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 52 weeks ended October 30, 2011

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.)

8850 DOUBLE DIAMOND PKWY, 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(g) 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		None (over the counter, "Pink Sheets")

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

None (over the counter, "Pink Sheets")

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

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 Capital Market on May 1, 2011, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $1,900,000. For purposes of this computation, all officers and directors of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers and directors are, in fact, affiliates of the registrant.

The number of shares of common stock, $0.001 par value, outstanding as of January 27, 2012, was 11,874,634 shares.

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 30, 2011, is to address the comment contained in the letter from the Staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”), dated March 13, 2012, with respect to the Annual Report on Form 10-K for the year ended October 30, 2011 (File No. 001-34447), originally filed on February 2, 2012 (the “Annual Report”).

Report of Independent Public Accountants, page 24

Comment: Please have your accountants revise their report to omit the final sentence from the fourth paragraph. The language is not consistent with the language in AU 341.13. Refer also to Section 607.02 of the Financial Reporting Codification which states that financial statements will be considered false and misleading if those statements are prepared on the assumption of a going concern but should more appropriately be based on the assumption of liquidation.

As a result of the above comment regarding the Report of Independent Public Accountants, the independent registered public accounting firm has removed the questioned language from its report. 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 February 2, 2012, 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 re-filed with this Amendment No. 1.

GAMETECH INTERNATIONAL, INC.

ANNUAL REPORT ON FORM 10-K

52 WEEKS ENDED OCTOBER 30, 2011

INDEX

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data are as follows:

Report of Independent Registered Public Accounting Firm	1

Consolidated Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Stockholders' Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	7

Report of Independent Registered Public Accounting Firm

Board of Directors

GameTech International, Inc.

Reno, Nevada

We have audited the accompanying consolidated balance sheets of GameTech International, Inc. and subsidiaries (collectively, the “Company”) as of October 30, 2011 and October 31, 2010, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 the Company as of October 30, 2011 and October 31, 2010, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

The subject financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 8 to the consolidated financial statements, all of the Company’s debt (approximately $23.4 million at October 30, 2011) is classified as current. There is significant uncertainty as to whether the Company will be able to satisfy all conditions necessary to extend the maturity of such obligations, raising substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding this matter is also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ PIERCY BOWLER TAYLOR & KERN

Certified Public Accountants

Las Vegas, Nevada

February 1, 2012

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	October 30, 2011			October 31, 2010
ASSETS
Current assets:
Cash and equivalents	$	1,357		$	2,017
Restricted cash		177			3,789
Accounts receivable, net of allowances of $1,478 and $3,063		2,946			3,409
Income taxes receivable		362			2,963
Inventories		2,188			4,285
Prepaid expenses and other		881			1,020
		7,911			17,483
Assets held for sale		5,833			7,718
Deposits		900			-
Bingo equipment, furniture and other equipment, net		7,094			8,379
Goodwill		10,184			10,184
Other intangibles, less accumulated amortization of $9,985 and $10,873		1,683			2,996
Debt acquisition costs, less accumulted amortization		328			-
	$	33,933		$	46,760
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	23,355		$	27,554
Interest rate swap		665			1,185
Accounts payable		1,856			1,659
Accrued payroll and related		988			1,040
Income taxes payable		1,298			1,268
Deferred revenue		649			2,891
Other accrued liabilities		1,655			1,640
		30,466			37,237

Stockholders’ equity:
Common stock, $0.001 par value: 40,000,000 shares authorized; 14,480,537 shares issued, 11,874,634 and 11,806,693 shares outstanding.		14			14
Additional paid in capital		52,153			52,154
Deficit		(36,683	)		(30,315	)
Treasury stock, at cost, 2,605,903 and 2,673,844 shares		(12,017	)		(12,330	)
		3,467			9,523

	$	33,933		$	46,760

See notes to consolidated financial statements

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	52-week periods ended
	October 30, 2011			October 31, 2010
Net revenues	$	30,867		$	35,171

Cost of revenues, excluding depreciation & amortization		11,059			11,131
Depreciation and amortization		3,854			5,046
		14,913			16,177

Gross profit		15,954			18,994

Operating expenses:
General and administrative		7,227			10,906
Sales and marketing		6,293			9,627
Research and development		3,685			5,958
Depreciation and amortization		1,527			1,400
Impairment loss, assets held for sale		1,885			2,870
Summit Amusement settlement		-			(1,370	)
Gain on sale of bingo equipment		-			(633	)
		20,617			28,758

Loss from operations		(4,663	)		(9,764	)

Other income (expense):
Interest expense		(2,020	)		(2,111	)
Impairment of investments		-			(175	)
Gain on sale of investments		-			944
Other, net		289			143
Loss, before income taxes		(6,394	)		(10,963	)

Income taxes (benefit)		(26	)		9,393

Net loss	$	(6,368	)	$	(20,356	)

Basic and diluted net loss per share	$	(0.54	)	$	(1.73	)

Weighted shares used in calculating basic and diluted net loss per share		11,837			11,772

See notes to consolidated financial statements

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)

	Common Stock				Additional Paid in						Treasury Stock
	Shares		Amount		Capital			Deficit			Shares			Amount			Total
Balances at November 1, 2010		14,480,537	$	14	$	52,154		$	(30,315	)		2,673,844		$	(12,330	)	$	9,523
Forfeiture of restricted stock		-		-		(22	)		-			-			-			(22	)
Restricted stock issued		-		-		(313	)		-			(67,941	)		313			-
Stock based compensation		-		-		334			-			-			-			334
Net loss		-		-		-			(6,368	)		-			-			(6,368	)
Balances at October 30, 2011		14,480,537	$	14	$	52,153		$	(36,683	)		2,605,903		$	(12,017	)	$	3,467

