**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**(Mark
                One)**R
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****FOR
                THE QUARTERLY PERIOD ENDED APRIL 30, 2007****OR**£
            **TRANSITION
                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
            (I.R.S.
                Employer Identification No.)of
                incorporation or organization)





**900
      SANDHILL ROAD, RENO, NEVADA**


**89521**


(Address
      of principal executive offices)


(Zip
      code)





Registrant’s
      telephone number, including area code: (775) 850-6000





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 R No £





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£
            Accelerated
                filer£
            Non-accelerated
                filerR





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes £ No R





On
      June
      1 2 ,
      2007,
      the registrant had 12, 579,907 outstanding
      shares of its Common Stock, par value $0.001 per share.














**GAMETECH
      INTERNATIONAL, INC.**


**QUARTERLY
      REPORT ON FORM 10-Q**


**FOR
      THE QUARTERLY PERIOD ENDED APRIL 30, 2007**


**INDEX**





**Page**
              **No.**Part
                I. Financial Information:Item
                1. Financial Statements (Unaudited)Condensed
                Consolidated Balance Sheets as of April 30, 2007 (Unaudited) and
                October
                31, 2006
            3Unaudited
                Condensed Consolidated Statements of Income for the Three and Six
                Months
                Ended April 30, 2007 and 2006
            4Unaudited
                Condensed Consolidated Statements of Cash Flows for the Six Months
                Ended
                April 30, 2007 and 2006
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            6Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            15Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            21Item
                4. Controls and Procedures
            22Part
                II. Other Information:Item
                1. Legal Proceedings
            22Item
                1A. Risk Factors
            22Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            23Item
                3. Defaults Upon Senior Securities
            23Item
                4. Submission of Matters to a Vote of Security Holders
            23Item
                5. Other Information
            23Item
                6. Exhibits
            24Signatures
            25





2






**PART
                  1. FINANCIAL INFORMATION****ITEM
                  1. FINANCIAL STATEMENTS.****GAMETECH
                  INTERNATIONAL, INC.****CONDENSED
                  CONSOLIDATED BALANCE SHEETS****(In
                  thousands, except share and per share
                  amounts)**
  **April
                      30,**
                    **2007**
              
              **October
                  31,**
                **2006****(Unaudited)**
              
              **(Note
                  A)****Assets:**Current
                  assets:Cash
                  and cash equivalents
              
              $
              5,881
              
              $
              5,411Short-term
                  investments
              
              
              4,856
              
              
              7,408Accounts
                  receivable, less allowance of $2,454 in 2007 and $2,230 in
                  2006
              
              
              7,041
              
              
              3,734Deposits
              
              
              14
              
              
              17Inventory
              
              
              3,788
              
              
              -Refundable
                  income taxes
              
              
              -
              
              
              64Restricted
                  short-term investments
              
              
              4,515
              
              
              4,515Prepaid
                  income tax
              
              
              402
              
              
              -Prepaid
                  expenses and other current assets
              
              
              2,134
              
              
              377Deferred
                  income taxes
              
              
              2,549
              
              
              2,458Total
                  current assets
              
              
              31,180
              
              
              23,984
  Bingo
                  equipment, furniture and other equipment, net
              
              
              23,743
              
              
              22,868Goodwill,
                  net
              
              
              36,098
              
              
              10,184Intangibles,
                  less accumulated amortization of $4,018 in 2007 and $4,071 in
                  2006
              
              
              8,467
              
              
              1,217Restricted
                  cash
              
              
              494
              
              
              483Notes
                  & Other Receivables
              
              
              181
              
              
              -Deferred
                  income taxes, long term
              
              
              190
              
              
              176Other
                  assets
              
              
              -
              
              
              302Total
                  assets
              
              $
              100,353
              
              $
              59,214**Liabilities
                  and stockholders’ equity:**Current
                  liabilities:Accounts
                  payable
              
              $
              1,720
              
              $
              1,819Accrued
                  payroll and related obligations
              
              
              848
              
              
              980Accrued
                  loss contingencies
              
              
              3,991
              
              
              3,898Income
                  taxes payable
              
              
              -
              
              
              294Current
                  portion of long term debt
              
              
              2,221
              
              
              21Other
                  accrued liabilities
              
              
              1,886
              
              
              1,560Total
                  current liabilities
              
              
              10,666
              
              
              8,572Long
                  term debt
              
              
              36,894
              
              
              160Deferred
                  income taxes
              
              
              649
              
              
              648Commitments
                  and contingencies
              
              
              -
              
              
              -Stockholders’
                  equity:Common
                  stock, $0.001 par value: 40,000,000 shares authorized;
                  14,419,232shares
                  issued at April 30, 2007 and 14,371,547 shares issued at October
                  31,
                  2006
              
              
              14
              
              
              14Additional
                  paid in capital
              
              
              50,913
              
              
              50,881Retained
                  earnings
              
              
              9,313
              
              
              7,035Treasury
                  stock, at cost: 1,855,325 shares in 2007 and 2006
              
              
              (8,096
              )
              
              (8,096
              )Total
                  stockholders’ equity
              
              
              52,144
              
              
              49,834Total
                  liabilities and stockholders’ equity
              
              $
              100,353
              
              $
              59,214
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.





3







**GAMETECH
                INTERNATIONAL, INC.****CONDENSED
                CONSOLIDATED STATEMENTS OF INCOME****(In
                thousands, except per share amounts)****(Unaudited)**




**Three
                  Months**
                **Ended
                    April 30,**
            
            
            **Six
                Months**
              **Ended
                April 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                revenue
            
            $
            13,411
            
            $
            12,533
            
            $
            25,428
            
            $
            24,880Cost
                of revenue
            
            
            5,946
            
            
            4,955
            
            
            10,869
            
            
            9,607Gross
                profit
            
            
            7,465
            
            
            7,578
            
            
            14,559
            
            
            15,273Operating
                expenses:General
                and administrative
            
            
            1,996
            
            
            2,300
            
            
            3,968
            
            
            4,914Sales
                and marketing
            
            
            3,022
            
            
            2,791
            
            
            5,931
            
            
            5,511Research
                and development
            
            
            785
            
            
            623
            
            
            1,387
            
            
            1,677Loss
                contingencies
            
            
            46
            
            
            33
            
            
            93
            
            
            65Total
                operating expenses
            
            
            5,849
            
            
            5,747
            
            
            11,379
            
            
            12,167Income
                from operations
            
            
            1,616
            
            
            1,831
            
            
            3,180
            
            
            3,106Interest
                expense
            
            
            (353
            )
            
            (3
            )
            
            (355
            )
            
            (5
            )Other
                income (expense), net
            
            
            166
            
            
            100
            
            
            325
            
            
            202Income
                before income taxes
            
            
            1,429
            
            
            1,928
            
            
            3,150
            
            
            3,303Provision
                for income taxes
            
            
            483
            
            
            742
            
            
            1,132
            
            
            1,278Income
                from operations, net of tax
            
            
            946
            
            
            1,186
            
            
            2,018
            
            
            2,025Cumulative
                effect of a change in accounting estimate (net of tax)
            
            
            261
            
            
            -
            
            
            261
            
            
            -Net
                income
            
            $
            1,207
            
            $
            1,186
            
            $
            2,279
            
            $
            2,025Net
                income per share - Basic:Income
                before cumulative effect of accounting estimate
            
            $
            0.08
            
            $
            0.10
            
            $
            0.16
            
            $
            0.17Cumulative
                effect of accounting estimate
            
            $
            0.02
            
            $
            -
            
            $
            0.02
            
            $
            -Net
                income
            
            $
            0.10
            
            $
            0.10
            
            $
            0.18
            
            $
            0.17Net
                income per share - DilutedIncome
                before cumulative effect of accounting estimate
            
            $
            0.07
            
            $
            0.09
            
            $
            0.15
            
            $
            0.16Cumulative
                effect of accounting estimate
            
            $
            0.02
            
            $
            -
            
            $
            0.02
            
            $
            -Net
                income
            
            $
            0.09
            
            $
            0.09
            
            $
            0.17
            
            $
            0.16Shares
                used in calculating net income per share:Basic
            
            
            12,554
            
            
            12,094
            
            
            12,538
            
            
            12,002Diluted
            
            
            13,099
            
            
            12,654
            
            
            13,111
            
            
            12,540





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




4





**GAMETECH
                  INTERNATIONAL, INC****CONDENSED
                  CONSOLIDATED STATMETENTS OF CASH FLOWS****(Unaudited,
                  in thousands)**
  **Six
                    Months Ended April 30,****2007**
              
