UNITED STATES
SECURITIES 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 1934    
|For the fiscal year ended December 31, 2007                                       
|o                                                                                  | 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. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one):

|Large accelerated filer o |  | Accelerated filer 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, 2007, based on the
closing price as reported on the NASDAQ National Market of $13.92 per share:$45,287,565.

The
number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 2008 was 8,103,401 shares of Common Stock.

Documents Incorporated by Reference:

None



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TABLE OF CONTENTS

|PART I   |  | 2                                                                                                           
|-------- |  | ------------------------------------------------------------------------------------------------------------
|Item 1.  |  | Business                                                                                                    
|Item 1A. |  | Risk Factors                                                                                                
|Item 1B. |  | Unresolved Staff Comments                                                                                   
|Item 2.  |  | Properties                                                                                                  
|Item 3.  |  | Legal Proceedings                                                                                           
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         
|PART II  |  | 19                                                                                                          
|Item 5.  |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|Item 6.  |  | Selected Financial Data                                                                                     
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                       
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                 
|         |  | Report Of Independent Registered Public Accounting Firm                                                     
|         |  | Consolidated Balance Sheets                                                                                 
|         |  | Consolidated Statements Of Income                                                                           
|         |  | Consolidated Statements Of Stockholders' Equity And Other Comprehensive Income                              
|         |  | Consolidated Statements Of Cash Flows                                                                       
|         |  | Notes To Consolidated Financial Statements                                                                  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|Item 9A. |  | Controls and Procedures                                                                                     
|Item 9B. |  | Other Information                                                                                           
|PART III |  | 66                                                                                                          
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                      
|Item 11. |  | Executive Compensation                                                                                      
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              
|Item 13. |  | Certain Relationships and Related Transactions and Director Independence                                    
|Item 14. |  | Principal Accountant Fees and Services                                                                      
|PART IV  |  | 67                                                                                                          
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                     

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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), 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, existing casinos needing new products, 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 14.)

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, or "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 $0.75 and $2.50 per chip in the United
States. A typical Paulson® brand chip with a microchip will sell for approximately $2.00 or $2.50 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 2007, 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. Jetons,
plaques and all casino chips can also be manufactured with an embedded RFID microchip. Gaming chips accounted for approximately 62% of total sales in 2007.

European-style Jetons and Plaques

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 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 plastic 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

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using
all three of these methods. GPI USA manufactures its American-style casino chips under the Paulson® and Bud Jones® brand names, at our facilities in San Luis Rio
Colorado, Mexico and in Las Vegas, Nevada. GPI SAS also 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 or currency. 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 (radio frequency identification device), 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.



Some 10 years ago GPIC and Mikohn Gaming Corporation, now Progressive Gaming International Corporation (PGIC), started working together and selected
Philips 125 KHz or low frequency RFID technology as it was particularly well adapted to the gaming chip security and chip tracking applications. PGIC developed players tracking applications with this
technology. GPIC acquired the rights to the reader technology from Philips in 2001 and very significantly developed the reading capabilities of this reader. Ten years ago GPIC readers
could read only stacks of 10 chips, now several
hundred chips in stacks of 20 can be read in a matter of a few seconds and new improvements keep coming. The 125 KHz Philips RFID microchip used by GPIC is now in its third generation.

Over
the years RFID chips' capabilities went up and costs came down. The first gaming chips with RFID technology that GPIC sold in 1996, were priced above $6.00, more than $4.50
above the regular price of standard gaming chips. Today GPIC charges substantially less for an embedded 125 KHz RFID microchip transponder in a Paulson® gaming chip, programming and
royalty included. In parallel, the prices of the readers went down while their capabilities increased.

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 and an exclusive license on two patents, which expire in 2015, owned
by IGT to make and sell in the United States RFID chips and readers for chip tracking. Our patents and exclusive license apply to all RFID frequencies.

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In
2003, PGIC started developing new player systems and other readers based on the higher frequency 13.56 MHz RFID microchips and readers developed by an Australian company called
Magellan Technology Pty. Ltd (Magellan). PGIC has an exclusive agreement with Magellan for all gaming applications of these 13.56 MHz RFID microchips and readers. As casinos have expressed an
interest in PGIC's project, we developed efficient ways to embed this 13.56 MHz RFID tag in all of our well known and widely accepted B&G, Bud Jones®, and Paulson® gaming chips
including B&G jetons and plaques. In January 2006, PGIC and GPIC signed an agreement by which we have the right to buy the 13.56 MHz RFID tags to make casino chips, exclusive for the United
States market and non-exclusive for the rest of the world. Casinos now have the choice between the two RFID technologies: 125 KHz from Phillips and 13.56 MHz from Magellan. Other RFID
technologies are being researched.

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.



We manufacture our dice at our GPI Mexicana facilities, from 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 2007, we produced approximately 678,000 pairs of dice.



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 Paulson® felt and
synthetic layouts made of Paul-Son FX® material for which GPI USA holds an exclusivity of supply in the United States, as well as full graphic layouts. We have a
creative art department that can design any specific layout 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 have an exclusive contract from the supplier for top quality synthetic fabric used to make layouts by various printing technologies.

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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 $300 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 also produce in Las Vegas and sell specialized layouts from an outside vendor. Our layout production capacity is
approximately 20,000 felt layouts and approximately 34,000 synthetic layouts per year. In fiscal 2007, we produced approximately 32,000 layouts, of which approximately 9,000 were felt and 23,000 were
synthetic. We believe the capacity of our layout production facilities in Mexico can be increased as needed.



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 $1.50 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. We purchased additional equipment in fiscal 2004 to increase our production capacity to satisfy the
marketplace. The appropriate marketing approach will permit management to offer better service to selected customers. In 2007, the Company produced approximately 4.7 million decks of playing
cards. Our capacity, assuming a double shift, is approximately 8.5 million decks per year.



GPI SAS manufactures American and French roulette wheels in Beaune, France and sells them primarily in Europe and in certain United States and Canadian-based
jurisdictions where GPI SAS is licensed as a manufacturer (such as Nevada, New Jersey, Louisiana, Iowa, Washington, and Mississippi). Production in France consists of designing and assembling
the different parts produced by very specialized sub-contractors.

On
November 18, 2004, the Nevada Gaming Commission granted GPI SAS and GPI USA approval, by way of transactional waivers, to manufacture and distribute roulette
wheels to Nevada casinos. Effective August 30, 2006, the transactional waivers were expanded to permit GPI USA to sell GPI SAS roulette wheels outside the State of Nevada.



We sell a variety of casino gaming furniture. Tables range in price between $2,000 and $3,500 for a blackjack table to $3,000 to $5,000 for a roulette table
(excluding the roulette wheel) and up to $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. Table game seating is produced by nonaffiliated manufacturers and distributed by us. In 2007, GPI Mexicana produced approximately 1,900 tables. Our current capacity is
up to 3,500 tables per year.

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In order to offer our customers a full product line, we sell a number of ancillary casino table game products, which we typically do not manufacture. We have
expanded our manufacturing of certain plastic products, including dealing shoes in our GPI Mexicana facility. 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. In 2007, GPI
Mexicana produced a large number of ancillary products that were sold in conjunction with our gaming furniture.

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 (ICE) show in London, United Kingdom 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 with embedded RFID technology in high and low frequency and corresponding chip readers for cages, vaults, doorways, and tables.

We
keep abreast of 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. By thereafter maintaining a frequent contact program, we seek to realize a steadily increasing base of recurring sales for our consumable products such as layouts, dice and cards,
while capturing incremental sales to new casinos.

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Materials, Supplies and Backlog

We maintain good relationships with our suppliers and have, where possible, diversified 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.

Our
backlog of orders amounted to approximately $7.1 million for GPI USA and $4.0 million for GPI SAS as of December 31, 2007. We believe that all of
our backlog will be filled in 2008. At December 31, 2006, our backlog was approximately $3.9 million for GPI USA and $1.6 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.

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.

Playing CardOur 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.

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 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, convenient locations, and product quality.

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Intellectual Property

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

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

Air Rail

GPIBG

GPI LogoBourgogne et Grasset

PaulsonBud Jones

SafeChip by Bourgogne et GrassetChipsoft

SmartChipGaming Partners International

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. The liability for environmental remediation or costs will be accrued by us when or 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) who 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 alleges 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 seeks, and Proposition
65 authorizes, civil penalties and injunctive relief as well as recovery of costs and legal fees. GPI USA has 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. Prior to September 2007, GPI USA had been in settlement discussions with CEH on its own behalf and on behalf of the Card Room

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Defendants
that received the CEH NOV. GPI USA and CEH had reached an agreement in principle as to the non-cash terms of a settlement including, the type of warnings to be posted and
a commitment to reformulate gaming chips. Subsequently, GPI has completed reformulating the chips and has eliminated the need to post warnings in connection with current chip sales. GPI
USA and CEH were unable to reach agreement on the cash element of the settlement. As a result, CEH filed this action which is now proceeding through initial written discovery while the parties
endeavor to conclude negotiations as to the amount of cash to be paid in settlement.

The
Company's Paulson brand gaming chips have contained lead since production began in 1968. During the past decade, the Company has reformulated the composition of materials to
significantly reduce the concentration of lead such that all currently produced Paulson chips contain only trace amounts of lead. On November 7, 2007 and November 28, 2007, a Phoenix
television station aired reports containing what we believe to be numerous misrepresentations and inaccuracies and alleging the potential for injurious exposure to the public from handling the Paulson
brand gaming chips. Various federal, state and local health and safety and gaming agencies were notified or otherwise learned of the televised report and its allegations. To date, GPI USA is
unaware of any governmental agency demand that GPI USA conduct specific testing or take other action or of any claims from its customers, their employees, or casino patrons alleging injury or
illness associated with use of the chips. Independent testing has demonstrated that the intended use of these gaming chips is unlikely to produce any significant health risk to dealers or players.

Employees

At December 31, 2007, we employed approximately 720 people. Approximately 429 of the employees were located at our Mexico facilities, 196 employees were
located in our Beaune, France facility with the remainder 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.

