**UNITED
      STATES**




**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-K/A**


**Amendment
      No. 1**




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


**For
      the fiscal year ended October 31, 2007**




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


**For
      the transition period from ..........to............**





**Commission
      file number 000-23401**





**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***(Address
                of principal executive offices)*
            
            *(Zip
                Code)*





**(775) 850-6000**


*(Registrant’s
      telephone number, including area code)*





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




**Title
                of each class**
            
            **Name
                of each exchange on which registered**Common
                Stock, par value $.001 per share
              Rights
                to Purchase Series A Junior
              Participating
                Preferred Stock
            
            The
                NASDAQ Stock Market LLC




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




**None**





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





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act.


Yes 
      o No x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. Yes x 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.  x





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





Large
      accelerated filer o   Accelerated
      filer x Non-accelerated filer o





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


Yes
o No x





The
      aggregate market value of common stock held by non-affiliates of the registrant
      based on the closing price of the registrant’s common stock as reported on the
      NASDAQ Global Market on April 30, 2007, which was the last business day of
      the registrant’s most recently completed second fiscal quarter, was
      $103,069,097. 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 16, 2008, there were outstanding 12,516,222 shares of the
      registrant’s common stock, par value $0.001 per share.





**Documents
      Incorporated By Reference**





Portions
      of the registrant’s definitive proxy statement for the 2007 Annual Meeting of
      Stockholders are incorporated by reference into Part III of this
      report.








**Explanatory
      Note**





The
      purpose of this Amendment No. 1 to the Annual Report on Form 10-K of GameTech
      International, Inc. (“GameTech”) for the fiscal year ended October 31, 2007, is
      solely to correct a typographical error made during the processing of the Annual
      Report on Form 10-K with our filings servicer, Vintage Filings, LLC, with regard
      to the balance sheet on page F-4 on Form 10-K. The “Accrued Loss Contingencies”
balance should have shown an amount of $4,022,000 for fiscal year ended October
      31, 2007, and the “Income Taxes Payable” balance should have shown an amount of
      $0 for fiscal year ended October 31, 2007. These two changes to the balance
      sheet are the only changes being made to the original Form 10-K.





As
      a
      result of these two changes to the balance sheet, GameTech has amended and
      restated in its entirety the consolidated financial statements contained in
      the
      original Form 10-K. No other Part, Item or Section of the original Form 10-K
      is
      being amended hereby.





This
      Amendment No. 1 does not reflect events that have occurred after the original
      filing of the Annual Report on Form 10-K on January 22, 2008, and does not
      modify or update the disclosures in the Annual Report on Form 10-K in any way
      except as specifically described in this Explanatory Note.





As
      a result of this Amendment No. 1, the Consent of Independent Registered Public
      Accounting Firm and the certifications pursuant to Section 302 and Section
      906
      of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively as exhibits
      23.1, 31 and 32 to the original Form 10-K, have been re-executed and refiled
      with this Amendment No. 1.




1




**GameTech
      International, Inc.**


**Index
      to Consolidated Financial Statements**




Report
                of Independent Registered Public Accounting Firm
            
            
            F-2Report
                of Independent Registered Public Accounting Firm
            
            
            F-3Consolidated
                Financial StatementsConsolidated
                Balance Sheets
            
            
            F-4Consolidated
                Statements of Operations
            
            
            F-5Consolidated
                Statements of Stockholders' Equity
            
            
            F-6Consolidated
                Statements of Cash Flows
            
            
            F-7Notes
                to Consolidated Financial Statements
            
            
            F-9




F-1




**Report
      of Independent Registered Public Accounting Firm**








**Board
      of Directors and Shareholders**


**GameTech
      International, Inc.**




We
      have
      audited the accompanying balance sheets of GameTech International, Inc. as
      of
      October 31, 2007 and 2006, and the related statements of operations,
      stockholders’ equity, and cash flows for each of the three years in the period
      ended October 31, 2007. 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 the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the 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 financial position of GameTech International, Inc. as
      of
      October 31, 2007 and 2006, and the results of its operations and its cash
      flows for each of the three years in the period ended October 31, 2007 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of GameTech International,
      Inc.’s internal control over financial reporting as of October 31, 2007,
      based on criteria established in Internal Control-Integrated Framework issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
      and
      our report dated January 21, 2008 expressed an unqualified opinion on the
      effectiveness of the Company’s internal control over financial
      reporting.








**/S/
      GRANT THORNTON LLP**





Reno,
      Nevada


January
      21, 2008




F-2




**Report
      of Independent Registered Public Accounting Firm**




**Board
      of Directors and Stockholders**




**GameTech
      International, Inc.**




We
      have
      audited GameTech International, Inc.’s (a Delaware Corporation) internal control
      over financial reporting as of October 31, 2007, based on criteria established
      in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      GameTech International Inc.’s management is responsible for maintaining
      effective internal control over financial reporting and for its assessment
      of
      the effectiveness of internal control over financial reporting, included in
      the
      accompanying Management’s Report on Internal Control over Financial Reporting.
      Our responsibility is to express an opinion on GameTech International, Inc.’s
      internal control over financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, testing
      and evaluating the design and operating effectiveness of internal control based
      on the assessed risk, and performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.




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




In
      our
      opinion, GameTech International, Inc. maintained, in all material respects,
      effective internal control over financial reporting as of October 31, 2007,
      based on criteria established in *Internal
      Control—Integrated Framework* issued
      by COSO *.*




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of GameTech
      International, Inc. and it’s subsidiaries as of October 31, 2007 and 2006, and
      the related consolidated statements of operations, stockholders’ equity, and
      cash flows for each of the three years in the period ended October 31, 2007
      and
      our report dated January 21, 2008 expressed an unqualified opinion.




We
      do not
      express an opinion or any other form of assurance on controls over the Company’s
      Summit business segment purchased on March 28, 2007.




**/S/
      GRANT THORNTON LLP**




Reno,
      Nevada


January
      21, 2008




F-3




**GAMETECH
        INTERNATIONAL, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(In
      thousands, except share and per share amounts)**




**October
                31,****2007**
            
            
            **2006****ASSETS:**Current
                assets:Cash
                and cash equivalents
            
            $
            3,630
            
            $
            5,411Short-term
                investments
            
            
            7,763
            
            
            7,408Accounts
                receivable, net of allowances of $2,429 in 2007 and $2,230 in
                2006
            
            
            8,585
            
            
            3,734Inventory
            
            
            4,298
            
            
            —Deposits
            
            
            14
            
            
            17Refundable
                income taxes
            
            
            76
            
            
            64Restricted
                short-term investments
            
            
            —
            
            
            4,515Prepaid
                expenses and other current assets
            
            
            818
            
            
            377Deferred
                income taxes
            
            
            2,651
            
            
            2,458Total
                current assets
            
            
            27,835
            
            
            23,984Bingo
                equipment, furniture and other equipment, net
            
            
            19,902
            
            
            22,868Goodwill,
                net
            
            
            37,519
            
            
            10,184Intangibles,
                less accumulated amortization of $4,634 in 2007 and $4,071 in
                2006
            
            
            7,766
            
            
            1,217Restricted
                cash
            
            
            502
            
            
            483Deferred
                income taxes, long term
            
            
            226
            
            
            176Other
                assets
            
            
            132
            
            
            302Total
                assets
            
            $
            93,882
            
            $
            59,214**LIABILITIES
                AND STOCKHOLDERS' EQUITY:**Current
                liabilities:Accounts
                payable
            
            $
            2,094
            
            $
            1,819Accrued
                payroll and related obligations
            
            
            1,074
            
            
            980Accrued
                loss contingencies
            
            
            4,022
            
            
            3,898Income
                taxes payable
            
            
            —
            
            
            294Current
                portion of long-term debt
            
            
            4,400
            
            
            —Other
                accrued liabilities
            
            
            2,292
            
            
            1,581Total
                current liabilities
            
            
            13,882
            
            
            8,572Non-current
                employment obligations
            
            
            98
            
            
            160Note
                payable
            
            
            154
            
            
            —Deferred
                income taxes
            
            
            224
            
            
            648Long
                term obligations net of current portion
            
            
            25,045
            
            
            —Commitments
                and contingencies
            
            
            —
            
            
            —Stockholders'
                equity:Common
                stock: $0.001 par value; 40,000,000 shares authorized; 14,472,732
                shares
                issued in 2007 and 14,371,547 issued in 2006
            
            
            14
            
            
            14Additional
                paid in capital
            
            
            51,355
            
            
            50,881Retained
                earnings
            
            
            11,706
            
            
            7,035Treasury
                stock, at cost. 1,855,325 shares in 2007 and 2006
            
            
            (8,096
            )
            
            (8,096
            )Related
                Party Receivable
            
            
            (500
            )
            
            —Total
                stockholders' equity
            
            
            54,479
            
            
            49,834Total
                liabilities and stockholders' equity
            
            $
            93,882
            
            $
            59,214




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




F-4


**GAMETECH
      INTERNATIONAL, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**  ****


**(In
      thousands, except per share amounts)**




**Year
                ended October 31,****2007**
            
            
            **2006**
            
            
            **2005**Net
                revenue
            
            $
            58,805
            
            $
            49,289
            
            $
            49,651Cost
                of revenue
            
            
            26,542
            
            
            19,929
            
            
            20,304Gross
                profit
            
            
            32,263
            
            
            29,360
            
            
            29,347Operating
                expenses:General
                and administrative
            
