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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008o

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


for the transition period
from                to

Commission file number 0-23588

GRAPHIC

GAMING PARTNERS INTERNATIONAL CORPORATION(Exact name of registrant as specified in its charter)

NEVADA(State of incorporation)

88-0310433(I.R.S. Employer Identification No.)


1700 Industrial Road, Las Vegas, Nevada 89102(Address of principal executive offices)

Registrant's
telephone number, including area code:(702) 384-2425Registrant's website:www.gpigaming.com

Securities
registered pursuant to Section 12(b) of the Act:None

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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes    ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
o Yes    ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. ý Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. (check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


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

The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2008, based on
the closing price as reported on the NASDAQ National Market of $3.88 per share:$12,642,658.

The
number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 2009 was 8,103,401 shares of Common Stock.

Documents Incorporated by Reference:

Portions
of our Proxy Statement relating to the 2009 annual stockholders' meeting are incorporated herein by reference in Part III. Such Proxy Statement will be filed with the
Securities and Exchange Commission no later than 120 days after conclusion of the registrant's year ended December 31, 2008.



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TABLE OF CONTENTS



PART I

1Item 1.

Business

1Item 1A.

Risk Factors

13Item 1B.

Unresolved Staff Comments

16Item 2.

Properties

16Item 3.

Legal Proceedings

17Item 4.

Submission of Matters to a Vote of Security Holders

17PART II

18Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

18Item 6.

Selected Financial Data

19Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

20Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

33Item 8.

Financial Statements and Supplementary Data

34Report Of Independent Registered Public Accounting Firm

36Consolidated Balance Sheets

37Consolidated Statements Of Income

38Consolidated Statements Of Stockholders' Equity And Other Comprehensive
Income

39Consolidated Statements Of Cash Flows

40Notes To Consolidated Financial Statements

41Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

66Item 9A.

Controls and Procedures

66Item 9B.

Other Information

67PART III

67Item 10.

Directors, Executive Officers and Corporate Governance

67Item 11.

Executive Compensation

67Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

68Item 13.

Certain Relationships and Related Transactions and Director
Independence

68Item 14.

Principal Accountant Fees and Services

68PART IV

69Item 15.

Exhibits, Financial Statement Schedules

69


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PART I

Item 1.    Business.

The following Business section contains forward-looking statements, which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors. See Item 1A, "Risk Factors."

Company Overview

Gaming Partners International Corporation (GPIC or the Company), a Nevada corporation, was formerly known as Paul-Son
Gaming Corporation and owns, directly or indirectly, three subsidiaries as the result of various combination and merger agreements: Gaming Partners International USA, Inc. (GPI USA), Gaming
Partners International SAS (GPI SAS), and GPI Mexicana S.A. de C.V. (GPI Mexicana). GPI USA, formerly Paul-son Gaming Supplies, Inc., was founded in 1963 in Las
Vegas by our former Chairman, Paul S. Endy, Jr., and initially manufactured and sold dice to casinos in Las Vegas. The Bud Jones Company was founded in Las Vegas in 1965 by Bud Jones to
manufacture and sell gaming supplies and after being purchased in 2000 by GPI SAS, eventually merged into GPI USA. GPI SAS, formerly Etablissements Bourgogne et
Grasset S.A., was founded in 1923 by Etienne Bourgogne and Claudius Grasset in Beaune, France to produce and sell counterfeit-resistant chips to casinos in Monaco and then later to casinos all
over the world. The Company has established brand names such as Paulson®, Bourgogne et Grasset®, or B&G, Bud Jones®, and T-K®. GPIC
and each of its subsidiaries are sometimes collectively referred to herein as the "Company," "us," "we" or "our."

We
are headquartered in Las Vegas, Nevada and have manufacturing facilities located in Las Vegas, Nevada; San Luis Rio Colorado, Mexico; and Beaune, France. GPI USA has sales
offices in Las Vegas, Nevada; Atlantic City, New Jersey; and Gulfport, Mississippi and sells our casino products to licensed casinos primarily in the United States and Canada. GPI SAS has a
sales office in Beaune, France and sells our casino products internationally to licensed casinos. Most of our products are sold directly to end-users, however, in some regions of the world
we sell through distributors. We also sell our non-casino poker chips on an exclusive basis to a wholesaler in the United States and distributors in Europe.

We
believe we are one of the leading manufacturers and suppliers of casino table game equipment in the world. Our business activities include the manufacture and supply of gaming chips,
table layouts, playing cards, gaming furniture, dice, radio frequency identification device (RFID) readers and software, roulette wheels and miscellaneous table accessories such as chip trays, drop
boxes and dealing shoes, which are used in conjunction with casino table games such as blackjack, poker, baccarat, craps and roulette.

Most
of our products are designed and produced to meet our customer's specific requirements, whether they are related to branding, aesthetic appeal, or security. Therefore our ability to
produce products with a variety of styles and features, in combination with years of reliable delivery, enhances our competitive position. The useful lives of our products typically range from several
hours in the case of playing cards and dice, to several months in the case of layouts, and several years in the case of casino chips and gaming furniture. As such, our primary business is providing
products to new casinos, products to existing casinos, and ongoing replacement of these products. When a new casino opens, we strive to supply most of the products required to operate the casino's
table games. Through this strategy, revenues are generated both from the initial sale to the new casino and on a continuing basis as the new casino becomes part of our customer base.

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Product Segments

We operate in one operating segmentcasino game equipment products in multi-geographic areas. (See
Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 12.)

Products

Gaming Chips

We design and manufacture gaming chips, including casino chips, plaques and jetons (the European equivalent of casino chips) to meet a
variety of customer preferences and specifications, including size, weight, ability to stack, ease of handling, texture, color, graphics, durability, security and anti-counterfeit
features. Because casino chips, jetons and plaques, like real currency, are subject to counterfeiting, we incorporate a variety of custom security and anti-counterfeit features into each
chip. Our most sophisticated anti-counterfeiting feature is a radio frequency identification device (RFID), which is a microchip that can be embedded in our gaming chips making them
extremely counterfeit resistant.

A
casino will generally order all of its gaming chips, including replacement chips after wear and usage, from a single supplier. Accordingly, we strive to become the original chip
supplier to a casino upon its opening. A new casino order will typically include at least five to seven distinct chip denominations, colors and styles, ranging in denominations from $0.50 to in excess
of $1 million. Our selling price is variable, based on the customization, quantities, design and security features, with a price range generally between $0.60 and $2.50 per chip in the United
States. A typical Paulson®
brand chip with a microchip will sell for approximately $2.00 or $3.00 per chip depending on the RFID frequency. Given this relatively low price and a gaming chip's expected lifespan of several years,
we believe that competition is generally based upon factors other than price. In 2008, we manufactured approximately 23 million gaming chips, including casino gaming chips, plaques and jetons.

Gaming
chips can be divided into three basic families: (a) European-style jetons and plaques; (b) American-style casino chips; and (c) commemorative chips. Gaming
chips accounted for approximately 64% of our total sales in 2008.

European-style Casino Chips

Jetons and plaques are European-style casino chips. Our jetons and plaques are manufactured by GPI SAS at our facility in
France. Jetons are circular with standard diameters in 13 different sizes, ranging from 32 mm to 60 mm. Plaques are rectangular, square or oval with standard sizes ranging from 30 mm × 30
mm to 151 mm × 105 mm. Jetons and plaques are used mainly for traditional European games. Jetons and plaques are made of laminated cellulose acetate with a very large range of colors,
shapes and security and anti-counterfeit components, such as, UV pigment, number serialization, laser pigment or Laser Lock, gold lace material and RFID technology. GPI
SAS created its original product line in 1925 and has held a leading position in this market since that time. Our production capacity in France for European-style jetons and plaques is approximately 5
to 8 million units per year on a three-shift basis.

American-style Casino Chips

Casino chips are used worldwide for casino games originating in the United States. Originally, casino chips in the United States were
made of clay and called "clay chips." Clay was replaced many years ago by other materials. There are currently three main technologies used to produce these types of chips: injection molding,
sublimation, and thermo-compression molding. We produce casino chips using all three of these methods. GPI USA manufactures its American-style casino chips under the

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Paulson®
and Bud Jones® brand names, at our facilities in San Luis Rio Colorado. GPI SAS manufactures American-style casino chips in Beaune, France.



Commemorative Gaming Chips

Since 1994, GPIC has marketed gaming chips that commemorate certain types of special events such as title boxing matches,
significant anniversaries and premier entertainment events. Casino patrons often retain commemorative chips as souvenirs. Casinos benefit to the extent that gaming chips purchased are not redeemed,
thereby resulting in added cash flow to the casino.

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Gaming Chips with RFID Microchips and Reading Equipment



Gaming chips are the principal currency of each casino, and each casino has its own unique gaming chips. A gaming chip that appears or
feels or even sounds slightly different than the others can warrant review by the casino personnel. There are several possible security and anti-counterfeit features that can be
incorporated into the chip material itself and/or in the chip appearance.

The
most sophisticated anti-counterfeiting devices are the microchips or RFID, which can be embedded in gaming chips without modifying the appearance or handling
characteristics of the chips. These are not only high quality gaming chips, but they are also reliable carriers of the data needed by the casinos to efficiently and securely manage their table game
operations.

A
sophisticated RFID microchip transponder is embedded in each gaming chip. Read/write devices communicate quickly and accurately with a large number of these RFID embedded gaming chips
without human contact. The authenticity and denomination of each gaming chip is established, and then the data is transferred to the casino information systems.

The
RFID embedded gaming chips can be read with 100% accuracy, either one at a time or in large quantities, with the same efficiency whether in stacks, boxes, trays, cabinets or on the
tables. This increases the security of the chip production, transportation and utilization.

Traditional
jetons, plaques and casino chips could not easily and precisely be accounted for by the casinos and the games that call for them, thus the tables could not be managed by
casinos as efficiently as slot machines. Casinos have a need for more streamlined and automated accounting transactions between the pit and cage operations, thus the RFID solution.



GPIC has been at the forefront of the development of RFID technology adapted to chip security and chip tracking/accounting applications
for over 12 years. Currently, our B&G, Bud Jones and Paulson gaming chips as well as B&G plaques and jetons are available with high frequency (13.56 MHz) or low frequency (125 KHz)
embedded RFID micro-chips.

GPIC
offers a full line of standard or customized RFID readers such as cashier's desk, table top authenticator, chip tray reader, chip bank reader and vault reader.

Over
the last few years, GPIC has sold several million RFID chips and hundreds of readers mainly for chip tracking and chip security to casinos all over the world. GPIC
holds several international patents related to the embedding process of an RFID microchip into a gaming chip, a jeton or a plaque. GPIC also holds an exclusive license on two patents owned by
IGT. These patents allow GPIC to make and sell RFID chips and readers for chip tracking in the United States. These patents expire in 2015. Our patents and exclusive license apply to all RFID
frequencies.

The
RFID gaming chips and readers significantly increase the casino protection against counterfeit gaming chips. In addition, the RFID gaming chips and readers, with appropriate software
programs, open the door to significant increases in efficiency and cost savings. Chips can be tracked and accounted for automatically and reliably everywhere in the casino. With appropriate systems
developed and sold by other companies, players can also be tracked for more objective comping. As a result of RFID embedded gaming chips, readers and computer systems, the necessary tools are now
available for the casinos to track their gaming chips and players and to manage their tables as efficiently as their slots.

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Dice

We manufacture our dice at our GPI Mexicana facilities, using cellulose acetate specifically formulated to provide the required
clarity, hardness and dimensional stability. All dice are sold directly by GPI USA in North America and the Caribbean Islands. GPI SAS distributes dice to the other parts of the world.
We offer a variety of spot designs, which are inserted in the body of the dice and machined flat to the surface. We offer two different finishes and up to two monograms on the dice. A casino may
request the imprinting of its name and logo (in a variety and combination of colors), the insertion of a hidden security "key," a special reverse spot, the addition of a security "glow" spot, the use
of Laser Lock, the serialization of the dice, or all, or a combination of, the above.

All
of our brands of dice are manufactured with a high degree of accuracy in conformity with the strictest standards of gaming regulations. In a busy casino, a stick of dice (two and
one-half pair) does not generally remain in play for more than eight hours.

The
typical sales price of casino dice currently ranges between approximately $2.50 and $3.50 per pair. We currently have the capacity to produce approximately two million pairs of dice
per year (based upon two production shifts). In 2008, we produced approximately 628,000 pairs of dice.

Table Layouts

Every gaming table is covered with a layout printed with patterns particular to each specific game, as well as multi-colored logos and
other markings according to individual casino preferences. GPI USA has developed a comprehensive range of different quality layouts and various printing processes. GPI USA manufactures
felt, synthetic layouts made of Paul-Son FX® material, and full graphic layouts. We have a creative art department that can design specific layouts to meet the casino needs.

We
believe we are a leading manufacturer of layouts in the United States, utilizing high quality cloths, enhanced graphics, and proprietary dye formulations which we believe result in
the widest variety of customized colors. We typically install layouts on new gaming tables prior to delivery to a casino. Table layouts are generally replaced by casinos on a regular basis within 60
to 150 days, in order to maintain their appearance. Layouts typically sell in a price range of approximately $100 to $350 in the United States, depending on the type of table, the complexity of
the patterns and the variety and difficulty of color combinations.

We
primarily manufacture our layouts at our Mexico facility, but we also produce layouts at our Las Vegas facility. We also sell specialized layouts manufactured by an outside vendor.
Our layout production capacity is approximately 20,000 felt layouts and approximately 34,000 synthetic layouts per year. In fiscal 2008, we produced approximately 24,000 layouts, of which
approximately 7,000 were felt and 17,000 were synthetic. We believe the capacity of our layout production facilities in Mexico can be increased as needed.

Playing Cards

We manufacture and sell our own line of paper casino playing cards under the Paulson® brand. A deck of cards typically
sells within a price range of approximately $0.80 and $1.65 and, based on casino industry practices, is generally replaced every eight hours or less. A casino typically enters into a one or two year
purchase commitment with a supplier to supply its cards at regular intervals, generally monthly. Casinos occasionally purchase cards from more than one supplier, as casino floor managers often have
preferences for a particular type of card. Our cards are compatible with all card shufflers.

We
produce all of our playing cards at our GPI Mexicana facilities. In 2008, the Company produced approximately 5.3 million decks of playing cards. Our capacity, assuming
two shifts, is approximately 8.5 million decks per year.

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Roulette Wheels

GPI SAS manufactures American-style and European-style roulette wheels in Beaune, France and sells them primarily in Europe. GPI
USA also sells these wheels in certain United States and Canadian-based jurisdictions where GPI SAS is licensed as a manufacturer or a manufacturer's license is not required. Production in
France consists of designing and assembling the different parts produced by very specialized sub-contractors.

Gaming Furniture

We sell a variety of casino gaming furniture. Tables range in price between $2,000 and $3,500 for a blackjack table, $2,000 to $3,750
for a roulette table (excluding the roulette wheel), and $5,000 to $8,000 for a craps table. We vigorously pursue gaming table sales because the sale of a gaming table will generally bolster our
ability to sell gaming chips and consumable products such as layouts, dice, cards, and other accessories. Tables are assembled in Mexico and completed by adding the layout, drop boxes, trays and other
table accessories in Las Vegas. In 2008, GPI Mexicana produced approximately 2,600 tables. Our current capacity is approximately 3,500 tables per year.

Table Accessories and Other Products

In order to offer our customers a full product line, we sell a number of ancillary casino table game products. While we have expanded
our manufacturing of certain plastic products, including dealing shoes, in our GPI Mexicana facility, we do not manufacture most of the ancillary products we sell. Ancillary products include
plastic money paddles, discard holders, drop boxes, dealing shoes, trays and covers, dice sticks and on/off pucks. These products are generally sold in conjunction with the sale of gaming tables and
tend to have long useful lives.

We
also sell and own the patent on an air ventilation device specifically for gaming tables called the Air-Rail® System. This ventilation system creates a
positive flow of air at the gaming table, which pushes smoke away from the dealer and assists nonsmokers in contending with secondhand smoke. By filtering and dispersing the smoke-filled air, the
Air-Rail® System makes the casino's primary air circulation systems perform more efficiently and improves the comfort of the nonsmoking casino dealers and patrons.

Sales, Advertising and Promotion

We generally sell our products in North America and the Caribbean Islands through our six-person sales force, which
operates out of regional offices in Las Vegas, Nevada; Atlantic City, New Jersey; and Gulfport, Mississippi. We generally sell our products in the international market through our
four-person sales force, which operates out of our Beaune, France office.

We
believe that the long-standing customer relationships, which have been developed over the years by our individual sales representatives, as well as our reputation for
quality, reliability and security features, are key factors upon which we successfully compete in the market place. Experience, production, flexibility, service and a wide range of products are the
keys to selling customized products, and position us as the casinos partner for table operations. When direct selling is not feasible because of local conditions, we may enter into agreements with
carefully selected local distributors. But, even in this case, we always maintain direct contact with the end customers.