Balances at November 1, 2009		14,480,537	$	14	$	51,942		$	(9,959	)		2,744,672		$	(12,657	)	$	29,340
Forfeiture of restricted stock		-		-		(68	)		-			-			-			(68	)
Restricted stock issued		-		-		(327	)		-			(70,828	)		327			-
Stock based compensation		-		-		607			-			-			-			607
Net loss		-		-		-			(20,356	)		-			-			(20,356	)
Balances at October 31, 2010		14,480,537	$	14	$	52,154		$	(30,315	)		2,673,844		$	(12,330	)	$	9,523

See notes to consolidated financial statements

GAMETECH INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	52 Weeks Ended			52 Weeks Ended
	October 30, 2011			October 31, 2010
Operating activities:
Net cash provided by operating activities	$	4,792		$	6,380

Investing activities:
Proceeds from sale of investments		-			1,335
Acquisition of intangibles		(480	)		(1,820	)
Deposits for purchase of bingo equipment		(900	)		-
Purchases of bingo equipment, furniture, and other equipment		(2,601	)		(3,456	)
Net cash used in investing activities		(3,981	)		(3,941	)

Financing activities:
Repayment of borrowings		(5,264	)		(2,457	)
Increase in restricted cash		(2,996	)		(3,790	)
Decrease in restricted cash		6,608			1
Proceeds from borrowings		691			2,487
Debt modification costs		(510	)		-
Net cash used in financing activities		(1,471	)		(3,759	)

Net decrease in cash and equivalents		(660	)		(1,320	)
Cash and equivalents, beginning of year		2,017			3,337

Cash and equivalents, end of year	$	1,357		$	2,017

Reconciliation of net loss to net cash provided by operating activities:
Net loss	$	(6,368	)	$	(20,356	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		5,381			5,704
Impairment of investment		-			175
Impairment of assets held for sale		1,885			2,870
Obsolescence and loss on disposal of bingo terminals and related equipment		167			981
Obsolescence of inventory		(104	)		1,300
Bad debts (recoveries)		(662	)		2,210
Loss on disposal of furniture and other equipment		13			16
Stock compensation expense, net of tax		313			538
Deferred income taxes		-			13,491
Amortization of debt acquisition costs		182			174
Interest rate swap		(520	)		(188	)
Interst addition to principal		373			-
(Gain) on the sale of investment		-			(944	)
(Gain) on the sale of assets		-			(633	)
Accounts receivable, net		1,030			2,120
Income tax receivable		2,601			(2,963	)
Inventories		2,296			1,235
Prepaid expenses and other current assets		(162	)		442
Income taxes payable		30			186
Accounts payable		616			861
Accrued payroll and related		(52	)		(177	)
Deferred revenues		(2,242	)		(591	)
Other accrued liabilities		15			(71	)
	$	4,792		$	6,380

Other supplemental cash flow information
Cash paid for:
Interest	$	2,413	$	1,683
Income taxes	$	56	$	212
Non-cash investing and financing activities:
Acquisition of assets included in accounts payable	$	419	$	34
Sale of equipment and licenses with note receivable	$	-	$	663

See notes to consolidated financial statements

GAMETECH INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 30, 2011 and October 31, 2010

1. Nature of business

Organization and business. GameTech International, Inc. (“GTI”) was incorporated in Delaware on April 18, 1994. GTI and its subsidiaries (collectively, “the Company”) operates two business segments: (1) the design, development, and marketing of interactive electronic bingo systems consisting of portable and fixed-based systems and wireless server-based gaming technologies (collectively referred to as our “Bingo business or segment”); and (2) the design, development, manufacturing, licensing, and marketing of video lottery terminals, slot machine equipment, and related software (collectively referred to as “VLT business or segment”). As of October 30, 2011, the Company had bingo systems in service in 38 states, various Native American locations, and two foreign countries. We had VLT terminals placed and in service in seven states.

Lack of liquidity and management’s plans. Historically, the Company has financed its operations primarily through cash from operations and debt financing activities. However, the Company has suffered reoccurring losses from operations since the quarter ended April 30, 2008 and has been in and out of compliance with its loan agreement (Note 8).

Unless the Company is able to generate increased cash from existing operations and/or raise additional capital, management does not believe that the Company will have sufficient cash to meet the Company’s anticipated cash needs for the next 12 months. Management is currently exploring what, if any, strategic alternatives are available to the Company in order to meet its operating and capital needs for the next 12 months, including business combinations, strategic partnerships and the sale of Company assets. If the Company is unsuccessful in these efforts, the Company will not be able to satisfy its debt obligations, invest in the resources necessary to obtain regulatory approvals in new markets, continue the development and deployment of current and new products, and/or respond to competitive market pressures and requirements. Our failure to generate additional cash through operations and strategic alternatives would adversely affect our business and, ultimately, lead to the financial and operating failure of the Company.

Credit risk concentrations. Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and equivalents, investments, and accounts receivable. Cash and equivalents are in excess of Federal Deposit Insurance Corporation insurance limits.

One customer accounts for $3.6 million or 11.9% and $2.3 million or 6.5% of the Company’s revenue for fiscal 2011 and fiscal 2010, respectively, and 57.0% and 44.8% for the VLT segment.

The Company conducts a substantial amount of its business through distributor relationships, many of which act as a collection agent. As of October 30, 2011 and October 31, 2010, 45.4% and 44.6% of the consolidated accounts receivable balances before allowances relates to one distributor.

