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
      1934For
      the quarterly period ended April 30, 2008OR£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For 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. YesRNo£





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


Large accelerated filer£
            Accelerated filerRNon-accelerated
      filer   £
            Smaller
      reporting company£





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





On June
5, 2008 the registrant had 12,098,108 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, 2008


INDEX





PageNo.Part
      I. Financial Information:Item
      1. Financial Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of April 30, 2008 (Unaudited) and October
      31, 2007
            3Unaudited
      Condensed Consolidated Statements of Income for the Three and Six Months
      Ended April 30, 2008 and 2007
            4Unaudited
      Condensed Consolidated Statements of Cash Flows for the Six Months Ended
      April 30, 2008 and 2007
            5Notes
      to Unaudited Condensed Consolidated Financial Statements
            6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            14Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            19Item
      4. Controls and Procedures
            20Part
      II. Other Information:Item
      1. Legal Proceedings
            20Item
      1A. Risk Factors
            20Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            21Item
      3. Defaults Upon Senior Securities
            21Item
      4. Submission of Matters to a Vote of Security Holders
            21Item
      5. Other Information
            21Item
      6. Exhibits
            21Signatures
            22Certifications
            23








PART
1 FINANCIAL INFORMATION
 
 ITEM
1
 
 GAMETECH
INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (In
Thousands, except shares and per share
amounts)


April
      30,
            
            
            October
      31,2008
            
            
            2007(Unaudited)
            
            
            (Note
      1)Assets:Current
      assets:Cash
      and cash equivalents
            
            $
            6,541
            
            
            $
            3,630Short-term
      investments
            
            
            513
            
            
            
            7,763Accounts
      receivable, less allowance of $762 in 2008 and $2,429 in
    2007
            
            
            6,355
            
            
            
            8,585Inventory
            
            
            4,193
            
            
            
            4,298Deposits
            
            
            62
            
            
            
            14Prepaid
      expenses and other current assets
            
            
            1,032
            
            
            
            702Prepaid
      taxes
            
            
            419
            
            
            
            76Current
      portion of notes receivables
            
            
            114
            
            
            
            116Deferred
      income taxes
            
            
            2,625
            
            
            
            2,651Total
      current assets
            
            
            21,854
            
            
            
            27,835Bingo
      equipment, furniture and other equipment, net
            
            
            17,510
            
            
            
            19,902Goodwill,
      net
            
            
            37,519
            
            
            
            37,519Intangibles,
      less accumulated amortization of $5,457 in 2008 and $4,634 in
      2007
            
            
            6,943
            
            
            
            7,766Restricted
      cash
            
            
            514
            
            
            
            502Notes
      Receivables, net of current portion
            
            
            71
            
            
            
            132Deferred
      income taxes, long term
            
            
            229
            
            
            
            226Investments
            
            
            2,882
            
            
            
            -Total
      assets
            
            $
            87,522
            
            
            $
            93,882Liabilities
      and stockholders’ equity:Current
      liabilities:Accounts
      payable
            
            $
            998
            
            
            $
            2,094Accrued
      payroll and related obligations
            
            
            1,197
            
            
            
            1,074Accrued
      loss contingencies
            
            
            4,022
            
            
            
            4,022Current
      portion of long term debt
            
            
            4,441
            
            
            
            4,462Other
      accrued liabilities
            
            
            1,335
            
            
            
            2,230Total
      current liabilities
            
            
            11,993
            
            
            
            13,882Long
      term debt, net of current portion
            
            
            23,186
            
            
            
            25,297Deferred
      income taxes
            
            
            272
            
            
            
            224Total
      liabilities
            
            $
            35,451
            
            
            $
            39,403Commitments
      and contingencies
            
            
            -
            
            
            
            -Stockholders’
      equity:Common
      stock, $0.001 par value: 40,000,000 shares authorized; 14,472,732
      sharesissued
      at April 30, 2008, and 14,472,732 shares issued at October 31,
      2007
            
            $
            14
            
            
            $
            14Additional
      paid in capital
            
            
            51,376
            
            
            
            51,355Retained
      earnings
            
            
            12,150
            
            
            
            11,706Treasury
      stock, at cost: 2,374,624 shares at April 30, 2008 and 1,855,325
      sharesat
      October 31, 2007
            
            
            (11,469
            )
            
            
            (8,096
            )Related
      party receivable
            
            
            -
            
            
            
            (500
            )Total
      stockholders’ equity
            
            
            52,071
            
            
            
            54,479Total
      liabilities and stockholders’ equity
            
            $
            87,522
            
            
            $
            93,882


The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
 -
3 -
 GAMETECH
INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED STATEMENT OF INCOME
 (In
Thousands, except per share amounts)
 (Unaudited)


Three
      Months
            
            
            Six
      MonthsEnded
      April 30,
            
            
            Ended
      April 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      revenue
            
            $
            13,870
            
            
            $
            13,411
            
            
            $
            29,054
            
            
            $
            25,428Cost
      of revenue
            
            
            6,169
            
            
            
            5,852
            
            
            
            12,769
            
            
            
            10,775Gross
      profit
            
            
            7,701
            
            
            
            7,559
            
            
            
            16,285
            
            
            
            14,653Operating
      expenses:General
      and administrative
            
            
            2,556
            
            
            
            2,090
            
            
            
            5,314
            
            
            
            4,062Sales
      and marketing
            
            
            2,713
            
            
            
            2,623
            
            
            
            5,250
            
            
            
            5,531Research
      and development
            
            
            1,342
            
            
            
            785
            
            
            
            2,832
            
            
            
            1,387Loss
      contingencies
            
            
            -
            
            
            
            46
            
            
            
            -
            
            
            
            94Total
      operating expenses
            
            
            6,611
            
            
            
            5,544
            
            
            
            13,396
            
            
            
            11,074Income
      from operations
            
            
            1,090
            
            
            
            2,015
            
            
            
            2,889
            
            
            
            3,579Interest
      expense
            
            
            (669
            )
            
            
            (354
            )
            
            
            (1,382
            )
            
            
            (355
            )Impairment
      of investments
            
            
            (285
            )
            
            
            -
            
            
            
            (977
            )
            
            
            -Other
      income (expense), net
            
            
            45
            
            
            
            167
            
            
            
            169
            
            
            
            325Income
      before income taxes
            
            
            181
            
            
            
            1,828
            
            
            
            699
            
            
            
            3,549Provision
      for income taxes
            
            
            68
            
            
            
            621
            
            
            
            255
            
            
            
            1,270Net
      income
            
            $
            113
            
            
            $
            1,207
            
            
            $
            444
            
            
            $
            2,2Net
      income per share:Basic
            
            $
            0.01
            
            
            $
            0.10
            
            
            $
            0.04
            
            
            $
            0.18Diluted
            
            $
            0.01
            
            
            $
            0.09
            
            
            $
            0.04
            
            
            $
            0.17Shares
      used in calculating net income per share:Basic
            
            
            12,226
            
            
            
            12,554
            
            
            
            12,327
            
            
            
            12,538Diluted
            
            
            12,438
            
            
            
            13,099
            
            
            
            12,561
            
            
            