              **2006****Cash
                  flows from operating activities:**Net
                  income
              
              $
              2,279
              
              $
              2,025Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              5,590
              
              
              5,131Obsolescence
                  and loss on disposal of bingo terminals and related
                  equipment
              
              
              (18
              )
              
              270Loss
                  on disposal of furniture and other equipment
              
              
              62
              
              
              3Stock
                  compensation expense
              
              
              (180
              )
              
              95Deferred
                  income taxes
              
              
              (104
              )
              
              (74
              )Interest
                  on short-term investments
              
              
              (201
              )
              
              (42
              )Interest
                  on restricted cash
              
              
              (11
              )
              
              (25
              )Change
                  in operating assets and liabilities net of effects from purchase
                  of
                  Summit:Accounts
                  receivable, net
              
              
              (663
              )
              
              (344
              )Deposits
              
              
              3
              
              
              3Inventory
              
              
              (547
              )
              
              -Refundable
                  income taxes
              
              
              64
              
              
              742Restricted
                  short-term investments
              
              
              -
              
              
              (72
              )Prepaid
                  Income Taxes
              
              
              (402
              )
              
              -Prepaid
                  expenses and other assets
              
              
              (258
              )
              
              (4
              )Accounts
                  payable
              
              
              (1,769
              )
              
              564Accrued
                  payroll and related obligations
              
              
              (132
              )
              
              (44
              )Accrued
                  loss contingencies
              
              
              93
              
              
              65Income
                  taxes payable
              
              
              (294
              )
              
              497Other
                  accrued liabilities
              
              
              326
              
              
              (652
              )Non-current
                  employment obligations
              
              
              (11
              )
              
              (12
              )Net
                  cash provided by operating activities
              
              
              3,827
              
              
              8,138**Cash
                  flows from investing activities:**Proceeds
                  from sale of short-term investments
              
              
              18,037
              
              
              16,270Payments
                  for purchase of short-term investments
              
              
              (15,284
              )
              
              (17,929
              )Capital
                  expenditures for bingo equipment, furniture, and other
                  equipment
              
              
              (3,885
              )
              
              (6,565
              )Payment
                  for the acquisition of Summit Amusement & Distributing,
                  Ltd
              
              
              (2,437
              )
              
              -Payments
                  for acquisitions of intangible assets
              
              
              -
              
              
              (114
              )Net
                  cash used in investing activities
              
              
              (3,569
              )
              
              (8,338
              )**Cash
                  flows from financing activities:**Tax
                  benefit from stock options exercised
              
              
              47
              
              
              -Proceeds
                  from issuance of common stock
              
              
              165
              
              
              1,809Net
                  cash provided by financing activities
              
              
              212
              
              
              1,809Net
                  increase in cash and cash equivalents
              
              
              470
              
              
              1,597Cash
                  and cash equivalents at beginning of period
              
              
              5,411
              
              
              6,330Cash
                  and cash equivalents at end of period
              
              $
              5,881
              
              $
              7,927**Supplemental
                  Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              $
              43
              
              $
              -Income
                  taxes
              
              $
              1,652
              
              $
              114**Non-cash
                  investing and financing activities:**Acquisition
                  of fixed assets included in:Accounts
                  payable
              
              $
              485
              
              $
              -Note
                  payable for the acquisition of Summit Amusement & Distributing,
                  Ltd
              
              $
              38,945
              
              $
              -
 
 The
        Company purchased Summit for $40.3 million. In conjuction with the acquisition,
        liabilities were assumed as follows:
 
 Fair
                  value of assets acquired
              
              $
              7,570Goodwill
                  and Intangibles
              
              
              32,560Notes
                  Payable
              
              
              (38,945)Liabilities
                  assumed
              
              $
              1,185
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
 5


**GAMETECH
      INTERNATIONAL, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
      A. BASIS OF PRESENTATION**





The
      accompanying unaudited condensed consolidated financial statements and related
      disclosures as of April 30, 2007 have been prepared in accordance with U.S.
      generally accepted accounting principles applicable to interim financial
      information and with the instructions to Form 10-Q and Rule10-01 of Regulation
      S-X. Accordingly, they do not include all of the information and footnotes
      required by U.S. generally accepted accounting principles for complete financial
      statements. In our opinion, all adjustments (consisting of normal recurring
      adjustments) considered necessary for a fair presentation of our financial
      position and interim results have been included. Operating results for the
      three
      and six-month periods ended April 30, 2007 are not necessarily indicative of
      the
      results that may be expected for the current fiscal year or any other
      period.





The
      balance sheet at October 31, 2006 has been derived from the audited financial
      statements at that date but does not include all of the information and
      footnotes required by U.S. generally accepted accounting principles for complete
      financial statements. These condensed unaudited consolidated financial
      statements should be read in conjunction with the consolidated financial
      statements and related notes, as well as other information included in our
      Annual Report on Form 10-K for the year ended October 31, 2006 and any other
      of
      our filings with the Securities and Exchange Commission.





**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, impairment of goodwill, loss contingencies, and stock based
      compensation are significant estimates made by us. Actual results could
      ultimately differ from those estimates.





**RECLASSIFICATIONS**





Certain
      prior period reclassifications have been made to conform to classifications
      in
      the current period.




**NOTE
      B. SIGNIFICANT ACCOUNTING POLICIES**





**REVENUE
      RECOGNITION**





We
      recognize revenue when the following criteria are met:


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


·
            Shipment
                has occurred or services have been
                rendered,


·
            The
                price is fixed or determinable, and


·
            Collectibility
                is reasonably assured.





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.




6





*Video
      Lottery Terminal*


Our
      product sales revenues are generated from the sale of video lottery terminals,
      conversion kits, content fees and license fees, equipment and services. Revenues
      are reported net of discounts, sales taxes and other taxes of a similar nature.
      Revenues related to contracted production is 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**





Accounts
      receivable are recorded when revenue is recognized in accordance with our
      revenue recognition policy and represent claims against third parties that
      will
      be settled in cash. The carrying value of our receivables, net of allowances,
      represents our estimated net realizable value.





*Bingo
      Equipment*


We
      estimate the possible losses resulting from non-payment of outstanding accounts
      receivable arising from the lease of our bingo units. 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 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 our customers and distributors for credit worthiness,
      economic trends, changes in our customer payment terms, and historical
      collection experience when evaluating the adequacy of our allowance for doubtful
      accounts. We also reserve a percentage of our accounts receivable based on
      aging
      category. In determining these percentages, we review historical write-offs
      of
      our receivables, payment trends, and other available information. While such
      estimates have been within our expectations and the provisions established,
      a
      change in financial condition of specific customers or in overall trends
      experienced may result in future adjustments of our estimates of recoverability
      of our receivables.





*Video
      Lottery Terminals*


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





**INVENTORIES**





Inventories,
      consisting primarily of parts and components to be used for manufacturing of
      products to be sold, are valued at the lower of cost or market, as determined
      by
      the first-in, first-out basis. Also classified as inventories is equipment
      consisting of video lottery terminals to be sold in a future period. The
      following schedule details inventory between parts and equipment as of April
      30,
      2007 (in thousands):





April
                30, 2007Inventory
                - parts
            $
                2,158Inventory
                - equipment
            1,630Total
                Inventory
            $
                3,788





**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
                yearsOffice
                furniture and equipment
            3-7
                yearsLeasehold
                improvements
            10
                years




7





We
      provide 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 we may
      have understated or overstated the provision required for excess or obsolete
      bingo terminals. Although we attempt to assure the accuracy of these 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**





We
      capitalize 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. We are capitalizing qualified costs of software developed
      for new products or for significant enhancements to existing products. We cease
      capitalizing costs when the product is available for general release to our
      customers. We amortize the costs on a straight-line method over the estimated
      economic life of the product beginning when the product becomes available for
      general release.





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





**GOODWILL**





We
      are
      required to perform an annual goodwill impairment review, and depending upon
      the
      results, 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 business
      climate, an adverse action or assessment by a regulator, unanticipated
      competition, or a loss of key personnel.





**LONG-LIVED
      ASSETS**





We
      have
      adopted the provisions of SFAS No. 144, *Accounting
      for the*  *Impairment
      or Disposal of Long-Lived Assets* .
      SFAS
      No. 144 requires impairment losses to be recognized for long-lived assets and
      identifiable intangibles, other than goodwill, used in operations when
      indicators of impairment are present and the estimated undiscounted cash flows
      are not sufficient to recover the assets’ carrying amount. The impairment loss
      is measured by comparing the fair value of the asset to its carrying
      amount.