Geographical concentrations. A significant portion of the Company’s revenue is concentrated in the Texas, Montana, Mississippi, and Louisiana markets as follows:

	52 Weeks Ended			52 Weeks Ended
	10/30/2011			10/31/2010
Total revenues
Texas		11.7	%		14.8	%
Montana		15.6	%		7.5	%
Mississippi		8.7	%		7.7	%
Louisiana		6.6	%		9.8	%

Bingo segment
Texas		15.0	%		17.4	%
Mississippi		11.2	%		9.1	%
Louisiana		4.1	%		3.9	%

VLT segment
Montana		71.3	%		51.0	%
Louisiana		15.6	%		44.8	%

Dividend Policy

During 2011 and 2010, the Company did not declare or pay any dividends. Any payment of dividends in the future will depend upon, among other factors, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends, and other considerations that our Board of Directors deems relevant. Under our current credit facility, prior lender approval is required to pay any cash dividends. The Company does not expect to issue dividends in the foreseeable future.

2. Summary of significant accounting policies

Basis of presentation and accounting. Our consolidated financial statements include the accounts of GTI and its subsidiaries for the periods presented. All subsidiaries are directly or indirectly wholly-owned subsidiaries by GTI. All significant inter-company accounts and transactions have been eliminated in consolidation. The Company measures all of its assets and liabilities on the historical cost basis of accounting, except as required under generally accepted accounting principles (“GAAP”) and disclosed herein. The Company reports on a 52/53 week fiscal year. Fiscal years ended October 30, 2011 and October 31, 2010 both included 52 weeks.

Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Allowance for doubtful accounts, estimated fair value of investments, obsolescence of VLT inventory and Bingo equipment, estimated fair value of assets held for sale, impairment of goodwill and other intangibles and long-lived assets, loss contingencies, amortization of debt acquisition costs, provision for income taxes, and stock-based compensation are significant estimates made by management which could vary materially within the next year. The aggregate effect of year-end adjustments material to the fourth quarter of 2011 was a charge to operations of approximately $300,000, with no tax effect (unaudited).

Cash equivalents and restricted cash. 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. Restricted cash consists of amounts restricted by our credit facility.

Accounts receivable and allowance for doubtful accounts. Management estimates possible losses resulting from not collecting the outstanding accounts receivable, including amounts due from lessees and purchasers of the Company’s equipment and certain distributors that bill and collect on the Company’s behalf in certain jurisdictions. The Company performs initial and ongoing evaluations of the credit worthiness of its customers and distributors. Credit terms are predominantly 30 days. In certain limited circumstances, credit terms may be extended up to 160 days, without interest. An allowance for doubtful collection is established based on historical collection metrics, adjusted for the length of time the receivable has been outstanding and individually material balances, if any, which are considered on a case-by-case basis. The timing of write-offs is also determined on a case-by-case basis. Generally, accounts receivable that are 60 days past due are considered delinquent. In the event these receivables become uncollectible, the maximum losses to be sustained would be the face amount of the receivables, less any allowances provided and the value of any equipment collateral.

Inventories. Inventories are stated at the lower of cost or market. The cost of parts and materials and work in process is determined using the first-in, first-out method. The average cost method is used for finished goods. Equipment models that have not been released for placement and VLT equipment that is available for sale are included in finished goods. Inventories consist of the following at October 30, 2011 and October 31, 2010 (in thousands):

	2011		2010
Parts and raw materials	$	1,157	$	1,015
Finished goods		1,031		3,270
	$	2,188	$	4,285

Bingo equipment, furniture and other property. Bingo equipment includes portable and fixed-based player terminals, file servers, caller units, point-of-sale units, and other support equipment and component parts. The Company records bingo equipment, furniture, and other equipment at cost and depreciates these over the estimated useful lives of the assets using the straight-line method. The estimated useful lives are as follows:

Bingo equipment	3-5 years
Office furniture and equipment	3-7 years
Leasehold improvements	Remaining life of lease
Building	39 ½ years

Annually, the Company tests its long-lived assets for possible impairment and provides reserves for (effectively accelerates depreciation of) excess or obsolete bingo terminals that are available for placement but not expected to be used which, once established, are not restored. Component parts are not depreciated until placed in service.

Goodwill and other indefinite life intangibles. The Company measures and tests goodwill and other indefinite life intangibles for impairment at least annually, or more often when financial circumstances change or are expected to change materially such that the carrying value may be greater than the estimated fair value.

An impairment evaluation of goodwill and other indefinite life intangibles require the use of estimates about future operating results of the subject reporting unit, and capitalization and discount rates and other valuation metrics used by market participants. The choice of which approach to use in a particular situation depends on the specific facts and circumstances at the time and may vary from one period to the next.

Other intangibles. Other intangibles include software products, copyrights/trademarks, licenses, customer relationships and patent applications. Software products developed, including significant enhancements to existing products, are stated at cost. We capitalize costs related to the development of certain software products that are to be used as integral parts of a product or process to be sold or leased, after technological feasibility of the software has been established and all research and development activities for the other components or processes are complete. We consider a new product to be technologically feasible once it has been submitted to the testing laboratory of a state agency. We cease capitalizing costs when the product is available for general release to our customers. Such costs are amortized over the estimated economic life of the product (typically 3 to 10 years) using the straight-line method beginning when the product becomes available for general release.