            13,111


The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
 -
4 -
 GAMETECH
INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited,
In Thousands)


Six
      Months Ended April 30,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            444
            
            
            $
            2,279Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            5,248
            
            
            
            5,590Obsolescence
      and loss on disposal of bingo terminals and related
    equipment
            
            
            177
            
            
            
            (18
            )Loss
      on disposal of furniture and other equipment
            
            
            8
            
            
            
            62Loss
      on investment impairment
            
            
            977
            
            
            
            -Stock
      compensation expense
            
            
            21
            
            
            
            (180
            )Deferred
      income taxes
            
            
            71
            
            
            
            (104
            )Interest
      on investments
            
            
            (179
            )
            
            
            (201
            )Interest
      on restricted cash
            
            
            (12
            )
            
            
            (11
            )Change
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            2,230
            
            
            
            (663
            )Deposits
            
            
            (48
            )
            
            
            3Inventory
            
            
            105
            
            
            
            (547
            )Prepaid
      taxes
            
            
            (343
            )
            
            
            (338
            )Prepaid
      expenses and other assets
            
            
            (238
            )
            
            
            (258
            )Notes
      receivable
            
            
            63
            
            
            
            -Accounts
      payable
            
            
            (926
            )
            
            
            (1,769
            )Accrued
      payroll and related obligations
            
            
            123
            
            
            
            (132
            )Accrued
      loss contingencies
            
            
            -
            
            
            
            93Income
      taxes payable
            
            
            -
            
            
            
            (294
            )Other
      accrued liabilities
            
            
            (895
            )
            
            
            315Net
      cash provided by operating activities
            
            
            6,826
            
            
            
            3,827Cash
      flows from investing activities:Proceeds
      from sale of short-term investments
            
            
            3,570
            
            
            
            18,037Payments
      for purchase of short-term investments
            
            
            -
            
            
            
            (15,284
            )Capital
      expenditures for bingo equipment, furniture, and other
      equipment
            
            
            (2,388
            )
            
            
            (3,885
            )Payment
      for the acquisition of Summit Amusement & Distributing,
      Ltd.
            
            
            -
            
            
            
            (2,437
            )Net
      cash provided by (used in) investing activities
            
            
            1,182
            
            
            
            (3,569
            )Cash
      flows from financing activities:Tax
      benefit from stock options exercised
            
            
            -
            
            
            
            47Payments
      on long-term debt
            
            
            (2,224
            )
            
            
            -Repurchase
      of treasury stock
            
            
            (2,873
            )
            
            
            -Proceeds
      from issuance of common stock
            
            
            -
            
            
            
            165Net
      cash (used in) provided by financing activities
            
            
            (5,097
            )
            
            
            212Net
      increase in cash and cash equivalents
            
            
            2,911
            
            
            
            470Cash
      and cash equivalents at beginning of period
            
            
            3,630
            
            
            
            5,411Cash
      and cash equivalents at end of period
            
            $
            6,541
            
            
            $
            5,881Supplemental
      cash flow information:Cash
      paid during the period for:Interest
            
            $
            957
            
            
            $
            43Income
      taxes
            
            $
            552
            
            
            $
            1,652Non-cash
      investing and financing activities:Acquisition
      of assets included in accounts payable
            
            $
            315
            
            
            $
            485Settlement
      of related party receivable in the company's common stock
            
            $
            500
            
            
            $
            -Issuance
      of note payable for insurance
            
            $
            92
            
            
            $
            -Notes
      payable for the acquisition of Summit Amusement &
      Distributing
            
            $
            -
            
            
            $
            38,945


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





1. BASIS OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements and related
disclosures as of April 30, 2008 have been prepared in accordance with generally
accepted accounting principles in the United States (GAAP) 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 GAAP  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, 2008 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, 2007 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by GAAP 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, 2007 and any other of our filings with the Securities and Exchange
Commission.





USE
OF ESTIMATES





The
preparation of financial statements in conformity with GAAP 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, provision
for income taxes, 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.





2. 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,·
            Delivery
      has occurred or services have been rendered,·
            The
      price is fixed or determinable, and·
            Collectability
      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 our results of operations, and determines the timing of certain
expenses, such as commissions. We recognize 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) collectability is reasonably assured. We exercise
judgment in assessing the credit worthiness of customers to determine whether
collectability is reasonably assured. Should changes in conditions cause us to
determine the factors are not met for future transactions, revenue recognized
for future reporting periods could be adversely affected.





Video
Lottery Terminal


Our
product sales revenues are generated from the sale of video lottery terminals,
conversion kits, content fees, license fees, participation fees, equipment and
services. Revenues are recorded in accordance with Statement of Position No 97-2
Software Revenue
Recognition and are reported net of discounts, sales taxes and other
taxes of a similar nature. Revenues related to contracted production are
recognized as the related work is delivered. We recognize license fee revenues
over the term of the associated agreement unless the fee is in exchange for
products delivered or services performed that represent the culmination of a
separate earnings process. Amounts received prior to completing the earnings
process are deferred until revenue recognition criteria are met.





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


-
6 -


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 and the United Kingdom. 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
receivable arising from the sale of video lottery terminals and related
equipment. Our customer base consists of casinos located in various states and
Native American territories. 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
are stated at the lower of cost or market.  Our raw material is valued
using the first-in, first-out method and our finished goods are valued using
standard costing that approximates the first-in, first-out method. Management
periodically reviews inventory balances, using recent and future expected sales
to identify slow-moving or obsolete items. Inventories consist of the following
at April 30, 2008 (in thousands):






April
      30, 2008Inventory
      – parts
            
            $
            2,465Inventory
      – equipment
            
            
            1,728Total
      Inventory
            
            $
            4,193





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 that we do not
expect to use. 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.




-
7 -










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 7 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.





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 increase in net cash provided by
financing activities related to the cash received and an 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-month period ended April 30, 2008, we recognized a credit to compensation
costs of $43,014 and a related tax expense of $15,700 for a net credit of
$27,314. For the six months then ended, we recognized a compensation expense of
$8,283 and a related tax benefit of $3,023 for a net cost of $5,260. For the
three and six-month periods ended April 30, 2008 there was no effect to either
the basic and diluted earnings per share as a result of recognizing the
share-based compensation expense, net of tax. The credit to
compensation are due to changes in the expected forfeiture rates used in
our calculations.





For the
three and six-month period ended April 30, 2007, we recognized credits to
compensation costs of $487,909 and $212,787, and a related tax expense of
$183,942 and $80,221, for a net credit of $303,967 and $132,556, respectively.
For the three and six-month period ended April 30, 2007 basic and diluted
earnings per share were increased by $0.02 and $0.01 per share, respectively.
The credits to compensation are due to changes in the expected forfeiture rates
used in our calculations.








As of
April 30, 2008, the total compensation cost related to unvested stock-based
awards granted to employees under our stock option plans but not yet recognized
was $259,198. The 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.





No
options were granted during the three and six months ended April 30,
2008.  For the three and six months ended April 30, 2007, we granted
100,000 options and there were no restricted stock grants.