We
place advertising in trade publications and participate in major casino industry trade shows. We display our products at the Global Gaming Expo (G2E) in Las Vegas, Nevada and the
International Gaming Exhibition (IGE) show in London and various other regional trade shows throughout the world. These shows give us the opportunity to promote all of our products including our
gaming chips

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with
embedded RFID technology in high and low frequency and corresponding chip readers for cages, vaults, doorways, and tables.

We
closely monitor new casino openings through personal contact with casino management, legislative and trade publications and wire service press releases. When new casino projects are
identified, our representatives make personal contact with appropriate officers and/or purchasing agents in order to solicit the sale of our products to such potential new customers.

Our
experience has been that once a casino buys from a table game supplier, it tends to purchase replacement products from the same supplier, provided that quality, service and
competitive pricing are maintained. As a result, our sales efforts are primarily focused on selling and promoting a wide range of table gaming products to casinos while they are in the development and
licensing stage. Thereafter maintaining frequent contact, we seek recurrent sales of consumable products such as layouts, dice, and cards.

Materials, Supplies and Backlog

We generally maintain good relationships with our suppliers but see Part II-Item 8. Financial Statements and
Supplementary DataNotes to Consolidated Financial Statements Note 10 for information regarding a dispute with a former supplier. Where possible we diversify our supplier base so as
to avoid a disruption of supply. However, some key raw materials for our principal products have unique suppliers. In most other cases, our raw materials are staple goods, such as paper, plastic,
wood, felt and synthetic fabric, which are readily available from several suppliers.

At
December 31, 2008, our backlog of orders, which is expected to be filled in 2009, amounted to $ 3.4 million for GPI USA and $9.6 million for GPI
SAS. Over $8.0 million of the backlog for GPI SAS is for orders from two casinos in Asia, which were previously announced by the Company in its press release and a
Form 8-K dated January 16, 2009. At December 31, 2007, our backlog was approximately $7.1 million for GPI USA and $4.0 million for GPI SAS.

Competition

There are a number of companies that compete with us in the sale of each of our product lines:

Gaming ChipsThe gaming chip product line has in recent years become an increasingly competitive area of the gaming supply business.
Currently, our
major competitors and their respective locations are Chipco International and The United States Playing Card Company in the United States, Abbiati Casino Equipment in Italy, Dolphin Products
Pty Ltd. in Australia, and Matsui Gaming Machine Co., Ltd. in Japan. We believe key competitive factors for gaming chip sales are: well established product and process security,
understanding of players' and dealers' habits, attractiveness, durability, quality of service, and price.

DiceOur principal competitor for domestic casino dice sales is Midwest Game Supply Co. and The United States Playing Card
Company. There is
no significant market internationally for casino dice. We believe the primary competitive factors for dice sales are quality of the product and services and pricing. In addition, casino shift managers
typically prefer that casinos purchase dice from more than
one supplier due to industry superstition that dice from one of its suppliers may run "cold" for the house from time to time.

Table LayoutsOur primary competitors for casino table layouts are Midwest Game Supply Co. and Gemaco Playing Card Co. in the
United
States, and TCS/John Huxley in the United Kingdom. We believe the key competitive factors for table layout sales are cloth quality, durability, printing processes, and price.

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Playing CardsOur major competitors in the domestic playing card market are The United States Playing Card Company and Gemaco Playing
Card Co.
Our major competitors internationally are Angel Co., Ltd. in Japan, primarily servicing the Asian market, and Cartamundi in Belgium, primarily servicing the European market. We believe
the primary competitive factors for playing cards are price, intrinsic characteristics (snap memory, ease of handling, etc.), security, quality control, brand name identification, process security,
and reputation.

Gaming FurnitureOur principal competitors for casino gaming furniture are TCS/John Huxley in the United Kingdom and Abbiati Casino
Equipment in
Italy and smaller regional wood shops in certain geographic areas. Competition is based on product ranges, quality service, industry know-how, and price.

Table Accessories and Other ProductsOur principal competitors for distributing table accessories and other products, which include
drop boxes,
dealing shoes, chip trays and chip bank covers, foot rails are several local vendors. We believe that key competitive factors for these products are the ability to be a single source supplier,
service, and product quality.

Intellectual Property

We own a portfolio of trademarks, copyrights, trade secrets and patents.

We
own United States trademark registrations (®) for the following marks:

Air Rail

GPIBG

GPI LogoBourgogne et Grasset

PaulsonBud Jones

Paul-Son FXChipsoft

SafeChip by Bourgogne et GrassetGaming Partners International

SmartChipWe Make the Money the World Plays With

T-K


We
own common law rights in these trademarks ():



In
addition we have international protection for many of our trademarks.

We
own numerous United States and international patents. We also retain an exclusive license to manufacture and sell gaming chips with embedded RFID microchips and RFID readers for chip
tracking and accounting in the United States until 2015. We believe that our trademarks, logos and patent rights are valuable to the operation of our Company and are important to our marketing
strategy. Our policy is to actively pursue and maintain registration of our trademarks and logos where our business strategy requires us to do so and to oppose vigorously any infringement or dilution
of our trademarks, logos or patent rights.

Environmental Matters

We believe we are in compliance with international, federal, state and local laws and regulations that have been enacted or adopted
relating to the protection of the environment. Any liability for environmental remediation or costs will be accrued by us if it is considered probable and the costs can be reasonably estimated.

On
September 6, 2007, The Center for Environmental Health (CEH), a non-profit environmental advocacy group, filed its first amended complaint against Gaming Partners
International USA, Inc. (GPI USA) and card rooms (the Card Room Defendants) that purchased gaming chips manufactured

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by GPI
USA. The complaint was filed in the Superior Court of California, County of Alameda, under Case No. RG07336796. CEH had previously served GPI USA and the Card Room Defendants with
a 60-day Notice of Violation which is a pre-condition to bringing a private action under the California Safe Drinking Water and Toxic Enforcement Act, also known as Proposition
65. Proposition 65 requires that persons in the course of doing business in California provide a clear and reasonable warning before exposing anyone to chemicals known to the State of California to
cause cancer and/or reproductive harm.

The
CEH action alleged that Paulson® brand gaming chips manufactured by GPI USA and distributed in California contain lead, a Proposition 65 listed chemical, and
that GPI USA and the Card Room Defendants failed for a three-year period to provide the required warning in connection with the sale and use of the chips. CEH sought, and
Proposition 65 authorizes, civil penalties and injunctive relief as well as recovery of costs and legal fees. GPI USA received and accepted tenders of defense from twenty-one of the
twenty-four Card Room Defendants named in the action, all of whom purchased gaming chips from GPI USA without knowledge that the chips contained lead and may have been subject to
Proposition 65 warning requirements.

On
August 1, 2008, a consent judgment was entered and approved by the court by which GPI USA reached a $575,000 settlement with CEH on its own behalf as well as on behalf
of the owners of the twenty-one Card Room Defendants for whom GPI USA previously accepted tenders of defense. As of August 31, 2008, GPI USA had fully complied with
all requirements of the consent judgment.

Employees

At December 31, 2008, we employed 685 people. Of these employees, 465 were located at our Mexico facilities, 142 employees were
located in our Beaune, France facility with the remaining 78 located primarily in Las Vegas, Nevada and Atlantic City, New Jersey. None of our employees are covered by collective bargaining agreements
and we believe that our relations with our employees are good.

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Regulation and Licensing



The gaming operations of each of our subsidiaries are subject to extensive regulation, and each of our subsidiaries hold various
requisite registrations, approvals, gaming licenses or permits in each jurisdiction in which it operates gaming activities. A list of the geographical locations of the jurisdictions in which we,
through our subsidiaries, are subject to licensing and/or regulatory control of the gaming authorities is set forth below.

Gaming Jurisdictions

Arizona

Missouri

AustraliaArkansas

Montana

Alberta, CanadaCalifornia

Nevada

British Columbia, CanadaColorado

New Jersey

Manitoba, CanadaConnecticut

New Mexico

Nova Scotia, CanadaFlorida

New York

Ontario, CanadaIllinois

North Carolina

Quebec, CanadaIndiana

North Dakota

Saskatchewan, CanadaIowa

Oklahoma

GreeceKansas

Oregon

Republic of PanamaLouisiana

South Dakota

Puerto RicoMichigan

WashingtonMinnesota

West VirginiaMississippi

Wisconsin


While
the regulatory requirements vary from jurisdiction to jurisdiction, most require licenses, permits, findings of suitability, documentation of qualification including evidence of
financial stability and/or other required approvals for companies who manufacture and distribute gaming equipment, as well as the individual suitability of officers, directors, major stockholders and
key employees. Under the various gaming regulations, key personnel generally include the current and/or proposed corporate officers and directors of a corporation and its subsidiaries. Laws of the
various gaming regulatory agencies are generally intended to protect the public and ensure that gaming related activity is conducted honestly and competitively and is free of corruption.

Various
gaming regulatory agencies have issued licenses allowing our wholly-owned subsidiaries to manufacture and/or distribute our products. Our subsidiaries and their key personnel, as
applicable, have obtained or applied for all government licenses, permits, registrations, findings of suitability and approvals necessary allowing for the manufacture and distribution of gaming
supplies and equipment in the jurisdictions where it is required. We have never been denied a gaming related license, nor have any licenses been suspended or revoked.



The manufacture and distribution of gaming equipment in Nevada are subject to extensive state and local regulation. Our operations are
subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and various local regulatory agencies, or the Nevada gaming authorities, due to
our prior manufacture of roulette wheels, which are considered gaming devices.

By
Nevada State Gaming Commission Order entered November 18, 2004, GPIC was exempted from registration as a publicly-traded corporation and GPI USA and GPI
SAS were each licensed as manufacturers and distributors strictly limited to the manufacture, distribution and service of roulette

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wheels
in Nevada, and subject to administrative approval prior to the distribution of any roulette wheel and further subject to specified conditions set forth in the Order, including but not limited
to the filing of periodic reports with and notifications to Nevada gaming authorities. The result of this Order is to grant GPI USA and GPI SAS transactional waivers so that they may
manufacture roulette wheels for sale to Nevada casino licensees. Effective August 30, 2006, the approvals were expanded by the Nevada gaming authorities to permit GPI USA to
sell GPI SAS roulette wheels outside of Nevada. The waivers granted were specifically found by the Nevada State Gaming Commission to be consistent with the policies set forth for in the Nevada
gaming laws. These waivers may, however, be withdrawn by the Nevada State Gaming Control Board for any cause deemed reasonable. Upon such withdrawal, the Company would be subject to full registration
and licensing.



Our subsidiaries are currently required to be licensed under the New Jersey Casino Control Act, or the New Jersey Act, as casino
service industries qualified to manufacture and sell gaming-related products to casinos in New Jersey. As part of such licensure, parent companies, holding companies and certain officers and directors
of the companies are required to be found suitable by the New Jersey Casino Control Commission, or the New Jersey Commission. The sale and distribution of gaming equipment to casinos in New Jersey is
also subject to the New Jersey Act and the regulations promulgated thereunder by the New Jersey Commission. The New Jersey Commission has broad discretion in promulgating and interpreting regulations
under the New Jersey Act. Amendments and supplements to the New Jersey Act, if any, may be of a material nature, and accordingly may adversely affect the ability of a company or its employees to
obtain any required licenses, permits and approvals from the New Jersey Commission, or any renewals thereof. The current regulations govern licensing requirements, standards for qualification, persons
required to be qualified, disqualification criteria, competition, investigation of supplementary information, duration of licenses, record keeping, causes for suspension, standards for renewals or
revocation of licenses, equal employment opportunity requirements, fees and exemptions. In deciding to grant a license, the New Jersey Commission may consider, among other things, the financial
stability, integrity, responsibility, good character, and reputation for honesty, business ability and experience of the applicant and its directors, officers, management and supervisory personnel,
principal employees and stockholders as well as the adequacy of the financial resources of the applicant. New Jersey licenses are granted for a period of three or four years, depending on the length
of time a company has been licensed, and if they are renewable. The New Jersey Commission may impose such conditions upon licensing, as it deems appropriate. These include the ability of the New
Jersey Commission to require the applicant or licensee to report the names of all of its stockholders as well as the ability to require any stockholders whom the New Jersey Commission finds not
qualified to dispose of the stock, not receive dividends, not exercise any rights conferred by the shares, nor receive any remuneration from the licensee for services rendered or otherwise. Failure of
such stockholder to dispose of such stockholder's stock could result in the loss of the license. Licenses are also subject to suspension, revocation or refusal for sufficient cause, including the
violation of any law. In addition, licensees are also subject to monetary penalties for violations of the New Jersey Act or the regulations of the New Jersey Commission.



In addition to Nevada and New Jersey, our subsidiaries are currently licensed in a number of other jurisdictions. Although the
regulations in these jurisdictions are not identical to the states of Nevada or New Jersey, their material attributes are substantially similar, and are summarized below.

The
manufacture, sale and distribution of gaming supplies in each jurisdiction are subject to various state, county and/or municipal laws, regulations and ordinances, which are
administered by the relevant regulatory agency or agencies in that jurisdiction. These laws, regulations and ordinances

11

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primarily
concern the responsibility, financial stability and character of gaming supply and equipment owners, distributors, sellers and operators, as well as persons financially interested or
involved in gaming or liquor operations. In many jurisdictions, selling or distributing gaming supplies may not be conducted unless proper licenses are obtained. An application for a license may be
denied for any cause which the gaming regulators deem reasonable. In order to ensure the integrity of manufacturers and distributors of gaming supplies, most jurisdictions have the authority to
conduct background investigations of a company, its key personnel and significant stockholders. The gaming regulators may at any time revoke, suspend condition, limit or restrict a license for any
cause deemed reasonable by the gaming regulators. Fines for violation of gaming laws or regulations may be levied against the holder of a license and persons involved. Our subsidiaries and their
respective key personnel have obtained all licenses necessary for the conduct of their respective business in the jurisdictions in which they sell and distribute gaming equipment and supplies.
Suspension or revocation of such licenses could have a material adverse effect on our operations.



The Federal Gambling Devices Act of 1962 (Federal Act) makes it unlawful for a person to manufacture, transport, or receive gaming
machines, gaming devices (including roulette wheels) or components across interstate lines unless that person has first registered with the Attorney General of the United States Department of Justice.
In addition, the Federal Act imposes gambling device identification and record keeping requirements. Violation of the Federal Act may result in seizure and forfeiture of the equipment, as well as
other penalties. Our subsidiaries, which are involved in the manufacture and transportation of roulette wheels, are required to register annually.



Gaming on Native American lands is governed by federal law, tribal-state compacts, and tribal gaming regulations. The Indian Gaming
Regulatory Act of 1988 (IGRA) provides the framework for federal and state control over all gaming on Native American lands and is administered by the National Indian Gaming Commission and the
Secretary of the United States Department of the Interior. The IGRA requires that a tribe and the state in which the tribe is located enter into a written agreement, a tribal-state compact, which
governs the terms of the gaming activities. Tribal-state compacts vary from state-to-state and in many cases require equipment manufacturers and/or distributors to meet ongoing
registration and licensing requirements.
In addition, tribal gaming commissions have been established by many Native American tribes to regulate gaming-related activity on Indian lands. Our subsidiaries manufacture and distribute gaming
supplies to Native American tribes who have negotiated compacts with their respective states and have received federal approval. Currently, GPI USA is authorized to sell products to Native
American casinos in eighteen states.



Certain foreign countries permit the importation, sale and operation of gaming supplies in casino and non-casino
environments. Certain jurisdictions require the licensing of manufacturers and distributors of gaming supplies. We and our subsidiaries manufacture and/or distribute gaming supplies to various
international markets. We have obtained the required licenses to manufacture and distribute our products in the various foreign jurisdictions where we do business.

While
the regulatory requirements vary from jurisdiction to jurisdiction, most require licenses, permits, findings of suitability, documentation of qualification including evidence of
financial stability and/or other required approvals for companies who manufacture and distribute gaming equipment, as well as the individual suitability of officers, directors, major stockholders and
key employees. Under the various gaming regulations, key personnel generally include the principal stockholders, corporate officers and directors of a corporation and its subsidiaries. Laws of the
various gaming regulatory

12

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Table of Contents

agencies
are generally intended to protect the public and ensure that gaming related activity is conducted honestly, competitively, and free of corruption.

Financial Information about Geographic Areas

See Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial
StatementsNote 12 for certain financial information by geographic area.

Available Information

Our current website iswww.gpigaming.com. There we make available, free of charge, our
annual Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, any amendments to those reports filed or
furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information found on our website is not part of
this or any other report we file or furnish to the SEC. You may also submit written information requests by mail to: Attn: Investor Relations, Gaming Partners International Corporation, 1700
Industrial Road, Las Vegas, Nevada 89102.

Item 1A.    Risk Factors.

Throughout this annual Form 10-K, we make some forward-looking statements, which do not relate to historical or
current facts, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information based on
forecasts of future results and estimates of amounts not yet determinable that, while considered reasonable by us, are inherently subject to significant business, economic and competitive risks and
uncertainties, many of which are beyond our control and are subject to change. The statements also relate to our future prospects and anticipated performance, development and business strategies.
These statements are identified by their use of terms and phrases such as anticipate, believe, could, would, estimate, expect, intend, may, plan, predict, project, pursue, will, continue, feel, or the
negative or other variations thereof, and other similar terms and phrases, including references to assumptions.