**LEGAL
      CONTINGENCIES**





We
      are
      currently involved in various claims and legal proceedings (see Note E. Legal
      Proceedings). Periodically, we review the status of each matter and assess
      the
      potential financial exposure. If the potential loss from any claim or legal
      proceeding is considered probable and the amount can be estimated, we accrue
      a
      liability for the estimated loss. Significant judgment is required in both
      the
      determination of probability and the determination as to whether an exposure
      can
      be reasonably estimated.





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





**STOCK-BASED
      COMPENSATION**





We
      generally grant stock options to our 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.




8





We
      have
      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,
      our
      Board of Directors approved the acceleration of the vesting of all unvested
      stock options awarded under the 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
      three and six month period ended April 30, 2007, we recognized a compensation
      expense of $5 3 ,428
      related to options g ranted . There
      was
      $95,531 in compensation expense recorded for the three and six months ending
      April 30, 2006.





As
      of
      April 30, 2007, the total compensation cost related to unvested stock-based
      awards granted to employees under our stock option plans but not yet recognized
      was $1,021,572. T he
      cost
      of each award will be amortized on a straight-line basis over its term, which
      range from two to four years, and will be adjusted for subsequent changes in
      estimated forfeitures.




On
      November 10, 2005, the FASB issued Staff Position No. SFAS 123(R)-3, *Transition
      Election Related to Accounting for Tax Effects of*  *Share-Based
      Payment Awards.* We
      have
      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).





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. We continue 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 the stock for a period equal to the length of time we
      have 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 Condensed Consolidated Statements of Income.





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:







**Three
                Months**
              **Ended****April
                30,****2007**Risk-free
                interest rate
            
            4.67%Dividend
                yield
            
            —Volatility
                factor
            
            61.5%Expected
                life (in years)
            
            6.0




*CHANGE
        IN ACCOUNTING ESTIMATE*
  During
        the quarter ended April 30, 2007, the Company re-evaluated its forfeiture
        rate
        for stock options and revised the compensation expense accordingly. For the
        three and six-months ended April 30, 2007 we recognized a cumulative effect
        adjustment of $399,575, and a related tax benefit of $138,308 for increase
        to
        net income of $261,267. For the three and six-month period ended April 30,
        2007,
        diluted and basic earnings per share increased by $0.02, as a result of change
        in estimate of the forfeiture rate.


9


**RECENT
      ACCOUNTING PRONOUNCEMENTS**





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. FIN No. 48 is effective
      after the beginning of an entity’s first fiscal year that begins after December
      15, 2006. We are assessing the potential impact of FIN No. 48 on our financial
      position, results of operation, and cash flow.





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. We are evaluating whether adoption of this statement will result in a
      change to our 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. We are assessing the potential impact of SAB No. 108
      on our financial position, results of operation, and cash flow .





In
      February 2007, the FASB issued SFAS No. 159, *Fair
      Value Option for Financial Assets and Financial Liabilities* (“SFAS
      159”). SFAS 159 permits companies to elect to measure eligible financial
      instruments, commitments and certain arrangements at fair value at specified
      election dates, with changes in fair value recognized in earnings at each
      subsequent reporting period. SFAS 159 is effective for fiscal years beginning
      after November 15, 2007. We are assessing the potential impact of SFAS 159
      on
      our financial position, results of operation, and cash flow.





**NOTE
      C. ACQUISITION**





**** On
      March
      28, 2007, the Company acquired essentially all of the assets of Summit Amusement
      & Distributing, Ltd. (Summit) for $40.3 million in cash. Summit is 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’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 estimate total purchase price is as follows (in
      thousands):




Cash
                paid for Summit
              $
              38,381Estimated
                  Direct Transaction Costs
              
              1,934Total
                  preliminary purchase price
              $
              40,315








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
            $
                2,645Prepaid
                expenses and other assets
            211Inventory
            2,353Property
                plant and equipment
            2,657Identifiable
                depreciable intangibles assets
            7,720Trade
                name
            1,600Goodwill
            24,314
                *Accounts
                payable and other accrued expenses
            (1,185)Total
                Cash Purchase Price
            $
                40,315






10








*
      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 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 9.54% for the three and six months ended
      April 30, 2007. The pro forma adjustment for the income tax expense is based
      on
      our 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 Three Months Ended
            
            For
                the Six Months EndedApril
                30, 2007
            
            April
                30, 2006
            
            April
                30, 2007
            
            April
                30, 2006(In
                Thousands, Except For Per Share Amounts)Net
                Sales
            $
                17,633
            
            $19,497
            
            $
                34,859
            
            $
                38,314Net
                earnings
            1,444
            
            1,593
            
            2,376
            
            2,573Basic
                earnings per share
            $
                0.12
            
            $
                0.13
            
            $
                0.19
            
            $
                0.21Diluted
                earnings per share
            $
                0.11
            
            $
                0.13
            
            $
                0.18
            
            $
                0.21






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





**Acquired
                Intangible Assets**(in
                thousands)**April
                30, 2007****Amortized
                Intangible Assets**
            **Fair
                Market**
              **Value**
            **Estimated**
              **Lives**
            **Accumulated**
              **Amortization**
            **Net
                Fair**
              **Market
                Value**Customer
                relationships
            $
                3,600
            5
                years
            $
                60
            $
                3,540Patent
                application
            520
            10
                years
            4
            516Game
                library
            3,600
            10
                years
            30
            3,570Total
                amortizable intangible assets
            $
                7,720
            
            $
                94
            $
                7,626**Unamortized
                intangible assets**Goodwill
            $
                24,314Summit
                trade name
            1,600Total
            $
                25,914





Amortization
      expense related to the acquisition of Summit for the three and six-months ended
      April 30, 2007 was $94,000. Estimated aggregate amortization expense for
      intangible assets associated with the Summit acquisition subject to amortization
      as of April 30, 2007 is as follows (in thousands):





2007...............................................................................
            
            $
            5642008...............................................................................
            
            
            1,1282009...............................................................................
            
            
            1,1282010...............................................................................
            
            
            1,1282011...............................................................................
            
            
            1,128After
                2011.......................................................................
            
            
            2,550$
            7,626





**NOTE
      D. NET INCOME PER SHARE**





Basic
      net
      income per share is computed by dividing reported net income by the weighted
      average number of common shares outstanding each period.




11





Diluted
      net income per share is computed by dividing the weighted average number of
      common shares and other common equivalent shares outstanding during each period.
      Diluted common shares are calculated in accordance with the treasury stock
      method, which treats the proceeds from the exercise of all warrants and options
      as, if they were used to reacquire stock at market value.





(In
      thousands, except per share amounts)




**Three
                Months Ended**
              **April
                30,**
            
            
            **Six
                Months Ended**
              **April
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Income
                from operations
            
            $
            946
            
            $
            1,186
            
            $
            2,018
            
            $
            2,025Effect
                of accounting change
            
            
            261
            
            
            -
            
            
            261
            
            
            -Net
                income, as reported
            
            $
            1,207
            
            $
            1,186
            
            $
            2,279
            
            $
            2,025Weighted
                average number of shares outstanding
            
            
            12,554
            
            
            12,094
            
            
            12,538
            
            
            12,002Incremental
                shares from the assumed exercise of dilutive stock options
            
            
            545
            
            
            560
            
            
            573
            
            
            538Dilutive
                weighted shares
            
            
            13,099
            
            
            12,654
            
            
            13,111
            
            
            12,540BasicIncome
                from operations:
            
            $
            0.08
            
            $
            0.10
            
            $
            0.16
            
            $
            0.17Effect
                of accounting change:
            
            
            0.02
            
            
            -
            
            
            0.02
            
            
            -Net
                income:
            
            $
            0.10
            
            $
            0.10
            
            $
            0.18
            
            $
            0.17DilutedIncome
                from operations:
            
            $
            0.07
            
            $
            0.09
            
            $
            0.15
            
            $
            0.16Effect
                of accounting change:
            
            
            0.02
            
            
            -
            
            
            0.02
            
            
            -Net
                income:
            
            $
            0.09
            
            $
            0.09
            
            $
            0.17
            
            $
            0.16





**NOTE
      E. LEGAL PROCEEDINGS**





On
      March
      22, 2001, we 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 we are not in material
      breach of our 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 we were
      in breach of certain of our contractual obligations to Trend, including that
      we
      had wrongfully terminated Trend. On December 16, 2002, the court entered at
      our
      request an order enjoining Trend from using approximately $540,000 in funds
      it
      had collected on our behalf, pending a trial on our 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
      $620,000. In addition, collections of accounts receivable by Trend, if any,
      are
      also being placed in that account, pending the resolution of the case. We have
      posted a $450,000 deposit with the court as a bond, which is presented as
      restricted cash on our condensed consolidated balance sheets. The accounts
      receivable from Trend were fully reserved as of April 30, 2007. Trial in this
      matter commenced October 4, 2004. On November 1, 2004, the jury returned a
      verdict in favor of Trend against us in the amount of $3.5 million in
      compensatory damages. The jury also awarded us $735,000 in compensatory damages
      against Trend for funds Trend collected on our behalf but failed to remit to
      us.
      The court denied all of our 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.