-
8 -


During
the three and six months ended April 30, 2008, we granted 35,000 restricted
shares to various employees that vest over a three-year period. The shares were
valued at market on the grant date. The awards will be amortized on a
straight-line basis over the term of the grants. We recognized expense for the
three and six months of $12,253 and a related tax benefit of $4,472 for a net
cost of $7,781. As of April 30, 2008 the compensation related to unvested
restricted stock awards granted to employees under our stock option plan but not
yet recognized was $199,227. The cost 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.








RECENT
ACCOUNTING PRONOUNCEMENTS





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.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and
SFAS No. 160, Accounting
and Reporting of Non-Controlling Interest in Consolidated Financial Statements,
an Amendment of ARB No. 51 (SFAS No. 160). These new standards
will significantly change the financial accounting and reporting of business
combination transactions and non-controlling (or minority) interests in
consolidated financial statements. We will be required to adopt SFAS No.141(R)
and SFAS No. 160 on or after December 15, 2008.  We have not yet
determined the effect, if any, that the adoption of SFAS 141(R) and SFAS No. 160
will have on our consolidated financial statements.





In March
2008 the FASB issued SFAS No. 161, Disclosures about Derivative
instruments and Hedging Activities (“SFAS 161”). The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable better understanding the
effects on the financial position, financial performance, and cash flows. The
effective date is for fiscal years and interim periods beginning after November
15, 2008. We have not year determined the effect, if any, that the adoption of
SFAS 161 will have on our consolidated financial statements.





In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110 (“SAB 110”) to permit entities, under certain circumstances to
continue to use the “simplified” method, in developing estimates of expected
term of “plain-vanilla” share options in accordance with Statement No. 123R
Share-Based Payment. SAB110 amended SAB 107 to permit the use of the
“simplified” method beyond December 31, 2007. Our
adoption of SAB 110 did not result in a material impact on our financial
statements.




3.
INVESTMENTS





Investments
at April 30, 2008 consisted of $3.9 million of principal invested in Auction
Rate Securities (ARS) and $0.5 million in short-term investments. The ARS held
by us are private placement securities with long-term nominal maturities for
which the interest rates are reset through a Dutch auction each month. The
monthly auctions historically have provided a liquid market for these
securities. Our investments in ARS represent interests in collateralized debt
obligations supported by pools of residential and commercial mortgages or credit
cards, insurance securitizations and other structured credits, including
corporate bonds. Some of the underlying collateral for the ARS held by us
consists of sub-prime mortgages.





Consistent
with our investment policy guidelines, the ARS investments held by us all had
AAA/Aaa credit ratings at the time of purchase. With the liquidity issues
experienced in global credit and capital markets, the ARS held by us at April
30, 2008 have experienced multiple failed auctions as the amount of securities
submitted for sale has exceeded the amount of purchase orders. In addition, in
the first quarter of 2008, investments in ARS held by us were downgraded and
others were placed on credit watch. All of these securities retained at least an
Aa3 rating as of April 30, 2008.





The
estimated market value of our ARS holdings at April 30, 2008 was $2.9 million,
which reflects an approximate adjustment of $0.3 million and $1.0 million for
the three and six months ended April 30, 2008, respectively, to the principal
value of $3.9 million.


-
9 -


Although
the ARS continue to pay interest according to their stated terms, based on the
fair value of the investments and an analysis of other-than-temporary impairment
factors we have recorded a pre-tax impairment charge of approximately $0.3
million and $1.0 million for the three and six months ended April 30, 2008,
respectively, reflecting the portion of ARS holdings that we have concluded have
an other-than-temporary decline in value.








ARS were
classified in prior periods as current assets under marketable securities. Given
the failed auctions, our ARS are illiquid until there is a successful auction
for them. Accordingly, the entire amount of such remaining ARS has been
reclassified from short-term investments to non-current
investments.





4.
ACQUISITION





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





Under the
purchase method of accounting, the total purchase price is allocated to Summit’s
tangible and intangible assets based on their fair values as of the date of the
closing of the acquisition. We are in disagreement with the seller regarding
approximately $1.0 million of the purchase price regarding the total working
capital at the date of closing of the acquisition, and are working with the
seller to settle this matter through arbitration. The purchase price may change
based on the outcome of that arbitration. The purchase price, including the
disputed working capital, has been allocated described below.




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




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





The
allocation of the 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
            
            
            3,312Property
      plant and equipment
            
            
            1,598Identifiable
      depreciable intangibles assets
            
            
            7,720Trade
      name
            
            
            1,600Goodwill
            
            
            25,735Accounts
      payable and other accrued expenses
            
            
            (1,122
            )Total
      cash purchase price
            
            $
            41,699






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 a blended average rate of 9.54% for the
three and six months ended April 30, 2008. 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 our shares outstanding, as no shares were issued for the
acquisition.




For
      the Three Months Ended
            
            
            For
      the Six Months EndedApril 30, 2008
            
            
            April 30, 2007
            
            
            April 30, 2008
            
            
            April 30, 2007(In
      Thousands, Except For Per Share Amounts)Net
      Sales
            
            $
            13,870
            
            
            $
            15,881
            
            
            $
            29,054
            
            
            $
            33,123Net
      Earnings
            
            
            113
            
            
            
            388
            
            
            
            444
            
            
            
            230Basic
      earnings per share
            
            $
            0.01
            
            
            $
            0.03
            
            
            $
            0.04
            
            
            $
            0.02Diluted
      earnings per share
            
            $
            0.01
            
            
            $
            0.03
            
            
            $
            0.04
            
            
            $
            0.02





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




-
10 -


Acquired Intangible Assets (in
thousands)


April 30, 2008Net
      FairFair
      Market
                
                Estimated
                
                Accumulated
                
                
                MarketValue
                
                Lives
                
                Amortization
                
                
                ValueAmortized
      Intangible AssetsCustomer
      relationships
                
                $
                3,600
                
                5
      years
                
                $
                780
                
                
                $
                2,820Patent
      application
                
                
                520
                
                10
      years
                
                
                56
                
                
                
                464Game
      library
                
                
                3,600
                
                10
      years
                
                
                390
                
                
                
                3,210Total
      amortizable intangible assets
                
                $
                7,720
                
                
                
                $
                1,226
                
                
                $
                6,494Unamortized
      Intangible AssetsGoodwill
                
                $
                25,735Summit
      trade name
                
                
                1,600Total
                
                $
                27,335
 mortization
expense related to the acquisition of Summit for the three and six months ended
April 30, 2008 was $283,000 and $566,000, respectively. Estimated future
aggregate amortization expense for intangible assets associated with the Summit
acquisition subject to amortization as of April 30, 2008 is as follows (in
thousands):




2008
            
            $
            5662009
            
            
            1,1322010
            
            
            1,1322011
            
            
            1,1322012
            
            
            712After
      2012
            
            
            1,820$
            6,494





5. 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.





