##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the fiscal year ended October 31,
    2003                                              

Commission file number 000-23401



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GameTech International, Inc.

(Exact name of registrant as specified in its
charter)


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

900 Sandhill Road

Reno, Nevada 89521


(775) 850-6000


(Address, including zip code, and telephone
number, including area code of principal executive
offices)


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

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|None                |  | Not applicable                           

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

Common Stock, par value $.001 per
share

Rights to Purchase Series A Junior
Participating Preferred Stock


(Title of class)


Indicate by check mark whether the registrant
(a) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(b) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2)     Yes o          No þ

The aggregate market value of common stock held
by nonaffiliates of the registrant (6,166,803 shares) based on
the closing price of the registrants common stock as
reported on the NASDAQ National Market on April 30, 2003,
which was the last business day of the registrants most
recently completed second fiscal quarter, was $18,192,069. For
purposes of this computation, all officers, directors, and 10%
beneficial owners of the registrant are deemed to be affiliates.
Such determination should not be deemed to be an admission that
such officers, directors, or 10% beneficial owners are, in fact,
affiliates of the registrant.

As of January 12, 2004, there were
outstanding 11,737,439 shares of the registrants common
stock, par value $0.001 per share.

Documents Incorporated By Reference

None



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TABLE OF CONTENTS



|           |                                                                                                         |  |  |  |  |  |  | 
|---------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I    
|           | Item 1. Business                                                                                       
|           | Item 2. Properties                                                                                     
|           | Item 3. Legal Proceedings                                                                              
|           | Item 4. Submission of Matters to a Vote of Security Holders                                            
|           | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|           | 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                                                    
|           | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|           | Item 9A. Controls and Procedures                                                                       
|PART III  
|           | Item 10. Directors and Executive Officers of the Registrant                                            
|           | 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                                                
|           | Item 14. Principal Accountant Fees and Services                                                        
|PART IV   
|           | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES
|EX-23.1   
|EX-31.1   
|EX-31.2   
|EX-32.1   
|EX-32.2   



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED OCTOBER 31, 2003


TABLE OF CONTENTS

|                                           |  |                                                                                                    |     |      |    | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                           |  |                                                                                                    |     | Page
|                                           |  |                                                                                                    |     |     
|PART I                                    
|Item 1.                                    |  | Business                                                                                           |     |      | 2  | 
|Item 2.                                    |  | Properties                                                                                         |     |      | 15 | 
|Item 3.                                    |  | Legal Proceedings                                                                                  |     |      | 15 | 
|Item 4.                                    |  | Submission of Matters to a Vote of Security
    Holders                                            |     |      | 16 | 
|Item 5.                                    |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |     |      | 17 | 
|Item 6.                                    |  | Selected Financial Data                                                                            |     |      | 17 | 
|Item 7.                                    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |     |      | 18 | 
|Item 7A.                                   |  | Quantitative and Qualitative Disclosures About
    Market Risk                                     |     |      | 25 | 
|Item 8.                                    |  | Financial Statements and Supplementary Data                                                        |     |      | 26 | 
|Item 9.                                    |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |     |      | 26 | 
|Item 9A.                                   |  | Controls and Procedures                                                                            |     |      | 26 | 
|Item 10.                                   |  | Directors and Executive Officers of the Registrant                                                 |     |      | 26 | 
|Item 11.                                   |  | Executive Compensation                                                                             |     |      | 29 | 
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |     |      | 33 | 
|Item 13.                                   |  | Certain Relationships and Related Transactions                                                     |     |      | 34 | 
|Item 14.                                   |  | Principal Accountant Fees and Services                                                             |     |      | 35 | 
|Item 15.                                   |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |     |      | 36 | 
|Signatures                                 |  |                                                                                                    | 38  |     
|Index to Consolidated Financial Statements |  |                                                                                                    | F-1 |     

Statement Regarding Forward-Looking
Statements

The statements contained in this report on
Form 10-K that are not purely historical are
forward-looking statements within the meaning of applicable
securities laws. Forward-looking statements include statements
regarding our expectations,
anticipation, intentions,
beliefs, or strategies regarding the
future. Forward-looking statements also include statements
regarding revenue, margins, expenses, and earnings analysis for
fiscal 2004 and thereafter; expansion of products or product
development; expansion into new domestic and international
markets; potential acquisitions or strategic alliances; and
liquidity and anticipated cash needs and availability. All
forward-looking statements included in this report are based on
information available to us as of the filing date of this
report, and we assume no obligation to update any such
forward-looking statements. Our actual results could differ
materially from the forward-looking statements. Among the
factors that could cause actual results to differ materially are
the factors discussed in Item 1, Business 
Risk Factors.

1



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

General

We design, develop, and market interactive
electronic bingo player terminals and systems. We currently
market portable terminals, which can be played anywhere within a
bingo hall, and fixed-base systems with light pen- or
touchscreen-activated monitors. We have portable and fixed-base
terminals operating in charitable, Native American, and
commercial bingo halls. Both our portable and fixed-base systems
display electronic bingo card images for each bingo game. Our
electronic bingo terminals enable players to play substantially
more bingo cards than they can play on paper cards, typically
leading to a greater spend per player and higher profits per
bingo session for the bingo operator. We install the electronic
bingo systems, typically at no cost to the operator, and charge
either a fixed fee per use per terminal per session, a fixed
weekly fee per terminal, or a percentage of the revenue
generated by each terminal. We typically enter into one- to
three-year contracts with bingo operators.

Our company was founded in 1994 by executives
previously involved in the bingo, slot machine, lottery, and
high-technology software and hardware industries to pursue the
belief that an advanced, interactive, electronic bingo system
would be well received by both bingo hall operators and players.
We believe our experienced management team, quality electronic
bingo systems, and reputation for superior customer service and
support enable us to compete effectively in the highly
competitive bingo industry.

Bingo is a legal enterprise in 47 states
(excluding Arkansas, Hawaii, and Utah) and the District of
Columbia. Nonprofit organizations sponsor bingo games for
fundraising purposes, while Native American, commercial
entities, and government-sponsored entities operate bingo games
for profit. As of October 31, 2003, we had systems in
approximately 25 of the more than 30 states that allow
electronic bingo systems for use with charitable and commercial
organizations. Under the Indian Gaming Regulatory Act, or IGRA,
electronic bingo may be played on Native American lands in the
46 states where bingo is legal. We estimate that bingo currently
is played on Native American lands in 30 states. As of
October 31, 2003, we had units in operation in Native
American bingo halls in 13 of those states. Collectively,
as of October 31, 2003, we had products in 35 states
and in five foreign countries.

Our website is located at
www.gametech-inc.com. Through our website, we make
available free of charge our annual reports on Form 10-K,
our proxy statements, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or
15(d) under the Securities Exchange Act. These reports are
available as soon as reasonably practicable after we
electronically file those materials with the Securities and
Exchange Commission.

Business Strategy

Our goal is to be the leading provider of
electronic bingo products and back-office bingo management
systems in the United States, on Native American lands, and
internationally. Key elements of this strategy include the
following:



| |                                        
| | ---------------------------------------
| | Emphasize Superior Customer
    Service

We plan to continue to emphasize our customer
service programs to enable us to maintain a high level of
customer loyalty and satisfaction, which translates into
long-term customer relationships. Approximately 40% of our
employees are field service technicians who are on call seven
days a week to support customers and respond promptly to their
needs. We believe our dedication to superior customer service
has contributed to the acceptance of our products and our
ability to attract and retain long-term customers.



| |                         
| | ------------------------
| | Expand Product Offerings

We plan to continue to expand our product
offerings to provide bingo players with more choices and price
points and introduced our new TravelerTM portable
terminal at the Global Gaming exhibition in September

2



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2003. The Traveler expands our offering of
portable bingo terminals and incorporates many of the attributes
of the successful Palm-Top terminal with a second generation
technology platform and color display. We believe the Traveler
will reduce our operating expenses including repairs and
refurbishment costs, and add a higher level of reliability for
our customers.


Our wide range of electronic bingo products allow
bingo operators to offer players many choices when establishing
their purchases for bingo games. Operators are then better
positioned to ensure they meet the needs of all levels of
customers. We are continuing to focus our efforts on expanding
our product lines so bingo operators can offer players
everything from low cost terminals to higher priced player
terminals, as well as terminals that are capable of supporting a
variety of different games that provide a higher level of
entertainment value. Our current product portfolio includes four
portable models and two fixed-base terminal offerings.



| |                                               
| | ----------------------------------------------
| | Increase Player Usage of Bingo
    Electronics

There is an opportunity to continue to attract
bingo players who would normally only use paper bingo cards to
also utilize electronic terminals when playing bingo. Our
internal sales personnel and third-party distributors focus
their efforts on actively promoting the use of electronics with
players in our markets and in new markets. These efforts include
partnering with bingo operators in certain jurisdictions for
promotions and other marketing to educate players on the
benefits and entertainment value of electronics.



| |                                     
| | ------------------------------------
| | Expand into New Domestic
    Markets

As part of our strategy to facilitate the
expansion of the charitable electronic bingo market, we are
pursuing legislative changes to allow or enhance the environment
for electronic bingo in various strategic markets. In addition,
we intend to expand the number of route operations to serve
bingo halls that otherwise would be uneconomical to serve. The
route operations move our portable terminals between various
charitable bingo halls on days that the respective halls hold
bingo sessions. These route operations allow us to penetrate
numerous charitable games that only play one or two sessions of
bingo each week while allowing us to maintain our desired level
of utilization to ensure effective use of our products and
systems.



| |                       
| | ----------------------
| | Expand Internationally

We plan to continue to expand our operations
outside of the United States. We currently have a small
installed base of terminals in the United Kingdom, Canada, the
Philippines, Norway, and Japan. We are actively pursuing
additional expansion into the United Kingdom, Norway, and
certain provinces in Canada. In the United Kingdom, we are
working with major bingo operators to increase player acceptance
levels and capitalize on the potential of placing additional
electronic bingo terminals in bingo clubs. We are also
evaluating opportunities to expand into other countries.



| |                         
| | ------------------------
| | Develop New Applications

We maintain an ongoing product development
program focused on enhancing our existing products and
developing new products and additional applications for our
technology. During fiscal 2003, we significantly increased the
staffing of our research and development department and have
increased expenditures in outside research and development
costs. We anticipate that the higher level of research and
development expenditures experienced in fiscal 2003 will
continue during fiscal 2004.

During 2003, we introduced a new product feature
called Pay-N-PlayTM, which supports a fast paced or
speed bingo game as well as limited introduction of the
Traveler, a color portable terminal that provides enhanced
graphics and a higher level of entertainment to players. The
Traveler terminal is expected to be released to the general
market during fiscal 2004.

3



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We developed one-way radio frequency, or RF, for
use on several of our portable products during 2002. We will
continue with the widespread rollout of this wireless
communications function during 2004.



| |                                                                 
| | ----------------------------------------------------------------
| | Develop Strategic Alliances/ Acquire
    Complementary Companies

We plan to continue to review opportunities to
grow through strategic alliances and acquisitions that could
extend our presence into new geographic markets, expand our
client and product base, add new products, and provide operating
synergies.

Products

We provide bingo operators with a variety of
electronic player terminals and back-office management systems.
Our player terminals operate on one of two proprietary operating
systems known as NEDTM and DiamondTM.
These operating systems include Point-of-Sale, or POS,
functionality for bingo operators that allow them to consolidate
to one system for selling paper and electronics, while also
loading the appropriate sales information to electronic player
terminals. Both systems also provide bingo operators with a
verifier that confirms whether a called BINGO is
legitimate and has been won on a bingo card (whether electronic
or paper) that was sold during the session being played.

We also offer bingo operators a back-office
management system known as AllTrak®2 while continuing to
support our legacy product, AllTrak®. Although offered
separately, AllTrak 2 is typically integrated with our
electronic bingo terminals to provide a bingo hall with a
package of accounting and marketing information that enhances
the bingo operators ability to manage the bingo hall. The
original AllTrak back-office management system operates a
multi-purpose DOS-based back-office accounting system for bingo
hall operators on a PC platform. The AllTrak 2 system is a
Windows-based, multi-purpose accounting system for bingo hall
operators running on standard PCs. Both AllTrak systems operate
together with the Diamond operating system and significantly
enhance the user interface at POS terminals. In addition, the
systems provide inventory-tracking capabilities for bingo paper,
complete sales data, player tracking systems and more.

We design our bingo systems to provide maximum
appeal to bingo players and hall operators. The primary benefits
to players of electronic bingo terminals include the following:



| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ability to play up to 600 electronic bingo
    card images during one bingo game, significantly more than can
    be played on paper;                                       
|
| |  | the ability to electronically and simultaneously
    mark the called numbers on all cards being played, thereby
    reducing player error in missing or mismarking a number; and
|
| |  | the ability to alert the player upon attaining a
    BINGO, thereby reducing the chance a player misses
    winning a prize.                                                  

Our terminals are also designed to enhance the
entertainment value of playing bingo. Our terminals allow
players to customize certain aspects of the user interface, and
our fixed-base terminals incorporate picture-in-picture and
audio technology. In many markets, players can also play
alternative games, such as solitaire, for entertainment only
during bingo sessions. Our portable terminals allow players to
play bingo electronically while sitting in a players
preferred seat or moving around the bingo hall. The ease of
using our electronic bingo terminals makes playing bingo
possible for players with physical disabilities that may prevent
them from playing on paper, which normally involves marking
multiple paper bingo cards by hand with an ink dauber. We
believe that these aspects of our electronic bingo systems make
them more appealing to players than paper cards.

We currently market two types of electronic bingo
products: portable and fixed-base electronic bingo systems. Many
bingo hall operators offer players both portable and fixed-base
terminals in order to satisfy varying customer preferences and
price levels.

4



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| |                       
| | ----------------------
| | Portable Bingo Systems

We currently have the following four variations
of portable bingo terminals in commercial use:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the TED2CTM terminal, our
    top of the line color portable terminal;                 
|
| |  | the Traveler terminal, our new state-of-the-art
    portable color terminal;           
|
| |  | the Palm Top terminal, which is our high-end
    black and white portable terminal; and
|
| |  | the TED® terminal, which is our lower-cost
    black and white portable terminal.      

Our portable bingo systems operate similarly to
our fixed-base systems, except that players must manually enter
the numbers as they are called. As numbers are input into the
terminals, either manually or by way of wireless communication,
each bingo card being played is then simultaneously marked.
These terminals can mark up to 600 cards per game. In a portable
system, the file server, caller unit, and sales units are
similar to, and can be shared with, those of fixed-base systems.
The portable terminal can recognize almost any bingo game format
that the bingo operator wishes to play and alerts the player,
both audibly and visually, when BINGO has been
achieved. Portable terminals are battery powered with
rechargeable battery packs. Portable terminals are recharged
between bingo sessions in charging crates, which handle
27 Palm Top, 25 TED, 12 TED2C and
12 Traveler terminals, respectively.

The TED2C terminal is our premier
portable product. With a color screen and graphics similar to
our fixed-base bingo systems, it offers a superior player
experience. The TED2C terminal can display up to
16 cards at one time and play up to 600 cards in one game.
This easy-to-use device operates using either the AllTrak 2
back-office system or Diamond Bingo® POS system.

The Traveler is a new player terminal that
incorporates a next generation of technology that we plan to use
as a foundation for future products. Traveler is designed to
cater to players who prefer a compact portable terminal with a
color display and wireless communications. The terminal utilizes
our crate loading methodology eliminating the need to load a
players information into an individual terminal at the POS
station. This easy-to-use device operates using either the
AllTrak 2 back-office system or the Diamond Bingo POS
system.

The Palm Top terminal is the high-end black and
white portable in our product portfolio. It shows three bingo
card faces at all times and can play up to 600 cards in one
game. This device resembles a palm top PC and operates on a 386
processor using the Diamond Bingo POS system.

The TED terminal is the lower-cost version of our
Palm Top. With the exception of appearance, the TED terminal
operates in all aspects on a similar basis as the Palm Top. The
TED terminal can display four bingo cards at a time rather than
three cards as in the case of the Palm Top. The TED terminal
functions from a proprietary motherboard and operates using the
NED or Diamond Bingo POS system and the AllTrak or
AllTrak 2 back-office system.



| |                         
| | ------------------------
| | Fixed-Base Bingo Systems

Our fixed-base bingo systems consist of a local
area network of microcomputers, including the file server, the
caller unit, the sales unit, and the players terminal. All
terminals in the fixed-base bingo system use microcomputer
hardware and can be operated with light pens or touchscreens.
Fixed-base terminals can be played in automatic mode or in
manual mode, which requires the players to enter each number
called. Players can switch between the two modes as they choose
if they are playing in a jurisdiction that allows for automatic
daubing. In either mode, up to 600 electronic bingo card images
can be marked simultaneously. A complete fixed-base bingo system
consists of the following:

File Server.The
file server runs the network. All bingo game data is processed
and stored through this unit.

Caller Unit.The
caller unit, which is located on the callers stand, allows
the caller to communicate with each players terminal by
use of a touchscreen. By simply touching the screen, the caller
enters ball numbers drawn, game number, game patterns, and wild
numbers. The caller unit connects with each players

5



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fixed-base terminal to verify electronic bingo
card images and enables the winning electronic bingo card images
and paper cards to be displayed on monitors within the bingo
hall. The caller unit typically contains a modem that allows us
to access data remotely, thereby enabling us to monitor the use
of our terminals. Data from the system is also available to
assist bingo hall operators to manage their halls.


Sales Unit.The
sales unit is a point-of-sale terminal, typically located near
the entrance of a bingo hall, where all customer purchases are
made. Using a light pen or touchscreen, the cashier activates
player buy-in choices for the session and the unit automatically
calculates pricing and totals. The player receives a printed
receipt itemized by date, session, and quantity of electronic
bingo card images purchased.

Players
Terminal.Each players terminal
consists of a separate computer, monitor, and either a light pen
or touchscreen. Each players terminal is housed in a
customized wooden or metal table with up to six terminals per
table. Players can cycle through all of their electronic bingo
card images while play is proceeding. The players terminal
marks the numbers called on each electronic bingo card image
being played, either automatically or after the player enters
the number called. The terminal displays the players three
electronic bingo card images that are closest to a
BINGO. The free space at the center of any
electronic bingo card image that is one number away from
BINGO flashes to notify the player. The terminal
typically sounds an alert alarm and the screen flashes when
BINGO is achieved.

Product and System Software
Development

We conduct an ongoing research and development
program to enhance the features and capabilities of our bingo
systems, to maintain a competitive advantage in the marketplace,
and to extend our product line with new games and applications.

During 2003, we introduced a new product feature
called Pay-N-Play, which supports a fast paced or speed bingo
game. This application of the Pay-N-Play feature requires a
strictly electronic bingo atmosphere where players make their
card purchases on a game-by-game basis rather than for a fixed
number of games. The prize board for each game using the
Pay-N-Play feature is determined as a percentage of the total
amount wagered on each game, helping to ensure a profitable game
for the operator. This feature allows operators to offer a bingo
based game to players during non-session times of the day, as
well as during regular sessions, helping them increase their
revenue per square foot in dedicated bingo areas. We expect to
continue to receive a strong demand for the Pay-N-Play feature
throughout fiscal 2004 as bingo operators seek to expand their
ability to offer players a variety of entertainment choices. The
Pay-N-Play feature is currently available for use in a limited
number of charitable bingo jurisdictions and we intend to expand
availability during the year. Pay-N-Play is available for broad
use tribally.

In 2001 we developed the TED2C
terminal, followed by the Traveler terminal in 2003. We are
dedicating resources to further enhance the AllTrak systems to
provide complete business solutions to bingo operators. We are
consistently improving and upgrading our software applications.
We have expanded our research and development team to better
address this important aspect of our business.

We developed one-way radio frequency, or RF, for
use on several of our portable products during 2002. We will
continue with the widespread rollout of this wireless
communications function during 2004.

During fiscal 2003, we spent approximately
$3.8 million for company-sponsored research and development
activities compared with approximately $2.1 million during
fiscal 2002 and approximately $1.7 million (excluding
relocation and retirement of co-founder costs) during fiscal
2001.

Sales, Marketing, and Distribution

We utilize a direct sales force as well as a
network of third-party distributors to promote the use and
placements of our electronic bingo terminals and systems.

We strive to work with only those third-party
distributors who have the largest market share in bingo supplies
for their respective geographic areas. Most distributors carry a
complete range of bingo supplies, such as paper, ink daubers,
and other consumable products that bingo operations may require.
Our distributors

6



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##### Table of Contents



typically work in defined geographic
jurisdictions under one- to three-year agreements with
exclusivity provisions where applicable with us. This
exclusivity allows us to align our mutual interests in the
market and seek to maintain our market leading positions.


Our internal sales force works to support our
network of distributors as well as service customers directly in
certain markets. Our staff of sales personnel consults with
bingo operators to optimize the use of electronics in their
games and to improve their profitability.

Our marketing strategy is to target bingo
operators and demonstrate the benefits of our bingo systems to
both bingo operators and bingo players. Our superior customer
service and quality products are designed to promote player
loyalty and long-term relationships with bingo operators.

Our installation package typically includes the
following:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | installation by us at no cost to the bingo
    operator;    
|
| |  | training sessions for the bingo staff;                      
|
| |  | promotional sessions to introduce players to the
    system;
|
| |  | advertising package and point-of-sale materials;
    and    
|
| |  | an ongoing maintenance program.                             



| |               
| | --------------
| | Target Markets

We target the thousands of charities licensed to
operate bingo games in the United States and Canada. We also
target Native American bingo halls. As of December 31,
2003, we had approximately 500 locations serving approximately
1,500 bingo operators, including many charitable bingo halls in
which we or our distributors have multiple customers. For the
year ended October 31, 2003, portable terminals generated
approximately 73% of our revenue and fixed-based terminals
generated approximately 27% of our revenue.

As of December 31, 2003 we operated in 35
states and five foreign countries. We are actively pursuing
additional opportunities in other states and countries as well
as increased activity at existing sites.

Materials and Supplies

The hardware portion of our TED and
TED2C terminals are assembled by Electronic Evolution
Technologies, Inc., or EET, a Nevada-based manufacturer. In
addition, EET refurbishes those TED, Palm Top, and
TED2C terminals that we do not refurbish internally.
Our Traveler terminals are assembled by Western Electric, an
Idaho-based manufacturer. We do not have any long-term supply
contracts with EET or Western Electric.

We source all fixed-base bingo systems from
various domestic suppliers, and we configure those systems at
our facility in Nevada. We have not had any significant delays
in securing our portable, or fixed-base bingo systems. We
require that the assemblers of our terminals be dedicated to
high quality and productivity as well as support for new product
development. There are significant risks inherent in relying on
few suppliers for substantially all of our products. See
Item 1, Business  Risk Factors 
We depend on third-party suppliers for our portable
terminals.

Intellectual Property

We have registered trademarks with the
U.S. Patent and Trademark Office for the following names:
TED, Bingo Card Minder, Bingo
Technologies Corporation, AllTrak,
AllTrak2, Cadillac Bingo, Diamond
Bingo, Diamond Plus Bingo, Diamond
Ted, and The Electronic Dauber. We have
trademark applications pending with the U.S. Patent and
Trademark Office for the following names: Diamond
Elite, Diamond Pro, Diamond VIP,
GameTech and Design, Pay-N-Play,
TED2C, GameTech, Hot
Jewels, Race Tabs, Bingo Easy Tabs
System, Blazing Quarters, Electronic
Daubing Goes Extreme, Nevada Classic,
Sunken Treasurer, The Bingo Players
Choice,

7



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##### Table of Contents



Traveler and Firestar. We
have registered Canadian trademarks for the following names:
Diamond Ted, and The Bingos Players
Choice. We have Canadian trademark applications pending
for the following names: Diamond Bingo,
Diamond Plus Bingo, Race Tabs,
AllTrak, GameTech, GameTech and
Design, Diamond Elite, Diamond
Pro, Diamond VIP, Pay-N-Play,
TED, and TED2C. We have
registered Norwegian trademarks for the following names:
GameTech and Design and TED. We have
Norwegian trademark applications pending for the following
names: GameTech and Pay-N-Play. We
cannot provide assurance that any of our domestic or foreign
trademark applications will be granted.


Competition

The electronic bingo industry is characterized by
intense competition based on various factors, including the
ability to enhance bingo hall operations and to generate
incremental revenue for bingo hall operators through product
appeal to players, ease of use, serviceability, customer support
and training, distribution, name recognition, and price. We
compete primarily with other companies providing electronic
bingo terminals, including California Concepts, Bettina Corp.,
Bingo Brain, Inc., EZ Bingo, FortuNet, Inc., Planet Bingo,
Jenosys, and BK Entertainment. In addition, we compete with
other similar forms of entertainment, including casino gaming,
other forms of Class II gaming, and lotteries. Increased
competition may result in price reductions, reduced operating
margins, conversion from lease to sale of our units, and loss of
market share, any of which could materially and adversely affect
our business, operating results, and financial condition.
Furthermore, existing and new competitors may expand their
operations in our existing or potential new markets. We have
attempted to counter competitive factors by providing superior
service, new, innovative, and quality products and software
improvements. We believe that the quality of our full array of
portable and fixed-base bingo systems, combined with superior
service and customer support, differentiate us from our
competitors.