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 JurisdictionsArizona

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 PanamaLouisana

South Dakota

Puerto RicoMichigan

WashingtonMinnesota

West VirginiaMississippi

Wisconsin


11

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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, competitively, and 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 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

12

---



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 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.

13

---





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 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 14 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

14

---



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:





15

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16

---









17

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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 sales and corporate offices, including a centralized warehouse for certain of our finished goods inventory, several manufacturing departments, and a graphics art
department. In our Las Vegas headquarters, we also maintain a certain inventory of templates, graphic designs, logos, and tools and dies for casino customers' gaming equipment. Maintaining such an
inventory results in time and cost savings for product manufacturing and delivery to our customers. 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, all playing cards, dice, all plastic products, layouts and tables
at three facilities in San Luis Rio Colorado, Mexico. These facilities include a 34,000 square foot leased facility in which casino chips, dice and plastic products are manufactured, a 32,500 square
feet leased facility where layouts are produced, and an approximately 66,000 square foot facility used for producing playing cards and tables. We own the 66,000 square foot facility. The other
facilities are leased through April 2009 at the monthly rent amount of approximately $0.35 per square foot or $23,300. If we elect at our discretion, to use more or less square footage, our rent will
be increased or decreased accordingly on a pro rata basis (See Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial
Statements Note 13Related Party Transactions.)

Beaune, France.In 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 for 650,000 euros (approximately $828,000 as of July 2006) plus certain statutory costs.

Facility CapacityWith the current approximate 241,500 square feet of manufacturing and administrative facilities as of
December 31, 2007, 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, 2007.

18

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PART II

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

PERFORMANCE GRAPH

The following graph reflects the cumulative stockholder return (change in stock price plus reinvested dividends) of a $100 investment in our common stock for the
five-year period from December 31, 2002 through December 31, 2007, in comparison with the Standard & Poor's 500 Composite Stock Index and our
self-determined industry peer group index(1). The comparisons are not intended to forecast or be indicative of possible future performance of our common stock.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Gaming Partners International Corp, The S&P 500 Index
And A Peer Group

GRAPHIC

---



|                                   |  | Investment Value as of December 31,
|---------------------------------- |  | -----------------------------------
|
|Gaming Partners International Corp |  | 100.00                             
|S&P 500                            |  | 100.00                             
|Peer Group(1)                      |  | 100.00                             

---

19

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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, 2008, the closing price was $6.85 per share.

Fiscal Year 2007

Fiscal Year 2006High

Low

High

LowFirst Quarter

$
20.61

$
16.95

$
16.25

$
9.31Second Quarter


20.50


9.91


24.40


16.70Third Quarter


15.37


9.25


25.77


17.75Fourth Quarter


10.81


6.49


20.95


16.62


Holders

There were 88 holders of record of our common stock as of March 20, 2008.

Dividend Policy

On November 8, 2006, the Company's Board of Directors declared a non-recurring cash dividend of $0.125 per share paid on December 15,
2006 to stockholders of record at the close of business on November 27, 2006. The cash was paid from the Company's normal operations. This was the second time a cash dividend has been paid. The
other cash dividend was paid in December 2005.
The Board of Directors presently does not intend to declare or pay any dividends for the foreseeable future.

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 2007.

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, 2007 and 2006 have been derived from our audited consolidated financial statements included elsewhere herein. The selected

20

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consolidated
financial data for the years ended December 31, 2005, 2004 and 2003 have been derived from our audited consolidated financial statements not included herein.

|                                                     |         | Years Ended December 31, |       
|---------------------------------------------------- | ------- | ------------------------ | ------
|
|
|STATEMENT OF OPERATIONS DATA:                        |         |                          |       
|Revenues                                             |         | $                        | 58,821
|Cost of revenues(1)                                  |         |                          | 40,845
|                                                     |         |                          |       
|Gross Profit                                         |         |                          | 17,976
|Selling, general and administrative expenses(1)      |         |                          | 17,114
|                                                     |         |                          |       
|Operating income                                     |         |                          | 862   
|                                                     |         |                          |       
|Gain (loss) on foreign currency transactions         |         |                          | (323  
|Interest income                                      |         |                          | 334   
|Interest expense                                     |         |                          | (190  
|Other income, net                                    |         |                          | 374   
|                                                     |         |                          |       
|Total other income (expense)                         |         |                          | 195   
|                                                     |         |                          |       
|Income before income taxes                           |         |                          | 1,057 
|Income tax expense                                   |         |                          | 817   
|                                                     |         |                          |       
|Net income                                           |         | $                        | 240   
|                                                     |         |                          |       
|Earnings per share:                                  |         |                          |       
|                                                     | Basic   |                          | $     
|                                                     | Diluted |                          | $     
|Weighted-average shares of common stock outstanding: |         |                          |       
|                                                     | Basic   |                          |       
|                                                     | Diluted |                          |       
|Balance sheet data:                                  |         |                          |       
|Cash and cash equivalents                            |         | $                        | 4,627 
|Marketable securities                                |         |                          | 4,730 
|Working capital                                      |         |                          | 16,881
|Property and equipment, net                          |         |                          | 15,596
|Total assets                                         |         |                          | 49,309
|Current liabilities                                  |         |                          | 11,219
|Long-term debt, less current maturities              |         |                          | 2,273 
|Total stockholders' equity(2)                        |         |                          | 35,153

---

21

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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.

GPIC
had a difficult year in 2007. Sales were down 21% from the record year we had in 2006. This drop in sales was severely acute in the first quarter and resulted in a
$1.5 million loss for the quarter. Small progress was made in the second and third quarters toward profitability, but it was not until the fourth quarter that we were able to get just above
breakeven. The key factor for the good fourth quarter was strong sales. Sales in the fourth quarter of 2007 were double that of the first quarter. This wide disparity clearly indicates the inherent
volatility of our revenues. Casino chips are our primary product line and represent over 60% of sales. Casino chips are a non-consumable product and sales are driven by factors such as the opening of
new casinos, the expansion of existing casinos, and the replacement of chips. We have a very large market share in casino chips, but have little influence on the factors that drive sales, therefore we
expect to see volatility in revenues and profits continue in the future.

Sales
in 2005 and 2006 were boosted as a result of new mega-casino openings in Macau and our ability to achieve an approximately 90% market share of the casino chip, plaque, and jeton
sales. In 2007, our sales were lower, but our market share in Macau remained stable with large orders for Crown, Venetian Macau and MGM Grand Macau. Additional new casinos and casino expansions in
Macau are expected over the next three years. As previously indicated, one potential impact of the growing American presence in Macau and the development of a mass market in this region is that there
is likely to be much less emphasis on European-style plaques and jetons, which are our more profitable products.

One
area of particular importance to us, because it allows us to create new demand for casino chips, is the use of radio frequency identification devices (RFID) in our casino chips. RFID
casino chips provide enhanced security, which addresses the ongoing threat to casinos of someone counterfeiting their "currency." We started producing chips with low frequency 125 KHz RFID, a
technology particularly well-adapted to chip tracking for security and automatic accounting, more than 12 years ago and have sold several million of them to casinos world-wide. We have acquired
expertise in the production of 125 KHz RFID chips as well as chip tracking readers and associated software. Of growing interest to casinos, which also want the RFID technology for player
tracking, is the use of high frequency 13.56 MHZ RFID in casino chips, which facilitate information being processed more quickly and allow casinos to gain knowledge about their table games that
before was limited to slot machines. To address this market it is important to be able to offer sophisticated computer systems for table management and local presence for after-sales services. We
recognize that establishing strong partnerships is crucial. Therefore, we continue to enhance our strategic alliance with Progressive Gaming International Corporation (PGIC) and our relationship with
International Game Technology (IGT) in order to accelerate the acceptance of 13.56 MHz RFID casino chips with PGIC/Magellan technology as part of a comprehensive tracking and management system.

The
manufacturing process for our RFID gaming chips and related products is complex and must meet stringent user requirements. As such, some portion of our RFID gaming chips and related
products may contain weaknesses or defects, especially when first introduced. With respect to the introduction of the initial version of our Paulson brand 13.56 MHz RFID gaming chips, we
experienced

22

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a
higher than normal incidence of defects as a result of initially being limited to using a particular technology for certain components of such RFID gaming chips. Applying our successful and proven
experience in 125 KHz RFID gaming chips, we changed the technology for these components and brought the default rate for the current version of our Paulson brand gaming chips with PGIC/Magellan
13.56 MHz RFID within an acceptable range.

We
are also in the process of creating a line of 13.56 MHz readers similar to our 125 KHz RFID readers so that casinos interested in PGIC's sophisticated table management
applications have the possibility to first start with chip tracking hardware and applications compatible with PGIC's systems. Our collaboration with PGIC and IGT has lead to the winning of an order
for over one million Paulson® 13.56 MHz RFID casino chips to be delivered to MGM Grand at Foxwoods, the new expansion of the Foxwoods Resort Casino, for its opening in mid-May 2008.

A
challenge of a different sort was faced by the Company in late 2007 when concerns were expressed relative to the level of lead in Paulson® gaming chips. The Company's
Paulson brand gaming chips have contained lead since production began in 1968. During the past decade, the Company has reformulated the composition of materials several times to significantly reduce
the concentration of lead. In 2007, a formal action was filed in the Superior Court of California under the California Safe Drinking Water and Toxic Enforcement Act, also known as
Proposition 65, against Gaming Partners International USA, Inc. (GPI USA) and twenty-four California card rooms who purchased Paulson gaming chips manufactured by GPI
USA. This case concerns a duty to warn rather than a violation of any articulated standards for the content of lead in gaming chips. Since
then, we have further reformulated the Paulson chips such that we no longer need to provide any warnings on chip sales in California. Refer to Part IItem 1 Business for more
details on this matter.

On
November 7, 2007 and November 28, 2007, a Phoenix television station aired reports containing what we believe to be numerous misrepresentations and inaccuracies and
alleging the potential for injurious exposure to the public from handling the Paulson brand gaming chips. In response, we chose to take significant steps to assure our customers and the gaming public
that use of Paulson chips, even in the former formulation, does not pose a significant health threat. We engaged testing experts, lead experts, and communication consultants in support of this effort.
The independent testing we commissioned as part of this effort demonstrated that the intended use of these gaming chips does not result in any health risk to dealers or players.

