UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

Amendment No. 1

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2007

 oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ……….to…………

Commission file number 000-23401

GameTech International, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0612983
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

900 Sandhill Road Reno, Nevada	89521
(Address of principal executive offices)	(Zip Code)

(775) 850-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.001 per share Rights to Purchase Series A Junior Participating Preferred Stock	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

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 x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes  o   No x

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 x No o

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. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer x   Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No x

The aggregate market value of common stock held by non-affiliates of the registrant based on the closing price of the registrant’s common stock as reported on the NASDAQ Global Market on April 30, 2007, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $103,069,097. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

As of January 16, 2008, there were outstanding 12,516,222 shares of the registrant’s common stock, par value $0.001 per share.

Documents Incorporated By Reference

Portions of the registrant’s definitive proxy statement for the 2007 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

Explanatory Note

The purpose of this Amendment No. 1 to the Annual Report on Form 10-K of GameTech International, Inc. (“GameTech”) for the fiscal year ended October 31, 2007, is solely to correct a typographical error made during the processing of the Annual Report on Form 10-K with our filings servicer, Vintage Filings, LLC, with regard to the balance sheet on page F-4 on Form 10-K. The “Accrued Loss Contingencies” balance should have shown an amount of $4,022,000 for fiscal year ended October 31, 2007, and the “Income Taxes Payable” balance should have shown an amount of $0 for fiscal year ended October 31, 2007. These two changes to the balance sheet are the only changes being made to the original Form 10-K.

As a result of these two changes to the balance sheet, GameTech has amended and restated in its entirety the consolidated financial statements contained in the original Form 10-K. No other Part, Item or Section of the original Form 10-K is being amended hereby.

This Amendment No. 1 does not reflect events that have occurred after the original filing of the Annual Report on Form 10-K on January 22, 2008, and does not modify or update the disclosures in the Annual Report on Form 10-K in any way except as specifically described in this Explanatory Note.

As a result of this Amendment No. 1, the Consent of Independent Registered Public Accounting Firm and the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively as exhibits 23.1, 31 and 32 to the original Form 10-K, have been re-executed and refiled with this Amendment No. 1.

1

GameTech International, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Financial Statements
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Stockholders' Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

GameTech International, Inc.

We have audited the accompanying balance sheets of GameTech International, Inc. as of October 31, 2007 and 2006, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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, the financial statements referred to above present fairly, in all material respects, the financial position of GameTech International, Inc. as of October 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of GameTech International, Inc.’s internal control over financial reporting as of October 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated January 21, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/S/ GRANT THORNTON LLP

Reno, Nevada

January 21, 2008

F-2

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

GameTech International, Inc.

We have audited GameTech International, Inc.’s (a Delaware Corporation) internal control over financial reporting as of October 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). GameTech International Inc.’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, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on GameTech International, Inc.’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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, GameTech International, Inc. maintained, in all material respects, effective internal control over financial reporting as of October 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of GameTech International, Inc. and it’s subsidiaries as of October 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2007 and our report dated January 21, 2008 expressed an unqualified opinion.

We do not express an opinion or any other form of assurance on controls over the Company’s Summit business segment purchased on March 28, 2007.

/S/ GRANT THORNTON LLP

Reno, Nevada

January 21, 2008

F-3

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

		October 31,
		2007			2006
ASSETS:
Current assets:
Cash and cash equivalents	$	3,630		$	5,411
Short-term investments		7,763			7,408
Accounts receivable, net of allowances of $2,429 in 2007 and $2,230 in 2006		8,585			3,734
Inventory		4,298			—
Deposits		14			17
Refundable income taxes		76			64
Restricted short-term investments		—			4,515
Prepaid expenses and other current assets		818			377
Deferred income taxes		2,651			2,458
Total current assets		27,835			23,984
Bingo equipment, furniture and other equipment, net		19,902			22,868
Goodwill, net		37,519			10,184
Intangibles, less accumulated amortization of $4,634 in 2007 and $4,071 in 2006		7,766			1,217
Restricted cash		502			483
Deferred income taxes, long term		226			176
Other assets		132			302
Total assets	$	93,882		$	59,214
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	2,094		$	1,819
Accrued payroll and related obligations		1,074			980
Accrued loss contingencies		4,022			3,898
Income taxes payable		—			294
Current portion of long-term debt		4,400			—
Other accrued liabilities		2,292			1,581
Total current liabilities		13,882			8,572
Non-current employment obligations		98			160
Note payable		154			—
Deferred income taxes		224			648
Long term obligations net of current portion		25,045			—
Commitments and contingencies		—			—
Stockholders' equity:
Common stock: $0.001 par value; 40,000,000 shares authorized; 14,472,732 shares issued in 2007 and 14,371,547 issued in 2006		14			14
Additional paid in capital		51,355			50,881
Retained earnings		11,706			7,035
Treasury stock, at cost. 1,855,325 shares in 2007 and 2006		(8,096	)		(8,096	)
Related Party Receivable		(500	)		—
Total stockholders' equity		54,479			49,834
Total liabilities and stockholders' equity	$	93,882		$	59,214

The accompanying notes are an integral part of these consolidated financial statements.

F-4

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

		Year ended October 31,
		2007			2006		2005
Net revenue	$	58,805		$	49,289	$	49,651
Cost of revenue		26,542			19,929		20,304
Gross profit		32,263			29,360		29,347
Operating expenses:
General and administrative		9,538			8,303		11,406
Sales and marketing		10,519			11,041		11,952
Research and development		3,865			2,885		4,058
Loss contingencies		124			133		137
Gain on sale of assets		(656	)		—		—
Total operating expenses		23,390			22,362		27,553
Income from operations		8,873			6,998		1,794
Interest and other income (expense), net		(1,535	)		346		76
Income before income taxes		7,338			7,344		1,870
Provision for income taxes		2,667			2,961		534
Net income	$	4,671		$	4,383	$	1,336
Net income per share:
Basic	$	0.37		$	0.36	$	0.11
Diluted	$	0.36		$	0.34	$	0.11
Shares used in calculating net income per share:
Basic		12,566			12,181		11,868
Diluted		12,991			12,757		11,960
Dividends declared per share	$	0.00		$	0.00	$	0.03

The accompanying notes are an integral part of these consolidated financial statements.

F-5

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)

	Common Stock				Capital in excess of par			Retained		Treasury Stock					Related  Party
	Shares		Amount		value			Earnings		Shares		Amount			Receivable			Total
Balances at October 31, 2004	13,700,339	$	14	$	47,081		$	1,671		1,855,325	$	(8,096	)	$	—		$	40,670
Issuance of common stock upon exercise of stock options	40,200		—		135			—		—		—			—			135
Stock based compensation	—		—		103			—		—		—			—			103
Net income	—		—		—			1,336		—		—			—			1,336
Dividends paid	—		—		—			(355	)	—		—			—			(355	)
Balances at October 31, 2005	13,740,539		14		47,319			2,652		1,855,325		(8,096	)		—			41,889
Issuance of common stock upon exercise of stock options	630,999		—		2,518			—		—		—			—			2,518
Issuance of common stock to employee	9		—		—			—		—		—			—			—
Stock based compensation	—		—		330			—		—		—			—			330
Tax benefit of stock option exercises	—		—		714			—		—		—			—			714
Net income	—		—		—			4,383		—		—			—			4,383
Balances at October 31, 2006	14,371,547		14		50,881			7,035		1,855,325		(8,096	)		—			49,834
Issuance of common stock upon exercise of stock options	101,185		—		350			—		—		—			—			350
Stock based compensation	—		—		(128	)		—		—		—			—			(128	)
Tax benefit of stock option exercises	—		—		252			—		—		—			—			252
Related Party Receivable	—		—		—			—		—		—			(500	)		(500	)
Net income	—		—		—			4,671		—		—			—			4,671
Balances at October 31, 2007	14,472,732	$	14	$	51,355		$	11,706		1,855,325	$	(8,096	)	$	(500	)	$	54,479

The accompanying notes are an integral part of these consolidated financial statements.