Diluted
net income per share is computed by using 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
            
            
            Six
      months EndedApril 30,
            
            
            April 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income, as reported
            
            $
            113
            
            
            $
            1,207
            
            
            $
            444
            
            
            $
            2,279Weighted
      average number of shares outstanding
            
            
            12,226
            
            
            
            12,554
            
            
            
            12,327
            
            
            
            12,538Incremental
      shares from the assumed exercise of dilutive stock options
            
            
            212
            
            
            
            545
            
            
            
            234
            
            
            
            573Dilutive
      weighted shares
            
            
            12,438
            
            
            
            13,099
            
            
            
            12,561
            
            
            
            13,111Net
      income per share:Basic
            
            $
            0.01
            
            
            $
            0.10
            
            
            $
            0.04
            
            
            $
            0.18Diluted
            
            $
            0.01
            
            
            $
            0.09
            
            
            $
            0.04
            
            
            $
            0.17





6.
TREASURY STOCK





On
September 4, 2007 the Board of Directors authorized expending up to $5.0 million
in a share repurchase program. During the fiscal year ended October 31, 2007 we
advanced $500,000 to a member of our Board of Directors to repurchase stock on
our behalf and accounted for this as a related party receivable for financial
statement reporting purposes. During the quarter ended January 31, 2008 the
director settled the receivable with repurchased common stock. As of April 30,
2008 we had acquired a total of 519,299 shares of our common stock at a cost of
approximately $3.4 million (including the shares received from the related
party) pursuant to our repurchase program.


-
11 -


7. 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
$644,000.  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.  During the quarter ended April 30, 2008, we wrote off all
receivables and related reserves. 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 March 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 stayed 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 was
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.





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. Currently, there is no set date as to when the matter will be returned to
the control of the lower court. Additionally, as a result of this decision, the
supersedeas bonds we posted prior to filing the appeal were released by the
lower court as of August 18, 2007. Upon receipt of the released supersedeas
bonds from the court we terminated the supporting insurance polices and had the
letters of credit released giving us access to the certificates of deposit which
had served as the cash security for the supersedeas bonds.





For
the year ended October 31, 2004, we recorded an estimated loss contingency in
the Trend litigation of $2.8 million, which was estimated based on the amounts
of the judgment described above.  We recorded an additional loss
contingency of $0.9 million in the third quarter of fiscal 2005 to account for
the increased total award to Trend for legal fees and expenses and
costs.  In addition we have recorded a loss of $313,000 through
October 31, 2007 for the interest accrued on the Trend judgment. With the United
States Court of Appeals for the Ninth Circuit ruling 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, we believe there is no further justification
at this time for continuing to accrue loss contingencies.





On March 2, 2004, a jury rendered a
verdict in our favor and against Trend Gaming, LLC, a Kentucky LLC (“Trend
Gaming”) (involving a prior distribution agreement in Virginia) awarding
compensatory and punitive damages 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.


-
12 -


8. 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 allows for an interest rate
based on the prime rate plus 1.75% or LIBOR at plus 4.75%, with a minimum annual
rate of 9.75%. As of April 30, 2008 the interest rate was 9.75% and the balance
of the term note was $19.8 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 allows for an interest rate based on the prime rate plus 0.50% or LIBOR
plus 3.5%, with a minimum annual rate of 8.50%. As of April 30, 2008 the
interest rate was 8.50% and the outstanding balance of the revolver was $7.4
million. The revolving line of credit requires monthly payments of interest only
and the outstanding balance is due on March 28, 2012. 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 $6.0 million. The credit facility also contains specified
financial covenants, including a leverage ratio, fixed charge coverage ratio and
a specific level of trailing twelve-month earnings before income taxes,
depreciation, and amortization (TTM EBITDA). Upon an event of default, the
lenders under the credit facility can accelerate all obligations under the
agreement and terminate the revolving credit commitment. As of April 30, 2008 we
were out of compliance with the TTM EBITDA Covenant. On June 5, 2008 we
entered into Amendment Number Four to Financing Agreement that amends the TTM
EBITDA, and we are in compliance with all our covenants as of that
date.





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





9. INCOME TAXES





We
recorded our income tax provision at an effective rate of 36.5% for the six
months ended April 30, 2008,compared with 35.8% for
the six months ended April 30, 2007. 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.





In
July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, which creates a
single model to address uncertainty in income tax positions and prescribes the
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 was effective for fiscal
years beginning after December 15, 2006, and accordingly, we adopted FIN 48
beginning on November 1, 2007. As a result of the implementation of FIN 48, no
material amounts were recognized during the three and six months ended April 30,
2008.





We file
numerous consolidated and separate income tax returns in the United States
federal jurisdiction and in many state and foreign jurisdictions.  With few
exceptions, we are no longer subject to United States federal income tax
examinations for years before 2003 and are no longer subject to state and local,
or foreign income tax examinations for years before 2002.





10. BUSINESS SEGMENT
INFORMATION





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. As a result of our acquisition of
Summit in March 2007, management determined that a new operating segment was
appropriate. The segment discussion outline below represents the adjusted
segment structure as determined by management in accordance with SFAS
131.





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





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





-
13 -


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




Three
      months Ended
            
            
            Six
      months EndedApril 30,
            
            
            April 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      RevenueBingo
      systems
            
            $
            11,150
            
            
            $
            12,332
            
            
            $
            22,218
            
            
            $
            24,349Video
      lottery terminals
            
            
            2,720
            
            
            
            1,079
            
            
            
            6,836
            
            
            
            1,079$
            13,870
            
            
            $
            13,411
            
            
            $
            29,054
            
            
            $
            25,428Net
      Cost of RevenueBingo
      systems
            
            $
            4,582
            
            
            $
            5,206
            
            
            $
            9,273
            
            
            $
            10,129Video
      lottery terminals
            
            
            1,587
            
            
            
            646
            
            
            
            3,496
            
            
            
            646$
            6,169
            
            
            $
            5,852
            
            
            $
            12,769
            
            
            $
            10,775Net
      Income/(Loss)Bingo
      systems
            
            $
            487
            
            
            $
            1,633
            
            
            $
            503
            
            
            $
            2,705Video
      lottery terminals
            
            
            (374
            )
            
            
            (426
            )
            
            
            (59
            )
            
            
            (426
            )$
            113
            
            
            $
            1,207
            
            
            $
            444
            
            
            $
            2,279Depreciation
      and AmortizationBingo
      systems
            
            $
            2,215
            
            
            $
            2,881
            
            
            $
            4,587
            
            
            $
            4,956Video
      lottery terminals
            
            
            321
            
            
            
            34
            
            
            
            640
            
            
            
            34$
            2,536
            
            
            $
            2,915
            
            
            $
            5,227
            
            
            $
            4,990Interest
      ExpenseBingo
      systems
            
            $
            15
            
            
            $
            4
            
            
            $
            25
            
            
            $
            5Video
      lottery terminals
            
            
            654
            
            
            
            350
            
            
            
            1,357
            
            
            
            350$
            669
            
            
            $
            354
            
            
            $
            1,382
            
            
            $
            355













April
      30,
            
            
            October
      31,2008
            
            
            2007Identifiable
      AssetsBingo
      systems
            
            $
            78,744
            
            
            $
            83,131Video
      lottery terminals
            
            
            8,778
            
            
            
            10,751$
            87,522
            
            
            $
            93,882





11.
SUBSEQUENT EVENTS





On May
31, 2008, we entered into a purchase and sale agreement with RKD Holdings,
L.L.C. to purchase real property. The purchase price is $7.2 million, subject to
adjustment for repairs or credits found during the due diligence period.
Improvements will cost an additional $3.4 million. This building will become our
main facility. We plan to finance the acquisition with a term note. The
transaction is subject to a number of customary closing conditions. Under
certain circumstances incuding our failure to obtain required financing, if the
transaction fails to close, we would lose a non-refundable deposit of $0.2
million. The transaction is expected to close in the third fiscal quarter of
2008.