Government Regulation

We are subject to regulation and oversight by
governmental authorities in virtually all jurisdictions in which
we conduct business. As of December 31, 2003, we held
approximately 60 licenses with various regulatory agencies. The
regulatory requirements vary from jurisdiction to jurisdiction.
Governmental regulations may require licenses, approvals,
findings of suitability, or qualifications for our company as
well as for our products, officers, directors, certain
personnel, significant stockholders, or other associated
parties. The term significant stockholder typically
refers to any beneficial owner of 5% or greater of our capital
stock. Any person who fails or refuses to comply with these
regulatory requirements could be subject to disciplinary or
legal action, which could adversely impact our company,
including the loss of any existing license and our ability to
conduct business in one or more jurisdictions. The licensing
approval and finding of suitability processes can be lengthy and
expensive. On Native American lands, regulation results from the
laws of each tribe, the provisions of IGRA, and various state
compacts. Many jurisdictions have comprehensive licensing,
reporting, and operating requirements with respect to the
manufacture, sale, lease, use, and operation of bingo and
bingo-related products, including electronic bingo equipment.
These requirements have a direct impact on the conduct of our
day-to-day operations. In substantially all states in which
charitable bingo is legal, the state imposes limits on prizes on
a per-game, per-session, or annual basis. Many government
agencies license or otherwise regulate manufacturers and
suppliers of bingo equipment; various levels of government
prohibit the rental or leasing of bingo equipment; and other
states regulate whether equipment may be rented at a fixed or
percentage rate.

Generally, regulatory authorities may deny
applications for licenses, other approvals, or findings of
suitability for any cause they may deem reasonable. There can be
no assurance that our company or our products, personnel,
officers, directors, significant stockholders, or other
associated parties will receive or be able to maintain any
necessary licenses, other approvals, or findings of suitability.
The loss of a license in a particular state may prohibit us from
realizing revenue in that state and may adversely impact our
license and ability to realize revenue in other states. Any
change in law or regulation by a state, or an unfavorable
interpretation of any law or regulation, could adversely impact
us by, among other things, reducing prize

8



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##### Table of Contents



limits, further regulating suppliers of bingo
equipment, prohibiting rental or leasing of bingo equipment,
restricting rental rates, or causing the loss of one or more of
our licenses.




| |                  
| | -----------------
| | Nevada Regulation

We are currently classified as a manufacturer and
distributor of associated equipment pursuant to the provisions
of the Nevada Gaming Control Act and regulations promulgated
thereunder. Associated equipment manufacturers and distributors
that sell, transfer, or offer associated equipment for use or
play in Nevada may be required to file a licensing application
for a finding of suitability at the discretion of the Nevada
Gaming Commission on the recommendation of the Nevada State
Gaming Control Board. To date, the Nevada gaming authorities
have not required us to file a licensing application for a
finding of suitability as an associated equipment manufacturer
or distributor.

Our associated equipment is subject to evaluation
and approval by the state of Nevada prior to product placement
or installation. Each of our associated equipment products that
are in distribution in Nevada (except for those products in
research and development) have been submitted to and approved by
the state of Nevada.



| |                  
| | -----------------
| | Tribal Regulation

Gaming on Native American lands, including the
terms and conditions under which gaming equipment can be sold or
leased to Native American tribes, is or may be subject to
licensing and regulation under IGRA and the laws of the federal
government, the tribes, and the host state, where applicable.
Under IGRA, gaming activities are classified as Class I,
II, or III. Class I gaming includes social games played
solely for prizes of minimal value, or traditional forms of
Native American gaming engaged in as part of, or in connection
with, tribal ceremonies or celebrations. Class II gaming
includes bingo and other card games authorized or not explicitly
prohibited and played within the host state, but does not
include banking card games, such as baccarat or blackjack.
Class III gaming includes all forms of gaming that are not
Class I or Class II, including slot machines, video
lottery terminals, and casino style games or any other games
prohibited by the host state. A Native American tribe typically
conducts Class II gaming under IGRA without having entered
into a written compact with its host state if the host state
permits similar forms of gaming, but must enter into a separate
written compact with the state in order to conduct
Class III gaming activities. Under IGRA, tribes are
required to regulate all gaming under ordinances approved by the
Chairman of the National Indian Gaming Commission. These
ordinances may impose standards and technical requirements on
gaming hardware and software, and may impose registration,
licensing, and background check requirements on gaming equipment
manufacturers and suppliers and their key personnel, officers,
directors, and stockholders.

IGRA defines Class II gaming to include
the game of chance commonly known as bingo, whether or not
electronic, computer or other technologic aids are used in
connection therewith, and defines Class III gaming to
include electronic or electromechanical facsimiles of any
game of chance or slot machines of any kind. We believe
that both our portable and fixed-base terminals are
Class II products. In the event that either is classified
as a Class III device, such a designation would reduce the
potential market for the devices because only Native American
gaming halls that have entered into a tribal-state compact that
permits Class III electronic gaming systems would be
permitted to use the device, unless we could modify the systems
to have them reclassified as a Class II game. We may not be able
to make any such modifications in the event of such a
classification.



| |                   
| | ------------------
| | Federal Regulation

The Federal Gambling Devices Act of 1962, also
called the Johnson Act, generally makes it unlawful for a person
to manufacture, deliver, or receive gaming machines, gaming
machine-type devices, and components across state lines or to
operate gaming machines unless that person has first registered
with the U.S. Department of Justice. In addition, the
Johnson Act imposes various record keeping, annual registration,
equipment registration, and equipment identification
requirements. Violation of the Johnson Act may result in seizure
and forfeiture of the equipment as well as other penalties.

9



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| |                                                 
| | ------------------------------------------------
| | State Regulation of Electronic Bingo
    Systems

Our electronic bingo products, including our
portable and fixed-base terminals, encounter greater regulation
than traditional paper bingo. Applicable federal, state, tribal,
and local regulations and enforcement vary significantly by
jurisdiction.

Electronic bingo in charitable halls is less
widely permitted than paper bingo, primarily because many state
laws and regulations were enacted before electronic bingo was
introduced. We believe that electronic bingo in charitable halls
is currently permitted in more than 30 of the 50 states. Because
many state laws and regulations are silent or ambiguous with
respect to electronic bingo, changes in regulatory and
enforcement personnel could impact the continued operation of
electronic bingo in some of these states. In addition, some
regulatory authorities require the demonstration, testing,
approval, or modification of electronic bingo systems prior to
placement in those states.



| |                              
| | -----------------------------
| | Systems Security Requirements

The integrity and security of electronic bingo
systems are closely scrutinized by certain jurisdictions in
which we operate. Changes in the technical requirements for
approved electronic bingo systems in various charitable and
tribal jurisdictions could prohibit us from operating in those
jurisdictions or could require us to substantially modify our
products at significant expense.



| |                                                                
| | ---------------------------------------------------------------
| | Application of Future or Additional
    Regulatory Requirements

We intend to seek the necessary licenses,
approvals, and findings of suitability for our company, our
products, or our personnel in jurisdictions in which we
anticipate significant bingo activities. However, these
licenses, approvals, or findings of suitability may not be
obtained timely, if at all, and, if obtained, may be
subsequently revoked, suspended, conditioned, or not renewed. In
addition, we may not be able to obtain the necessary approvals
for our future products. If a regulatory authority in a
jurisdiction requires a license, approval, or finding of
suitability and our company or stockholders fail to seek or do
not receive the necessary license or finding of suitability, we
may be prohibited from distributing our products for use in the
jurisdiction or may be required to distribute our products
through other licensed entities, which generally would result in
a reduced profit to us.

Employees

As of January 1, 2004, we had approximately
260 full-time equivalent employees. We are not subject to
collective bargaining agreements with our employees, and we
believe that our relations with our employees are good.

Risk Factors

The following factors, in addition to those
discussed elsewhere in this report, should be carefully
considered in evaluating our company and our business.



| |                                                          
| | ---------------------------------------------------------
| | We depend on the bingo and electronic bingo
    industry.

Our future revenue and profits depend upon
continued market acceptance of our products and services, the
continued penetration of electronic bingo into bingo halls
nationwide, and various other factors, many of which are beyond
our control. For example, we depend on the continued popularity
of bingo as a leisure activity and as a means of charitable
fundraising. The bingo industry is a mature industry and may
decline in the future as a result of an increase in competing
forms of entertainment, including those resulting from
developments in online gaming and the continued expansion of the
legalization of casino gaming, such as riverboat gaming.

10



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| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Our success depends on our ability to
    respond to rapid market changes and product
    enhancements.

Our products utilize hardware components
developed primarily for the personal computer industry, which is
characterized by rapid technological change and product
enhancements. Should any of our current or potential competitors
succeed in developing a better electronic bingo system, those
competitors could be in a position to outperform us in our
ability to exploit developments in microprocessor, video
technology, or other multimedia technology. The emergence of an
electronic bingo system that is superior to ours in any respect
could substantially diminish our revenue and limit our ability
to grow. Any failure of our company to respond to rapid market
changes and product enhancements could have a material adverse
effect on our business, results of operations, and financial
condition.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Some of our customers may terminate
    agreements with us on relatively short notice.

Some of our agreements with customers may permit
termination by the customers upon relatively short notice to us
and without penalty, and do not designate us as the
customers exclusive electronic bingo system provider. Some
contract terms may not be memorialized in writing.



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our compliance with several governmental
    and other regulations is costly and subjects our company to
    significant risks.

We must maintain the existing licenses and
approvals necessary to operate in our existing markets and
obtain the necessary licenses, approvals, findings of
suitability, and product approvals in all additional
jurisdictions in which we intend to distribute our products. The
licensing and approval processes can involve extensive
investigation into our company and our products, officers,
directors, certain personnel, significant stockholders, and
other associated parties, all of which can require significant
expenditures of time and resources. We must also comply with
applicable regulations for our activities in any international
jurisdiction into which we expand. We may not receive licensing
or other required approvals in a timely manner in the
jurisdictions in which we are currently seeking such approval.
The regulations relating to company and product licensing are
subject to change or change in interpretation, and other
jurisdictions, including the federal government, may elect to
regulate or tax bingo. We cannot predict the nature of any such
changes or the impact that such changes would have on our
business. The loss of a license in a particular jurisdiction may
prohibit us from generating revenue in that jurisdiction, may
prohibit us from installing or maintaining our units in other
jurisdictions, and may have a material adverse effect on our
business, results of operations, and financial condition.



| |                                                               
| | --------------------------------------------------------------
| | We depend on third-party suppliers for
    portable terminals.

The hardware portion of our TED and
TED2C terminals are assembled by Electronic Evolution
Technologies, Inc., or EET, a Nevada-based manufacturer. In
addition, EET refurbishes those TED, Palm Top, and
TED2C terminals that we do not refurbish internally.
Our Traveler terminals are assembled by Western Electric, an
Idaho-based manufacturer. We believe either manufacturer could
assemble any of our portable terminals. We would need to locate
a replacement contract manufacturer if both EET and Western
Electric ceased doing business with us. Although we believe that
we could locate a substitute contract manufacturer, any such
replacement would involve some delay, and we may not be able to
procure, substitute, or produce our terminals without
significant interruption or price increase. Any failure of our
company to receive refurbished or new terminals could have a
material adverse effect on our business, results of operations,
and financial condition.

We purchased the assembled hardware portion of
our Palm Top terminals and components from Tidal Power
Technologies, Inc., a Taiwan-based manufacturer. However, we
ceased purchase of terminals during fiscal 2001 and do not
intend to make any purchases in the future. We do not have any
long-term supply contracts with Tidal Power. If we renewed
production of our Palm Top terminal, we would need to find a
replacement component supplier if Tidal Power ceased doing
business with us. If our company required Palm Top components to
maintain the operation of our Palm Top terminal and failed to
receive them, it could result in a material adverse effect on
our business, results of operations, and financial condition.

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| |                                                          
| | ---------------------------------------------------------
| | We depend on our relationships with our
    distributors.

We derive a significant portion of our revenue
from customers serviced through distributors. Our distributors
place our products with our customers and often maintain the
primary relationship with the bingo halls. Generally, we or our
distributors enter into one- to three-year agreements with the
customers to use our systems and terminals. We rely on our
distributors to a significant degree in the states in which the
law requires us to place our systems and terminals through
qualified distributors. The loss of our relationship with one or
more of our distributors may require us to develop our internal
sales force or engage new distributors to place our systems and
terminals, which could be time consuming and expensive. The loss
of one or more of our significant distributors may have a
material adverse effect on our business, results of operations,
and financial condition.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | We depend on Native American laws in the
    operation of a portion of our business.

Our units are operated in many bingo halls
located on Native American reservations in the United States.
State and federal laws governing the business or other conduct
of private citizens generally do not apply on Native American
lands. We may have limited recourse if any Native American tribe
operating a particular bingo hall seized the terminals or barred
entry onto the reservation in the event of a contract or other
dispute. However, any seizure of our terminals is likely to
result in a capital loss and loss of revenue to our company and
could, were it to occur on a large scale, have a material
adverse effect on our business, capital resources, results of
operations, and financial condition.



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our games were classified as
    Class III games under the Indian Gaming Regulatory Act, we
    may not be able to obtain the necessary state approval to
    operate our business, or we may have to modify our systems to be
    classified as Class II games.

Our operations in Native American gaming halls,
which generated approximately 26% of our revenue during fiscal
2003, are subject to tribal and federal regulation under IGRA,
which established the National Indian Gaming Commission, or
NIGC. The NIGC has the authority to adopt rules and regulations
to enforce certain aspects of IGRA and to protect tribal
interests. Under IGRA, electronic bingo devices similar to ours
have previously been determined by the NIGC to be Class II
products that are subject solely to tribal regulation as
approved by the NIGC. We believe our electronic bingo systems
meet all of the requirements of a Class II game. We cannot
provide assurance that the NIGC would not enact future
regulations or reinterpret existing regulations in such a manner
so as to limit the authority of tribes to self-regulate
Class II gaming or to change the definition of
Class II gaming in such a manner that our electronic bingo
systems are classified as a Class III game under IGRA. If
classified as Class III games, our electronic bingo systems
could become subject to federal and state regulation through the
Johnson Act and through tribal-state compacts required for
Class III games played on Native American lands. In that
event, or in the event other federal laws are enacted or
interpreted differently that would subject our operations on
Native American lands to state regulation, we may not be able to
modify our electronic bingo systems to be classified as
Class II games, or we may not obtain the necessary state
approval and licenses to continue our operations in Native
American gaming halls. Any such event could have a material
adverse effect on our business, results of operations, and
financial condition. Any modifications of our electronic bingo
systems would also have the additional risk that such
modifications would not appeal to customers or be acceptable to
the Native American tribes.



| |                                                                          
| | -------------------------------------------------------------------------
| | We rely on the Texas market for a
    significant portion of our revenue.

The concentration of our revenue in the Texas
market, which generated approximately 19% of fiscal 2003
revenue, potentially heightens the exposure of regulatory
changes or market changes that may prevent or impede us from
doing business in that state. Furthermore, the loss of or
inability of our company to find suitable distributors in Texas,
where state law requires electronic bingo devices and systems to
be placed through qualified distributors, could cause a material
adverse effect on our business, results of operations, and
financial condition.

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| |                                                            
| | -----------------------------------------------------------
| | The electronic bingo industry is extremely
    competitive.

The electronic bingo industry is characterized by
intense competition based on, among other things, the ability to
enhance the operations of and to generate incremental sales for
bingo operators through product appeal to players, ease of use,
ease of serviceability, customer support and training,
distribution, name recognition, and price. Increased competition
may result in price reductions, reduced operating margins,
conversion of terminals from lease to sale, and loss of market
share, any of which could materially and adversely affect our
business, operating results, and financial condition.
Furthermore, existing and new competitors may expand their
operations in our existing or potential new markets. In
addition, we compete with other similar forms of entertainment,
including casino gaming and lotteries.



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Investors may not be able to exercise
    control over our company as a result of managements and
    other principal stockholders ownership.

The current executive officers and directors of
our company beneficially own approximately 39% of our
outstanding common stock. As a result, the executive officers
and directors of our company can significantly influence the
management and affairs of our company and all matters requiring
stockholder approval, including the election of directors and
approval of significant corporate transactions. This
concentration of ownership could have the effect of delaying or
preventing a change in control of our company, even when such
change of control is in the best interests of stockholders. This
concentration of ownership also might adversely affect the
market price of the common stock and the voting and other rights
of our companys other stockholders.



| |                                                             
| | ------------------------------------------------------------
| | We must be able to attract and retain
    skilled employees.

Our operations depend to a great extent on our
ability to retain existing and attract new key personnel.
Competition is intense for skilled marketing and product
research and development employees in particular. We may not be
successful in attracting and retaining such personnel, and we
may incur increased costs in order to attract and retain
personnel. Although we believe we can locate replacement
personnel, the loss of key personnel, were we unable to hire
suitable replacements, or our failure to attract additional
qualified employees, could have a material adverse effect on our
business, results of operations, and financial condition.



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Acquisitions could divert managements
    time and attention, dilute the voting power of existing
    stockholders, and have a material adverse effect on our
    business.

As part of our growth strategy, we may acquire
complementary businesses and assets. Acquisitions that we may
make in the future could result in the diversion of time and
personnel from our business. We also may issue shares of common
stock or other securities in connection with acquisitions, which
could result in the dilution of the voting power of existing
stockholders and could dilute earnings per share. Any
acquisitions would be accompanied by other risks commonly
encountered in such transactions, including the following:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties integrating the operations and
    personnel of acquired companies;                                                                          
|
| |  | the additional financial resources required to
    fund the operations of acquired companies;                                                             
|
| |  | the potential disruption of our business;                                                                                                                 
|
| |  | our ability to maximize our financial and
    strategic position by the incorporation of acquired technology
    or businesses with our product offerings;
|
| |  | the difficulty of maintaining uniform standards,
    controls, procedures, and policies;                                                                  
|
| |  | the potential loss of key employees of acquired
    companies;                                                                                            
|
| |  | the impairment of employee and customer
    relationships as a result of changes in management;                                                           
|
| |  | significant expenditures to consummate
    acquisitions; and                                                                                              
|
| |  | difficulties in meeting applicable regulatory
    requirements.                                                                                           

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As a part of our acquisition strategy, we may
engage in discussions with various businesses regarding their
potential acquisition. In connection with these discussions, we
may exchange confidential operational and financial information
with each potential acquired business and each of us may conduct
due diligence inquiries and consider the structure, terms, and
conditions of the potential acquisition. In certain cases, the
prospective acquired business may agree not to discuss a
potential acquisition with any other party for a specific period
of time, may grant us certain rights in the event the
acquisition is not completed, and may agree to take other
actions designed to enhance the possibility of the acquisition.
Potential acquisition discussions may take place over a long
period of time, may involve difficult business integration and
other issues, and may require solutions for numerous family
relationship, management succession, and related matters. As a
result of these and other factors, potential acquisitions that
from time to time appear likely to occur may not result in
binding legal agreements and may not be consummated. Our
acquisition agreements may contain purchase price adjustments,
rights of set-off, and other remedies in the event that certain
unforeseen liabilities or issues arise in connection with an
acquisition. These remedies, however, may not be sufficient to
compensate us in the event that any unforeseen liabilities or
other issues arise.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Our failure to manage effectively our
    growth could impair our business.

Our growth plans may require full use of our
current financial, managerial, and other resources as well as
substantial expansion of those resources. In order to manage
effectively any significant future growth, we may have to
perform various tasks, including the following:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | expand our facilities and equipment and further
    enhance our operational, financial, and management systems;
|
| |  | design, develop, produce, and receive products
    from third-party suppliers on a timely basis;               
|
| |  | develop new and maintain existing distribution
    channels in order to maximize revenue and profit margins;   
|
| |  | effectively manage regulatory risks in various
    jurisdictions;                                              
|
| |  | successfully hire, train, retain, and motivate
    additional employees; and                                   
|
| |  | integrate successfully the operations of any
    acquired businesses with our operations.                      

We plan to expand within our existing markets and
into foreign and domestic bingo markets in which we have no
previous operating experience. We may not be able to maintain
profitability or manage successfully the aggressive expansion of
our existing and planned business. Our failure to manage growth
effectively could have a material adverse effect on our
business, operating results, and financial condition.



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sales of additional shares of common stock,
    or the potential for such sales, could have a depressive effect
    on the market price of our common stock.

As of January 12, 2004, we had outstanding
11,737,439 shares of common stock. Approximately
7.2 million of such shares are eligible for resale in the
public market without restriction or further registration. The
remaining approximately 4.5 million shares of common stock
outstanding are held by affiliates of our company and may be
sold only in compliance with the volume and other limitations of
Rule 144. Sales of substantial amounts of common stock by
stockholders in the public market, or even the potential for
such sales, are likely to adversely affect the market price of
the common stock and could impair our ability to raise capital
by selling equity securities. Moreover, the shares of common
stock issuable upon exercise of outstanding options will be
freely tradable without restriction unless acquired by
affiliates of our company. The issuance of such freely tradable
shares will result in additional outstanding shares of common
stock and will create additional potential for sales of
additional shares of common stock in the public market.



| |                                                             
| | ------------------------------------------------------------
| | We have limited protection of our
    intellectual property.

We regard our products as proprietary and rely
primarily on a combination of patent law, copyrights,
trademarks, trade secret laws, and employee and third-party
non-disclosure agreements to protect our

14



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##### Table of Contents



proprietary rights. Defense of intellectual
property rights can be difficult and costly, and we may not be
able to protect our technology from misappropriation by
competitors or others. In addition, the protections offered by
trademark, copyright, and trade secret laws may not prevent a
competitor from designing electronic bingo systems having
appearance and functionality that closely resemble our systems.


As the number of electronic bingo terminals in
the industry increases and the functionality of these products
further overlaps, we may become subject to infringement claims,
with or without merit. Intellectual property-related claims or
litigation can be costly and can result in a significant
diversion of managements attention. Any settlement of such
claims or adverse determinations in such litigation could also
have a material adverse impact on our business, results of
operations, and financial condition.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Our stockholders rights plan may
    adversely affect existing stockholders.

Our Stockholders Rights Plan may have the
effect of deterring, delaying, or preventing a change in control
that might otherwise be in the best interests of our
stockholders. Under the Rights Plan, we issued a dividend of one
Preferred Share Purchase Right for each share of our common
stock held by stockholders of record as of the close of business
on March 17, 2003.

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



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Our operating results could differ
    materially from the forward-looking statements included in this
    report.

Some of the statements and information contained
in this report concerning future, proposed, and anticipated
activities of our company, anticipated trends with respect to
our revenue, operating results, capital resources, and liquidity
or with respect to the markets in which we compete or the bingo
industry in general, and other statements contained in this
report regarding matters that are not historical facts are
forward-looking statements, as that term is defined in the
securities laws. Forward-looking statements, by their very
nature, include risks and uncertainties, many of which are
beyond our control. Accordingly, actual results may differ,
perhaps materially, from those expressed in or implied by such
forward-looking statements. Factors that could cause actual
results to differ materially include those discussed elsewhere
under this Item 1, Business  Risk
Factors.






|        |           
|------- | ----------
|Item 2. | Properties

Our corporate headquarters are located in Reno,
Nevada, in a 41,000 square-foot leased facility under a
lease that expires in November 2010. We also operate two
regional facilities: a 8,080 square-foot site in Broadview
Heights, Ohio, and a 4,115 square-foot site in Southlake,
Texas. The Ohio lease expires in November 2006 and the Texas
lease is month to month. We lease several other facilities, none
of which are material to our operations. We believe that our
facilities will be adequate for our needs for the foreseeable
future.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

On March 22, 2001, we filed a claim in the
United States District Court, District of Arizona, GAMETECH
INTERNATIONAL, INC. V. TREND GAMING SYSTEMS, LLC, CV 01-540
PHX PGR, seeking a declaratory judgment that we are not in
material breach of our November 1, 1999 distribution
agreement with Trend Gaming Systems, LLC (Trend) and
seeking damages for past due payments and wrongful withholdings
by Trend. Trend has counterclaimed, alleging that its payments
are in compliance with its contractual obligations and that it
is entitled to withhold certain monies. Trend also contends that
we are in

15



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##### Table of Contents



breach of certain of our contractual obligations
to Trend or its customers. On December 16, 2002, the court
entered at our request an order enjoining Trend from using
approximately $540,000 in funds it had collected on our behalf,
pending a trial on our ownership interest in those funds. The
money has been placed in a bank account subject to the
courts control. In addition, collections of accounts
receivable by Trend, if any, will also be placed in that
account, pending the trial of the case. No trial date has been
set. Trend filed a motion for summary judgment alleging that the
termination of the distribution agreement was improper. On
May 16, 2003, the court dismissed Trends motion for
summary judgment. On December 2, 2003, Trend filed a
renewed motion for summary judgment alleging that we did not
have the right to terminate the distribution agreement based
upon Trends failure to ensure that we received our minimum
rate of return. We are preparing a response and the motion will
be heard at an undetermined future date. A May 10, 2004
trial date has been set. We have denied the allegations and
intend to vigorously pursue and defend this matter. However, we
cannot provide assurance that we will obtain a favorable
outcome. An unfavorable outcome could have a material adverse
effect on our business, financial position, and results of
operations.


On October 30, 2002, Capital Gaming Supplies
filed a claim in the United States District Court, Southern
District of Mississippi, CAPITAL GAMING SUPPLIES, INC. V.
GAMETECH INTERNATIONAL, INC., 3:02 CV 1636 WS, seeking
a judgment that we tortiously interfered with alleged existing
and prospective customer accounts. We have denied the
allegations and filed a counter-claim seeking a judgment that
Capital tortiously interfered with our customer accounts. On
April 18, 2003, Capital filed an amended complaint adding
other claims against us and other defendants, including a claim
for malicious breach of contract against International Gaming
Systems, Inc., and its principals. In November 2002, we acquired
certain assets of IGS and we assumed certain claims filed by
Capital against IGS and its principals. Capital seeks
compensatory and punitive damages from all defendants. The
January 28, 2004 trial date has been postponed
indefinitely. We intend to defend and pursue vigorously this
matter. We believe that Capitals claims are without merit.
However, we cannot provide assurance that we will obtain a
favorable outcome. An unfavorable outcome could have a material
adverse effect on our business, financial position, and results
of operations.