F-6

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended October 31,
	2007			2006			2005
Cash flows from operating activities:
Net income	$	4,671		$	4,383		$	1,336
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,544			10,317			11,427
Obsolescence and loss on disposal of bingo terminals and related equipment		175			681			493
Loss on disposal of furniture and other equipment		65			12			35
Loss on disposal of intangible assets		—			—			35
Issuance of note receivable for sale of inventory		(247	)		—			—
Gain on sale of participation equipment		(656	)		—			—
Stock compensation expense		(124	)		330			103
Deferred income taxes		(667	)		(696	)		379
Accrued loss contingencies		124			133			137
Accrued interest on short-term investments		(365	)		(187	)		(36	)
Accrued interest on restricted cash		(19	)		(33	)		—
Other changes in operating assets and liabilities:
Accounts receivable, net		(2,206	)		(161	)		(89	)
Deposits		3			4			8
Inventory		(986	)		—			—
Refundable income taxes		(13	)		678			(642	)
Restricted short-term investments		4,515			66			(4,581	)
Prepaid expenses and other current assets		(115	)		(51	)		324
Accounts payable		(1,332	)		(393	)		(702	)
Accrued payroll and related obligations		134			(355	)		(206	)
Other accrued liabilities		670			(479	)		(332	)
Income taxes payable		(294	)		294			(1,214	)
Non-current employment obligations		(61	)		(21	)		(21	)
Net cash provided by operating activities		14,816			14,522			6,454

The accompanying notes are an integral part of these consolidated financial statements.

F-7

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

		Year Ended October 31,
		2007			2006			2005
Cash flows from investing activities:
Proceeds from sale of short-term investments		18,034			24,945			2,638
Payments for purchase of short-term investments		(18,027	)		(31,662	)		(500	)
Capital expenditures for bingo equipment, furniture and other equipment		(6,211	)		(11,541	)		(7,359	)
Payment for the acquisition of Summit Amusement & Distributing, Ltd		(41,401	)		(302	)		—
Proceeds from sale of assets		1,523			—			17
Payments for acquisitions of intangible assets		—			(113	)		(801	)
Net cash used in investing activities		(46,082	)		(18,673	)		(6,005	)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations		38,946			—			—
Payments on long-term obligations		(9,563	)		—			—
Payment of dividends		—			—			(355	)
Tax benefit from stock options exercised		252			714			—
Cash paid to related party for stock repurchase		(500	)		—			—
Proceeds from issuance of common stock		350			2,518			135
Net cash (used in) provided by financing activities		29,485			3,232			(220	)
Net increase (decrease) in cash and cash equivalents		(1,781	)		(919	)		229
Cash and cash equivalents at beginning of year		5,411			6,330			6,101
Cash and cash equivalents at end of year	$	3,630		$	5,411		$	6,330
Supplemental cash flow information:
Cash paid out in the year for:
Interest	$	2,282		$	10		$	13
Income taxes	$	2,164		$	1,895		$	2,051
Non-cash investing and financing activities:
Acquisition of fixed assets included in:
Accounts payable	$	485		$	1,517		$	—
Note payable for the purchase of a patent	$	250		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-8

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007, 2006 and 2005

1. Business and Summary of Significant Accounting Policies

Description of Business

GameTech International, Inc. (the “Company”) was incorporated in Delaware on April 18, 1994. The Company operates two business segments: the design, development, and marketing of interactive electronic bingo systems consisting of portable and fixed-based systems under contractual arrangements with terms generally ranging from month-to-month to three years with bingo hall customers; and the design, development, manufacturing, and marketing of video lottery terminals, related software, related parts and equipment, and game content. As of October 31, 2007, the company had bingo systems in service in 38 states, one US Territory and in four foreign countries and sales of Video Lottery Terminals (“VLTs”) and related software and equipment in 15 states and one US Territory.

Consolidation Principles

The Company’s consolidated financial statements include the accounts of GameTech International, Inc. and its wholly-owned subsidiaries (“GameTech”). All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Allowance for doubtful accounts, obsolescence, software development capitalization, impairment of goodwill and intangible assets, share-based compensation, and loss contingencies are significant estimates made by the Company. Actual results could ultimately differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Short-Term Investments

Short-term investments, which consist of interest-bearing securities and investment grade auction rate securities, are stated at cost plus accrued interest, which approximates market value. Those with maturities beyond one year may be classified as short-term investments based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All auction rate securities are classified as short-term investments. Short-term investments are classified as available for sale and are recorded at fair market value using the specific identification method. Unrealized gains and losses are not material.

Bingo Equipment, Furniture, and Other Equipment

Bingo equipment includes portable and fixed-base player terminals as well as file servers, caller units, point-of-sale units, and other support equipment. Bingo equipment, furniture, and other equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:

Bingo equipment	3-5 years
Office furniture and equipment	3-7 years
Leasehold improvements	10 years

F-9

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company provides reserves for excess or obsolete bingo terminals on hand not expected to be used. The reserves are based upon several factors, including estimated forecast of bingo terminal demand for placement into halls. The estimates of future bingo terminal demand may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess or obsolete bingo terminals. Although the Company attempts to assure the accuracy of its estimated forecasts, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of bingo terminals, results of operations, and financial condition.

Software Development Capitalization

The Company capitalizes costs related to the development of certain software products that meet the criteria of Statement of Financial Accounting Standards (“SFAS”) No. 86 - Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SFAS No. 86 provides for the capitalization of computer software that is to be used as an integral part of a product or process to be sold or leased, after technological feasibility has been established for the software and all research and development activities for the other components of the product or process have been completed. The Company is capitalizing qualified costs of software developed for new products or for significant enhancements to existing products. The Company ceases capitalizing costs when the product is available for general release to the Company’s customers. The Company amortizes the costs on a straight-line method over the estimated economic life of the product beginning when the product is available for general release.

The achievement of technological feasibility and the estimate of a products’ economic life require management’s judgment. Any changes in key assumptions, market conditions or other circumstances could result in an impairment of the capitalized asset and a charge to the Company’s operating results.

Goodwill

The Company is required to perform an annual goodwill impairment review, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. Goodwill is reviewed for possible impairment annually, or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, or a loss of key personnel.

Impairment of Long-Lived Assets Other Than Goodwill

The Company has adopted the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparison of the carrying amount of the asset to the net undiscounted future cash flows expected to be generated from the asset. If the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets’ carrying value is adjusted to fair value. The Company regularly evaluates its long-lived assets for indicators of impairment.

