Revenue from interactive products and services increased to $9.5 million from $0.7 million in the prior-year period, primarily reflecting the successful July 2012 launch of Jackpot Party® Social Casino on Facebook®, which currently ranks among the five most popular social casinos on Facebook based on the number of daily active users, coupled with organic growth in our UK-based B2C online website and the addition of Phantom EFX retail sales and Jadestone game server integration revenues.

Other gaming operations revenue increased $0.1 million on a year-over-year basis to $4.6 million, primarily reflecting growth in networked gaming products and services.

Total gross profit, excluding depreciation, amortization and distribution expense as used herein, increased 4% to $102.6 million from $98.5 million in the year-ago period. Total gross margin improved to 64.5% compared to 63.3% a year ago. Product sales gross margin rose 220 basis points to 53.1% in the September 2012 quarter compared to 50.9% in the prior-year quarter. The year-over-year increase reflects the benefits from our mix of business, ongoing continuous improvement initiatives, strategic sourcing actions, and a year-over-year improvement in gross margin on other product revenues due to higher margin on used gaming machine sales and high-margin VLT software game set revenues. Gaming operations gross margin was 78.6% in the September 2012 quarter compared with 79.1% in the prior year, reflecting the impact of higher jackpot expense on wide-area progressive games, partially offset by the benefit of increased revenues from high-margin interactive products and services, and compares favorably to 77.4% in the June 2012 quarter.

The following table summarizes key components of operating expenses and operating income for the three months ended September 30, 2012, and 2011 ($ in millions):
  Three Months Ended    
September 30, Increase/(Decrease)
Operating Expenses: 2012   2011 Amount   %
Research and development $ 27.6 $ 24.4 $ 3.2 13.1
As a percentage of revenues 17.4 % 15.7 % 170bp 10.8
Selling and administrative 34.4 38.3 (3.9 ) (10.2 )
As a percentage of revenues 21.6 % 24.6 % (300)bp (12.2 )
Depreciation and amortization 28.0 22.6 5.4 23.9
As a percentage of revenues 17.6 % 14.5 % 310bp 21.4
Impairment and restructuring charges 9.7 (9.7 ) nm
As a percentage of revenues       6.2 % (620)bp nm
Total operating expenses $ 90.0   $ 95.0   $ (5.0 ) (5.3 )
Operating expenses as a percentage of revenues 56.6 % 61.0 % (440)bp (7.2 )
Operating income $ 12.6   $ 3.5   $ 9.1   260.0
Operating margin 7.9 % 2.2 % 570bp 259.1

Research and development expenses in the September 2012 quarter increased $3.2 million on a year-over-year basis, and $3.3 million on a quarterly sequential basis to $27.6 million. The increase reflects incremental development costs to re-engineer and re-purpose a portion of the Company’s library of slot gaming content for distribution as interactive products and services, coupled with a modest increase in spending for the Company’s innovative new casino gaming products.

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