		6 years		3,053			2,733
	Less: accumulated amortization				(1,536	)		(1,534	)

					1,517			1,199

		Total		$	47,591		$	46,926

Year ending October 31,
2006	$	6,262
2007		6,298
2008		6,627
2009		6,425
2010		5,927
Thereafter		16,052

	$	47,591

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

	2005			2004
Contingent convertible senior notes, fixed rate interest at 1.25%, due 2024	$	150,000		$	150,000
Note payable, fixed rate interest at 2.00%, due in installments through 2005		—			250
BTI acquisition contingent consideration		6,167			7,616
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			32

		165,741			157,898
Less: current portion		(3,082	)		(250	)

	$	162,659		$	157,648

Year ending October 31,
2006	$	3,091
2007		2,903
2008		2,903
2009		150,064
2010		64

Total	$	159,025