On May
27, 2008 we entered into the First Amendment to the purchase and sale agreement
with RKD Holdings, L.L.C. allowing for the expected close in the fourth quarter
of 2008.





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, 2007 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 under the heading “Risk Factors” in our Annual
Report on Form 10-K for the year ended October 31, 2007 and in this report.
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.


-
14 -


OVERVIEW





We
design, develop, and market several bingo systems and video lottery terminals
(“VLT’s”). We entered into the VLT business in March 2007, with our acquisition
of Summit Amusement and Distributing Ltd. (“Summit”) for $41.7 million in cash.
For the three months ended April 30, 2008, video lottery terminal sales
accounted for 20%, portable bingo systems accounted for 65%, and fixed-based
bingo units accounted for 15% of our revenue. For the six months ended April 30,
2008, VLT’s sales accounted for 24%, portable bingo systems accounted for 61%
and fixed-base bingo units accounted for 15% of our revenue.  As of
April 30, 2008, we had bingo systems in service in 38 states and in seven
non-domestic countries and VLTl sales in four states, one US territory, and
various Native American locations. We are also developing and marketing server
based wireless gaming systems on which users can play a range of games including
bingo, video poker, keno and other slot machine games. We installed our first
system in the second fiscal quarter of 2008.





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. 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.





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.





Our VLT
business generates revenue from sales of video lottery terminals (new and used),
software conversions kits, content fees, license fees, participation fees,
parts/equipment and service. For the three and six months ended April 30, 2008,
86.1% and 71.4%, respectively, of our VLT business sales were derived from the
sales of new and used equipment, conversion kits and parts/equipment. In some
instances, we may recognize recurring participation revenue in lieu of
one-time machine sales. Revenue growth is driven by increasing market share in
existing markets and expanding product placement into new markets.





Our bingo
and VLT expenses consist primarily of (a) cost of revenue, consisting of
expenses associated with technical and operational support of the bingo systems
within bingo halls, depreciation and amortization of bingo terminals, cost of
sales related to Summit equipment sold, the repair/refurbishment/disposal of
bingo terminals and related support equipment, and excess of obsolescence
allowance for bingo units; (b) general and administrative, consisting of
activities associated with management of our company and related support, which
includes finance and accounting, legal, compliance, information systems, human
resources, accounts receivable reserve, and amortization of the intangible
assets associated with the Summit acquisition; (c) sales and marketing,
consisting primarily of commissions paid to distributors for promoting and
supporting our products and internal sales force with a focus upon generating
new customers and upgrades for existing customers; and (d) 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 or new games themes for our video lottery terminals.





Net
income for the three months ended April 30, 2008 was $0.1 million, compared to
$1.2 million for the same period in fiscal 2007. The decline resulted from a
$0.6 million increase in general and administrative expenses due to increased
accounting and legal fees, and a $0.5 million increase in research and
development expenses relating to employee and project costs. The decrease was
also caused by a change in our investment valuation in the amount of $0.3
million pre tax ($0.2 net of tax).  We also incurred increased
interest expense of $0.7 million and increased amortization expense of $0.3
million due to the acquisition of Summit.





Net
income for the six months ended April 30, 2008 was $0.4 million, compared with
income of $2.3 million for the same period in fiscal 2007. The decline resulted
from a $1.3 million increase in general and administrative expenses due to an
increase in accounting and legal fees and, and a $1.4 million increase in
research and development expenses relating to increased employee and project
costs. Net income for the six months ended April 30, 2008 was also adversely
affected by a $1.0 million pre-tax ($0.6 million after tax) impairment charge
related to our investments in auction rate securities. During the first six
months of 2008, we also incurred increased interest expense of $1.4 million and
increased amortization expense of $0.6 due to the acquisition of
Summit.





On
September 4, 2007 the Board of Directors authorized expending up to $5.0 million
in a share repurchase program.  The shares are to be acquired through open
market transactions by September 3, 2008.  The actual amount and timing of
dollars expended and shares repurchased will be subject to business and market
conditions and applicable SEC rules. As of April 30, 2008, we had acquired a
total of 519,299 shares at a cost of approximately $3.4 million pursuant to this
program





On March
10, 2008, we entered into Amendment Number Three to Financing Agreement amending
our credit facility agreement because our TTM EBITDA did not meet the
requirements of the agreement. The Amendment Number Three to Financing
Agreement:





·
            Reduced
      the TTM EBITDA from $22 million to $20 million for the quarters ending
      January 31, 2008 and April 30, 2008.·
            Reduced
      the TTM EBITDA from $22 million to $21 million for the quarter ending July
      31, 2008.·
            Reduced
      the capital expenditure limit from $14 million to $12 million for the
      fiscal year ending October 31,
2008.





-
15 -




On June
5, 2008 we entered into Amendment Number Four to Financing Agreement amending
our credit facility agreement because our TTM EBITDA did not meet the
requirements of the agreement. The Amendment Number Four to Financing
Agreement:
 
 ·
              Reduced
      the TTM EBITDA from $20 million to $19 million for the quarters ending
      April 30, 2008 and July 31, 2008.·
              Reduced
      the TTM EBITDA from $22 million to $21 million for the quarter ending
      October 31, 2008.·
              Reduced
      the capital expenditure limit from $12 million to $11 million for the
      fiscal year ending October 31, 2008.·
              Changed
      our interest rate on our term note from LIBOR plus 4.75% to LIBOR plus
      5.75 %·
              Changed
      our interest rate on our revolver from LIBOR plus 3.50% to LIBOR plus
      4.50%·
              Increased
      the prepayment penalty on the credit facility by 1.0% for the current
      year
 As previously
reported, as of March 12, 2008, Donald Tateishi ended his relationship with us
as our Chief Financial Officer, Secretary and Treasurer. Mr. Tateishi’s
resignation was due to personal reasons and not as a result of any disagreement
with us regarding our operations, policies or practices. Our Chief Executive
Officer, Jay M. Meilstrup, will act as our interim Chief Financial Officer,
Secretary and Treasurer while our Board of Directors conducts a search for a
permanent replacement.








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, obsolescence, provision for income taxes, 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.





Our
critical accounting policies are those that are both important to the portrayal
of our financial condition and results of operations and require management’s
most difficult, subjective and complex judgment. These critical accounting
policies are discussed in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our 2007 Form 10-K and Form 10-K/A.
There have been no changes to our critical accounting policies since the filing
of our 2007 Form 10-K and Form 10-K/A.