Revenue Recognition

We recognize revenue when the following criteria are met:

·   Persuasive evidence of an arrangement between us and our customer exists,

·   Delivery has occurred or services have been rendered,

·   The price is fixed or determinable, and

·   Collectibility is reasonably assured.

F-10

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

We earn our revenue in a variety of ways. We offer our products for lease or sale. We also sell service and software updates for our sold equipment.

Bingo Equipment

Revenue is recognized for bingo terminals and bingo systems installed as a single element placed in bingo halls under contracts based on (1) a fixed fee per use per session; (2) a fixed weekly fee per terminal; or (3) a percentage of the revenue generated by each terminal. Revenue recognition is a key component of the Company’s results of operations, and determines the timing of certain expenses, such as commissions. The Company recognizes revenue when all of the following factors exist: (a) evidence of an arrangement with the customer; (b) play or availability of the bingo terminals; (c) a fixed or determinable fee; and (d) collectibility is reasonably assured. We exercise judgment in assessing the credit worthiness of customers to determine whether collectibility is reasonably assured. Should changes in conditions cause us to determine the factors are not met for future transactions, revenue recognized for future reporting periods could be adversely affected.

Video Lottery Terminals

Our product sales revenues are generated from the sale of video lottery terminals, conversion kits, content fees, license fees, participation fees, equipment and services. Revenues are reported net of discounts, sales taxes and other taxes of a similar nature. Revenues related to contracted production are recognized as the related work is delivered. We recognize license fee revenues over the term of the associated agreement unless the fee is in exchange for products delivered or services performed that represent the culmination of a separate earnings process. Amounts received prior to completing the earnings process are deferred until revenue recognition criteria are met.

Our sales credit terms are predominately 30 days. In certain limited circumstances, we may extend credit terms up to 160 days.

Accounts Receivable and Allowance for Doubtful Accounts

Bingo Equipment

We have established an allowance for uncollectible accounts based primarily on management’s evaluation of the customer’s financial condition, past collection history and aging of accounts receivable balances. Our customer base consists primarily of entities operating in charitable, Native American, and commercial bingo halls located throughout the United States. In some jurisdictions, the billing and collection function is performed by a distributor as part of a distributor relationship, and in those instances, we maintain allowances for possible losses resulting from non-payment by both the customer and distributor. We perform ongoing evaluations of customers and distributors for credit worthiness, economic trends, changes in customer payment terms, and historical collection experience when evaluating the adequacy of our allowance for doubtful accounts. We also reserve a percentage of accounts receivable based on aging categories. In determining these percentages, we review historical write-offs of receivables, payment trends, and other available information. While such estimates have been within our expectations and the provisions established, a change in the financial condition of specific customers or in overall trends experienced may result in future adjustments of estimates of collectibility of our receivables.

Video Lottery Terminals

The Company estimates the possible losses resulting from non-payment of outstanding accounts receivables arising from the sale of video lottery terminals and related equipment. The Company’s customer base consists of casinos located in various states and Native American casinos. The Company performs ongoing evaluations of its customers and distributors for credit worthiness, economic trends, changes in customer payment terms, and historical collection experience when evaluating the adequacy of its allowance for doubtful accounts.

Inventories

F-11

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Inventories at our Summit Gaming division are stated at the lower of cost or market. Our raw material is valued using the first-in, first-out method and our finished goods are valued using standard costing that approximates the first-in, first-out method. Management periodically reviews inventory balances, using recent and future expected sales to identify slow-moving or obsolete items. Inventories consist of the following at October 31:

		2007		2006		2005
Finished Goods	$	1,408	$	—	$	—
Raw Materials		2,890		—		—
	$	4,298	$	—	$	—

Legal Contingencies

The Company is currently involved in various claims and legal proceedings. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and may revise its estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the Company’s results of operations, and financial condition.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred. Such costs during fiscal years 2007, 2006, and 2005 were not material.

Research and Development Costs

Research and development costs are charged to the results of operations when incurred.

Stock Based Compensation

The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the shares on the date of the grant.

Prior to November 1, 2005, the Company accounted for employee stock transactions in accordance with Accounting Principle Board (“APB”), APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company adopted the pro forma disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. As permitted by SFAS No. 148, prior to adoption of SFAS No. 123(R), the Company accounted for stock based compensation expense under the recognition and measurement principles of APB Opinion No. 25 under which no compensation was recognized in the Company’s financial statements for the fiscal years ended October 31, 2005 and 2004. In connection with the modified prospective method, disclosures made for periods prior to the adoption of SFAS No. 123(R) do not reflect restated amounts.

Effective November 1, 2005, the Company adopted the Financial Accounting Standards Board (“FASB”) SFAS No. 123(R), Share Based Payment. This statement is a revision of SFAS No. 123, and supersedes APB Opinion No. 25, and its related implementation guidance. SFAS No. 123(R) addresses all forms of share-based payment awards including shares issued under employer stock purchase plans, stock options, restricted stock, and stock appreciation rights. Under SFAS No. 123(R), share-based payment awards result in a cost that will be measured at fair value on the award’s grant date. Stock options exercised in future periods will result in an adjustment within the Consolidated Statement of Cash Flows depicting a reduction to net cash provided by operating activities with an offsetting increase in net cash provided by financing activities related to incremental tax benefits. In the fourth quarter of the fiscal year 2005, the Company’s Board of Directors approved the acceleration of the vesting of all unvested stock options awarded under its 1997 Incentive Stock Plan. As a result, all options outstanding at October 31, 2005 were fully vested and no compensation cost for such options will be recognized in any future periods.

For the fiscal years ended October 31, 2007 and 2006 the Company recognized compensation expense (benefit) of ($128,000) and $330,000, respectively, which is included in general and administrative expenses in the accompanying Consolidated Statement of Operations. The related tax benefit (expense) was ($43,000) and $111,000 for a net cost (benefit) of ($85,000) and $219,000, respectively. For the fiscal years ended October 31, 2007 and 2006 diluted and basic earnings per share were increased by $.01 in fiscal year 2007 and reduced by $0.02 in fiscal year 2006 as a result of recognizing the share-based compensation expense, net of tax.

On November 10, 2005, the FASB issued Staff Position No. SFAS 123(R)-3, Transition Election Related to Accounting for Tax Effects ofShare-Based Payment Awards. The Company has elected to adopt the alternative transition method provided in this FASB Staff Position for calculating the tax effects of share-based compensation pursuant to SFAS No. 123(R). The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee share-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R).

F-12

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents stock-based compensation expense if the Company had applied the fair value recognition provisions of SFAS No. 123(R), as amended by SFAS No. 148, to stock-based compensation:

		Year Ended October 31, 2005
		(in thousands except  per share amounts)
Net income as reported	$	1,336
Stock-based employee compensation expense included in reported net income, net of related tax benefits		39
Stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(1,285	)
Pro forma net income	$	90
Net Income per share
Basic:
As reported	$	0.11
Pro forma	$	0.01
Diluted:
As reported	$	0.11
Pro forma	$	0.01

Under SFAS No. 123(R) stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the stated vesting period. The Company continues to utilize the Black-Scholes option-pricing model to estimate the fair value of employee stock-based compensation at the date of grant, which requires the use of accounting judgment and financial estimates. The expected life of the options used in this calculation is the period of time the options are expected to be outstanding, and is determined by the simplified method outlined in Staff Accounting Bulletin 107 which states, “The midpoint of the average vesting period and contractual life is an acceptable expected life assumption.” Expected stock volatility is based on the historic volatility of its stock for a period equal to the length of time the Company has been public. Expected option exercises, the period of time the options are held, forfeitures, employee terminations and other criteria are based on previous experiences. The risk-free rates for periods within the contractual life of the options are based on United States Treasury Note rates in effect at the time of the grant for the period equal to the expected life. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.