We
      appealed to the United States Court of Appeals for the Ninth Circuit on April
      8,
      2005. We 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. We appealed the fee award to the United
      States Court of Appeals for the Ninth Circuit on August 5, 2005. We 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. Any cash used in the collateralization of the bonds is accounted for
      as
      restricted short-term investments on our consolidated balance sheets. 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.




12





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.. As
      a
      result of this decision, bonds posted by GameTech International prior to filling
      the appeal will be available for return to GameTech International upon petition
      to the lower court. Currently, there is no set date as to when the matter will
      be returned to the control of the lower court. For
      the
      year ended October 31, 2004, we 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. We 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 $46,000 and $93,000  were
      recorded in the three and six-month period ended April 30, 2007,
      respectively.  Loss
      contingencies of $33 ,000
      and
      $65,000 were recorded in the three and six-month period ended April 30, 2006,
      respectively, to account for interest accrued on the Trend judgment. We feel
      the
      amount recorded is appropriate as of April 30, 2007.





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.
      Defendants did not post a supersedeas bond, and we are therefore not precluded
      from pursuing collection on the judgment during the appeal. 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.





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





**NOTE
      F. CREDIT AGREEMENT**





On
      March
      28, 2007, we 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. The term note bears interest at LIBOR
      plus 4.75%,with a minimum annual rate of 9.75%. As of April 30, 2007 the
      interest rate was 10.0% and the balance of the term note was $30.0 million.
      Interest payments are due monthly and beginning January 1, 2008, principal
      payments of $1.1 million are due quarterly with the remainder of $11.3 million
      due March 28, 2012. The revolving line of credit bears interest based on the
      LIBOR plus 3.5%, with a minimum annual rate of 8.50%. As of April 30, 2007
      the
      interest rate was 8.75% and the outstanding balance of the revolver was $8.9
      million. The revolving line of credit requires monthly payments of interest
      only
      and the outstanding balance is due on March 28, 2012. We can give no assurance
      that the revolving credit facility will be renewed. Our obligations under the
      agreement are secured by substantially all of our assets.





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.





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. We must maintain Qualified Cash,
      as defined, of at least $4 million. The credit facility also contains specified
      financial covenants, including a leverage ratio, fixed charge coverage ratio
      and
      EBITDA ratio. Upon an event of default, the lenders under the credit facility
      can accelerate all obligations under the agreement and terminate the revolving
      credit commitment. We were in compliance with all terms and covenants of the
      agreement as of April 30, 2007.





On
      March
      28, 2007, we terminated our prior revolving line-of-credit as part of the
      requirements of our new credit facility.




13








**NOTE
      G. INCOME TAXES**





We
      recorded our income tax provision at an effective rate of 35.8% for the six
      months ended April 30, 2007, compared with 38.7% for the six months ended April
      30, 2006. The actual effective tax rate is different from the expected federal
      rate of 34%, reflecting certain permanent differences between financial
      accounting and tax accounting, and state and foreign tax
      provisions.





**NOTE
      H. RESTRICTED SHORT TERM INVESTMENTS**





Restricted
      short-term investments at April 30, 2007 and October 31, 2006 consisted of
      bank
      certificates of deposit used to collateralize irrevocable standby letters of
      credit pledged to the court to secure certain previous judgments against us
      pending results of our appeals. The certificates of deposit are in the amounts
      of $3.4 million and $1.1 million and are at interest rates of 3.88% and 4.51%,
      respectively, and mature April 6, 2008 and August 10, 2007, respectively. (See
      Note E. Legal Proceedings.)





**NOTE
      I. BUSINESS SEGMENT INFORMA** **TION**





During
      the fiscal quarter ended April 30, 2007, management reviewed our 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, 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.





We have
      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. We evaluated 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 are not included 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)





Three
                Months Ended
              April
                30,
            
            Six
                Months Ended
              April
                30,2007
            
            2006
            
            2007
            
            2006**Net
                Sales**Bingo
                systems
            
            $
                12,332
            
            $
                12,533
            
            $
                24,349
            
            $
                24,880Video
                Lottery Terminal
            
            1,079
            
            -
            
            1,079
            
            -$
                13,411
            
            $
                12,533
            
            $25,428
            
            $
                24,880**Net
                income**Bingo
                systems
            
            $
                1,189
            
            $
                1,186
            
            $
                2,261
            
            $
                2,025Video
                Lottery Terminal
            
            18
            
            -
            
            18
            
            -$
                1,207
            
            $
                1,186
            
            $
                2,279
            
            $
                2,025April
                30, 2007
            
            October
                31, 2006**Identifiable
                assets**Bingo
                systems
            $
                91,351
            
            $
                59,214Video
                Lottery Terminal
            9,002
            
            -$
                100,353
            
            $
                59,214




14








**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS**  **OF
      OPERATIONS.**





The
      following discussion should be read in conjunction with our unaudited condensed
      consolidated financial statements and notes thereto included elsewhere in this
      report, as well as our audited consolidated financial statements for the fiscal
      year ended October 31, 2006 contained in our Annual Report on Form
      10-K.





This
      document includes various “forward-looking statements” within the meaning of
      Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
      Securities Exchange Act of 1934, as amended, which represent our expectations
      or
      beliefs concerning future events. Statements containing expressions, such as
      “believes,” “anticipates,” or “expects,” used in our press releases and periodic
      reports on Forms 10-K and 10-Q filed with the SEC, are intended to identify
      forward-looking statements. All forward-looking statements involve risks and
      uncertainties. Although we believe our expectations are based upon reasonable
      assumptions within the bounds of our knowledge of our business and operations,
      there can be no assurances that actual results will not differ materially from
      expected results. We caution that these and similar statements included in
      this
      report are further qualified by important factors that could cause actual
      results to differ materially from those in the forward-looking statements.
      Such
      factors include those discussed in our Annual Report on Form 10-K for the year
      ended October 31, 2006. Readers are cautioned not to place undue reliance on
      forward-looking statements, which speak only as of the date thereof. We
      undertake no obligation to publicly release any revisions to such
      forward-looking statements to reflect events or circumstances after the date
      hereof.





**OVERVIEW**





We
      design, develop, and market interactive electronic player terminals and bingo
      systems. We currently market portable systems that can be played anywhere within
      a bingo hall and fixed-base systems with touchscreen-activated monitors. In
      March 2007, we acquired Summit
      Amusement & Distributing, Ltd. (“Summit”), a
      designer and manufacturer of video lottery terminals. For our three most recent
      fiscal years ended October 31, 2006, 2005, and 2004, our portable terminals
      generated approximately 80%, 77%, and 74% of our revenue, respectively, while,
      during those same years, our fixed-base terminals generated the balance of
      our
      revenue. For the three months ended April 30, 2007, video lottery terminal
      sales
      accounted for 9%, portable systems accounted for 75%, and fixed-based units
      accounted for 16% of our revenue. For the six months ended April 30, 2007,
      video
      lottery terminal sales accounted for 5%, portable systems accounted for 78%
      and
      fixed-base systems accounted for 17% of our revenue. As of April 30, 2007,
      we
      had bingo systems in service in 39 states and in seven non-domestic countries
      and video lottery terminal sales in four states and various Native American
      locations.