Although
we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those expressed or implied. Our
future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent known and unknown risks and uncertainties. We do not intend, and
undertake no obligation, to update our forward-looking statements to reflect future events or circumstances.

We
urge you to carefully review the following discussion of the specific risks and uncertainties that affect our business and, any of which, could have an adverse effect on our financial
condition and results of operation. These include, but are not limited to, the following:

Demand for our products could be adversely affected by:



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Our intellectual property rights are subject to risks, including:



Our business is vulnerable to changing economic conditions, including:



14

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Table of Contents



Our outstanding debt obligations subject us to certain additional risks, including:





We are subject to risk related to litigation and claims asserted against us, including:



We have a stockholder with effective control of the Company which means:



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Table of Contents



Our business operations are subject to other risks, including:



Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

We are based in, and operate domestically from company-owned facilities in Las Vegas, Nevada, and internationally from Beaune, France.
We manufacture our primary products at facilities in Las Vegas, Nevada, San Luis Rio Colorado, Mexico and Beaune, France. We also lease sales offices in Atlantic City, New Jersey and Gulfport,
Mississippi.

Las Vegas, Nevada.In May 1997, we purchased our corporate headquarters, an approximately 60,000 square foot building. This facility
houses the Las
Vegas corporate and sales offices, as well as a centralized warehouse, some manufacturing departments, and a graphics art department. Our Las Vegas headquarters secures a deed of trust issued under
our outstanding term loan. (See Part IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital
Resources.)

San Luis Rio Colorado, Mexico.We manufacture casino chips, playing cards, dice, plastic products, layouts and tables at three
facilities in San Luis
Rio Colorado, Mexico. These facilities include a 34,000 square foot leased facility, a 46,000 square feet leased facility, and an approximately 66,000 square foot facility, which we own. The leased
facilities are leased through December 2013 at the monthly rent amount of approximately $0.35 per square foot or $28,000. The 80,000 square feet of leased facilities represents a 14,000 square foot
increase effective April 1, 2008 to accommodate the relocation of our Las Vegas-based chip manufacturing operation to Mexico. (See Part IIItem 8. Financial Statements
and Supplementary DataNotes to Consolidated Financial Statements Note 17Related Party Transactions.)

Beaune, France.In Beaune, we own an approximately 34,000 square foot manufacturing facility in which we produce European- and
American-style casino
chips, and a 15,000 square foot administrative and sales building located nearby, which we purchased in July 2006.

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Table of Contents

Facility CapacityWith the total of approximately 255,000 square feet of manufacturing and administrative facilities as of
December 31, 2008,
we believe that we will have sufficient production capacity to meet anticipated future demand for all of our products in the United States and abroad.

Item 3.    Legal Proceedings.

See Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial
Statements Note 10 for information regarding legal proceedings and contingencies.

Item 4.    Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31,
2008.

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Table of Contents

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The following table sets forth the quarterly high and low closing prices of our common stock as reported by NASDAQ during the periods
indicated. All stock prices reflect a fiscal year ending December 31. On March 20, 2009, the closing price was $5.92 per share.

Fiscal Year 2008

Fiscal Year 2007High

Low

High

LowFirst Quarter

$
8.28

$
6.33

$
20.61

$
16.95Second Quarter


7.13


3.88


20.50


9.91Third Quarter


6.00


3.20


15.37


9.25Fourth Quarter


7.00


3.86


10.81


6.49


Holders

There were 85 holders of record of our common stock as of March 12, 2009.

Dividend Policy

The Board of Directors presently does not intend to declare or pay any dividends for the foreseeable future. We did not declare any
cash dividend on our common stock in 2008 or 2007.

Transfer Agent

Our stock transfer agent and registrar is American Stock Transfer & Trust Co., located at
6201 15th Avenue, Brooklyn, New York 11219; the telephone number is (718) 921-8247.

Purchases of Equity Securities by the Issuer

The Company made no purchases of GPIC equity securities during the fourth quarter of 2008.

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Table of Contents

Item 6.    Selected Financial Data.

The selected consolidated financial data included in the following tables should be read in conjunction with our Consolidated Financial
Statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere herein. The selected consolidated financial data for the
years ended December 31, 2008 and 2007 have been derived from our audited consolidated financial statements included elsewhere herein. The selected consolidated financial data for the years
ended December 31, 2006, 2005 and 2004 have been derived from our audited consolidated financial statements not included herein.

Years Ended December 31,2008

2007

2006

2005

2004(in thousands, except per share amounts)STATEMENT OF OPERATIONS DATA:Revenues

$
60,546

$
58,821

$
73,954

$
57,121

$
44,585Cost of revenues(1)


40,671


41,355


50,229


36,683


29,078Gross Profit


19,875


17,466


23,725


20,438


15,507Selling, general and administrative expenses(1)


14,535


16,604


15,244


14,599


11,431Operating income


5,340


862


8,481


5,839


4,076Other income (expense)


486


195


31


245


(310
)Income before income taxes


5,826


1,057


8,512


6,084


3,766Income tax expense


1,339


817


3,383


1,756


1,152Net income

$
4,487

$
240

$
5,129

$
4,328

$
2,614Earnings per share:Basic

$
0.55

$
0.03

$
0.64

$
0.55

$
0.34Diluted

$
0.55

$
0.03

$
0.62

$
0.53

$
0.34Weighted-average shares of common stock outstanding:Basic


8,103


8,101


7,974


7,829


7,608Diluted


8,184


8,242


8,226


8,179


7,754Balance sheet data:Cash and cash equivalents

$
5,547

$
4,627

$
5,888

$
4,573

$
8,012Marketable securities


7,561


4,730


4,710


9,075


4,971Working capital


21,931


16,881


14,787


9,563


12,230Property and equipment, net


14,158


15,596


14,567


11,212


9,469Total assets


49,549


49,309


46,969


48,716


39,225Current liabilities


8,405


11,219


11,454


20,825


13,960Long-term debt, less current maturities


1,743


2,273


2,749


1,892


2,856Total stockholders' equity(2)


38,816


35,153


32,584


25,999


21,620


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Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is intended to assist in the understanding of our results of operations and our present financial condition.
The consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material. Statements in this discussion may be
forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed. See Item 1A, "Risk Factors."

For
a Company Overview and information on our products as well as general information, see Part IItem 1. Business.

Overview of our Business

GPIC manufactures and supplies (under the brand names of Paulson®, Bourgogne et Grasset®, and Bud
Jones®) casino chips including low frequency and high frequency RFID casino chips, low frequency and high frequency RFID readers, table layouts, playing cards, dice, gaming furniture,
roulette wheels, table accessories, and other products that are used with casino table games such as blackjack, poker, baccarat, craps and roulette. GPIC is headquartered in Las Vegas, Nevada,
with offices in Beaune, France; San Luis Rio Colorado, Mexico; Atlantic City, New Jersey; and Gulfport, Mississippi. GPIC sells its casino products directly to licensed casinos throughout the
world. We operate in one segment and have two operating subsidiaries, GPI USA and GPI SAS, a French subsidiary. Our subsidiaries have the following product and distribution
focus:



The
Company has historically experienced significant fluctuations in its quarterly operating results and expects such fluctuations to continue. The Company's operating results fluctuate
due to a number of factors, but primarily reflect the opening of new casinos, the expansion of existing casinos, and large replacement orders for casino chipsour primary product line,
which typically represents over 60% of revenues. The one-time or non-recurring nature of these events necessarily creates variability in revenue and earnings. Further, the
timing of these one-time or non-recurring events is difficult to predict and, largely, beyond our ability to influence. While most large projects are pursued years in advance,
both large and small sales opportunities arise with little prior notice. An indicator of future sales is found in our backlog report, which reports signed orders that are planned to be shipped in
2009.

BacklogGPI USA

GPI SAS

TotalDecember 31, 2008

$
3.4 million

$
9.6 million

$
13.0 millionDecember 31, 2007

$
7.1 million

$
4.0 million

$
11.1 million


A
significant part of our strategy is to create new demand for casino chips through the use of RFID technology. A passive microchip with a small antenna is embedded in each chip. When
chips are placed above a large antenna, which is embedded in a gaming table or cashier's stand and linked to a reading unit, they receive energy from the reading unit through the large antenna and can
communicate with the reading unit. The data collected can allow applications ranging from chip

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Table of Contents

authentication,
accounting, tracking and inventory to more sophisticated applications such as players' tracking and table management.

RFID
represents a large portion of our consolidated operations. The following table highlights the importance of RFID casino chips, which have been sold to over 100 casinos and casino
groups in North America, Europe, and Asia. The table shows the percentage of revenue from casino chips sales that are RFID casino chips for the last five years.

Year2008

2007

2006

2005

2004RFID casino chip percentage


34
%

27
%

35
%

13
%

3
%


Overview of our Industry

Much of our growth in recent years has been as a result of the major developments in the gaming industry in Macau. Although the gaming
industry has had great success in Macau, we anticipate fewer casino openings. In April 2008, a high-ranking government official in Macau, Edmund Ho, announced a freeze on new development
beyond that which was currently underway or in discussion. Asia, primarily Macau, remains an important market and represented 22% of our revenues in 2008, which is a decrease from 32% in 2007.

The
general slow down in the gaming industry, which appears attributable to growing economic problems in the United States and abroad, has negatively impacted our casino customers and
therefore may be affecting our sales. To the extent these conditions continue, we anticipate our revenues in future quarters could be adversely affected.

Financial and Operational Highlights

Our net income for 2008 was $4.5 million compared to $0.2 million for 2007. Our revenues for 2008 were
$60.5 million, an increase of $1.7 million, or 3%, compared to revenues of $58.8 million for 2007. The increase in net income in 2008 compared to 2007 is due to improved
operational performance as exhibited by improved gross profit margins and lower selling and administrative expenses, as well as a gain on foreign currency transactions and a lower effective tax rate.

We
are particularly pleased with these results given the worldwide economic downturn that has challenged many of our customers. We believe our revenue in 2008 was sustained because our
consumable business (dice, cards, and layouts) held relatively steady and our non-consumable business (chips and tables) remained strong due to casino openings in 2008. We were concerned
about our consumable business with the slow down in gaming revenues, but consumable products are more affected by number of casino visitors rather than by gaming revenues directly. Therefore, although
the number of casino visitors was down in the major domestic markets of
Las Vegas and Atlantic City, they were not as far down as gaming revenues. Our casino chip business again surpassed 60% of our total revenues in 2008, of which a significant portion is related to new
casino openings and expansions. Despite the downturn in the gaming industry, casino openings and expansions planned for 2008 generally happened as scheduled.

In
the second quarter of 2008, we completed the move of plastic injection molding for Bud Jones casinos chips from Las Vegas to our manufacturing facility in Mexico. In the third quarter
we began to see the benefits of the move with an improvement in margins for our Bud Jones casino chips.

In
the third quarter of 2008, GPI SAS was certified ISO 9001 compliant, which provides external validation to our quality control processes.

GPI
SAS uses the euro as its functional currency. As of December 31, 2008 and December 31, 2007, the US dollar to euro exchange rates were 1.3917 and 1.4718, respectively,
which represents a

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5.4%
stronger dollar compared to the euro. The average exchange rates for the years ended December 31, 2008 and 2007 were 1.4706 and 1.3706, which represents a 7.3% weaker dollar compared to
the euro.

Looking Forward

For 2009, we do not anticipate we can duplicate the success in revenues or net income we had in 2008 due to the ongoing decline in the
gaming industry and fewer planned casino openings. We anticipate our revenues in the first quarter of 2009 will be lower than the first quarter of 2008 and will result in a loss for the quarter. Of
the casino openings that will take place in 2009, we believe we are well positioned to win their business as evidenced in the orders we received for the City of Dreams in Macau and Newport City in
Manila.

As
a reflection of our current backlog, sales projections, and ongoing efforts to align our costs with our sales, we have reduced our workforce level to 621 permanent employees worldwide
as of February 28, 2009 from 685 at December 31, 2008 and 785 at September 30, 2008. We continue to look for ways to reduce costs and enhance profitability. With
$13.1 million of cash and marketable securities, we feel we have sufficient liquid resources to weather the economic downturn in 2009.

Other Matters

For several years we have worked closely with Progressive Gaming International Corporation (PGIC) to expand the placement of RFID
casino chips. PGIC offered chip inventory system software and table management system software. PGIC ceased operations and, in January 2009, sold substantially all of its assets to International Game
Technology (IGT). IGT has also promoted RFID in table game use and is the owner of two patents for which we have licenses that grant us the exclusive rights to manufacture and sell RFID casino chips
and chip accounting readers in the United States. We are assessing the positive and negative aspects of this development. Ultimately, we believe in the merits of the RFID technology as a benefit to
the casinos and expect the industry to continue to expand in this direction.

The
Company hired Gregory Gronau in October 2008 as its Executive Vice President and Chief Operating Officer. The appointment of Mr. Gronau is part of a succession plan
necessitated by the planned retirement of the Company's President and Chief Executive Officer, Gerard Charlier, in September 2009. While it is the current intention of the Board of Directors to
appoint Mr. Gronau to the positions of President and Chief Executive Officer upon the retirement of Mr. Charlier, no assurance can be given that Mr. Gronau will be appointed to
such positions.

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Table of Contents

Results of Operations

The following table summarizes selected items from the Company's Consolidated Statements of Income as a percentage of revenues for the
years ended December 31:

2008

2007Revenues


100.0
%

100.0
%Cost of revenues


67.2
%

70.3
%Gross profit


32.8
%

29.7
%Selling, general and administrative expenses(1)


24.0
%

28.2
%Operating income


8.8
%

1.5
%Other income (expense)


.8
%

.3
%Income before income taxes


9.6
%

1.8
%Income tax expense


2.2
%

1.4
%Net income


7.4
%

.4
%






The
following table presents certain data by geographic area (in thousands):

2008

2007RevenuesUnited States

$
36,710


60.6
%
$
31,576


53.7
%Europe (includes Russia)


5,704


9.4
%

5,565


9.5
%Asia(1)


13,549


22.4
%

18,712


31.8
%Other(2)


4,583


7.6
%

2,968


5.0
%Total

$
60,546


100.0
%
$
58,821


100.0
%






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The
following table details the Company's revenues by product line for the years ended December 31 (in thousands):

2008

2007Casino chips:American-style casino chips

$
30,182


49.9
%
$
30,853


52.5
%European-style casino chips


8,245


13.6
%

7,049


12.0
%Total casino chips


38,427


63.5
%

37,902


64.5
%Table layouts


5,154


8.5
%

5,016


8.5
%Playing cards


4,149


6.9
%

3,880


6.6
%Gaming furniture


3,580


5.9
%

3,293


5.6
%Dice


1,901


3.1
%

2,074


3.5
%Table accessories and other products


5,226


8.6
%

4,523


7.7
%Shipping


2,109


3.5
%

2,133


3.6
%Total

$
60,546


100.0
%
$
58,821


100.0
%


Comparison of Operations for the Years Ended December 31, 2008 and 2007

RevenuesFor the year ended December 31, 2008, revenues were $60.5 million, an increase of $1.7 million or 3%, compared
to
revenues of $58.8 million for the year ended December 31, 2007. In 2008, GPI SAS recorded revenues of $21.1 million, a decrease of $4.6 million, or 18%, compared to
$25.7 million in 2007. GPI SAS' revenue would have shown an additional 7% decline if the average annual exchange rate between the euro and the US dollar had not increased by 7% in 2008
compared to 2007. The decrease in GPI SAS' revenues was attributable primarily to lower sales in Asia due to fewer casino openings in 2008 compared to 2007. The sales decline was in
American-style casino chips, which was partially offset by an increase in higher sales of European-style casino chips. In 2008, GPI USA recorded revenues of $39.4 million, an increase of
$6.3 million, or 19% as compared to revenues of $33.1 million in 2007. The increase in revenues at GPI USA was due to an increase in the number of casino openings in 2008 compared
to 2007 in the United States and Canada. This sales increase was primarily in American-style casino chips in 2008 compared to 2007, but all product lines showed an increase in revenues, except for
dice.

Cost of RevenuesFor the year ended December 31, 2008, cost of revenues was $40.7 million, a decrease of $0.7 million,
or 2%,
compared to cost of revenues of $41.4 million for the year ended December 31, 2007. As a percentage of revenues, the cost of revenues decreased to 67.2% in 2008 compared to 70.3% in
2007.

Gross ProfitFor the year ended December 31, 2008, gross profit was $19.9 million, an increase of $2.4 million, or 14%,
compared
to gross profit of $17.5 million for the year ended December 31, 2007. This occurred as a result of the increase in revenues of $1.7 million and a decrease in cost of revenues of
$0.7 million. As a percentage of revenues, our gross margin increased to 32.8% from 29.7%. The gross margin increase was primarily driven by the increase in revenues at GPI USA in 2008
compared to 2007, which allowed fixed costs to be allocated over higher production volumes, and a more favorable product mix at both GPI USA and GPI SAS. These favorable impacts were
partially offset by a $0.2 million charge related to a quality issue with RFID casino chips incurred in 2008.