In March 2003, the South Carolina Department of
Revenue issued a notice to all persons and entities that use
electronic daubing devices (such as our portable and fixed-base
bingo terminals) to cease and desist using the devices as of
September 4, 2003. The notice is a reversal of the
Departments previous position provided to us in 1995
regarding the use of such devices. The Departments
decision was not made due to any violation or improper conduct
on our part. We have filed a Request for Contested Case Hearing
regarding the Departments reversal. We disagree with the
Departments position and are actively seeking legal and
legislative relief so that our electronic daubing devices may
continue to be used. Historically, South Carolina has accounted
for less than 5% of our revenues. We have executed a Memorandum
of Understanding by and between the Department and other
entities involved in the South Carolina bingo industry, which
will allow us to continue to operate in South Carolina until
March 15, 2004. We can make no assurances that we will be
able to continue to provide equipment to the South Carolina
market after March 15, 2004.

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






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

Not applicable.

16



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##### Table of Contents



PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Our common stock is listed on the Nasdaq National
Market under the symbol GMTC. The following table
sets forth high and low sales prices of our common stock for the
period indicated as reported on the Nasdaq National Market.

|                                       |                                          |      |   |      |  |  |   |      | 
|-------------------------------------- | ---------------------------------------- | ---- | - | ---- |  |  | - | ---- | 
|                                       |                                          | High |   | Low 
|                                       |                                          |      |   |     
|Fiscal Year Ended October 31,
    2002 |                                          |      |   |      |  |  |   |     
|                                       | First Quarter                            |      | $ | 4.94 |  |  | $ | 3.60 | 
|                                       | Second Quarter                           |      | $ | 5.15 |  |  | $ | 3.97 | 
|                                       | Third Quarter                            |      | $ | 5.20 |  |  | $ | 3.85 | 
|                                       | Fourth Quarter                           |      | $ | 4.60 |  |  | $ | 3.25 | 
|Fiscal Year Ended October 31,
    2003 |                                          |      |   |      |  |  |   |     
|                                       | First Quarter                            |      | $ | 5.25 |  |  | $ | 3.05 | 
|                                       | Second Quarter                           |      | $ | 3.45 |  |  | $ | 2.41 | 
|                                       | Third Quarter                            |      | $ | 3.96 |  |  | $ | 2.76 | 
|                                       | Fourth Quarter                           |      | $ | 3.69 |  |  | $ | 2.97 | 
|Fiscal Year Ended October 31,
    2004 |                                          |      |   |      |  |  |   |     
|                                       | First Quarter (through January 12, 2004) |      | $ | 4.40 |  |  | $ | 4.25 | 

On January 12, 2004, the closing sales price
of our common stock was $4.40 per share. On January 12,
2004, there were 223 record holders of our common stock.

Dividend Policy

During December 2003, we announced a special cash
dividend of $0.12 per share, paid on January 16, 2004 to
stockholders of record as of the close of business on
January 2, 2004. Prior to that time, we had never paid cash
dividends on our common stock. In addition, during December
2003, we announced the initiation of an ongoing quarterly
dividend after our Board of Directors reviewed current business
conditions and future prospects. We expect to declare the first
regular quarterly dividend of approximately $0.03 per share in
conjunction with the announcement of our financial results for
the first quarter of fiscal 2004. As long as our cash flow from
operations remains adequate for our planned operations, we
intend to pay cash dividends in the future. Any payment of
future dividends, however, will be at the discretion of our
Board of Directors and will depend upon, among other factors,
our earnings, financial condition, capital requirements, level
of indebtedness, contractual restrictions with respect to the
payment of dividends, and other considerations that our Board of
Directors deems relevant. We have a $10 million revolving
line of credit with Wells Fargo Bank, N.A., which restricts the
payment of dividends, for any fiscal year, to an aggregate
amount not to exceed 25% of net earnings for the year without
the prior consent of the bank. We have received a waiver from
Wells Fargo Bank, N.A. for the special dividend and for the
contemplated dividend for the first quarter of fiscal 2004.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The selected consolidated statement of operations
data for the fiscal years ended October 31, 2001, 2002, and
2003 and the selected consolidated balance sheet data set forth
below at October 31, 2002 and 2003, have been derived from
our consolidated financial statements, which have been audited
by Ernst & Young LLP, independent auditors, included
elsewhere herein. The selected consolidated statement of
operations data for the years ended October 31, 1999 and
2000 and the selected consolidated balance sheet data set forth
below at October 31, 1999, 2000 and 2001 have been derived
from our audited consolidated financial statements not included
herein. The selected financial data set forth below should be
read in conjunction with the Financial Statements and Notes
thereto and with Managements Discussion and Analysis
of Financial Condition and Results of Operations,
appearing elsewhere in this report.

17



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##### Table of Contents



|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------------------------------------- | --------------------------- | ----------------------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                          |                             |                                                            
|                                                                          |                             | Years Ended October 31,                                    
|                                                                          |                             |                                                            
|                                                                          |                             | 1999                                                        |        | 2000   |        | 2001 |        | 2002   |        | 2003
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |     
|                                                                          |                             |                                                            
|                                                                          |                             | (Dollars and shares in thousands, except per share amounts)
|Statement of Operations Data:                                             |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Revenue                                                                   |                             | $                                                           | 41,663 |        |        | $    | 49,695 |        |        | $    | 48,536 |        |        | $ | 48,861 |        |        | $ | 52,329 |       
|Cost of revenue                                                           |                             |                                                             | 11,590 |        |        |      | 16,011 |        |        |      | 22,185 |        |        |   | 19,555 |        |        |   | 22,639 |       
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Gross profit                                                              |                             |                                                             | 30,073 |        |        |      | 33,684 |        |        |      | 26,351 |        |        |   | 29,306 |        |        |   | 29,690 |       
|Operating expenses:                                                       |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                          | General and administrative  |                                                             |        | 8,070  |        |      |        | 12,223 |        |      |        | 14,995 |        |   |        | 9,535  |        |   |        | 11,426 |       
|                                                                          | Sales and marketing         |                                                             |        | 11,519 |        |      |        | 12,680 |        |      |        | 14,400 |        |   |        | 13,245 |        |   |        | 12,323 |       
|                                                                          | Research and development    |                                                             |        | 1,152  |        |      |        | 1,938  |        |      |        | 2,780  |        |   |        | 2,098  |        |   |        | 3,828  |       
|                                                                          | Acquisition related charges |                                                             |        | 1,050  |        |      |        |       |        |      |        |       |        |   |        |       |        |   |        |       |       
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                          |                             | Total operating expenses                                    |        |        | 21,791 |      |        |        | 26,841 |      |        |        | 32,175 |   |        |        | 24,878 |   |        |        | 27,577 | 
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Income (loss) from operations                                             |                             |                                                             | 8,282  |        |        |      | 6,843  |        |        |      | (5,824 | )      |        |   | 4,428  |        |        |   | 2,113  |       
|Interest and other income (expense), net                                  |                             |                                                             | 476    |        |        |      | 326    |        |        |      | 144    |        |        |   | (7     | )      |        |   | 3      |       
|Income (loss) before provision for (benefit
    from) income taxes        |                             |                                                             | 8,758  |        |        |      | 7,169  |        |        |      | (5,680 | )      |        |   | 4,421  |        |        |   | 2,116  |       
|Provision for (benefit from) income taxes                                 |                             |                                                             | 3,900  |        |        |      | 3,513  |        |        |      | (1,285 | )      |        |   | 1,688  |        |        |   | 925    |       
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Net income (loss)                                                         |                             | $                                                           | 4,858  |        |        | $    | 3,656  |        |        | $    | (4,395 | )      |        | $ | 2,733  |        |        | $ | 1,191  |       
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Diluted net income (loss) per share                                       |                             | $                                                           | 0.42   |        |        | $    | 0.30   |        |        | $    | (0.41  | )      |        | $ | 0.23   |        |        | $ | 0.10   |       
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Shares used in the calculation of diluted net
    income (loss) per share |                             |                                                             | 11,683 |        |        |      | 12,064 |        |        |      | 10,623 |        |        |   | 11,945 |        |        |   | 11,818 |       
|                                                                          |                             |                                                             |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       

|                                                  |  |                        |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                  |  |                       
|                                                  |  | October 31,           
|                                                  |  |                       
|                                                  |  | 1999                   |        | 2000 |  | 2001 |        | 2002 |  | 2003
|                                                  |  |                        |        |      |  |      |        |      |  |     
|                                                  |  |                       
|                                                  |  | (Dollars in thousands)
|Balance Sheet Data:                               |  |                        |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and short term investments |  | $                      | 11,389 |      |  | $    | 7,890  |      |  | $    | 12,955 |  |  | $ | 9,278  |  |  | $ | 11,952 | 
|Working capital                                   |  |                        | 12,963 |      |  |      | 10,701 |      |  |      | 16,464 |  |  |   | 16,562 |  |  |   | 14,806 | 
|Total assets                                      |  |                        | 58,803 |      |  |      | 59,324 |      |  |      | 55,676 |  |  |   | 58,101 |  |  |   | 60,175 | 
|Total debt                                        |  |                        | 4,559  |      |  |      | 3,584  |      |  |      | 2,395  |  |  |   | 13     |  |  |   | 275    | 
|Total stockholders equity                        |  |                        | 51,424 |      |  |      | 50,030 |      |  |      | 46,584 |  |  |   | 50,490 |  |  |   | 52,621 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with our financial statements and notes thereto
included elsewhere in this report. The following discussion
contains certain forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially
from the results anticipated in these forward-looking statements
as a result of the factors set forth in this report, including
those set forth under Item 1, Business 
Risk Factors.

Overview

We design, develop, and market interactive
electronic bingo systems. We currently market portable systems
that can be played anywhere within a bingo hall and a fixed-base
system with touchscreen-activated monitors. For our three most
recent fiscal years ended October 31, 2001, 2002 and 2003,
our portable terminals generated approximately 77%, 77% and 73%
of our revenues, respectively, while, during those same years,
our fixed-base terminals generated the balance of our revenues.
As of October 31, 2003, we had systems in service in
35 states and five foreign countries.

18



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##### Table of Contents



We generate revenue by placing electronic bingo
systems in bingo halls under contracts based on (1) a fixed
fee per use per session; (2) a fixed weekly fee per
terminal; or (3) a percentage of the revenues generated by
each terminal. Revenue growth is affected by player acceptance
of electronic bingo as an addition or an alternative to paper
bingo, and our ability to expand operations into new markets.
Fixed-base bingo terminals generate greater revenue per terminal
than portable bingo terminals, but also require a greater
initial capital investment.

We typically install our electronic bingo systems
at no charge to our customers, and we capitalize the costs. We
record depreciation of bingo equipment over a three- and
five-year estimated useful life using the straight-line method
of depreciation.

Our expenses consist primarily of (a) cost
of revenue, consisting of expenses associated with technical and
operational support of the bingo systems within bingo halls,
depreciation of bingo systems, repair, refurbishment, and
disposals of bingo terminals and related support equipment, and
excess or obsolescence reserve; (b) general and
administrative, consisting of activities associated with
management of our company and related support, which includes
finance and accounting, legal, compliance, information systems,
human resources, accounts receivable reserve, and goodwill
amortization (prior to fiscal 2002); (c) sales and
marketing, consisting primarily of commissions paid to
distributors for promoting and supporting our products and an
internal sales force with a focus upon generating new customers
and upgrades for existing customers; and (d) research and
development, consisting of company sponsored research and
development activities to provide players with new or enhanced
products on which to play bingo.

During fiscal 2003, a number of events occurred
that affected, or may in the future affect, our results of
operations or liquidity and capital resources.

In November 2002, we acquired certain assets of
IGS for a cash purchase price of $3.5 million which
included transaction costs of $69,000. Among other things, the
acquisition added to our fixed-base bingo terminals in operation
primarily in New York and Mississippi. The acquisition was
accounted for as a purchase of a business. We determined the
appropriate purchase price allocation based on estimated fair
values at the date of acquisition for tangible and identifiable
intangible assets acquired to be approximately $600,000 for
bingo terminals and support equipment and approximately
$1.0 million for identifiable intangibles with a residual
amount of approximately $1.8 million assigned to goodwill.

We have incurred significant expenses in
aggressively defending or pursuing certain legal issues,
including defense of a patent infringement lawsuit in Nevada,
our litigation with a former distributor in Texas, and
litigation with a former distributor for IGS in Mississippi. The
terms of the terminated distributor agreement with the former
Texas distributor contain certain contingent commission
liabilities, which if a final judgment were rendered unfavorable
to us, could have an adverse effect on our financial position,
results of operation and liquidity. The contingent commission
liabilities, only if determined at trial to be payable, would be
calculated based on terms included in the terminated distributor
agreement. Assuming revenues for the three-year period following
termination of the distributor agreement remained constant at
the rate earned over the first 16 months following
termination of the distributor agreement, the contingent
liability would amount to approximately $2.2 million.
Regarding the patent infringement matter, an unfavorable outcome
at trial could result in substantial damages and payment of the
plaintiffs fees and costs. The Mississippi distributor
lawsuit could result in a punitive damages award which could be
materially injurious to the company. However, because we do not
currently believe it probable that there will be unfavorable
outcomes in any of these matters, we have not accrued any amount
related to these contingent liabilities or the other potential
lawsuits.

We have significantly increased the staffing of
our research and development department and have increased
expenditures in outside research and development costs. We
anticipate that the higher level of research and development
expenditures experienced in fiscal 2003 will continue.

We expended approximately $8.9 million as an
investment in bingo systems and related support equipment. This
investment included an increase in the number of installed
TED2C, color-portable terminals, and an increase in
the number of flat screens as an enhancement to our fixed-base
systems in many markets. We also expended an aggregate of
approximately $1.0 million on the buyout of two
distributorship

19



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##### Table of Contents



arrangements, enabling us to deal directly with
our customers and eliminating or reducing commissions paid on
revenue generated by those customers.


Critical Accounting Policies and
Estimates

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

We believe the following critical accounting
policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.



| |                    
| | -------------------
| | Revenue Recognition

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



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

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



| |                                            
| | -------------------------------------------
| | Reserve for Bingo Terminal
    Obsolescence

We provide reserves for excess or obsolete bingo
terminals on hand that we do not expect to be used. Our reserves
are based upon several factors, including our estimated forecast
of bingo terminal demand for placement into halls. Our estimates
of future bingo terminal demand may prove to be inaccurate, in
which case we may have understated or overstated the provision
required for excess and obsolete bingo terminals. Although we
attempt to assure the accuracy of our estimated forecasts, any
significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our
bingo terminals and our reported operating results.

20



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##### Table of Contents





| |                                                 
| | ------------------------------------------------
| | Impairment of Goodwill and Intangible
    Assets

We are required to perform an annual goodwill
impairment review, and depending upon the results of that
measurement, the recorded goodwill may be written down and
charged to income from operations when its carrying amount
exceeds its estimated fair value. In addition, we assess the
impairment of goodwill whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable, such as a significant adverse change in legal
factors or in the business climate, an adverse action or
assessment by a regulator, unanticipated competition, or a loss
of key personnel. The review for fiscal 2003 was completed as of
July 31, 2003 (the valuation date), and we determined there
was no impairment of goodwill as of that date. Any subsequent
impairment loss could have a material adverse impact on our
financial condition and results of operations.

We assess the impairment of identifiable
intangible assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors
we consider important that could trigger an impairment review
include the following:



| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a significant change in the manner of our use of
    the acquired assets or the strategy for our overall business;                                                                                                        
|
| |  | a significant decrease in the market price of an
    asset;                                                                                                                                                               
|
| |  | a significant adverse change in legal factors or
    in the business climate that could affect the value of an asset,
    including an adverse action or assessment by a regulator;                                       
|
| |  | a current period operating or cash flow loss
    combined with a history of operating or cash flow losses or a
    projection or forecast that demonstrates continuing losses
    associated with the use of an asset; and
|
| |  | a current expectation that, more likely than not,
    an asset will be sold or otherwise disposed of significantly
    before the end of its previously estimated useful life.                                            

Both of these assessments require management
judgment. Any changes in key assumptions about the business and
its prospects, or changes in market conditions or other
externalities, could result in an impairment charge and such a
charge could have a material adverse effect on our consolidated
results of operations.



| |                    
| | -------------------
| | Legal Contingencies

We are currently involved in various legal claims
and legal proceedings. Periodically, we review the status of
each significant matter and assess our potential financial
exposure. If the potential loss from any claim or legal
proceeding is considered probable and the amount can be
estimated, we accrue a liability for the estimated loss.
Significant judgment is required in both the determination of
probability and the determination as to whether an exposure can
be reasonably estimated. Because of uncertainties related to
these matters, accruals are based only on the best information
available at the time. As additional information becomes
available, we reassess the potential liability related to our
pending claims and litigation and may revise our estimates. Such
revisions in the estimates of the potential liabilities could
have a material impact on our consolidated results of operations
and financial position.

21



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods
indicated, certain consolidated statement of operations data for
our company expressed as a percentage of revenue:

|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |      |      | 
|------------------------------------------------------------------ | -------------------------- | ------------------------ | ----- | ---- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                                                   |                            |                         
|                                                                   |                            | Years Ended October 31, 
|                                                                   |                            |                         
|                                                                   |                            | 2001                     |       | 2002 |      | 2003
|                                                                   |                            |                          |       |      |      |     
|Statement of Operations Data:                                      |                            |                          |       |      |      |      |       |      |      |  |       |     
|Revenue                                                            |                            |                          | 100.0 | %    |      |      | 100.0 | %    |      |  | 100.0 | %   
|Cost of revenue                                                    |                            |                          | 45.7  |      |      |      | 40.0  |      |      |  | 43.3  |     
|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |     
|Gross profit                                                       |                            |                          | 54.3  |      |      |      | 60.0  |      |      |  | 56.7  |     
|Operating expenses:                                                |                            |                          |       |      |      |      |       |      |      |  |       |     
|                                                                   | General and administrative |                          |       | 30.9 |      |      |       | 19.5 |      |  |       | 21.8 |     
|                                                                   | Sales and marketing        |                          |       | 29.7 |      |      |       | 27.1 |      |  |       | 23.6 |     
|                                                                   | Research and development   |                          |       | 5.7  |      |      |       | 4.3  |      |  |       | 7.3  |     
|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |     
|                                                                   |                            | Total operating expenses |       |      | 66.3 |      |       |      | 50.9 |  |       |      | 52.7 | 
|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |     
|Income (loss) from operations                                      |                            |                          | (12.0 | )    |      |      | 9.1   |      |      |  | 4.0   |     
|Interest and other income, net                                     |                            |                          | 0.3   |      |      |      | 0.0   |      |      |  | 0.0   |     
|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |     
|Income (loss) before provision for (benefit from)
    income taxes |                            |                          | (11.7 | )    |      |      | 9.1   |      |      |  | 4.0   |     
|Provision for (benefit from) income taxes                          |                            |                          | (2.6  | )    |      |      | 3.5   |      |      |  | 1.7   |     
|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |     
|Net income (loss)                                                  |                            |                          | (9.1  | )%   |      |      | 5.6   | %    |      |  | 2.3   | %   
|                                                                   |                            |                          |       |      |      |      |       |      |      |  |       |     

Year Ended October 31, 2003 Compared with
Year Ended October 31, 2002

Revenue.We
generated revenue of $52.3 million for fiscal 2003 compared
to $48.9 million for fiscal 2002. The increase of
approximately $3.5 million, or 7.1%, was a result of the
acquisition of the assets of IGS, the increase in the installed
base of TED2C color portable units, partially offset
by decline in the installed base of black and white portable
units. The continued roll-out of Pay-N-Play, our fast-action,
credit-based pari-mutuel bingo feature, also contributed to the
growth in revenue.

Cost of Revenue.Cost of revenue increased
$3.1 million, or 15.8%, to $22.6 million for fiscal
2003 from $19.6 million for fiscal 2002. Cost of revenue as
a percentage of revenue for fiscal year 2003 was 43.3% compared
to 40.0% for fiscal 2002. Key components of our cost of revenue
include, among other items, depreciation of bingo equipment and
service and operations expenses. Bingo equipment depreciation
and amortization of related intangibles increased by
approximately $2.5 million over fiscal 2002 due to the
acquisition of certain assets from IGS, investment in
TED2C terminals and fixed-base terminal upgrades.
Service and operations expenses increased approximately
$1.9 million due to planned growth principally as a result
of increased personnel costs. Other items in cost of revenue
include charges for refurbishment, repair, and disposal of bingo
terminals as well as recognition of excess or obsolete bingo
terminals. These charges in fiscal 2003 improved by
$1.5 million from the prior year.

General and Administrative.General and administrative expenses
totaled $11.4 million for fiscal 2003 compared to
$9.5 million for fiscal 2002, a $1.9 million increase.
General and administrative costs as a percentage of revenue for
the current year were 21.8% compared to 19.5% for fiscal 2002.
The increase was primarily attributable to a $2.0 million
increase in legal and consulting expenses primarily due to
defense of a patent infringement lawsuit in Nevada, litigation
with our former distributor in Texas, litigation with a former
distributor of IGS in Mississippi and other legal proceedings.
We believe we will continue to incur a high level of legal
expenses during fiscal 2004, as trial dates for several of these
matters have been set for fiscal 2004.

Sales and Marketing.Sales and marketing decreased
approximately $900,000 to $12.3 million for fiscal 2003
compared to $13.2 million for fiscal 2002. Sales and
marketing as a percentage of revenue decreased from 27.1% during
fiscal 2002 to 23.6% during fiscal 2003. Sales and marketing
includes distributor

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commissions and personnel, travel, promotional,
and support costs for our internal sales force. Distributor
commissions decreased $486,000 to $8.4 million due to the
changes in mix of revenue generated by distributors and those
customers served directly by us. Additionally, fiscal 2002
included distributor termination and settlement costs. The
balance of the decrease in sales and marketing was primarily due
to reductions in personnel related costs and travel expenses.


Research and Development.Research and development costs
increased $1.7 million to $3.8 million for fiscal 2003
compared to $2.1 million for fiscal 2002. Research and
development costs as a percentage of revenue increased from 4.3%
for fiscal 2002 to 7.3% for fiscal 2003. The increase was
primarily attributable to significant growth in the engineering
staff and external project costs for new or enhanced products,
such as our new color portable, the Traveler terminal, that was
introduced at an industry show in September 2003 and began beta
testing in December 2003. The accelerated level of research and
development spending is expected to continue in fiscal 2004.

Provision for (Benefit from) Income Taxes.Our effective income tax rate was
approximately 43.7% and 38.2% for the fiscal years ended
October 31, 2003 and 2002, respectively. The effective tax
rates reflect certain permanent differences between financial
accounting and tax accounting and the effect of state and
federal income taxes on the pre-tax income.

Year Ended October 31, 2002 Compared with
Year Ended October 31, 2001

Revenue.We
generated revenue of $48.9 million for fiscal 2002 compared
to $48.5 million for fiscal 2001. The increase of
approximately $325,000, or 0.7%, was primarily a result of
growth in the Western Region and the Canadian market, partially
offset with a decline in the Northeast Region. Revenues in
Nevada and Mississippi were adversely affected by the shutdown
of our fixed-base terminals in those states for approximately
the last five weeks of fiscal 2002. The two-day shutdown of our
fixed-base terminals in Texas had a minor negative affect on our
revenue. Installed terminals increased by over 20% from
October 31, 2001 to October 31, 2002, driven by the
installation of TED2C terminals. However, revenue per
unit was lower due to competitive pricing pressures and changes
in the composition of terminal usage.

Cost of Revenue.Cost of revenue decreased
$2.6 million, or 11.9%, to $19.6 million for fiscal
2002 from $22.2 million during fiscal 2001. Cost of revenue
as a percentage of revenue for the current fiscal year was 40.0%
compared to 45.7% for fiscal 2001. Cost of revenue includes,
among other items, charges for refurbishment, repair and
disposal of bingo equipment as well as recognition of excess or
obsolete bingo terminals. These charges in fiscal 2002 amounted
to $4.8 million, an improvement of $3.0 million from
the prior year. Fiscal 2001 included a $2.6 million charge
for excess uninstalled terminals as a result of the forecasted
impact of the introduction of our new portable product, the
TED2C. Other items in cost of revenue include service
and operations expenses and depreciation of bingo equipment.
These items amounted to $14.8 million in fiscal 2002, an
increase of $400,000 over fiscal 2001. The increase was
primarily due to growth of approximately $300,000 in our service
and operations costs, principally as a result of increased
personnel costs. Bingo equipment depreciation and other cost of
revenue items increased by approximately $100,000 over fiscal
2001.

General and Administrative.General and administrative expenses
totaled $9.5 million for fiscal 2002 compared to
$15.0 million for fiscal 2001, a $5.5 million
decrease. General and administrative costs as a percentage of
revenue for the current year were 19.5% compared to 30.9% for
fiscal 2001. General and administrative expenses include costs
associated with our executive management and our finance and
accounting, legal, compliance, information technology, and human
resources departments. The decrease was primarily attributable
to (1) a $1.7 million decrease in amortization of
goodwill due to our election to early adopt the provisions of
SFAS No. 142, which eliminated the amortization of goodwill
in fiscal 2002; (2) a reduction of approximately
$1.8 million in the provision for uncollectible accounts
receivable (despite the reserve in the fourth quarter of fiscal
2002 of approximately $630,000 related to the termination of our
largest distributor in Texas), primarily as a result of improved
credit and collection controls in fiscal 2002, and fiscal 2001
including an unfavorable adjustment of approximately $760,000
for settlement of disputed account balances; and (3) an
improvement of approximately $1.8 million in personnel
related costs due to a reduction

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of approximately $1.2 million in costs
related to severance and retirement of various management
employees and additional cost containment efforts in 2002.