F-13

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

These amounts were determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the expected life of the option. The assumptions used in the Black-Scholes model were as follows:

	Year ended October 31,
	2007		2006		2005
Risk-free interest rate	4.81	%	5.08	%	3.98	%
Dividend yield	—		—		—
Volatility factor	61.6	%	63.9	%	64.4	%
Expected life (in years)	6.4		5.5		8.0

Net Income (Loss) Per Share

Net income (loss) per share is computed in accordance with SFAS No. 128, Earnings per Share, which requires the presentation of both basic and diluted net income (loss) per share. Basic net income (loss) per share is based solely upon the weighted average number of common shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income (loss) per share is based upon the weighted average number of common shares and common-share equivalents outstanding during the year excluding those common-share equivalents where the impact to basic net income (loss) per share would be antidilutive. The difference between basic and diluted net income (loss) per share is attributable to stock options.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, short-term investments, restricted short-term investments, and trade receivables. Cash equivalents, short-term investments, and restricted short-term investments are investment-grade, short-term debt instruments, consisting of treasury bills, mortgage-backed securities, asset-backed commercial paper, unsecured corporate notes, and money market accounts, all of which are maintained with high credit quality financial institutions. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation insurance limits.

No single customer comprised more than ten percent of the Company's total revenue during fiscal years 2007, 2006 and 2005. However, the Company conducts a substantial amount of its business through distributor relationships, many of which act as a collection agent.  As of October 31, 2007, there was one customer that represented 19.5% of the consolidated accounts receivable balance.

Fair Values of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, short-term investments, accounts receivable, restricted short-term investments, accounts payable, and accrued liabilities approximate fair value. The long-term debt approximates fair value based on the Company’s ability to obtain other debt with the same terms and current maturity.

F-14

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Significant Market Revenue Concentration

A significant portion of the Company’s revenue is concentrated in the Texas and Montana markets. For the fiscal year 2007, Texas represented approximately 17% of our bingo revenue and 14% of consolidated revenue compared to more than 15% of bingo revenue for fiscal years 2006 and 2005. State law requires electronic bingo devices and systems to be placed through qualified distributors. For the fiscal year 2007, the Montana market represented approximately 50% of VLT revenue and 10% of consolidated revenue.

Recent Accounting Pronouncements

In December 4, 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, and SFAS No. 160, “Accounting and Reporting of Noncontrolling interest in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS No. 160). These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or minority) interests in consolidated financial statements. The Company will be required to adopt SFAS No.141(R) and 160 on or after December 15, 2008 (2010 for the Company). The Company has not yet determined the effect, if any, that the adoption of SFAS 141(R) and 160 will have on its consolidated financial statements.

In June 2006, FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes. FIN No. 48 is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. This interpretation also provides guidance on the derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition of tax positions. The recognition threshold and measurement attribute is part of a two-step tax position evaluation process prescribed in FIN No. 48, which is effective after the beginning of an entity’s first fiscal year that begins after December 15, 2006. The Company believes the potential impact of FIN No. 48 on its financial position, cash flows and results of operations is not material.  

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective beginning in October 2008. The Company is evaluating whether adoption of this statement will result in a change to its fair value measurements.

In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108, Quantifying Financial Statement Misstatements (“SAB 108”). SAB 108 gives guidance on how errors, built up over time in the balance sheet, should be considered from a materiality perspective and corrected. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 represents the SEC Staff’s views on the proper interpretation of existing rules and as such has no effective date. The adoption of SAB No. 108 did not have a material impact on our financial position, results of operation, and cash flows.

2. Goodwill and Intangibles

The Company accounts for goodwill and intangibles according to SFAS No. 142, Goodwill and Other Intangible Assets. This rule provides that goodwill should not be amortized but instead should be tested for impairment annually and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. Amortization is still required for identifiable intangible assets with finite lives.

F-15

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Goodwill, resulting from the February 1999 acquisition of Bingo Technologies Corporation (“BTC”), was being amortized on a straight-line basis over twelve years and amounted to $14,960,000, net of accumulated amortization, at October 31, 2002 and 2003. The November 2002 acquisition of certain assets of International Gaming Systems (“IGS”) added $1,849,000 to goodwill for fiscal 2003. In fiscal 2007, the Company acquired the assets of Summit Gaming and added $27,335,000 to goodwill and $7,720,000 in identifiable intangible assets which will be amortized over 5 to 10 years. The Company assessed the value of its goodwill as of July 31, 2005, 2006 and 2007 (its annual review date) and concluded that goodwill was not impaired.

Intangible assets consisted of the following as of October 31, 2007 (in thousands):

		Stated Value		Accumulated Amortization			Net Carrying Value	Weighted Average Amortization Period  (in years)
Intellectual property (software)	$	4,173	$	(3,676	)	$	497	1.2
Copyrights/trademarks		247		(38	)		209	11.8
Distributor buyouts		260		(260	)		—	—
Summit Gaming identifiable intangible assets:
Customer relationships		3,600		(420	)		3,180	4.4
Patent applications		520		(30	)		490	9.4
Game software library		3,600		(210	)		3,390	9.4
	$	12,400	$	(4,634	)	$	7,766

Intangible assets consisted of the following as of October 31, 2006 (in thousands):

		Stated Value		Accumulated Amortization			Net Carrying  Value	Weighted Average Amortization Period  (in years)
Intellectual Property (software)	$	4,173	$	(3,007	)	$	1,166	3.2
Copyrights/trademarks		255		(255	)		—	4.7
Distributor buyouts		860		(809	)		51	2.9
		5,288		(4,071	)		1,217

Intangibles are being amortized over the respective useful lives of the assets ranging from two to ten years. Amortization expense related to the intangibles in fiscal years 2007, 2006 and 2005 was $1,389,000, $710,000 and $721,000, respectively (including amortization of intellectual property software developed under SFAS 86 of $669,000, $656,000 and $485,000, respectively).

Estimated aggregate amortization expense for intangible assets subject to amortization as of October 31, 2007 is as follows (in thousands):

2008	$	1,568
2009		1,232
2010		1,156
2011		1,152
2012		732
After 2012		1,926
	$	7,766

F-16

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. Bingo Equipment, Furniture and Other Equipment

Bingo equipment, furniture and other equipment consisted of the following as of October 31, 2007 and 2006 (in thousands):

		October 31,
		2007		2006
Bingo equipment	$	55,307	$	56,241
Office furniture and equipment		4,716		4,246
Leasehold improvements		864		754
		60,887		61,241
Less accumulated depreciation and amortization		44,639		42,038
Less reserve for excess or obsolete terminals		142		214
		16,106		18,989
Add bingo component parts		3,796		3,879
Bingo equipment, furniture and other equipment, net	$	19,902	$	22,868

Depreciation for bingo equipment is applied over three- and five-year periods. Terminals on-hand that are not expected to be re-used are provided for as excess or obsolete.