We
      generate revenue by placing electronic bingo systems 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. We also generate revenue by placing video lottery terminals
      under
      contract in casinos based on a percentage of revenue generated by each terminal
      and through the sale of terminals, software updates, and services. Revenue
      growth for our bingo systems is affected by player acceptance of electronic
      bingo as an addition or an alternative to paper bingo, our ability to expand
      operations into new markets and our ability to increase our market share.
      Fixed-base bingo terminals generate greater revenue per terminal than portable
      bingo terminals, but also require a greater initial capital investment. Revenue
      growth for our video lottery terminal sales is affected by our ability to expand
      our customer base into new markets and increase our market share.





We
      typically install our electronic bingo systems at no charge to our customers,
      and we capitalize the costs. We record depreciation of bingo equipment over
      either a three or five-year estimated useful life using the straight-line method
      of depreciation. Video lottery terminals installed in casinos under a
      participation contract are depreciated over a five year estimated useful life
      using the straight line method of depreciation.





Our
      expenses consist primarily of: (a) cost of revenue for bingo units,
      consisting of expenses associated with technical and operational support of
      the
      bingo systems within bingo halls, depreciation and amortization of bingo
      terminals, repair, refurbishment, and disposals of bingo terminals and related
      support equipment, and excess or obsolescence allowance; (b) cost of goods
      sold for the video lottery terminals, consisting of material, labor, and
      overhead; (c) general and administrative costs, consisting of activities
      associated with management of our company and related support, which includes
      finance and accounting, legal, compliance, information systems, human resources,
      and accounts receivable reserve; (d) sales and marketing, consisting
      primarily of commissions paid to distributors for promoting and supporting
      our
      products and an internal sales force with a focus upon generating new customers
      and upgrades for existing customers; and (e) research and development,
      consisting of company-sponsored research and development activities to provide
      players with new or enhanced products on which to play electronic
      bingo.





On
      March
      28, 2007, we completed the acquisition of substantially all of the assets of
      Summit Amusement & Distributing, Ltd. (“Summit”) for $40.3 million,
      including approximately $1.9 million in one time expenses related to the
      acquisition. Summit is a leading developer and manufacturer of entertainment
      driven gaming devices, including primarily video lottery terminal equipment
      and
      related software.




15





On
      May
      16, 2007, a three judge panel of the United States Court of Appeals for the
      Ninth Circuit issued its ruling in our favor in GameTech International, Inc.
      v.
      Trend Gaming Systems, LLC, 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. As a result of this decision bonds posted by GameTech
      International prior to filing the appeal will be available for return to us
      upon
      petition to the lower court. Currently there is no set date as to when the
      matter will be returned to the control of the lower court.





In
      April
      2007, our vice president of product marketing resigned and our chief financial
      officer resigned. Our chief executive officer is filling these roles on an
      interim basis while our board of directors conducts a search for permanent
      replacements.








**APPLICATION
      OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES**





Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      discusses our condensed consolidated financial statements, which have been
      prepared in accordance with U.S. generally accepted accounting principles.
      The
      preparation of these financial statements requires us to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      the
      disclosure of contingent assets and liabilities at the balance sheet dates
      and
      reported amounts of revenue and expenses during the reporting period. On an
      ongoing basis, we evaluate our estimates and judgments, including those related
      to revenue recognition, bad debts, bingo terminal depreciation, goodwill
      impairment, and contingencies and litigation. We base our estimates and
      judgments on historical experience and on various other factors that we believe
      are reasonable under the circumstances, the results of which form the basis
      for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.





Changes
      in internal or external conditions could cause actual results to differ from
      our
      estimates and could cause future reporting periods to be adversely affected.
      If
      changes in conditions lead us to believe that our criteria for revenue
      recognition are not met for future transactions, revenue recognized for future
      reporting periods could be significantly less. Changes in financial conditions
      of specific customers or in overall collection trends may result in adjustments
      to our reserves for doubtful accounts. Changes in technology, our competitors’
offerings, market conditions, or other factors affecting our business prospects
      could result in an increase in reserves for bingo terminal obsolescence or
      in an
      impairment to the carrying value of goodwill, other intangible assets or the
      capitalized cost of developed software. As additional information becomes
      available and we reassess our potential liability related to litigation or
      other
      contingencies, we may revise our estimates and such revisions could have an
      adverse effect on our results of operations, cash flows, and financial
      position.





***Revenue
      Recognition***





We
      recognize revenue when the following criteria are met:


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


·
            Shipment
                has occurred or services have been
                rendered,


·
            the
                price is fixed or determinable, and


·
            collectibility
                is reasonably assured.





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. The
      Company exercises judgment in assessing the credit worthiness of customers
      to
      determine whether collectibility is reasonably assured. Should changes in
      conditions cause the Company to determine the factors are not met for future
      transactions, revenue recognized for future reporting periods could be adversely
      affected.




16





*Video
      Lottery Terminal*


Our
      product sales revenues are generated from the sale of video lottery terminals,
      conversion kits, content fees and license fees, equipment and services. Revenues
      are reported net of discounts, sales taxes and other taxes of a similar nature.
      Revenues related to contracted production is 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.





***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
                yearsOffice
                furniture and equipment
            3-7
                yearsLeasehold
                improvements
            10
                years





We
      provide 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 we may
      have understated or overstated the provision required for excess or obsolete
      bingo terminals. Although we attempt to assure the accuracy of our 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***





We
      capitalize 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. We are capitalizing qualified costs of software developed
      for new products or for significant enhancements to existing products. We cease
      capitalizing costs when the product is available for general release to our
      customers. We amortize the costs on a straight-line method over the estimated
      economic life of the product beginning when the product becomes available for
      general release.





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





***Accounts
      Receivable and Allowance for Doubtful Accounts***





Our
      receivables are recorded when revenue is recognized in accordance with our
      revenue recognition policy and represent claims against third parties that
      may
      be settled in cash. The carrying value of our receivables, net of allowance
      for
      doubtful accounts represents their estimated net realizable value.




17





*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 Terminal*


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





***Goodwill***





We
      are
      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.





***Long-Lived
      Assets***





We
      have
      adopted the provisions of SFAS No. 144, *Accounting
      for the*  *Impairment
      or Disposal of Long-Lived Assets* .
      SFAS
      No. 144 requires impairment losses to be recognized for long-lived assets and
      identifiable intangibles, other than goodwill, used in operations when
      indicators of impairment are present and the estimated undiscounted cash flows
      are not sufficient to recover the assets’ carrying amount. The impairment loss
      is measured by comparing the fair value of the asset to its carrying
      amount.





***Legal
      Contingencies***





We
      are
      currently involved in various claims and legal proceedings. Periodically, we
      review the status of each matter and assess the potential financial exposure.
      If
      the potential loss from any claim or legal proceeding is considered probable
      and
      the amount can be estimated, we accrue 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,
      we reassess the potential liability related to pending claims and litigation
      and
      may revise these estimates. Such revisions in the estimates of the potential
      liabilities could have a material impact on our results of operations, and
      financial condition.





**RESULTS
      OF OPERATIONS**





The
      following table sets forth certain selected unaudited condensed consolidated
      financial data for the periods indicated in thousands of dollars and as a
      percentage of net revenue:




**Three
                Months Ended April 30,**
            
            **Six
                Months Ended April 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)**Net
                revenue
            
            $
            13,411
            
            
            100.0
            %
            $
            12,533
            
            
            100.0
            %
            $
            25,428
            
            
            100.0
            %
            $
            24,880
            
            
            100.0
            %Cost
                of revenue
            
            
            5,946
            
            
            44.3
            %
            
            4,955
            
            
            39.5
            %
            
            10,869
            
            
            42.7
            %
            
            9,607
            
            
            38.6
            %Gross
                profit
            
            
            7,465
            
            
            55.7
            %
            
            7,578
            
            
            60.5
            %
            
            14,559
            
            
            57.3
            %
            
            15,273
            
            
            61.4
            %Operating
                expenses:General
                and administrative
            
            
            1,996
            
            
            14.9
            %
            
            2,300
            
            
            18.3
            %
            
            3,968
            
            
            15.6
            %
            
            4,914
            
            
            19.8
            %Sales
                and marketing
            
            
            3,022
            
            
            22.5
            %
            
            2,791
            
            
            22.3
            %
            
            5,931
            
            
            23.3
            %
            
            5,511
            
            
            22.1
            %Research
                and development
            
            
            785
            
            
            5.9
            %
            
            623
            
            
            5.0
            %
            
            1,387
            
            
            5.5
            %
            
            1,677
            
            
            6.7
            %Loss
                contingencies
            
            
            46
            
            
            0.3
            %
            
            33
            
            
            0.3
            %
            
            93
            
            
            0.4
            %
            
            65
            
            
            0.3
            %Total
                operating expenses
            
            
            5,849
            
            
            43.6
            %
            
            5,747
            
            
            45.9
            %
            
            11,379
            
            
            44.8
            %
            
            12,167
            
            
            48.9
            %Income
                from operations
            
            
            1,616
            
            
            12.0
            %
            
            1,831
            
            
            14.6
            %
            
            3,180
            
            
            12.5
            %
            
            3,106
            
            
            12.5
            %Interest
                expense
            
            
            (353
            )
            