            
            9,538
            
            
            8,303
            
            
            11,406Sales
                and marketing
            
            
            10,519
            
            
            11,041
            
            
            11,952Research
                and development
            
            
            3,865
            
            
            2,885
            
            
            4,058Loss
                contingencies
            
            
            124
            
            
            133
            
            
            137Gain
                on sale of assets
            
            
            (656
            )
            
            —
            
            
            —Total
                operating expenses
            
            
            23,390
            
            
            22,362
            
            
            27,553Income
                from operations
            
            
            8,873
            
            
            6,998
            
            
            1,794Interest
                and other income (expense), net
            
            
            (1,535
            )
            
            346
            
            
            76Income
                before income taxes
            
            
            7,338
            
            
            7,344
            
            
            1,870Provision
                for income taxes
            
            
            2,667
            
            
            2,961
            
            
            534Net
                income
            
            $
            4,671
            
            $
            4,383
            
            $
            1,336Net
                income per share:Basic
            
            $
            0.37
            
            $
            0.36
            
            $
            0.11Diluted
            
            $
            0.36
            
            $
            0.34
            
            $
            0.11Shares
                used in calculating net income per share:Basic
            
            
            12,566
            
            
            12,181
            
            
            11,868Diluted
            
            
            12,991
            
            
            12,757
            
            
            11,960Dividends
                declared per share
            
            $
            0.00
            
            $
            0.00
            
            $
            0.03




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




F-5




**GAMETECH
      INTERNATIONAL, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**  ****


**(In
      thousands, except share amounts)**




**Common
                Stock**
            
            
            **Capital
                in excess**
              **of
                par**
            
            
            **Retained**
            
            
            **Treasury
                Stock**
            
            
            **Related**
              **Party****Shares**
            
            
            **Amount**
            
            
            ******value**
            
            
            **Earnings**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Receivable**
            
            
            **Total**Balances
                at October 31, 2004
            
            
            13,700,339
            
            $
            14
            
            $
            47,081
            
            $
            1,671
            
            
            1,855,325
            
            $
            (8,096
            )
            $
            —
            
            $
            40,670Issuance
                of common stock upon exercise of stock options
            
            
            40,200
            
            
            —
            
            
            135
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            135Stock
                based compensation
            
            
            —
            
            
            —
            
            
            103
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            103Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            1,336
            
            
            —
            
            
            —
            
            
            —
            
            
            1,336Dividends
                paid
            
            
            —
            
            
            —
            
            
            —
            
            
            (355
            )
            
            —
            
            
            —
            
            
            —
            
            
            (355
            )Balances
                at October 31, 2005
            
            
            13,740,539
            
            
            14
            
            
            47,319
            
            
            2,652
            
            
            1,855,325
            
            
            (8,096
            )
            
            —
            
            
            41,889Issuance
                of common stock upon exercise of stock options
            
            
            630,999
            
            
            —
            
            
            2,518
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,518Issuance
                of common stock to employee
            
            
            9
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                based compensation
            
            
            —
            
            
            —
            
            
            330
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            330Tax
                benefit of stock option exercises
            
            
            —
            
            
            —
            
            
            714
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            714Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            4,383
            
            
            —
            
            
            —
            
            
            —
            
            
            4,383Balances
                at October 31, 2006
            
            
            14,371,547
            
            
            14
            
            
            50,881
            
            
            7,035
            
            
            1,855,325
            
            
            (8,096
            )
            
            —
            
            
            49,834Issuance
                of common stock upon exercise of stock options
            
            
            101,185
            
            
            —
            
            
            350
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            350Stock
                based compensation
            
            
            —
            
            
            —
            
            
            (128
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (128
            )Tax
                benefit of stock option exercises
            
            
            —
            
            
            —
            
            
            252
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            252Related
                Party Receivable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (500
            )
            
            (500
            )Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            4,671
            
            
            —
            
            
            —
            
            
            —
            
            
            4,671Balances
                at October 31, 2007
            
            
            14,472,732
            
            $
            14
            
            $
            51,355
            
            $
            11,706
            
            
            1,855,325
            
            $
            (8,096
            )
            $
            (500
            )
            $
            54,479




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




F-6


**GAMETECH
      INTERNATIONAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(In
      thousands)**




**Year
                Ended October 31,****2007**
            
            **2006**
            
            **2005****Cash
                flows from operating activities:**Net
                income
            
            $
            4,671
            
            $
            4,383
            
            $
            1,336Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            11,544
            
            
            10,317
            
            
            11,427Obsolescence
                and loss on disposal of bingo terminals and related
                equipment
            
            
            175
            
            
            681
            
            
            493Loss
                on disposal of furniture and other equipment
            
            
            65
            
            
            12
            
            
            35Loss
                on disposal of intangible assets
            
            
            —
            
            
            —
            
            
            35Issuance
                of note receivable for sale of inventory
            
            
            (247
            )
            
            —
            
            
            —Gain
                on sale of participation equipment
            
            
            (656
            )
            
            —
            
            
            —Stock
                compensation expense
            
            
            (124
            )
            
            330
            
            
            103Deferred
                income taxes
            
            
            (667
            )
            
            (696
            )
            
            379Accrued
                loss contingencies
            
            
            124
            
            
            133
            
            
            137Accrued
                interest on short-term investments
            
            
            (365
            )
            
            (187
            )
            
            (36
            )Accrued
                interest on restricted cash
            
            
            (19
            )
            
            (33
            )
            
            —Other
                changes in operating assets and liabilities:Accounts
                receivable, net
            
            
            (2,206
            )
            
            (161
            )
            
            (89
            )Deposits
            
            
            3
            
            
            4
            
            
            8Inventory
            
            
            (986
            )
            
            —
            
            
            —Refundable
                income taxes
            
            
            (13
            )
            
            678
            
            
            (642
            )Restricted
                short-term investments
            
            
            4,515
            
            
            66
            
            
            (4,581
            )Prepaid
                expenses and other current assets
            
            
            (115
            )
            
            (51
            )
            
            324Accounts
                payable
            
            
            (1,332
            )
            
            (393
            )
            
            (702
            )Accrued
                payroll and related obligations
            
            
            134
            
            
            (355
            )
            
            (206
            )Other
                accrued liabilities
            
            
            670
            
            
            (479
            )
            
            (332
            )Income
                taxes payable
            
            
            (294
            )
            
            294
            
            
            (1,214
            )Non-current
                employment obligations
            
            
            (61
            )
            
            (21
            )
            
            (21
            )Net
                cash provided by operating activities
            
            
            14,816
            
            
            14,522
            
            
            6,454





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




F-7


**GAMETECH
      INTERNATIONAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Continued)**


**(In
      thousands)**




**Year
                Ended October 31,****2007**
            
            
            **2006**
            
            
            **2005****Cash
                flows from investing activities:**Proceeds
                from sale of short-term investments
            
            
            18,034
            
            
            24,945
            
            
            2,638Payments
                for purchase of short-term investments
            
            
            (18,027
            )
            
            (31,662
            )
            
            (500
            )Capital
                expenditures for bingo equipment, furniture and other
                equipment
            
            
            (6,211
            )
            
            (11,541
            )
            
            (7,359
            )Payment
                for the acquisition of Summit Amusement & Distributing,
                Ltd
            
            
            (41,401
            )
            
            (302
            )
            
            —Proceeds
                from sale of assets
            
            
            1,523
            
            
            —
            
            
            17Payments
                for acquisitions of intangible assets
            
            
            —
            
            
            (113
            )
            
            (801
            )Net
                cash used in investing activities
            
            
            (46,082
            )
            
            (18,673
            )
            
            (6,005
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of long-term obligations
            
            
            38,946
            
            
            —
            
            
            —Payments
                on long-term obligations
            
            
            (9,563
            )
            
            —
            
            
            —Payment
                of dividends
            
            
            —
            
            
            —
            
            
            (355
            )Tax
                benefit from stock options exercised
            
            
            252
            
            
            714
            
            
            —Cash
                paid to related party for stock repurchase
            
            
            (500
            )
            
            —
            
            
            —Proceeds
                from issuance of common stock
            
            
            350
            
            
            2,518
            
            
            135Net
                cash (used in) provided by financing activities
            
            
            29,485
            
            
            3,232
            
            
            (220
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            (1,781
            )
            
            (919
            )
            
            229Cash
                and cash equivalents at beginning of year
            
            
            5,411
            
            
            6,330
            
            
            6,101Cash
                and cash equivalents at end of year
            
            $
            3,630
            
            $
            5,411
            
            $
            6,330**Supplemental
                cash flow information:**Cash
                paid out in the year for:Interest
            
            $
            2,282
            
            $
            10
            
            $
            13Income
                taxes
            
            $
            2,164
            
            $
            1,895
            
            $
            2,051**Non-cash
                investing and financing activities:**Acquisition
                of fixed assets included in:Accounts
                payable
            
            $
            485
            
            $
            1,517
            
            $
            —Note
                payable for the purchase of a patent
            
            $
            250
            
            $
            —
            
            $
            —




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




F-8




**GAMETECH
      INTERNATIONAL, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**  ****


**October
      31, 2007, 2006 and 2005**




**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 two business segments: the design,
      development, and marketing of 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;
      and the design, development, manufacturing, and marketing of video lottery
      terminals, related software, related parts and equipment, and game content.
      As
      of October 31, 2007, the company had bingo systems in service in 38 states,
      one
      US Territory and in four foreign countries and sales of Video Lottery Terminals
      (“VLTs”) and related software and equipment in 15 states and one US
      Territory.