Depreciation expense during the fiscal years ended October 31, 2007, 2006 and 2005 amounted to approximately $10.2 million, $9.6 million and $10.7 million, respectively. In addition, during fiscal years ended October 31, 2007, 2006 and 2005, the Company reserved $38,000, $249,000 and $0, respectively for bingo terminals and parts not expected to be re-used.

Component parts are for the assembly of terminals and recorded at average cost until the completed terminal is placed in bingo equipment and depreciated.

4. Credit Agreements

On March 28, 2007, the Company entered into a credit facility, which consists of a term note for $30.0 million and a revolving line of credit in the amount of $10.0 million relating to the acquisition of Summit Gaming. The term note bears interest at the prime rate plus 1.75%, with a minimum annual rate of 9.75%. As of October 31, 2007 the interest rate was 9.75% and the balance of the term note was $22.0 million. Interest payments are due monthly and beginning January 1, 2008, principal payments of $1.1 million are due quarterly with the remainder due March 28, 2012. The revolving line of credit bears interest based on the prime rate plus 0.50%, with a minimum annual rate of 8.50%. As of October 31, 2007 the interest rate was 8.50% and the outstanding balance of the revolver was $7.4 million. The revolving line of credit requires monthly payments of interest only and the outstanding balance is due on March 28, 2012. The Company can give no assurance that the revolving credit facility will be renewed. The Company’s obligations under the agreement are secured by substantially all of its assets. In October 2007, in accordance with the financing agreement with our lender, formerly restricted funds that were released in connection with the Trend litigation (see Note 5) of approximately $4.5 million were used to pay down the term loan facility. Another $5.0 million of excess cash from operations was also used in October 2007 to pay down $3.5 million towards the term loan facility and $1.5 million towards the revolver facility. We incurred a pre-payment penalty of $80,000 on the pre-payment of the term loan facility.

The credit facility provides for a prepayment premium of 1% in the first year and 0.5% in the second year under specified circumstances. The credit facility provides for mandatory prepayments under specified circumstances, including a requirement to prepay an amount equal to 50% of Excess Cash Flow, as defined, if the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA less Capital Expenditures, as defined, is greater than or equal to 2 to 1.

F-17

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The credit facility contains numerous affirmative and negative covenants, including restrictions on liens, limitations on indebtedness, prohibitions on fundamental changes, restrictions on investments, prohibition of dividends or redemptions and limitations on capital expenditures. The Company must maintain qualified cash, as defined, of at least $6.0 million. The credit facility also contains specified financial covenants, including a leverage ratio, fixed charge coverage ratio and a minimum trailing twelve month EBITDA covenant. Upon an event of default, the lenders under the credit facility can accelerate all obligations under the agreement and terminate the revolving credit commitment. The Company was in compliance with all terms and covenants of the agreement as of October 31, 2007.

On March 28, 2007, the Company terminated its prior revolving line-of-credit as part of the requirements of its new credit facility. Future minimum term loan payments as of October 31, 2007 are as follows (in thousands):

2008	$	4,400
2009		4,400
2010		4,400
2011		4,400
2012		4,400
	$	22,000

5. Commitments and Contingencies

Leases

The Company leases administrative and warehouse facilities and certain equipment under non-cancelable operating leases. Rent expense during the fiscal years ended October 31, 2007, 2006 and 2005 was $847,000, $836,000 and $863,000, respectively.

Future minimum lease payments under these leases as of October 31, 2007 are as follows (in thousands):

2008	$	853
2009		820
2010		572
	$	2,245

Purchase Commitments

From time to time, we enter into commitments with our vendors to purchase VLT parts, bingo terminals and support equipment at fixed prices and/or guaranteed quantities. During the fiscal year ended October 31, 2006, we entered into seven agreements with the same vendor to provide an additional $5.4 million in Traveler terminals and $1.1 million in Tracker parts. As of July 31, 2007, we had fulfilled all these purchase commitments. During the fiscal year ending October 31, 2007, we entered into various additional agreements for component parts for VLTs, Tracker and Traveler as well as component parts for the GameTech Mini ™. As of October 31, 2007, approximately $2.9 million of these commitments were outstanding. All purchases are expected to occur by the end of the third quarter in fiscal 2008.

F-18

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Litigation

Trend Litigation. On March 22, 2001, the Company filed GameTech International, Inc. v. Trend Gaming Systems, LLC, CIV 01-0540 PHX LOA, a claim in the United States District Court for the District of Arizona, seeking a declaratory judgment that the Company was not in material breach of the Company’s November 1, 1999 Distribution Agreement with Trend Gaming Systems, LLC (“Trend”), and seeking damages for past due payments and wrongful withholdings by Trend. Trend counterclaimed, alleging that its payments were in compliance with its contractual obligations. Trend also contended that the Company was in breach of certain of the Company’s contractual obligations to Trend, including that the Company had wrongfully terminated Trend. On December 16, 2002, the court entered at the Company’s request an order enjoining Trend from using approximately $540,000 in funds it had collected on the Company’s behalf, pending a trial on the Company’s ownership interest in those funds. The money was placed in two bank accounts/constructive trusts, subject to the court’s control. The sums in those accounts now total approximately $600,000. In addition, collections of accounts receivable by Trend, if any, are also being placed in that account, pending the resolution of the case. The Company has posted a $450,000 deposit with the court as a bond, which is presented as restricted cash on the Company’s condensed consolidated balance sheets. The accounts receivable from Trend were fully reserved as of October 31, 2007. Trial in this matter commenced October 4, 2004. On November 1, 2004, the jury returned a verdict in favor of Trend against the Company in the amount of $3.5 million in compensatory damages. The jury also awarded the Company $735,000 in compensatory damages against Trend for funds Trend collected on the Company’s behalf but failed to remit to the Company. The court denied all of the Company’s post-trial motions, except that it maintained the injunction imposing a constructive trust, pending resolution of the issues on appeal. The court setoff the jury awards and entered an amended judgment for Trend on May 12, 2005, in the amount of $2.8 million, plus interest on that sum at the rate of 3.31% per annum beginning March 30, 2005. The Company appealed to the United States Court of Appeals for the Ninth Circuit on April 8, 2005. The Company posted a supersedeas bond on April 8, 2005 in the court-appointed amount of $3.4 million, which bond stays any action by Trend to collect on the judgment, pending appeal. Trend initially sought an award of $810,000 in legal fees and $26,000 in expenses and costs. In an amended request, Trend sought an award of $1.4 million in legal fees and $61,000 in expenses and costs. The court awarded Trend $909,000 in legal fees, expenses and costs plus interest of 3.77% per annum beginning August 5, 2005. The Company appealed the fee award to the United States Court of Appeals for the Ninth Circuit on August 5, 2005. The Company posted an additional supersedeas bond with the court on August 18, 2005 in the amount of $1.1 million, thereby staying any action by Trend to collect the fees, pending appeal. For the year ended October 31, 2004, the Company recorded an estimated loss contingency in the Trend litigation of $3.6 million, which was estimated based on the amounts of the judgment described above. The Company recorded an additional loss contingency of $72,000 in the third quarter of fiscal 2005 to account for the increased total award to Trend for legal fees and expenses and costs of $909,000. In addition, loss contingencies of $133,000 and $65,000 were recorded in the fiscal years ended October 31, 2006 and 2005, respectively, to account for interest accrued on the Trend judgment.