As
a result of our efforts in response to the reports in Arizona and in defending the Proposition 65 case, we had an increase in our general and administrative expenses in 2007 related
to $1.1 million in costs associated with issues related to lead in Paulson gaming chips.

Recognizing
the volatility of demand for our products as discussed above, GPIC has intensified efforts to reduce costs. As part of that effort, we are moving the manufacturing of
our injection molded casino chips from our facility in Las Vegas to our plant in Mexico. While it involves an initial investment, this move will help reduce our manufacturing costs. We anticipate the
transfer to be completed by the end of the second quarter 2008. GPIC will continue to look for other ways to significantly reduce costs while still providing the quality products and service
that are key to its success.

23

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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 (in thousands):

2007

2006Revenues

100.0
%
100.0
%Cost of revenues

69.4
%
67.0
%Gross profit

30.6
%
33.0
%Selling, general and administrative expenses

29.2
%
21.5
%Operating income

1.4
%
11.5
%Gain (loss) on foreign currency transactions

(0.5
)%
(0.5
)%Interest income

0.6
%
0.6
%Interest expense

(0.3
)%
(0.2
)%Other income, net

0.6
%
0.1
%Income tax expense

(1.4
)%
(4.6
)%Net income

0.4
%
6.9
%


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

2007

2006Revenues:Casino chips

$
36,549

62.1
%
$
52,769

71.4
%Table layouts


5,041

8.6
%

5,001

6.8
%Playing cards


3,884

6.6
%

3,846

5.2
%Gaming furniture


3,320

5.6
%

2,717

3.7
%Dice


2,108

3.6
%

2,417

3.3
%Table accessories and other products


5,697

9.7
%

5,383

7.2
%Shipping


2,222

3.8
%

1,821

2.4
%Total

$
58,821

100.0
%
$
73,954

100.0
%


Comparison of Operations for the Years Ended December 31, 2007 and 2006

RevenuesFor the year ended December 31, 2007, revenues were $58.8 million, a decrease of $15.2 million
(21%), compared to revenues of $74.0 million for the year ended December 31, 2006. In 2007, GPI SAS recorded revenues of $25.7 million, a decrease of $16.7 million
(39%), as compared to revenues of $42.4 million in 2006. The decrease is primarily due to reduced sales of gaming chips to casinos in Macau. Our sales to Asia (primarily Macau) were
$18.7 million in 2007, a decrease of $14.9 million (44%) compared to $33.6 million for 2006. If the euro had not strengthened 9% against the US dollar during 2007, GPI SAS'
sales would have been $2.2 million lower. In 2007, GPI USA recorded revenues of $33.1 million, an increase of $1.6 million (5%) as compared to revenues of
$31.5 million in 2006.

Cost of RevenuesFor the year ended December 31, 2007, cost of revenues were $40.8 million, a decrease of
$8.8 million (18%), compared to cost of revenues of $49.6 million for the year ended December 31, 2006. As a percentage of revenues, the cost of revenues increased to 69.4% in
2007 from 67.0% in 2006.

Gross ProfitGross profit for the year ended December 31, 2007 decreased by $6.4 million compared to 2006. This
occurred as a result of the decrease in revenues of $15.2 million and a decrease in cost of revenues of $8.8 million. As a percentage of sales, our gross margin decreased to

24

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30.6%
from 33.0%. At GPI SAS, sales of higher margin plaques and jetons were down significantly for the year and partially replaced by lower margin American-style chips. At GPI USA, a
primary reason margins were lower in 2007 versus 2006 is due to an increase in sales of RFID casino chips at a lower margin than non-RFID casino chips. Additionally, at GPI USA
competitive pressure on our dice and card product lines prevented us from passing along production cost increases.

|                                                   |                            | Years Ended December 31, |       
|-------------------------------------------------- | -------------------------- | ------------------------ | ------
|
|
|                                                   | Product development        |                          | $     
|                                                   | Marketing and sales        |                          |       
|                                                   | General and administrative |                          |       
|                                                   |                            |                          |       
|Total selling, general and administrative expenses |                            | $                        | 17,114
|                                                   |                            |                          |       

Selling, General and Administrative ExpensesSelling, general and administrative expenses, which include product development;
marketing and sales; and general and administrative costs, increased to $17.1 million for the year ended December 31, 2007 from $15.9 million for the year ended
December 31, 2006, an increase of $1.2 million. In 2006, there were one time expenses to the Louisiana sales tax authorities of $0.4 million at GPI USA and building
expansion expenses of $0.2 million at GPI SAS that did not recur in 2007. The increases in general and administrative costs in 2007 relate to $1.1 million in costs associated with
issues related to lead in Paulson gaming chips, $0.3 million due to a fixed asset physical inventory at GPI USA, and increases in salaries of $0.3 million at GPI USA
and GPI SAS.



|                             |                                       | Years Ended December 31, |    
|---------------------------- | ------------------------------------- | ------------------------ | ---
|
|
|                             | Loss on foreign currency transactions |                          | $  
|                             | Interest income                       |                          |    
|                             | Interest expense                      |                          |    
|                             | Gain on sale of marketable securities |                          |    
|                             | Other income, net                     |                          |    
|                             |                                       |                          |    
|Total other income (expense) |                                       | $                        | 195
|                             |                                       |                          |    

During
the year ended December 31, 2007, total other income (expense) increased $164,000 from December 31, 2006. Interest income decreased a total of $76,000 due to a lower
balance of marketable securities in 2007 versus 2006. Interest expense increased $15,000 due to a full year of interest in 2007 on our 1.5 million euro loan entered into during 2006
at GPI SAS. Other income and expense increased by $261,000 in 2007 due to a refund that GPI SAS received from the French Social Security related to the 2004-2006 period.

Income TaxesDuring the year ended December 31, 2007, our effective tax rate was 77.3% as compared to 39.7% for the
year ended December 31, 2006. The increase in our effective rate for the year ended December 31, 2007 was primarily a result of the decrease in book income, which resulted in a greater
rate impact from the foreign dividend inclusions and related valuation of 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. The Company's effective tax rate for the year ended
December 31, 2006 differed from the statutory rate as a result of the Company's repatriation of a non-cash dividend from GPI SAS and the related increase in the valuation
allowance related to foreign tax credits, which are expected to expire before usage.

25

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Liquidity and Capital Resources

OverviewAs of December 31, 2007, we had $4.6 million in cash and cash equivalents and $4.7 million in
current marketable securities. Of the cash and cash equivalents and marketable securities, $2.1 million is held by GPI USA and $7.2 million is held by GPI SAS. 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 $16.9 million at December 31, 2007
compared to $14.8 million at December 31, 2006. Working capital increased by $2.1 million due to an increase in current assets of $1.9 million and a decrease in current
liabilities of $0.2 million.

The
increase in current assets was due primarily to an increase in accounts receivable of $1.7 million and an increase in net inventories of $0.8 million offset by a
decrease in cash of $1.3 million and an increase in deferred income tax asset of $0.5 million.

The
decrease in current liabilities was due primarily to decreases in income taxes payable of $0.8 million, deferred income tax liability of $0.6 million, current
maturities of long-term debt of $0.4 million, and, accrued liabilities of $0.1 million offset by increases in customer deposits of $1.5 million. Customer deposits
increased due to a $5.6 million increase in backlog from $5.5 million at December 31, 2006 to $11.1 million at December 31, 2007.

Cash Flow (See Consolidated Statements of Cash Flow)Overall, our cash balance decreased by $1.3 million from
December 31, 2006 to December 31, 2007.

Net
cash flow provided by operating activities was $1.4 million during 2007 compared to net cash used in operating activities of $1.3 million during 2006. In 2007,
$3.8 million of cash was generated from net income-related activities. This was offset by an increase in current assets of $1.6 million and a decrease in current liabilities of
$0.8 million. In 2006, $7.0 million of cash was generated from net income-related activities due to higher net income and, in addition, current assets decreased by $1.9 million.
These sources of cash were more than offset by a decrease in current liabilities of $10.2 million. The primary component of the decrease in current liabilities during 2006 was
$9.9 million of customer deposits.

Our
investing activities resulted in net cash used of $2.0 million for 2007, compared to net cash provided of $1.2 million in 2006. This $3.2 million change is
attributable to a decrease in net proceeds from sales of marketable securities of $5.8 million from 2006 compared to 2007, which was offset by a decrease in cash spent on acquisition of
property and equipment of $2.6 million.

Net
cash flow used in financing activities was $1.0 million during 2007 compared to net cash provided by financing activities of $1.2 million during 2006. The
$2.2 million change is attributable to no long-term debt added in 2007 versus $1.9 million in 2006 as well as a $1.3 million decrease related to fewer stock options
being exercised offset by a $1.0 million dividend paid in 2006 that was not repeated in 2007.

Line of CreditIn April 2007, GPI SAS secured a one year 1,000,000 euros ($1,350,000 at April 2007) line of
credit for short term needs. Interest is at a variable rate and based on Euro Interbank Offered Rate plus 0.35%. As of December 31, 2007, this line of credit is 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

26

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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. Under the terms of
the loan agreement, GPI SAS must comply with certain financial covenants that are calculated annually based on its financial statements. GPI SAS was in compliance of these financial
covenants as of December 31, 2007.

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 $876,000 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 ($736,000 at December 31, 2007). There are no prepayment penalties.

SeasonalityWe do not typically experience seasonality relative to our revenues, however, operations may be impacted, in the
third quarter of each year when 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 current corporate headquarters, an approximately 60,000 square
foot building located in Las Vegas that also serves as a manufacturing/warehousing facility and sales office. The Las Vegas headquarters secures the $995,000 loan pursuant to the Deed of Trust. See
"Long-Term Debt" above.

San Luis Rio Colorado, Mexico FacilitiesIn San Luis, we have a lease until April 2009 for two manufacturing facilities
totaling 66,500 square feet. The monthly rent amount of approximately $0.35 per square foot, is prorated commensurate with the space that we elect to use. Since then we have added to our lease an
additional 32,500 square feet leased facility at the same monthly rent amount of approximately $0.35 per square foot, or $11,300. We also own an approximately 66,000 square foot facility adjacent to
the leased building. (See Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial Statements
Note 13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 for 650,000 euros (approximately $828,000 in July 2006) plus certain statutory costs.