**Consolidation
      Principles**





The
      Company’s consolidated financial statements include the accounts of GameTech
      International, Inc. and its wholly-owned subsidiaries (“GameTech”). All
      significant inter-company 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 consolidated financial
      statements and accompanying notes. Allowance for doubtful accounts,
      obsolescence, software development capitalization, impairment of goodwill and
      intangible assets, share-based compensation, and loss contingencies are
      significant estimates made by the Company. Actual results could ultimately
      differ from those estimates.




**Cash
      and Cash Equivalents**




The
      Company considers all highly liquid investments with an original maturity of
      three months or less at the date of purchase to be cash
      equivalents.




**Short-Term
      Investments**




Short-term
      investments, which consist of interest-bearing securities and investment grade
      auction rate securities, are stated at cost plus accrued interest, which
      approximates market value. Those with maturities beyond one year may be
      classified as short-term investments based on their highly liquid nature and
      because such marketable securities represent the investment of cash that is
      available for current operations. All auction rate securities are classified
      as
      short-term investments. Short-term investments are classified as available
      for
      sale and are recorded at fair market value using the specific identification
      method. Unrealized gains and losses are not material.





**Bingo
      Equipment, Furniture, and Other Equipment**





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





Bingo
                equipment
            
            
            3-5
                yearsOffice
                furniture and equipment
            
            
            3-7
                yearsLeasehold
                improvements
            
            
            10
                years




F-9




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




The
      Company provides reserves for excess or obsolete bingo terminals on hand not
      expected to be used. The reserves are based upon several factors, including
      estimated forecast of bingo terminal demand for placement into halls. The
      estimates of future bingo terminal demand may prove to be inaccurate, in which
      case the Company may have understated or overstated the provision required
      for
      excess or 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, results of operations, and financial
      condition.




**Software
      Development Capitalization**




The
      Company capitalizes costs related to the development of certain software
      products that meet the criteria of Statement of Financial Accounting Standards
      (“SFAS”) No. 86 - *Accounting
      for the Costs of Computer Software to Be Sold, Leased, or Otherwise
      Marketed* .
      SFAS
      No. 86 provides for the capitalization of computer software that is to be used
      as an integral part of a product or process to be sold or leased, after
      technological feasibility has been established for the software and all research
      and development activities for the other components of the product or process
      have been completed. The Company is capitalizing qualified costs of software
      developed for new products or for significant enhancements to existing products.
      The Company ceases capitalizing costs when the product is available for general
      release to the Company’s customers. The Company amortizes the costs on a
      straight-line method over the estimated economic life of the product beginning
      when the product is available for general release.




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




**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. Goodwill is reviewed for possible impairment
      annually, or more frequently whenever events or changes in circumstances
      indicate that the carrying value may not be recoverable, such as a significant
      adverse change in legal factors or in the business climate, an adverse action
      or
      assessment by a regulator, unanticipated competition, or a loss of key
      personnel.




**Impairment
      of Long-Lived Assets Other Than Goodwill**




The
      Company has adopted the provisions of SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      Long-lived assets, other than goodwill, are reviewed for impairment whenever
      events or changes in circumstances indicate that their carrying amounts may
      not
      be recoverable. Recoverability of assets is measured by comparison of the
      carrying amount of the asset to the net undiscounted future cash flows expected
      to be generated from the asset. If the future undiscounted cash flows are not
      sufficient to recover the carrying value of the assets, the assets’ carrying
      value is adjusted to fair value. The Company regularly evaluates its long-lived
      assets for indicators of impairment.




**Revenue
      Recognition**




We
      recognize revenue when the following criteria are met:





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





·
            Delivery
                has occurred or services have been
                rendered,





·
            The
                price is fixed or determinable, and





·
            Collectibility
                is reasonably assured.




F-10




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




We
      earn
      our revenue in a variety of ways. We offer our products for lease or sale.
      We
      also sell service and software updates for our sold equipment.





*Bingo
      Equipment*


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





*Video
      Lottery Terminals*


Our
      product sales revenues are generated from the sale of video lottery terminals,
      conversion kits, content fees, license fees, participation fees, equipment
      and
      services. Revenues are reported net of discounts, sales taxes and other taxes
      of
      a similar nature. Revenues related to contracted production are recognized
      as
      the related work is delivered. We recognize license fee revenues over the term
      of the associated agreement unless the fee is in exchange for products delivered
      or services performed that represent the culmination of a separate earnings
      process. Amounts received prior to completing the earnings process are deferred
      until revenue recognition criteria are met.





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





**Accounts
      Receivable and Allowance for Doubtful Accounts**





*Bingo
      Equipment*


We
      have
      established an allowance for uncollectible accounts based primarily on
      management’s evaluation of the customer’s financial condition, past collection
      history and aging of accounts receivable balances. Our customer base consists
      primarily of entities operating in charitable, Native American, and commercial
      bingo halls located throughout the United States. In some jurisdictions, the
      billing and collection function is performed by a distributor as part of a
      distributor relationship, and in those instances, we maintain allowances for
      possible losses resulting from non-payment by both the customer and distributor.
      We perform ongoing evaluations of customers and distributors for credit
      worthiness, economic trends, changes in customer payment terms, and historical
      collection experience when evaluating the adequacy of our allowance for doubtful
      accounts. We also reserve a percentage of accounts receivable based on aging
      categories. In determining these percentages, we review historical write-offs
      of
      receivables, payment trends, and other available information. While such
      estimates have been within our expectations and the provisions established,
      a
      change in the financial condition of specific customers or in overall trends
      experienced may result in future adjustments of estimates of collectibility
      of
      our receivables.





*Video
      Lottery Terminals*


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





**Inventories**




F-11




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




Inventories
      at our Summit Gaming division are stated at the lower of cost or market. Our
      raw
      material is valued using the first-in, first-out method and our finished goods
      are valued using standard costing that approximates the first-in, first-out
      method. Management periodically reviews inventory balances, using recent and
      future expected sales to identify slow-moving or obsolete items. Inventories
      consist of the following at October 31:




**2007**
            
            
            **2006**
            
            
            **2005**Finished
                Goods
            
            $
            1,408
            
            $
            —
            
            $
            —Raw
                Materials
            
            
            2,890
            
            
            —
            
            
            —$
            4,298
            
            $
            —
            
            $
            —




**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 pending claims and
      litigation and may revise its estimates. Such revisions in the estimates of
      the
      potential liabilities could have a material impact on the Company’s results of
      operations, and financial condition.




**Advertising
      and Promotion Costs**




Advertising
      and promotion costs are expensed as incurred. Such costs during fiscal years
      2007, 2006, and 2005 were not material.




**Research
      and Development Costs**




Research
      and development costs are charged to the results of operations when
      incurred.




**Stock
      Based Compensation**




The
      Company generally grants stock options to its employees for a fixed number
      of
      shares with an exercise price equal to the fair value of the shares on the
      date
      of the grant.




Prior
      to
      November 1, 2005, the Company accounted for employee stock transactions in
      accordance with Accounting Principle Board (“APB”), APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* .
      The
      Company adopted the pro forma disclosure requirements of SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      As
      permitted by SFAS No. 148, prior to adoption of SFAS No. 123(R), the Company
      accounted for stock based compensation expense under the recognition and
      measurement principles of APB Opinion No. 25 under which no compensation was
      recognized in the Company’s financial statements for the fiscal years ended
      October 31, 2005 and 2004. In connection with the modified prospective method,
      disclosures made for periods prior to the adoption of SFAS No. 123(R) do not
      reflect restated amounts.




Effective
      November 1, 2005, the Company adopted the Financial Accounting Standards Board
      (“FASB”) SFAS No. 123(R), *Share
      Based Payment* .
      This
      statement is a revision of SFAS No. 123, and supersedes APB Opinion No. 25,
      and
      its related implementation guidance. SFAS No. 123(R) addresses all forms of
      share-based payment awards including shares issued under employer stock purchase
      plans, stock options, restricted stock, and stock appreciation rights. Under
      SFAS No. 123(R), share-based payment awards result in a cost that will be
      measured at fair value on the award’s grant date. Stock options exercised in
      future periods will result in an adjustment within the Consolidated Statement
      of
      Cash Flows depicting a reduction to net cash provided by operating activities
      with an offsetting increase in net cash provided by financing activities related
      to incremental tax benefits. In the fourth quarter of the fiscal year 2005,
      the
      Company’s Board of Directors approved the acceleration of the vesting of all
      unvested stock options awarded under its 1997 Incentive Stock Plan. As a result,
      all options outstanding at October 31, 2005 were fully vested and no
      compensation cost for such options will be recognized in any future
      periods.