On April 19, 2007 a three judge panel of the United States Court of Appeals for the Ninth Circuit heard oral arguments for the appeal. On May 16, 2007, the United States Court of Appeals for the Ninth Circuit issued its ruling in our favor upholding each of the items we appealed, reversing the trial court’s rulings and remanding the matter back to the trial court for a new trial. The matter has been returned to the control of the lower court but at this time there is no set date as to when the matter will be heard. Additionally, as a result of this decision, the supersedeas bonds posted by GameTech International prior to filling the appeal were released by the lower court as of August 18, 2007 and we have terminated the supporting insurance polices and have had the letters of credit released to us.

Trend Gaming Litigation. On March 2, 2004, the jury rendered a verdict in our favor awarding compensatory and punitive damages against Trend Gaming, LLC, a Kentucky LLC (“Trend Gaming”) (involving a prior distribution agreement in Virginia) in the total amount of approximately $1.5 million. The jury also returned a verdict against Steven W. and Rhonda Hieronymus awarding compensatory and punitive damages of $1.0 million. The court reduced compensatory damages against Trend Gaming to $1.1 million. The court affirmed $150,000 in punitive damages against Trend Gaming and awarded us fees and costs of suit against Trend Gaming in the amount of $650,000. Compensatory damages against Mr. and Mrs. Hieronymus have been reduced to $762,000 but the punitive damage award against them in the amount of $150,000 remains unchanged. Of the total compensatory damages of $1.1 million awarded to us, $762,000 represents compensation for lost profits. We can only collect such damages from one of the defendants to avoid a double recovery. Defendants appealed the judgment against them. On March 5, 2007, the Appellate Court entered its ruling affirming the judgment of the lower court in our favor. We have not recorded an estimated gain contingency, as we can give no assurances whether we will be able to collect any award from the defendants.

F-19

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other. We are involved in various other legal proceedings arising in the ordinary course of business. We do not believe that any of those proceedings will have a material adverse effect on our business, results of operations, and financial condition.

6. Stockholders’ Equity

Stock Options

In August 1997, the Company with the approval of its stockholders and directors, adopted the 1997 Incentive Stock Plan (the “1997 Plan”). Under the 1997 Plan, either incentive stock options (“ISO’s”) or nonqualified stock options (“NSO’s”) may be granted to employees, directors, and consultants to purchase the Company’s common stock at an exercise price determined by the Board of Directors on the date of grant. ISO's may be granted only to employees at an exercise price that equals or exceeds the fair value of such shares on the date such option is granted. The options generally have a term of ten years and vesting periods of one to four years are determined at the discretion of the Board of Directors. The Company has reserved 4,000,000 shares of common stock for issuance under the 1997 Plan, which included options granted during the twelve months immediately preceding the adoption of the 1997 Plan. In October 2001, the Company adopted the 2001 Restricted Stock Plan (the “2001 Plan”). Under the 2001 Plan, the Company authorized the granting of restricted stock to employees who are not officers or directors, consultants, and independent contractors. At the annual meeting of stockholders held on March 28, 2006, the stockholders of the Company approved the amendment and restatement of the 1997 Plan, which included the combination of the 2001 Plan with the 1997 Plan and the extension of the term of the 1997 Plan for an additional ten years. 

The aggregate intrinsic value represents the difference between the closing price of our common stock on October 31, 2007, which was $8.69, and the exercise price, multiplied by the number of in-the-money stock options as of the same date. This represents the amount that would have been received by the stock option holders if they had all exercised their stock options on October 31, 2007. In future periods, this amount will change depending on fluctuations in our stock price. The aggregate intrinsic value of the options outstanding at October 31, 2007 was $3.3 million. The aggregate intrinsic value of options exercisable at October 31, 2007 was $3.3 million. During the years ended October 31, 2007, 2006, and 2005, the aggregate intrinsic value of options exercised under our stock option plans were $578,000, $1.8 million, and $35,000, respectively, determined as of the date of option exercise.

As of October 31, 2007, options to purchase 721,550 shares of common stock were outstanding at exercise prices ranging from $2.85 to $11.46 per share under the 1997 Plan. In addition, as of October 31, 2007, 767,791 shares of common stock were available for future grants under the 1997 Plan.

A summary of the activity under the stock option plan and related information is presented below:

	Year ended October 31,
	2007				2006				2005
	Number of Shares (Options)			Weighted- Average Exercise Price	Number of Shares (Options)			Weighted- Average Exercise Price	Number of Shares (Options)			Weighted- Average Exercise Price
Balance at beginning of year	847,735		$	3.93	1,410,900		$	3.63	970,125		$	4.25
Options:
Granted	300,000		$	10.44	150,000		$	6.92	827,650		$	3.12
Forfeited	(325,000	)	$	9.09	(82,166	)	$	3.81	(346,675	)	$	4.16
Exercised	(101,185	)	$	3.46	(630,999	)	$	3.99	(40,200	)	$	3.36
Balance at end of year	721,550		$	4.38	847,735		$	3.93	1,410,900		$	3.63
Exercisable at end of year	621,550		$	3.39	722,735		$	3.40	1,410,900		$	3.63
Weighted average grant-date fair value of options granted during the year			$	6.88			$	4.17			$	2.16

F-20

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of October 31, 2007, the total compensation cost related to unvested stock-based awards granted to employees under the Company’s stock option plans but not yet recognized was $568,000. This cost will be amortized for fiscal years ended October 31, 2008, 2009, 2010, and 2011 at $205,000, $180,000, $132,000, and $51,000, respectively, and will be adjusted for subsequent changes in estimated forfeitures.

The following table summarizes information regarding stock options outstanding and exercisable as of October 31, 2007:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price	Number Exercisable	Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price
$2.85 - $2.97	313,500	7.58	$	2.87	313,500	7.58	$	2.87
$3.10 - $3.19	79,000	7.58	$	3.13	79,000	7.58	$	3.13
$3.44 - $3.63	80,350	5.54	$	3.53	80,350	5.54	$	3.53
$3.85 - $4.29	93,700	5.43	$	4.01	93,700	5.43	$	4.01
$4.62 - $6.99	55,000	6.70	$	5.50	55,000	6.70	$	5.50
$9.51 - $11.46	100,000	9.47	$	10.49	—	—	$	—
	721,550	7.27	$	4.38	621,550	6.92	$	3.39

Stockholder Rights Agreement

On March 7, 2003, the Company adopted a Rights Agreement (the“Rights Agreement”) that may have the effect of deterring, or preventing a change in control that might otherwise be in the best interest of the Company’s stockholders. Under the Rights Agreement, a dividend of one preferred share purchase right was issued for each outstanding share of common stock held by the stockholders of record as of the close of business on March 17, 2003. Each right entitles the stockholder to purchase, at a price of $16.00, one one-thousandth of a share of Series A Junior Participating Preferred Stock.