Interest rate swap derivative. The Company has entered into an interest rate swap agreement to hedge its interest rate exposure on its Credit Facility described in Note 8. In this agreement, the Company agrees to pay the counterparty a fixed rate payment in exchange for the counterparty agreeing to pay the Company a variable rate payment that is intended to approximate the Company’s variable rate payment obligation on the Credit Facility. The payment obligation is based on the notional amount of the swap. Depending on the state of interest rates in general, the use of interest rate swaps could enhance or harm the overall performance of the common shares. The market value of interest rate swaps is based on pricing models that consider the time value of money, volatility, and the current market and contractual prices of the underlying financial instrument. Unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Company’s Consolidated Balance Sheet. The change in value of interest rate swaps, including the accrual of periodic amounts of interest to be paid or received on swaps is reported as interest expense in the Company’s Consolidated Statements of Operations. Swap agreements involve, to varying degrees, elements of market and counterparty risk, and exposures to loss in the related amounts are reflected in the Company’s Balance Sheet.

The Company does not enter into derivative transactions for speculative purposes.

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, bingo terminals are available or ready for play, or services have been rendered,

the price is fixed or determinable, and

collectability is reasonably assured.

The Company earns revenue in a variety of ways, offering products for lease or sale, as well as service and software updates for equipment previously sold or leased. Our bingo terminals, bingo systems and certain other tangible products, containing both software and hardware components that function together to deliver the product’s functionality, are generally recognized upon delivery and customer acceptance and not as separate deliverables.

Revenue amounts collected from customers have been recorded on a net basis. That is, sales tax is not recorded as revenue but rather as a liability payable to the appropriate governmental agency and included in accrued expenses. Shipping and handling charges to customers are recorded in net revenues with the corresponding expense recorded in cost of revenues.

Bingo Equipment. A high percentage of our bingo revenue is contingent upon usage or results. Bingo terminals and bingo systems are placed in bingo halls under contracts based on (1) a fixed fee per use per session; (2) a contingent fee based on a percentage of the revenue generated by each terminal; or (3) a fixed weekly fee per terminal. All of these arrangements are accounted for as operating leases. The initial term of the agreements typically range from 1 to 3 years, some with automatic one-year renewals until affirmatively cancelled. The Company is generally responsible for the maintenance of its equipment, including possible replacement, during the term of the contract.

VLT Equipment. Revenues and costs related to contracted production are recognized as the related work is delivered. The Company recognizes 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. All revenue and associated costs will be deferred if the earnings process is not complete and the revenue recognition criteria are not met. Deferred revenue as of the balance sheet dates presented consists primarily of amounts received for future deliverables.

Advertising costs. Advertising costs are expensed as incurred. For the 52-week periods ended October 30, 2011 and October 31, 2010 expenses of $112 thousand and $596 thousand were incurred.

Litigation costs. The Company does not accrue for future litigation costs, if any, to be incurred in connection with outstanding litigation and other disputed matters but rather records such costs when the legal and other services are rendered.

Stock-based compensation. The Company accounts for its share-based compensation using the modified simplified method. The fair value of employee stock-based compensation is estimated at the date of grant using the Black-Scholes option-pricing model which is affected by the following assumptions regarding complex and subjective variables:

Expected dividend yield – The expected dividend yield assumption is zero because the Company has a history of not paying dividends and is restricted from paying dividends under its current Credit Facility without bank approval (Note 8).

Expected term - This is the period of time the options are expected to be outstanding, and is determined by the simplified method which states, “The midpoint of the average vesting period and contractual life is an acceptable expected life assumption.” The use of this method in lieu of historical exercise data and changes in the term of the share option grants which has been insufficient is evaluated annually for continued relevance.

Expected -volatility – The volatility assumption is based on the historic volatility of the Company’s stock using weekly price data over the most recent two-year period.

Forfeiture rate – This is based primarily on the Company’s historical experience related to expected vesting, option exercises, and employee terminations. The Company uses a zero forfeiture rate because historically, forfeitures have not been significant.

Risk-free interest rate – The risk-free interest rate assumption is based on United States Treasury Note rates in effect at the time of the grant for a period that approximates the expected term.

The following were used to estimate the fair value of options for the fiscal years:

	2011			2010
Risk-free interest rate		1.88	%		1.62	%
Dividend yield		0.00	%		0.00	%
Volatility factor		82.60	%		77.23	%
Expected life (in years)		10.0			9.3

Income taxes (Note 11). The Company records estimated penalties and interest related to income tax matters, including uncertain tax positions as a component of income tax expense.

Net income (loss) per share. For all periods, basic net income (loss) applicable to common shareholders per share (EPS) is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted EPS in profitable years reflects the effects of potentially dilutive common shares by dividing net income by the sum of the weighted average number of common shares and common-share equivalents outstanding during the year.

3. Financial instruments and fair value measures

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price), in the principal or most advantageous market, in an orderly transaction between market participants, on the measurement date. Fair value estimates are prepared using observable and unobservable inputs classified as follows:

Level 1 - Quoted market prices in active markets for identical instruments.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

For the Company’s cash and equivalents, restricted cash, accounts receivable, accounts payable, and debt, the carrying amounts approximate fair value because of the short duration of these financial instruments.

The Company’s investments in Auction Rate Securities (“ARS”) which represent interests in collateralized debt obligations supported by pools of residential and commercial mortgages, credit cards, insurance securitizations, and other structured credits, including corporate bonds are measured at estimated fair value on a recurring basis using a discounted cash flow approach to value and unobservable (Level 3) inputs that reflect management’s estimates about the assumptions that market participants would use in pricing the asset, including the timing of estimated cash flows and other valuation metrics. A list of the most significant factors affecting the estimated cash flows and discount rates used in the Company’s valuation model include credit ratings of the ARS and collateral securities, default rates, other market and liquidity circumstances.