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Table of Contents

Selling, General and Administrative ExpensesThe following table details the selling, general, and administrative expenses for the
years ended
December 31 (in thousands):

Years Ended December 31,
(in thousands)2008

Revenue %

2007

Revenue %Product development

$
201


0.3
%
$
419


0.7
%Marketing and sales


4,263


7.1
%

4,303


7.3
%General and administrative(1)


10,071


16.6
%

11,882


20.3
%Total selling, general and administrative expenses

$
14,535


24.0
%
$
16,604


28.3
%






For
the year ended December 31, 2008, selling, general and administrative expenses were $14.5 million, a decrease of $2.1 million, or 13%, compared to selling,
general and administrative expenses of $16.6 million for the year ended December 31, 2007. Selling, general and administrative expenses decreased as a percent of revenue to 24.0% in 2008
from 28.3% in 2007. The two primary areas of reduced expenses in 2008 compared to 2007 were a $0.6 million decrease in costs associated with issues related to lead in Paulson gaming chips and a
$0.6 million decrease in professional fees.

Other Income (Expense)The following table details the Other Income (Expense) items for the years ended December 31 (in thousands):

2008

Revenue %

2007

Revenue %Gain (loss) on foreign currency transactions

$
268


0.4
%
$
(323
)

(0.5
)%Interest income


252


0.4
%

334


0.6
%Interest expense


(137
)

(0.2
)%

(190
)

(0.3
)%Other income, net


103


0.2
%

374


0.6
%Total other income (expense)

$
486


0.8
%
$
195


0.4
%


In
2008, there was a gain on foreign currency transactions of $0.3 million compared to a loss of $0.3 million in 2007. This increase of $0.6 million was offset by a
decrease in other income, net due to a non-recurring $0.3 million tax refund that GPI SAS received in 2007 from the French Social Security.

Income TaxesDuring the year ended December 31, 2008, our effective tax rate was 23.0% as compared to 77.3% for the year ended
December 31, 2007. The decrease in our effective rate for the year ended December 31, 2008 was primarily a result of the French Research and Development Credit, the absence of foreign
dividend inclusions and related valuation of foreign tax credits and the decrease in the
FIN 48 reserve. The Company's effective tax rate for the year ended December 31, 2008 differed from the statutory rate as a result of the French Research Credit, reversal of the prior
year FIN 48 reserve, and decrease in the valuation allowance related to foreign tax credits. The Company's effective tax rate for the year ended December 31, 2007 differed from the
statutory rate as a result of the Company's repatriation of a non-cash dividend from GPI SAS; the related increase in the valuation allowance related to foreign tax credits, which
are expected to expire before usage; and the refinement of the Company's previous estimate of the tax basis in fixed assets and intangibles.

25

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Table of Contents

Pre-tax
income (loss) by taxing jurisdictions for the years ended December 31, (in thousands):

2008

2007United States (GPI USA and Corporate)

$
3,608

$
(2,051
)France (GPI SAS)


2,218


3,108Total pre-tax income

$
5,826

$
1,057


Our
corporate tax rate is calculated on a consolidated basis. Our corporate costs are not allocated to our French subsidiary, GPI SAS. Our corporate costs include such items as
corporate management, regulatory fees, board of director expenses, investor relations expenses, auditing and review fees, and corporate legal expenses. In 2008 and 2007, corporate costs total
$1.9 million and $2.6 million, respectively.

Liquidity and Capital Resources

OverviewAs of December 31, 2008, we had $5.5 million in cash and cash equivalents and $7.6 million in current marketable
securities. Of the cash and cash equivalents and marketable securities, $4.0 million is held by GPI USA and $9.1 million is held by GPI SAS. It may be impractical or costly
to transfer cash from our French subsidiary to the United States due to unfavorable tax consequences. If our cash needs increase, we will evaluate other cash sources, including lending facilities in
the United States and abroad. We believe that the combination of cash flow from operations and cash on hand will be sufficient to fund expenses from routine operations for a minimum of the next twelve
months.

Working Capital (See Consolidated Balance Sheets)Working capital totaled $21.9 million at December 31, 2008 compared to
$16.9 million at December 31, 2007. Working capital increased by $5.0 million due to an increase in current assets of $2.2 million and a decrease in current liabilities of
$2.8 million. The increase in current assets was due primarily to an increase in marketable securities and cash and cash equivalents of $3.8 million offset primarily by a decrease in
other current assets of $0.7 million. The decrease in current liabilities was due primarily to decreases in accrued liabilities of $1.3 million and customer deposits of
$1.3 million. The decrease in the accrued liabilities is primarily attributable to the $0.6 million payment for the Proposition 65 legal settlement.

Cash Flow (See Consolidated Statements of Cash Flow)Overall, our cash balance increased by $0.9 million from December 31,
2007 to
December 31, 2008.

Net
cash flow provided by operating activities was $6.2 million during 2008 compared to net cash provided by operating activities of $1.4 million during 2007. In 2008,
$7.4 million of cash was provided by net income-related activities and $1.0 million was provided by a decrease in operating assets, excluding cash. These increases were offset by a
decrease in current liabilities of $2.2 million. In 2007, $3.8 million
of cash was provided by net income-related activities. This was offset by $1.6 million increase in current assets and a decrease in current liabilities of $0.8 million.

Our
investing activities resulted in net cash used of $4.5 million for 2008, compared to net cash used of $2.0 million in 2007. This $2.5 million change is primarily
attributable to an increase in net purchases of marketable securities of $3.8 million from 2008 compared to 2007 and a decrease in cash spent on acquisitions of property and equipment of
$1.3 million.

Net
cash flow used in financing activities was $0.7 million during 2008 compared to net cash used in financing activities of $1.0 million during 2007. The change was
primarily due to a $0.4 million reduction in long-term debt payments in 2008 compared to 2007.

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Table of Contents

Line of CreditIn September 2008, GPI SAS secured a 1,000,000 euro line of credit for short term needs that expired in
February 2009.
As of December 31, 2008, this line of credit was fully available.



In February 2001, GPI SAS borrowed 2.6 million euros (approximately $2.4 million in February 2001) from an
unaffiliated party. Principal and interest payments were due quarterly until February 2008, at which time the loan was paid off. The loan had a fixed rate of interest of 5.1% per annum. The loan was
guaranteed by our majority stockholder, Holding Wilson, S.A.

In
March 2002, GPI USA entered into a $995,000 loan transaction secured by a Deed of Trust on its Las Vegas building, at an interest rate equal to the greater of (i) 8% per
annum, or (ii) 362.5 basis points over the average of the London Interbank Offered Rates for six-month dollar deposits in the London market based on quotations of major banks, or
LIBOR, but may not exceed 12% per annum. This loan is payable in arrears in equal monthly installments through March 2012, at which time the entire remaining principal balance of approximately
$875,000 will be due and payable. There is no prepayment penalty.

In
May 2004, GPI SAS entered into a 350,000 euro (approximately $423,000 in May 2004) loan transaction with a French bank. The loan has a fixed interest rate of 3.6% per
annum, is due in May 2011, and is secured by a mortgage on the building premises.

In
June 2006, GPI SAS entered into a 1.5 million euro (approximately $1.9 million in June 2006) loan agreement with a French bank. The loan has a
five-year term at a fixed rate of 3.4% per annum. The loan is repayable in fixed quarterly installments. The loan is secured by GPI SAS' marketable securities at the
bank. GPI SAS must maintain a minimum balance of at least 500,000 euros ($696,000 at December 31, 2008). There are no prepayment penalties.

SeasonalitySeasonality is difficult to determine due to the significant revenue fluctuations we experience on a quarterly basis.
Nonetheless, it
appears that the first quarter is typically one of the lowest revenue quarters for the year and operations may be impacted in the third quarter of each year as GPI SAS is closed for a
substantial part of the month of August due to the traditional French holiday period.

Las Vegas, Nevada FacilitiesIn May 1997, we purchased our corporate headquarters, an approximately 60,000 square foot building. This
facility houses
the Las Vegas corporate and sales offices, as well as a centralized warehouse, some manufacturing departments, and a graphics art department. Our Las Vegas headquarters secures a deed of trust issued
under our outstanding term loan. See "Long-Term Debt" above.

San Luis Rio Colorado, Mexico FacilitiesWe manufacture casino chips, playing cards, dice, plastic products, layouts and tables at three
facilities
in San Luis Rio Colorado, Mexico. These facilities include a 34,000 square foot leased facility, a 46,000 square feet leased facility, and an approximately 66,000 square foot facility, which we own.
The leased facilities are leased through December 2013 at the monthly rent amount of approximately $0.35 per square foot or $28,000 The 80,000 square feet of leased facilities represents a 14,000
square foot increase effective April 1, 2008 to accommodate the relocation of our Las Vegas-based chip manufacturing operation to Mexico. (See Part IIItem 8.
Financial Statements and Supplementary DataNotes to Consolidated Financial Statements Note 17Related Party Transactions.)

Beaune, France FacilitiesIn Beaune, we own an approximately 34,000 square foot manufacturing facility and a 15,000 square foot
administrative and
sales building located nearby, which we purchased in July 2006.

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Table of Contents

Capital ExpendituresWe plan to purchase approximately $2.1 million in property, plant and equipment in 2009. In 2008, we
purchased
$1.3 million of property, plant and equipment. Of that amount, $0.6 million was used to purchase machinery and equipment; $0.4 million was for building and leasehold improvements
of which $0.2 million was for improvements necessary to accommodate the relocation of the injection molding department from Las Vegas to Mexico, $0.2 million was used to purchase
injection molding tooling and $0.1 million was used to purchase vehicles, office furniture and computers..

Cash DividendThe Board of Directors presently does not intend to declare or pay any dividends for the foreseeable future. We did not
declare any
cash dividend on our common stock in 2008 or 2007.

BacklogAt December 31, 2008, our backlog of orders, which is expected to be filled in 2009, amounted to $ 3.4 million
for GPI
USA and $9.6 million for GPI SAS. Over $8.0 million of the backlog for GPI SAS is for orders from two casinos in Asia, which were previously announced by the Company in its
press release and a Form 8-K dated January 16, 2009. At December 31, 2007, our backlog was approximately $7.1 million for GPI USA and $4.0 million
for GPI SAS.

Selected Quarterly Financial Information

Year Ended December 31, 2008First

Second

Third

Fourth

Total(in thousands, except per share data)Net revenues

$
12,125

$
18,856

$
13,820

$
15,745

$
60,546Gross profit(1)


3,659


6,333


4,420


5,463


19,875Operating (loss) income


(396
)

2,407


1,318


2,011


5,340Net (loss) income

$
(412
)
$
1,850

$
1,247

$
1,802

$
4,487Net (loss) income per share:Basic

$
(0.05
)
$
0.23

$
0.15

$
0.22

$
0.55Diluted

$
(0.05
)
$
0.23

$
0.15

$
0.22

$
0.55




Year Ended December 31, 2007First

Second

Third

Fourth

Total(in thousands, except per share data)Net revenues

$
8,921

$
14,779

$
15,196

$
19,925

$
58,821Gross profit(1)


1,441


4,470


4,708


6,847


17,466Operating (loss) income


(2,373
)

289


958


1,988


862Net (loss) income

$
(1,490
)
$
440

$
387

$
903

$
240Net (loss) income per share:Basic

$
(0.18
)
$
0.05

$
0.05

$
0.11

$
0.03Diluted

$
(0.18
)
$
0.05

$
0.05

$
0.11

$
0.03


---

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Table of Contents

Obligations and Commercial Commitments

The following table presents the impact that our contractual obligations and commercial commitments at December 31, 2008 are
anticipated to have on our liquidity and cash flow in future periods. We have no other significant contractual obligations or commercial commitments either on or off balance sheet as of
December 31, 2008. Operating leases that are paid on a month-to-month basis are not included. (See Part IIItem 8. Financial Statements and
Supplementary DataNotes to Consolidated Financial StatementsNote 10.)

Payments Due by Period
(in thousands)Contractual Obligations

Total

Less than
1 - year

2 - 3 years

4 - 5 years

BeyondLong term debt(1)

$
2,196

$
512

$
806

$
878

$
Capital lease obligations


70


11


27


32


Purchase and other commitment
obligations(2)


7,174


2,664


2,626


1,759


125Interest


288


110


166


12


Operating leases


1,972


475


771


726


Total Contractual Cash Obligations

$
11,700

$
3,772

$
4,396

$
3,407

$
125


---

Related Party Transactions

We lease two manufacturing facilities totaling approximately 80,000 square feet located in San Luis Rio Colorado, Mexico from an entity
controlled by the family of the General Manager of GPI Mexicana. The lease runs through December 2013 at the monthly rent amount of approximately $0.35 per square foot or $28,000. The 80,000
square feet represents a 14,000 square foot increase effective April 1, 2008, to accommodate the relocation of our Las Vegas-based chip manufacturing operations to Mexico. (See
Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial Statements Note 17Related Party Transactions.)

The
charter of the Audit Committee of the Board of Directors requires the Audit Committee to review and approve related party transactions involving our directors and executive officers.
However, the General Manager of GPI Mexicana is neither a director nor an executive officer.

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Table of Contents

Critical Accounting Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States.
Certain of our accounting estimates, including write-downs of obsolete, excess or slow moving inventories; the depreciable lives of our fixed assets; the valuation of goodwill and other intangible
assets; the recoverability of deferred tax assets; and the accounting for share-based compensation require that we apply significant subjective judgment in defining the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts,
our observance of industry trends, information provided by or gathered from our customers and information available from other outside sources, as appropriate. There can be no assurance that actual
results will not differ from our estimates. The estimates discussed below are considered by management to be those in which our estimates and judgments have a significant impact on issues that are
inherently uncertain. To provide a further understanding of the methodology we apply, our significant accounting estimates are discussed below and in the notes to our consolidated financial
statements.

Inventory

We evaluate our inventory for slow-moving, excess, and obsolete inventory that may not be saleable or recoverable. Analysis
of inventory levels, market conditions and future sales forecasts are some of the methodologies for estimating the inventory write-downs. Historical inventory usage activity, industry trends, and
scrap rates are considered in determining the level of reserves. As with many estimates, management must make judgments about potential actions by third parties, including customer demand, in
establishing and evaluating our inventory reserves.

Property and Equipment

We have significant capital invested in our property and equipment, which represented approximately 29% and 32% of our total assets at
December 31, 2008 and 2007, respectively. Judgments are made in determining the estimated useful lives of assets, salvage value to be assigned to the assets and if or when an asset has been
impaired. These estimates and the accuracy thereof affect the amount of depreciation expense recognized in the financial results and whether we have a gain or a loss on the disposal of the asset. We
assign lives to our assets based on our standard policy, which is established by management as representative of the useful life of each category of asset. The carrying value of property and equipment
is reviewed whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual
disposition. The factors considered by management in performing this assessment include: current operating results, trends and prospects, historical data, useful life changes, as well as the effect of
obsolescence, market price changes, demand, competition and other economic factors. Our estimates have been within our expectations of the useful life and depreciation amounts established. However, a
change in our estimates may result in an adjustment to depreciation expense or to the gain or loss realized on the disposal of assets, which could have a material adverse effect on our consolidated
results of operations.

Goodwill and Other Intangible Assets

In accordance with SFAS 142,Goodwill and Other Intangible Assets, goodwill and
trademarks with indefinite useful lives are not amortized but are reviewed for impairment, annually (as of December 31), and whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable in accordance with SFAS 142.

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Other
intangible assets, such as patents, with definite lives are amortized, using the straight-line method over their economic useful live. We evaluate these intangible
assets with definite lives for potential impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable.

We
would record an impairment loss if the carrying amount of the intangible asset is not recoverable and the carrying amount exceeds the estimated fair value. These assessments require
management
judgment. In particular, the goodwill impairment test requires that we estimate the fair value of the reporting units and such estimate uses forward looking information. Any changes in the key
assumptions about the business and its prospects, or changes in the market conditions or other external conditions, could result in significant changes to the fair value estimate. That could
necessitate an impairment charge and such charge could have a material adverse effect on our consolidated results of operations.

Deferred Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have
considered estimated future taxable income and ongoing tax planning strategies in assessing the amount needed for the valuation allowance. In assessing the need for a valuation allowance, we look to
the future reversal of existing taxable temporary differences, taxable income in prior carry back years, the feasibility of tax planning strategies, and estimated future taxable income. The valuation
allowance can be affected by changes to tax laws, both foreign and domestic; changes to statutory tax rates, and changes to future taxable income estimates.

The
amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential
outcome for any uncertain tax issue is highly subjective and judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future
results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax examinations, new regulatory or judicial pronouncements, or other relevant
events. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.

If
actual results differ unfavorably from those estimates used, we may not be able to realize all or part of our net deferred tax assets and additional valuation allowances may be
required. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected
to be in effect for the year in which the differences are expected to reverse. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in
our estimates in the valuation allowance, with a corresponding adjustment to earnings or equity, as appropriate.