In general, subject to certain limited exceptions, the stock purchase rights become exercisable when a person or group acquires 15% or more of the Company's common stock or a tender offer or exchange offer for 15% or more of the Company's common stock is announced or commenced. After any such event, the Company's other stockholders may purchase additional shares of common stock at 50% of the then-current market price. The rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors. The rights may be redeemed by the Company at $0.01 per stock purchase right at any time before any person or group acquires 15% or more of the outstanding common stock. The rights should not interfere with any merger or other business combination approved by the Board of Directors. The rights expire on March 17, 2013.

F-21

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. Income Taxes

The income tax provision (benefit) recorded in the consolidated statement of operations consists of the following (in thousands):

		Year ended October 31,
		2007			2006			2005
Current:
Federal	$	2,587		$	2,947		$	565
State		378			365			109
Foreign		387			345			52
Deferred:
Federal		(500	)		(576	)		(243	)
State		(130	)		16			51
Foreign		(55	)		(136	)		—
	$	2,667		$	2,961		$	534

The significant components of the Company's deferred income tax assets and liabilities as of October 31, 2007 and 2006 are as follows (in thousands):  

		October 31, 2007
		Current		Non-Current
Deferred income tax assets:
Amortization of intangible assets	$	—	$	499
Allowance for doubtful accounts		947		—
Reserve for obsolete terminals		—		54
Loss contingencies		1,447		—
Accrued vacation		172		—
Stock option expense		45		—
Deferred Revenue		40		—
Foreign tax credit carry-forward		—		36
Capital loss carry-forward		—		13
Total deferred income tax assets		2,651		602
Deferred income tax liability:
Depreciation		—		(600	)
Net deferred income tax asset (liability)	$	2,651	$	2

		October 31, 2006
		Current			Non-Current
Deferred income tax assets:
Amortization of intangible assets	$	—		$	806
Allowance for doubtful accounts		838			—
Reserve for obsolete terminals		—			80
Loss contingencies		1,461			—
Accrued vacation		126			—
Stock option expense		96			—
Foreign tax credit carryforward		17			—
Capital loss carryforward		—			12
Total deferred income tax assets		2,538			898
Deferred income tax liability:
Depreciation		(80	)		(1,370	)
Net deferred income tax asset (liability)	$	2,458		$	(472	)

F-22

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The differences between the Company's provision for (benefit from) income taxes as presented in the accompanying consolidated statements of operations and provision for (benefit from) income taxes computed at the federal statutory rate of 34% was as follows:

	Year ended October 31,
	2007		2006		2005
Income tax provision (benefit) at the statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net	3.1		3.4		4.0
Foreign income taxes, net of credits	—		—		(0.7	)
Revisions to income tax payable due to closure of statute of limitations	—		—		(11.4	)
Meals and entertainment	0.6		0.7		2.3
Non deductible lobbying expenses	0.1		0.4		2.3
Impairment of goodwill	—		—		—
Other, net	(1.5	)	1.8		(2.0	)
Income tax provision (benefit) at its effective rate	36.3	%	40.3	%	28.5	%

8. Short Term Investments

The Company currently invests in only investment grade, short-term investments which it classifies as available-for-sale. As such, there were no significant differences between amortized cost and estimated fair value at October 31, 2007 or October 31, 2006. Additionally, because investments are short-term and are generally allowed to mature, realized gains and loss for fiscal 2007 and 2006 are minimal.

The following table presents the estimated fair value breakdown of investment by category (in thousands):

		October 31,
		2007		2006
Corporate securities	$	1,300	$	3,608
Auction rate securities		6,463		3,800
Total short-term investments	$	7,763	$	7,408

9. Accrued Severance

The Company has incurred expenses connected with severance agreements. These amounts are recorded in accrued payroll. In fiscal 2007, the total severance expense was $111,000 recorded in sales, general and administrative expenses. As of October 31, 2007, all outstanding severance expense had been paid. In fiscal 2006, total severance expenses of $170,000 were recorded in research and development expense.

Accrued severance consisted of the following as of October 31, 2007 and 2006 (in thousands):

		October 31,
		2007			2006
Beginning balance	$	44		$	359
Severance expenses		111			170
Less severance paid		(155	)		(485	)
Ending Balance	$	—		$	44

10. Other Accrued Liabilities

Other accrued liabilities consist of (in thousands):

F-23

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

		October 31,
		2007		2006
Accrued professional fees	$	176	$	592
Accrued distributor commissions		401		442
Deferred revenue		767		—
Accrued property tax		145		139
Other		803		408
	$	2,292	$	1,581

11. Net Income Per Share

A reconciliation of the shares used in the basic and fully diluted net income per share calculations follows (in thousands):

	Year ended October 31,
	2007	2006	2005
Basic weighted average shares outstanding	12,566	12,181	11,868
Effect of dilutive securities:
Stock options	425	576	92
Diluted	12,991	12,757	11,960

Employee stock options to purchase approximately 100,000, 125,000, and 832,000 shares in fiscal years ending October 31, 2007, 2006, and 2005, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

12. Valuation and Qualifying Accounts (in thousands)

Description		Balance at Beginning of Period		Additions Charged to  Costs and  Expenses		Net Deductions (Write-offs, Net of Collections)			Balance at  End of Period
Allowance for accounts receivable
Year ended October 31, 2005:
Allowance	$	2,454	$	43	$	(123	)	$	2,374
Year ended October 31, 2006:
Allowance	$	2,374	$	277	$	(421	)	$	2,230
Year ended October 31, 2007:
Allowance	$	2,230	$	561	$	(362	)	$	2,429

The balance of the allowance for accounts receivable for fiscal years ended 2007, 2006, and 2005 included a combined allowance of $1.6 million for Trend Gaming Systems, LLC and Trend Gaming, LLC consisting of the entire accounts receivable balance (see Note 5).

Description		Balance at Beginning of Period		Additions  Charged to Costs and Expenses		Deductions  (Disposal of Assets)			Balance at End of Period
Allowance for property and equipment
Year ended October 31, 2005:
Allowance	$	3,384	$	—	$	(506	)	$	2,878
Year ended October 31, 2006:
Allowance	$	2,878	$	249	$	(2,913	)	$	214
Year ended October 31, 2007:
Allowance	$	214	$	38	$	(113	)	$	139

F-24

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. Agreement to Acquire Assets

On March 28, 2007, we acquired essentially all of the assets of Summit Gaming for $41.7 million in cash. Summit Gaming is a leading developer and manufacturer of entertainment driven gaming devices, including primarily video lottery terminal equipment and related software, headquartered in Billings, Montana.

Under the purchase method of accounting, the total purchase price is allocated to Summit Gaming’s tangible and intangible assets based on their fair values as of the date of the closing of the acquisition. The preliminary estimated purchase price has been allocated based on the preliminary estimates that are described below.

The preliminary estimated total purchase price is as follows (in thousands):

Cash paid for Summit Gaming	$	39,745
Estimated direct transaction costs		1,954
Total preliminary purchase price	$	41,699

The preliminary purchase price includes approximately $1 million in working capital that is in dispute. The dispute is being arbitrated and should be resolved in the next fiscal year. The allocation of the preliminary purchase price and estimated useful lives and first year amortization associated with certain assets is as follows (in thousands):

Accounts receivable	$ 2,645
Prepaid expenses and other assets	211
Inventory	3,312
Property plant and equipment	1,598
Identifiable depreciable intangibles assets	7,720
Trade name	1,600
Goodwill	25,735 *
Accounts payable and other accrued expenses	(1,122)
Total cash purchase price	$ 41,699

* Includes the excess of the purchase price over the estimated fair value of assets and liabilities assumed.