Capital ExpendituresWe currently plan to purchase approximately $1.7 million in capital equipment and improvements in
2008. In 2007, we purchased $2.8 million of property, plant and equipment. Of that amount, $1.1 million was to increase production capacity of injection molded chips at GPI SAS,
$1.3 million for equipment to increase capacity, increase product selections, and improve efficiencies at GPI USA, and $0.4 million was for improvement costs on a new parking lot
at GPI USA.

Cash DividendThe Board of Directors presently does not intend to declare or pay any dividends for the foreseeable future.

27

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BacklogAt December 31, 2007, our backlog of orders, which is expected to be filled in 2008, amounted to
$7.1 million for GPI USA and $4.0 for GPI SAS. At December 31, 2006, our backlog was approximately $3.9 million for GPI USA and $1.6 million
for GPI SAS.

Selected Quarterly Financial Information

|                             |         | Year Ended December 31, 2007
|---------------------------- | ------- | ----------------------------
|
|
|Net revenues                 |         | $                           
|Gross profit                 |         |                             
|Operating (loss) income      |         |                             
|Net (loss) income            |         | $                           
|                             |         |                             
|Net (loss) income per share: |         |                             
|                             | Basic   |                             
|                             |         |                             
|                             | Diluted |                             
|                             |         |                             

|
|

|                      |         | Year Ended December 31, 2006
|--------------------- | ------- | ----------------------------
|
|
|Net revenues          |         | $                           
|Gross profit          |         |                             
|Operating income      |         |                             
|Net income            |         | $                           
|                      |         |                             
|Net income per share: |         |                             
|                      | Basic   |                             
|                      |         |                             
|                      | Diluted |                             
|                      |         |                             

Obligations and Commercial Commitments

The following table presents the impact that our contractual obligations and commercial commitments at December 31, 2007 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, 2007. 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
|-------------------------------------------- |  | ----------------------
|
|
|Long term debt(1)                            |  | $                     
|Capital lease obligations                    |  |                       
|Purchase and other commitment obligations(2) |  |                       
|Interest                                     |  |                       
|Operating leases                             |  |                       
|Construction projects                        |  |                       
|                                             |  |                       
|Total Contractual Cash Obligations(3)        |  | $                     
|                                             |  |                       

---

28

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Related Party Transactions

We lease two manufacturing facilities totaling 66,500 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 April 2009 at the monthly rent amount of approximately $0.35 per square foot or $23,300. If we elect, at our discretion, to use more or less
square footage, our rent will be increased or decreased accordingly on a pro rata basis Also, in the second quarter of 2006, we began renting, on a month-to-month basis, a
residential property from the General Manager's brother at approximately $800 per month. (See Part IIItem 8. Financial Statements and Supplementary DataNotes to
Consolidated Financial Statements Note 13Related Party Transactions.)

An
employee of our manufacturing facility in Mexico owns and operates a small independent machine shop. In 2007 we used his machine shop to build small metal parts. For the fiscal year
ended December 31, 2007, GPI USA paid this business approximately $41,000.

Neither
of these employees is a director nor an executive officer. 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.

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 revenue recognition; write-downs of obsolete, excess or slow moving inventories; the depreciable lives of our fixed assets; the recoverability of deferred tax assets; and the
accounting for stock-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.

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 or
services have been rendered, 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.

29

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We
typically sell our products with payment terms of net 30 days and generally require a 50% down payment.

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, primarily in France. 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.

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 32% and 31% of our total assets at December 31, 2007
and 2006, 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. We completed the annual impairment test in 2007, and as a result of this test, no impairment of goodwill was deemed necessary

Other
intangible assets such as patents, non-compete agreements and others with definite lives are amortized using the straight-line method over their economic
useful lives, ranging from three to fourteen years. We evaluate these intangible assets with definite lives for potential impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable.

30

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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. There are numerous factors
that could trigger an impairment review or adjustment to determine if the carrying value is recoverable.

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 11 of Consolidated Financial Statements for further details.

Recently Issued Accounting Standards

In September 2006, SFAS 157, "Fair Value Measurements", was issued. 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

31

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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 (the FSP)," which applies to nonfinancial 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, the FSP defers the effective date of SFAS 157 until fiscal years beginning after November 15, 2008. The Company is considering the impact that the adoption of
SFAS 157, as interpreted by the FSP, will have on our financial statements when we adopt it in the first quarter of 2008.

In
February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, "The 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 lacks the fair value option for an eligible item, changes in that item's fair value and subsequent reporting periods must be
recognized in current earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the potential impact of SFAS 159 on
our financial position and results of operations.

In
December 2007, the FASB issued SFAS 141R, "Business Combinations," which replaces FASB Statement 141, "Business Combinations." SFAS 141R requires an acquirer to
recognize the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the statement. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of an entity's fiscal year that begins after
December 15, 2008. The Company does not expect the adoption of SFAS 141R will have a material effect on its financial condition, results of operations or cash flows.

In
December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51." SFAS 160
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or
loss in net income when a subsidiary is deconsolidated and also requires expanded disclosures regarding the interests of the parent and the interests of the noncontrolling owners. The provisions of
SFAS 160 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of
SFAS 160 will have a material effect on its financial condition, results of operations or cash flows.

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) translation
adjustments do not involve the movement of cash, they are accounting conversion calculations of an existing functional currency to

32

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a
reporting currency and (ii) transaction gains or losses which are based on an actual transaction that requires formal payment at a future point in time.

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, 2007 and December 31, 2006. 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. The U.S. dollar continued to weaken against the euro to $0.67942 at December 31, 2007 from $0.75800 at
December 31, 2006.

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. No such contracts were entered
during 2006. 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 loss
on foreign currency transactions. We did not have any forwards, options, or other derivative contracts in place as of December 31, 2007.

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, 2007, we had total interest bearing debt and capital lease obligations of approximately $2.9 million. Of this amount,
approximately $2 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.



33

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GAMING PARTNERS INTERNATIONAL CORPORATION
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

34

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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, 2007 and 2006, 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, 2007 and 2006, 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 1 to the consolidated financial statements, the Company recorded a cumulative effect adjustment as of January 1, 2006, in connection with the adoption of the
Securities and Exchange Commission Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements."
As discussed in Note 11 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 LLPSan Diego, California
March 28, 2008

35

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,

(in thousands, except share amounts)

|                                          |                                                                                                                           | 2007                                       |       | 2006   |       
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------ | ------
|ASSETS                                    |                                                                                                                           |                                            |       |        |       
|Current Assets:                           |                                                                                                                           |                                            |       |        |       
|                                          | Cash and cash equivalents                                                                                                 |                                            | $     | 4,627  |       
|                                          | Marketable securities                                                                                                     |                                            |       | 4,730  |       
|                                          | Accounts receivable, less allowance for doubtful accounts of $327 and $335, respectively                                  |                                            |       | 5,811  |       
|                                          | Inventories                                                                                                               |                                            |       | 10,093 |       
|                                          | Prepaid expenses                                                                                                          |                                            |       | 487    |       
|                                          | Deferred income tax asset                                                                                                 |                                            |       | 893    |       
|                                          | Other current assets                                                                                                      |                                            |       | 1,459  |       
|                                          |                                                                                                                           |                                            |       |        |       
|                                          |                                                                                                                           | Total current assets                       |       |        | 28,100
|                                          | Property and equipment, net                                                                                               |                                            |       | 15,596 |       
|                                          | Goodwill                                                                                                                  |                                            |       | 1,680  |       
|                                          | Other intangibles, net                                                                                                    |                                            |       | 1,023  |       
|                                          | Deferred income tax asset                                                                                                 |                                            |       | 1,514  |       
|                                          | Long-term investments                                                                                                     |                                            |       | 736    |       
|                                          | Other assets, net                                                                                                         |                                            |       | 660    |       
|                                          |                                                                                                                           |                                            |       |        |       
|                                          |                                                                                                                           | Total assets                               |       | $      | 49,309
|                                          |                                                                                                                           |                                            |       |        |       
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                           |                                            |       |        |       
|Current Liabilities:                      |                                                                                                                           |                                            |       |        |       
|                                          | Current maturities of long-term debt                                                                                      |                                            | $     | 689    |       
|                                          | Accounts payable                                                                                                          |                                            |       | 2,964  |       
|                                          | Accrued liabilities                                                                                                       |                                            |       | 4,418  |       
|                                          | Customer deposits                                                                                                         |                                            |       | 2,715  |       
|                                          | Income taxes payable                                                                                                      |                                            |       | 27     |       
|                                          | Deferred income tax liability                                                                                             |                                            |       |       |       
|                                          | Other current liabilities                                                                                                 |                                            |       | 406    |       
|                                          |                                                                                                                           |                                            |       |        |       
|                                          |                                                                                                                           | Total current liabilities                  |       |        | 11,219
|Long-term debt, less current maturities   |                                                                                                                           |                                            | 2,273 |        |       
|Deferred income tax liability             |                                                                                                                           |                                            | 455   |        |       
|Other liabilities                         |                                                                                                                           |                                            | 209   |        |       
|                                          |                                                                                                                           |                                            |       |        |       
|                                          |                                                                                                                           | Total liabilities                          |       |        | 14,156
|                                          |                                                                                                                           |                                            |       |        |       
|Commitments and ContingenciesSee Note 10 |                                                                                                                           |                                            |      |        |       
|Stockholders' Equity:                     |                                                                                                                           |                                            |       |        |       
|                                          | Preferred stock, authorized 10,000,000 shares, $.01 value, none issued and outstanding                                    |                                            |       |       |       
|                                          | Common stock, authorized 30,000,000 shares, $.01 par value, 8,103,401 and 8,090,901, respectively, issued and outstanding |                                            |       | 81     |       
|                                          | Additional paid-in capital                                                                                                |                                            |       | 18,766 |       
|                                          | Treasury stock, at cost, 8,061 shares                                                                                     |                                            |       | (196   | )     
|                                          | Retained earnings                                                                                                         |                                            |       | 12,825 |       
|                                          | Accumulated other comprehensive income                                                                                    |                                            |       | 3,677  |       
|                                          |                                                                                                                           |                                            |       |        |       
|                                          |                                                                                                                           | Total stockholders' equity                 |       |        | 35,153
|                                          |                                                                                                                           |                                            |       |        |       
|                                          |                                                                                                                           | Total liabilities and stockholders' equity |       | $      | 49,309
|                                          |                                                                                                                           |                                            |       |        |       