Sales and Marketing.Sales and marketing decreased
approximately $1.2 million to $13.2 million for fiscal
2002 compared with $14.4 million for fiscal 2001. Sales and
marketing as a percentage of revenue decreased from 29.7% during
fiscal 2001 to 27.1% during fiscal 2002. Sales and marketing
includes distributor commissions and related personnel, travel,
promotional, and support costs. Distributor commissions
decreased $900,000 to $8.9 million due to the changes in
mix of revenue generated by distributors and those customers
served directly by us, offset by slightly higher termination and
settlement costs in fiscal 2002. The balance of the decrease in
sales and marketing was primarily due to reductions in personnel
related costs and travel expenses.

Research and Development.Research and development costs
decreased $682,000 to $2.1 million for fiscal 2002 compared
to $2.8 million for fiscal 2001. Research and development
costs as a percentage of revenue decreased from 5.7% for fiscal
2001 to 4.3% for fiscal 2002. The decrease was primarily
attributable to the following fiscal 2001 events:
(a) retirement of a co-founder and associated costs of
$810,000 and (b) costs of approximately $310,000 associated
with centralization of research and development personnel to
Reno, Nevada. Excluding those expenses from last year, research
and development costs increased approximately $421,000 over the
prior year, representing increased research and development
expenditures for new or enhanced products on which to play bingo.

Provision for (Benefit from) Income Taxes.Our effective income tax rate was
approximately 38.2% and (22.6%) for the fiscal years ended
October 31, 2002 and 2001, respectively. The change in
effective tax rates reflects the effect of state income taxes
and nondeductible expenses on the pre-tax loss in fiscal 2001,
which included amortization of goodwill (without the goodwill
the effective rate for fiscal 2001 was 33.0%) versus pre-tax
income in the current year.

Liquidity and Capital Resources

Operating activities provided $16.8 million
of cash during fiscal 2003 compared to $10.3 million during
fiscal 2002. The $16.8 million consisted primarily of net
income of $1.2 million, adjusted by
(1) $10.8 million for depreciation, amortization,
obsolescence provisions and loss on disposal of assets;
(2) taxes refunded of $3.7 million; and (3) a net
change of $1.1 million in other operating assets and
liabilities. During fiscal 2002, the $10.3 million provided
by operating activities consisted primarily of net income of
$2.7 million adjusted by $9.1 million for
depreciation, amortization, obsolescence provisions and loss on
disposal of assets offset by a net change of $1.5 million
in other operating assets and liabilities.

We used approximately $11.1 million of cash
in investing activities during fiscal 2003 compared to
$15.0 million of cash during fiscal 2002. The
$11.1 million consisted of $9.5 million of capital
expenditures ($8.9 million of which was expended on bingo
equipment), the purchase of certain assets of IGS and other
intangible assets for a total of $3.9 million, the buyout
of two distributorship agreements for an aggregate of
$1.0 million, offset by a decrease in short-term
investments of $3.3 million. During fiscal 2002, the
$15.0 million consisted of $12.9 million of capital
expenditures ($12.1 million of which was for bingo
equipment) and an increase in short-term investments of
$2.2 million.

Financing activities provided $254,000 during
fiscal 2003 compared to the use of $1.2 million during
fiscal 2002. The $254,000 provided during fiscal 2003 was
primarily from proceeds of $530,000 from stock option exercises
offset by payments of $276,000 on a note payable. The
$1.2 million used during fiscal 2002 was primarily for
payments of $2.4 million on long-term debt, offset by
proceeds from stock option exercises of $1.2 million.

As of October 31, 2003, we had cash and cash
equivalents and short-term investments of approximately
$12.0 million. In addition to our cash and cash equivalents
and short-term investments, we have a $10.0 million line of
credit with Wells Fargo Bank, N.A., which has an interest rate
based on the prime rate or London InterBank Offered Rate, or
LIBOR, plus 2.0%, at our option, on which there was no
outstanding balance at October 31, 2003. The revolving
credit facility expires on April 2, 2004. We expect to
renew the

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revolving credit facility with similar terms. We
believe that cash flow from operations and cash, cash
equivalents, and short-term investments on hand, together with
funds available under the revolving credit facility, will be
sufficient to support our operations, provide for budgeted
capital expenditures, make dividend payments, and meet liquidity
requirements through fiscal 2004. Our long-term liquidity
requirements will depend on many factors, including the rate at
which we expand our business, and whether we do so internally or
through acquisitions. In addition, strategic opportunities we
may pursue could require us to fund our portion of operating
expenses of such ventures and may require us to advance
additional amounts should any partners in such ventures be
unable to meet unanticipated capital calls or similar funding
events. To the extent that the funds generated from the sources
described above are insufficient to fund our activities in the
long term, we may be required to raise additional funds through
public or private financing. No assurance can be given that
additional financing will be available or that, if it is
available, it will be on terms acceptable to us.


Contractual Obligations

The following table presents information on
contractual obligations held as of October 31, 2003:

|                                   |  |                        |           |           |  |             |         |             |  |         |           |  |  |   |           |  |  |   |           | 
|---------------------------------- |  | ---------------------- | --------- | --------- |  | ----------- | ------- | ----------- |  | ------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                   |  |                       
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |           | Less than |  |             |         | More than  
|                                   |  | Total                  |           | 1 Year    |  | 1 - 3 Years |         | 3 - 5 Years |  | 5 Years
|                                   |  |                        |           |           |  |             |         |             |  |        
|Operating Leases                   |  | $                      | 3,847,000 |           |  | $           | 607,000 |             |  | $       | 1,120,000 |  |  | $ | 1,096,000 |  |  | $ | 1,024,000 | 
|Other Long Term Obligations        |  |                        | 1,022,000 |           |  |             | 324,000 |             |  |         | 89,000    |  |  |   | 93,000    |  |  |   | 516,000   | 
|                                   |  |                        |           |           |  |             |         |             |  |         |           |  |  |   |           |  |  |   |           | 
|Total Contractual Cash Obligations |  | $                      | 4,869,000 |           |  | $           | 931,000 |             |  | $       | 1,209,000 |  |  | $ | 1,189,000 |  |  | $ | 1,540,000 | 
|                                   |  |                        |           |           |  |             |         |             |  |         |           |  |  |   |           |  |  |   |           | 

Inflation and General Economic
Condition

Although we cannot accurately anticipate the
effect of inflation on our operations, we do not believe that
inflation has had, or is likely in the foreseeable future to
have, a material effect on our business, results of operations,
or financial condition.






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

As described in Note 10 to our Consolidated
Financial Statements, we maintain an investment portfolio of
approximately $1.8 million in available-for-sale debt
securities of the U.S. Government and its agencies, and in
investment grade corporate issues. The values of these
investments are subject to changes in interest rates. However,
because these investments are short-term and are generally
allowed to mature, we do not believe that any risk inherent in
our portfolio is likely to have a material effect on expected
cash flows. We monitor these investments for impairment and make
appropriate reductions in carrying value when necessary.

Our revolving credit facility with Wells Fargo
Bank, N.A. is a $10.0 million line of credit with an
interest rate based on the prime rate or LIBOR plus 2.0%, at our
option. The line of credit expires on April 2, 2004.

Because the interest rate on the revolving credit
facility is variable, our cash flow may be affected by increases
in interest rates, in that we would be required to pay more
interest in the event that both the prime and LIBOR interest
rates increase. We do not believe, however, that any risk
inherent in the variable-rate nature of the loan is likely to
have a material effect on our interest expense or available
cash. We currently maintain a zero balance on the revolving
credit facility.

Sensitivity Analysis.Assuming we had a $2.0 million
balance outstanding as of October 31, 2003, the rate of
interest calculated using the prime rate option would be 4.0%.
Our monthly interest payment, if the rate stayed constant, would
be $6,667. If the prime rate rose to 8.0%, which assumes an
unusually large increase, our monthly payment would be $13,333.
A more likely increase of 1.0% or 2.0%, given the recent trend
of decreasing or relatively low interest rates, would result in
a monthly payment of $8,333 or $10,000, respectively. We do not
believe the risk resulting from such fluctuations is material or
that the payment required would have a material effect on cash
flow.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The consolidated financial statements and
supplementary data are as set forth in the Index To
Consolidated Financial Statements on page F-1.






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

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

We have evaluated, with the participation of our
Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of
October 31, 2003. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have each
concluded that our disclosure controls and procedures are
effective to ensure that we record, process, summarize, and
report information required to be disclosed by us in our
quarterly reports filed under the Securities Exchange Act within
the time periods specified by the Securities and Exchange
Commissions rules and forms. During the fiscal year
covered by this report, there have not been any changes in our
internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

Subsequent to the date of their evaluation, there
have not been any significant changes in our internal controls
or in other facts that could significantly affect these
controls, including any corrective action with regard to
significant deficiencies and material weaknesses.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The following table sets forth certain
information regarding our directors and executive officers.

|                    |  |     |    |          |  |                                                             
|------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Richard T. Fedor    |  |     | 58 |          |  | Chairman(2)(3)                                              
|Clarence H. Thiesen |  |     | 72 |          |  | Chief Executive Officer and Director                        
|Vern D. Blanchard   |  |     | 48 |          |  | Director(2)                                                 
|Charles W. Scharer  |  |     | 48 |          |  | Director(1)(2)(4)(5)                                        
|John B. Furman      |  |     | 59 |          |  | Director(1)(2)(3)(5)                                        
|John P. Hewitt      |  |     | 58 |          |  | Chief Financial Officer/ Treasurer(4)                       
|Andrejs K. Bunkse   |  |     | 34 |          |  | Vice President & General Counsel/ Corporate
    Secretary(4)



---



|    |                                           
|--- | ------------------------------------------
|(1) | Member of the Audit Committee             
|   
|(2) | Member of the Compensation Committee      
|   
|(3) | Nominating/ Corporate Governance Committee
|   
|(4) | Compliance Committee                      
|   
|(5) | M&A Committee                             

RICHARD T. FEDOR, a co-founder of our company,
has served as our Chairman since December 2003 and as a director
since March 1998. Mr. Fedor served as our Vice-Chairman
from October 2000 until December 2003. Mr. Fedor served as
our interim Chief Executive Officer from August 1999 until
October 2000 and as our Chief Executive Officer from 1994 until
March 1998. Mr. Fedor also served as our President from
1994 until August 1, 1997. From 1991 to 1994,
Mr. Fedors occupation was that of a private investor.

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From 1987 to 1991, Mr. Fedor was President
of ZYGO Corporation, a manufacturer of high-performance,
laser-based electro-optical measuring instruments. From 1985 to
1987, Mr. Fedor held the position of Operations Vice
President at International Game Technology. Mr. Fedor has
also held various senior management positions at Hewlett Packard
and GTE.


CLARENCE H. THIESEN has served as our Chief
Executive Officer since September 2001 and as a member of our
Board of Directors since 1994. Mr. Thiesen, a co-founder of
our company, served as Chief Financial Officer from 1994 until
March 1998. Mr. Thiesen was a financial consultant from
1992 to 1994. From 1988 to 1992, Mr. Thiesen was Vice
President, Finance of ZYGO Corporation, where he focused on
sourcing in the Far East and assisted in restructuring the
company. From 1986 to 1988, Mr. Thiesen was the President
of Keno Computer Systems. From 1981 to 1986, Mr. Thiesen
was the Vice President of Finance at International Game
Technology, where he specialized in acquisitions, the
installation of new accounting, budgeting and forecasting
systems, and financial public relations. Mr. Thiesen is a
graduate of Claremont McKenna College and received an MBA from
the University of California  Berkeley.

VERN D. BLANCHARD, a co-founder of our company,
has served as a member of our Board of Directors since November
2001. Mr. Blanchard held the position of Director of
Engineering of our company from 1994 until his retirement in
June 2001. Mr. Blanchard has over 10 years experience
in the bingo industry. He was the inventor of our initial
portable and fixed-base bingo systems. Mr. Blanchard has spoken
before the Patent and Trademark Office concerning software
patents and other intellectual property issues and is well
publicized in the software industry. Mr. Blanchard started
his business career in real estate, and at 21, became one of the
youngest real estate brokers in California honored as one of the
100 charter members of the Academy of Real Estate.

CHARLES W. SCHARER has served as a member of our
Board of Directors since September 2001. A 22-year veteran of
the gaming industry, Mr. Scharer ended an 18-year career
with Harveys Casino Resorts in January 2001. He was
Harveys President and Chief Executive Officer from 1995
until his retirement in January 2001. From 1988 to 1995,
Mr. Scharer served as Chief Financial Officer and held
various other management positions during his tenure with
Harveys. Mr. Scharer is a Commissioner on the Nevada
Commission on Tourism, appointed by Governor Kenny C. Guinn in
November 1999. He also sits on the Board of Directors of Monarch
Casino & Resort, Inc., a public company. Mr. Scharer, a
Certified Public Accountant, graduated from San Jose State
University in 1979.

JOHN B. FURMAN has served as a member of our
Board of Directors since May 2003. Mr. Furman has been,
since February 2000, a consultant to public and private
companies, where he has primarily been involved in product
commercialization, business transactions, and financial
restructurings. Mr. Furman served as President and Chief
Executive Officer and a director of Rural/ Metro Corporation, a
publicly held provider of emergency and fire protection
services, from August 1998 until January 2000. Mr. Furman
was a senior member of the Phoenix-based law firm of
OConnor, Cavanagh, Anderson, Killingsworth & Beshears,
a professional association, from January 1983 until August 1998
where he chaired the Business Law and Financial Services
practice group; he was Associate General Counsel of Waste
Management, Inc., a New York Stock Exchange-listed provider
of waste management services, from May 1977 until December 1983;
and Vice President, Secretary, and General Counsel of the Warner
Company, a New York Stock Exchange-listed company involved in
industrial mineral extractions and processing, real estate
development, and solid and chemical waste management, from
November 1973 until April 1977. Mr. Furman is a director,
Chairman of the Compensation Committee and member of the Audit
Committee of MarineMax, Inc., a publicly traded company that is
the nations largest boat dealer; a director and Chairman
of the Audit Committee of H.E.R.C. Products, Incorporated, a
publicly traded company engaged in pipe and tank cleaning for
the U.S. Navy and a variety of maritime vessels; and a director
of Plan Express, Inc., a privately held provider of Web enabled
reprographic and distribution services to the design and
construction industry.

JOHN P. HEWITT has served as our Chief Financial
Officer and Treasurer of our company since October 2002.
Mr. Hewitt has over 22 years experience in the gaming
industry. Mr. Hewitt was an independent consultant from
November 2001 until October 2002. From March 1984 until October
2001, he served as Corporate Controller with Harveys Casino
Resorts. Before joining Harveys, Mr. Hewitt worked for

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Harrahs Entertainment, Inc. where he was
Director of Internal Audit from August 1980 until March 1984.
Prior to joining Harrahs, Mr. Hewitt spent over six
years with Grant Thornton LLP during which time he received his
CPA. Mr. Hewitt is a member of the Nevada Society of
Certified Public Accountants and the American Institute of
Certified Public Accountants.


ANDREJS K. BUNKSE has served as Vice President of
our company since December 2001 and as General Counsel and
Corporate Secretary of our company since April 1997. From 1995
to 1997, Mr. Bunkse was an associate at the law firm of
Mitchell, Brisso, Delaney & Vrieze. Mr. Bunkse is a
graduate of Syracuse University and the Santa Clara University
of Law, is a member of the State Bar of California, the American
Bar Association, the American Society of Corporate Secretaries
and the Association of Corporate Counsel. Mr. Bunkse is the
step-son of Mr. Thiesen.

Classification of Our Board of
Directors

Our board of directors is divided into three
classes, with one class standing for election each year for a
three-year term. At each annual meeting of our stockholders,
directors in each class are elected for three-year terms to
succeed the directors of that class whose terms are expiring.
Mr. Thiesen is a Class I director whose term will
expire in 2006. Messrs. Furman and Scharer are
Class II directors whose terms will expire in 2004.
Messrs. Fedor and Blanchard are Class III directors
whose terms will expire in 2005.

Compliance with Section 16(a) of the
Securities Exchange Act of 1934

Section 16(a) of the Exchange Act requires
our directors, officers, and persons that own more than 10% of a
registered class of our equity securities to file reports of
ownership and changes in ownership with the Securities and
Exchange Commission. Directors, officers, and greater than 10%
stockholders are required by Securities and Exchange Commission
regulations to furnish us with copies of all Section 16(a)
forms they file.

Based on our review of such forms received by us
during the fiscal year ended October 31, 2003 and written
representation that no other reports were required, we believe
that each person that at any time during the fiscal year was a
director, officer, or beneficial owner of more than 10% of our
common stock complied with all Section 16(a) filing
requirements during such fiscal year except that Frederick Lane
and Douglas Hayes, both former directors of our company, and
Mr. Scharer each filed one late report on Form 4
covering one transaction; Messrs, Thiesen, Bunkse, and Hewitt
each filed two late reports on Form 4 covering one
transaction; Mr. Blanchard filed two late reports on
Form 4 covering four transactions; and Mr. Fedor filed
three late reports on Form 4 covering four transactions.

Code of Ethics and Committee
Charters

During fiscal 2004, we plan to adopt Corporate
Governance Guidelines, a Code of Conduct, a Code of Ethics for
the CEO and Senior Financial Officers, an amended and restated
Audit Committee Charter, a Compensation Committee Charter, a
Nominating/ Corporate Governance Charter, and any other
corporate governance materials contemplated by SEC or Nasdaq
regulations. Once adopted, we plan to post to our website these
corporate governance materials. These documents will also be
available in print to any stockholder who requests by contacting
our corporate secretary at our executive offices.

Information Relating to Our Audit Committee of
the Board of Directors

The purpose of the Audit Committee is to assist
our board of directors in the oversight of the integrity of the
consolidated financial statements of our company, our
companys compliance with legal and regulatory matters, the
independent auditors qualifications and independence, and
the performance of our companys independent auditors. The
primary responsibilities of the Audit Committee are set forth in
its charter, and include various matters with respect to the
oversight of our companys accounting and financial
reporting process and audits of the consolidated financial
statements of our company on behalf of our board of directors.
The Audit Committee also selects the independent certified
public accountants to conduct the annual audit of the
consolidated financial statements of our company; reviews the
proposed scope of such audit; reviews accounting and financial
controls of our company with the independent public accountants
and our financial

28



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##### Table of Contents



accounting staff; and reviews and approves
transactions between us and our directors, officers, and their
affiliates.


The Audit Committee currently consists of
Messrs. Scharer, and Furman, each of whom is an independent
director of our company under applicable Nasdaq rules as well as
under rules adopted by the Securities and Exchange Commission
pursuant to the Sarbanes-Oxley Act of 2002. The board of
directors has determined that Mr. Scharer (whose background
is detailed above) qualifies as an audit committee
financial expert in accordance with applicable rules and
regulations of the SEC.

During fiscal 2003, Mr. Hayes served as the
Chairman of our Audit Committee. Mr. Lane served as a
member of the Audit Committee. Messrs. Lane and Hayes were
independent directors of our company who resigned as directors
during December 2003 and January 2004 respectively.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Summary of Cash and Other
Compensation

The following table sets forth the total
compensation received for services rendered to us in all
capacities for the fiscal years ended October 31, 2001,
2002, and 2003 by our Chief Executive Officer and our other most
highly compensated executive officers whose total annual salary
and bonus exceeded $100,000 during fiscal 2003.

SUMMARY COMPENSATION TABLE

|                    |                              |                     |      |            |  |           |         |               |     |                 |   |        |  |  |        |        |  |   |        |        | 
|------------------- | ---------------------------- | ------------------- | ---- | ---------- |  | --------- | ------- | ------------- | --- | --------------- | - | ------ |  |  | ------ | ------ |  | - | ------ | ------ | 
|                    |                              |                     |      |            |  |           |         | Long-Term     |     |                
|                    |                              |                     |      |            |  |           |         | Compensation  |     |                
|                    |                              |                     |      |            |  |           |         |               |     |                
|                    |                              |                     |      |            |  |           |         | Awards        |     |                
|                    |                              |                     |      |            |  |          
|                    |                              | Annual Compensation |      | Securities |  |          
|                    |                              |                     |      | Underlying |  | All Other
|                    |                              | Fiscal Year         |      | Salary(1)  |  | Bonus     |         | Options(1)(2) |     | Compensation(3)
|                    |                              |                     |      |            |  |           |         |               |     |                
|Clarence H. Thiesen |                              |                     | 2003 |            |  | $         | 200,000 |               |     | $               |  |        |  |  | 10,000 |        |  | $ | 221    |       
|                    | Chief Executive Officer      |                     |      | 2002       |  |           | $       | 200,000       |     |                 | $ | 45,000 |  |  |        | 10,000 |  |   | $      | 2,003  | 
|                    |                              |                     | 2001 |            |  | $         | 13,333  | (4)           |     |                 |  |        |  |  | 5,000  | (5)    |  |   |       |       
|John P. Hewitt      |                              |                     | 2003 |            |  | $         | 145,833 |               |     |                 |  |        |  |  | 10,000 |        |  | $ | 221    |       
|                    | Chief Financial Officer      |                     |      | 2002       |  |           | $       | 9,603         | (6) |                 |   |       |  |  |        | 10,000 |  |   | $      | 29     | 
|                    | and Treasurer                |                     |      |            |  |           |         |               |     |                 |   |        |  |  |        |        |  |   |        |        | 
|Andrejs K. Bunkse   |                              |                     | 2003 |            |  | $         | 160,000 |               |     |                 |  |        |  |  | 10,000 |        |  | $ | 12,221 |       
|                    | Vice President & General     |                     |      | 2002       |  |           | $       | 155,324       |     |                 | $ | 30,000 |  |  |        |       |  |   | $      | 13,476 | 
|                    | Counsel/ Corporate Secretary |                     |      | 2001       |  |           | $       | 129,125       |     |                 |   |       |  |  |        | 15,000 |  |   | $      | 6,000  | 



---



| |     |                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The officers listed received certain perquisites,
    none of which exceeded the lesser of $50,000 or 10% of the total
    salary and bonus for the respective officer.                   
|
| | (2) | The exercise price of all options listed was
    equal to the fair market value of our common stock on the date
    of grant.                                                             
|
| | (3) | Amounts include car allowances and profit sharing
    compensation for the respective officers.                                                                                           
|
| | (4) | Mr. Thiesen became our Chief Executive
    Officer effective September 29, 2001. The table above
    reflects compensation for one month in fiscal 2001 at an annual
    rate of $200,000.
|
| | (5) | Mr. Thiesen received these options in his
    capacity as a non-employee director of our company prior to his
    serving as our Chief Executive Officer.                                 
|
| | (6) | Mr. Hewitt became our Chief Financial
    Officer effective October 7, 2002. The table above reflects
    compensation for one month in fiscal 2002 at an annual rate of
    $140,000     

29



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##### Table of Contents



Option Grants

The following table sets forth certain
information with respect to stock options granted to the
officers listed during fiscal 2003.

OPTION GRANTS IN LAST FISCAL YEAR

|                    |  |                 |          |                  |  |          |     |            |  |                        |      |     |  |  |          |  |  |   |        |  |  |   |        | 
|------------------- |  | --------------- | -------- | ---------------- |  | -------- | --- | ---------- |  | ---------------------- | ---- | --- |  |  | -------- |  |  | - | ------ |  |  | - | ------ | 
|                    |  |                 |          |                  |  |          |     |            |  |                       
|                    |  |                 |          |                  |  |          |     |            |  | Potential Realized    
|                    |  |                 |          |                  |  |          |     |            |  | Value at Assumed      
|                    |  |                 |          | Percent of Total |  |          |     |            |  | Annual Rates of Stock 
|                    |  | Number of       |          | Options          |  |          |     |            |  | Price Appreciation for
|                    |  | Securities      |          | Granted to       |  |          |     |            |  | Option Term (1)       
|                    |  | Underlying      |          | Employees in     |  | Exercise |     | Expiration |  |                       
|Name                |  | Options Granted |          | Fiscal Year      |  | Price    |     | Date       |  | 5%                     |      | 10%
|                    |  |                 |          |                  |  |          |     |            |  |                        |      |    
|Clarence H. Thiesen |  |                 | 10,000(2 | )                |  |          | 4.6 | %          |  | $                      | 3.98 |     |  |  | 12-17-12 |  |  | $ | 25,030 |  |  | $ | 63,431 | 
|John P. Hewitt      |  |                 | 10,000(2 | )                |  |          | 4.6 | %          |  | $                      | 3.10 |     |  |  | 01-22-13 |  |  | $ | 19,496 |  |  | $ | 49,406 | 
|Andrejs K. Bunkse   |  |                 | 10,000(2 | )                |  |          | 4.6 | %          |  | $                      | 3.98 |     |  |  | 12-17-12 |  |  | $ | 25,030 |  |  | $ | 63,431 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Potential gains are net of the exercise price,
    but before taxes associated with the exercise. Amounts represent
    hypothetical gains that could be achieved for the respective
    options if exercised at the end of the option term. The assumed
    5% and 10% rates of stock price appreciation are provided in
    accordance with SEC rules and do not represent our estimate or
    projection of the future price of our common stock. Actual
    gains, if any, on stock option exercises will depend upon the
    future market prices of our common stock.
|   
|(2) | The options vest and become exercisable quarterly
    over a four-year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Year-End Option Values

The following table sets forth the number and
value of stock options held by each listed officer as of the end
of October 31, 2003. None of these officers exercised
options during fiscal 2003.