For
      the
      fiscal years ended October 31, 2007 and 2006 the Company recognized compensation
      expense (benefit) of ($128,000) and $330,000, respectively, which is included
      in
      general and administrative expenses in the accompanying Consolidated Statement
      of Operations. The related tax benefit (expense) was ($43,000) and $111,000
      for
      a net cost (benefit) of ($85,000) and $219,000, respectively. For the fiscal
      years ended October 31, 2007 and 2006 diluted and basic earnings per share
      were
      increased by $.01 in fiscal year 2007 and reduced by $0.02 in fiscal year 2006
      as a result of recognizing the share-based compensation expense, net of
      tax.





On
      November 10, 2005, the FASB issued Staff Position No. SFAS 123(R)-3, *Transition
      Election Related to Accounting for Tax Effects of*  *Share-Based
      Payment Awards.* The
      Company has elected to adopt the alternative transition method provided in
      this
      FASB Staff Position for calculating the tax effects of share-based compensation
      pursuant to SFAS No. 123(R). The alternative transition method includes a
      simplified method to establish the beginning balance of the additional paid-in
      capital pool related to the tax effects of employee share-based compensation,
      which is available to absorb tax deficiencies recognized subsequent to the
      adoption of SFAS No. 123(R).





F-12


**GAMETECH
          INTERNATIONAL, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**


The
      following table presents stock-based compensation expense if the Company had
      applied the fair value recognition provisions of SFAS No. 123(R), as amended
      by
      SFAS No. 148, to stock-based compensation:




**Year
                Ended**
              **October
                31, 2005****(in
                thousands except**
              **per
                share amounts)**Net
                income as reported
            
            $
            1,336Stock-based
                employee compensation expense included in reported net income,
              net
                of related tax benefits
            
            
            39Stock-based
                employee compensation expense determined under fair value
              method
                for all awards, net of related tax effects
            
            
            (1,285
            )Pro
                forma net income
            
            $
            90Net
                Income per shareBasic:As
                reported
            
            $
            0.11Pro
                forma
            
            $
            0.01Diluted:As
                reported
            
            $
            0.11Pro
                forma
            
            $
            0.01





Under
      SFAS No. 123(R) stock-based compensation cost is measured at the grant date,
      based on the estimated fair value of the award, and is recognized over the
      stated vesting period. The Company continues to utilize the Black-Scholes
      option-pricing model to estimate the fair value of employee stock-based
      compensation at the date of grant, which requires the use of accounting judgment
      and financial estimates. The expected life of the options used in this
      calculation is the period of time the options are expected to be outstanding,
      and is determined by the simplified method outlined in Staff Accounting Bulletin
      107 which states, “The midpoint of the average vesting period and contractual
      life is an acceptable expected life assumption.” Expected stock volatility is
      based on the historic volatility of its stock for a period equal to the length
      of time the Company has been public. Expected option exercises, the period
      of
      time the options are held, forfeitures, employee terminations and other criteria
      are based on previous experiences. The risk-free rates for periods within the
      contractual life of the options are based on United States Treasury Note rates
      in effect at the time of the grant for the period equal to the expected life.
      Application of alternative assumptions could produce significantly different
      estimates of the fair value of stock-based compensation and consequently, the
      related amounts recognized in the Consolidated Statements of
      Operations.




F-13


**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


These
      amounts were determined using the Black-Scholes option-pricing model, which
      values options based on the stock price at the grant date, the expected life
      of
      the option, the estimated volatility of the stock, the expected dividend
      payments, and the risk-free interest rate over the expected life of the option.
      The assumptions used in the Black-Scholes model were as follows:




**Year
                ended October 31,****2007**
            
            
            **2006**
            
            
            **2005**Risk-free
                interest rate
            
            
            4.81
            %
            
            5.08
            %
            
            3.98
            %Dividend
                yield
            
            
            —
            
            
            —
            
            
            —Volatility
                factor
            
            
            61.6
            %
            
            63.9
            %
            
            64.4
            %Expected
                life (in years)
            
            
            6.4
            
            
            5.5
            
            
            8.0




**Net
      Income (Loss) Per Share**




Net
      income (loss) per share is computed in accordance with SFAS No. 128, *Earnings
      per Share* ,
      which
      requires the presentation of both basic and diluted net income (loss) per share.
      Basic net 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 net income (loss) per
      share is based upon the weighted average number of common shares and
      common-share equivalents outstanding during the year excluding those
      common-share equivalents where the impact to basic net income (loss) per share
      would be antidilutive. The difference between basic and diluted net 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,
      restricted short-term investments, and trade receivables. Cash equivalents,
      short-term investments, and restricted 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 insurance limits.




No
      single
      customer comprised more than ten percent of the Company's total revenue during
      fiscal years 2007, 2006 and 2005. However, the Company conducts a substantial
      amount of its business through distributor relationships, many of which act
      as a
      collection agent.  As of October 31, 2007, there was one customer that
      represented 19.5% of the consolidated accounts receivable balance.





**Fair
      Values of Financial Instruments**




The
      carrying amounts reported in the consolidated balance sheets for cash and cash
      equivalents, short-term investments, accounts receivable, restricted short-term
      investments, accounts payable, and accrued liabilities approximate fair value.
      The long-term debt approximates fair value based on the Company’s ability to
      obtain other debt with the same terms and current maturity.




F-14




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




**Significant
      Market Revenue Concentration**




A
      significant portion of the Company’s revenue is concentrated in the Texas and
      Montana markets. For the fiscal year 2007, Texas represented approximately
      17%
      of our bingo revenue and 14% of consolidated revenue compared to more than
      15%
      of bingo revenue for fiscal years 2006 and 2005. State law requires electronic
      bingo devices and systems to be placed through qualified distributors. For
      the
      fiscal year 2007, the Montana market represented approximately 50% of VLT
      revenue and 10% of consolidated revenue.




**Recent
      Accounting Pronouncements**




In
      December 4, 2007, the FASB issued SFAS No. 141(R), *“Business
      Combinations”* ,
      and
      SFAS No. 160, *“Accounting
      and Reporting of Noncontrolling interest in Consolidated Financial Statements,
      an amendment of ARB No. 51”* (SFAS
      No. 160). These new standards will significantly change  the
      financial accounting and reporting of business combination transactions and
      noncontrolling (or minority) interests in consolidated financial statements.
      The Company will be required to adopt SFAS No.141(R) and 160 on or after December 15,
      2008 (2010
      for the Company). The Company has not yet determined the effect, if any, that
      the adoption of SFAS 141(R) and 160 will have on its consolidated financial
      statements.





In
      June
      2006, FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes. FIN
      No. 48 is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in an enterprise’s tax return. This interpretation also
      provides guidance on the derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition of tax positions.
      The
      recognition threshold and measurement attribute is part of a two-step tax
      position evaluation process prescribed in FIN No. 48, which is effective after
      the beginning of an entity’s first fiscal year that begins after December 15,
      2006. The Company believes the potential impact of FIN No. 48 on its financial
      position, cash flows and results of operations is not material.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”), which defines fair value, establishes a framework for measuring fair
      value in GAAP, and expands disclosures about fair value measurements. SFAS
      157
      does not require any new fair value measurements, but provides guidance on
      how
      to measure fair value by providing a fair value hierarchy used to classify
      the
      source of the information. This statement is effective beginning in October
      2008. The Company is evaluating whether adoption of this statement will result
      in a change to its fair value measurements.





In
      September 2006, the Securities and Exchange Commission released Staff Accounting
      Bulletin No. 108, Quantifying Financial Statement Misstatements
      (“SAB 108”). SAB 108 gives guidance on how errors, built up over time
      in the balance sheet, should be considered from a materiality perspective and
      corrected. SAB 108 provides interpretive guidance on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. SAB 108 represents the SEC Staff’s
      views on the proper interpretation of existing rules and as such has no
      effective date. The adoption of SAB No. 108 did not have a material impact
      on
      our financial position, results of operation, and cash flows.




**2.
      Goodwill and Intangibles**




The
      Company accounts for goodwill and intangibles according to SFAS No. 142, *Goodwill
      and Other Intangible Assets* .
      This
      rule provides that goodwill should not be amortized but instead should be tested
      for impairment annually 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.




F-15




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


Goodwill,
      resulting 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 International Gaming Systems
      (“IGS”) added $1,849,000 to goodwill for fiscal 2003. In fiscal 2007, the
      Company acquired the assets of Summit Gaming and added $27,335,000 to goodwill
      and $7,720,000 in identifiable intangible assets which will be amortized over
      5
      to 10 years. The Company assessed the value of its goodwill as of July 31,
      2005,
      2006 and 2007 (its annual review date) and concluded that goodwill was not
      impaired.