On
January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109(FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Under the requirements of FIN 48, the Company must review all of its tax positions and make a determination as to whether its position is more likely than
not to be sustained upon examination by regulatory authorities. If a tax position meets the more likely than not standard,
then the related tax benefit is measured based on the cumulative probability analysis of the amount that is more likely than not to be realized upon ultimate settlement or disposition of the
underlying issue. See Note 15 of Consolidated Financial Statements for further details.

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Table of Contents

Share-based Compensation

We estimate the fair value of each stock option award on the grant date using the Black-Scholes valuation model. Expected volatility
and dividends are based on historical factors related to our common stock. The expected term considers the contractual term of the options as well as the historical exercise and termination behavior.
Risk free rate is based on United States Treasury rates appropriate for the expected term.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurement. The provisions of this statement are generally to be applied prospectively in fiscal years beginning after November 15, 2007 and interim periods within that fiscal
year. The FASB has issued Staff Position No. FAS 157-2,Effective Date of FASB Statement No. 157(FSP 157-2),
which applies to non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its
scope, FSP 157-2 defers the effective date of SFAS 157 until fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157 for its marketable
securities and the disclosure requirements are reflected in Note 2 of our Consolidated Financial Statements. The Company will adopt the remaining portions of SFAS 157 in 2009 and is
assessing its potential impact.

In
February 2007, the FASB issued Statement of Financial Accounting Standard No. 159The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement No. 115(SFAS 159). The new statement allows entities to choose, at specified election dates, to
measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in
that
item's fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has chosen
not to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value.

In
March 2008, the FASB issued Statement of Financial Accounting Standard No. 161,Disclosures about Derivative Instruments and Hedging Activities- an
amendment of FASB Statement No. 133(SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities
are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The
guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This
statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Adoption of this statement is not expected to impact the Company.

In
April 2008, the FASB issued Staff Position No. FAS 142-3,Determination of the Useful Life of Intangible Assets(FSP
142-3), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under
SFAS 142,Goodwill and Other Intangible Assets. The intent of FSP 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141 (revised 2007), Business Combinations,and other US
generally accepted accounting principles. In addition, there are additional disclosure requirements for recognized
intangible assets that enable users of the financial

32

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Table of Contents

statements
to assess the extent to which expected future cash flows associated with the asset are affected by the entity's intent and/or the ability to renew or extend the arrangement. FSP
142-3 shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is
prohibited. Adoption of this FSP is not expected to have a material impact on the Company.

In
December 2008, The FASB issued Staff Position No. 132 (R),Employer's Disclosures about Postretirement Benefit Plan Assets(FSP
FAS 132(R)-1), which amends SFAS 132R,Employers' Disclosures about Pensions and Other Postretirement Benefits, to provide
guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 shall be effective for fiscal years ending after
December 15, 2009, however, earlier application of these provisions is permitted. The Company is assessing the impact that adoption of this FSP may have.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Market risk refers to the potential losses arising from changes in interest rates, foreign currency fluctuations and exchange rates,
equity prices, and commodity prices including the correlation among these factors and their volatility. We are primarily exposed to foreign currency fluctuations and exchange risk and interest rate
risk.

Foreign Currency RiskThere are two types of foreign currency exchange risks that we may be subject totransaction and translation
gains
and losses. Foreign exchange transaction gains or losses are distinguished from translation gains or losses as follows: (i) transaction gains or losses are based on actual transactions that
occur in a currency other than the functional currency of that entity, whereas, (ii) translation adjustments do not involve the movement of cash, they are accounting conversion calculations of
an existing functional currency to a reporting currency.

We
are subject to foreign currency exchange risk relating to the translation of GPI SAS' assets, liabilities, and income and expense accounts. GPI SAS uses the euro as its
functional currency. The translation adjustment for assets and liabilities is reflected in the accumulated other comprehensive income (loss) caption included in the stockholders' equity section on our
consolidated balance sheets.

The
assets and liabilities of GPI SAS were translated into U.S. dollars at the rate of exchange at December 31, 2008 and December 31, 2007. The income and expense
accounts were translated using the average rate of exchange during the period. GPI SAS typically incurs gains or losses of specified foreign currency transactions and these amounts are
occasionally material. These gains and losses are reflected in our statements of income. As of December 31, 2008 and December 31, 2007 the US dollar to euro exchange rates were 1.3917
and 1.4718, respectively, which represents a 5.4% stronger dollar compared to the euro. The average exchange rates for the years ended December 31, 2008 and 2007 were 1.4706 and 1.3706, which
represents a 7.3% weaker dollar compared to the euro.

For GPI
Mexicana, the U.S. dollar is the functional currency. Non-monetary assets and liabilities are translated at historical exchange rates, and monetary assets and
liabilities are translated at current exchange rates. Exchange gains and losses arising from translation are included in gain (loss) on foreign currency transactions.

Transaction
gains and losses that arise from exchange rate fluctuations on transactions with third parties denominated in a currency other than the functional currency are included in
the results of operations as incurred. From time-to-time we may enter into derivative currency contracts in order to hedge currency exposure. During 2007, in an effort to hedge
against the weakening of the dollar, GPI SAS entered into a forward currency contract to purchase approximately 1.6 million euros at a rate of $1.3732 in October 2007 which was the
expected settlement date of a significant US dollar-based sales contract. The contract settled in October 2007 and we recorded a gain of $108,000 in gain (loss) on

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Table of Contents

foreign
currency transactions. We did not have any forwards, options, or other derivative contracts in place as of December 31, 2008.

Interest Rate RiskChanges in interest rates may result in changes in the fair market value of our financial instruments, interest
income and
interest expense. As of December 31, 2008, we had total interest bearing debt and capital lease obligations of approximately $2.3 million. Of this amount, approximately
$1.3 million has a fixed rate of interest; we believe that the fair value of these agreements approximate reported amounts.

The
remaining approximately $0.9 million of interest bearing obligations has a variable interest rate which is tied to the London Interbank Offered Rate (LIBOR), for
six-month dollar deposits, plus 362.5 basis points. For each 1.0% increase in LIBOR, we would incur increased interest expense of approximately $9,000 over the next twelve-month period.

Item 8.    Financial Statements and Supplementary Data.



34

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION  AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

35

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Gaming Partners International Corporation and Subsidiaries
Las Vegas, Nevada

We
have audited the accompanying consolidated balance sheets of Gaming Partners International Corporation and Subsidiaries (the "Company") as of December 31, 2008 and 2007, and
the related consolidated statements of income, stockholders' equity and other comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Gaming Partners International Corporation and Subsidiaries as
of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.

As
discussed in Note 15 to the consolidated financial statements, the Company recorded a cumulative effect adjustment as of January 1, 2007, in connection with the adoption
of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109.

/s/
MOSS ADAMS LLP

San
Diego, California
March 30, 2009

36

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        December 31,        (in thousands, except share
amounts)

2008

2007ASSETSCurrent Assets:Cash and cash equivalents

$
5,547

$
4,627Marketable securities


7,561


4,730Accounts receivable, less allowance for doubtful accounts of $342 and $327, respectively


5,422


5,811Inventories


9,894


10,093Prepaid expenses


431


487Deferred income tax asset


691


893Other current assets


790


1,459Total current assets


30,336


28,100Property and equipment, net


14,158


15,596Goodwill


1,599


1,680Other intangibles, net


783


1,023Deferred income tax asset


1,666


1,514Long-term marketable securities


696


736Other assets, net


311


660Total assets

$
49,549

$
49,309LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Current maturities of long-term debt

$
523

$
689Accounts payable


2,613


2,964Accrued liabilities


3,066


4,418Customer deposits


1,432


2,715Income taxes payable


312


27Other current liabilities


459


406Total current liabilities


8,405


11,219Long-term debt, less current maturities


1,743


2,273Deferred income tax liability


585


455Other liabilities





209Total liabilities


10,733


14,156Commitments and contingenciessee Note 10Stockholders' Equity:Preferred stock, authorized 10,000,000 shares, $.01 par value, none issued and outstanding





Common stock, authorized 30,000,000 shares, $.01 par value, 8,103,401 and 8,103,401, respectively, issued and outstanding


81


81Additional paid-in capital


19,033


18,766Treasury stock, at cost; 8,061 shares


(196
)

(196
)Retained earnings


17,312


12,825Accumulated other comprehensive income


2,586


3,677Total stockholders' equity


38,816


35,153Total liabilities and stockholders' equity

$
49,549

$
49,309


See Notes to Consolidated Financial Statements

37

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF INCOME        Years Ended December 31,        (in
thousands, except earnings per share)

2008

2007Revenues

$
60,546

$
58,821Cost of revenues


40,671


41,355Gross profit


19,875


17,466Product development


201


419Marketing and sales


4,263


4,303General and administrative


10,071


11,882Operating income


5,340


862Other income (expense)Gain (loss) on foreign currency transactions


268


(323
)Interest income


252


334Interest expense


(137
)

(190
)Other income, net


103


374Income before income taxes


5,826


1,057Income tax expense


1,339


817Net income

$
4,487

$
240Earnings per share:Basic

$
0.55

$
0.03Diluted

$
0.55

$
0.03Weighted-average shares of common stock outstanding:Basic


8,103


8,101Diluted


8,184


8,242


See
Notes to Consolidated Financial Statements

38

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND  OTHER COMPREHENSIVE INCOME        Years
Ended December 31, 2008 and 2007        (in thousands, except share amounts)

Common Stock







Accumulated
Other
Comprehensive
IncomeComprehensive
Income (Loss)

Additional
Paid-In
Capital

Treasury
Stock

Retained
EarningsShares

Amount

TotalBalance, December 31, 2006





8,090,901

$
81

$
18,429

$
(196
)
$
12,690

$
1,580

$
32,584Net income

$
240














240





240Cumulative effect of adjustments resulting from the adoption of FIN 48 (Note 15)

















(105
)




(105
)Unrealized loss on securities,net of tax


(2
)
















(2
)

(2
)Common stock options exercised





12,500





97











97Stock compensation expense











220











220Tax benefit from stock options exercised











20











20Amortization of pension transition asset


(13
)
















(13
)

(13
)Foreign currency translation adjustment


2,112

















2,112


2,112Total comprehensive income

$
2,337Balance, December 31, 2007





8,103,401


81


18,766


(196
)

12,825


3,677


35,153Net income

$
4,487














4,487





4,487Stock compensation expense











290











290Forfeiture of stock options











(23
)










(23
)Amortization of pension transition asset


(13
)
















(13
)

(13
)Foreign currency translation adjustment


(1,078
)
















(1,078
)

(1,078
)Total comprehensive income

$
3,396Balance, December 31, 2008





8,103,401

$
81

$
19,033

$
(196
)
$
17,312

$
2,586

$
38,816


See Notes to Consolidated Financial Statements

39

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        Years Ended December 31,        (in
thousands)

2008

2007Cash Flows from Operating ActivitiesNet income

$
4,487

$
240Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation


2,307


2,272Amortization


128


222Provision for bad debt


141


34Deferred income taxes


(145
)

632Share-based compensation expense


290


220Tax benefit on exercise of stock options





(20
)Loss on sale/disposal of property and equipment


133


311(Gain) on sale of marketable securities


(90
)

(106
)Loss on impairment of intangibles


118


Change in operating assets and liabilities:Accounts receivable


(238
)

(1,722
)Inventories


(63
)

(285
)Prepaid expenses and other current assets


946


402Non-current other assets


319


(1
)Accounts payable


130


(4
)Customer deposits


(1,247
)

1,358Accrued liabilities


(1,265
)

(548
)Income taxes payable


425


(1,485
)Other current liabilities


(198
)

(74
)Net cash provided by (used in) operating activities


6,178


1,446Cash Flows from Investing ActivitiesPurchase of marketable securities


(37,766
)

(24,881
)Proceeds from sale of marketable securities


34,591


25,482Acquisition of property and equipment


(1,323
)

(2,686
)Proceeds from sale of property and equipment


30


58Net cash provided by (used in) investing activities


(4,468
)

(2,027
)Cash Flows from Financing ActivitiesRepayment of long-term debt obligations


(693
)

(1,089
)Proceeds from exercise of stock options





97Tax benefit on exercise of stock options





20Net cash provided by (used in) financing activities


(693
)

(972
)Effect of exchange rate changes on cash


(97
)

292Net increase (decrease) in cash and cash equivalents


920


(1,261
)Cash and cash equivalents, beginning of period


4,627


5,888Cash and cash equivalents, end of period

$
5,547

$
4,627Supplemental disclosures of cash flow information:Cash paid for interest

$
135

$
188Cash paid for income taxes

$
680

$
1,205Supplemental disclosures of non-cash investing and financing activitiesProperty and equipment acquired by accrued liabilities/accounts payable

$
42

$
120Property and equipment acquired by capital lease

$
70

$



See Notes to Consolidated Financial Statements

40

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Organization and Nature of Business

Gaming Partners International Corporation (GPIC or the Company), a Nevada corporation, was formerly known as Paul-Son
Gaming Corporation and owns, directly or indirectly, three subsidiaries as the result of various combination and merger agreements: Gaming Partners International USA, Inc. (GPI USA), Gaming
Partners International SAS (GPI SAS), and GPI Mexicana S.A. de C.V. (GPI Mexicana). GPI USA, formerly Paul-son Gaming Supplies, Inc., was founded in 1963 in Las
Vegas by our former Chairman, Paul S. Endy, Jr., and initially manufactured and sold dice to casinos in Las Vegas. The Bud Jones Company was founded in Las Vegas in 1965 by Bud Jones to
manufacture and sell gaming supplies and after being purchased in 2000 by GPI SAS, eventually merged into GPI USA. GPI SAS, formerly Etablissements Bourgogne et
Grasset S.A., was founded in 1923 by Etienne Bourgogne and Claudius Grasset in Beaune, France to produce and sell counterfeit-resistant chips to casinos in Monaco. The Company has established
brand names such as Paulson®, Bourgogne et Grasset®, or B&G, Bud Jones®, and T-K®. GPIC and each of its subsidiaries are sometimes
collectively referred to herein as the "Company," "us," "we" or "our."

We
are headquartered in Las Vegas, Nevada and have manufacturing facilities located in Las Vegas, Nevada; San Luis Rio Colorado, Mexico; and Beaune, France. GPI USA has sales
offices in Las Vegas, Nevada; Atlantic City, New Jersey; and Gulfport, Mississippi and sells our casino products to licensed
casinos primarily in the United States and Canada. GPI SAS has a sales office in Beaune, France and sells our casino products internationally to licensed casinos.

Our
business activities include the manufacture and supply of gaming chips, table layouts, playing cards, dice, gaming furniture, roulette wheels, and miscellaneous table accessories
such as chip trays, drop boxes and dealing shoes, which are used in conjunction with casino table games such as blackjack, poker, baccarat, craps and roulette.

Basis of Consolidation and Presentation

The consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI SAS, GPI
USA and GPI Mexicana. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.

A
summary of our significant accounting policies follows:

Cash and Cash Equivalents

We consider all highly liquid investments with maturities of three months or less at the date of purchase to be cash and cash
equivalents.

The
Company maintains cash and cash equivalents at a United States bank in excess of the federally insured limit of $250,000. The Company believes it is not exposed to any significant
credit risk.

Fair Value of Financial Instruments

The fair value of cash, accounts receivable, and accounts payable approximates the carrying amount of these financial instruments due
to their short-term nature. The fair value of long-term debt,

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Nature of Business and Significant Accounting Policies (Continued)

which
approximates its carrying value, is based on current rates at which we could borrow funds with similar remaining maturities.

Accounts Receivables and Customer Deposits

We perform ongoing credit evaluations of our customers and generally require a deposit. These customer deposits are classified as a
current liability on the consolidated balance sheets.

We
also maintain an allowance for doubtful accounts (see Note 3) to state trade receivables at their estimated realizable value. This allowance applies to all customers and is
estimated based on a variety of factors, including the length of time the receivables are past due, economic conditions and trends, significant one-time events and historical experience.
Various percentages are applied to the aged receivables. Additional amounts are recorded to the allowance based on our awareness of a particular customer's potential inability to meet its financial
obligations. Should the need arise to write off an uncollectible receivable, management will assess the likelihood of collectibility. If it is deemed that collectibility is remote, with the proper
review and approvals, management will write off the receivable.

Marketable Securities

We account for our investments in marketable securities in accordance with Statement of Financial Accounting Standards No. 115, Accounting For Certain
Investments in Debt and Equity Securities(SFAS 115). We classify our SFAS 115 investments as
available-for-sale and, as such, they are recorded on our consolidated balance sheets at estimated fair value and unrealized holding gains and losses are excluded from
earnings and, instead, reported within accumulated other comprehensive income. The first-in, first-out method is used to determine the cost of securities disposed. Marketable
securities consist of investments in securities offered by French banks, primarily bond portfolios. These investments are primarily held with one major financial institution in our name.