RESULTS
OF OPERATIONS





Three and Six
Months Ended April 30, 2008 compared to the Three and Six Months Ended April 30,
2007




The
following table sets forth certain selected unaudited condensed consolidated
financial data for the periods indicated:




Three
      months Ended April 30,(in
      thousands)Including
            
            
            Excluding
      Summit
            
            
            % ChangeSummit
            
            
            
            
            
            
            
            
            Favorable/2008
            
            
            2008
            
            
            2007
            
            
            (Unfavorable)Net
      revenue
            
            $
            13,870
            
            
            $
            11,150
            
            
            $
            12,332
            
            
            
            (9.6
            )%Cost
      of revenue
            
            
            6,169
            
            
            
            4,582
            
            
            
            5,206
            
            
            
            12.0
            %Gross
      profit
            
            
            7,701
            
            
            
            6,568
            
            
            
            7,126
            
            
            
            (7.8
            )%Operating
      expenses:General
      and administrative
            
            
            2,556
            
            
            
            2,023
            
            
            
            1,820
            
            
            
            (11.1
            )%Sales
      and marketing
            
            
            2,713
            
            
            
            2,549
            
            
            
            2,541
            
            
            
            0.0
            %Research
      and development
            
            
            1,342
            
            
            
            917
            
            
            
            614
            
            
            
            (49.3
            )%Loss
      contingencies
            
            
            -
            
            
            
            -
            
            
            
            46
            
            
            
            0.0
            %Total
      operating expenses
            
            
            6,611
            
            
            
            5,489
            
            
            
            5,021
            
            
            
            (9.3
            )%Income
      from operations
            
            
            1,090
            
            
            
            1,079
            
            
            
            2,105
            
            
            
            (48.7
            )%Interest
      (expense)
            
            
            (669
            )
            
            
            (15
            )
            
            
            (4
            )
            
            
            (275.0
            )%Impairment
      of investments
            
            
            (285
            )
            
            
            (285
            )
            
            
            -
            
            
            
            0.0
            %Other
      income, net
            
            
            45
            
            
            
            34
            
            
            
            164
            
            
            
            (79.3
            )%Income
      before income taxes
            
            
            181
            
            
            
            813
            
            
            
            2,265
            
            
            
            (64.1
            )%Provision
      for income taxes
            
            
            68
            
            
            
            326
            
            
            
            632
            
            
            
            48.4
            %Net
      income
            
            $
            113
            
            
            $
            487
            
            
            $
            1,633
            
            
            
            (70.2
            )%




-
16 -





Six
      months Ended April 30,(in
      thousands)Including
            
            
            Excluding
      Summit
            
            
            % ChangeSummit
            
            
            
            
            
            
            
            
            Favorable/2008
            
            
            2008
            
            
            2007
            
            
            (Unfavorable)Net
      revenue
            
            $
            29,054
            
            
            $
            22,218
            
            
            $
            24,349
            
            
            
            (8.8
            )%Cost
      of revenue
            
            
            12,769
            
            
            
            9,273
            
            
            
            10,129
            
            
            
            8.4
            %Gross
      profit
            
            
            16,285
            
            
            
            12,945
            
            
            
            14,220
            
            
            
            (9.0
            )%Operating
      expenses:General
      and administrative
            
            
            5,314
            
            
            
            4,153
            
            
            
            3,792
            
            
            
            (9.5
            )%Sales
      and marketing
            
            
            5,250
            
            
            
            4,957
            
            
            
            5,449
            
            
            
            9.0
            %Research
      and development
            
            
            2,832
            
            
            
            1,969
            
            
            
            1,217
            
            
            
            (61.8
            )%Loss
      contingencies
            
            
            -
            
            
            
            -
            
            
            
            93
            
            
            
            0.0
            %Total
      operating expenses
            
            
            13,396
            
            
            
            11,079
            
            
            
            10,551
            
            
            
            (5.0
            )%Income
      from operations
            
            
            2,889
            
            
            
            1,866
            
            
            
            3,669
            
            
            
            (49.1
            )%Interest
      expense
            
            
            (1,382
            )
            
            
            (25
            )
            
            
            (5
            )
            
            
            (400.0
            %)Impairment
      of investments
            
            
            (977
            )
            
            
            (977
            )
            
            
            -
            
            
            
            0.0
            %Other
      income, net
            
            
            169
            
            
            
            143
            
            
            
            322
            
            
            
            (55.6
            )%Income
      before income taxes
            
            
            699
            
            
            
            1,007
            
            
            
            3,986
            
            
            
            (74.7
            )%Provision
      for income taxes
            
            
            255
            
            
            
            504
            
            
            
            1,281
            
            
            
            60.7
            %Net
      income
            
            $
            444
            
            
            $
            503
            
            
            $
            2,705
            
            
            
            (81.4
            )%





We
acquired substantially all of the assets of Summit on March 28, 2007. The net
revenues and net loss from operations for Summit in the three months ended April
30, 2008 were $2.7 million and $0.5 million respectively. The net revenues and
net loss from operations for Summit in the six months ended April 30, 2008 were
$6.8 million and $0.4 million respectively. The following discussion of the
results of operations excludes the results of Summit except as otherwise
indicated.





Net
Revenue





Bingo
revenue for the second quarter of 2008 decreased 9.6% to $11.1 million from
$12.3 million in the comparable quarter in 2007. Bingo revenue for the six
months ended April 30, 2008, decreased 8.8% to $22.2 million from $24.3 million
in the comparable period in 2007. The decrease in bingo revenue for the quarter
and six months ended April 30, 2008 is a result of several factors. Bingo
revenue decreased $1.2 million for the quarter, driven by increased regional
competition and pricing pressures as well as continued migration of commercial
accounts to more profitable slot machine style gaming over bingo. However,
offsetting the decline in revenue was an increase of approximately $0.5 million
in revenue in various key states and expansion in the United Kingdom, as well as
the continued popularity and rollout of our Traveler and Tracker terminals.
Including the results of Summit, our reported net revenues for the second
quarter of 2008 increased $0.5 million from the second quarter of
2007.  Our Summit division’s results for the quarter were impacted by
some softness in the Montana market as well as fewer than expected shipments to
the Louisiana market.  With over 77% of Summit’s sales coming from the
Montana and Louisiana markets, financial results for this segment may continue
to be volatile from quarter to quarter until we have broadened our revenue base
by expanding into new markets.





Cost
of Revenue





Bingo
cost of revenue decreased 12.0% to $4.6 million, or 41.1% of net revenue in the
second quarter of 2008, from $5.2 million, or 42.2% of net revenue, for the
comparable quarter in 2007. Bingo equipment depreciation decreased by
approximately $451,000 over the comparable quarter in 2007 primarily due to
Travelers becoming fully depreciated.





Bingo
cost of revenue decreased 8.4% to $9.3 million, or 41.7% of net revenue in the
six months ended April 30, 2008, from $10.1 million, or 41.6% of net revenue in
the same period in 2007. Bingo equipment depreciation decreased by approximately
$656,000 over the comparable period in 2007, primarily due to Travelers becoming
fully depreciated.





Gross
Profit




Bingo
gross profit decreased 7.8% to $6.6 million, or 58.9% of net revenue in the
second quarter of 2008, from $7.1 million, or 57.8% of net revenue, for the
comparable quarter in 2007. The decrease is due to the revenue decline resulting
from the factors mentioned above.