Intangible
      assets consisted of the following as of October 31, 2007 (in
      thousands):




**Stated
                Value**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                Carrying Value**
            
            
            **Weighted**
              **Average**
              **Amortization**
              **Period**
              **(in
                years)**Intellectual
                property (software)
            
            $
            4,173
            
            $
            (3,676
            )
            $
            497
            
            
            1.2Copyrights/trademarks
            
            
            247
            
            
            (38
            )
            
            209
            
            
            11.8Distributor
                buyouts
            
            
            260
            
            
            (260
            )
            
            —
            
            
            —Summit
                Gaming identifiable intangible
              assets:Customer
                relationships
            
            
            3,600
            
            
            (420
            )
            
            3,180
            
            
            4.4Patent
                applications
            
            
            520
            
            
            (30
            )
            
            490
            
            
            9.4Game
                software library
            
            
            3,600
            
            
            (210
            )
            
            3,390
            
            
            9.4$
            12,400
            
            $
            (4,634
            )
            $
            7,766




Intangible
      assets consisted of the following as of October 31, 2006 (in
      thousands):




**Stated
                  Value**
              
              
              **Accumulated
                  Amortization**
              
              
              **Net**
                **Carrying**
                **Value**
              
              
              **Weighted**
                **Average**
                **Amortization**
                **Period**
                **(in
                  years)**Intellectual
                  Property (software)
              
              $
              4,173
              
              $
              (3,007
              )
              $
              1,166
              
              
              3.2Copyrights/trademarks
              
              
              255
              
              
              (255
              )
              
              —
              
              
              4.7Distributor
                  buyouts
              
              
              860
              
              
              (809
              )
              
              51
              
              
              2.95,288
              
              
              (4,071
              )
              
              1,217




Intangibles
      are being amortized over the respective useful lives of the assets ranging
      from
      two to ten years. Amortization expense related to the intangibles in fiscal
      years 2007, 2006 and 2005 was $1,389,000, $710,000 and $721,000, respectively
      (including amortization of intellectual property software developed under SFAS
      86 of $669,000, $656,000 and $485,000, respectively).





Estimated
      aggregate amortization expense for intangible assets subject to amortization
      as
      of October 31, 2007 is as follows (in thousands):





2008
            
            $
            1,5682009
            
            
            1,2322010
            
            
            1,1562011
            
            
            1,1522012
            
            
            732After
                2012
            
            
            1,926$
            7,766




F-16




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




**3.
      Bingo Equipment, Furniture and Other Equipment**




Bingo
      equipment, furniture and other equipment consisted of the following as of
      October 31, 2007 and 2006 (in thousands):





**October
                31,****2007**
            
            
            **2006**Bingo
                equipment
            
            $
            55,307
            
            $
            56,241Office
                furniture and equipment
            
            
            4,716
            
            
            4,246Leasehold
                improvements
            
            
            864
            
            
            75460,887
            
            
            61,241Less
                accumulated depreciation and amortization
            
            
            44,639
            
            
            42,038Less
                reserve for excess or obsolete terminals
            
            
            142
            
            
            21416,106
            
            
            18,989Add
                bingo component parts
            
            
            3,796
            
            
            3,879Bingo
                equipment, furniture and other equipment, net
            
            $
            19,902
            
            $
            22,868




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





Depreciation
      expense during the fiscal years ended October 31, 2007, 2006 and 2005
      amounted to approximately $10.2 million, $9.6 million and
      $10.7 million, respectively. In addition, during fiscal years ended
      October 31, 2007, 2006 and 2005, the Company reserved $38,000, $249,000 and
      $0, respectively for bingo terminals and parts not expected to be
      re-used.





Component
      parts are for the assembly of terminals and recorded at average cost until
      the
      completed terminal is placed in bingo equipment and depreciated.




**4.
      Credit Agreements**




On
      March
      28, 2007, the Company entered into a credit facility, which consists of a term
      note for $30.0 million and a revolving line of credit in the amount of $10.0
      million relating to the acquisition of Summit Gaming. The term note bears
      interest at the prime rate plus 1.75%, with a minimum annual rate of 9.75%.
      As
      of October 31, 2007 the interest rate was 9.75% and the balance of the term
      note
      was $22.0 million. Interest payments are due monthly and beginning January
      1,
      2008, principal payments of $1.1 million are due quarterly with the remainder
      due March 28, 2012. The revolving line of credit bears interest based on the
      prime rate plus 0.50%, with a minimum annual rate of 8.50%. As of October 31,
      2007 the interest rate was 8.50% and the outstanding balance of the revolver
      was
      $7.4 million. The revolving line of credit requires monthly payments of interest
      only and the outstanding balance is due on March 28, 2012. The Company can
      give
      no assurance that the revolving credit facility will be renewed. The
      Company ’ s
      obligations under the agreement are secured by substantially all of its assets.
      In October 2007, in accordance with the financing agreement with our lender,
      formerly restricted funds that were released in connection with the Trend
      litigation (see Note 5) of approximately $4.5 million were used to pay down
      the
      term loan facility. Another $5.0 million of excess cash from operations was
      also
      used in October 2007 to pay down $3.5 million towards the term loan facility
      and
      $1.5 million towards the revolver facility. We incurred a pre-payment penalty
      of
      $80,000 on the pre-payment of the term loan facility.





The
      credit facility provides for a prepayment premium of 1% in the first year and
      0.5% in the second year under specified circumstances. The credit facility
      provides for mandatory prepayments under specified circumstances, including
      a
      requirement to prepay an amount equal to 50% of Excess Cash Flow, as defined,
      if
      the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA less
      Capital Expenditures, as defined, is greater than or equal to 2 to 1.




F-17




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




The
      credit facility contains numerous affirmative and negative covenants, including
      restrictions on liens, limitations on indebtedness, prohibitions on fundamental
      changes, restrictions on investments, prohibition of dividends or redemptions
      and limitations on capital expenditures. The Company must maintain qualified
      cash, as defined, of at least $6.0 million. The credit facility also contains
      specified financial covenants, including a leverage ratio, fixed charge coverage
      ratio and a minimum trailing twelve month EBITDA covenant. Upon an event of
      default, the lenders under the credit facility can accelerate all obligations
      under the agreement and terminate the revolving credit commitment. The Company
      was in compliance with all terms and covenants of the agreement as of October
      31, 2007.




On
      March
      28, 2007, the Company terminated its prior revolving line-of-credit as part
      of
      the requirements of its new credit facility. Future minimum term loan payments
      as of October 31, 2007 are as follows (in thousands):




2008
            
            $
            4,4002009
            
            
            4,4002010
            
            
            4,4002011
            
            
            4,4002012
            
            
            4,400$
            22,000





**5.
      Commitments and Contingencies**




**Leases**





The
      Company leases administrative and warehouse facilities and certain equipment
      under non-cancelable operating leases. Rent expense during the fiscal years
      ended October 31, 2007, 2006 and 2005 was $847,000, $836,000 and $863,000,
      respectively.





Future
      minimum lease payments under these leases as of October 31, 2007 are as follows
      (in thousands):




2008
            
            $
            8532009
            
            
            8202010
            
            
            572$
            2,245


**Purchase
      Commitments**




From
      time
      to time, we enter into commitments with our vendors to purchase VLT parts,
      bingo
      terminals and support equipment at fixed prices and/or guaranteed quantities.
      During the fiscal year ended October 31, 2006, we entered into seven agreements
      with the same vendor to provide an additional $5.4 million in Traveler terminals
      and $1.1 million in Tracker parts. As of July 31, 2007, we had fulfilled all
      these purchase commitments. During the fiscal year ending October 31, 2007,
      we
      entered into various additional agreements for component parts for VLTs, Tracker
      and Traveler as well as component parts for the GameTech Mini TM. As of October
      31, 2007, approximately $2.9 million of these commitments were outstanding.
      All
      purchases are expected to occur by the end of the third quarter in fiscal
      2008.