            (2.6
            )%
            
            (3
            )
            
            (0.0
            )%
            
            (355
            )
            
            (1.4
            )%
            
            (5
            )
            
            (0.0
            )%Other
                income (expense), net
            
            
            166
            
            
            1.2
            %
            
            100
            
            
            0.8
            %
            
            325
            
            
            1.3
            %
            
            202
            
            
            0.8
            %Income
                before income taxes
            
            
            1,429
            
            
            10.7
            %
            
            1,928
            
            
            15.4
            %
            
            3,150
            
            
            12.4
            %
            
            3,303
            
            
            13.3
            %Provision
                for income taxes
            
            
            483
            
            
            3.6
            %
            
            742
            
            
            5.9
            %
            
            1,132
            
            
            4.7
            %
            
            1,278
            
            
            5.1
            %Income
                fromoperations,
                net of tax
            
            
            946
            
            
            7.1
            %
            
            1,186
            
            
            9.5
            %
            
            2,018
            
            
            7.9
            %
            
            2,205
            
            
            8.1
            %Cumulative
                effect of a change in accounting
              estimate
                (net of tax)
            
            
            261
            
            
            1.9
            %
            
            —
            
            
            —
            
            
            261
            
            
            1.0
            %
            
            —
            
            
            —Net
                income
            
            $
            1,207
            
            
            9.0
            %
            $
            1,186
            
            
            9.5
            %
            $
            2,279
            
            
            8.9
            %
            $
            2,025
            
            
            8.1
            %






18





Income
      from operations for the three months ended April 30, 2007, decreased to $1.6
      million from $1.8 million for the comparable period in 2006. The decrease is
      attributable to an increase in the cost of revenue and an increase in the sales
      and marketing and research and development resulting from the acquisition of
      Summit, partially offset by a decrease in general and administrative expenses
      due to reduced outside legal and accounting fees.




Income
      from operations for the six months ended April 30, 2007, increased to
      $3. 2 million
      from $3.1 million for the comparable period in 2006. The increase is due mainly
      to the decrease in general and administrative expenses due to reduced outside
      legal and accounting fees and a decrease in the research and development costs.
      The decrease is partially offset by increases to the cost of revenue and sales
      and marketing.





*Net
      revenue*





Net
      revenue for the three months ended April 30, 2007, increased to $13.4 million
      from $12.5 million in the comparable quarter in 2006. Net revenue for the six
      months ended April 30, 2007, increased to $25.4 million from $24.9 million
      in
      the comparable period in 2006. The increase in net revenue for the quarter
      and
      six-months ended April 30, 2007 is a result of several factors including,
      increased revenue in Michigan and other key states, increased expansion in
      Canada and the United Kingdom, the continued popularity and rollout of our
      Traveler terminals, the increase was partially offset by an increased regional
      competition and pricing pressures, continued migration of commercial accounts
      to
      more profitable slot machine style gaming over bingo. Also, in March 2007 we
      completed the acquisition of Summit, which contributed $1.0 million to the
      total net revenues of $13.4 and $25.4 million for the three and six-months
      ended
      April 30, 2007, respectively.





*Cost
      of Revenue*





Total
      cost of revenue increased 20.0% to $6.0 million, or 44.3% of net revenue in
      the
      three months ended April 30, 2007, from $5.0 million, or 39.5% of net revenue,
      for the comparable quarter in 2006. Bingo equipment depreciation and
      amortization of related intangibles increased by approximately $156,000 over
      the
      comparable quarter in 2006 primarily due to our investment in Traveler portable
      color terminals. Additionally, the cost of revenue increased due to the
      acquisition of Summit.





Cost
      of
      revenue increased 13.1 %
      to
      $10.9 million, or 42.7% of net revenue in the six months ended April 30, 2007,
      from $ 9 .6
      million , or 38.6%
      of net revenue in the same period in 2006. Bingo equipment depreciation and
      amortization of related intangibles increased by approximately $550,000 over
      the
      comparable period in 2006, primarily due to our investment in Traveler portable
      color terminals. Additionally, the cost of revenue increased due to the
      acquisition of Summit. The increase was partially offset by a decrease in
      refurbishment costs.





*Gross
      Profit*





Gross
      profit decreased 1.5% to $7.5 million, or 55.7% of net revenue in the three
      months ended April 30, 2007 , from
      $7.6 million, or 60.5% of net revenue, for the comparable quarter in 2006,
      due
      to the increase in the cost of revenue noted above.





Gross
      profit decreased 4.7% to $14.6 million , or 57.3%
      of net revenue in the six months ended April 30, 2007 , from
      $15.3 million or 61.4% of net revenue for the same period in 2006. The decrease
      is due to the increase in cost of revenue as noted above and partially offset
      by
      a decrease in refurbishment costs.





*Operating
      Expenses*





Total
      operating expenses increased 1.8% to $5.8 million, or 43.6% of net revenue,
      in
      the three months ended April 30, 2007 from $5.7 million, or 45.9% of net
      revenue, for the comparable quarter in 2006. Operating expense decreased by
      6. 5 %
      to
      $11.4 million for the six months ended April 30, 2007, from $12.2 million in
      the
      comparable period in 2006. Operating expenses include general and
      administrative, sales and marketing, including distributor commissions, research
      and development, and loss contingencies.





General
      and administrative costs decreased to $2.0 million, or 14.9% of net revenue,
      in
      the three months ended April 30, 2007 from $2.3 million, or 18.3% of net
      revenue, for the comparable quarter in 2006. General and administrative costs
      decreased to $4.0 million, or 15.6% of net revenue, in the six months ended
      April 30, 2007 from $4.9 million, or 19.8% of net revenue, for the comparable
      period in 2006. The decrease in expenses for the quarter and six-month period
      ended April 30, 2007 was attributable to not accruing a bonus for the quarter
      and six-months ended April 30, 2007. Bonuses will be made at the discretion
      of
      the board and is dependent on our overall financial results.




19





Sales
      and
      marketing expenses increased to $3.0 million, or 22.5% of net revenue, in the
      three months ended April 30, 2007 from $2.8 million, or 22.3% of net revenue,
      for the comparable quarter in 2006. Sales and marketing expenses increased
      to
      $5.9 million, or 23.3% of net revenue, in the six-months ended April 30, 2007
      from $5.5 million, or 22. 1 %
      of net
      revenue, for the comparable period in 2006. The increase is primarily due the
      acquisition of Summit, partially offset by a favorable change to stock option
      compensation expense resulting from the re-evaluation of the option forfeiture
      rate.





Research
      and development expenses increased to $0.8 million, or 5.9% of net revenue,
      in
      the three months ended April 30, 2007 from $0.6 million, or 5.0% of net revenue,
      for the comparable quarter in 2006. The increase for the three month period
      ended April 30, 2007 , was
      primarily due to the acquisition of Summit. Research
      and development expenses decreased to $1.4 million, or 5.5% of net revenue,
      in
      the six-months ended April 30, 2007 from $1.7 million, or 6.7% of net revenue,
      for the comparable period in 2006. The decrease is attributable to a decrease
      in
      salary and other employee costs from the prior period. During
      the second quarter of fiscal 2007, there were no payroll costs capitalized
      under
      FASB Statement No. 86. For the comparable period in 2006, $40,600 of payroll
      costs were capitalized related to research and development and quality
      assurance.





Loss
      contingencies, representing interest accrued on a legal judgment, totaled
      $46,000, and 9 3 ,000,
      or
      0.3% and 0.4% of net revenue, in the quarter and six-months ended April 30,
      2007, respectively. Loss contingencies of $33,000, and $65,000 were recorded
      for
      the comparable quarter and six-months periods in 2006.