Bingo
gross profit decreased 9.0% to $12.9 million, or 58.3% of net revenue in the six
months ended April 30, 2008, from $14.2 million or 58.4% of net revenue for the
same period in 2007. The decrease is due to the decreased in revenue as noted
above and partially offset by a decrease in the depreciation of bingo
equipment.




-
17 -





Operating
Expenses





Total
operating expenses increased 9.3% to $5.5 million, or 49.2% of net revenue, in
the second quarter of 2008, from $5.0 million, or 40.7% of net revenue, for the
comparable quarter in 2007. Operating expense increased by 5.0% to $11.1 million
for the six months ended April 30, 2008, from $10.6 million in the comparable
period in 2007. Operating expenses include general and administrative, sales and
marketing, including distributor commissions, research and development, and loss
contingencies.





Bingo
general and administrative costs increased 11.1% to $2.0 million, or 18.1% of
net revenue in the second quarter of 2008, from $1.8 million, or 14.8% of net
revenue for the comparable quarter in 2007. The increase is due primarily to an
increase in the accounting and legal fees. Bingo general and administrative
costs increased 9.5% to $4.2 million for the six months ended April 30, 2008,
from $3.8 million in the comparable period in 2007.





Bingo
sales and marketing expenses remained flat at $2.5 million, or 22.9% of net
revenue in the second quarter of 2008, compared to 20.7% of net revenue for the
comparable quarter in 2007. Bingo sales and marketing expenses decreased to $5.0
million, or 22.3% of net revenue in the six months ended April 30, 2008 from
$5.4 million or 22.34% of net revenue for the comparable period in 2007. The
decrease is primarily due to a decrease in distributor commissions as well as
promotional costs; and travel expenses the decrease was partially offset by an
increase in employee costs, consulting fees, and sales taxes.





Bingo
research and development expenses increased 49.3% to $0.9 million or 8.2% of net
revenue in the second quarter of 2008, from $0.6 million, or 5.0% of net revenue
for the comparable quarter in 2007. Bingo research and development expenses
increased to $2.0 million, or 8.9% of net revenue in the six months ended April
30, 2008 from $1.2 million or 5.0% of net revenue for the comparable period in
2007. The increase was primarily due to an increase in salary and other employee
costs for additional employees and consulting, as well as an increase in project
costs offset by a decrease in the depreciation of fixed assets.





No loss
contingencies were recorded for the three and six months ended April 30, 2008,
compared to $46,000, and $93,000, respectively for the comparable quarter and
six months in 2007.





Including the results of Summit, our reported
total operating expenses increased $1.1 million from $5.5 million in the second
quarter of 2007 to $6.6 million in the second quarter of 2008.  Our
reported total operating expenses increased $2.4 million from $11.0 million in
the six months ended April 30,  2007 to $13.4 million in the six
months ended April 30, 2008.





Interest
Expense





Including
the results of Summit, our reported interest expense of $0.7 million and $1.4
million for the quarter and six months ended April 30, 2008, respectively, was
due almost entirely to interest paid on our debt incurred to purchase Summit.
Our interest expense for the comparable periods was $0.3 million.


.




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, 2008 and October 31, 2007, we had a working capital
balance of $9.9 million and $14.0 million, respectively. As of April 30, 2008,
our principal sources of liquidity included cash and cash equivalents of $6.5
million and $0.5 million in short-term investments. Current liabilities include
an accrued liability of $4.0 million in connection with a contingent litigation
judgment.





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. As of April 30, 2008, the interest rate on our term loan was
9.75% and on our revolving credit facility was 8.50%. We incurred interest
expense of approximately $0.7 million and $1.4 million, respectively, for the
three and six months ended April 30, 2008 compared to $0.4 million for the
comparable periods in 2007. The interest expense is primarily a result of the
debt incurred in March 2007 to finance the Summit acquisition.





Operating
activities provided $6.8 million of cash for the six-month period ended April
30, 2008 compared with $3.8 million for the six-month period ended April 30,
2007. The $6.8 million consisted primarily of our net income of $0.4 million
adjusted by $5.4 million from depreciation, amortization, obsolescence
provisions, and loss on disposal of bingo terminals and related equipment
provisions. $1.0 million from the loss on impairment, and $0.7 million provided
by net changes in other operating assets and liabilities. For the six-month
period ended April 30, 2007, 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.
  -
18 -





Investing
activities provided approximately $1.2 million of cash for the six-month period
ended April 30, 2008 compared with using approximately $3.6 million of cash for
the six-month period ended April 30, 2007. The $1.2 million included $2.4
million in capital expenditures for bingo terminals and associated support
equipment. In addition, $3.6 million was received from the sale of short-term
investments during the period ended April 30, 2008. During the six-month period
ending April 30, 2007, 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, and an
additional $2.7 million was provided from the sale of short-term investments
during the period ended April 30, 2007.





Financing
activities used approximately $5.1 million during the six-month period ended
April 30, 2008 compared with providing $212,000 for the six-month period ended
April 30, 2007. The $5.1 million included payments on long-term debt of
approximately $2.2 million and the repurchase of our common stock for
approximately $2.9 million. The $212,000 provided for the six-month period ended
April 30, 2007 was from proceeds and tax benefits from stock option
exercises.





Our
credit facility agreement contains numerous restrictive covenants. 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. Amendment Three to the Financing Agreement
limits our capital expenditures. Management does not believe that the limitation
will adversely affect our ability to acquire the necessary devices and related
equipment.





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 2008. 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
acquisitions. 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.





On
September 4, 2007 the Board of Directors authorized expending up to $5.0 million
in a share repurchase program.  The shares are to be acquired through open
market transactions by September 3, 2008.  The actual amount and timing of
dollars expended and shares repurchased will be subject to business and market
conditions and applicable SEC rules. As of April 30, 2008, we had acquired a
total of 519,299 shares at a cost of approximately $3.4 million pursuant to this
program.




Purchase
Commitments





From time
to time, we enter into commitments with our vendors to purchase VLT parts, bingo
terminals and support equipment at fixed prices and/or guaranteed quantities.
During the fiscal year ending October 31, 2007, we entered into various
additional agreements for component parts for VLTs, Tracker and Traveler as well
as component parts for the GameTech Mini TM. As of October 31, 2007,
approximately $2.9 million of these commitments were outstanding.  As
of April 30, 2008, approximately $2.3 million of these commitments were
outstanding. All purchases are expected to occur by the end the fiscal
year.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Market
Risks





We
maintain an investment portfolio of approximately $3.9 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. During the
three and six months ended April 30, 2008 we recorded impairments of
approximately $0.3 and $1.0 million, respectively, due to the devaluation of our
auction rate securities. We monitor these investments for impairment and make
appropriate reductions in carrying value when necessary.





There
have been no material changes in market risk to our investment
portfolio resulting from changes in interest rates from that disclosed in
our Form 10-K and Form 10-K/A for the fiscal year ended October 31,
2007.