Inventories

Inventories are stated at the lower of cost or market, net of write-downs for slow-moving, excess and obsolete items. Cost
is determined using a weighted-average method at GPI SAS and a first-in, first-out method at GPI USA.

Property and Equipment

Property and equipment are stated at cost, net of depreciation. We include capitalized lease equipment in our property and equipment
for financial statement purposes. Depreciation is computed primarily on the straight-line method for financial reporting purposes over the following estimated useful lives:

YearsBuildings and improvements


5 - 40Furniture and equipment


5 - 20Vehicles


5 - 7


42

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Nature of Business and Significant Accounting Policies (Continued)

Goodwill and Other Intangible Assets

In accordance with SFAS 142, Goodwill and Other Intangible Assets,goodwill and
trademarks with indefinite useful lives are not amortized but are reviewed for impairment, annually (as of December 31), and whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable in accordance with SFAS 142.

Other
intangible assets, such as patents, with definite lives are amortized, using the straight-line method over their economic useful life. We evaluate these intangible
assets with definite lives for potential impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Long-Lived Assets

In accordance with SFAS 144,Accounting for the Impairment or Disposal of Long-Lived
Assets, we review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In general, we will recognize an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The
measurement for such an impairment loss is then based on the fair value of the assets. Assets are grouped and evaluated for impairment at the lowest level for which there is identifiable cash flows,
which are largely independent of the cash flows of other groups of assets. We operate in only one primary marketplace (legalized casinos), it has only one identifiable business segment with a
centralized business operation, and all cash flows are generated by this one segment and are not disaggregated. (See Note 12 for the presentation of the one business segment by geographic
area.) Long-lived assets are principally real estate and production assets. We had no impairment losses for the years ended December 31, 2008 and 2007.

Capitalized Leases

We include obligations from capitalized leases in our long and short-term debt captions for financial statement purposes.

Revenue Recognition

We recognize revenue when the following criteria are met: persuasive evidence of an arrangement between our customer and us exists,
shipment has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. Generally, this means we recognize revenue when our products are shipped to our customers and
title to the products and risk of loss are transferred according to the shipping terms, at which time the products are deemed delivered. We typically sell our products with payment terms of net
30 days.

Shipping
costs billed to our customers have the related expense included in cost of revenues. Revenues do not include sales tax as we consider ourselves a pass-through
conduit for collecting and remitting sales taxes.

We
offer a limited standard warranty on some of our products at GPI SAS. Warranty reserves are provided under the accrual basis and are based on estimates of future costs
associated with fulfilling the warranty obligation. The estimates are derived from historical cost experience.

43

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Nature of Business and Significant Accounting Policies (Continued)

Income Taxes

We use SFAS 109, Accounting for Income Taxes, for financial accounting and
reporting for income taxes. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is
recognized for the estimated future tax effects, based on provisions of the enacted law, attributable to temporary differences and carry forwards.

GPIC
and its subsidiaries file separate income tax returns in their respective jurisdictions. Income taxes are provided for the tax effects of transactions reported in the consolidated
financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of assets and liabilities acquired for financial and income tax
reporting. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.

On
January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109(FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Under the requirements of FIN 48, the Company must review all of its tax positions and make a determination as to whether its position is more likely than
not to be sustained upon examination by regulatory authorities. If a tax position meets the more likely than not standard, then the related tax benefit is measured based on the cumulative probability
analysis of the amount that is more likely than not to be realized upon ultimate settlement or disposition of the underlying issue.

Foreign Currency Transactions

The financial statements of GPI SAS are measured using the euro as the functional currency. Assets and liabilities of GPI
SAS are translated into the U.S. dollar at exchange rates as of the balance sheet date. Revenues and expenses are translated into the U.S. dollar at average rates of exchange in effect during the
year. The resulting cumulative translation adjustments have been recorded in accordance with the provisions of SFAS 52,Foreign Currency
Translation,and are shown within accumulated other comprehensive income.

For GPI
Mexicana, the US dollar is the functional currency. Non-monetary assets and liabilities are translated at historical exchange rates, and monetary assets and
liabilities are translated at current exchange rates. Exchange gains and losses arising from translation are included in gain (loss) on foreign currency transactions.

Transaction
gains and losses that arise from exchange rate fluctuations on transactions with third parties denominated in a currency other than the functional currency are included in
the results of operations as incurred. From time-to-time, we may enter into derivative currency contracts in order to hedge currency exposure. During 2007, in an effort to
hedge against the weakening of the dollar, GPI SAS entered into a forward currency contract to purchase approximately 1.6 million euros at a rate of $1.3732 in October 2007 which was the
expected settlement date of a significant US dollar-based sales contract. The contract settled in October 2007 and we recorded a gain of $108,000 in gain (loss) on

44

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Nature of Business and Significant Accounting Policies (Continued)

foreign
currency transactions. We did not have any derivative contracts in place as of December 31, 2007. No such contracts were entered into during 2008.

Comprehensive Income

Comprehensive income includes net income, unrealized gains and losses on available-for-sale securities recorded
net of tax, pension related costs, and foreign currency translation adjustments.

Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles generally requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the allowance for doubtful accounts receivable;
write-downs of slow moving, excess and obsolete inventories; the depreciable lives of fixed assets; estimates for the recoverability of long-lived assets including intangible assets and
goodwill; the recoverability of deferred tax assets; and potential exposures relating to litigation, claims and assessments. Actual results could differ from those estimates and assumptions.

Share-based Compensation

We account for our share-based compensation under SFAS 123(R),Share-Based
Payment, using a modified prospective application. We recognized share-based compensation expense for all current award grants and for the unvested portion of previous award
grants based on the previously determined grant date fair values. The Company attributes the expense on a straight-line basis over the vesting period of the awards.

Earnings per Share

In accordance with SFAS 128,Earnings per Share, basic EPS is calculated by
dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the effect of the potential exercise of common stock options. We have certain
outstanding stock options to purchase common stock, which have an exercise price greater than the average market price. These antidilutive options are excluded from the computation of diluted net
income per share for the respective fiscal years.

Reclassifications

Certain 2007 amounts have been reclassified to conform to the 2008 presentation. These reclassifications had no impact on revenues, net
income, or total assets. These reclassifications include shipping and receiving department and purchasing department, which were initially recorded as general and administrative expenses in the prior
year and are now in cost of revenues.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value

45

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Nature of Business and Significant Accounting Policies (Continued)

measurement.
The provisions of this statement are generally to be applied prospectively in fiscal years beginning after November 15, 2007 and interim periods within that fiscal year. The FASB
has issued Staff Position No. FAS 157-2,Effective Date of FASB Statement No. 157(FSP 157-2), which applies to
non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. For items within its scope,
FSP 157-2 defers the effective date of SFAS 157 until fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157 for its marketable securities
and the disclosure requirements are reflected in Note 2 of our Consolidated Financial Statements. The Company will adopt the remaining portions of SFAS 157 in 2009 and is assessing its
potential impact.

In
February 2007, the FASB issued Statement of Financial Accounting Standard No. 159The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement No. 115(SFAS 159). The new statement allows entities to choose, at specified election dates, to
measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in
that item's fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has
chosen not to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value.

In
March 2008, the FASB issued Statement of Financial Accounting Standard No. 161,Disclosures about Derivative Instruments and Hedging Activities- an
amendment of FASB Statement No. 133(SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities
are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The
guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This
statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Adoption of this statement is not expected to impact the Company.

In
April 2008, the FASB issued Staff Position No. FAS 142-3,Determination of the Useful Life of Intangible Assets(FSP
142-3) which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under
SFAS 142,Goodwill and Other Intangible Assets. The intent of FSP 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141 (revised 2007), Business Combinations,and other US
generally accepted accounting principles.. In addition, there are additional disclosure requirements for recognized
intangible assets that enable users of the consolidated financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity's intent
and/or the ability to renew or extend the arrangement. FSP 142-3 shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Early adoption is prohibited. Adoption of this FSP is not expected to have a material impact on the Company.

In
December 2008, The FASB issued Staff Position No. 132 (R),Employer's Disclosures about Postretirement Benefit Plan Assets(FSP
FAS 132(R)-1), which amends SFAS 132R, Employers'

46

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Nature of Business and Significant Accounting Policies (Continued)

Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other
postretirement plan FSP FAS 132(R)-1 shall be effective for fiscal years ending after December 15, 2009, however, earlier application of these provisions is permitted. The
Company is assessing the impact that adoption of this FSP may have.

Note 2. Marketable Securities

Marketable securities consist of investments in securities offered by French banks, primarily bond portfolios. At December 31, marketable securities consisted of the following (in
thousands):

2008

2007Cost

Gross
Unrealized
Gain

Fair Value

Cost

Gross
Unrealized
Gain

Fair ValueCurrent marketable securities

$
7,561

$


$
7,561

$
4,730

$


$
4,730Long-term marketable securities

$
696

$


$
696

$
736

$


$
736


Long-term
marketable securities include 500,000 euros ($696,000 at December 31, 2008 and $736,000 at December 31, 2007) which must be maintained as a
minimum balance as security for a loan obtained in June 2006. See Note 9.



The Company presents its marketable securities at their estimated fair value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has determined that all of its marketable securities fall into the
Level 1 category, which values assets at the quoted prices in active markets for identical assets. For the year ended December 31, 2008, the fair value recognized on our marketable
securities was $8.3 million, while at the year ended December 31, 2007, the fair value was $5.5 million. There were no assets or liabilities where Level 2 and 3 valuation
techniques were used.

Note 3. Allowance for Doubtful Accounts

A summary of provisions for estimated bad debts and the related write-offs related to the allowance for doubtful accounts are as follows (in thousands):

Years Ended
December 31,

Balance at
Beginning of
Year

Provisions

Write-offs, Net
of Recoveries

Exchange Rate
Effect

Balance at End
of Year2008

$
327

$
37

$
(10
)
$
(12
)
$
3422007

$
335

$
(34
)
$
5

$
21

$
327


As
of December 31, 2008, we had two customers that individually accounted for 14% and 10% of our accounts receivable balance. Subsequently, these customers made payments in the
normal course of business. As of December 31, 2007 we had one customer that accounted for 10% of our accounts receivable balance. Subsequently, this customer made payments within the normal
course of business.

47

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Inventories

Inventories consist of the following at December 31 (in thousands):

2008

2007Raw materials

$
6,550

$
6,550Work in progress


1,475


1,969Finished goods


1,869


1,574Inventories

$
9,894

$
10,093


Note 5. Other Current Assets

Other current assets consist of the following at December 31 (in thousands):

2008

2007Refundable value-added tax

$
336

$
349Tax related assets


237


588Deposits


157


406Other assets


60


116Total other current assets

$
790

$
1,459


Note 6. Property and Equipment

Property and equipment consists of the following at December 31 (in thousands):

2008

2007Land

$
1,795

$
1,818Buildings and improvements


8,567


8,670Furniture and equipment


17,633


19,290Vehicles


693


74628,688


30,524Less accumulated depreciation


(14,530
)

(14,928
)Property and equipment, net

$
14,158

$
15,596


Depreciation
expense for the years ended December 31, 2008 and 2007 was $2,307,000 and $2,272,000, respectively.

Note 7. Goodwill and Other Intangible Assets

Goodwill, which has an indefinite useful life, totaled $1,599,000 and $1,680,000 at December 31, 2008 and 2007, respectively. The amount of goodwill recorded on the books
of GPI SAS for 2008 and 2007, was $1,399,000 and $1,480,000, respectively, which includes the net effect of foreign currency exchange of $225,000 and $306,000, respectively.

48

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Goodwill and Other Intangible Assets (Continued)

Trademarks,
which also have an indefinite life, totaled $583,000 at December 31, 2008 and 2007. Other amortizing intangible assets consisted of the following at December 31
(in thousands):

December 31, 2008

December 31, 2007Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Estimated
Useful Life
(Years)Patents(1)

$
1,242

$
(1,041
)
$
201

$
1,242

$
(825
)
$
417


8 - 18Customer relationships


432


(432
)




432


(409
)

23


7Total other intangibles

$
1,674

$
(1,473
)
$
201

$
1,674

$
(1,234
)
$
440


---

Amortization
expense for the years ended December 31, 2008 and 2007 was $122,000 and $222,000, respectively. The following table provides estimated amortization expenses for the
years ending December 31:

Estimated Amortization Expense for the Years Ending December 31,(in thousands)2009

$
202010


202011


202012


192013


19Thereafter


103Total

$
201


Note 8. Accrued Liabilities

Accrued liabilities consist of the following at December 31 (in thousands):

2008

2007Accrued vacation, bonuses, and other employee costs

$
1,367

$
1,829Accrued salaries and wages


746


959Other accrued expenses


610


1,342Accrued sales taxes


156


205Accrued sales commissions


187


83Total accrued liabilities

$
3,066

$
4,418


49

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Long-Term Debt and Pledged Assets

Long-term debt consists of the following at December 31 (in thousands):

2008

2007Note payable due to a commercial bank through June 2011

$
1,089

$
1,584Note payable due to a commercial bank through March 2012


925


938Note payable due to a commercial bank through May 2011


182


268Note payable due to an unaffiliated party through February 2008





161Capital leases


70


11Total debt


2,266


2,962Less: current maturities


(523
)

(689
)Long-term portion debt

$
1,743

$
2,273


In
June 2006, GPI SAS entered into a 1.5 million euro (approximately $1.9 million in June 2006) loan agreement with a French bank. The loan has a
five-year term at a fixed rate of 3.4% per annum. The loan is repayable in fixed quarterly installments of 80,638 euros ($112,224 at December 31, 2008). The loan is secured
by GPI SAS' marketable securities at the bank in which GPI SAS must maintain a minimum balance of at least 500,000 euros (see Note 2). There are no prepayment penalties.

In
March 2002, GPI USA entered into a $995,000 loan transaction with a federal savings bank. The interest rate equals the greater of 8% per annum or 362.5 basis points over the
average of the London Interbank Offered Rates (LIBOR) for six-month dollar deposits in the London market based on quotations of major banks, but may not exceed 12% per annum. The interest
rate cannot increase or decrease by more than two percentage points per annum during any twelve-month period or one-half percentage point per annum during any three month period. The
interest rates as of December 31, 2008 and 2007 were 8.00% and 8.625% respectively. The Loan is payable in arrears in equal monthly installments of principal and interest (currently
approximately $7,300) (based upon a thirty year amortization schedule) beginning April 1, 2002 and continuing on the first day of each month through March 1, 2012, at which time the
entire remaining principal balance of approximately $875,000 will be due and payable. The Loan is secured by a Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing (Deed of Trust)
encumbering the Company's Las Vegas, Nevada headquarters. GPIC executed a Guaranty in favor of this federal savings bank by which GPIC guaranteed the obligations of GPI USA under
the Loan and Deed of Trust and the related loan documents executed in connection with the Loan. There is no prepayment penalty. The Deed of Trust restricts GPI USA from encumbering or
transferring (1) the Company's Las Vegas, Nevada headquarters; and (2) ownership interests in GPI USA. Further, the Deed of Trust also grants to this federal savings bank a
security interest in GPI USA's personal property, including, but not limited to, inventory, machinery, furniture, fixtures, licenses and income.

In
May 2004, GPI SAS entered into a 350,000 euro (approximately $423,000 in May 2004) loan transaction with a French bank. The loan has a fixed interest rate of 3.6% per
annum. Monthly principal and interest payments are 4,720 euros. The loan is secured by a mortgage on the building premises and is due May 2011.

In
February 2001, GPI SAS borrowed 2.6 million euros (approximately $2.4 million in February 2001) from an unaffiliated party. Interest accrued at the fixed rate of
5.1% per annum and principal

50

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Long-Term Debt and Pledged Assets (Continued)

and
interest payments were due in quarterly installments of 110,689 euros until February 2008, at which time the loan was paid off. The loan was guaranteed by our majority stockholder, Holding
Wilson, S.A.

Estimated
annual principal maturities of long-term debt and future minimum payments under capital lease obligations at December 31, 2008 are as follows (in thousands):

Fiscal Year

Capital
Leases

Long-term
Debt

Total2009

$
21

$
512

$
5332010


21


531


5522011


21


275


2962012


21


878


8992013


17





17Thereafter








0Total


101


2,196


2,297Less: amount representing interest


(31
)




(31
)Total of present value of minimum lease payments and long term debt


70


2,196


2,266Less: current maturities


(11
)

(512
)

(523
)Total long-term portion of obligations

$
59

$
1,684

$
1,743


Note 10. Commitments and Contingencies



The Company has various operating leases that are used in the normal course of business. Our operating leases consist of building and
storage rental expenses and equipment and vehicle rental expenses.

The
following schedule reflects our future minimum lease payments under operating leases including related party payments (see Note 17) as of December 31, 2008 (in
thousands):

Fiscal Year

Minimum
Lease
Payments2009

$
4752010


4012011


3702012


3712013


355Total

$
1,972


51

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)

The
following schedule reflects the rental expenses paid by type of operating lease for the years ended December 31 (in thousands):

Operating
Lease
Rental
Expenses2008

2007Building and storage rental

$
433

$
420Equipment and vehicle rental


63


164Total operating lease expenses

$
496

$
584




Liabilities for material claims against the Company are accrued when a loss is considered probable and can be reasonably estimated.
Legal costs associated with claims are expensed as incurred.