See
Notes to Consolidated Financial Statements

36

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

(in thousands, except earnings per share)

|                                                     |                                       | 2007 |        | 2006   |  
|---------------------------------------------------- | ------------------------------------- | ---- | ------ | ------ | -
|Revenues                                             |                                       | $    | 58,821 |        | $
|Cost of revenues                                     |                                       |      | 40,845 |        |  
|                                                     |                                       |      |        |        |  
|                                                     | Gross profit                          |      |        | 17,976 |  
|Product development                                  |                                       |      | 419    |        |  
|Marketing and sales                                  |                                       |      | 4,303  |        |  
|General and administrative                           |                                       |      | 12,392 |        |  
|                                                     |                                       |      |        |        |  
|                                                     | Operating income                      |      |        | 862    |  
|Other income (expense)                               |                                       |      |        |        |  
|                                                     | Loss on foreign currency transactions |      |        | (323   | )
|                                                     | Interest income                       |      |        | 334    |  
|                                                     | Interest expense                      |      |        | (190   | )
|                                                     | Other income, net                     |      |        | 374    |  
|                                                     |                                       |      |        |        |  
|                                                     | Income before income taxes            |      |        | 1,057  |  
|Income tax expense                                   |                                       |      | 817    |        |  
|                                                     |                                       |      |        |        |  
|                                                     | Net income                            |      | $      | 240    |  
|                                                     |                                       |      |        |        |  
|Earnings per share:                                  |                                       |      |        |        |  
|                                                     | Basic                                 |      | $      | 0.03   |  
|                                                     |                                       |      |        |        |  
|                                                     | Diluted                               |      | $      | 0.03   |  
|                                                     |                                       |      |        |        |  
|Weighted-average shares of common stock outstanding: |                                       |      |        |        |  
|                                                     | Basic                                 |      |        | 8,101  |  
|                                                     |                                       |      |        |        |  
|                                                     | Diluted                               |      |        | 8,242  |  
|                                                     |                                       |      |        |        |  

See
Notes to Consolidated Financial Statements

37

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
OTHER COMPREHENSIVE INCOME

Years Ended December 31, 2007, and 2006

(in thousands, except share amounts)

|                                                                                                |  |   |       | Common Stock |           |  |   |    |  |   |        |  |   |      |  
|----------------------------------------------------------------------------------------------- |  | - | ----- | ------------ | --------- |  | - | -- |  | - | ------ |  | - | ---- | -
|
|
|Balance, December 31, 2005                                                                      |  |   |       |              | 7,898,766 |  | $ | 79 |  | $ | 16,904 |  | $ | (196 | )
|Net income                                                                                      |  | $ | 5,129 |              |          |  |   |   |  |   |       |  |   |     |  
|Cumulative effect of adjustments resulting from the application of SAB 108, net of tax (Note 1) |  |   |      |              |          |  |   |   |  |   |       |  |   |     |  
|Unrealized loss on securities                                                                   |  |   | (3    | )            |          |  |   |   |  |   |       |  |   |     |  
|Common stock options and warrants exercised                                                     |  |   |      |              | 192,135   |  |   | 2  |  |   | 761    |  |   |     |  
|Stock compensation expense                                                                      |  |   |      |              |          |  |   |   |  |   | 234    |  |   |     |  
|Dividends paid, $0.125 per share                                                                |  |   |      |              |          |  |   |   |  |   |       |  |   |     |  
|Tax benefit from stock options exercised                                                        |  |   |      |              |          |  |   |   |  |   | 530    |  |   |     |  
|Foreign currency translation adjustment                                                         |  |   | 1,066 |              |          |  |   |   |  |   |       |  |   |     |  
|Adjustment to initially apply FASB Statement 158, net of tax (Note 1)                           |  |   |      |              |          |  |   |   |  |   |       |  |   |     |  
|                                                                                                |  |   |       |              |           |  |   |    |  |   |        |  |   |      |  
|Total comprehensive income                                                                      |  | $ | 6,192 |              |           |  |   |    |  |   |        |  |   |      |  
|                                                                                                |  |   |       |              |           |  |   |    |  |   |        |  |   |      |  
|Balance, December 31, 2006                                                                      |  |   |       |              | 8,090,901 |  |   | 81 |  |   | 18,429 |  |   | (196 | )
|Net income                                                                                      |  | $ | 240   |              |          |  |   |   |  |   |       |  |   |     |  
|Cumulative effect of adjustments resulting from the adoption of FIN 48 (Note 11)                |  |   |      |              |          |  |   |   |  |   |        |  |   |      |  
|Unrealized loss on securities                                                                   |  |   | (2    | )            |          |  |   |   |  |   |       |  |   |     |  
|Common stock options exercised                                                                  |  |   |      |              | 12,500    |  |   |   |  |   | 97     |  |   |     |  
|Stock compensation expense                                                                      |  |   |      |              |          |  |   |   |  |   | 220    |  |   |     |  
|Tax benefit from stock options exercised.                                                       |  |   |      |              |           |  |   |    |  |   | 20     |  |   |      |  
|Amortization of pension transition asset                                                        |  |   | (13   | )            |          |  |   |   |  |   |       |  |   |     |  
|Foreign currency translation adjustment                                                         |  |   | 2,112 |              |          |  |   |   |  |   |       |  |   |     |  
|                                                                                                |  |   |       |              |           |  |   |    |  |   |        |  |   |      |  
|Total comprehensive income                                                                      |  | $ | 2,337 |              |           |  |   |    |  |   |        |  |   |      |  
|                                                                                                |  |   |       |              |           |  |   |    |  |   |        |  |   |      |  
|Balance, December 31, 2007                                                                      |  |   |       |              | 8,103,401 |  | $ | 81 |  | $ | 18,766 |  | $ | (196 | )
|                                                                                                |  |   |       |              |           |  |   |    |  |   |        |  |   |      |  

See Notes to Consolidated Financial Statements

38

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

(in thousands)

|                                                                       |                                                                                             | 2007                                                                  |        | 2006  |        
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------ | ----- | -------
|Cash Flows from Operating Activities                                   |                                                                                             |                                                                       |        |       |        
|                                                                       | Net income                                                                                  |                                                                       | $      | 240   |        
|                                                                       | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                       |        |       |        
|                                                                       |                                                                                             | Depreciation                                                          |        |       | 2,272  
|                                                                       |                                                                                             | Amortization                                                          |        |       | 222    
|                                                                       |                                                                                             | Provision for bad debt                                                |        |       | 34     
|                                                                       |                                                                                             | Deferred income taxes                                                 |        |       | 632    
|                                                                       |                                                                                             | Share-based compensation expense                                      |        |       | 220    
|                                                                       |                                                                                             | Tax benefit on exercise of stock options and warrants                 |        |       | (20    
|                                                                       |                                                                                             | Loss on sale/disposal of property and equipment                       |        |       | 311    
|                                                                       |                                                                                             | Gain on sale of marketable securities                                 |        |       | (106   
|                                                                       | Change in operating assets and liabilities:                                                 |                                                                       |        |       |        
|                                                                       |                                                                                             | Accounts receivable                                                   |        |       | (1,722 
|                                                                       |                                                                                             | Inventories                                                           |        |       | (285   
|                                                                       |                                                                                             | Prepaid expenses and other current assets                             |        |       | 402    
|                                                                       |                                                                                             | Non-current other assets                                              |        |       | (1     
|                                                                       |                                                                                             | Accounts payable                                                      |        |       | (4     
|                                                                       |                                                                                             | Customer deposits                                                     |        |       | 1,358  
|                                                                       |                                                                                             | Accrued liabilities                                                   |        |       | (548   
|                                                                       |                                                                                             | Income taxes payable                                                  |        |       | (1,485 
|                                                                       |                                                                                             | Other current liabilities                                             |        |       | (74    
|                                                                       |                                                                                             |                                                                       |        |       |        
|Net cash provided by (used in) operating activities                    |                                                                                             |                                                                       | 1,446  |       |        
|                                                                       |                                                                                             |                                                                       |        |       |        
|Cash Flows from Investing Activities                                   |                                                                                             |                                                                       |        |       |        
|                                                                       |                                                                                             | Purchase of marketable securities and long-term investments           |        |       | (24,881
|                                                                       |                                                                                             | Proceeds from sale of marketable securities and long-term investments |        |       | 25,482 
|                                                                       |                                                                                             | Acquisition of property and equipment                                 |        |       | (2,686 
|                                                                       |                                                                                             | Proceeds from sale of property and equipment                          |        |       | 58     
|                                                                       |                                                                                             |                                                                       |        |       |        
|Net cash (used in) provided by investing activities                    |                                                                                             |                                                                       | (2,027 | )     |        
|                                                                       |                                                                                             |                                                                       |        |       |        
|Cash Flows from Financing Activities                                   |                                                                                             |                                                                       |        |       |        
|                                                                       |                                                                                             | Proceeds from long-term debt obligations                              |        |       |       
|                                                                       |                                                                                             | Repayment of long-term debt obligations                               |        |       | (1,089 
|                                                                       |                                                                                             | Cash dividend distribution                                            |        |       |       
|                                                                       |                                                                                             | Proceeds from exercise of stock options                               |        |       | 97     
|                                                                       |                                                                                             | Tax benefit on exercise of stock options and warrants                 |        |       | 20     
|                                                                       |                                                                                             |                                                                       |        |       |        
|Net cash (used in) provided by financing activities                    |                                                                                             |                                                                       | (972   | )     |        
|                                                                       |                                                                                             |                                                                       |        |       |        
|Effect of exchange rate changes on cash                                |                                                                                             |                                                                       | 292    |       |        
|                                                                       |                                                                                             |                                                                       |        |       |        
|Net (decrease) increase in cash and cash equivalents                   |                                                                                             |                                                                       | (1,261 | )     |        
|Cash and cash equivalents, beginning of period                         |                                                                                             |                                                                       | 5,888  |       |        
|                                                                       |                                                                                             |                                                                       |        |       |        
|Cash and cash equivalents, end of period                               |                                                                                             | $                                                                     | 4,627  |       | $      
|                                                                       |                                                                                             |                                                                       |        |       |        
|Supplemental disclosures of cash flow information:                     |                                                                                             |                                                                       |        |       |        
|                                                                       | Cash paid for interest                                                                      |                                                                       | $      | 188   |        
|                                                                       | Cash paid for income taxes                                                                  |                                                                       | $      | 1,205 |        
|Supplemental disclosure of non-cash investing and financing activities |                                                                                             |                                                                       |        |       |        
|                                                                       | Property and equipment acquired by accrued liabilities                                      |                                                                       | $      | 120   |        