Unaudited pro forma results of operations, assuming the acquisition of Summit Gaming had been completed at the beginning of each period are summarized below. The results reflect adjustments to amortization, interest expense, and income tax expense. The interest rates used in determining the pro forma adjustments are related to the credit facility and approximate a blended average rate of 9.54% for the twelve months ended October 31, 2007. The pro forma adjustment for the income tax expense is based on an effective rate of 40%. The pro forma earnings per share are based on the Company’s shares outstanding, as no shares were issued for the acquisition.

		For the Twelve Months Ended (in thousands, Except for Per Share  Amounts) October 31, 2007
Net sales	$	66,510
Net earnings		2,623
Basic earnings per share	$	0.21
Diluted earnings per share	$	0.20

F-25

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In the above acquisition, the Company acquired various intangible assets listed below:

		Acquired Intangible Assets (in thousands)
		October 31, 2007
Amortized Intangible Assets		Fair Market Value	Estimated Lives		Accumulated Amortization		Net Fair Market Value
Customer relationships	$	3,600	5 years	$	420	$	3,180
Patent application		520	10 years		30		490
Game library		3,600	10 years		210		3,390
Total amortizable intangible assets	$	7,720		$	660	$	7,060
Unamortized Intangible Assets:
Goodwill	$	25,735
Summit Gaming trade name		1,600
Total	$	27,335

Amortization expense related to the acquisition of Summit Gaming for the twelve-months ended October 31, 2007 was $660,000. Estimated future aggregate amortization expense for intangible assets associated with the Summit Gaming acquisition subject to amortization as of October 31, 2007 is as follows (in thousands):

2008	$	1,132
2009		1,132
2010		1,132
2011		1,132
2012		712
After 2012		1,820
	$	7,060

14. Related Party Transactions

On March 28, 2007, we acquired essentially all of the assets of Summit Gaming. Since that time, we have sold video lottery terminals to Amusement Services, LLC, which is owned by the person who was at the time also President of Summit Gaming, a division of the Company. For the three and twelve-month period ended October 31, 2007, we sold $447,607 and $639,364 to Amusement Services, LLC, respectively. As of October 31, 2007, the amount due from Amusement Services, LLC was $92,585 and is included in our accounts receivable balance.

We have also purchased equipment from Ceronix, Inc., which is controlled by one of our board members. For the three and twelve-month period ended October 31, 2007, we bought $1,884 and $9,016 from Ceronix, Inc., respectively. As of October 31, 2007, there was no amount due.

A member of our board is acting as our agent for the stock repurchase plan. During the twelve months ended October 31, 2007, the Company had advanced $500,000 for stock repurchases. As of October 31, 2007 the amount due from the board member was $500,000 and is included as a related party receivable which is being treated as a contra-equity account. As of January 16, 2007, the receivable has been settled in the Company’s common stock and the balance of this related party receivable was $0. Through December 28, 2007, the Company has repurchased 281,906 shares under this stock repurchase program at a total cost of approximately $2.0 million.

F-26

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15. Business Segment Information

During the fiscal quarter ended April 30, 2007, management reviewed the Company’s operating segments in accordance with SFAS 131, “Disclosure about Segments of an Enterprise and Related Information.” Based upon the changes beginning in March 2007, with the acquisition of Summit Gaming, in the manner in which management manages the Company, as well as the current economic characteristics of its operating segments, management has determined that a new operating segment is appropriate. Therefore, the segment discussion outline below represents the adjusted segment structure as determined by management in accordance with SFAS 131.

The Company has identified two operating segments. Each operating segment is considered a reporting segment which is described as follows: the design, development, and marketing of interactive electronic bingo systems consisting of portable and fixed-based systems and the manufacturing and sale of video lottery terminals.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies. The Company evaluates the performance of these segments based on many factors including sales, sales trends, margins, and operating performance.

No significant inter-company revenue is realized in these reporting segments. Interest income and expense and amortization of identifiable intangibles are not allocated but are included in bingo systems in the measurement of reporting segments profits reviewed by management. The provision for income taxes is also not included in the measure of reporting segment operating profits reviewed by management.

Financial information for the two reporting segments is as follows: (in thousands)

		Twelve Months Ended October 31,
		2007		2006		2005
Net Revenue:
Bingo systems	$	47,114	$	49,289	$	49,651
Video lottery terminals		11,691		—		—
	$	58,805	$	49,289	$	49,651
Net Cost of Revenue:
Bingo systems	$	19,683	$	19,929	$	20,304
Video lottery terminals		6,859		—		—
	$	26,542	$	19,929	$	20,304
Net Income:
Bingo systems	$	1,633	$	4,383	$	1,336
Video lottery terminals		3,038		—		—
	$	4,671	$	4,383	$	1,336

Identifiable Assets:		October 31, 2007		October 31, 2006
Bingo systems	$	83,131	$	59,214
Video lottery terminal		10,751		—
	$	93,882	$	59,214

16. Quarterly Financial Information (Unaudited)

F-27

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Summarized unaudited quarterly financial information for the years 2007 and 2006 are noted below (in thousands, except per share amounts):

		Year ended October 31, 2007
		First Quarter		Second Quarter (1)		Third Quarter (1)		Fourth Quarter (1)
Revenue	$	12,016	$	13,411	$	16,637	$	16,740
Gross profit		7,094		7,465		8,590		9,114
Income (loss) from operations		1,566		1,616		2,537		2,757
Net income	$	1,072	$	1,207	$	1,079	$	1,313
Net income per share:
Basic	$	0.09	$	0.10	$	0.09	$	0.10
Diluted	$	0.08	$	0.09	$	0.08	$	0.10

		Year ended October 31, 2006
		First Quarter		Second Quarter		Third Quarter		Fourth Quarter (2)
Revenue	$	12,347	$	12,533	$	12,430	$	11,979
Gross profit	$	7,695	$	7,578	$	7,317	$	6,770
Income (loss) from operations	$	1,308	$	1,864	$	2,105	$	1,721
Net income (loss)	$	839	$	1,186	$	1,322	$	1,036
Net income per share:
Basic	$	0.07	$	0.10	$	0.11	$	0.08
Diluted	$	0.07	$	0.09	$	0.10	$	0.08

1.	Results for the second, third, and fourth quarters of fiscal 2007 reflect the acquisition of the assets of Summit Gaming.
2.	During the fourth quarter ended October 31, 2006, $285,000 was credited to general and administrative expenses in the Statement of Operations due to the adjustment in accrued bonus liability as the fourth quarter results did not meet the criteria as established in the Board approved bonus plan.

F-28

PART IV. OTHER INFORMATION

Item 15.Exhibits and Financial Statement Schedules

We refer you to Part IV, Item 15 of the original Form 10-K. The following documents are being filed as part of this report:

23.1	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated by the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated by the Securities Exchange Act of 1934, as amended
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

	GAMETECH INTERNATIONAL, INC.
	By:	/s/ DONALD N. TATEISHI
		Donald N. Tateishi
		Chief Financial Officer, Treasurer, and Secretary (Principal Financial Officer and Principal  Accounting Officer)
Dated: January 25, 2008