FISCAL YEAR-END OPTION VALUES

|                    |  |                            |        |                              |  |             |        |               |  |   |       |  |  |   |       | 
|------------------- |  | -------------------------- | ------ | ---------------------------- |  | ----------- | ------ | ------------- |  | - | ----- |  |  | - | ----- | 
|                    |  |                            |        |                             
|                    |  | Number of Securities       |        | Value of Unexercised In-the-
|                    |  | Underlying Unexercised     |        | Money Options at Fiscal     
|                    |  | Options at Fiscal Year-End |        | Year-End(1)                 
|                    |  |                            |        |                             
|                    |  | Exercisable                |        | Unexercisable                |  | Exercisable |        | Unexercisable
|                    |  |                            |        |                              |  |             |        |              
|Clarence H. Thiesen |  |                            | 10,500 | (2)                          |  |             | 17,500 |               |  | $ | 1,110 |  |  | $ |      | 
|Andrejs K. Bunkse   |  |                            | 40,000 |                              |  |             | 20,000 |               |  |   | 6,200 |  |  |   |      | 
|John P. Hewitt      |  |                            | 2,500  |                              |  |             | 17,500 |               |  |   |      |  |  |   | 4,000 | 



---



|    |                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated based upon the closing price of our
    common stock as reported on the Nasdaq National Market on
    October 31, 2003 of $3.50 per share. The exercise prices of
    certain options held by our executive officers on
    October 31, 2003 were greater than $3.50 per share.
|   
|(2) | Mr. Thiesen received a portion of these
    options in his capacity as a non-employee director of our
    company prior to his serving as our Chief Executive Officer.                                                                                                                    

1997 Incentive Stock Plan

We have adopted the 1997 Incentive Stock Plan,
which authorizes the grant of options to purchase up to
4,000,000 shares of our common stock. As of January 12,
2004, 1,630,700 shares of common stock have been issued upon
exercise of options granted under the plan, and there were
outstanding options to acquire 837,175 shares of common stock
under the plan. As of that date, an additional 1,532,125 shares
of common stock were available for grant under the plan. The
1997 plan provides for the grant of incentive stock options or
non-qualified stock options.

30



---



##### Table of Contents



Directors, officers, employees, and consultants
of our company, as selected from time to time by our Board of
Directors or the committee administering the 1997 plan, will be
eligible to participate in the plan. The 1997 plan may be
administered by different bodies with respect to directors,
officers who are not directors, and employees who are neither
directors nor officers of our company. Subject to certain
limitations, the plan administrator has complete discretion to
determine which individuals are eligible to receive awards under
the plan, the form and vesting schedule of awards, the number of
shares subject to each award, and the exercise price, the manner
of payment and expiration date applicable to each award. Options
that expire or become unexercisable for any reason without being
exercised in full will become available for future grant under
the 1997 plan. Under the terms of the 1997 plan, all options
will expire.



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | on the date that is the earliest of 30 days
    after the holders termination of employment with our
    company;
|
| |  | one year after the holders death; or                                                                             
|
| |  | 10 years after the date of grant.                                                                                 

The exercise price per share of an incentive
stock option will be determined by the plan administrator at the
time of grant, but in no event may be less than the fair market
value of our common stock on the date of grant. Notwithstanding
the foregoing, if an incentive stock option is granted to a
participant who owns more than 10% of the voting power of all
classes of stock of our company, the exercise price will be at
least 110% of the fair market value of our common stock on the
date of grant and the exercise period will not exceed five years
from the date of grant. The plan administrator in its sole
discretion will determine the exercise price per share of
non-qualified stock options.

The 1997 plan contains provisions that will
proportionately adjust the number of shares of common stock
underlying each outstanding option, the exercise price per share
of such options, and the number of shares of common stock
authorized for issuance under the plan but as to which no
options have yet been granted in the event of any increase or
decrease in the number of issued shares of common stock
resulting from a stock split, stock dividend, combination, or
reclassification of our common stock, or any other increase or
decrease in the number of issued shares of our common stock
effected without receipt of consideration by our company.

In the event of a proposed dissolution or
liquidation of our company each option will terminate
immediately prior to the consummation of such proposed action,
unless otherwise provided by our Board of Directors. Our Board
of Directors may, in the exercise of its sole discretion in such
instances, declare that any option will terminate as of a date
fixed by the Board of Directors, and give each optionee the
right to exercise outstanding options as to all or any part of
the options, including shares as to which the option would not
otherwise be exercisable. In the event of a proposed sale of all
or substantially all of the assets of our company, or the merger
of our company with or into another corporation, each option may
be assumed or an equivalent option may be substituted by the
successor corporation, or if such successor corporation does not
assume the option or substitute an equivalent option, our Board
of Directors may, in lieu of such assumption or substitute,
provide the optionee the right to exercise the option as to all
of the shares underlying the option, including shares as to
which the option would not otherwise be exercisable. If our
Board of Directors makes an option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of
assets, the Board will notify the optionee that the option will
be fully exercisable for a period of 15 days from the date
of such notice, and the option will terminate upon the
expiration of such period.

Our Board of Directors may amend or terminate the
1997 plan from time to time in such respects as the Board deems
advisable. We will obtain stockholder approval of any amendment
to the plan to the extent necessary and desirable to comply with
Rule 16b-3 of the Securities Exchange Act, with
Section 422 of the Internal Revenue Code, or with
applicable NASDAQ rules. Any such amendment or termination of
the plan will not affect options already granted and such
options will remain in full force and effect as if the plan had
not been amended or terminated, unless mutually agreed between
the optionee and the Board of Directors.

31



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##### Table of Contents



Employment Contracts and Severance
Agreements

We do not have a written employment, severance,
or change of control agreement with Mr. Thiesen.

John Hewitt entered into an employment letter
agreement on October 2, 2002 to serve as our Chief
Financial Officer and Treasurer. In the event of a change of
control, the 10,000 stock options that Mr. Hewitt was
granted at the time of his hire will immediately vest.

Andrejs K. Bunkse entered into an employment
agreement on October 1, 1997 to serve as our General
Counsel and Corporate Secretary through September 30, 2003.
The employment agreement provides for a base salary that may be
increased, but not decreased, at the discretion of the Board of
Directors. Mr. Bunkses current base salary is
$170,000 per year. Mr. Bunkse may be awarded an annual
bonus at the discretion of the Board of Directors as described
below. Mr. Bunkses employment agreement is for a term
of two years, and will automatically renew unless otherwise
terminated. If Mr. Bunkses employment is
constructively terminated or terminated by us without cause, or
if he elects to terminate his employment within 12 months
of any change of control, he is entitled to receive an amount
equal to two years of his base salary and immediate vesting of
any stock options. If Mr. Bunkses employment is
terminated due to our decision not to renew the term of
Mr. Bunkses employment agreement, he is entitled to
receive an amount equal to one year of his base salary and
immediate vesting of any stock options. In the event of a change
of control, the term of Mr. Bunkses agreement will
automatically extend for two years following the effective date
of the change of control. Mr. Bunkses employment is
terminable by us for cause. The agreement provides that
Mr. Bunkse may not compete with us during the term of his
employment and for a period of two years after his retirement or
other termination of his employment. The agreement also provides
that Mr. Bunkse is entitled to participate in any long-term
incentive plan that we provide to our executives.

Indemnification of Directors, Officers,
Employees, and Agents

We have adopted provisions in our bylaws that
require us to indemnify our directors, officers, employees, and
agents against expenses and certain other liabilities arising
out of their conduct on behalf of our company to the maximum
extent and under all circumstances permitted by law.
Indemnification may not apply in certain circumstances to
actions arising under the federal securities laws.

Compensation of Directors

Directors who are full-time employees of our
company receive no additional compensation for serving as
directors. Non-employee directors receive a quarterly
directors fee of $4,000 and reimbursement of expenses per
board or committee meeting attended. Our Chairman, in
recognition for the time and effort committed to our company,
receives a monthly fee of $8,000. With the exception of our
Chairman, each outside director receives $1,000 per board
meeting and $500 per board committee meeting attended unless the
outside director is chairman of a committee, in which case the
fee is $1,500 per committee meeting. In addition, under our
Incentive Stock Option Plan, each outside director receives a
grant of 10,000 shares upon joining the Board of Directors and
an annual grant of options to purchase 10,000 shares of common
stock. The exercise price of the options is the fair market
value of common stock on the date of grant, and each option has
a term of ten years and becomes exercisable immediately upon
grant.

Compensation Committee Interlocks and Insider
Participation

Between November 2002 and August 2003, our
compensation committee consisted of Messrs. Lane, Fedor,
Blanchard, Hayes, and Scharer. Since August 2003, our
compensation committee has consisted of Messrs. Fedor,
Blanchard, Hayes, Furman, and Scharer. Messrs. Lane and
Hayes resigned as directors during December 2003 and January
2004 respectively.

Mr. Fedor is a co-founder of our company,
has served as our Chairman since December 2003, and served as
our Chief Executive Officer from 1994 until March 1998. On
August 1, 1999, Mr. Fedor returned as interim Chief
Executive Officer and served as such until October 2000.
Mr. Fedor also served as President from 1994 until
August 1, 1997.

32



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##### Table of Contents



Mr. Blanchard is a co-founder of our company
and served as our Director of Engineering from 1994 until his
retirement in June 2001.

During fiscal 2003, we paid Mr. Lane, our
former Chairman, $8,000 per month in recognition for the time
and commitment to our company.






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

The following table sets forth certain
information regarding beneficial ownership of our common stock
as of January 19, 2004 for (i) all directors, our
Chief Executive Officer, and our other executive officers listed
in the Summary Compensation Table under Item 11,
Executive Compensation, (ii) all directors and
executive officers as a group, and (iii) each person known
by us to beneficially own more than 5% of our outstanding shares
of common stock.

|                                  |                                |                                                                                                    |  |           |           |  |  |      |      |  
|--------------------------------- | ------------------------------ | -------------------------------------------------------------------------------------------------- |  | --------- | --------- |  |  | ---- | ---- | -
|                                  |                                | Number of Shares                                                                                   |  |          
|Name of Beneficial Owner(1)       |                                | Beneficially Owned(2)(3)                                                                           |  | Percent  
|                                  |                                |                                                                                                    |  |          
|Directors and Executive Officers: |                                |                                                                                                    |  |           |           |  |  |     
|                                  | Richard T. Fedor               |                                                                                                    |  | 3,000,836 | (4)       |  |  | 25.5 | %   
|                                  | Clarence H. Thiesen            |                                                                                                    |  | 450,500   | (5)       |  |  | 3.8  | %   
|                                  | Charles W. Scharer             |                                                                                                    |  | 18,000    | (6)       |  |  | *    |     
|                                  | Vern D. Blanchard              |                                                                                                    |  | 1,059,355 | (7)       |  |  | 9.0  | %   
|                                  | John B. Furman                 |                                                                                                    |  | 10,000    | (8)       |  |  | *    |     
|                                  | John P. Hewitt                 |                                                                                                    |  | 5,000     | (9)       |  |  | *    |     
|                                  | Andrejs K. Bunkse              |                                                                                                    |  | 58,750    | (10)      |  |  | *    |     
|                                  |                                | All directors and executive officers as group
    (consisting of 7 current directors and officers) |  |           | 4,602,441 |  |  |      | 38.8 | %
|5% Stockholders:                  |                                |                                                                                                    |  |           |           |  |  |     
|                                  | Gerald R. Novotny              |                                                                                                    |  | 1,020,778 | (11)      |  |  | 9.1  | %   
|                                  | Delta Partners, LLC            |                                                                                                    |  | 1,016,675 | (12)      |  |  | 8.7  | %   
|                                  | Keane Capital Management, Inc. |                                                                                                    |  | 615,080   | (13)      |  |  | 5.2  | %   



---



| |   |             
| | - | ------------
| | * | Less than 1%



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Except as otherwise indicated, all persons listed
    can be reached at our company offices at 900 Sandhill Road,
    Reno, Nevada 89521.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (2) | Except as indicated, and subject to community
    property laws when applicable, the persons named in the table
    above have sole voting power and investment power with respect
    to all shares of common stock shown as beneficially owned by
    them.                                                                                                                                                                                                                                                                                                                                                                       
|
| | (3) | The percentages shown are calculated based upon
    11,737,439 shares of our common stock outstanding on
    January 19, 2004. The percentages shown include the shares
    of common stock that each named stockholder has the right to
    acquire within 60 days of January 19, 2004. In
    calculating the percentage of ownership, such shares are deemed
    to be outstanding for the purpose of computing the percentage of
    shares of common stock owned by such person, but not deemed to
    be outstanding for the purpose of computing the percentage of
    shares of common stock owned by any other stockholder.
|
| | (4) | Includes (i) 14,000 shares of common stock
    issuable upon the exercise of stock options and
    (ii) 1,021,255 shares owned of record by
    Mr. Fedors wife and minor children, of which
    Mr. Fedor disclaims beneficial ownership of 900 shares of
    common stock owned by Mrs. Fedor and has shared dispositive
    power with Mrs. Fedor for the 1,020,325 shares held by
    their minor children.                                                                                                                                                                                                                    
|
| | (5) | Includes (i) 15,500 shares of common stock
    issuable upon the exercise of stock options, and
    (ii) 110,000 shares owned of record by
    Mr. Thiesens wife, of which Mr. Thiesen
    disclaims beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                         

33



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##### Table of Contents





| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Represents 18,000 shares of common stock issuable
    upon the exercise of stock options.                                                                                                                                                                                                                                                                                                                                           
|
| | (7) | Includes (i) 18,000 shares of common stock
    issuable upon the exercise of stock options held by
    Mr. Blanchard, (ii) 1,035,875 shares of our stock held
    by the CJB Family Trust, and (iii) 13,480 shares of our
    stock held by Mr. Blanchard. Mr. Blanchard is the sole
    trustee of the CJB Family Trust and has sole voting power and
    dispositive power with respect to the common stock held by the
    trust.
|
| | (8) | Represents 10,000 shares of common stock issuable
    upon the exercise of stock options.                                                                                                                                                                                                                                                                                                                                           
|
| | (9) | Represents 5,000 shares of common stock issuable
    upon the exercise of stock options.                                                                                                                                                                                                                                                                                                                                            



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 48,750 shares of our stock issuable upon
    exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(11) | Represents 1,020,778 shares of common stock
    beneficially owned by Mr. Novotny. Mr. Novotny has
    sole voting and dispositive power over all such shares. The
    address of Mr. Novotny is 295 Highway 50,
    Suite 2, Stateline, Nevada 89449. Beneficial ownership
    information is based upon a Schedule 13D/A filed with the
    Securities and Exchange Commission as of November 27, 2002.                                                                                                  
|    
|(12) | Represents 1,016,675 shares of common stock
    beneficially owned by various entities under common control of
    Delta Partners, LLC. Delta Partners, LLC has shared voting and
    dispositive power over all such shares. The address of Delta
    Partners, LLC is One Financial Center, Suite 1600, Boston,
    Massachusetts 02116. Beneficial ownership information is based
    upon a Schedule 13G/A filed with the Securities and
    Exchange Commission as of January 31, 2003.               
|    
|(13) | Represents 615,080 shares of common stock
    beneficially owned by various entities under common control of
    Keane Capital Management, Inc. Keane Capital has sole voting and
    dispositive power over all such shares. The address of Keane
    Capital Management, Inc. is 3420 Toringdon Way,
    Suite 350, Charlotte, North Carolina 28277. Beneficial
    ownership information is based upon a Schedule 13G filed
    with the Securities and Exchange Commission as of
    February 14, 2003.

Equity Compensation Plan Information

The following table sets forth information with
respect to our common stock that has been authorized for
issuance under all of our equity compensation plans as of
October 31, 2003.

|                                                           |  |                         |         |                      |  |                         |      |  |  |  |           |    
|---------------------------------------------------------- |  | ----------------------- | ------- | -------------------- |  | ----------------------- | ---- |  |  |  | --------- | ---
|                                                           |  |                         |         |                      |  | (c)                    
|                                                           |  |                         |         |                      |  | Number of Securities   
|                                                           |  |                         |         |                      |  | Remaining Available for
|                                                           |  | (a)                     |         | (b)                  |  | Future Issuance Under  
|                                                           |  | Number of Securities to |         | Weighted Average     |  | Equity Compensation    
|                                                           |  | be Issued Upon Exercise |         | Exercise Price of    |  | Plans (Excluding       
|                                                           |  | of Outstanding Options, |         | Outstanding Options, |  | Securities Reflected   
|Plan Category                                              |  | Warrants, and Rights    |         | Warrants, and Rights |  | in Column (a))         
|                                                           |  |                         |         |                      |  |                        
|Equity-Compensation Plans Approved by Stockholders         |  |                         | 698,575 |                      |  | $                       | 3.80 |  |  |  | 1,670,725 |    
|Equity-Compensation Plans Not Approved by
    Stockholders |  |                         |        |                      |  |                         |     |  |  |  | 31,100    | (1)
|                                                           |  |                         |         |                      |  |                         |      |  |  |  |           |    
|Total                                                      |  |                         | 698,575 |                      |  |                         |      |  |  |  | 1,701,825 |    
|                                                           |  |                         |         |                      |  |                         |      |  |  |  |           |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents shares of restricted common stock that
    may be granted pursuant to our 2001 Restricted Stock Plan to our
    employees, consultants, or independent contractors who are not
    directors, officers, or 10% stockholders of our company. Under
    the plan, we have reserved for issuance 50,000 shares of
    restricted common stock and during 2001 and 2002 we issued
    18,500 shares and 400 shares, respectively of restricted
    common stock.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

During fiscal 2003, we paid our former Chairman
$8,000 per month in recognition for the time and commitment to
our company.

34



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##### Table of Contents








|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Audit Fees

Fees for audit services totaled approximately
$314,000 and $296,000 for the fiscal years ended
October 31, 2003 and 2002, respectively, including fees
associated with the annual audits reviews of our quarterly
reports on Form 10-Q, assistance with the review of
documents filed with the SEC, and accounting consultations.

Audit-Related Fees

Fees for audit-related services totaled
approximately $31,000 and $9,000 for the fiscal years ended
October 31, 2003 and 2002, respectively. Audit-related
services principally included assistance in documenting internal
control policies and procedures over financial reporting and due
diligence in connection with proposed or consummated business
combinations.

Tax Fees

Fees for tax services, including tax compliance
and consultation, amounted to approximately $50,000 and $64,000
for the fiscal years ended October 31, 2003 and 2002,
respectively.

All Other Fees

Our principal accountant did not bill us for any
other services for the fiscal years ended October 31, 2003
and 2002.

Audit Committee Pre-Approval
Policies

The duties and responsibilities of our Audit
Committee include the pre-approval of all audit, audit related,
tax, and other services permitted by law or applicable SEC
regulations (including fee and cost ranges) to be performed by
our independent auditor. Any pre-approved services that will
involve fees or costs exceeding pre-approved levels will also
require specific pre-approval by the Audit Committee. Unless
otherwise specified by the Audit Committee in pre-approving a
service, the pre-approval will be effective for the 12-month
period following pre-approval. The Audit Committee will not
approve any non-audit services prohibited by applicable SEC
regulations or any services in connection with a transaction
initially recommended by the independent auditor, the purpose of
which may be tax avoidance and the tax treatment of which may
not be supported by the Internal Revenue Code and related
regulations.

To the extent deemed appropriate, the Audit
Committee may delegate pre-approval authority to the Chairman of
the Board or any one or more other members of the Audit
Committee provided that any member of the Audit Committee who
has exercised any such delegation must report any such
pre-approval decision to the Audit Committee at its next
scheduled meeting. The Audit Committee will not delegate the
pre-approval of services to be performed by the independent
auditor to management.

Our Audit Committee requires that our independent
auditor, in conjunction with our Chief Financial Officer, be
responsible for seeking pre-approval for providing services to
us and that any request for pre-approval must inform the Audit
Committee about each service to be provided and must provide
detail as to the particular service to be provided.

All of the services provided by Ernst &
Young LLP described above under the captions Audit
Fees, Audit-Related Fees, and Tax
Fees, were approved by our Audit Committee.

35



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##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) Financial Statements and Financial
Statement Schedules



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Consolidated Financial Statements.                                                                                                                                                                    
|
| | Consolidated Financial Statements are listed in
    the Index to Consolidated Financial Statements on page F-1
    of this report.                                                                        
|
| | (2) Consolidated Financial Statement
    Schedules.                                                                                                                                                       
|
| | No financial statement schedules are included
    because they are not applicable, are not required, or because
    required information is included in the financial statements or
    the notes thereto.

(b) Reports on Form 8-K



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) We filed a current report on
    Form 8-K on August 29, 2003 reporting our financial
    results for our third fiscal quarter of fiscal 2003.

(c) Exhibits

|        |    |                        |  |                                                                                                                                                                                                                                                                                     
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 2  | .1                     |  | Stock Purchase Agreement dated February 8,
    1999 by and among the Registrant, Bingo Technologies
    Corporation, and the Stockholders and Indemnitors named
    therein(1)                                                                                                      
|        | 3  | .1                     |  | Certificate of Incorporation of the Registrant,
    as amended(2)                                                                                                                                                                                                                   
|        | 3  | .2                     |  | Bylaws of the Registrant(2)                                                                                                                                                                                                                                                         
|        | 3  | .3                     |  | Certificate of Designation of Series A
    Junior Participating Preferred Stock of the Registrant.(8)                                                                                                                                                                               
|        | 4  | .1                     |  | GameTech International, Inc. Registration Rights
    Agreement(3)                                                                                                                                                                                                                   
|        | 4  | .3                     |  | Rights Agreement, dated as of March 7, 2003,
    between GameTech International, Inc. and Mellon Investor
    Services, LLC, as rights agent.(8)                                                                                                                                    
|        | 4  | .4                     |  | Specimen Common Stock Certificate(7)                                                                                                                                                                                                                                                
|        | 10 | .1                     |  | GameTech International, Inc. 1997 Incentive Stock
    Plan(2)                                                                                                                                                                                                                       
|        | 10 | .15                    |  | GameTech International, Inc. 2001 Restricted
    Stock Plan(5)                                                                                                                                                                                                                      
|        | 10 | .16                    |  | Lease Agreement dated November 18, 1999
    between the Registrant and Cypress Corporate Services, including
    addendum to lease and first amendment dated April 17,
    2000(4)                                                                                                  
|        | 10 | .17                    |  | Revolving Line of Credit dated August 19,
    1998 between the Registrant and Wells Fargo Bank, N.A.(4)                                                                                                                                                                             
|        | 10 | .18                    |  | Letter Amendment to Revolving Line of Credit
    dated April 1, 2000 by and among the Registrant, Bingo
    Technologies Corporation, and Wells Fargo Bank, N.A.(4)                                                                                                                 
|        | 10 | .19                    |  | Letter Amendment to Revolving Line of Credit
    dated April 2, 2001 by and among the Registrant, Bingo
    Technologies Corporation, and Wells Fargo Bank, N.A.(4)                                                                                                                 
|        | 10 | .22                    |  | Employment Agreement dated October 1, 1997
    between the Registrant and Andrejs K. Bunkse(4)                                                                                                                                                                                      
|        | 10 | .23                    |  | Letter Amendment dated April 2, 2002 between
    Wells Fargo Bank, N.A., the Registrant, and Bingo Technologies
    Corporation amending the letter agreement between the parties
    dated August 19, 1998, together with Revolving Line of
    Credit Note dated April 2, 2002.(6)
|        | 10 | .24                    |  | Letter Amendment dated April 2, 2003 between
    Wells Fargo Bank, N.A., and the Registrant, amending the letter
    agreement between the parties dated August 19, 1998,
    together with the Revolving Line of Credit Note dated
    April 2, 2003.(9)                           
|        | 21 |                        |  | List of Subsidiaries(6)                                                                                                                                                                                                                                                             
|        | 23 | .1                     |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                        
|        | 31 | .1                     |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a) and Rule 15d-14(a), promulgated by
    the Securities Exchange Act of 1934, as amended.                                                                                                                     

36



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                
|------- | -- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 31 | .2                     |  | Certification of Chief Financial Officer pursuant
    to Rule 13a-14(a) and Rule 15d-14(a), promulgated by
    the Securities Exchange Act of 1934, as amended.
|        | 32 | .1                     |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     
|        | 32 | .2                     |  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     



---



|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the
    Registrants Current Report on Form 8-K dated
    February 8, 1999 as filed with the Commission on or about
    February 23, 1999.                                
|   
|(2) | Incorporated by reference to the
    Registrants Registration Statement on Form S-1
    (Registration No. 333-34967) as filed with the Commission
    on or about September 4, 1997.                  
|   
|(3) | Incorporated by reference to Amendment No. 1
    to the Registrants Registration Statement on Form S-1
    (Registration No. 333-34967) as filed with the Commission
    on or about October 17, 1997.
|   
|(4) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended October 31, 2001 as filed with the Commission on
    or about January 29, 2002.             
|   
|(5) | Incorporated by reference to the
    Registrants Registration Statement on Form S-8
    (Registration No. 333-72886) as filed with the Commission
    on or about November 7, 2001.                   
|   
|(6) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended October 31, 2003 as filed with the Commission on
    or about January 29, 2003.             
|   
|(7) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended January 31, 2003 as filed with the
    Commission on or about March 17, 2003.       
|   
|(8) | Incorporated by reference to the
    Registrants Current Report on Form 8-K dated
    March 7, 2003 as filed with the Commission on or about
    March 10, 2003.                                      
|   
|(9) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended April 30, 2003 as filed with the
    Commission on or about June 16, 2003.          