F-18




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




**Litigation**





*Trend
      Litigation.*On March
      22, 2001, the Company filed GameTech International, Inc. v. Trend Gaming
      Systems, LLC, CIV 01-0540 PHX LOA, a claim in the United States District Court
      for the District of Arizona, seeking a declaratory judgment that the Company
      was
      not in material breach of the Company’s November 1, 1999 Distribution Agreement
      with Trend Gaming Systems, LLC (“Trend”), and seeking damages for past due
      payments and wrongful withholdings by Trend. Trend counterclaimed, alleging
      that
      its payments were in compliance with its contractual obligations. Trend also
      contended that the Company was in breach of certain of the Company’s contractual
      obligations to Trend, including that the Company had wrongfully terminated
      Trend. 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 the Company’s ownership interest in
      those funds. The money was placed in two bank accounts/constructive trusts,
      subject to the court’s control. The sums in those accounts now total
      approximately $600,000. In addition, collections of accounts receivable by
      Trend, if any, are also being placed in that account, pending the resolution
      of
      the case. The Company has posted a $450,000 deposit with the court as a bond,
      which is presented as restricted cash on the Company’s condensed consolidated
      balance sheets. The accounts receivable from Trend were fully reserved as of
      October 31, 2007. Trial in this matter commenced October 4, 2004. On
      November 1, 2004, the jury returned a verdict in favor of Trend against the
      Company in the amount of $3.5 million in compensatory damages. The jury also
      awarded the Company $735,000 in compensatory damages against Trend for funds
      Trend collected on the Company’s behalf but failed to remit to the Company. The
      court denied all of the Company’s post-trial motions, except that it maintained
      the injunction imposing a constructive trust, pending resolution of the issues
      on appeal. The court setoff the jury awards and entered an amended judgment
      for
      Trend on May 12, 2005, in the amount of $2.8 million, plus interest on that
      sum
      at the rate of 3.31% per annum beginning March 30, 2005. The Company appealed
      to
      the United States Court of Appeals for the Ninth Circuit on April 8, 2005.
      The
      Company posted a supersedeas bond on April 8, 2005 in the court-appointed amount
      of $3.4 million, which bond stays any action by Trend to collect on the
      judgment, pending appeal. Trend initially sought an award of $810,000 in legal
      fees and $26,000 in expenses and costs. In an amended request, Trend sought
      an
      award of $1.4 million in legal fees and $61,000 in expenses and costs. The
      court
      awarded Trend $909,000 in legal fees, expenses and costs plus interest of 3.77%
      per annum beginning August 5, 2005. The Company appealed the fee award to the
      United States Court of Appeals for the Ninth Circuit on August 5, 2005. The
      Company posted an additional supersedeas bond with the court on August 18,
      2005
      in the amount of $1.1 million, thereby staying any action by Trend to collect
      the fees, pending appeal. For the year ended October 31, 2004, the Company
      recorded an estimated loss contingency in the Trend litigation of $3.6 million,
      which was estimated based on the amounts of the judgment described above. The
      Company recorded an additional loss contingency of $72,000 in the third quarter
      of fiscal 2005 to account for the increased total award to Trend for legal
      fees
      and expenses and costs of $909,000. In addition, loss contingencies of $133,000
      and $65,000 were recorded in the fiscal years ended October 31, 2006 and 2005,
      respectively, to account for interest accrued on the Trend
      judgment.





On
      April 19, 2007 a three judge panel of the United States Court of Appeals for
      the
      Ninth Circuit heard oral arguments for the appeal. On May 16, 2007, the United
      States Court of Appeals for the Ninth Circuit issued its ruling in our favor
      upholding each of the items we appealed, reversing the trial court’s rulings and
      remanding the matter back to the trial court for a new trial. The
      matter has been returned to the control of the lower court but at this time
      there is no set date as to when the matter will be heard. Additionally, as
      a
      result of this decision, the supersedeas bonds posted by GameTech International
      prior to filling the appeal were released by the lower court as of August 18,
      2007 and we have terminated the supporting insurance polices and have had the
      letters of credit released to us.




*Trend
      Gaming Litigation.* On March
      2, 2004, the jury rendered a verdict in our favor awarding compensatory and
      punitive damages against Trend Gaming, LLC, a Kentucky LLC (“Trend Gaming”)
      (involving a prior distribution agreement in Virginia) in the total amount
      of
      approximately $1.5 million. The jury also returned a verdict against Steven
      W.
      and Rhonda Hieronymus awarding compensatory and punitive damages of $1.0
      million. The court reduced compensatory damages against Trend Gaming to $1.1
      million. The court affirmed $150,000 in punitive damages against Trend Gaming
      and awarded us fees and costs of suit against Trend Gaming in the amount of
      $650,000. Compensatory damages against Mr. and Mrs. Hieronymus have been reduced
      to $762,000 but the punitive damage award against them in the amount of $150,000
      remains unchanged. Of the total compensatory damages of $1.1 million awarded
      to
      us, $762,000 represents compensation for lost profits. We can only collect
      such
      damages from one of the defendants to avoid a double recovery. Defendants
      appealed the judgment against them. On March 5, 2007, the Appellate Court
      entered its ruling affirming the judgment of the lower court in our
      favor. We have
      not recorded an estimated gain contingency, as we can give no assurances whether
      we will be able to collect any award from the defendants.




F-19




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


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




**6.
      Stockholders’
      Equity**




**Stock
      Options**




In
      August 1997, the Company with the approval of its stockholders and
      directors, 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 of one to four years 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. In October
      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. At the annual meeting of stockholders held on March 28, 2006,
      the
      stockholders of the Company approved the amendment and restatement of the 1997
      Plan, which included the combination of the 2001 Plan with the 1997 Plan and
      the
      extension of the term of the 1997 Plan for an additional ten
      years.




The
      aggregate intrinsic value represents the difference between the closing price
      of
      our common stock on October 31, 2007, which was $8.69, and the exercise price,
      multiplied by the number of in-the-money stock options as of the same date.
      This
      represents the amount that would have been received by the stock option holders
      if they had all exercised their stock options on October 31, 2007. In future
      periods, this amount will change depending on fluctuations in our stock price.
      The aggregate intrinsic value of the options outstanding at October 31, 2007
      was
      $3.3 million. The aggregate intrinsic value of options exercisable at October
      31, 2007 was $3.3 million. During the years ended October 31, 2007, 2006, and
      2005, the aggregate intrinsic value of options exercised under our stock option
      plans were $578,000, $1.8 million, and $35,000, respectively, determined as
      of
      the date of option exercise.





As
      of
      October 31, 2007, options to purchase 721,550 shares of common stock were
      outstanding at exercise prices ranging from $2.85 to $11.46 per share under
      the
      1997 Plan. In addition, as of October 31, 2007, 767,791 shares of common stock
      were available for future grants under the 1997 Plan.





A
      summary
      of the activity under the stock option plan and related information is presented
      below:





**Year
                ended October 31,****2007**
            
            
            **2006**
            
            **2005****Number
                of**
              **Shares**
              **(Options)**
            
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            
            **Number
                of**
              **Shares**
              **(Options)**
            
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            
            **Number
                of**
              **Shares**
              **(Options)**
            
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**Balance
                at beginning of year
            
            
            847,735
            
            $
            3.93
            
            
            1,410,900
            
            $
            3.63
            
            
            970,125
            
            $
            4.25Options:Granted
            
            
            300,000
            
            $
            10.44
            
            
            150,000
            
            $
            6.92
            
            
            827,650
            
            $
            3.12Forfeited
            
            
            (325,000
            )
            $
            9.09
            
            
            (82,166
            )
            $
            3.81
            
            
            (346,675
            )
            $
            4.16Exercised
            
            
            (101,185
            )
            $
            3.46
            
            
            (630,999
            )
            $
            3.99
            
            
            (40,200
            )
            $
            3.36Balance
                at end of year
            
            
            721,550
            
            $
            4.38
            
            
            847,735
            
            $
            3.93
            
            
            1,410,900
            
            $
            3.63Exercisable
                at end of year
            
            
            621,550
            
            $
            3.39
            
            
            722,735
            
            $
            3.40
            
            
            1,410,900
            
            $
            3.63Weighted
                average grant-date
              fair
                value of options granted
              during
                the year
            
            
            
            
            $
            6.88
            
            
            
            
            $
            4.17
            
            
            
            
            $
            2.16




F-20


**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




As
      of
      October 31, 2007, the total compensation cost related to unvested stock-based
      awards granted to employees under the Company’s stock option plans but not yet
      recognized was $568,000. This cost will be amortized for fiscal years ended
      October 31, 2008, 2009, 2010, and 2011 at $205,000, $180,000, $132,000, and
      $51,000, respectively, and will be adjusted for subsequent changes in estimated
      forfeitures.




The
      following table summarizes information regarding stock options outstanding
      and
      exercisable as of October 31, 2007:




**Options
                Outstanding**
            
            
            **Options
                Exercisable****Range
                of**
              **Exercise**
              **Prices**
            
            
            **Number
                Outstanding**
            
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual
                Life (in years)**
            
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            
            **Number
                Exercisable**
            
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual**
              **Life
                (in years)**
            
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**$2.85
                - $2.97
            
            
            313,500
            
            
            7.58
            
            $
            2.87
            
            
            313,500
            
            
            7.58
            
            $
            2.87$3.10
                - $3.19
            
            
            79,000
            
            
            7.58
            
            $
            3.13
            
            
            79,000
            
            
            7.58
            
            $
            3.13$3.44
                - $3.63
            
            
            80,350
            
            
            5.54
            
            $
            3.53
            
            
            80,350
            
            
            5.54
            
            $
            3.53$3.85
                - $4.29
            
            
            93,700
            
            
            5.43
            
            $
            4.01
            
            
            93,700
            
            
            5.43
            
            $
            4.01$4.62
                - $6.99
            
            
            55,000
            
            
            6.70
            
            $
            5.50
            
            
            55,000
            
            
            6.70
            
            $
            5.50$9.51
                - $11.46
            
            
            100,000
            
            
            9.47
            
            $
            10.49
            
            
            —
            
            
            —
            
            $
            —721,550
            
            
            7.27
            
            $
            4.38
            
            
            621,550
            
            
            6.92
            
            $
            3.39





**Stockholder
      Rights Agreement**




On
      March 7, 2003, the Company adopted a Rights 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.





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.