On March
28, 2007, we entered into a credit facility, which consists of a term note for
$30 million and a revolving line of credit in the amount of $10 million relating
to the acquisition of Summit. At April 30, 2008 the balances of the term note
and revolving line of credit were $19.8 and $7.4 million,
respectively.





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. Assuming we had a $27.2
million balance outstanding as of April 30, 2008 and the blended average rate of
interest rate was 9.41%, our monthly interest payment, if the rate stayed
constant, would be approximately $213,000. If the prime rate rose to 375 basis
points to 12.0%, which assumes an unusually large increase, our monthly payment
would be approximately $291,000. A more likely increase of 1.0% or 2.0%, given
our base rates, result in a monthly payment of approximately $236,000 or
$259,000, respectively.


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.


ITEM
4. CONTROLS AND PROCEDURES





Disclosure
controls and procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer (“CEO”) and acting Chief Financial Officer (“CFO”), as
appropriate, to allow timely decisions regarding required
disclosure.





As of the
end of the period covered by this report, we carried out an evaluation under the
supervision and with the participation of our management, including the CEO, who
is also the acting CFO, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e).
Based on this evaluation, the CEO, who is also the acting CFO, concluded that
our disclosure controls and procedures were effective as of the end of the
period covered by this report.





Changes
in Internal Control over Financial Reporting





Other
than as disclosed directly below, there have been no changes in our internal
control over financial reporting during the quarter ended April 30, 2008 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, 2007, we previously reported a
significant deficiency in our internal control process related to the revenue
recognition procedures related to software contracts with multiple delivery
elements.  We believe the significant deficiency was remediated at January
31, 2008 however no testing has been performed.The testing
will be performed prior to July 31, 2008.





PART II. OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS.





For a
discussion of our current litigation, see Note 7 (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





We
may be adversely impacted by economic factors beyond our control and may incur
additional impairment charges to our investment portfolio.





As of
April 30, 2008, we had $3.9 million of principal invested in Auction Rate
Securities (“ARS”), representing interests in collateralized debt obligations
supported by pools of residential and commercial mortgages or credit cards,
insurance securitizations and other structured credits, including corporate
bonds. Some of the underlying collateral for the ARS held by us consists of
sub-prime mortgages. The estimated market value of our ARS holdings at April 30,
2008 was $2.9 million, which reflects a $1.0 million adjustment to the principal
value of $3.9 million.





Although
the ARS continue to pay interest according to their stated terms, based on
valuation models used by our brokers in preparing our account statement and an
analysis of other-than-temporary impairment factors, we have recorded an
impairment charge of approximately $1.0 million in the six-month period ended
April 30, 2008, reflecting the portion of ARS holdings that we have concluded
have an other-than-temporary decline in value.





The
credit and capital markets could continue to deteriorate in 2008. If
uncertainties in these markets continue, these markets deteriorate further or we
experience any additional rating downgrades on any investments in our portfolio
(including on ARS), we may incur additional impairments to our investment
portfolio, which could negatively affect our financial condition, cash flow and
reported earnings.




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





Issuer
Purchases of Equity Securities





The
following table provides information regarding repurchases of our common stock
made by or on behalf of us, or any “affiliated purchaser” as defined in SEC
rules, of our equity securities registered pursuant to Section 12 of the
Exchange Act, for each month during the second quarter of fiscal year 2008, in
the format required by SEC rules:




Total
      Number of Shares Purchased
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs (1)
            
            
            Maximum
      Dollar Amount of Shares (in thousands) That May Yet Be Purchased Under the
      Plans or Programs (1)February
      1, 2008 – February 29, 2008
            
            
            7,300
            
            
            $
            6.79
            
            
            
            7,300
            
            
            $
            2,636March
      1, 2008 – March 31, 2008
            
            
            75,929
            
            
            
            5.44
            
            
            
            75,929
            
            
            
            2,224April
      1, 2008 – April 30, 2008
            
            
            105,164
            
            
            
            5.83
            
            
            
            105,164
            
            
            
            1,610Total
      repurchased for the quarter
            
            
            188,393
            
            
            $
            5.71
            
            
            
            188,393
            
            
            $
            1,610Total
      for the repurchase plan
            
            
            519,299
            
            
            $
            6.52
            
            
            
            519,299
            
            
            $
            1,610




(1)
            On
      September 4, 2007 the Board of Directors authorized expending up to $5.0
      million in a share repurchase program. The shares reported in the table
      were acquired in open market transactions pursuant to this program.
      Approximately $1.6 million remains available for repurchase of our common
      stock related to this program, which expires September 3,
      2008.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





Not
Applicable





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





We held
our 2007 Annual Meeting of Stockholders on March 26, 2008. 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
            
            
            WithheldRichard
      T. Fedor
            
            
            5,694,362
            
            
            
            596,864Donald
      K. Whitaker
            
            
            5,858,744
            
            
            
            268,100Scott
      H. Shackelton
            
            
            5,859,144
            
            
            
            267,300Richard
      H. Irvine
            
            
            5,567,255
            
            
            
            851,078Jay
      M. Meilstrup
            
            
            5,565,853
            
            
            
            853,882





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, 2008.





Votes in Favor
            Opposed
            Abstained
            Broker Non-Vote6,094,543
            31,301
            600
            6,182,757








ITEM
5. OTHER INFORMATION





Not
Applicable





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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)4.2
                Rights
      Agreement, dated as of March 7, 2003, between GameTech International, Inc.
      and Mellon Investor Services, LLC, as rights agent (6)4.3
                Specimen
      Common Stock Certificate (7)10.1
                Amendment
      Number Three to Financing Agreement dated effective March 10, 2008
      (8)10.2
                Amendment
      Number Four to Financing Agreement dated effective June 5, 2008
      (10)10.3
                Resignation
      of  Donald Tateishi, CFO dated as of March 12,2008
      (9)10.4
                Purchase
      and Sale Agreement for the purchase of Real Property
  (11)10.5
                First
      Amendment to Purchase and Sale Agreement for the purchase of Real Property
      (11)31.1
                Certification
      of Chief Executive Officer and Acting Chief Financial Officer pursuant to
      Rule 13a-14(a) and Rule 15d-14(a) promulgated under the Securities
      Exchange Act of 1934, as amended.32.1
                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; Commission file No.
      000-23401.(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; Commission file No.
      000-23401.(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; Commission file No. 000-23401.(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; Commission file No.
      000-23401(8)
                Incorporated
      by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
      8-K dated March 10, 2008 as filed with the Commission on or about March
      10, 2008.(9)
                Incorporated
      by reference to Item 5.02(b) to the Registrant’s Current Report on Form
      8-K dated March 12, 2008 as filed with the Commission on or about March
      12, 2008(10)
                Incorporated
      by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
      8-K dated June 6, 2008 as filed with the commission on or about June 6,
      2008.(11)
                Incorporated
      by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
      8-K dated June 5, 2008 as filed with the commission on or about June 5,
      2008.




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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. Meilstrup
            
            Chief
      Executive Officer and PresidentJay
      M. Meilstrup
            
            (Principal
      Executive Officer) andActing
      Chief Financial Officer(Principal
      Accounting Officer
            
            June
      9, 2008




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