See Notes to Consolidated Financial Statements

39

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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), 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 $100,000. 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,

40

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 up to a fifty percent deposit for manufactured or purchased products at the
discretion of management. 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.) We recognize an allowance for doubtful accounts (bad debt reserves) to ensure trade receivables are not
overstated due to uncollectibility. This allowance applies to all customers and is 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 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). Under SFAS 115, our securities are classified as available-for-sale and, as such, are carried at fair value
with unrealized holding gains and losses excluded from earnings and reported within accumulated other comprehensive income. The first-in, first-out method is used to determine
the cost of securities disposed of. 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 the
weighted-average method at GPI SAS and the 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

10-40Furniture and equipment

3-12Vehicles

4- 7


41

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. We completed the annual goodwill impairment test as of December 31, 2007 and 2006, and no impairment of goodwill was deemed necessary as a result of this test.

Other
intangible assets such as patents, non-compete agreements and others with definite lives are amortized, using the straight-line method over their economic
useful lives, up to fourteen years. We evaluate these intangible assets with definite lives for potential impairment 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 14 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, 2007 and 2006.

Debt

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 or
services have been rendered, 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 and generally require a 50% down payment.

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, primarily 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.

42

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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.

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. No such contracts were entered
during 2006. 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 loss
on foreign currency transactions. We did not have any derivative contracts in place as of December 31, 2007.

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.

43

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS 123(R), using a modified prospective application. For the years ended December 31, 2007 and
2006, we recognized share-based compensation 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 expense for fair value share-based payments on a straight-line basis over the vesting period of the awards.

SFAS 123(R)
requires that forfeitures be estimated at the grant date and reflected in current expense measurements. Prior to adopting SFAS 123(R), we reduced pro forma
share-based compensation expense when forfeitures occurred. The cumulative effect of forfeitures related to previous SFAS 123 pro forma expense was not material.

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 potential common stock, which consists primarily of stock option and warrant exercises. Potentially dilutive securities are not taken
into account when their effect would be antidilutive.

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.

Reclassifications

Certain 2006 amounts have been reclassified to conform to the 2007 presentation. In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 provides
interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered by management in quantifying a current year misstatement by evaluating errors
using both a balance sheet and an income statement approach and concluding whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB 108 became effective for the fiscal years ending after November 15, 2006. We applied the guidance in SAB 108 in the fourth quarter of 2006 to make a
cumulative adjustment reduction to retained earnings of $194,000, net of tax, as of January 1, 2006. This adjustment was related to errors in depreciation expense in 2004 and 2005.

44

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In
the consolidated Statements of Stockholders' Equity and Other Comprehensive Income, the adjustment to initially apply FASB 158, net of tax, of $71,000 had been reflected in
Comprehensive Income in 2006. To comply with the correct presentation of this adjustment, this amount was reclassified during 2007 into Accumulated Other Comprehensive Income for 2006.

Recently Issued Accounting Standards

In September 2006, SFAS 157, "Fair Value Measurements", was issued. 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 (the FSP)," which applies to nonfinancial 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, the FSP defers the effective date of
SFAS 157 until fiscal years beginning after November 15, 2008. The Company is considering the impact that the adoption of SFAS 157, as interpreted by the FSP, will have on our
consolidated financial statements when we adopt it in the first quarter of 2008.

In
February 2007, SFAS 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115", was issued.
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 is evaluating the potential impact of SFAS 159 on its financial position and results of operations.

In
December 2007, the FASB issued SFAS 141R, "Business Combinations," which replaces FASB Statement 141, "Business Combinations." SFAS 141R requires an acquirer to
recognize the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the statement. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of an entity's fiscal year that
begins after December 15, 2008. The Company does not expect the adoption of SFAS 141R will have a material effect on its financial condition, results of operations or cash flows.

In
December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51." SFAS 160
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated and also requires expanded disclosures regarding the interests of the parent and the interests of the noncontrolling owners. The provisions of SFAS 160 are
effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 160 will have a
material effect on its financial condition, results of operations or cash flows.

45

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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):

|                                |  | 2007 |       | 2006
|------------------------------- |  | ---- | ----- | ----
|
|Current marketable securities   |  | $    | 4,730 |     
|                                |  |      |       |     
|Long-term marketable securities |  | $    | 736   |     
|                                |  |      |       |     

Long-term
marketable securities include 500,000 euros ($736,000 at December 31, 2007 and $659,000 at December 31, 2006) which must be maintained as a
minimum balance as security for a loan obtained in June 2006. See Note 9.

Note 3. Allowance for Doubtful Accounts

We record, based on periodic reviews of our accounts receivables, allowances for estimated uncollectible trade accounts receivable. 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 Year
|------------------------ |  | ---------------------------- | --- | ---------- | - | ----------------------------- | - | -------------------- | - | ----------------------
|2007                     |  | $                            | 335 |            | $ | (34                           | ) | $                    | 5 |                       
|                         |  |                              |     |            |   |                               |   |                      |   |                       
|2006                     |  | $                            | 398 |            | $ | (80                           | ) | $                    |  |                       
|                         |  |                              |     |            |   |                               |   |                      |   |                       

Note 4. Inventories

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

2007

2006Raw materials

$
6,550

$
6,441Work in progress


1,969


1,453Finished goods


1,574


1,357Inventories

$
10,093

$
9,251


46

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5. Other Current Assets

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

2007

2006Refundable value-added tax

$
349

$
425Current deposits


406


984Tax related assets


588


59Other assets


116


29Total other current assets

$
1,459

$
1,497


Note 6. Property and Equipment

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

2007

2006Land

$
1,818

$
1,763Buildings and improvements


8,670


7,797Furniture and equipment


19,290


17,261Vehicles


746


74030,524


27,561Less accumulated depreciation


(14,928
)

(12,994
)Property and equipment, net

$
15,596

$
14,567


Depreciation
expense for the years ended December 31, 2007 and 2006 was $2,272,000 and $2,151,000, respectively.

Note 7. Goodwill and Other Intangible Assets

Goodwill, which has an indefinite useful life, totaled $1,680,000 and $1,524,000 at December 31, 2007 and 2006, respectively. The amount of goodwill
related to GPI SAS for 2007 and 2006, included the net effect of foreign currency exchange of $306,000 and $150,000, respectively. Trademarks, which also have an indefinite life, totaled
$583,000 at December 31, 2007 and 2006, respectively.

Amortizing
intangible assets consisted of the following at December 31 (in thousands):

|                        |  | December 31, 2007 |       | December 31, 2006 |   |       
|----------------------- |  | ----------------- | ----- | ----------------- | - | ------
|
|Patents                 |  | $                 | 1,242 |                   | $ | (825  
|Customer relationships  |  |                   | 432   |                   |   | (409  
|Non-compete agreements  |  |                   |      |                   |   |      
|                        |  |                   |       |                   |   |       
|Total other intangibles |  | $                 | 1,674 |                   | $ | (1,234
|                        |  |                   |       |                   |   |       

47

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amortization expense for the years ended December 31, 2007 and 2006 was $222,000 and $287,000, respectively. The following table for December 31
provides:

Estimated Amortization Expense for the Years Ending December 31,(in thousands)2008

$
1222009


772010


322011


322012


32Thereafter


145Total

$
440


Note 8. Accrued Liabilities

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

2007

2006Accrued vacation, bonuses and other employee costs

$
1,829

$
2,813Other accrued expenses


1,342


289Accrued salaries and wages


959


1,223Accrued sales taxes


205


132Accrued sales commissions


83


100Total accrued liabilities

$
4,418

$
4,557


Note 9. Long-Term Debt and Pledged Assets

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

2007

2006Note payable due to a commercial bank through June 2011

$
1,584

$
1,793Note payable due to a commercial bank through March 2012


938


948Note payable due to a commercial bank through May 2011


268


304Note payable due to an affiliated party through February 2008


161


702Capital leases


11


49Total debt


2,962


3,796Less: current maturities


(689
)

(1,047
)Long-term portion debt

$
2,273

$
2,749


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 ($118,687 at December 31, 2007). 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.

48

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2007 and 2006 were 8.625% and 9.125% respectively. The Loan is payable in arrears in equal monthly installments of principal and interest (currently
approximately $7,700) (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 $876,000 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 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. Under the terms of the loan agreement, GPI SAS must comply with certain financial covenants that are calculated annually based on its financial
statements. GPI SAS, was in compliance of these financial covenants as of December 31, 2007.

49

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimated
annual principal maturities of long-term debt and future minimum payments under capital lease obligations at December 31, 2007 are as follows (in thousands):

Fiscal Year

Capital Leases

Long-term Debt2008

$
12

$
6782009





5442010





5602011





2882012





881Thereafter





Total


12

$
2,951Less: amount representing interest


(1
)Present value of minimum lease payments


11Less: current maturities


11Long-term portion of obligations under capital leases

$





In April 2007, GPI SAS secured a one year 1,000,000 euros ($1,350,000 at April 2007) line of credit for short term needs. Interest is at a variable
rate and based on Euro Interbank Offered Rate plus 0.35%. As of December 31, 2007, this line of credit is fully available.