F-21


**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**7.
      Income Taxes**





The
      income tax provision (benefit) recorded in the consolidated statement of
      operations consists of the following (in thousands):




**Year
                ended October 31,****2007**
            
            
            **2006**
            
            
            **2005**Current:Federal
            
            $
            2,587
            
            $
            2,947
            
            $
            565State
            
            
            378
            
            
            365
            
            
            109Foreign
            
            
            387
            
            
            345
            
            
            52Deferred:Federal
            
            
            (500
            )
            
            (576
            )
            
            (243
            )State
            
            
            (130
            )
            
            16
            
            
            51Foreign
            
            
            (55
            )
            
            (136
            )
            
            —$
            2,667
            
            $
            2,961
            
            $
            534




The
      significant components of the Company's deferred income tax assets and
      liabilities as of October 31, 2007 and 2006 are as follows (in thousands):




**October
                31, 2007****Current**
            
            
            **Non-Current**Deferred
                income tax assets:Amortization of intangible assets
            
            $
            —
            
            $
            499Allowance for doubtful accounts
            
            
            947
            
            
            —Reserve for obsolete terminals
            
            
            —
            
            
            54Loss contingencies
            
            
            1,447
            
            
            —Accrued vacation
            
            
            172
            
            
            —Stock option expense
            
            
            45
            
            
            —Deferred Revenue
            
            
            40
            
            
            —Foreign tax credit carry-forward
            
            
            —
            
            
            36Capital loss carry-forward
            
            
            —
            
            
            13Total
                deferred income tax assets
            
            
            2,651
            
            
            602Deferred
                income tax liability:Depreciation
            
            
            —
            
            
            (600
            )Net
                deferred income tax asset (liability)
            
            $
            2,651
            
            $
            2





**October
                31, 2006****Current**
            
            
            **Non-Current**Deferred
                income tax assets:Amortization
                of intangible assets
            
            $
            —
            
            $
            806Allowance
                for doubtful accounts
            
            
            838
            
            
            —Reserve
                for obsolete terminals
            
            
            —
            
            
            80Loss
                contingencies
            
            
            1,461
            
            
            —Accrued
                vacation
            
            
            126
            
            
            —Stock
                option expense
            
            
            96
            
            
            —Foreign
                tax credit carryforward
            
            
            17
            
            
            —Capital
                loss carryforward
            
            
            —
            
            
            12Total
                deferred income tax assets
            
            
            2,538
            
            
            898Deferred
                income tax liability:Depreciation
            
            
            (80
            )
            
            (1,370
            )Net
                deferred income tax asset (liability)
            
            $
            2,458
            
            $
            (472
            )




F-22




**GAMETECH
          INTERNATIONAL, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


The
      differences between the Company's provision for (benefit from) income taxes
      as
      presented in the accompanying consolidated statements of operations and
      provision for (benefit from) income taxes computed at the federal statutory
      rate
      of 34% was as follows:




**Year
                ended October 31,****2007**
            
            
            **2006**
            
            
            **2005**Income
                tax provision (benefit) at the statutory rate
            
            
            34.0
            %
            
            34.0
            %
            
            34.0
            %State
                income taxes, net
            
            
            3.1
            
            
            3.4
            
            
            4.0Foreign
                income taxes, net of credits
            
            
            —
            
            
            —
            
            
            (0.7
            )Revisions
                to income tax payable due to closure of statute of
                limitations
            
            
            —
            
            
            —
            
            
            (11.4
            )Meals
                and entertainment
            
            
            0.6
            
            
            0.7
            
            
            2.3Non
                deductible lobbying expenses
            
            
            0.1
            
            
            0.4
            
            
            2.3Impairment
                of goodwill
            
            
            —
            
            
            —
            
            
            —Other,
                net
            
            
            (1.5
            )
            
            1.8
            
            
            (2.0
            )Income
                tax provision (benefit) at its effective rate
            
            
            36.3
            %
            
            40.3
            %
            
            28.5
            %




**8.
      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,
      2007
      or October 31, 2006. Additionally, because investments are short-term and are
      generally allowed to mature, realized gains and loss for fiscal 2007 and 2006
      are minimal.




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





**October
                31,****2007**
            
            
            **2006**Corporate
                securities
            
            $
            1,300
            
            $
            3,608Auction
                rate securities
            
            
            6,463
            
            
            3,800Total
                short-term investments
            
            $
            7,763
            
            $
            7,408




**9.
      Accrued Severance**




The
      Company has incurred expenses connected with severance agreements. These amounts
      are recorded in accrued payroll. In fiscal 2007, the total severance expense
      was
      $111,000 recorded in sales, general and administrative expenses. As of October
      31, 2007, all outstanding severance expense had been paid. In fiscal 2006,
      total
      severance expenses of $170,000 were recorded in research and development
      expense.




Accrued
      severance consisted of the following as of October 31, 2007 and 2006 (in
      thousands):





**October
                31,****2007**
            
            
            **2006**Beginning
                balance
            
            $
            44
            
            $
            359Severance
                expenses
            
            
            111
            
            
            170Less
                severance paid
            
            
            (155
            )
            
            (485
            )Ending
                Balance
            
            $
            —
            
            $
            44





**10.
      Other Accrued Liabilities**





Other
      accrued liabilities consist of (in thousands):




F-23




**GAMETECH
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS -
            (Continued)**




**October
                31,****2007**
            
            
            **2006**Accrued
                professional fees
            
            $
            176
            
            $
            592Accrued
                distributor commissions
            
            
            401
            
            
            442Deferred
                revenue
            
            
            767
            
            
            —Accrued
                property tax
            
            
            145
            
            
            139Other
            
            
            803
            
            
            408$
            2,292
            
            $
            1,581


**11.
      Net Income Per Share**





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




**Year
                ended October 31,****2007**
            
            
            **2006**
            
            
            **2005**Basic
                weighted average shares outstanding
            
            
            12,566
            
            
            12,181
            
            
            11,868Effect
                of dilutive securities:Stock
                options
            
            
            425
            
            
            576
            
            
            92Diluted
            
            
            12,991
            
            
            12,757
            
            
            11,960





Employee
      stock options to purchase approximately 100,000, 125,000, and 832,000 shares
      in
      fiscal years ending October 31, 2007, 2006, and 2005, respectively, were
      outstanding, but were not included in the computation of diluted earnings per
      share because the effect would have been antidilutive.





**12.
      Valuation and Qualifying Accounts (in thousands)**




**Description**
              
              
              **Balance
                  at**
                **Beginning
                  of**
                **Period**
              
              
              **Additions**
                **Charged
                  to**
                **Costs
                  and**
                **Expenses**
              
              
              **Net
                  Deductions**
                **(Write-offs,
                  Net of Collections)**
              
              
              **Balance
                  at**
                **End
                  of**
                **Period**Allowance
                  for accounts receivableYear
                  ended October 31, 2005:Allowance
              
              $
              2,454
              
              $
              43
              
              $
              (123
              )
              $
              2,374Year
                  ended October 31, 2006:Allowance
              
              $
              2,374
              
              $
              277
              
              $
              (421
              )
              $
              2,230Year
                  ended October 31, 2007:Allowance
              
              $
              2,230
              
              $
              561
              
              $
              (362
              )
              $
              2,429




The
      balance of the allowance for accounts receivable for fiscal years ended 2007,
      2006, and 2005 included a combined allowance of $1.6 million for Trend Gaming
      Systems, LLC and Trend Gaming, LLC consisting of the entire accounts receivable
      balance (see Note 5).




**Description**
            
            
            **Balance
                at**
              **Beginning
                of**
              **Period**
            
            
            **Additions**
              **Charged
                to**
              **Costs
                and**
              **Expenses**
            
            
            **Deductions**
              **(Disposal
                of**
              **Assets)**
            
            
            **Balance
                at**
              **End
                of**
              **Period**Allowance
                for property and equipmentYear ended
              October
              31, 2005:Allowance
            
            $
            3,384
            
            $
            —
            
            $
            (506
            )
            $
            2,878Year
                ended October 31, 2006:Allowance
            
            $
            2,878
            
            $
            249
            
            $
            (2,913
            )
            $
            214Year
                ended October 31, 2007:Allowance
            
            $
            214
            
            $
            38
            
            $
            (113
            )
            $
            139




F-24




**GAMETECH
              INTERNATIONAL, INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS -
              (Continued)**


**13.
      Agreement to Acquire Assets**





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





Under
      the
      purchase method of accounting, the total purchase price is allocated to Summit
      Gaming’s tangible and intangible assets based on their fair values as of the
      date of the closing of the acquisition. The preliminary estimated purchase
      price
      has been allocated based on the preliminary estimates that are described
      below.




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




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





The
      preliminary purchase price includes approximately $1 million in working capital
      that is in dispute. The dispute is being arbitrated and should be resolved
      in
      the next fiscal year. The allocation of the preliminary purchase price and
      estimated useful lives and first year amortization associated with certain
      assets is as follows (in thousands):





Accounts
                receivable
            $
                2,645Prepaid
                expenses and other assets
            211Inventory
            3,312Property
                plant and equipment
            1,598Identifiable
                depreciable intangibles assets
            7,720Trade
                name
            1,600Goodwill
            25,735
                *Accounts
                payable and other accrued expenses
            (1,122)Total
                cash purchase price
            $
                41,699






*
      Includes the excess of the purchase price over the estimated fair value of
      assets and liabilities assumed.