*Provision
      for Income Taxes*





Provision
      for income taxes approximated $621,300 for the three months ended April 30,
      2007, which includes $138,300 in the tax effect of the change in accounting
      estimate, compared with $742,804 for the comparable period in 2006. The
      provision for income taxes approximated $1.3 million for the six months ended
      April 30, 2007, which included $138,300 in the tax effect of the change in
      accounting estimate, compared with $1.3 million in the comparable period in
      2006. The actual effective tax rate of 35.8% for the six months ended April
      30,
      2007 is different from the expected federal rate of 34%, due to certain
      permanent differences between financial accounting and tax accounting, and
      state
      and foreign tax provisions.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      funded our operations to date primarily through cash from operations and other
      capital sources. This capital is used for operations, research and development,
      and capital expenditures of bingo equipment and associated support equipment
      and
      software. As of April 30, 2007 and October 31, 2006, we had a working capital
      balance of $20.5 million and $15.4 million, respectively. As of April 30, 2007,
      our principal sources of liquidity included cash and short-term investments
      of
      $10.7 million. Current assets and current liabilities include a restricted
      short-term investment of $4.5 million and an accrued liability of $4.0 million
      in connection with litigation judgments.





The
      acquisition of Summit was financed primarily by a credit facility consisting
      of
      a term loan of $30.0 million and a revolving line of credit with a limit of
      $10.0 million. Additional information about our credit facility is contained
      in
      Note F (Credit Agreement) to our consolidated financial statements included
      herein. As of April 30, 2007, the interest rate on our term loan was 10.0%
      and
      on our revolving credit facility was 8.75%. We incurred interest expense of
      $
      353,000 and $355,000 for the three and six months ended April 30, 2007 compared
      to $3,000 and $5,000 for the comparable periods in 2006. As a result of the
      debt
      incurred in March 2007, to finance the Summit acquisition, we expect our
      interest expense to increase substantially in future periods.





Operating
      activities used $3.8 million of cash for the six-month period ended April 30,
      2007 compared with $8.1 million for the six-month period ended April 30, 2006.
      The $3.8 million consisted primarily of our net income of $2.3 million adjusted
      by $5.6 million from depreciation, amortization, obsolescence provisions, and
      loss on disposal of bingo terminals and related equipment provisions and
      $ 4.1 million
      used by net changes in other operating assets and liabilities net of the Summit
      acquisition. The $8.1 million consisted primarily of our net income of $2.0
      million adjusted by $5.4 million from depreciation, amortization,
      obsolescence provisions, and loss on disposal of bingo terminals and related
      equipment provisions and $698,000 provided by net changes in other operating
      assets and liabilities.




20





We
      used
      approximately $3.6 million of cash in investing activities for the six-month
      period ended April 30, 2007 compared with $8.3 million of cash for the six-month
      period ended April 30, 2006. The $3.6 million consisted of $3.9 million in
      capital expenditures from bingo terminals and associated support equipment.
      We
      used $2.4 million in the acquisition of Summit during the six-month period
      ended
      April 30, 2007. In addition, a $2.7 million net change occurred in the
      purchasing and selling of short-term investments during the period ended April
      30, 2007. The $8.3 million consisted of $6.6 million of capital
      expenditures primarily all of which was expended on bingo terminals and
      associated support equipment and the purchase and development of software and
      other intangible assets of $114,000. In addition, a $1.7 million net change
      occurred in the purchasing and selling of short-term investments.





Financing
      activities provided $212,000 of net cash for the six-month period ended April
      30, 2007 compared with $1.8 million for the six-month period ended April 30,
      2006. The $212,000 provided for the six-month period ended April 30, 2007 was
      from proceeds of $165,000 from stock option exercises and $47,000 in tax
      benefits from stock options exercised. The $1.8 million provided for the
      six-month period ended April 30, 2006 was from the proceeds of stock option
      exercises.





Our
      credit facility agreement contains numerous restrictive convents. These
      restrictions could result in a curtailment of our capital expenditures including
      those for bingo devices, and related equipment. In the event we were unable
      to
      raise additional capital if needed, further measures could be necessary,
      including the delay or reduction of our operations, research and development
      and
      other activities. Certain of such measures may require third-party consent
      or
      approvals, including the financial institution under the credit facility,
      certain regulatory bodies, and others, and there are no assurances such consent
      or approvals could be obtained.





We
      believe that cash flows from operations and cash, cash equivalents, short-term
      investments and amounts available under our revolving credit facility will
      be
      sufficient to support our operations, provide for budgeted capital expenditures,
      and meet liquidity requirements through the remainder of fiscal 2007. Our
      long-term liquidity requirements will depend on many factors, including the
      rate
      at which we expand our business and whether we do so internally or through
      acquisition. In addition, we may pursue strategic opportunities that could
      require us to fund our portion of operating expenses of such ventures and may
      require us to advance additional amounts should any partners in such ventures
      be
      unable to meet unanticipated capital requirements or similar funding events.
      To
      the extent that the funds generated from the sources described above are
      insufficient to fund our activities in the long term, we may be required to
      raise additional funds through public or private financing. No assurance can
      be
      given that the additional financing will be available or that, if it is
      available, it will be on terms acceptable to us.





**Purchase
      Commitments**





From
      time
      to time, we enter into commitments with our vendors to purchase 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 April 30, 2007, approximately $4,000 of the
      Traveler commitment was remaining and $2,000 of the Tracker commitment was
      remaining. During the six month period ending April 30, 2007, we entered into
      two additional agreements for $1.2 million in Tracker parts. As of April 30,
      2007, approximately $1.0 million of this commitment
      was outstanding. All purchases are expected to occur by the end of the third
      quarter of fiscal 2007.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.**





**Market
      Risks**





We
      maintain an investment portfolio of approximately $4.9 million in investment
      grade corporate issues, and in investment grade auction rate securities. The
      values of these investments are subject to changes in interest rates. However,
      because these investments are short-term and are generally allowed to mature,
      we
      do not believe that any risk inherent in our portfolio is likely to have a
      material effect on expected cash flows. We monitor these investments for
      impairment and make appropriate reductions in carrying value when
      necessary.





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. Additional information about
      our
      credit facility is contained in Note F (Credit Agreement) to our consolidated
      financial statements included herein.




21





Because
      the interest rate on the credit facility is variable, our cash flow may be
      affected by increases in interest rates, in that we would be required to pay
      more interest in the event that interest rates increase.




**Sensitivity
      Analysis Market Risks**





Assuming
      we had a $40.0 million balance outstanding as of April 30, 2007 and the rate
      of
      interest was 9.54%, our monthly interest payment, if the rate stayed
      constant, would be $318,000. If the LIBOR rate rose to 13.0%, which assumes
      an
      unusually large increase, our monthly payment would be $433,333. A more likely
      increase of 1.0% or 2.0%, given the recent trend of relatively low interest
      rates, would result in a monthly payment of $351,333 or $384,667, respectively.




**ITEM
      4. CONTROLS AND PROCEDURES.**





We
      have
      evaluated, with the participation of our Chief Executive Officer, who is the
      acting Chief Financial Officer, the effectiveness of our disclosure controls
      and
      procedures as of April 30, 2007. Based on this evaluation, our Chief Executive
      Officer has concluded that our disclosure controls and procedures are effective
      to ensure that we record, process, summarize, and report information required
      to
      be disclosed by us in our reports filed or submitted under the Securities
      Exchange Act of 1934 within the time periods specified by the Securities and
      Exchange Commission’s rules and forms. During the quarterly period covered by
      this report, and other than as disclosed in our Annual Report on Form 10-K,
      and
      described below, there have not been any changes in our internal controls over
      financial reporting that have materially affected, or are reasonably likely
      to
      materially affect, our internal control over financial reporting.




In
      our
      Form 10-K for the fiscal year ended October 31, 2006, we previously reported
      a
      significant deficiency in our internal control process related to the tax
      provision.  The weakness is in the process of being remedied, but not all
      of the remedial steps had been completed as of April 30, 2007.





**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS.**





For
      a
      discussion of our current litigation, see Note E (Legal Proceedings) to our
      consolidated financial statements included herein.





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





**ITEM
      1A. RISK FACTORS**





***Our
      company may be adversely affected if we are unable to timely fill the positions
      of vice president of product marketing and chief financial officer and
      successfully integrate the new executives into our management
      team.***





In
      April
      2007, our vice president of product marketing resigned and our chief financial
      officer resigned. Our chief executive officer is filling these roles on an
      interim basis while our board of directors conducts a search for permanent
      replacements. Our company may be adversely affected if we are unable to timely
      fill these positions and successfully integrate the new executives into our
      management team.