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 13) as of December 31, 2007 (in
thousands):

Fiscal Year

Minimum Lease Payments2008

$
4532009


2032010


582011


162012


15Thereafter


Total

$
745


50

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Rental Expenses
2007

Rental Expenses
2006Building and storage rental

$
420

$
406Equipment and vehicle rental


164


134Total operating lease expenses

$
584

$
540




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) who 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 alleges 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 seeks, and Proposition
65 authorizes, civil penalties and injunctive relief as well as recovery of costs and legal fees. GPI USA has 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. Prior to September 2007, GPI USA had been in settlement discussions with CEH on its own behalf and on behalf of the Card Room Defendants that received the
CEH NOV. GPI USA and CEH had reached an agreement in principle as to the non-cash terms of a settlement including, the type of warnings to be posted and a commitment to reformulate
gaming chips. Subsequently, GPI has completed reformulating the chips and has eliminated the need to post warnings in connection with current chip sales. GPI USA and CEH were unable to
reach agreement on the cash element of the settlement. As a result, CEH filed this action which is now proceeding through initial written discovery while the parties endeavor to conclude negotiations
as to the amount of cash to be paid in settlement.

On
April 5, 2007, a putative class action complaint alleging violations of federal securities laws based on alleged misstatements and omissions by the Company, entitled Natalie Gordon 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 Corporation, was filed in the United States District Court for the District of Nevada, under Case
No. 2:07-cv-00448-RCJ-RJJ. The complaint sought class certification, unspecified damages, costs and expenses, and equitable relief against the

51

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company,
its directors and certain executive officers. The complaint was served on the Company on April 6, 2007 and the Company filed a motion to dismiss the complaint on May 31, 2007.
Plaintiff voluntarily dismissed her complaint on June 28, 2007.

On
June 27, 2007, a putative class action complaint also 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, 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.

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. The Board of Directors has formed a Special Litigation Committee
composed of an independent director who is not a party to the litigation, and an unrelated independent person, to review and assess the claims asserted against the defendants.

The
French Tax Administration has 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). The Company disagrees
with their analysis and expects a significant reduction or possible elimination of the additional tax sought by the French Tax Administration.

We
are also 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 RFID technology. The duration of the exclusive agreement is for the life of the
patents, the last of which expire 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.

52

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 is required to purchase a
minimum amount of raw material totaling $569,000 in the first year, and $711,000 per year for the years two through five of the agreement. The prices negotiated under this agreement represent
prevailing market prices at the time of the agreement. As of December 31, 2007, we had purchased more than the minimum required by the agreement.



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 $818,000 as of December 31, 2007.

Note 11. 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):

2007

2006Current:U.S. Federal

$
21

$
U.S. State


7


(9
)France


779


2,929Total Current


807


2,920Deferred:U.S. Federal


(545
)

355U.S. State


(7
)

(6
)France


562


114Total Deferred


10


463Provision for income taxes

$
817

$
3,383


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

2007

2006USA

$
(2,051
)
$
40France


3,108


8,472Pre-tax income

$
1,057

$
8,512


53

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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:

2007

2006Computed expected income tax expense

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

(10.5
)%
(13.4
)%Non-deductible expenses

9.9
%
0.0
%State taxes

(0.8
)%
0.1
%Change in valuation allowance

74.0
%
18.9
%French gain (loss) on U.S. note receivable

1.3
%
(0.5
)%True-ups

(22.6
)%
1.2
%Other, net

(8.0
)%
(0.6
)%Income tax expense

77.3
%
39.7
%


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 $2,032,000 in net operating loss carry forwards. These net operating loss carry forwards expire in 2009 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.

54

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2007

2006Deferred tax assets:Operating loss carry forwards

$
147

$
155Bad debt reserves and inventory


668


564French deferred assets


49


552Stock compensation


450


362Fixed assets


337


Intangibles


857


384Tax credits


4,478


5,417Foreign currency translation





135Other


197


109Total gross deferred tax assets


7,183


7,678Less: valuation allowance


(4,776
)

(4,178
)Total net deferred tax assets


2,407


3,500Deferred tax liabilities:Excess book basis in shares of GPI SAS





1,393Fixed assets





59French deferred liabilities


455


379Other





26Total deferred tax liabilities


455


1,857Deferred tax asset, net

$
1,952

$
1,643


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 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, 2007.



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.

55

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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). The Company disagrees
with their analysis and expects a significant reduction or possible elimination of the additional tax sought by the French Tax Administration.

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

Balance at January 1, 2007

$
237Reductions due to settlements with taxing authorities


(50
)Foreign currency translation


22Balance at December 31, 2007

$
209


As
of December 31, 2007, all of the unrecognized tax benefits would affect the effective tax rate if recognized.

The
Company recognizes interest and penalties related to unrecognized tax positions in the provision for income taxes on the statement of operations. The Company had approximately
$17,000 of interest and penalties accrued at December 31, 2007.

The
Company anticipates there may be a change in the balance of the unrecognized tax benefits within the next twelve months due to continued negotiations related to the French Tax
Administration's audit of GPI SAS as discussed above. At this time, the Company cannot estimate how much the unrecognized tax benefits may change.

Note 12. Stock Option Programs, Warrants and Stock-Based Compensation Expense



We have stock option programs, which consist of 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

56

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 ten years after the date
of the grant, subject to earlier termination for death, termination of employment or retirement.

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. In 2007,
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 350,000, an increase of 200,000 shares; (ii) extend the expiration date of the Director's Plan from January 30, 2009 to January 31, 2014, (iii) clarify that
options vested at the time an optionee ceases to be a director would remain in effect whether or not the options were also exercisable on that date and (iv) provide that the Directors' Plan
will be administered by a committee of not less than two directors. The initial option grant vests over a 3-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 the following committees of the Board of
Directors for at least six months prior to the date of grant: the Audit Committee; the Compensation Committee; and the Compliance Committee. No option is exercisable sooner than six months and one day
after the date of the grant. The options expire on the earlier of the tenth anniversary of the date of grant, nine months after retirement or two years after death.

The
following is a summary of option activity for the years ended December 31, 2006 and 2007:

|                                    |              | Shares  |          | Weighted-Average Exercise Price |      | Weighted-Average Remaining Contractual Term |     | Aggregate Intrinsic Value
(in thousands)
|----------------------------------- | ------------ | ------- | -------- | ------------------------------- | ---- | ------------------------------------------- | --- | ----------------------------------------
|Outstanding at December 31, 2005    |              | 427,634 |          | $                               | 4.95 |                                             |     |                                         
|                                    | Granted      |         | 20,500   |                                 |      | 18.97                                       |     |                                         
|                                    | Cancelled    |         |         |                                 |      |                                            |     |                                         
|                                    | Exercised(1) |         | (100,634 | )                               |      | 7.58                                        |     |                                         
|                                    |              |         |          |                                 |      |                                             |     |                                         
|Outstanding at December 31, 2006(2) |              | 347,500 |          |                                 | 5.02 |                                             |     |                                         
|                                    | Granted      |         | 17,500   |                                 |      | 13.62                                       |     |                                         
|                                    | Cancelled    |         |         |                                 |      |                                             |     |                                         
|                                    | Exercised    |         | (12,500  | )                               |      | 7.77                                        |     |                                         
|                                    |              |         |          |                                 |      |                                             |     |                                         
|Outstanding at December 31, 2007    |              | 352,500 |          | $                               | 5.35 |                                             | 4.8 |                                         
|                                    |              |         |          |                                 |      |                                             |     |                                         
|Exercisable at December 31, 2007    |              | 336,500 |          | $                               | 4.81 |                                             | 4.6 |                                         
|                                    |              |         |          |                                 |      |                                             |     |                                         

---

For
the year ended December 31, 2007, the total intrinsic value of options exercised was $157,000. For the year ended December 31, 2006, the total intrinsic value of
options exercised was $1,322,000; the total intrinsic value of warrants exercised was $1,817,000.

As
part of the consideration for the GPI SAS shares related to the combination, the former GPI SAS stockholders were issued warrants to purchase an aggregate of 459,610
shares. Of these warrants,

57

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

219,109
were exercised and 149,000 were terminated prior to 2006. In 2006, 91,501 warrants were exercised. As such, there were no warrants remaining at December 31, 2006 or December 31,
2007.



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.

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

2007

2006Option valuation assumptions:Dividend yield


None


NoneExpected volatility


71.8
%

98.3
%Risk free interest rate


4.63
%

4.79
%Expected term of options


5.6 yrs


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

$
8.99

$
14.31Exercises under all share-based payment arrangements:Cash received

$
97,000

$
764,000Tax benefit realized from option exercises

$
20,000

$
529,000


The
following table summarizes our reported share-based compensation expense included in our consolidated statements of income as of December 31, 2007 and 2006:

2007

2006General & administrative-stock option share-based compensation

$
220,000

$
234,000Tax benefit


(79,000
)

(84,000
)Total share-based compensation, net oftax benefit

$
141,000

$
150,000


58

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2007, there was a total of $130,000 of unrecognized compensation expense related to stock options, which cost is expected to be
recognized as follows:

Fiscal Year

Amount2008

$
80,0002009


38,0002010


12,000Thereafter


Total

$
130,000


Note 13. Related Party Transactions

We lease two manufacturing facilities totaling 66,500 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 April 2009 at the monthly rent amount of approximately $0.35 per square foot or $23,300. If we elect, at our discretion, to use more or less
square footage, our rent will be increased or decreased accordingly on a pro rata basis Also, in the second quarter of 2006, we began renting, on a month-to-month basis, a
residential property from the General Manager's brother at approximately $800 per month.

An
employee of our manufacturing facility in Mexico also owns and operates a small independent machine shop. In 2007, we used his machine shop to build small metal parts. For the fiscal
year ended December 31, 2007, GPI USA paid this employee, through his business, approximately $41,000.

Neither
of these two employees are a director nor an executive officer. 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.