37



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##### Table of Contents






SIGNATURES

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



| |                             
| | ----------------------------
| | GAMETECH INTERNATIONAL, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ CLARENCE H. THIESEN

| |                              
| | -----------------------------
| |                              
| | Clarence H. Thiesen          
| | Chief Executive Officer      
| | (Principal Executive Officer)

Dated: January 29, 2004

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.

|                                           |  |                                                                        |  |                  |  | 
|------------------------------------------ |  | ---------------------------------------------------------------------- |  | ---------------- |  | 
|                                           |  |                                                                        |  |                 
|Signature                                  |  | Title                                                                  |  | Date            
|                                           |  |                                                                        |  |                 
|                                          
|/s/ RICHARD T. FEDORRichard T. Fedor       |  | Chairman of the Board of Directors                                     |  | January 29, 2004
|                                          
|/s/ CLARENCE H. THIESENClarence H. Thiesen |  | Chief Executive Officer and Director
    (Principal Executive Officer) |  | January 29, 2004
|                                          
|/s/ JOHN P. HEWITTJohn P. Hewitt           |  | Chief Financial Officer
    (Principal Financial Officer)              |  | January 29, 2004
|                                          
|/s/ ANN D. MCKENZIEAnn D. McKenzie         |  | Corporate Controller
    (Principal Accounting Officer)                |  | January 29, 2004
|                                          
|/s/ CHARLES W. SCHARERCharles W. Scharer   |  | Director                                                               |  | January 29, 2004
|                                          
|/s/ VERN D. BLANCHARDVern D. Blanchard     |  | Director                                                               |  | January 29, 2004
|                                          
|/s/ JOHN B. FURMANJohn B. Furman           |  | Director                                                               |  | January 29, 2004

38



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##### Table of Contents



GameTech International, Inc.

Index to Consolidated Financial
Statements

|                                                      |  |  |     | 
|----------------------------------------------------- |  |  | --- | 
|                                                     
|Report of Ernst & Young LLP, Independent
    Auditors |  |  | F-2 | 
|Consolidated Financial Statements                     |  |  |     | 
|Consolidated Balance Sheets                           |  |  | F-3 | 
|Consolidated Statements of Operations                 |  |  | F-4 | 
|Consolidated Statements of Stockholders
    Equity   |  |  | F-5 | 
|Consolidated Statements of Cash Flows                 |  |  | F-6 | 
|Notes to Consolidated Financial Statements            |  |  | F-7 | 

F-1



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

GameTech International, Inc.


We have audited the accompanying consolidated
balance sheets of GameTech International, Inc. and subsidiaries
as of October 31, 2002 and 2003, and the related
consolidated statements of operations, stockholders equity
and cash flows for each of the three years in the period ended
October 31, 2003. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of GameTech International, Inc.
and subsidiaries at October 31, 2002 and 2003 and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended October 31,
2003, in conformity with accounting principles generally
accepted in the United States.



| |                  
| | -----------------
| | Ernst & Young LLP

Reno, Nevada

December 15, 2003


F-2



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |        |  
|----------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | ------ | - | - | ------ | ------ | -
|                                                                                    |                                                                                                                               |                   
|                                                                                    |                                                                                                                               | October 31,       
|                                                                                    |                                                                                                                               |                   
|                                                                                    |                                                                                                                               | 2002               |        | 2003  
|                                                                                    |                                                                                                                               |                    |        |       
|                                                                                    |                                                                                                                               |                   
|                                                                                    |                                                                                                                               | (In thousands,    
|                                                                                    |                                                                                                                               | except share and  
|                                                                                    |                                                                                                                               | per share amounts)
|ASSETS:                                                                            
|Current assets:                                                                     |                                                                                                                               |                    |        |        |   |   |        |       
|                                                                                    | Cash and cash equivalents                                                                                                     |                    | $      | 4,233  |   |   | $      | 10,202 |  
|                                                                                    | Short-term investments                                                                                                        |                    |        | 5,045  |   |   |        | 1,750  |  
|                                                                                    | Accounts receivable, less allowance for doubtful
    accounts of $2,342 in 2002 and $2,287 in 2003                            |                    |        | 3,906  |   |   |        | 3,624  |  
|                                                                                    | Deposits                                                                                                                      |                    |        | 610    |   |   |        | 28     |  
|                                                                                    | Refundable income taxes                                                                                                       |                    |        | 3,888  |   |   |        | 231    |  
|                                                                                    | Prepaid expenses and other current assets                                                                                     |                    |        | 433    |   |   |        | 341    |  
|                                                                                    | Deferred income taxes                                                                                                         |                    |        | 2,278  |   |   |        | 2,185  |  
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       
|Total current assets                                                                |                                                                                                                               |                    | 20,393 |        |   |   | 18,361 |       
|Bingo equipment, furniture and other equipment,
    net                             |                                                                                                                               |                    | 21,620 |        |   |   | 22,319 |       
|Goodwill, net                                                                       |                                                                                                                               |                    | 14,960 |        |   |   | 16,809 |       
|Intangibles, less accumulated amortization of
    $2,028 in 2002 and $2,089 in 2003 |                                                                                                                               |                    | 678    |        |   |   | 2,236  |       
|Restricted cash                                                                     |                                                                                                                               |                    | 450    |        |   |   | 450    |       
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       
|Total assets                                                                        |                                                                                                                               | $                  | 58,101 |        |   | $ | 60,175 |       
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY:                                          
|Current liabilities:                                                                |                                                                                                                               |                    |        |        |   |   |        |       
|                                                                                    | Accounts payable                                                                                                              |                    | $      | 914    |   |   | $      | 783    |  
|                                                                                    | Accrued payroll and related obligations                                                                                       |                    |        | 805    |   |   |        | 754    |  
|                                                                                    | Other accrued liabilities                                                                                                     |                    |        | 2,099  |   |   |        | 1,743  |  
|                                                                                    | Note payable and other obligations                                                                                            |                    |        | 13     |   |   |        | 275    |  
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       
|Total current liabilities                                                           |                                                                                                                               |                    | 3,831  |        |   |   | 3,555  |       
|Non-current employment obligations                                                  |                                                                                                                               |                    | 432    |        |   |   | 448    |       
|Deferred income taxes                                                               |                                                                                                                               |                    | 3,348  |        |   |   | 3,551  |       
|Commitments and contingencies                                                       |                                                                                                                               |                    |        |        |   |   |        |       
|Stockholders equity:                                                               |                                                                                                                               |                    |        |        |   |   |        |       
|                                                                                    | Common stock: $0.001 par value; 40,000,000 shares
    authorized; 13,090,764 shares issued in 2002 and 13,592,764 in
    2003 |                    |        | 13     |   |   |        | 14     |  
|                                                                                    | Capital in excess of par value                                                                                                |                    |        | 45,716 |   |   |        | 46,655 |  
|                                                                                    | Retained earnings                                                                                                             |                    |        | 12,857 |   |   |        | 14,048 |  
|                                                                                    | Less: treasury stock, at cost: 1,855,325 shares
    in 2002 and 2003                                                          |                    |        | (8,096 | ) |   |        | (8,096 | )
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       
|Total stockholders equity                                                          |                                                                                                                               |                    | 50,490 |        |   |   | 52,621 |       
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       
|Total liabilities and stockholders equity                                          |                                                                                                                               | $                  | 58,101 |        |   | $ | 60,175 |       
|                                                                                    |                                                                                                                               |                    |        |        |   |   |        |       

See accompanying notes.

F-3



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GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |            |        | 
|------------------------------------------------------------------ | -------------------------- | --------------------------- | ------ | ---------- | ------ | ---- | ------ | ---------- | ------ | - | ------ | ---------- | ------ | 
|                                                                   |                            |                            
|                                                                   |                            | Year Ended October 31,     
|                                                                   |                            |                            
|                                                                   |                            | 2001                        |        | 2002       |        | 2003
|                                                                   |                            |                             |        |            |        |     
|                                                                   |                            |                            
|                                                                   |                            | (In thousands, except share
|                                                                   |                            | and per share amounts)     
|Revenue                                                            |                            | $                           | 48,536 |            |        | $    | 48,861 |            |        | $ | 52,329 |           
|Cost of revenue                                                    |                            |                             | 22,185 |            |        |      | 19,555 |            |        |   | 22,639 |           
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Gross profit                                                       |                            |                             | 26,351 |            |        |      | 29,306 |            |        |   | 29,690 |           
|Operating expenses:                                                |                            |                             |        |            |        |      |        |            |        |   |        |           
|                                                                   | General and administrative |                             |        | 14,995     |        |      |        | 9,535      |        |   |        | 11,426     |       
|                                                                   | Sales and marketing        |                             |        | 14,400     |        |      |        | 13,245     |        |   |        | 12,323     |       
|                                                                   | Research and development   |                             |        | 2,780      |        |      |        | 2,098      |        |   |        | 3,828      |       
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|                                                                   |                            | Total operating expenses    |        |            | 32,175 |      |        |            | 24,878 |   |        |            | 27,577 | 
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Income (loss) from operations                                      |                            |                             | (5,824 | )          |        |      | 4,428  |            |        |   | 2,113  |           
|Interest and other income (expense), net                           |                            |                             | 144    |            |        |      | (7     | )          |        |   | 3      |           
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Income (loss) before provision for income
    taxes                |                            |                             | (5,680 | )          |        |      | 4,421  |            |        |   | 2,116  |           
|Provision for (benefit from) income taxes                          |                            |                             | (1,285 | )          |        |      | 1,688  |            |        |   | 925    |           
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Net income (loss)                                                  |                            | $                           | (4,395 | )          |        | $    | 2,733  |            |        | $ | 1,191  |           
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Basic net income (loss) per share                                  |                            | $                           | (0.41  | )          |        | $    | 0.25   |            |        | $ | 0.10   |           
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Diluted net income (loss) per share                                |                            | $                           | (0.41  | )          |        | $    | 0.23   |            |        | $ | 0.10   |           
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|Shares used in the calculation of net income
    (loss) per share: |                            |                             |        |            |        |      |        |            |        |   |        |           
|                                                                   | Basic                      |                             |        | 10,623,068 |        |      |        | 11,150,064 |        |   |        | 11,696,118 |       
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           
|                                                                   | Diluted                    |                             |        | 10,623,068 |        |      |        | 11,945,393 |        |   |        | 11,817,781 |       
|                                                                   |                            |                             |        |            |        |      |        |            |        |   |        |           

See accompanying notes.

F-4



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                            |  |                                      |            |            |  |           |    |                |  |        |        |        |  |       |        |   |  |  |           |  |  |   |        |   |  |   |        |  
|----------------------------------------------------------- |  | ------------------------------------ | ---------- | ---------- |  | --------- | -- | -------------- |  | ------ | ------ | ------ |  | ----- | ------ | - |  |  | --------- |  |  | - | ------ | - |  | - | ------ | -
|                                                            |  |                                      |            |            |  |           |    |                |  |       
|                                                            |  | Common Stock                         |            | Capital in |  |           |    | Treasury Stock |  |       
|                                                            |  |                                      |            | Excess of  |  | Retained  |    |                |  |       
|                                                            |  | Shares                               |            | Amount     |  | Par Value |    | Earnings       |  | Shares |        | Amount |  | Total
|                                                            |  |                                      |            |            |  |           |    |                |  |        |        |        |  |      
|                                                            |  |                                     
|                                                            |  | (In thousands, except share amounts)
|Balances at October 31, 2000                                |  |                                      | 12,371,223 |            |  | $         | 12 |                |  | $      | 43,541 |        |  | $     | 14,519 |   |  |  | 1,840,725 |  |  | $ | (8,042 | ) |  | $ | 50,030 |  
|Issuance of common stock upon exercise of stock
    options |  |                                      | 312,116    |            |  |           | 1  |                |  |        | 567    |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 568    |  
|Restricted stock issued to employees                        |  |                                      | 18,500     |            |  |           |   |                |  |        | 50     |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 50     |  
|Tax benefit from stock option exercises                     |  |                                      |           |            |  |           |   |                |  |        | 385    |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 385    |  
|Repurchase of common stock for treasury                     |  |                                      |           |            |  |           |   |                |  |        |       |        |  |       |       |   |  |  | 14,600    |  |  |   | (54    | ) |  |   | (54    | )
|Net loss                                                    |  |                                      |           |            |  |           |   |                |  |        |       |        |  |       | (4,395 | ) |  |  |          |  |  |   |       |   |  |   | (4,395 | )
|                                                            |  |                                      |            |            |  |           |    |                |  |        |        |        |  |       |        |   |  |  |           |  |  |   |        |   |  |   |        |  
|Balances at October 31, 2001                                |  |                                      | 12,701,839 |            |  |           | 13 |                |  |        | 44,543 |        |  |       | 10,124 |   |  |  | 1,855,325 |  |  |   | (8,096 | ) |  |   | 46,584 |  
|Issuance of common stock upon exercise of stock
    options |  |                                      | 388,525    |            |  |           |   |                |  |        | 1,172  |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 1,172  |  
|Restricted stock issued to employees                        |  |                                      | 400        |            |  |           |   |                |  |        | 1      |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 1      |  
|Net income                                                  |  |                                      |           |            |  |           |   |                |  |        |       |        |  |       | 2,733  |   |  |  |          |  |  |   |       |   |  |   | 2,733  |  
|                                                            |  |                                      |            |            |  |           |    |                |  |        |        |        |  |       |        |   |  |  |           |  |  |   |        |   |  |   |        |  
|Balances at October 31, 2002                                |  |                                      | 13,090,764 |            |  |           | 13 |                |  |        | 45,716 |        |  |       | 12,857 |   |  |  | 1,855,325 |  |  |   | (8,096 | ) |  |   | 50,490 |  
|Issuance of common stock upon exercise of stock
    options |  |                                      | 502,000    |            |  |           | 1  |                |  |        | 529    |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 530    |  
|Tax benefit from stock option exercises                     |  |                                      |           |            |  |           |   |                |  |        | 410    |        |  |       |       |   |  |  |          |  |  |   |       |   |  |   | 410    |  
|Net income                                                  |  |                                      |           |            |  |           |   |                |  |        |       |        |  |       | 1,191  |   |  |  |          |  |  |   |       |   |  |   | 1,191  |  
|                                                            |  |                                      |            |            |  |           |    |                |  |        |        |        |  |       |        |   |  |  |           |  |  |   |        |   |  |   |        |  
|Balances at October 31, 2003                                |  |                                      | 13,592,764 |            |  | $         | 14 |                |  | $      | 46,655 |        |  | $     | 14,048 |   |  |  | 1,855,325 |  |  | $ | (8,096 | ) |  | $ | 52,621 |  
|                                                            |  |                                      |            |            |  |           |    |                |  |        |        |        |  |       |        |   |  |  |           |  |  |   |        |   |  |   |        |  

See accompanying notes.

F-5



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |        |       |  
|------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ----------------------------------------- | ------ | ------ | ---- | ---- | ------- | ----- | ------ | - | ------- | ------ | ----- | -
|                                                                                                                                     |                                                                |                                          
|                                                                                                                                     |                                                                | Year Ended October 31,                   
|                                                                                                                                     |                                                                |                                          
|                                                                                                                                     |                                                                | 2001                                      |        | 2002   |      | 2003
|                                                                                                                                     |                                                                |                                           |        |        |      |     
|                                                                                                                                     |                                                                |                                          
|                                                                                                                                     |                                                                | (In thousands)                           
|Cash flows from operating
    activities:                                                                                            |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Net income (loss)                                                                                                                    |                                                                | $                                         | (4,395 | )      |      | $    | 2,733   |       |        | $ | 1,191   |       
|Adjustments to reconcile net income
    (loss) to net cash provided by operating activities net of
    effects of acquired business: |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|                                                                                                                                     | Depreciation, amortization and obsolescence                    |                                           |        | 12,820 |      |      |         | 8,922 |        |   |         | 10,737 |      
|                                                                                                                                     | Loss on disposals of furniture and other equipment             |                                           |        | 62     |      |      |         | 160   |        |   |         | 68     |      
|                                                                                                                                     | Employee share grant                                           |                                           |        | 50     |      |      |         | 1     |        |   |         |       |      
|                                                                                                                                     | Deferred income taxes                                          |                                           |        | (527   | )    |      |         | 3,452 |        |   |         | 706    |      
|                                                                                                                                     | Changes in operating assets and liabilities:                   |                                           |        |        |      |      |         |       |        |   |         |        |      
|                                                                                                                                     |                                                                | Accounts receivable, net                  |        |        | 760  |      |         |       | 173    |   |         |        | 282   |  
|                                                                                                                                     |                                                                | Deposits                                  |        |        | (4   | )    |         |       | (509   | ) |         |        | 582   |  
|                                                                                                                                     |                                                                | Refundable income taxes                   |        |        | (251 | )    |         |       | (2,690 | ) |         |        | 3,657 |  
|                                                                                                                                     |                                                                | Prepaid expenses and other current assets |        |        | (342 | )    |         |       | 61     |   |         |        | 92    |  
|                                                                                                                                     |                                                                | Restricted cash                           |        |        |     |      |         |       | (450   | ) |         |        |      |  
|                                                                                                                                     |                                                                | Accounts payable                          |        |        | (799 | )    |         |       | 240    |   |         |        | (131  | )
|                                                                                                                                     |                                                                | Accrued payroll and related obligations   |        |        | 989  |      |         |       | (1,324 | ) |         |        | (51   | )
|                                                                                                                                     |                                                                | Other accrued liabilities                 |        |        | 314  |      |         |       | (499   | ) |         |        | (356  | )
|                                                                                                                                     |                                                                | Non-current employment obligations        |        |        | 93   |      |         |       | 62     |   |         |        | 16    |  
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Net cash provided by operating activities                                                                                            |                                                                |                                           | 8,770  |        |      |      | 10,332  |       |        |   | 16,793  |       
|Cash flows from investing
    activities:                                                                                            |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Decrease (increase) in short-term investments                                                                                        |                                                                |                                           | 937    |        |      |      | (2,221  | )     |        |   | 3,295   |       
|Capital expenditures for bingo equipment,
    furniture and other equipment                                                          |                                                                |                                           | (3,030 | )      |      |      | (12,942 | )     |        |   | (9,506  | )     
|Payment for the acquisition of International
    Gaming Systems, Inc.                                                                |                                                                |                                           |       |        |      |      |        |       |        |   | (3,469  | )     
|Proceeds from Bingo Technologies Corporation
    escrow account                                                                      |                                                                |                                           |       |        |      |      | 477     |       |        |   |        |       
|Payments for buy out of distributorship agreements                                                                                   |                                                                |                                           | (170   | )      |      |      |        |       |        |   | (1,006  | )     
|Payments for acquisitions of intangible assets                                                                                       |                                                                |                                           |       |        |      |      | (334    | )     |        |   | (392    | )     
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Net cash used in investing activities                                                                                                |                                                                |                                           | (2,263 | )      |      |      | (15,020 | )     |        |   | (11,078 | )     
|Cash flows from financing
    activities:                                                                                            |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Proceeds from short-term borrowings from bank                                                                                        |                                                                |                                           | 2,327  |        |      |      |        |       |        |   |        |       
|Payments on short-term notes payable and
    borrowings from bank                                                                    |                                                                |                                           | (2,327 | )      |      |      |        |       |        |   |        |       
|Payments on long-term debt/note payable and other
    obligations                                                                    |                                                                |                                           | (1,019 | )      |      |      | (2,382  | )     |        |   | (276    | )     
|Proceeds from sales of common stock                                                                                                  |                                                                |                                           | 568    |        |      |      | 1,172   |       |        |   | 530     |       
|Payments for repurchase of common stock for
    treasury                                                                             |                                                                |                                           | (54    | )      |      |      |        |       |        |   |        |       
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Net cash (used in) provided by financing
    activities                                                                              |                                                                |                                           | (505   | )      |      |      | (1,210  | )     |        |   | 254     |       
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Net increase (decrease) in cash and cash
    equivalents                                                                             |                                                                |                                           | 6,002  |        |      |      | (5,898  | )     |        |   | 5,969   |       
|Cash and cash equivalents at beginning of year                                                                                       |                                                                |                                           | 4,129  |        |      |      | 10,131  |       |        |   | 4,233   |       
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Cash and cash equivalents at end of year                                                                                             |                                                                | $                                         | 10,131 |        |      | $    | 4,233   |       |        | $ | 10,202  |       
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Supplemental disclosure of cash flow
    information:                                                                                |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Cash paid for interest                                                                                                               |                                                                | $                                         | 72     |        |      | $    | 120     |       |        | $ | 45      |       
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Cash paid for income taxes                                                                                                           |                                                                | $                                         | 473    |        |      | $    | 1,358   |       |        | $ | 71      |       
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|Supplemental schedule of non-cash
    transactions:                                                                                  |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|                                                                                                                                     | Tax benefit from stock option exercises                        |                                           | $      | 385    |      |      |         |      |        |   | $       | 410    |      
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       
|                                                                                                                                     | Purchase of intangible assets through the
    issuance of debt |                                           | $      |       |      |      | $       |      |        |   | $       | 538    |      
|                                                                                                                                     |                                                                |                                           |        |        |      |      |         |       |        |   |         |       

See accompanying notes.

F-6



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

October 31, 2001, 2002 and 2003


1.     Business and
Summary of Significant Accounting Policies

Description of Business

GameTech International, Inc. (the
Company) was incorporated in Delaware on
April 18, 1994. The Company operates in a single business
segment and designs, develops, and markets interactive
electronic bingo systems consisting of portable and fixed-based
systems under contractual arrangements with terms generally
ranging from month-to-month to three years with bingo hall
customers.

Consolidation Principles

The Companys consolidated financial
statements include the accounts of GameTech International, Inc.
and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid
investments with an original maturity of three months or less
when purchased to be cash equivalents.

Short-Term Investments

Short-term investments, which consist of
interest-bearing securities, are carried at fair value and are
classified as available for sale. Unrealized gains and losses
are not material.

Bingo Equipment, Furniture, and Other
Equipment

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

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

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

F-7



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Supplier Dependence

The hardware portion of the Companys TED
and TED2C terminals are assembled by Electronic
Evolution Technologies, Inc., or EET, a Nevada-based
manufacturer. In addition, EET refurbishes those TED, Palm Top,
and TED2C terminals that the Company does not
refurbish internally. The Companys Traveler terminals are
assembled by Western Electric, an Idaho-based manufacturer. The
Company believes either manufacturer could assemble any of the
portable terminals. The Company would need to locate a
replacement contract manufacturer if both EET and Western
Electric ceased doing business. Although the Company believes
that they could locate a substitute contract manufacturer, any
such replacement would involve some delay, and the Company may
not be able to procure, substitute, or produce their terminals
without significant interruption or price increase. Any failure
of the Company to receive refurbished or new terminals could
have a material adverse effect on the Companys business,
results of operations, and financial condition.

Goodwill

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

Long-Lived Assets

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

Revenue Recognition

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

Allowance for Doubtful Accounts

The Company estimates the possible losses
resulting from non-payment of outstanding accounts receivable.
The Companys customer base consists primarily of entities
operating in charitable, Native American, and commercial bingo
halls located throughout the United States. In some
jurisdictions, the billing and collection function is performed
as part of a distributor relationship, and in those instances,
the Company maintains allowances for possible losses resulting
from non-payment by both the customer and distributor. The
Company performs ongoing evaluations of customers and
distributors for credit worthiness, economic trends,

F-8



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

changes in customer payment terms, and historical
collection experience when evaluating the adequacy of its
allowance for doubtful accounts. The Company also reserves a
percentage of accounts receivable based on aging category. In
determining these percentages, the Company reviews historical
write-offs of receivables, payment trends, and other available
information. While such estimates have been within the
Companys expectations and the provisions established, a
change in financial condition of specific customers or in
overall trends experienced may result in future adjustments of
the Companys estimates of recoverability of its
receivables.

Legal Contingencies

The Company is currently involved in various
claims and legal proceedings. Periodically, the Company reviews
the status of each significant matter and assesses the potential
financial exposure. If the potential loss from any claim or
legal proceeding is considered probable and the amount can be
estimated, the Company accrues a liability for the estimated
loss. Significant judgment is required in both the determination
of probability and the determination as to whether an exposure
is reasonably estimable. Because of uncertainties related to
these matters, accruals are based only on the best information
available at the time. As additional information becomes
available, the Company reassesses the potential liability
related to their pending claims and litigation and may revise
their estimates. Such revisions in the estimates of the
potential liabilities could have a material impact on the
results of operations and financial position.

Advertising Costs

Advertising costs are expensed as incurred.
Advertising costs during the fiscal years 2001, 2002, and 2003
were not material.

Stock Based Compensation

The Company has adopted the disclosure provision
for stock-based compensation of SFAS No. 123, Accounting
for Stock-Based Compensation, and SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure which was released in December, 2002 as an
amendment of SFAS No. 123, but continues to account for
such items using the intrinsic value method as outlined under
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees.
Under APB 25, when the exercise price of the Companys
employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized.

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected
stock price volatility. Because the Companys employee
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of the Companys employee stock options.