Unaudited
      pro forma results of operations, assuming the acquisition of Summit Gaming
      had
      been completed at the beginning of each period are summarized below. The results
      reflect adjustments to amortization, interest expense, and income tax expense.
      The interest rates used in determining the pro forma adjustments are related
      to
      the credit facility and approximate a blended average rate of 9.54% for the
      twelve months ended October 31, 2007. The pro forma adjustment for the income
      tax expense is based on an effective rate of 40%. The pro forma earnings per
      share are based on the Company’s shares outstanding, as no shares were issued
      for the acquisition.




**For
                the Twelve**
              **Months
                Ended**
              **(in
                thousands, Except**
              **for
                Per Share**
              **Amounts)**
              **October
                31, 2007**Net
                sales
            
            $
            66,510Net
                earnings
            
            
            2,623Basic
                earnings per share
            
            $
            0.21Diluted
                earnings per share
            
            $
            0.20




F-25




**GAMETECH
              INTERNATIONAL, INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS -
              (Continued)**


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




**Acquired
                Intangible Assets (in thousands)****October
                31, 2007****Amortized
                Intangible Assets**
            
            
            **Fair
                Market Value**
            
            
            **Estimated**
              **Lives**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                Fair**
              **Market**
              **Value**Customer
                relationships
            
            $
            3,600
            
            
            5
                years
            
            $
            420
            
            $
            3,180Patent
                application
            
            
            520
            
            
            10
                years
            
            
            30
            
            
            490Game
                library
            
            
            3,600
            
            
            10
                years
            
            
            210
            
            
            3,390Total
                amortizable intangible assets
            
            $
            7,720
            
            
            
            
            $
            660
            
            $
            7,060Unamortized
                Intangible Assets:Goodwill
            
            $
            25,735Summit
                Gaming trade name
            
            
            1,600Total
            
            $
            27,335





Amortization
      expense related to the acquisition of Summit Gaming for the twelve-months ended
      October 31, 2007 was $660,000. Estimated future aggregate amortization expense
      for intangible assets associated with the Summit Gaming acquisition subject
      to
      amortization as of October 31, 2007 is as follows (in thousands):




2008
            
            $
            1,1322009
            
            
            1,1322010
            
            
            1,1322011
            
            
            1,1322012
            
            
            712After
                2012
            
            
            1,820$
            7,060




**14.
      Related Party Transactions**





On
      March
      28, 2007, we acquired essentially all of the assets of Summit Gaming. Since
      that
      time, we have sold video lottery terminals to Amusement Services, LLC, which
      is
      owned by the person who was at the time also President of Summit Gaming, a
      division of the Company. For the three and twelve-month period ended October
      31,
      2007, we sold $447,607 and $639,364 to Amusement Services, LLC, respectively.
      As
      of October 31, 2007, the amount due from Amusement Services, LLC was $92,585
      and
      is included in our accounts receivable balance.





We
      have
      also purchased equipment from Ceronix, Inc., which is controlled by one of
      our
      board members. For the three and twelve-month period ended October 31, 2007,
      we
      bought $1,884 and $9,016 from Ceronix, Inc., respectively. As of October 31,
      2007, there was no amount due.





A
      member
      of our board is acting as our agent for the stock repurchase plan. During the
      twelve months ended October 31, 2007, the Company had advanced $500,000 for
      stock repurchases. As of October 31, 2007 the amount due from the board member
      was $500,000 and is included as a related party receivable which is being
      treated as a contra-equity account. As of January 16, 2007, the receivable
      has
      been settled in the Company’s common stock and the balance of this related party
      receivable was $0. Through December 28, 2007, the Company has repurchased
      281,906 shares under this stock repurchase program at a total cost of
      approximately $2.0 million.




F-26




**GAMETECH
        INTERNATIONAL, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




**15.
      Business Segment Information**





During
      the fiscal quarter ended April 30, 2007, management reviewed the Company’s
      operating segments in accordance with SFAS 131, “Disclosure about Segments of an
      Enterprise and Related Information.” Based upon the changes beginning in March
      2007, with the acquisition of Summit Gaming, in the manner in which management
      manages the Company, as well as the current economic characteristics of its
      operating segments, management has determined that a new operating segment
      is
      appropriate. Therefore, the segment discussion outline below represents the
      adjusted segment structure as determined by management in accordance with SFAS
      131.







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





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





No
      significant inter-company revenue is realized in these reporting segments.
      Interest income and expense and amortization of identifiable intangibles are
      not
      allocated but are included in bingo systems in the measurement of reporting
      segments profits reviewed by management. The provision for income taxes is
      also
      not included in the measure of reporting segment operating profits reviewed
      by
      management.





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




**Twelve
                Months Ended**
              **October
                31,****2007**
            
            
            **2006**
            
            
            **2005**Net
                Revenue:Bingo
                systems
            
            $
            47,114
            
            $
            49,289
            
            $
            49,651Video
                lottery terminals
            
            
            11,691
            
            
            —
            
            
            —$
            58,805
            
            $
            49,289
            
            $
            49,651Net
                Cost of Revenue:Bingo
                systems
            
            $
            19,683
            
            $
            19,929
            
            $
            20,304Video
                lottery terminals
            
            
            6,859
            
            
            —
            
            
            —$
            26,542
            
            $
            19,929
            
            $
            20,304Net
                Income:Bingo
                systems
            
            $
            1,633
            
            $
            4,383
            
            $
            1,336Video
                lottery terminals
            
            
            3,038
            
            
            —
            
            
            —$
            4,671
            
            $
            4,383
            
            $
            1,336


Identifiable
                Assets:
            
            
            **October
                  31,**
                **2007**
            
            
            **October
                31,**
              **2006**Bingo
                systems
            
            $
            83,131
            
            $
            59,214Video
                lottery terminal
            
            
            10,751
            
            
            —$
            93,882
            
            $
            59,214




**16.
      Quarterly Financial Information (Unaudited)**




F-27




**GAMETECH
          INTERNATIONAL, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


Summarized
      unaudited quarterly financial information for the years 2007 and 2006 are noted
      below (in thousands, except per share amounts):




**Year
                ended October 31,
                2007****First**
              **Quarter**
            
            
            **Second**
              **Quarter
                (1)**
            
            
            **Third**
              **Quarter
                (1)**
            
            
            **Fourth**
              **Quarter
                (1)**Revenue
            
            $
            12,016
            
            $
            13,411
            
            $
            16,637
            
            $
            16,740Gross
                profit
            
            
            7,094
            
            
            7,465
            
            
            8,590
            
            
            9,114Income
                (loss) from operations
            
            
            1,566
            
            
            1,616
            
            
            2,537
            
            
            2,757Net
                income
            
            $
            1,072
            
            $
            1,207
            
            $
            1,079
            
            $
            1,313Net
                income per share:Basic
            
            $
            0.09
            
            $
            0.10
            
            $
            0.09
            
            $
            0.10Diluted
            
            $
            0.08
            
            $
            0.09
            
            $
            0.08
            
            $
            0.10






**Year
                ended October 31, 2006****First**
              **Quarter**
            
            
            **Second**
              **Quarter**
            
            
            **Third**
              **Quarter**
            
            
            **Fourth**
              **Quarter
                (2)**Revenue
            
            $
            12,347
            
            $
            12,533
            
            $
            12,430
            
            $
            11,979Gross
                profit
            
            $
            7,695
            
            $
            7,578
            
            $
            7,317
            
            $
            6,770Income
                (loss) from operations
            
            $
            1,308
            
            $
            1,864
            
            $
            2,105
            
            $
            1,721Net
                income (loss)
            
            $
            839
            
            $
            1,186
            
            $
            1,322
            
            $
            1,036Net
                income per share:Basic
            
            $
            0.07
            
            $
            0.10
            
            $
            0.11
            
            $
            0.08Diluted
            
            $
            0.07
            
            $
            0.09
            
            $
            0.10
            
            $
            0.08





1.
            Results
                for the second, third, and fourth quarters of fiscal 2007 reflect
                the
                acquisition of the assets of Summit Gaming.2.
            During
                the fourth quarter ended October 31, 2006, $285,000 was credited
                to
                general and administrative expenses in the Statement of Operations
                due to
                the adjustment in accrued bonus liability as the fourth quarter results
                did not meet the criteria as established in the Board approved bonus
                plan.




F-28




**PART
      IV. OTHER INFORMATION**





**Item
      15.*****Exhibits
      and Financial Statement Schedules***





We
      refer
      you to Part IV, Item 15 of the original Form 10-K. The following documents
      are
      being filed as part of this report:





23.1
            
            Consent
                of Grant Thornton LLP, Independent Registered Public Accounting Firm31.1
            
            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
                amended31.2
            
            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
                amended32.1
            
            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
                200232.2
            
            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










**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.





GAMETECHINTERNATIONAL,
                INC.By:
            /s/
                DONALD N. TATEISHIDonald
                N. Tateishi*Chief
                Financial Officer, Treasurer, and Secretary*
              *(Principal
                Financial Officer and Principal*
              *Accounting
                Officer)*Dated:
                January 25, 2008