GGK

ChairmanÕs Statement

For the 6 months to 31 October 2005

I am pleased to report that revenue for the six months to 31st October 2005 is £2.54m, a growth of 71% over the same period last year, yielding an operating profit of £73k (2004 £6k) and a profit before tax of £48k (2004 £9k). The consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as stated in note 1.

Whilst AIM listed companies are not required to prepare accounts under IFRS until 2007 the Directors believe that in keeping with its policy to adhere to best practice, that an early adoption is in the best interests of the shareholders, so that a fairer comparison with other listed companies can be made.

The Group continues to enjoy strong cash reserves. A net decrease in cash of £86k in the first half of the year was primarily attributable to the acquisition of Gemini Club Supplies Limited (a transaction that was successfully concluded in late October) and corporation tax associated with the acquisition of Kelly's Eye. Throughout the first half of the year, capital expenditure has continued to be deployed in the manufacturing and design modifications of vending terminals to meet demands from existing and new clients. Research and development has also been going on in the design of vending technology for use in public places outside the registered club environment.

The results comparison with last year has been positively affected by the acquisition of Kelly's Eye (No 1) Limited in May 2005. The Group funded the purchase of Kelly's Eye with a combination of a medium term loan of £800,000 and new shares. This debt is shown separately from the cash position mentioned above.

As reported at the time, the acquisition of Gemini affords the Group a premier position amongst client clubs in the north west. With effect from the 1st November 2005 the Group also completed the acquisition of Independent Leisure Supplies (ILS), which should help consolidate the Group's position in the north east of England.

Since the Kelly's Eye acquisition in May 2005, a great deal of effort and energy has been expended in the consolidation of the Lotteryking and Kelly's Eye operations. A key element of the consolidation programme has been the introduction of a new, company wide IT reporting system. With effect from the 1st November all financial, administrative and sales functions were centred on Hemel Hempstead and all manufacturing, research, development and technical support services were centred on Hainault. Invariably, there are costs associated with a consolidation programme of this nature and the majority of these costs have been absorbed within the income statement in this interim period. The costs have been principally in the areas of salary adjustments, redundancy and IT systems training and development.

Critical to the continued increase in revenue and profit will be the ability of the sales force to sell effectively across the entire product range. Additional products are being added to the range. To support the sales force endeavours there is a plan to introduce a new sales catalogue in early 2006 and to also begin the gradual introduction of an online sales capability for client clubs.

The acquisition of Kelly's Eye has afforded us the opportunity to undertake a margin analysis and it is apparent that Lotteryking was enjoying a better margin than Kelly's Eye, and most probably better than its competitors. However the product mix of the two companies was very different and in the first half of this year the overall gross margin has reduced due to the change in the business mix. We anticipate that the combined buying power of the two businesses will enable the Group to improve its margins over the course of the next twelve months.

The majority of Gamingking's direct competitors are privately owned businesses which seldom finance researching new projects and machine development.

The annual Group costs associated with public status are calculated to be in the region of £525,000. The Board is very mindful of Group costs and seeks at all times to contain such costs. For the half-year Group costs are well below budget with little increase over the same period last year. As part of the cost control exercise, the Marble Arch office was closed in September.

Strategy
In May 2005, the Board completed a review of its core strategy. As a result, the Board has agreed to focus on the Group's market leading position in the supply of lottery and gaming products to the registered member's club environment and also to broaden the product offering to capitalise on the Group's core area of lottery vending expertise. The Board believes that this will optimise long term shareholder value.

The previous strategy of developing and pursuing a wide range of lottery related opportunities for third parties has been reduced to a much narrower range of projects where we expect a greater chance of success in bringing a return to shareholders.

The acquisitions of Kelly's Eye, Gemini Club Supplies and Independent Leisure Supplies have served to re-enforce our strategy, and together with Lotteryking, will form the bedrock of the Group, whilst we develop a range of new products for deployment in the club market and also develop a presence in other closely related markets.

Whilst firmly believing that this strategy, implemented by an experienced management team, is the best way of delivering long-term shareholder value, the Board is mindful that the core business primarily operates in a competitive environment, where the barriers to entry are relatively low. Over the course of the coming years, legislative changes as contained within the Gambling Act 2005, will come into full effect and undoubtedly there will be further consolidation in the club supply arena. The Board will continue to monitor the changing contours of the lottery landscape, seeking ways to grasp the new opportunities, whilst at the same time deepening its roots with client clubs in an endeavour to secure lasting commercial relationships, such that they can withstand the competitive impact of new marketplace entrants.

New Product Development
As previously reported, the Group continues to explore areas of product development and this interim statement provides an ideal opportunity to inform shareholders of developments to date.

CLUB VIEW NETWORK
The Group has been working on the creation of an internet site for clubs and club members, acting as an information zone for club members and a communications conduit for clubs to their members. The Club View Network, which has been developed with only a very modest amount of capital expenditure, has been well received and is now on trial with a select number of clubs. If the trials prove to be successful, a more comprehensive roll out programme will be embarked upon throughout 2006.

The Club View Network will serve to take Gamingking closer to the club member and will offer them online game play opportunities.

TOTE-ALL
Tote-All, the electronic tote system, developed by Lotteryking Limited, is currently on trial in a small number of clubs, where the results have been mixed. It is becoming apparent that whilst many clubs have paper based totes, the operation of which is widely recognised as being time demanding, clubs tend to operate tote systems which are unique to themselves. The Tote-All software system therefore, requires further modification, in order to meet all requirements. The plan is to re-launch Tote-All on a region-by-region basis in early 2006.

SKILLS WITH PRIZES (SWPs)
SWP technology and legislation offers some interesting commercial opportunities and in pursuit of these opportunities, a number of high quality, electronic SWP terminals have been sited in client clubs where their player appeal and revenue profile is being closely monitored. The Board hopes to broaden its presence in this area over the course of the next year.

YOUR "LOCAL" LOTTERY
The Board is keen to deploy its lottery and vending expertise in areas outside of its traditional club market and to this end has been exploring the pub market. A concept has been developed which has met with Gaming Board (Gambling Commission) approval and as we enter the new year, it is planned to trial the concept in concert with a number of pub group owners.

Outlook
Traditionally the second half of the year is the stronger period but throughout this period we will continue to bed in the recent acquisitions and arrange to take full advantage of the synergies and cross-selling opportunities presented. We are not anticipating those aspects of the 2005 Gambling Act that directly impact lottery activities to come in force before September 2007.

We hope that progress will be made in a number of the developments noted above although it is unlikely that they will be net contributors to profit in the current financial year.

Douglas Yates
Chairman