Derivative assets and liabilities such as the Company’s interest rate swap agreement and debt are valued using quoted forward pricing from bank counterparties and LIBOR credit default swap rates for non-performance risk (Level 2 inputs), and approximate the net settlement amount if the contracts were settled at the reporting date. These are presented as notes payable and interest rate swap.

Assets held for sale consisting of real estate are also measured at estimated fair values (Note 5) and is no longer subject to depreciation.

4. Investments

The par and estimated fair value of the Company’s ARS was $1.3 million and zero as of October 30, 2011 and October 31, 2010. Unrealized losses related to the ARS for fiscal 2010 totaled $175 thousand. There were no unrealized losses related to the ARS for fiscal 2011. On October 4, 2011, the Company entered into a settlement agreement, whereby, in exchange for payment of $500 thousand, the Company agreed to resolve, discharge and settle all claims that were or could have been brought by the Company against Lehman Brothers Holdings Inc.

5. Assets held for sale

During fiscal 2010, the Company listed the real property housing the Company headquarters and warehouse space in Reno, Nevada for sale. Accordingly, the real estate was reclassified “as held for sale” and written down to its then estimated fair value, which originally resulted in an impairment loss of $2.9 million. Depreciation against the building ceased. Estimated fair value was based primarily on listing information (Level 2 inputs). During the year ended October 30, 2011, additional impairment losses of $1.9 million were recorded. On December 28, 2011, the sale of the property was completed for $6.125 million (Note 17).

6. Bingo equipment, furniture and other property

Bingo equipment, furniture and other property consists of the following as of October 30, 2011 and October 31, 2010 (in thousands):

	2011		2010

Bingo equipment	$	50,298	$	50,533
Office furniture and equipment		4,990		4,965
Leasehold improvements		120		120
		55,408		55,618

Less accumulated depreciation and amortization		51,544		49,544
Less reserve for excess or obsolete terminals		408		272
		3,456		5,802
Add bingo component parts		3,638		2,577
	$	7,094	$	8,379

7. Long-lived assets, goodwill and other intangibles

The Company reviews long-lived assets (consisting of bingo equipment, furniture, other equipment, and finite life intangibles) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Similarly, when circumstances indicate that goodwill associated with the Company’s bingo business and/or other indefinite life intangibles might not be recoverable, an impairment analysis is also performed. Recoverability of long-lived assets and finite life intangibles are measured by a comparison of the carrying amount of an asset to estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company performs its annual impairment analysis in the third quarter of every year and performed its 2011 annual impairment testing of goodwill and other intangibles as of July 31, 2011. For 2011 and 2010, management determined that no additional impairment of any of these assets was necessary.

The cost, accumulated amortization, and net carrying value of intangible assets (in thousands) and related remaining economic lives consist of the following as of October 30, 2011:

	Cost		Accumulated Amortization			Net Carrying Value		Weighted Average Amortization Period (in years)
Intellectual property (software)	$	2,202	$	(1,340	)	$	862		2.5
Copyrights/trademarks		246		(107	)		139		7.8
Licenses		1,500		(1,500	)		-		-
Summit Gaming identifiable intangible assets:
Customer relationships		3,600		(3,300	)		300		0.4
Patent applications		620		(238	)		382		7.3
Game software library		3,500		(3,500	)		-		-
	$	11,668	$	(9,985	)	$	1,683

The cost, accumulated amortization, and net carrying value of intangible assets (in thousands) and related remaining economic lives consist of the following as of October 31, 2010:

	Cost		Accumulated Amortization			Net Carrying Value		Weighted Average Amortization Period (in years)
Intellectual property (software)	$	4,142	$	(3,582	)	$	560		2.1
Copyrights/trademarks		247		(90	)		157		9.1
Licenses		1,500		(675	)		825		0.2
Summit Gaming identifiable intangible assets:
Customer relationships		3,600		(2,580	)		1,020		1.7
Patent applications		620		(186	)		434		6.7
Game software library		3,500		(3,500	)		-		-
	$	13,609	$	(10,613	)	$	2,996

Estimated future annual amortization expense for intangible assets is as follows (in thousands):

2012		659
2013		323
2014		323
2015		136
2016		70
After 2016		172
	$	1,683

8. Borrowings and related agreements

Notes payable classified as current under borrowing agreements as of the balance sheet dates presented include the following (in thousands):

	2011		2010
Credit Facility
Term loan	$	23,329	$	25,466
Revolver		-		750
Line of credit		-		1,276
Other note(s) payable		26		62
	$	23,355	$	27,554

We entered into a $40.0 million credit facility with U.S. Bank N.A. and Bank of the West on August 22, 2008 that provided for a senior secured revolving credit facility of $2.0 million and a senior secured term loan of $38.0 million. The credit facility was originally established in order to purchase a corporate headquarters building in southeast Reno, Nevada and to finance improvements to address office space, manufacturing, and assembly needs. In connection with the term loan agreement, the Company also entered into an interest rate swap agreement with U.S. Bank N. A., which exchanged the variable one-month LIBOR rate of the term loan for a fixed LIBOR rate of 3.99% per annum through the maturity of the loan. In consideration for their entry into the credit facility, the Company granted its lenders a first priority security interest in all of the Company's assets, including a first deed of trust on the corporate headquarters, and future cash flows.