On
September 6, 2007, The Center for Environmental Health (CEH), a non-profit environmental advocacy group, filed its first amended complaint against Gaming Partners
International USA, Inc. (GPI USA) and card rooms (the Card Room Defendants) that purchased gaming chips manufactured by GPI USA. The complaint was filed in the Superior Court of
California, County of Alameda, under Case No. RG07336796. CEH had previously served GPI USA and the Card Room Defendants with a 60-day Notice of Violation (NOV), which is a
pre-condition to bringing a private action under the California Safe Drinking Water and Toxic Enforcement Act, also known as Proposition 65. Proposition 65 requires that persons in the
course of doing business in California provide a clear and reasonable warning before exposing anyone to chemicals known to the State of California to cause cancer and/or reproductive harm. The CEH
action alleged that Paulson® brand gaming chips manufactured by GPI USA and distributed in California contain lead, a Proposition 65 listed chemical, and that GPI USA and the
Card Room Defendants failed for a three-year period to provide the required warning in connection with the sale and use of the chips. CEH sought, and Proposition 65 authorizes, civil
penalties and injunctive relief as well as recovery of costs and legal fees. GPI USA received and accepted tenders of defense from twenty-one of the twenty-four Card
Room Defendants named in the action, all of whom purchased gaming chips from GPI USA without knowledge that the chips contained lead and may have been subject to Proposition 65 warning
requirements. On August 1, 2008, a consent judgment was entered and approved by the court by which GPI USA reached a $575,000 settlement with CEH on its own behalf as well as on behalf
of the owners of the twenty-one Card Room Defendants for whom GPI USA previously accepted tenders of defense. As of August 31, 2008, GPI USA had fully complied with
all requirements of the consent judgment.

On
June 27, 2007, a putative class action complaint alleging violations of federal securities laws based on alleged misstatements and omissions by the Company, entitled Robert J. Kaplan v. Gerard P. Charlier,
Paul S. Dennis, Eric P. Endy, Alain Thieffry, Elisabeth Carrette, Robert J. Kelly, Charles R.
Henry, Laura McAllister Cox and Gaming Partners International Corporationwas filed in the United States District Court for the District of Nevada, under Case
No. 2:07-cv-00849-LDG-GWF. Plaintiff Kaplan has been designated by the court as "Lead Plaintiff." On February 12, 2008, Plaintiff filed an
amended complaint, deleting several of the above named defendants, and adding three others. The action is now captionedRobert J. Kaplan v. Gerard P. Charlier,
Melody J. Sullivan a/k/a Melody Sullivan Yowell,

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)

David Grimes, Charles T. McCullough, Eric P. Endy, Elisabeth Carrette and Gaming Partners International Corporation.The Company has engaged counsel and
intends to vigorously defend against the claims presented. Defendants filed a Motion to Dismiss the Complaint on April 16, 2008. Defendants' Motion to Dismiss was thereafter granted and an
Order was entered dismissing the Amended Complaint without prejudice on November 18, 2008. Plaintiffs filed a Second Amended Complaint on January 9, 2009. Defendants Motion to Dismiss
the Second Amended Complaint was filed on February 27, 2009 and remains pending.

On
August 31, 2007, a shareholders derivative complaint alleging breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment,
entitledGlenn D. Hutton,derivatively on behalf of Nominal Defendant Gaming Partners International Corp., plaintiff, vs.
Gerard P. Charlier, Eric P. Endy, Alain Thieffry, Elisabeth Carrette, Robert J. Kelly, Charles R. Henry and David W. Grimes, defendants, and Gaming Partners
International Corp., Nominal Defendantwas filed in the United States District Court for the District of Nevada, under Case No.,
2:07-cv-01180-JCM-LRL. Defendants filed a motion to dismiss the complaint on June 30, 2008 claiming, among other things, that the complaint
should be dismissed for failure to make a demand on the directors. Defendants' motion was granted after a hearing conducted on October 16, 2008. The Judgment and the Court's Order Granting the
Motion to Dismiss the Complaint without prejudice was entered on October 29, 2008. By letter dated January 14, 2009, plaintiff's counsel made a formal demand that the members of the
Board of Directors of Gaming Partners International Corporation take action to remedy alleged breaches of fiduciary duties by certain current and former executive officers and directors of the
Company, specifically Gerard P. Charlier, Eric P. Endy, Alain Thieffry, Elisabeth Carrette, Robert J. Kelly, Charles R. Henry and David W. Grimes. The Board of
Directors of GPIC has appointed a Special Litigation Committee to
commence an investigation into the matters raised in the demand letter and will respond to counsel for plaintiff after it reviews the Committee's report.

On
January 22, 2009, a complaint was filed in a matter entitledSibel Products, Inc. vs. Gaming Partners International
Corporationin the Circuit Court of the Second Judicial District of Jefferson County, Illinois, Case No. 09-L-4. The complaint seeks a
preliminary injunction in connection with an exclusive purchase agreement, for particular raw materials used to manufacture finished goods, between plaintiff and Gaming Partners International
USA, Inc. The Company has engaged counsel and intends to vigorously defend against the claims presented. On January 30, 2009, the Company filed a notice of removal of the action to the
United States District Court for the Southern District of Illinois and Case Number 3:09-cv-87 was assigned. The Company has filed a motion to dismiss the complaint and
that motion remains pending.

The
French Tax Administration completed an audit of GPI SAS for tax years 2004, 2005, and 2006 and in March 2007 sent a notice seeking additional taxes of 551,000 euros
based on their findings. In July 2007, they revised their assessment to 531,000 euros. In June 2008, after a discussion of the merits of the assessment, the French Tax Administration agreed
with our position that no additional taxes were due and renounced its claim. Therefore, the Company reversed the accrual of $217,000 that had been made under Financial Accounting Standards Board
(FASB) Interpretation 48,Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48). The
impact of this reversal was a non-cash income tax benefit of $209,000, and a credit to Accumulated Other Comprehensive Income of $8,000.

53

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)

We
are engaged in disputes and claims in the normal course of business. We believe the ultimate outcome of these proceedings will not have a material adverse impact on the consolidated
financial position or results of operations.



On October 25, 2001, GPI SAS entered into an exclusive patent license agreement with Enpat, Inc. The subject
patents were subsequently sold by Enpat, Inc. to Shuffle Master Inc. in the fourth quarter of 2004. Thereafter, in the second quarter of 2005, Shuffle Master Inc. sold 50% of its
rights in the subject patents to International Game Technology and later the other 50% of its rights in the subject patents also to International Game Technology. The agreement grants GPI SAS
(and its affiliated GPIC companies) the exclusive rights to manufacture and distribute gaming chips
and readers in the United States under the patents for a gaming chip tracking system and method, which utilizes gaming chips with embedded electronic circuits scanned by antennas in gaming chip
placement areas (gaming tables and casino cage), or Radio Frequency Identification Devices (RFID) technology. The duration of the exclusive agreement is for the life of the patents, the last of which
expires in 2015. Minimum annual royalty payments of $125,000 are required to be made by GPIC over the remaining life of the exclusive patent license agreement.

On
November 3, 2005, GPI USA entered into an exclusive purchase agreement with a supplier for particular raw materials used to manufacture finished goods. The supplier
agreed to not compete in the sale of these finished goods in the United States during the five-year term of the agreement. GPI USA was required to purchase a minimum amount of raw
material totaling $569,000 in the first year and $711,000 per year for years two through five of the agreement. The prices negotiated under this agreement represent prevailing market prices at the
time of the agreement. On June 18, 2008, the agreement was amended to extend the term five years from August 1, 2008 and to expand the territory in which the supplier would not compete
to Europe, South America, and all of North America. Under the amended agreement, our commitment to purchase raw material increased to $923,000 in the first year of the amended agreement and $952,000
per year for years two through five of the amended agreement. On January 22, 2009, the supplier filed a complaint against the Company in Illinois seeking a preliminary injunction in connection
with the exclusive purchase agreement alleging a right to pre-payment. The Company's motion to dismiss the supplier's complaint remains pending in the United States District Court for the
Southern District of Illinois. Please refer to "Legal Proceedings" above for further information.

On
February 18, 2009, we issued a notice of termination of the exclusive purchase agreement to the supplier based upon its default in delivering the raw materials pursuant to the
agreement, including material already paid for. We are now acquiring the raw materials directly from the manufacturer, who no longer has any exclusive supply agreements with our former supplier.



In September 2008, GPI SAS secured a 1,000,000 euro line of credit for short term needs that expired in February 2009. As
of December 31, 2008, this line of credit was fully available.

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)



The Company has employment agreements with key employees which include severance commitments in the event the Company terminates the
employee without cause. Total commitments under the agreements aggregate to approximately $1.2 million as of December 31, 2008.

Note 11. Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of the following as of December 31 (in thousands):

2008

2007Foreign currency translation

$
2,541

$
3,620Unrecognized pension transition asset, net of tax


45


57$
2,586

$
3,677


Note 12. Geographic and Product Line Information

SFAS 131,Disclosures about Segments of an Enterprise and Related Information, requires public business enterprises to report
selected reporting information about operating segments in interim and annual financial statements. We manufacture and sell casino table game equipment and have determined that we operate in one
operating segmentcasino game equipment products. Although the Company derives its revenues from a number of different product lines, the Company does not allocate resources based on the
operating results from the individual product lines nor does it manage each individual product line as a separate business unit.

The
following table present certain data by geographic area as of and for the years ended December 31 (in thousands):

2008

2007RevenuesUnited States

$
36,710


60.6
%
$
31,576


53.7
%Europe (includes Russia)


5,704


9.4
%

5,565


9.5
%Asia(1)


13,549


22.4
%

18,712


31.8
%Other(2)


4,583


7.6
%

2,968


5.0
%Total

$
60,546


100.0
%
$
58,821


100.0
%






55

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Geographic and Product Line Information (Continued)



The
following table represents our net sales by product line for the years ended December 31, (in thousands):

2008

2007Casino chips:American-style casino chips

$
30,182


49.9
%
$
30,853


52.5
%European-style casino chips


8,245


13.6
%

7,049


12.0
%Total casino chips


38,427


63.5
%

37,902


64.5
%Table layouts


5,154


8.5
%

5,016


8.5
%Playing cards


4,149


6.9
%

3,880


6.6
%Gaming furniture


3,580


5.9
%

3,293


5.6
%Dice


1,901


3.1
%

2,074


3.5
%Table accessories and other products


5,226


8.6
%

4,523


7.7
%Shipping


2,109


3.5
%

2,133


3.6
%Total

$
60,546


100.0
%
$
58,821


100.0
%


Sales
generated by GPI USA primarily are to casinos in the United States. Sales generated by GPI SAS are primarily casino chips sold to casinos in Asia and Europe. One
customer comprised 5% and 9% of sales for 2008 and 2007, respectively, while another customer comprised 6% and less than 1% of sales for 2008 and 2007, respectively.

The
following table represents our property and equipment by geographic area as of December 31 (in thousands):

2008

2007Property and equipment, net:United States(1)

$
3,857

$
6,047France


6,971


8,201Mexico(1)


3,330


1,348Total

$
14,158

$
15,596






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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Geographic and Product Line Information (Continued)

The following table represents goodwill and intangibles by geographic area as of December 31 (in thousands):

2008

2007Goodwill and intangibles, net:United States(1)

$
983

$
1,223France


1,399


1,480Total

$
2,382

$
2,703






Note 13. Pension Plans

GPI SAS sponsors a noncontributing, defined benefit plan for both its salaried and hourly-rated employees who meet certain age and service requirements. The plan calls for a lump sum
benefit to be paid to eligible employees at retirement based on years of participation and compensation rates in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Pension Plans (Continued)

last
years prior to retirement. The following amounts relate to GPI SAS' defined benefit pension plan as of December 31 (in thousands):

2008

2007Change in benefit obligation:Benefit obligation at beginning of year

$
367

$
322Service cost


34


34Interest cost


19


16Actuarial (loss)


(37
)

(43
)Benefits paid


(9
)

Effect of foreign exchange rate changes


(21
)

38Benefit obligation at end of year


353


367Change in plan assets:Fair value of plan assets at beginning of year


545


477Actual (loss) return on plan assets


(60
)

11Benefits paid


(9
)

Effect of foreign exchange rate changes


(26
)

57Fair value of plan assets at end of year(1)


450


545Funded status and prepaid benefit cost

$
97

$
178






2008

2007Weighted-average assumptions:Discount rate


5.10
%

4.80
%Rate of compensation increase


2.50
%

2.00
%


The
accumulated benefit obligation at December 31, 2008 was $236,000.

In
accordance with SFAS 158, the unrealized transition asset at the beginning of 2006 was recorded into other comprehensive income. It continues to be amortized over a
15-year period that started in April 1998. In 2008 and 2007, we did not make any contribution to the pension plan, and we do not expect to make contributions to the pension plan in 2009.
In 2008 and 2007, the prepaid benefit costs of $97,000 and $178,000, respectively, were recognized in the consolidated balance sheets as deposits in other assets.

58

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Pension Plans (Continued)

Net
pension (benefit) expense for the years ended December 31 consisted of the following (in thousands):

2008

2007Service cost-benefits earned during the period

$
34

$
34Interest expense on benefit obligation


19


16Actual loss (return) on plan assets


60


(11
)Actuarial (gain)


(37
)

(43
)Amortization of unrecognized transition asset


(20
)

(18
)Total

$
56

$
(22
)


Projected
benefit payments from the plan as of December 31, 2008 are estimated to be $49,000 in 2009, $0 for 2010 through 2014, and an aggregate of $41,000 for 2015 through 2018.

We
maintain a 401(k) plan for employees in the United States who work over one year and are 21 years of age or older. Contributions to the plan are based on the amounts
contributed by the eligible employees. Eligible employees can elect to contribute up to the lesser of the IRS limit or fifteen percent of their earnings into the plan. We contribute $0.50 for each
$1.00 contributed by a participant in the plan up to four percent of the participant's wages. The 401(k) employer contributions in the United States made during the years ended December 31,
2008, and 2007 under the combined plan were $60,000 and $54,000, respectively.

Note 14. Stock Option Programs and Share-based Compensation Expense



We have two stock option programs: the 1994 Long-Term Incentive Plan (Incentive Plan) and the 1994 Directors' Stock Option
Plan, as amended (Directors' Plan).

The
Incentive Plan provides for the grant of stock options to executive officers, key employees, outside consultants and employee-directors. The Incentive Plan expired on
January 30, 2004, except as to the stock options outstanding on that date. All of the outstanding stock options under the Incentive Plan have vested. The options granted under the Incentive
Plan expire upon the earlier of ten years after the date of the grant or five years after vesting, subject to earlier termination for death, retirement, or termination of employment and association.

The
Directors' Plan provides that each non-employee director, upon joining the Board of Directors, will receive an option to purchase 6,000 shares of common stock. The
initial option grant vests over a three-year period, with one-third of the option grant vesting at the end of each year. At the beginning of the fourth year of service on the
Board of Directors, and each year thereafter, each non-employee director receives an annual grant to purchase 2,000 shares of common stock. In addition, each year each
non-employee director receives options to purchase 1,500 shares of common stock for serving on certain committees of the Board of Directors. Options granted after the initial option grant
vest immediately and are exercisable after six months.

In
2008, the Board of Directors amended and the stockholders subsequently approved an amendment to the Directors' Plan to: (i) increase the total number of shares of common stock
for which options may be granted to 450,000, an increase of 100,000 shares; (ii) include authorization by

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14. Stock Option Programs and Share-based Compensation Expense (Continued)

the
Board of Directors to grant discretionary stock options covering up to 100,000 of the total 450,000 shares to non-employee directors. Discretionary stock options vest immediately and
are exercisable after six months. In connection with the amendment to the Directors' Plan, the Company filed a registration statement on Form S-8 on July 8, 2008, to register
the underlying shares.

In
the second quarter of 2008, a total of 40,000 discretionary stock options were granted to three directors for board services performed in excess of their normal board
responsibilities. The resulting share-based compensation expense was $154,000. All other 2008 grants have been non-discretionary. Also in the second quarter of 2008, 10,000 vested options
expired and we reversed $23,000 from the deferred tax asset.

The
following is a summary of stock option activity for the years ended December 31, 2008 and 2007:

Shares

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value
(in thousands)Outstanding at December 31, 2006


347,500

$
5.02Granted


17,500


13.62Cancelled


Exercised


12,500


7.77Outstanding at December 31, 2007


352,500


5.35Granted


56,500


6.50Cancelled


Expired


10,000


18.46Exercised


Outstanding at December 31, 2008


399,000

$
5.18


4.5 yrs

$
559Exercisable at December 31, 2008


382,500

$
4.95


4.3 yrs

$
553


For
the year ended December 31, 2008, there were no options exercised and for the year ended December 31, 2007, the total intrinsic value of options exercised was $157,000.