Note 14. Business Segments

SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," requires public business enterprises to report selected reporting
information about operating segments in annual financial statements and requires public business enterprises to report selected information about operating segments in interim and annual financial
reports. 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

59

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

nor
does it manage each individual product line as a separate business unit. The following tables present certain data by geographic area as of and for the years ended December 31 (in
thousands):

2007

2006Net sales to external customers:United States

$
31,576

53.7
%
$
29,369

39.7
%Asia(1)


18,712

31.8
%

33,595

45.4
%Europe and Russia


5,565

9.5
%

6,697

9.1
%Other(2)


2,968

5.0
%

4,293

5.8
%Total consolidated net sales to external customers

$
58,821

100.0
%
$
73,954

100.0
%


---

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

2007

2006Revenues:Casino chips

$
36,549

62.1
%
$
52,769

71.4
%Table layouts


5,041

8.6
%

5,001

6.8
%Playing cards


3,884

6.6
%

3,846

5.2
%Gaming furniture


3,320

5.6
%

2,717

3.7
%Dice


2,108

3.6
%

2,417

3.3
%Table accessories and other products


5,697

9.7
%

5,383

7.2
%Shipping


2,222

3.8
%

1,821

2.4
%Total

$
58,821

100.0
%
$
73,954

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 4% and 19% of sales for 2007 and 2006, respectively, while another customer comprised less than 1% and 18% of sales for 2007 and 2006, respectively.

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

2007

2006Property and equipment, net:United States

$
6,047

$
5,832France


8,201


7,351Mexico


1,348


1,384Total

$
15,596

$
14,567


60

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2007

2006Goodwill and intangibles, net:United States

$
1,223

$
1,445France


1,480


1,324Total

$
2,703

$
2,769


Note 15. Pension Plan

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 benefits to be paid to eligible employees at retirement based on years of participation and compensation rates in the last years prior to retirement. The following amounts relate
to GPI SAS' defined benefit pension plan as of December 31 (in thousands):

2007

2006Change in benefit obligation:Benefit obligation at beginning of year

$
322

$
224Service cost


34


22Interest cost


16


10Actuarial (loss) gain


(43
)

44Benefits paid





(7
)Effect of foreign exchange rate changes


38


29Benefit obligation at end of year


367


322Change in plan assets:Fair value of plan assets at beginning of year


477


419Actual return on plan assets


11


16Benefits paid





(7
)Effect of foreign exchange rate changes


57


49Fair value of plan assets at end of year(1)


545


477Funded status and prepaid benefit cost

$
178

$
155


---

2007

2006Weighted-average assumptions:Discount rate

4.80
%
4.25
%Expected return on plan assets

3.50
%
3.50
%Rate of compensation increase

2.00
%
2.00
%


The
accumulated benefit obligation at December 31, 2007 was $254,000.

In
September 2006, SFAS 158, "Employers Accounting for Defined Pension and Other Postretirement Plansan amendment of FASB Statement No. 87, 88, 106 and 132R",
was issued. In

61

---



GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 2007 and 2006, we did not make any contribution to the pension plan, and we do not expect to make contributions to the pension plan in 2008. In 2007 and 2006, the
prepaid benefit costs of $178,000 and $155,000, respectively, were recognized in the consolidated balance sheets as deposits in other assets.

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

2007

2006Service cost-benefits earned during the period

$
34

$
22Interest expense on benefit obligation


16


10Expected return on plan assets


(11
)

(16
)Actuarial (gain) loss


(43
)

44Amortization of unrecognized transition asset


(18
)

(17
)Total

$
(22
)
$
43


Projected
benefit payments from the plan as of December 31, 2007 are estimated to be $53,000 in 2009 and an aggregate of $41,000 for 2015-2017.

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,
2007, and 2006 under the combined plan were $54,000 and $52,000, respectively.

Note 16. 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 potential common stock, which consists primarily of assumed stock option and warrant 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):

2007

2006Weighted average number of common shares outstandingBasic

8,101

7,974Potential dilution from equity grants

141

252Weighted-average number of common shares outstandingDiluted

8,242

8,226


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. These outstanding antidilutive options for the years ended December 31, 2007 and 2006 were approximately 41,562
and 13,223, respectively.

62

---





Note 17. Accumulated Other Comprehensive Income

Accumulated other comprehensive income, which is presented net of tax, consists of the following as of December 31 (in thousands):

2007

2006Foreign currency translation

$
3,620

$
1,506Unrealized gain on securities, net of tax





3Unrecognized pension transition asset, net of tax


57


71$
3,677

$
1,580


63

---



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, 2007. Based upon this evaluation, the Company's Chief Executive Officer and
the Chief Financial Officer have concluded that, as of December 31, 2007, 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.

Management's Remediation Initiatives:

As disclosed in the Company's December 31, 2005 and 2006 Form 10-K, management became aware of a material weakness relating to internal
controls over financial reporting involving the
design and operation of controls over share-based payment accounting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In 2005, the controls in
place were not adequate to ensure that the correct accounting treatment was used for stock options which were granted to the Chief Executive Officer in September 2002, conditioned on the Company
attaining a specific performance target. During 2006, the Company adopted SFAS 123(R) which requires expense be measured and recorded for each share-based payment award. In connection with the
preparation of each of the Company's 2006 Form 10-Qs and its Form 10-K, errors were identified in the calculations and disclosures related to stock options. In
response to this material weakness, we took a number of actions during the year and quarter ended December 31, 2007, as outlined below:



In
our Annual Report on Form 10-K for the year ended December 31, 2006, management identified a material weakness in our internal control over financial
reporting processes because, in the United States operations, which includes the corporate reporting function, the Company did not have sufficient personnel with requisite knowledge of generally
accepted accounting principles and related practices to ensure an effective closing process, proper preparation of the financial statements and disclosures for the Form 10-K, and
proper documentation of the Company's important accounting

64

---



policy
and transaction conclusions. In response to this material weakness, we took a number of actions during the year and quarter ended December 31, 2007, as outlined below:



Changes in internal control over financial reporting:

As specifically noted above, there were changes in internal controls over financial reporting during the fourth quarter and year ended December 31, 2007
that have materially affected the Company's internal controls over financial reporting. Based on the improvements listed above, the control deficiencies that existed in prior years have been
remediated and management has determined that there were no material weaknesses in our internal control over financial reporting as of December 31, 2007.

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:



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.

65

---



The
Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2007 set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in "Internal Control-Integrated Framework."

Based
on this assessment, management concluded that, as of December 31, 2007, the Company's internal control over financial reporting is effective based on this framework.

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, 2007, 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,
2007, is incorporated herein by reference.

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, 2007 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     |       | 352,500                                                                                         | (1)     | $                                                                               | 5.35 |                                                                                                                                                  | 194,500
|Equity compensation plans not approved by security holders |       | None                                                                                            |         |                                                                                 | None |                                                                                                                                                  | None   
|                                                           |       |                                                                                                 |         |                                                                                 |      |                                                                                                                                                  |        
|                                                           | Total |                                                                                                 | 352,500 |                                                                                 | $    | 5.35                                                                                                                                             |        
|                                                           |       |                                                                                                 |         |                                                                                 |      |                                                                                                                                                  |        

---

66

---



See
Part IIItem 8. Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 12 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 to be filed within
120 days after our fiscal year end of December 31, 2007, 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, 2007, 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, 2007, is incorporated herein by reference.

PART IV

Item 15.    Exhibits, Financial Statement Schedules.



|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").
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

67

---



|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.                                                                                                                                                                                                                                                                                                                                             
|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 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 August 8, 2007), incorporated herein by reference to: Annex A of our definitive proxy statement dated July 7, 2007 filed with the SEC on July 7,
2007.*                                                                                                                                                                                                                                      
|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.*                                                                                                                                                                                                                                                                
|10.03 |  | Lease dated May 17, 1993, by and between Paul-Son Mexicana S.A. de C.V., as lessee, and Copropledad Arte Y Diseno, as lessor incorporated herein by reference from our registration statement on Form S-1 (SEC No. 33-74758),
Part II, Item 16, Exhibit 10.05.                                                                                                                                                                                                         
|10.04 |  | 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.
|10.05 |  | Lease Agreement dated March 26, 2003, between Copropledad Arte Y Diseno, as lessor, and Paul-Son Mexicana, S.A. de C.V., as lessee, incorporated by reference to Exhibit 10.07 to Annual Report on Form 10-K for the year ended
December 31, 2003.                                                                                                                                                                                                                     
|10.06 |  | Loan Agreement dated February 21, 2001, between Bourgogne et Grasset, as borrower, and BNP Paribas, S.A., as lender (English summary of French language document) incorporated by reference to Exhibit 10.08 to our Annual Report on
Form 10-K for the year ended December 31, 2003.                                                                                                                                                                                   
|10.07 |  | 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.                                                                                                                                                                                                                              
|10.08 |  | Second Amendment to Lease Agreement dated March 1, 2006 between Copropiedad Arte y Diseno, as lessor, and Paul-Son Mexicana, S.A. de C.V., as lessee, incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for
the year ended December 31, 2005.                                                                                                                                                                                               
|10.09 |  | 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.                                                                                                                                                                                                
|10.10 |  | 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.*                                                                                                                                                                                                                                                                                             

68

---



|10.11 |  | 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. *
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 31, 2008 reporting financial results for the three months and year ended December 31, 2007.                                                                                          

---

69

---





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 31, 2008 |  | By:                                      

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 31, 2008 |  | By: | /s/GERARD P. CHARLIERGerard P. Charlier Director, President and Chief Executive Officer
(Principal Executive Officer)
|-------------------- |  | --- | ---------------------------------------------------------------------------------------------------------------------
|Date: March 31, 2008 |  | By: | /s/DAVID W. GRIMESDavid W. Grimes Chief Financial Officer
(Principal Financial and Accounting Officer)               
|Date: March 31, 2008 |  | By: | /s/ERIC P. ENDYEric P. Endy Director                                                                                 
|Date: March 31, 2008 |  | By: | /s/MARTIN A. BERKOWITZMartin A. Berkowitz Director                                                                   
|Date: March 31, 2008 |  | By: | /s/ALAIN THIEFFRYAlain Thieffry Director                                                                             
|Date: March 31, 2008 |  | By: | /s/CHARLES R. HENRYCharles R. Henry Director                                                                         
|Date: March 31, 2008 |  | By: | /s/ROBERT J. KELLYRobert J. Kelly Director                                                                           
|Date: March 31, 2008 |  | By: | /s/ELIZABETH CARRETTEElizabeth Carrette Director                                                                     

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