During fiscal 2010, the Company fell out of compliance with its financial covenants contained in the loan agreement and failed to make scheduled payments of principal and interest in accordance with the terms of the loan agreement. Throughout fiscal 2010, the Company and the lenders entered into various forbearances and amendments to the loan agreement, wherein the lenders conditionally waived their remedies under the loan agreement and imposed certain new terms. These terms included (among others): reduction of the total commitment on the revolver from $2 million to $750 thousand; establishment of a Bank of the West line of credit or letters of credit up to $1.8 million in the aggregate, secured by funds on deposit in the control account; increase of the interest rate on all outstanding balances under the revolver and term loan to the default rate of 3% above the existing rates; requirement that the Company retain a consultant that is acceptable to the Company and the lenders; prohibition on the Company's acquisition of any other business or substantially all the assets of any other business; termination of the forbearance on the resignation or termination of the Chief Executive Officer or the consultant; deferral of accrued interest; limitation on capital expenditures; limitation of the amount of cash disbursements for investments in the Illinois VLT market; and requirement of bi-weekly report from the Chief Executive Officer and consultant to the lenders.

As a result of the Company's continued non-compliance with the terms of the loan agreement and entry into subsequent forbearance agreements with the lenders, the Company classified the total balance outstanding under the credit facility and the interest rate swap premium liability to current liabilities as of May 2, 2010.

On June 15, 2011, the Company entered into an amended and restated loan agreement with its lenders to extend the maturity of the facility to June 30, 2012. Provided the Company remains in compliance with the terms of the new loan agreement as of June 30, 2012, the term of the facility would extend from June 30, 2012 to June 30, 2013. The amended and restated loan agreement does not impose any obligation on the part of our lenders to provide additional financing to the Company (at which time no amounts remained outstanding under the revolver portion of the credit facility). Substantially all of the assets of the Company, including its corporate headquarters, continue to collateralize the Company's borrowings.

As a result of its entry into the amended and restated loan agreement, the Company reclassified a portion of the outstanding principal balance under its credit facility to long-term as of May 1, 2011, in accordance with Accounting Standards Codification (ASC) 470-10-45.

The amended and restated loan agreement amends and restates the terms for repayment by the Company of the outstanding balances under the facility. Under the terms of the amended and restated loan agreement, the Company is required to make monthly payments of principal in the amount of $200 thousand from August 2011 through June 2012, and if extended, principal payments of $300 thousand from November 2012 until the facility matures on June 30, 2013. The remaining unpaid principal balance (together with any accrued but unpaid interest) is due at maturity.

The amended and restated loan agreement provides that all outstanding balances under the facility bear interest at a base rate, which is equal to an applicable margin plus the daily Eurocurrency rate or an alternative base rate (as provided for in the agreement). The initial applicable margin was 5.80%, increased to 7.50% on February 1, 2012 (through April 2012), and will increase further to 8.50% (May 2012 through October 2012) and 9.50% (November 2012 through June 30, 2013). Upon an event of default, the interest rate under the facility will increase by 3%. In addition to the applicable margin, a daily Eurocurrency base rate is applied which is the one month LIBOR rate. The LIBOR rate at October 30, 2011 was 0.24%. The Company's interest rate swap agreement continues to remain effective following the Company's entry into the amended and restated loan agreement. As of October 30, 2011, the outstanding principal balance and applicable interest rate under the credit facility were $23.3 million and 9.84%, respectively.

The amended and restated loan agreement requires the Company to apply 75% of its excess cash flow (as defined in the agreement) as of the end of each fiscal quarter beginning with the quarter ending July 31, 2011 towards the satisfaction of its obligations under the facility. Additionally, the Company is required to apply 100% of the proceeds from certain transactions and other sources to the prepayment of its obligations under the facility, including the net cash proceeds from any sale of assets (other than sales of inventory in the ordinary course of business), financings, excess insurance proceeds from casualty events, condemnation awards, the receipt of specific assets, and other events as specified in the agreement. In addition, the amended and restated loan agreement prohibits capital expenditures for any use other than purchases of equipment for leasing to customers in the ordinary course of business, and limits the amount of capital expenditures that may be made by the Company for fiscal years 2011 and 2012.

The amended and restated loan agreement requires the Company to comply with various financial and non-financial covenants and includes customary events of default. The financial covenants include requirements that the Company maintain minimum liquidity, quarterly profitability (as defined in the agreement), quarterly consolidated EBITDA, and cash flow leverage and fixed charge coverage ratios, which are measured monthly beginning October 31, 2011.

The non-financial covenants include restrictions on asset divestitures, liens, transactions with related parties, limitations on additional indebtedness, mergers, acquisitions and consolidations, cash dividends, issuance and redemptions of stock, investments, sale leaseback transactions, operations outside of the submitted strategic plan, a change of control, as well as a requirement to continue to retain a consultant that is acceptable to both the lenders and the Company.

In consideration for the lenders entry into the new loan agreement, the Company was required to pay a closing fee in the amount of $736 thousand, fifty percent of which was due at closing. The remaining half was paid in December 2011. The amended and restated loan agreement also required a payment of $1.0 million at closing, which was first applied to the portion of the closing fee due at closing and second to the outstanding principal balance of the term loan. In accordance with the terms of the amended and restated loan agreement, $1.0 million of the remaining $2.8 million relating to certain tax refunds received by the Company and held by U.S. Bank in a control account was applied to the payment due at closing, with the remaining $1.8 million released to the Company for certain permitted capital expenditures.