***Our
      acquisition of Summit may not produce the results we***  ***anticipate.***




22





Our
      acquisition of Summit was the largest acquisition undertaken by our company.
      The
      success of the acquisition will depend in large part on our management’s ability
      to integrate, maintain and grow Summit’s business. Challenges we face include
      the following:


**•**
            the
              diversion of management time and effort from our existing business**•**
            managing a much larger combined business,
              including implementing adequate internal controls**•**
            the potential loss of key employees
              of
              Summit, and**•**
            maintaining Summit’s customers and growing
              the customer base and markets.In addition,
              Summit’s
              business is subject to many risks and uncertainties, including the
              following:**•**
            its dependence on the video lottery
              terminal
              industry**•**
            its dependence on key markets in Montana,
              Louisiana, South Dakota, and West Virginia**•**
            its ability to respond to rapid technological
              change and market demand for product enhancements, and changes in laws
              and
              regulations.


***We
        incurred significant debt to finance the acquisition of
        Summit.***




We
      financed the acquisition of Summit with a $10.0 million revolving credit
      facility and a $30.0 million term loan secured by substantially all of our
      and
      Summit’s assets. Servicing the debt will require a significant amount of cash,
      and our ability to generate the required cash depends on our ability to
      successfully manage Summit’s business and upon other factors some of which are
      beyond our control. The agreement governing the new debt contains substantial
      affirmative and restrictive covenants, including the maintenance of certain
      financial ratios. A breach of any of our obligations under the debt agreement
      would result in a default allowing the lender to elect to declare all amounts
      outstanding together with accrued interest to be immediately due and payable.
      For additional information see Note F (Credit Agreement) of our consolidated
      financial statements included herein.







**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS.**





Not
      Applicable





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES.**





Not
      Applicable





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





We
      held
      our 2006 Annual Meeting of Stockholders on April 11, 2007. The following
      nominees were elected to our Board of Directors to serve as directors until
      the
      next annual meeting of stockholders and until their successors are elected
      and
      qualified:





**Nominee**
            **Votes
                in Favor**
            **Withheld**Richard
                T. Fedor
            10,835,397
            534,400Donald
                K. Whitaker
            10,837,197
            532,600Scott
                H. Shackelton
            10,837,197
            532,600Richard
                H. Irvine
            10,817,397
            552,400Jay
                M. Meilstrup
            10,780,384
            589,413





The
      following additional items were voted upon by our stockholders:





Proposal
      to ratify the appointment of Grant Thornton LLP, an independent registered
      public accounting firm, as our independent auditor for the fiscal year ending
      October 31, 2007.





**Votes
                in Favor**
            **Opposed**
            **Abstained**
            **Broker
                Non-Vote**11,322,347
            44,450
            3,000
            551,360





**ITEM
      5. OTHER INFORMATION.**





Not
      Applicable




23





**ITEM
      6. EXHIBITS**





2.1
            Asset
                Purchase Agreement dated August 30, 2006 between GameTech International,
                Inc. and Summit Amusement & Distributing Ltd. (1)3.1
            Certificate
                of Incorporation of the Registrant, as amended (2)3.3
            Certificate
                of Designation of Series A Junior Participating Preferred Stock of
                the
                Registrant (3)3.4
            Second
                Amended and Restated Bylaws of the Registrant (4)4.1
            GameTech
                International, Inc. Registration Rights
                Agreement (5)4.3
            Rights
                Agreement, dated as of March 7, 2003, between GameTech International,
                Inc.
                and Mellon Investor Services, LLC, as rights agent (6)4.4
            Specimen
                Common Stock Certificate (7)10.1
            Financing
                agreement dated March 28, 2007, by and among GameTech International,
                Inc.
                and the lenders named herein, and Ableco Finance, LLC., as collateral
                and
                administrative agent.31.1
            Certification
                of Chief Executive Officer and acting Chief Financial Officer pursuant
                to
                Rule 13a-14(a) and Rule 15d-14(a), promulgated by the Securities
                Exchange
                Act of 1934, as amended32.1
            Certification
                of Chief Executive Officer and acting Chief Financial Officer pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002


___________


(1)
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                dated August 30, 2006 as filed with the Commission on or about August
                31,
                2006.


(2)
            Incorporated
                by reference to Exhibits 2.1 and 10.1 to the Registrant’s Registration
                Statement on Form S-1 (Registration No. 333-34967) as filed with
                the Commission on or about September 4,
                1997.


(3)
            Incorporated
                by reference to Exhibits 3.3 and 4.4 to the Registrant’s Quarterly Report
                on Form 10-Q for the quarterly period ended April 30, 2003 as filed
                with
                the Commission on or about March 17,
                2003.


(4)
            Incorporated
                by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form
                10-Q for the quarterly period ended April 30, 2004, as filed with
                the
                Commission on or about March 16,
                2004.


(5)
            Incorporated
                by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s
                Registration Statement on Form S-1 (Registration No. 333-34967)
                as filed with the Commission on or about October 17,
                1997.


(6)
            Incorporated
                by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K
                dated March 7, 2003 as filed with the Commission on or about March
                10,
                2003.


(7)
            Incorporated
                by reference to Exhibits 3.3 and 4.4 to the Registrant’s Quarterly Report
                on Form 10-Q for the quarterly period ended April 30, 2003 as filed
                with
                the Commission on or about March 17,
                2003.


(8)
            Incorporated
                by reference to exhibit 10.1 to the registrant’s current report on Form
                8-K dated March 28, 2007, as filed with the Commission on March 28,
                2007.





24







**SIGNATURES**





Pursuant
      to the requirements 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.




******Signature**
            
            **Title**
            
            **Date**


/s/ 
                Jay M. MeilstrupJay M. Meilstrup
            
            Chief
                Executive Officer and President,Acting
                Chief Financial
                Officer,
              Treasurer,
                and Secretary
              (Principal
                Executive)
            
            June
                14, 2007





25


**EXHIBIT
      INDEX**





2.1
            Asset
                Purchase Agreement dated August 30, 2006 between GameTech International,
                Inc. and Summit Amusement & Distributing Ltd. (1)3.1
            Certificate
                of Incorporation of the Registrant, as amended (2)3.3
            Certificate
                of Designation of Series A Junior Participating Preferred Stock of
                the
                Registrant (3)3.4
            Second
                Amended and Restated Bylaws of the Registrant (4)4.1
            GameTech
                International, Inc. Registration Rights
                Agreement (5)4.3
            Rights
                Agreement, dated as of March 7, 2003, between GameTech International,
                Inc.
                and Mellon Investor Services, LLC, as rights agent (6)4.4
            Specimen
                Common Stock Certificate (7)10.1
            Financing
              agreement dated March 28, 2007, by and among Game Tech international,
              Inc.
              and the lenders named herein, and Ableco Finance, LLC., as collateral
              and
              administrative agent.31.1
            Certification
                of Chief Executive Officer and Acting Chief Financial Officer pursuant
                to
                Rule 13a-14(a) and Rule 15d-14(a), promulgated by the Securities
                Exchange
                Act of 1934, as amended32.1
            Certification
                of Chief Executive Officer and Acting Chief Financial Officer pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002


(1)
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                dated August 30, 2006 as filed with the Commission on or about August
                31,
                2006.


(2)
            Incorporated
                by reference to Exhibits 2.1 and 10.1 to the Registrant’s Registration
                Statement on Form S-1 (Registration No. 333-34967) as filed with
                the Commission on or about September 4,
                1997.


(3)
            Incorporated
                by reference to Exhibits 3.3 and 4.4 to the Registrant’s Quarterly Report
                on Form 10-Q for the quarterly period ended April 30, 2003 as filed
                with
                the Commission on or about March 17,
                2003.


(4)
            Incorporated
                by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form
                10-Q for the quarterly period ended April 30, 2004, as filed with
                the
                Commission on or about March 16,
                2004.


(5)
            Incorporated
                by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s
                Registration Statement on Form S-1 (Registration No. 333-34967)
                as filed with the Commission on or about October 17,
                1997.


(6)
            Incorporated
                by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K
                dated March 7, 2003 as filed with the Commission on or about March
                10,
                2003.


(7)
            Incorporated
                by reference to Exhibits 3.3 and 4.4 to the Registrant’s Quarterly Report
                on Form 10-Q for the quarterly period ended April 30, 2003 as filed
                with
                the Commission on or about March 17,
                2003.(7) (7) (8)
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on
                Form 8-K dated March 28, 2007 as filed with the Commission on March
                28,
                2007.





26