F-9



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For the purpose of pro forma disclosures, the
estimated fair value of options is amortized to expense over the
options vesting periods. The following table illustrates
the effect on net income (loss) per share if the fair value
based method had been applied to all awards:

|                                                                                                        |                       |                        |            |       |   |      |           |      |  |   |           |      | 
|------------------------------------------------------------------------------------------------------- | --------------------- | ---------------------- | ---------- | ----- | - | ---- | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                        |                       |                       
|                                                                                                        |                       | Year Ended October 31,
|                                                                                                        |                       |                       
|                                                                                                        |                       | 2001                   |            | 2002  |   | 2003
|                                                                                                        |                       |                        |            |       |   |     
|Reported net income (loss)                                                                              |                       | $                      | (4,395,000 | )     |   | $    | 2,733,000 |      |  | $ | 1,191,000 |     
|Deduct: stock-based employee compensation expense
    determined under fair value method for all awards |                       |                        | (769,000   | )     |   |      | (596,000  | )    |  |   | (425,000  | )   
|                                                                                                        |                       |                        |            |       |   |      |           |      |  |   |           |     
|Pro forma net income (loss)                                                                             |                       | $                      | (5,164,000 | )     |   | $    | 2,137,000 |      |  | $ | 766,000   |     
|                                                                                                        |                       |                        |            |       |   |      |           |      |  |   |           |     
|Net income (loss) per share                                                                             |                       |                        |            |       |   |      |           |      |  |   |           |     
|                                                                                                        | Basic  as reported   |                        | $          | (0.41 | ) |      | $         | 0.25 |  |   | $         | 0.10 | 
|                                                                                                        | Basic  pro forma     |                        | $          | (0.49 | ) |      | $         | 0.19 |  |   | $         | 0.07 | 
|                                                                                                        | Diluted  as reported |                        | $          | (0.41 | ) |      | $         | 0.23 |  |   | $         | 0.10 | 
|                                                                                                        | Diluted  pro forma   |                        | $          | (0.49 | ) |      | $         | 0.18 |  |   | $         | 0.06 | 

The pro forma amounts discussed above were
derived using the Black-Scholes option valuation model with the
assumptions indicated below:

|                        |  |                        |          |      |  |      |          |   |  |  |          |  
|----------------------- |  | ---------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                        |  |                       
|                        |  | Year Ended October 31,
|                        |  |                       
|                        |  | 2001                   |          | 2002 |  | 2003
|                        |  |                        |          |      |  |     
|Risk-free interest rate |  |                        | 4.30     | %    |  |      | 4.10     | % |  |  | 4.41     | %
|Dividend yield          |  |                        | 0        | %    |  |      | 0        | % |  |  | 0        | %
|Expected volatility     |  |                        | 78.9     | %    |  |      | 71.2     | % |  |  | 70.3     | %
|Expected life           |  |                        | 8  years |      |  |      | 8  years |   |  |  | 8  years |  

Net Income (Loss) Per Share

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

Concentrations of Credit Risk

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

No single customer comprised more than ten
percent of the Companys total revenue during fiscal years
2001, 2002 and 2003. However, the Company conducts a substantial
amount of its business through distributor relationships, many
of which act as a collection agent.

F-10



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fair Values of Financial Instruments

The carrying amounts reported in the consolidated
balance sheets for cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, and accrued
liabilities approximate fair value because of the immediate or
short-term maturity of these financial instruments.

Reclassifications

Certain amounts in the prior years
consolidated financial statements have been reclassified to
conform with the 2003 consolidated financial statement
presentation. These reclassifications did not have an impact on
the previously reported financial position, cash flows or
results of operations.

New Accounting Pronouncements

In April 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS No. 145 updates, clarifies and
simplifies existing accounting pronouncements.
SFAS No. 145 rescinds SFAS No. 4, which
required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. As a result, the
criteria in APB Opinion No. 30 will now be used to classify
those gains and losses because SFAS No. 4 has been
rescinded. SFAS No. 145 amends SFAS No. 13
to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for
in the same manner as sale-leaseback transactions. This
amendment is consistent with the FASBs goal of requiring
similar accounting treatment for transactions that have similar
economic effects. SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections
are not substantive in nature, in some instances, they may
change accounting practice. The Company adopted the provisions
of SFAS No. 145 for fiscal 2003, which did not result
in a material impact to financial position, cash flows or
results of operations.

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146
addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)(Issue 94-3). The principal difference
between SFAS No. 146 and Issue 94-3 relates to
SFAS No. 146s requirements for recognition of a
liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a
liability for an exit cost as generally defined in
Issue 94-3 was recognized at the date of an entitys
commitment to an exit plan. A fundamental conclusion reached by
the FASB in SFAS No. 146 is that an entitys
commitment to a plan, by itself, does not create an obligation
that meets the definition of a liability. Therefore,
SFAS No. 146 eliminates the definition and
requirements for recognition of exit costs in Issue 94-3.
SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The
provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31,
2002. SFAS No. 146 was adopted on January 1, 2003
and had no impact on financial position, cash flows or results
of operations.

In November 2002, the EITF reached a consensus on
Issue No. 00-21, Multiple-Deliverable Revenue
Arrangements(Issue 00-21).
Issue 00-21 addresses how to account for arrangements that
may involve the delivery or performance of multiple products,
services, and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both that are to be
delivered separately in a bundled sales arrangement should be
accounted for separately because they are separate units
of accounting. The guidance can affect the timing of
revenue recognition for such arrangements, even though it does
not change rules governing the timing or pattern of revenue
recognition of individual items accounted for separately. The
final consensus will be applicable to agreements entered into in
fiscal years beginning after June 15, 2003 with

F-11



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

early adoption permitted. Additionally, companies
will be permitted to apply the consensus guidance to all
existing arrangements as the cumulative effect of a change in
accounting principle in accordance with APB Opinion
No. 20, Accounting Changes. The Company is
assessing, the potential impact of Issue 00-21, but at this
point does not believe the adoption of Issue 00-21 will
have a material impact on the Companys financial position,
cash flows or results of operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others(FIN 45). This
interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The disclosure
requirements of FIN 45 are effective for interim and annual
periods ending after December 15, 2002, and the Company has
adopted those requirements for the consolidated financial
statements included in this Form 10-K. The initial
recognition and initial measurement requirements of FIN 45
are effective prospectively for guarantees issued or modified
after December 31, 2002. The adoption of the recognition
and initial measurement requirements of FIN 45 did not have
a material impact on the Companys financial position, cash
flows or results of operations.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities  an Interpretation of ARB No. 51(FIN 46). In December 2003, FIN 46 was
revised to clarify certain provisions and effective dates for
application. FIN 46 addresses consolidation by business
enterprises of variable interest entities that have certain
characteristics. Transferors to qualifying special-purpose
entities and grandfathered qualifying
special-purpose entities subject to the reporting requirements
of SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities,are excluded from the scope of FIN 46.
FIN 46 is applicable no later than the end of the first
interim or annual reporting period ending after March 15,
2004, unless the Company has an interest in a special purpose
entity, which the effective date for application is no later
than the end of the first interim or annual reporting period
ending after December 15, 2003. The Company currently has
no contractual relationship or other business relationship with
a variable interest entity. However, if the Company entered into
any such arrangement with a variable interest entity in the
future, the financial position, cash flows or results of
operations may be adversely impacted.



|   |                      
|-- | ---------------------
|2. | Acquisition of Assets

On November 7, 2002, the Company acquired
certain assets of International Gaming Systems, Inc.
(IGS) for a cash purchase price of
$3.5 million, which included approximately $69,000 of
acquisition costs. The transaction was accounted for as a
purchase of a business in accordance with
SFAS No. 141, Business Combinations, and
accordingly, the operating results have been included in the
Companys consolidated financial statements since the date
of acquisition.

F-12



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The total purchase price of the transaction has
been allocated to the identifiable intangible assets and
tangible assets acquired, based on their estimated fair values
at the date of acquisition, with any residual amount allocated
to goodwill as follows:

|                 |                       |   |           |           | 
|---------------- | --------------------- | - | --------- | --------- | 
|Acquired assets: |                       |   |           |          
|                 | Bingo equipment       |   | $         | 582,000   | 
|                 | Intellectual property |   |           | 750,000   | 
|                 | Distributor contracts |   |           | 260,000   | 
|                 | Trademarks            |   |           | 28,000    | 
|                 | Goodwill              |   |           | 1,849,000 | 
|                 |                       |   |           |          
|                 |                       | $ | 3,469,000 |          
|                 |                       |   |           |          

The maximum potential contingent payments
relating to the acquisition were $2,043,000, which was placed in
escrow pending the outcome of certain events. The escrow was
comprised of the following four components: $900,000 (the
New York Escrow Amount); $413,000 (the Title
Transfer Escrow Amount); $230,000 (the Bingo Unit
Escrow Amount); and $500,000 (the Holdback Escrow
Amount). The full amount of the Title Transfer Escrow
Amount, the Bingo Unit Escrow Amount and the Holdback Escrow
Amount has been released to IGS as a result of the successful
transfer of title of certain assets to the Company, the
verification of the number of bingo terminals acquired and the
satisfaction of certain representations and warranties made by
IGS. These amounts have been included in the purchase price
allocated to the assets acquired. The release of the New York
Escrow Amount is contingent upon the negotiation of new
contracts with IGSs former New York customers or the
receipt by the Company of continuing revenues from the New York
customers. As of October 31, 2003, $451,500 of the New York
Escrow Amount has been released to IGS. The entire amount of the
New York Escrow Amount has been included in the purchase price
allocated to the assets acquired as the Company currently
considers it probable that the remaining funds will be paid to
IGS.



|   |                         
|-- | ------------------------
|3. | Goodwill and Intangibles

In June 2001, the FASB issued
SFAS No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill is no
longer systematically amortized, but is reviewed for impairment
each year and, depending upon the results of that measurement,
the recorded goodwill may be written down and charged to income
from operations when its carrying amount exceeds its estimated
fair value. Amortization is still required for identifiable
intangible assets with finite lives. The Company elected to
early-adopt the statement at the beginning of fiscal 2002,
discontinuing amortization of goodwill.

Goodwill, resulting primarily from the February
1999 acquisition of Bingo Technologies Corporation
(BTC), was being amortized on a straight-line basis
over twelve years and amounted to $14,960,000, net of
accumulated amortization, at October 31, 2002 and 2003. The
November 2002 acquisition of certain assets of IGS added
$1,849,000 to goodwill for fiscal 2003. Goodwill amortization
expense in fiscal year 2001 was $1,732,000. The Company assessed
the value of its goodwill as of November 1, 2001,
July 31, 2002 and July 31, 2003 (its annual review
date) and concluded there was no goodwill impairment.

F-13



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In accordance with SFAS No. 142, the
years ended October 31, 2002 and 2003 reflect no
amortization of goodwill. A reconciliation of previously
reported net loss and loss per share for the year ended
October 31, 2001 adjusted for the exclusion of goodwill
amortization is as follows (in thousands, except per share
amounts):

|                                         |  |                        |        |      |  |      |       |  |  |   |       | 
|---------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                         |  |                       
|                                         |  | Year Ended October 31,
|                                         |  |                       
|                                         |  | 2001                   |        | 2002 |  | 2003
|                                         |  |                        |        |      |  |     
|Reported net income (loss)               |  | $                      | (4,395 | )    |  | $    | 2,733 |  |  | $ | 1,191 | 
|Add back: Goodwill amortization          |  |                        | 1,732  |      |  |      |      |  |  |   |      | 
|                                         |  |                        |        |      |  |      |       |  |  |   |       | 
|Adjusted net income (loss)               |  | $                      | (2,663 | )    |  | $    | 2,733 |  |  | $ | 1,191 | 
|                                         |  |                        |        |      |  |      |       |  |  |   |       | 
|Basic earnings (loss) per share:         |  |                        |        |      |  |      |       |  |  |   |       | 
|Reported net income (loss)               |  | $                      | (0.41  | )    |  | $    | 0.25  |  |  | $ | 0.10  | 
|Add back: Goodwill amortization          |  |                        | 0.16   |      |  |      |      |  |  |   |      | 
|                                         |  |                        |        |      |  |      |       |  |  |   |       | 
|Adjusted basic earnings (loss) per share |  | $                      | (0.25  | )    |  | $    | 0.25  |  |  | $ | 0.10  | 
|                                         |  |                        |        |      |  |      |       |  |  |   |       | 

Other intangible assets consisted of the
following as of October 31, 2003 (in thousands):

|                                 |  |             |       |              |  |              |        |                     |  |   |       |  |  |  |     | 
|-------------------------------- |  | ----------- | ----- | ------------ |  | ------------ | ------ | ------------------- |  | - | ----- |  |  |  | --- | 
|                                 |  |             |       |              |  |              |        | Weighted Average   
|                                 |  |             |       | Accumulated  |  | Net Carrying |        | Amortization Period
|                                 |  | Gross Value |       | Amortization |  | Value        |        | in Years           
|                                 |  |             |       |              |  |              |        |                    
|Intellectual property (software) |  | $           | 2,240 |              |  | $            | (1,193 | )                   |  | $ | 1,047 |  |  |  | 3.2 | 
|Copyrights/trademarks            |  |             | 285   |              |  |              | (248   | )                   |  |   | 37    |  |  |  | 4.5 | 
|Distributor buyouts              |  |             | 1,800 |              |  |              | (648   | )                   |  |   | 1,152 |  |  |  | 2.3 | 
|                                 |  |             |       |              |  |              |        |                     |  |   |       |  |  |  |     | 
|                                 |  | $           | 4,325 |              |  | $            | (2,089 | )                   |  | $ | 2,236 |  |  |  |     | 
|                                 |  |             |       |              |  |              |        |                     |  |   |       |  |  |  |     | 

Other intangibles are being amortized over the
respective useful lives of the assets ranging from two to five
years. Amortization expense related to the other intangibles in
fiscal years 2001, 2002 and 2003 was $744,000, $828,000 and
$1,416,000, respectively.

Estimated aggregate amortization expense for
intangible assets subject to amortization as of October 31,
2003 is as follows (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 1,519 | 
|2005 |  |   | 454   | 
|2006 |  |   | 174   | 
|2007 |  |   | 77    | 
|2008 |  |   | 12    | 
|     |  |   |       | 
|     |  | $ | 2,236 | 
|     |  |   |       | 

F-14



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.                Bingo
Equipment, Furniture and Other Equipment

Bingo equipment, furniture and other equipment
consisted of the following (in thousands):

|                                               |  |             |        |      |  |   |        | 
|---------------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|                                               |  |            
|                                               |  | October 31,
|                                               |  |            
|                                               |  | 2002        |        | 2003
|                                               |  |             |        |     
|Bingo equipment                                |  | $           | 40,899 |      |  | $ | 44,032 | 
|Component parts                                |  |             | 966    |      |  |   | 1,278  | 
|Office furniture and equipment                 |  |             | 3,103  |      |  |   | 3,638  | 
|Leasehold improvements                         |  |             | 526    |      |  |   | 700    | 
|                                               |  |             |        |      |  |   |        | 
|                                               |  |             | 45,494 |      |  |   | 49,648 | 
|Less accumulated depreciation and amortization |  |             | 20,442 |      |  |   | 24,157 | 
|Less reserve for excess or obsolete terminals  |  |             | 3,432  |      |  |   | 3,172  | 
|                                               |  |             |        |      |  |   |        | 
|                                               |  | $           | 21,620 |      |  | $ | 22,319 | 
|                                               |  |             |        |      |  |   |        | 

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

Depreciation expense during the fiscal years
ended October 31, 2001, 2002 and 2003 amounted to
approximately $6.7 million, $6.7 million and
$8.8 million, respectively. In addition, during fiscal
years ended October 31, 2001, 2002 and 2003, the Company
reserved $2.6 million, $0 and $50,000, respectively for
bingo terminals not expected to be re-used.



|   |                  
|-- | -----------------
|5. | Credit Agreements

Effective April 2, 2003, the Company renewed
its revolving line-of-credit agreement with a bank. The maximum
amount available under the terms of the agreement is
$10.0 million, and borrowings bear interest based on the
banks prime rate or London InterBank Offered Rate
(LIBOR) plus 2.0 percent, at the Companys
option. Interest is payable monthly and the agreement expires on
April 2, 2004. The agreement is secured by substantially
all of the Companys assets. The agreement contains certain
restrictive covenants, which among other things require that
specified financial balances and ratios be maintained, quarterly
profitability be maintained, and restrict the payment of
dividends and the incurrence of additional indebtedness. The
Company was in compliance with these covenants as of
October 31, 2003. At October 31, 2002 and 2003, there
was no outstanding balance under the line-of-credit.



|   |                                   
|-- | ----------------------------------
|6. | Note Payable and Other Obligations

Note payable and other obligations consisted of
the following:

|                                                                                                                                                                 |  |                |    |      |  |   |     | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -- | ---- |  | - | --- | 
|                                                                                                                                                                 |  |               
|                                                                                                                                                                 |  | October 31,   
|                                                                                                                                                                 |  |               
|                                                                                                                                                                 |  | 2002           |    | 2003
|                                                                                                                                                                 |  |                |    |     
|                                                                                                                                                                 |  |               
|                                                                                                                                                                 |  | (In thousands)
|Obligations under capital leases                                                                                                                                 |  | $              | 13 |      |  | $ |    | 
|$561,000 zero interest note payable to a former
    distributor, discounted at 5.0 percent per annum with
    monthly principal and interest payments of $28,000 |  |                |   |      |  |   | 275 | 
|                                                                                                                                                                 |  |                |    |      |  |   |     | 
|                                                                                                                                                                 |  |                | 13 |      |  |   | 275 | 
|                                                                                                                                                                 |  |                |    |      |  |   |     | 
|Less amounts due within one year                                                                                                                                 |  |                | 13 |      |  |   | 275 | 
|                                                                                                                                                                 |  |                |    |      |  |   |     | 
|                                                                                                                                                                 |  | $              |   |      |  | $ |    | 
|                                                                                                                                                                 |  |                |    |      |  |   |     | 

F-15



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Aggregate contractual future principal payments
of the note payable for the year following October 31, 2003
are $275,000.



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies

Leases

The Company leases administrative and
manufacturing facilities and certain equipment under
non-cancelable operating leases. Rent expense during fiscal
years ended October 31, 2001, 2002 and 2003 amounted to
approximately $802,000, $631,000 and $846,000, respectively.

Future minimum lease payments under these leases
as of October 31, 2003 are as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 607,000   | 
|2005       |  |   | 562,000   | 
|2006       |  |   | 558,000   | 
|2007       |  |   | 551,000   | 
|2008       |  |   | 545,000   | 
|Thereafter |  |   | 1,024,000 | 
|           |  |   |           | 
|           |  | $ | 3,847,000 | 
|           |  |   |           | 

Litigation

On March 22, 2001, the Company filed a claim
in the United States District Court, District of Arizona,
GAMETECH INTERNATIONAL, INC. V. TREND GAMING SYSTEMS, LLC,
CV 01-540 PHX PGR, seeking a declaratory judgment that
the Company is not in material breach of its November 1,
1999 distribution agreement with Trend Gaming Systems, LLC
(Trend) and seeking damages for past due payments
and wrongful withholdings by Trend. Trend has counterclaimed,
alleging that its payments are in compliance with its
contractual obligations and that it is entitled to withhold
certain monies. Trend also contends that the Company is in
breach of certain contractual obligations to Trend or its
customers. On December 16, 2002, the court entered at the
Companys request an order enjoining Trend from using
approximately $540,000 in funds it had collected on the
Companys behalf, pending a trial on ownership interest in
those funds. The money has been placed in a bank account subject
to the courts control. Collections of accounts receivable
by Trend, if any, will also be placed in that account, pending
the trial of the case. In addition, the Company has posted a
$450,000 deposit with the court, which is presented as
restricted cash on the accompanying consolidated balance sheet.
The Company fully reserved the accounts receivable from Trend as
of October 31, 2003 and 2002. Trend filed a motion for
summary judgment alleging that the termination of the
distribution agreement was improper. On May 16, 2003, the
court dismissed Trends motion for summary judgment. On
December 2, 2003, Trend filed a renewed motion for summary
judgment alleging that the Company did not have the right to
terminate the distribution agreement based upon Trends
failure to ensure that the Company received its minimum rate of
return. The Company is preparing a response and the motion will
be heard at an undetermined future date. A May 10, 2004
trial date has been set. The Company has denied the allegations
and intends to vigorously pursue and defend this matter.
However, the Company cannot provide assurance that it will
obtain a favorable outcome. An unfavorable outcome could have a
material adverse effect on the Companys financial
position, cash flows and results of operations.

On October 30, 2002, Capital Gaming Supplies
(Capital) filed a claim in the United States
District Court, Southern District of Mississippi, CAPITAL GAMING
SUPPLIES, INC. V. GAMETECH INTERNATIONAL, INC.,
3:02 CV 1636 WS, seeking a judgment that the
Company tortiously interfered with alleged existing and
prospective customer accounts. The Company has denied the
allegations and filed a

F-16



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

counter-claim seeking a judgment that Capital
tortiously interfered with the Companys customer accounts.
On April 18, 2003, Capital filed an amended complaint
adding other claims against the Company and other defendants,
including a claim for malicious breach of contract against IGS,
and its principals. In November 2002, the Company acquired
certain assets of IGS and assumed certain claims filed by
Capital against IGS and its principals. Capital seeks
compensatory and punitive damages from all defendants. The
January 28, 2004 trial date has been postponed
indefinitely. The Company intends to defend and pursue
vigorously this matter. The Company believes that Capitals
claims are without merit. However, the Company cannot provide
assurance that it will obtain a favorable outcome. An
unfavorable outcome could have a material adverse effect on the
Companys financial position, cash flows and results of
operations.

In March 2003, the South Carolina Department of
Revenue (Department) issued a notice to all persons
and entities that use electronic daubing devices (such as the
Companys portable and fixed-base bingo terminals) to cease
and desist using the devices as of September 4, 2003. The
notice is a reversal of the Departments previous position
provided to the Company in 1995 regarding the use of such
devices. The Departments decision was not made due to any
violation or improper conduct on the Companys part. The
Company has filed a Request for Contested Case Hearing regarding
the Departments reversal. The Company disagrees with the
Departments position and is actively seeking legal and
legislative relief so that the Companys electronic daubing
devices may continue to be used. Historically, South Carolina
has accounted for less than 5% of the Companys revenues.
The Company has executed a Memorandum of Understanding by and
between the Department and other entities involved in the South
Carolina bingo industry, which will allow the Company to
continue to operate in South Carolina until March 15, 2004.
The Company can make no assurances that they will be able to
continue to provide equipment to the South Carolina market after
March 15, 2004.

The Company is involved in various other legal
proceedings arising out of its operations in the ordinary course
of its business. The Company does not believe that any of these
proceedings will have a material adverse effect on its business,
financial position, or results of operations. At
October 31, 2002 and 2003, the Company has recorded
$130,000 and $0, respectively, in current liabilities for the
estimated settlement of specific lawsuits. However, if
settlement is not reached and the lawsuits proceed to trial, an
unfavorable outcome could have a material adverse effect on the
Companys financial position, cash flows and results of
operations.

8.     Stockholders
Equity

Stock Options

In August 1997, the Company adopted the 1997
Incentive Stock Plan (the 1997 Plan). Under the 1997
Plan, either incentive stock options (ISOs) or
nonqualified stock options (NSOs) may be
granted to employees, directors, and consultants to purchase the
Companys common stock at an exercise price determined by
the Board of Directors on the date of grant. ISOs may be
granted only to employees at an exercise price that equals or
exceeds the fair value of such shares on the date such option is
granted. The options generally have a term of ten years and
vesting periods are determined at the discretion of the Board of
Directors. The Company has reserved 4,000,000 shares of common
stock for issuance under the 1997 Plan, which included options
granted during the twelve months immediately preceding the
adoption of the 1997 Plan. As of October 31, 2003, options
to purchase 698,575 shares of common stock were outstanding at
exercise prices ranging from $0.16 to $4.75 per share under the
1997 Plan. In addition, as of October 31, 2003, 1,670,725
shares of common stock were available for future grants under
the 1997 Plan.