As of September 4, 2011, the Company determined that it was not in compliance with certain covenants contained in the amended and restated loan agreement. On December 22, 2011, the Company and the lenders entered into a first amendment to the amended and restated loan agreement and waiver of defaults. The first amendment, among other things: (i) modifies certain financial covenants; (ii) incorporates the lender's consent to the sale of the Company's corporate headquarters (which occurred on December 28, 2011); (iii) requires the Company to maintain at least $350 thousand in liquidity through January 31, 2012 and at least $500 thousand in liquidity at all times thereafter; and (iv) waives any and all prior events of default.

Under the terms of the first amendment, the net cash proceeds of $6.125 million from the sale of the corporate headquarters were applied to pay: (i) an amendment fee equal to $214 thousand, representing one percent (1.00%) of the outstanding balance of the credit facility as of December 22, 2011; (ii) all fees and interest due and payable as of the sale date (including all current interest, all deferred interest accruing from June 15, 2011 through the sale date, and the remaining portion of the closing fee ($368 thousand) related to the Company's entry into the amended and restated loan agreement); and (iii) the outstanding principal balance under the credit facility.

The first amendment also modifies certain covenants contained in the amended and restated loan agreement, and (i) requires the Company to apply 75% of its excess cash flow as of the end of each fiscal quarter towards the satisfaction of its obligations under the credit facility; (ii) to the extent liquidity exceeds $1.5 million at any time, requires the Company to apply such excess towards the satisfaction of its obligations under the credit facility; and (iii) prohibits capital expenditures for any use other than purchases of equipment for leasing to customers in the ordinary course of business, and further limits the amount of capital expenditures that may be made by the Company.

As of December 22, 2011, after giving effect to an unscheduled principal payment of $1.5 million on December 9, 2011, the outstanding balance under the credit facility was approximately $21.4 million. Following the application of the net cash proceeds of $6.125 million from the sale of the corporate headquarters, the outstanding balance and interest rate under the credit facility as of December 28, 2011 were approximately $16.6 million and 9.79%, respectively. The Company expects that it will be required to make additional payments of $8.5 million in the twelve-month period ending June 30, 2012 (inclusive of approximately $7.7 million already paid from June 30, 2012 through the date of this filing) to remain compliant with the covenants of its credit facility. If all of the covenants and payments have been met at June 30, 2012, the maturity date of the credit facility will be extended to June 30, 2013. If that occurs, the Company will be required to pay approximately $15.4 million from the one-year period beginning July 1, 2012 through June 30, 2013, including an aggregate payment of approximately $12.2 million at June 30, 2013, representing the remaining balance due at maturity (assuming payments made in accordance with the payment schedule set forth in the amended and restated loan agreement).

9. Commitments and contingencies

Leases. The Company leases administrative and warehouse facilities and certain equipment. Rent expense during 2011 and 2010 was $251 thousand and $305 thousand.

Future minimum lease payments and applicable fiscal years are as follows (in thousands):

2012	$	540
2013		363
2014		25
2015		2

Minimum future rentals due from the Company’s customers on non-cancelable bingo equipment operating leases and applicable fiscal years are as follows (in thousands):

2012	$	4,510
2013		240
2014		27

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. Various other additional purchase commitments were made in the ordinary course of business throughout fiscal 2011, of which $2.9 million was outstanding as of October 30, 2011.

Litigation. The Company is involved in various other legal proceedings arising in the ordinary course of our business. While management is generally unable to estimate a range of potential loss, if any, associated with these matters, management does not believe, based in part on the advice of counsel, that any of such proceedings will have a material adverse effect on the Company’s business, results of operations, or financial condition and therefore a minimal provision for loss has been recorded.

Employee separation agreements ~ In November 2010, the Company entered into a Consulting, Separation, and Non-compete agreement with Richard T. Fedor in connection with his resignation as Executive Chairman of the Company and as a member of the Board of Directors. Pursuant to the agreement, the Company will compensate Mr. Fedor $120,000 per year and provide specified medical benefits for a three-year consulting period as consideration for his consulting services and his compliance with certain restrictive covenants in the agreement. Following the initial three-year period, the Company will pay Mr. Fedor $60,000 per year and provide specified medical benefits in consideration for his continued compliance with the non-compete and non-solicitation provisions as well as certain restrictive covenants in the agreement.

10. Stockholders' equity

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. We also grant restricted stock grants valued at the price equal to the fair value of the shares on the date of grant.

Stock Incentive Plan. The Company has an incentive stock plan (the "Plan"). Under the 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. In addition, restricted stock may be granted to employees (who are not officers or directors), consultants, and independent contractors. The Company reserved 4,000,000 shares of common stock for issuance under the 1997 Plan; as of December 9, 2011, no shares of common stock remained available for grant. In April 2010, the stockholders approved the 2010 Stock Incentive Plan, under which a total of 1,100,000 shares of common stock were authorized to be issued. In April 2011, the stockholders approved the 2011 Stock Incentive Plan, under which a total of 1,500,000 shares of common stock were authorized to be issued.

The aggregate intrinsic value represents the difference between the closing price of our common stock on October 30, 2011 which was $0.07, 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 30, 2011. In future periods, this amount will change depending on fluctuations in our stock price. The aggregate intrinsic value of the options outstanding at October 30, 2011 and October 31, 2010 was zero. The aggregate intrinsic value of options exercised under our stock option plans at October 30, 2011 and October 31, 2010 was zero determined as of the date of option exercise.