We estimate the fair value of each stock option award on the grant date using the Black-Scholes valuation model. Expected volatility
and dividends are based on historical factors related to our common stock. The expected term considers the contractual term of the options as well as the historical exercise and termination behavior.
Risk free rate is based on United States Treasury rates appropriate for the expected term.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14. Stock Option Programs and Share-based Compensation Expense (Continued)

The
following table summarizes the assumptions used, and related information, for option activity for the periods indicated.

2008

2007Option valuation assumptions:Dividend yield


None


NoneExpected volatility


61.6
%

71.8
%Risk free interest rate


2.92
%

4.63
%Expected term of options


5.6 yrs


5.6 yrsWeighted-average fair value of options granted during the period

$
3.71

$
8.99Exercises under all share-based payment arrangements:Cash received

$


$
97,000Tax benefit realized from option exercises

$


$
20,000


The
following table summarizes our reported share-based compensation expense included in our consolidated statements of income as of December 31 (in thousands):

2008

2007General & administrative-share-based compensation

$
290

$
220Tax benefit


(104
)

(79
)Total share-based compensation, net of tax benefit

$
186

$
141


As
of December 31, 2008, there was a total of $49,000 of unrecognized compensation expense related to stock options, which cost is expected to be recognized as follows (in
thousands):

Fiscal Year

Amount2009

$
382010


11Total

$
49


61

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15. Income Tax Matters

The following table provides an analysis of the Company's provision for income taxes for the years ended December 31 (in thousands):

2008

2007Current:U.S. Federal

$
966

$
21U.S. State


22


7France


143


779Total Current


1,131


807Deferred:U.S. Federal


18


(545
)U.S. State


13


(7
)France


177


562Total Deferred


208


10Provision for income taxes

$
1,339

$
817


Pre-tax
income (loss) consisted of the following (in thousands):

2008

2007United States

$
3,608

$
(2,051
)France


2,218


3,108Pre-tax income

$
5,826

$
1,057


A
reconciliation of our income tax expense as compared to the tax expense calculated by applying the statutory federal tax rate to the income before income taxes for the years ended
December 31 is as follows:

2008

2007Computed expected income tax expense


34.0
%

34.0
%Adjustments:Foreign dividends and IRC Sec 78 and 956 inclusions net of foreign tax credits


0.0
%

(10.5
)%Non-deductible expenses


(0.6
)%

9.9
%State taxes


0.8
%

(0.8
)%Change in valuation allowance


(3.2
)%

74.0
%French gain (loss) on U.S. note receivable


0.0
%

1.3
%French Research Credit


(3.9
)%

0.0
%FIN 48 Reserve


(3.6
)%

0.0
%True-ups


(0.8
)%

(22.6
)%Other, net


0.3
%

(8.0
)%Income tax expense


23.0
%

77.3
%


62

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15. Income Tax Matters (Continued)

In
2005, 2006, and 2007, GPI USA received non-cash dividends from GPI SAS. The taxable income resulting from these dividends resulted in full utilization of
prior accumulated losses in the United States during 2006. If necessary, management has the ability to distribute additional future dividends from GPI SAS, as GPI SAS continues to be
profitable. Accordingly, we have not provided a valuation allowance on the deferred tax assets, exclusive of foreign tax credits which expire in 2015, 2016, and 2017 if not utilized. The Company has
established a valuation allowance related to these foreign tax credits due to the uncertainty of future foreign source income.

For
state income tax purposes, the Company has approximately $1,123,000 in net operating loss carry forwards. These net operating loss carry forwards expire in 2011 through 2027. The
determination of the state net operating loss carry forwards is dependent upon the federal net operating loss, apportionment percentages and other respective state laws, which can change year to year
and impact the amount of the state net operating loss carry forwards. Utilization of such federal and state net operating losses is subject to certain limitations under federal and state income tax
laws. The Company continues to record a full valuation allowance on state deferred assets due to the uncertainty of future state taxable income.

The
primary components of the net deferred income tax assets at December 31 are as follows (in thousands):

2008

2007Deferred tax assets:Operating loss carry forwards

$
71

$
147Bad debt reserves and inventory


608


668French deferred assets


40


49Stock compensation


525


450Fixed assets


384


337Intangibles


855


857Tax credits


4,255


4,478Other


81


197Total gross deferred tax assets


6,819


7,183Less: valuation allowance


(4,462
)

(4,776
)Total net deferred tax assets


2,357


2,407Deferred tax liabilities:French deferred liabilities


585


455Total deferred tax liabilities


585


455Deferred tax assets, net

$
1,772

$
1,952


In
2006, we provided deferred taxes on the excess book basis in the shares of GPI SAS, as the Company intended to receive non-cash dividends from our French subsidiary
in 2007. As of December 31, 2007, all anticipated non-cash dividends have been distributed. The Company has no further plans on repatriating earnings from GPI SAS and,
accordingly, will not provide deferred taxes for any excess book basis in GPI SAS. These earnings are considered permanently reinvested, as it is

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15. Income Tax Matters (Continued)

management's
intention to reinvest foreign profits to finance foreign operations. Nonetheless, the Company's tax basis exceeded its book basis in GPI SAS as of December 31, 2008.



On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,Accounting
for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109(FIN 48). FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. Under the requirements of FIN 48, the Company must review all of its tax positions and make a determination as to whether
its position is more likely than not to be sustained upon examination by regulatory authorities. If a tax position meets the more likely than not standard, then the related tax benefit is measured
based on the cumulative probability analysis of the amount that is more likely than not to be realized upon ultimate settlement or disposition of the underlying issue. Below are the issues for 2007
and 2008.

On
January 1, 2007, as a result of the adoption of FIN 48, $105,000 was recorded as a decrease to retained earnings and an increase to income taxes payable. The Company
also reclassified $50,000 within deferred income tax asset (long-term) and $81,000 within income tax payable. At the adoption date of January 1, 2007, we had $219,000 of
unrecognized tax benefits, of which $169,000 would affect our effective tax rate if recognized. Of the total unrecognized tax benefit, $50,000 would not affect our effective tax rate due to the
existence of the valuation allowance.

The
Company files income tax returns in the U.S. federal jurisdiction, with the French Tax Administration and various states. The Company's major tax jurisdictions are the U.S. federal
and French income tax returns. GPIC and GPI USA were audited by the United States Internal Revenue Service (IRS) for the tax year 2004. The audit was completed in July 2007 and included
the adjustment covered by the FIN 48 entry that was made in the first quarter of 2007. No additional tax was due. The tax years 2004 through 2006 remain open to examination under the statute of
limitations by the major taxing jurisdictions to which we are subject. However, U.S. federal tax positions for the 2004 tax year are effectively settled with the completion of the IRS examination.

The
French Tax Administration completed their audit of GPI SAS for tax years 2004, 2005 and 2006. On March 29, 2007, we received a notice seeking additional taxes of
551,000 euros based on their findings. In July 2007, we were notified they had revised their assessment to 531,000 euros ($782,000 at December 31, 2007). In June 2008, after a
discussion of the merits of the assessment, the French Tax Administration agreed with our position that no additional taxes were due and renounced its claim. Therefore, the Company reversed the
accrual of $217,000 that had been made under FIN 48. The impact of this reversal was a non-cash income tax benefit of $209,000.

After
the change described above regarding the resolution of the French Tax Administration audit, there are no unrecognized tax benefits as of December 31, 2008.

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Table of Contents

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15. Income Tax Matters (Continued)

A
reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2008

$
209Reductions due to settlements with taxing authorities


(209
)Foreign currency translation


Balance at December 31, 2008

$



The
Company recognizes interest and penalties related to unrecognized tax positions in the provision for income taxes on the statement of operations. The Company does not anticipate that
the total amount of its unrecognized tax benefits will significantly change during the next twelve months.

Note 16. Earnings per Share (EPS)

In accordance with SFAS 128,Earnings per Share, basic EPS is calculated by dividing net income by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the effect of potential common stock, which consists primarily of assumed stock option exercises. Potentially dilutive securities are not
taken into account when their effect would be antidilutive. The weighted-average number of common shares outstanding used in the computation of basic and diluted earnings per share as of
December 31 is as follows (in thousands):

2008

2007Weighted average number of common shares outstandingBasic


8,103


8,101Potential dilution from equity grants


81


141Weighted average number of common shares outstandingDiluted


8,184


8,242


We
have certain outstanding stock options to purchase common stock, which have an exercise price greater than the average market price. These antidilutive options have been excluded from
the computation of diluted net income per share for the respective fiscal years. Outstanding antidilutive options for the years ended December 31, 2008 and 2007 amounted to 81,000 and 42,000.

Note 17. Related Party Transactions

We lease two manufacturing facilities totaling approximately 80,000 square feet located in San Luis Rio Colorado, Mexico from an entity controlled by the family of the General Manager
of GPI Mexicana. The lease runs through December 2013 at the monthly rent amount of approximately $0.35 per square foot or $28,000. The 80,000 square feet represents a 14,000 square foot
increase effective April 1, 2008, to accommodate the relocation of our Las Vegas-based chip manufacturing operations to Mexico.

The
charter of the Audit Committee of the Board of Directors requires the Audit Committee to review and approve related party transactions involving our directors and executive officers.
However, the General Manager of GPI Mexicana is neither a director nor an executive officer.

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Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.    Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that all information
required to be disclosed in reports under the Securities Exchange Act of 1934, as amended, (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC's
rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

The
Company's management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of December 31, 2008. Based upon this evaluation, the Company's Chief Executive Officer and
the Chief Financial Officer have concluded that, as of December 31, 2008, the end of the period covered by this annual Form 10-K, the Company's disclosure controls and
procedures are effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting:

Management has determined that there was no change in our internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2008 that materially affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.

Management's Annual Report on Internal Control over Financial Reporting:

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rules 13a-15(f) and 15d-15(f) of the Securities Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal
control over financial reporting includes those policies and procedures that:



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Table of Contents

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

The
Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008 as set forth by the Committee of Sponsoring
Organizations of the Treadway Commission inInternal Control-Integrated Framework. Based on this assessment, management concluded that, as of
December 31, 2008, the Company's internal control over financial reporting is effective based on this framework. Management reviewed this assessment with the Audit Committee of our Board of
Directors.

The
annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Item 9B.    Other Information.

None.

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

The sections labeled "Nominees for Election of Directors," "Board of Directors and Committees of the Board," "Compliance with
Section 16(a) of the Securities and Exchange Act of 1934" and "Executive Officers" of our definitive Proxy Statement to be filed within 120 days after our fiscal year end of
December 31, 2008, are incorporated herein by reference.

Item 11.    Executive Compensation.

The section labeled "Executive Compensation" of our definitive Proxy Statement to be filed within 120 days after our fiscal year
end of December 31, 2008, is incorporated herein by reference.

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Table of Contents

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2008 about our equity compensation plans under which our
equity securities are authorized for issuance.

Plan Category

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)

Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)

Numbers of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)Equity compensation plans approved by security holders


399,000
(1)
$
5.18


258,000
(2)Equity compensation plans not approved by security holders


None
(3)

None


NoneTotal


399,000

$
5.18


258,000


---

See
Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 14 for additional
information about our equity-based compensation plans.

The
sub-section labeled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of our definitive Proxy Statement to be filed within
120 days after our fiscal year end of December 31, 2008, is incorporated by reference.

Item 13.    Certain Relationships and Related Transactions and Director Independence.

The sub-section labeled "Certain Relationships and Related Transactions" of our definitive Proxy Statement to be filed
within 120 days after our fiscal year end of December 31, 2008, is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services.

The sub-section labeled "Principal Accountant Fees and Services" of our definitive Proxy Statement to be filed within
120 days after our fiscal year end of December 31, 2008, is incorporated herein by reference.

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Table of Contents

PART IV

Item 15.    Exhibits, Financial Statement Schedules.



Consolidated Balance Sheets at December 31, 2008 and 2007.Consolidated Statements of Income for the Years Ended December 31, 2008 and 2007.Consolidated Statements of Stockholders' Equity and Other Comprehensive Income for the Years Ended December 31, 2008 and
2007.Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007.Notes to Consolidated Financial Statements




2.01

Agreement and Plan of Exchange and Stock Purchase by and between Paul-Son Gaming Corporation and Etablissements Bourgogne et Grasset S.A., as amended by the First Amendment thereto, incorporated herein by reference
to: Annex A to the Company's definitive proxy statement dated August 9, 2002, filed with the SEC on August 9, 2002 (the "Proxy Statement").3.01

Certificate of Amendment and Restatement of Articles of Incorporation of Paul-Son Gaming Corporation, incorporated herein by reference to Annex B to the Proxy Statement.3.02

Certificate of Amendment to Articles of Incorporation of Gaming Partners International Corporation filed on June 25, 2004 incorporated by reference to Exhibit 3.02 to the Annual Report on Form 10-K for
the year ended December 31, 2006.3.03

Amended and Restated Bylaws of the Company, as adopted by the Board of Directors of the Company on December 27, 2007 and incorporated by reference to Exhibit 3.01 to our current report on Form 8-K dated
December 28, 2007.4.01

Specimen Common Stock Certificate for the Common Stock of Gaming Partners International Corporation incorporated by reference to Exhibit 4.01 to the Annual Report on Form 10-K for the year ended
December 31, 2006.10.01

Paul-Son Gaming Corporation 1994 Directors' Stock Option Plan (as amended May 9, 2008), incorporated herein by reference to: Annex A of our definitive proxy statement dated April 9, 2008 filed with the
SEC on April 9, 2008.*10.02

Paul-Son Gaming Corporation 1994 Long-Term Incentive Plan (as amended July 29, 1996) incorporated herein by reference from our Registration Statement on Form S-8 dated April 28, 1997,
Exhibit 10.01.*


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Table of Contents

10.03

Promissory Note secured by Deed of Trust dated February 22, 2002, in favor of Jackson Federal Bank; Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing dated February 22, 2002; Repayment
Guaranty dated February 22, 2002; Subordination and Attornment Agreement dated February 22, 2002; and Assignment of Leases and Rents dated February 22, 2002, incorporated by reference from our Form 8-K dated March 5, 2002,
Item 7, Exhibit 10.01.10.04

Loan Agreement executed January 9, 2004, between Bourgogne et Grasset, as borrower, and BNP Paribas, S.A., as lender, incorporated by reference to Exhibit 10.09 to our Annual Report on Form 10-K
for the year ended December 31, 2004.10.05

Loan Agreement dated June 29, 2006 between Lyonnaise de Banque and Gaming Partners International SAS (English translation of French-language document) incorporated by reference to Exhibit 10 to our Quarterly
Report on Form 10-Q for the period ended June 30, 2006.10.06

Offer letter effective December 7, 2006, relating to David W. Grimes, incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K dated December 7, 2006.*10.07

Employment Agreement dated September 12, 2007 between Gerard P. Charlier and the Company, incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007.*10.08

Employment Agreement dated October 28, 2008 between Gregory Gronau and the Company, incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K dated October 28, 2008.*10.09

Lease Agreement dated December 16, 2008, between Copropledad Arte Y Diseno, as lessor, and GPI Mexicana, S.A. de C.V., as lessee.21.01

List of subsidiaries, incorporated by reference to Exhibit 21.01 to our Annual Report on Form 10-K for the year ended December 31, 2005.23.01

Consent of Moss Adams LLP.31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) and Rule 15d-14 (a) of the Securities Exchange Act, as amended.32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1

Press release dated March 30, 2009 reporting financial results for the three months and year ended December 31, 2008.


---

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.

|                     |  |                                           |  |                                                                                
|-------------------- |  | ----------------------------------------- |  | -------------------------------------------------------------------------------
|                     |  | GAMING PARTNERS INTERNATIONAL CORPORATION
|Date: March 30, 2009 |  | By:                                       |  | /s/ GERARD P. CHARLIER Gerard P. Charlier President and Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                     |  |     |  |                                                                                                                        
|-------------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------
|                     |  |     |  |                                                                                                                        
|Date: March 30, 2009 |  | By: |  | /s/ GERARD P. CHARLIER Gerard P. Charlier Director, President and Chief Executive Officer
(Principal Executive Officer)
|Date: March 30, 2009 |  | By: |  | /s/ DAVID W. GRIMES David W. Grimes Chief Financial Officer
(Principal Financial and Accounting Officer)               
|Date: March 30, 2009 |  | By: |  | /s/ ERIC P. ENDY Eric P. Endy Director                                                                                 
|Date: March 30, 2009 |  | By: |  | /s/ MARTIN A. BERKOWITZ Martin A. Berkowitz Director                                                                   
|Date: March 30, 2009 |  | By: |  | /s/ ALAIN THIEFFRY Alain Thieffry Director                                                                             
|Date: March 30, 2009 |  | By: |  | /s/ CHARLES R. HENRY Charles R. Henry Director                                                                         
|Date: March 30, 2009 |  | By: |  | /s/ ROBERT J. KELLY Robert J. Kelly Director                                                                           
|Date: March 30, 2009 |  | By: |  | /s/ ELIZABETH CARRETTE Elizabeth Carrette Director                                                                     

71

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