F-17



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the Companys stock option
activity and related information is presented below:

|                                                                              |  |                        |           |           |  |           |      |           |  |           |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|----------------------------------------------------------------------------- |  | ---------------------- | --------- | --------- |  | --------- | ---- | --------- |  | --------- | --------- | --------- |  | - | ---- |  |  |  | --------- | - |  | - | ---- | 
|                                                                              |  |                       
|                                                                              |  | Year Ended October 31,
|                                                                              |  |                       
|                                                                              |  |                        |           |           |  |          
|                                                                              |  | 2001                   |           | 2002      |  | 2003     
|                                                                              |  |                        |           |           |  |          
|                                                                              |  |                        |           | Weighted- |  |           |      | Weighted- |  |           |           | Weighted-
|                                                                              |  | Number of              |           | Average   |  | Number of |      | Average   |  | Number of |           | Average  
|                                                                              |  | Shares                 |           | Exercise  |  | Shares    |      | Exercise  |  | Shares    |           | Exercise 
|                                                                              |  | (Options)              |           | Price     |  | (Options) |      | Price     |  | (Options) |           | Price    
|                                                                              |  |                        |           |           |  |           |      |           |  |           |           |          
|Outstanding at beginning of year                                              |  |                        | 1,849,826 |           |  | $         | 3.02 |           |  |           | 1,938,160 |           |  | $ | 3.34 |  |  |  | 1,254,360 |   |  | $ | 3.24 | 
|Granted                                                                       |  |                        | 466,500   |           |  | $         | 3.67 |           |  |           | 212,500   |           |  | $ | 3.98 |  |  |  | 293,000   |   |  | $ | 3.63 | 
|Forfeited                                                                     |  |                        | (66,050   | )         |  | $         | 3.99 |           |  |           | (507,775  | )         |  | $ | 4.09 |  |  |  | (346,785  | ) |  | $ | 5.61 | 
|Exercised                                                                     |  |                        | (312,116  | )         |  | $         | 1.82 |           |  |           | (388,525  | )         |  | $ | 3.02 |  |  |  | (502,000  | ) |  | $ | 1.06 | 
|                                                                              |  |                        |           |           |  |           |      |           |  |           |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|Outstanding at end of year                                                    |  |                        | 1,938,160 |           |  | $         | 3.34 |           |  |           | 1,254,360 |           |  | $ | 3.24 |  |  |  | 698,575   |   |  | $ | 3.80 | 
|                                                                              |  |                        |           |           |  |           |      |           |  |           |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|Exercisable at end of year                                                    |  |                        | 1,375,287 |           |  | $         | 3.20 |           |  |           | 1,012,940 |           |  | $ | 3.08 |  |  |  | 335,450   |   |  | $ | 3.69 | 
|                                                                              |  |                        |           |           |  |           |      |           |  |           |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|Weighted average grant-date fair value of options
    granted during the year |  |                        |           |           |  | $         | 2.85 |           |  |           |           |           |  | $ | 3.03 |  |  |  |           |   |  | $ | 2.66 | 
|                                                                              |  |                        |           |           |  |           |      |           |  |           |           |           |  |   |      |  |  |  |           |   |  |   |      | 

The following table summarizes information
regarding stock options outstanding and exercisable as of
October 31, 2003:

|                |              |                     |  |                     |         |                  |  |        |      |                  |  |   |      |  |  |  |         |  |  |   |      | 
|--------------- | ------------ | ------------------- |  | ------------------- | ------- | ---------------- |  | ------ | ---- | ---------------- |  | - | ---- |  |  |  | ------- |  |  | - | ---- | 
|                |              |                     |  |                    
|                |              | Options Outstanding |  | Options Exercisable
|                |              |                     |  |                    
|                |              |                     |  | Weighted-Average    |         |                  |  |       
|Range of        |              |                     |  | Remaining           |         | Weighted-Average |  |        |      | Weighted-Average
|Exercise Prices |              | Number              |  | Contractual Life    |         | Exercise Price   |  | Number |      | Exercise Price  
|                |              |                     |  |                     |         |                  |  |        |      |                 
|                | $0.16        |                     |  |                     | 2,500   |                  |  |        | 2.59 |                  |  | $ | 0.16 |  |  |  | 2,500   |  |  | $ | 0.16 | 
|$               | 2.50  $3.55 |                     |  |                     | 186,500 |                  |  |        | 7.93 |                  |  | $ | 3.12 |  |  |  | 127,750 |  |  | $ | 3.09 | 
|$               | 3.63  $3.98 |                     |  |                     | 306,825 |                  |  |        | 8.12 |                  |  | $ | 3.88 |  |  |  | 95,450  |  |  | $ | 3.78 | 
|$               | 4.00  $4.75 |                     |  |                     | 202,750 |                  |  |        | 7.48 |                  |  | $ | 4.34 |  |  |  | 109,750 |  |  | $ | 4.39 | 
|                |              |                     |  |                     |         |                  |  |        |      |                  |  |   |      |  |  |  |         |  |  |   |      | 
|                |              |                     |  |                     | 698,575 |                  |  |        | 7.86 |                  |  | $ | 3.80 |  |  |  | 335,450 |  |  | $ | 3.69 | 
|                |              |                     |  |                     |         |                  |  |        |      |                  |  |   |      |  |  |  |         |  |  |   |      | 

Restricted Stock Plan

On October 4, 2001, the Company adopted the
2001 Restricted Stock Plan (the 2001 Plan). Under
the 2001 Plan, the Company authorized the granting of restricted
stock to employees who are not officers or directors,
consultants, and independent contractors. The Company has
reserved 50,000 shares of common stock for grant under the 2001
Plan, which included 18,500 shares and 400 shares granted on
October 4, 2001 and June 30, 2002, respectively. Based
on the market price of the Companys shares at that date,
compensation expense of $50,000 and $1,000 was recorded on
October 4, 2001 and June 30, 2002, respectively.

Stockholder Rights Agreement

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

F-18



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



|   |             
|-- | ------------
|9. | Income Taxes

The income tax provisions (benefit) consist
of the following (in thousands):

|          |         |                        |        |      |   |      |       |        |   |   |     |     | 
|--------- | ------- | ---------------------- | ------ | ---- | - | ---- | ----- | ------ | - | - | --- | --- | 
|          |         |                       
|          |         | Year Ended October 31,
|          |         |                       
|          |         | 2001                   |        | 2002 |   | 2003
|          |         |                        |        |      |   |     
|Current:  |         |                        |        |      |   |      |       |        |   |   |     |    
|          | Federal |                        | $      | (309 | ) |      | $     | (1,731 | ) |   | $   | 146 | 
|          | State   |                        |        | (64  | ) |      |       | (33    | ) |   |     | 73  | 
|Deferred: |         |                        |        |      |   |      |       |        |   |   |     |    
|          | Federal |                        |        | (848 | ) |      |       | 3,234  |   |   |     | 698 | 
|          | State   |                        |        | (64  | ) |      |       | 218    |   |   |     | 8   | 
|          |         |                        |        |      |   |      |       |        |   |   |     |    
|          |         | $                      | (1,285 | )    |   | $    | 1,688 |        |   | $ | 925 |    
|          |         |                        |        |      |   |      |       |        |   |   |     |    

The significant components of the Companys
deferred income tax assets and liabilities at October 31,
2002 and 2003 are as follows (in thousands):

|                                 |                                           |                  |       |             |  |  |       |        |  
|-------------------------------- | ----------------------------------------- | ---------------- | ----- | ----------- |  |  | ----- | ------ | -
|                                 |                                           |                 
|                                 |                                           | October 31, 2003
|                                 |                                           |                 
|                                 |                                           | Current          |       | Non-Current
|                                 |                                           |                  |       |            
|Deferred income tax assets:      |                                           |                  |       |             |  |  |       |       
|                                 | Amortization of intangible assets         |                  | $     |            |  |  | $     | 1,115  |  
|                                 | Allowance for doubtful accounts           |                  |       | 858         |  |  |       |       |  
|                                 | Reserve for excess or obsolete terminals  |                  |       | 1,190       |  |  |       |       |  
|                                 | Net operating loss carryforward           |                  |       |            |  |  |       | 827    |  
|                                 | Various accruals                          |                  |       | 137         |  |  |       | 261    |  
|                                 |                                           |                  |       |             |  |  |       |       
|Total deferred income tax assets |                                           |                  | 2,185 |             |  |  | 2,203 |       
|Deferred income tax liability:   |                                           |                  |       |             |  |  |       |       
|                                 | Depreciation                              |                  |       |            |  |  |       | (5,754 | )
|                                 |                                           |                  |       |             |  |  |       |       
|                                 | Net deferred income tax asset (liability) |                  | $     | 2,185       |  |  | $     | (3,551 | )
|                                 |                                           |                  |       |             |  |  |       |       

F-19



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                          |                                          |                  |       |             |  |   |        |        |  
|----------------------------------------- | ---------------------------------------- | ---------------- | ----- | ----------- |  | - | ------ | ------ | -
|                                          |                                          |                 
|                                          |                                          | October 31, 2002
|                                          |                                          |                 
|                                          |                                          | Current          |       | Non-Current
|                                          |                                          |                  |       |            
|Deferred income tax assets:               |                                          |                  |       |             |  |   |        |       
|                                          | Amortization of intangible assets        |                  | $     |            |  |   | $      | 832    |  
|                                          | Allowance for doubtful accounts          |                  |       | 850         |  |   |        |       |  
|                                          | Reserve for excess or obsolete terminals |                  |       | 1,246       |  |   |        |       |  
|                                          | Various accruals                         |                  |       | 182         |  |   |        |       |  
|                                          |                                          |                  |       |             |  |   |        |       
|Total deferred income tax assets          |                                          |                  | 2,278 |             |  |   | 832    |       
|Deferred income tax liability:            |                                          |                  |       |             |  |   |        |       
|                                          | Depreciation                             |                  |       |            |  |   |        | (4,180 | )
|                                          |                                          |                  |       |             |  |   |        |       
|Net deferred income tax asset (liability) |                                          | $                | 2,278 |             |  | $ | (3,348 | )     
|                                          |                                          |                  |       |             |  |   |        |       

The Company has available at October 31,
2003, approximately $2.4 million of unused federal net
operating loss carryforwards that may be applied against future
taxable income and that expire by 2023. The utilization of these
loss carryforwards may be limited by certain events, including
an ownership change as defined by the Internal Revenue Code.

Deferred tax assets relating to net operating
loss carryforwards as of October 31, 2003 include
approximately $410,000 associated with stock option activity for
which subsequent realized tax benefits, if any, will reduce
income taxes payable in the future.

The differences between the Companys
provision for (benefit from) income taxes as presented in the
accompanying statements of operations and provision for (benefit
from) income taxes computed at the federal statutory rate is
comprised of the items shown in the following table as a
percentage of pre-tax earnings:

|                                           |  |                        |       |      |  |      |      |   |  |  |      |  
|------------------------------------------ |  | ---------------------- | ----- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                           |  |                       
|                                           |  | Year Ended October 31,
|                                           |  |                       
|                                           |  | 2001                   |       | 2002 |  | 2003
|                                           |  |                        |       |      |  |     
|Income tax provision at the statutory rate |  |                        | (34.0 | )%   |  |      | 34.0 | % |  |  | 34.0 | %
|State income taxes, net of federal benefit |  |                        | (1.5  | )    |  |      | 2.3  |   |  |  | 2.4  |  
|Goodwill amortization                      |  |                        | 10.4  |      |  |      |     |   |  |  |     |  
|Meals and entertainment                    |  |                        | 0.8   |      |  |      | 0.8  |   |  |  | 2.0  |  
|Non deductible lobbying expenses           |  |                        | 0.9   |      |  |      | 1.1  |   |  |  | 3.5  |  
|Other, net                                 |  |                        | 0.8   |      |  |      |     |   |  |  | 1.8  |  
|                                           |  |                        |       |      |  |      |      |   |  |  |      |  
|                                           |  |                        | (22.6 | )%   |  |      | 38.2 | % |  |  | 43.7 | %
|                                           |  |                        |       |      |  |      |      |   |  |  |      |  



|    |                       
|--- | ----------------------
|10. | Short Term Investments

The Company currently invests in only investment
grade, short-term investments which it classifies as
available-for-sale. As such, there were no significant
differences between amortized cost and estimated fair value at
October 31, 2002 or October 31, 2003. Additionally,
because investments are short-term and are generally allowed to
mature, realized gains and loss for fiscal 2002 and 2003 are
minimal.

F-20



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                    |  |             |       |      |  |   |       | 
|----------------------------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|                                    |  |            
|                                    |  | October 31,
|                                    |  |            
|                                    |  | 2002        |       | 2003
|                                    |  |             |       |     
|U.S. Treasury and agency securities |  | $           | 4,219 |      |  | $ | 1,399 | 
|Asset-backed commercial paper       |  |             | 70    |      |  |   |      | 
|Unsecured corporate notes           |  |             | 756   |      |  |   | 351   | 
|                                    |  |             |       |      |  |   |       | 
|                                    |  | $           | 5,045 |      |  | $ | 1,750 | 
|                                    |  |             |       |      |  |   |       | 



|    |                          
|--- | -------------------------
|11. | Other Accrued Liabilities

Other accrued liabilities consisted of (in
thousands):

|                                |  |             |       |      |  |   |       | 
|------------------------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|                                |  |            
|                                |  | October 31,
|                                |  |            
|                                |  | 2002        |       | 2003
|                                |  |             |       |     
|Estimated legal settlements     |  | $           | 130   |      |  | $ |      | 
|Accrued professional fees       |  |             | 843   |      |  |   | 700   | 
|Accrued distributor commissions |  |             | 517   |      |  |   | 497   | 
|Deferred revenue                |  |             | 267   |      |  |   | 145   | 
|Other                           |  |             | 342   |      |  |   | 401   | 
|                                |  |             |       |      |  |   |       | 
|                                |  | $           | 2,099 |      |  | $ | 1,743 | 
|                                |  |             |       |      |  |   |       | 



|    |                            
|--- | ---------------------------
|12. | Net Income (Loss) Per Share

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

|                                          |               |                        |            |      |  |      |            |         |  |  |            |         | 
|----------------------------------------- | ------------- | ---------------------- | ---------- | ---- |  | ---- | ---------- | ------- |  |  | ---------- | ------- | 
|                                          |               |                       
|                                          |               | Year Ended October 31,
|                                          |               |                       
|                                          |               | 2001                   |            | 2002 |  | 2003
|                                          |               |                        |            |      |  |     
|Basic weighted average shares outstanding |               |                        | 10,623,068 |      |  |      | 11,150,064 |         |  |  | 11,696,118 |        
|Effect of dilutive securities:            |               |                        |            |      |  |      |            |         |  |  |            |        
|                                          | Stock options |                        |            |     |  |      |            | 795,329 |  |  |            | 121,663 | 
|                                          |               |                        |            |      |  |      |            |         |  |  |            |        
|Diluted                                   |               |                        | 10,623,068 |      |  |      | 11,945,393 |         |  |  | 11,817,781 |        
|                                          |               |                        |            |      |  |      |            |         |  |  |            |        

Employee stock options to purchase approximately
1,855,000, 401,000, and 550,000 shares in fiscal years 2001,
2002, and 2003, respectively, were outstanding, but were not
included in the computation of diluted earnings per share
because the effect would have been antidilutive.

F-21



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                     
|--- | ----------------------------------------------------
|13. | Valuation and Qualifying Accounts (in
    thousands)

|                             |                                 |            |   |            |  |              |   |               |  |  |   |        |   |  |   |       | 
|---------------------------- | ------------------------------- | ---------- | - | ---------- |  | ------------ | - | ------------- |  |  | - | ------ | - |  | - | ----- | 
|                             |                                 |            |   | Additions  |  | Deductions   |   |              
|                             |                                 | Balance at |   | Charged to |  | (Write-offs, |   |              
|                             |                                 | Beginning  |   | Costs and  |  | Net of       |   | Balance at   
|Description                  |                                 | of Period  |   | Expenses   |  | Collections) |   | End of Period
|                             |                                 |            |   |            |  |              |   |              
|Year ended October 31, 2001: |                                 |            |   |            |  |              |   |               |  |  |   |        |   |  |   |      
|                             | Deducted from asset accounts:   |            |   |            |  |              |   |               |  |  |   |        |   |  |   |       | 
|                             | Allowance for doubtful accounts |            | $ | 1,335      |  |              | $ | 2,438         |  |  | $ | (1,001 | ) |  | $ | 2,772 | 
|Year ended October 31, 2002: |                                 |            |   |            |  |              |   |               |  |  |   |        |   |  |   |      
|                             | Deducted from asset accounts:   |            |   |            |  |              |   |               |  |  |   |        |   |  |   |       | 
|                             | Allowance for doubtful accounts |            | $ | 2,772      |  |              | $ | 654           |  |  | $ | (1,084 | ) |  | $ | 2,342 | 
|Year ended October 31, 2003: |                                 |            |   |            |  |              |   |               |  |  |   |        |   |  |   |      
|                             | Deducted from asset accounts:   |            |   |            |  |              |   |               |  |  |   |        |   |  |   |       | 
|                             | Allowance for doubtful accounts |            | $ | 2,342      |  |              | $ | 234           |  |  | $ | (289   | ) |  | $ | 2,287 | 

|                             |                                           |            |   |           |  |            |   |               |  |  |   |      |   |  |   |       | 
|---------------------------- | ----------------------------------------- | ---------- | - | --------- |  | ---------- | - | ------------- |  |  | - | ---- | - |  | - | ----- | 
|                             |                                           |            |   | Additions |  |            |   |              
|                             |                                           |            |   | Charged   |  |            |   |              
|                             |                                           | Balance at |   | to Costs  |  | Deductions |   |              
|                             |                                           | Beginning  |   | and       |  | (Disposal  |   | Balance at   
|Description                  |                                           | of Period  |   | Expenses  |  | of Assets) |   | End of Period
|                             |                                           |            |   |           |  |            |   |              
|Year ended October 31, 2001: |                                           |            |   |           |  |            |   |               |  |  |   |      |   |  |   |      
|                             | Deducted from asset accounts:             |            |   |           |  |            |   |               |  |  |   |      |   |  |   |       | 
|                             | Allowance for bingo terminal obsolescence |            | $ | 1,749     |  |            | $ | 2,626         |  |  | $ | (409 | ) |  | $ | 3,966 | 
|Year ended October 31, 2002: |                                           |            |   |           |  |            |   |               |  |  |   |      |   |  |   |      
|                             | Deducted from asset accounts:             |            |   |           |  |            |   |               |  |  |   |      |   |  |   |       | 
|                             | Allowance for bingo terminal obsolescence |            | $ | 3,966     |  |            | $ |              |  |  | $ | (534 | ) |  | $ | 3,432 | 
|Year ended October 31, 2003: |                                           |            |   |           |  |            |   |               |  |  |   |      |   |  |   |      
|                             | Deducted from asset accounts:             |            |   |           |  |            |   |               |  |  |   |      |   |  |   |       | 
|                             | Allowance for bingo terminal obsolescence |            | $ | 3,432     |  |            | $ | 50            |  |  | $ | (310 | ) |  | $ | 3,172 | 

14.     Subsequent
Event (Unaudited)

During December 2003, the Company announced a
special cash dividend of $0.12 per share, which will be payable
on January 16, 2004 to stockholders of record as of the
close of business on January 2, 2004. The Company has a
$10 million revolving line of credit with Wells Fargo Bank,
N.A., which places certain restrictions on the payment of
dividends without the prior consent of the bank. Wells Fargo
Bank, N.A. has waived the dividend payment limitation, included
in the revolving line-of-credit agreement with the Company, for
the special dividend.

F-22



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##### Table of Contents



GAMETECH INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15.     Quarterly
Financial Information (Unaudited)

Summarized unaudited quarterly financial
information for the years 2003 and 2002 are noted below (in
thousands, except per share amounts):

|                             |  |                  |        |         |  |         |        |         |  |   |        |  |  |   |        | 
|---------------------------- |  | ---------------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ | 
|                             |  |                 
|                             |  | Fiscal Year 2003
|                             |  |                 
|                             |  | 1st              |        | 2nd     |  | 3rd     |        | 4th    
|                             |  | Quarter          |        | Quarter |  | Quarter |        | Quarter
|                             |  |                  |        |         |  |         |        |        
|Revenue                      |  | $                | 13,198 |         |  | $       | 13,322 |         |  | $ | 12,776 |  |  | $ | 13,033 | 
|Gross profit                 |  | $                | 7,934  |         |  | $       | 7,722  |         |  | $ | 6,871  |  |  | $ | 7,163  | 
|Income from operations       |  | $                | 843    |         |  | $       | 541    |         |  | $ | 318    |  |  | $ | 411    | 
|Net income                   |  | $                | 522    |         |  | $       | 226    |         |  | $ | 252    |  |  | $ | 191    | 
|Basic net income per share   |  | $                | 0.05   |         |  | $       | 0.02   |         |  | $ | 0.02   |  |  | $ | 0.02   | 
|Diluted net income per share |  | $                | 0.04   |         |  | $       | 0.02   |         |  | $ | 0.02   |  |  | $ | 0.02   | 

|                                    |  |                  |        |         |  |         |        |         |  |   |        |  |  |   |        |  
|----------------------------------- |  | ---------------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ | -
|                                    |  |                 
|                                    |  | Fiscal Year 2002
|                                    |  |                 
|                                    |  | 1st              |        | 2nd     |  | 3rd     |        | 4th    
|                                    |  | Quarter          |        | Quarter |  | Quarter |        | Quarter
|                                    |  |                  |        |         |  |         |        |        
|Revenue                             |  | $                | 11,851 |         |  | $       | 12,106 |         |  | $ | 12,496 |  |  | $ | 12,408 |  
|Gross profit                        |  | $                | 6,888  |         |  | $       | 7,570  |         |  | $ | 7,660  |  |  | $ | 7,188  |  
|Income (loss) from operations       |  | $                | 1,469  |         |  | $       | 1,770  |         |  | $ | 1,720  |  |  | $ | (531   | )
|Net income (loss)                   |  | $                | 913    |         |  | $       | 1,111  |         |  | $ | 1,094  |  |  | $ | (385   | )
|Basic net income (loss) per share   |  | $                | 0.08   |         |  | $       | 0.10   |         |  | $ | 0.10   |  |  | $ | (0.03  | )
|Diluted net income (loss) per share |  | $                | 0.08   |         |  | $       | 0.10   |         |  | $ | 0.09   |  |  | $ | (0.03  | )

During the fourth quarter ended October 31,
2002 the Company recorded the following expenses:



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $630,000 was charged to general and
    administrative expenses to fully reserve the receivables from a
    terminated distributor.                                                                                
|
| |  | Certain Company management personnel resigned and
    were extended severance packages. Under these packages, a total
    of $480,000 was paid by the Company and charged to the
    respective operating expenses.

F-23



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##### Table of Contents



EXHIBIT INDEX

|        |       |                        |  |                                                                                                                                                                                                                                                                                     
|------- | ----- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 2.1   |                        |  | Stock Purchase Agreement dated February 8,
    1999 by and among the Registrant, Bingo Technologies
    Corporation, and the Stockholders and Indemnitors named
    therein(1)                                                                                                      
|        | 3.1   |                        |  | Certificate of Incorporation of the Registrant,
    as amended(2)                                                                                                                                                                                                                   
|        | 3.2   |                        |  | Bylaws of the Registrant(2)                                                                                                                                                                                                                                                         
|        | 3.3   |                        |  | Certificate of Designation of Series A
    Junior Participating Preferred Stock of the Registrant.(8)                                                                                                                                                                               
|        | 4.1   |                        |  | GameTech International, Inc. Registration Rights
    Agreement(3)                                                                                                                                                                                                                   
|        | 4.3   |                        |  | Rights Agreement, dated as of March 7, 2003,
    between GameTech International, Inc. and Mellon Investor
    Services, LLC, as rights agent.(8)                                                                                                                                    
|        | 4.4   |                        |  | Specimen Common Stock Certificate(7)                                                                                                                                                                                                                                                
|        | 10.1  |                        |  | GameTech International, Inc. 1997 Incentive Stock
    Plan(2)                                                                                                                                                                                                                       
|        | 10.15 |                        |  | GameTech International, Inc. 2001 Restricted
    Stock Plan(5)                                                                                                                                                                                                                      
|        | 10.16 |                        |  | Lease Agreement dated November 18, 1999
    between the Registrant and Cypress Corporate Services, including
    addendum to lease and first amendment dated April 17,
    2000(4)                                                                                                  
|        | 10.17 |                        |  | Revolving Line of Credit dated August 19,
    1998 between the Registrant and Wells Fargo Bank, N.A.(4)                                                                                                                                                                             
|        | 10.18 |                        |  | Letter Amendment to Revolving Line of Credit
    dated April 1, 2000 by and among the Registrant, Bingo
    Technologies Corporation, and Wells Fargo Bank, N.A.(4)                                                                                                                 
|        | 10.19 |                        |  | Letter Amendment to Revolving Line of Credit
    dated April 2, 2001 by and among the Registrant, Bingo
    Technologies Corporation, and Wells Fargo Bank, N.A.(4)                                                                                                                 
|        | 10.22 |                        |  | Employment Agreement dated October 1, 1997
    between the Registrant and Andrejs K. Bunkse(4)                                                                                                                                                                                      
|        | 10.23 |                        |  | Letter Amendment dated April 2, 2002 between
    Wells Fargo Bank, N.A., the Registrant, and Bingo Technologies
    Corporation amending the letter agreement between the parties
    dated August 19, 1998, together with Revolving Line of
    Credit Note dated April 2, 2002.(6)
|        | 10.24 |                        |  | Letter Amendment dated April 2, 2003 between
    Wells Fargo Bank, N.A., and the Registrant, amending the letter
    agreement between the parties dated August 19, 1998,
    together with the Revolving Line of Credit Note dated
    April 2, 2003.(9)                           
|        | 21    |                        |  | List of Subsidiaries(6)                                                                                                                                                                                                                                                             
|        | 23.1  |                        |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                        
|        | 31.1  |                        |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a) and Rule 15d-14(a), promulgated by
    the Securities Exchange Act of 1934, as amended.                                                                                                                     
|        | 31.2  |                        |  | Certification of Chief Financial Officer pursuant
    to Rule 13a-14(a) and Rule 15d-14(a), promulgated by
    the Securities Exchange Act of 1934, as amended.                                                                                                                     
|        | 32.1  |                        |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                          
|        | 32.2  |                        |  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                          



---



|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the
    Registrants Current Report on Form 8-K dated
    February 8, 1999 as filed with the Commission on or about
    February 23, 1999.                                
|   
|(2) | Incorporated by reference to the
    Registrants Registration Statement on Form S-1
    (Registration No. 333-34967) as filed with the Commission
    on or about September 4, 1997.                  
|   
|(3) | Incorporated by reference to Amendment No. 1
    to the Registrants Registration Statement on Form S-1
    (Registration No. 333-34967) as filed with the Commission
    on or about October 17, 1997.
|   
|(4) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended October 31, 2001 as filed with the Commission on
    or about January 29, 2002.             
|   
|(5) | Incorporated by reference to the
    Registrants Registration Statement on Form S-8
    (Registration No. 333-72886) as filed with the Commission
    on or about November 7, 2001.                   



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##### Table of Contents





|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended October 31, 2003 as filed with the Commission on
    or about January 29, 2003.      
|   
|(7) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended January 31, 2003 as filed with the
    Commission on or about March 17, 2003.
|   
|(8) | Incorporated by reference to the
    Registrants Current Report on Form 8-K dated
    March 7, 2003 as filed with the Commission on or about
    March 10, 2003.                               
|   
|(9) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarterly period ended April 30, 2003 as filed with the
    Commission on or about June 16, 2003.