Stock options activity under both plans for fiscal 2011 and fiscal 2010 follows:

	2011					2010
	Number of Shares (Options)			Weighted-Average Exercise Price		Number of Shares (Options)			Weighted-Average Exercise Price
Balance at beginning of year:		1,473,947		$	1.42		1,032,450		$	2.32
Options:
Granted		357,500			0.19		947,564			0.82
Forfeited		(204,999	)		1.15		(187,500	)		1.34
Expired		(144,951	)		1.92		(318,567	)		2.62
Exercised		-			-		-			-
Balance at end of year		1,481,497			1.12		1,473,947			1.42
Exercisable at end of year		909,831			1.45		391,581			2.98
Weighted average grant-date fair value of options granted during the year					0.19					0.67

Restricted shares activity for fiscal 2011 and fiscal 2010 follows:

	2011					2010
	Number of Shares			Weighted-Average Exercise Price		Number of Shares			Weighted-Average Exercise Price
Balance at beginning of year:		88,001		$	3.40		177,165		$	3.18
Options:
Granted		-			-		-			-
Forfeited		(9,418	)		2.69		(18,333	)		1.40
Expired		(640	)		5.17		-			-
Exercised		(67,943	)		2.37		(70,831	)		3.38
Balance at end of year		10,000			0.84		88,001			3.40
Exercisable at end of year		10,000			0.84		88,001			3.40

Stock-based compensation for fiscal 2011 and fiscal 2010 follows:

	2011			2010
	(In thousands)
Pre-tax expense	$	313		$	522
Tax (benefit)		(1	)		(27	)
After-tax expense	$	312		$	495

The following table summarizes information regarding stock options outstanding and exercisable as of October 30, 2011:

	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
$0.00 - $0.24		300,000		9.67	$	0.22		-		-	$	-
$0.25 - $1.25		637,997		8.90		0.39		522,997		8.91		0.39
$1.26 - $4.15		488,500		6.11		2.16		331,834		5.27		2.47
$4.16 - $6.10		30,000		2.55		4.40		30,000		2.55		4.40
$6.11 - $8.05		25,000		4.41		6.54		25,000		4.41		6.54
$0.00 - $8.05		1,481,497		7.93	$	1.12		909,831		7.25	$	1.45

As of October 30, 2011, the total compensation cost related to unvested stock-based awards totaled $88 thousand. This cost is expected to be amortized to expense in fiscal years 2012, 2013, and 2014 at $52 thousand, $22 thousand, and $14 thousand respectively, and will be adjusted for subsequent changes in estimated forfeitures.

Stockholder rights agreement.

Under a Rights Agreement (the "Rights Agreement") adopted in 2003 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, 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.

On July 16, 2009, the Company adopted Amendment No. 1 to the Rights Agreement which amends the definition of “Acquiring Person” to increase from 15% to 26.5% the minimum beneficial ownership interest in the Company’s outstanding common stock that would cause our then current Chairman of the Board (as a “Grandfathered Person”) to become an Acquiring Person. Thus, Amendment No. 1 permits our then Chairman of the Board to acquire up to 26.5% of our common stock before triggering the dilutive effect of the rights under the rights Agreement. No other changes were made to the Rights Agreement.

11. Income taxes

Income tax provision (benefit). The income tax provision (benefit) recorded in the consolidated statement of operations for fiscal 2011 and fiscal 2010 consists of the following (in thousands):

	2011			2010
Current:
Federal	$	27		$	(3,971	)
State		5			79
Foreign		(58	)		(206	)
		(26	)		(4,098	)
Deferred:
Federal		-			10,942
State		-			2,390
Foreign		-			159
		-			13,491
Income tax provision (benefit)	$	(26	)	$	9,393

The following table explains the difference between the Company’s effective tax rate and the federal statutory rate of 34% for fiscal 2011 and fiscal 2010:

	2011			2010
Income tax benefit at the statutory rate		(34.00	%)		(34.00	%)
State income taxes, net		0.08	%		(2.90	%)
Meals and entertainment		0.23	%		0.40	%
Non deductible stock compensation		1.20	%		1.20	%
Non deductible lobbying expenses		0.34	%		0.40	%
ASC 740-10 Interest accrual		1.01	%		0.50	%
Change in valuation allowance		31.33	%		120.20	%
Other, net		(0.61)	%		(0.10	%)
Income tax provision (benefit) at its effective rate		(0.42	%)		85.70	%

Deferred tax assets. The significant components of the Company's deferred income tax assets, (there are no deferred tax liabilities) as of October 30, 2011 and October 31, 2010 are as follows (in thousands):

	2011						2010
	Current			Non-Current			Current			Non-Current

Depreciation and amortization of long lived assets	$	-		$	9,336		$	-		$	9,849
Allowance for doubtful accounts		-			-			1,144			-
Reserve for obsolete inventory		407			-			494			-
Reserve for obsolete terminals		144			-			-			99
Accrued vacation		121			-			137			-
Stock compensation expense		-			168			104			137
Foreign tax credit carry-forward		-			39			-			98
Value of credit swap derivative		-			235			-			434
Fair market value write-down on investments		-			467			-			928
Loss carry-forwards		-			3,851			-			1,093
Other		(114	)		19			(66	)		(86	)

		558			14,115			1,813			12,552
Valuation allowance		(558	)		(14,115	)		(1,813	)		(12,552	)

Net deferred income tax asset	$	-		$	-		$	-		$	-

Valuation allowances. In fiscal 2010, we established a 100% valuation allowance against deferred tax assets, which were associated with net operating loss carryforwards, foreign tax credits, reserves, amortization of intangibles and deferred revenue to reduce them to their estimated net realizable value. Significant management judgment is required in determining a deferred tax asset valuation allowance. In evaluating the ability to recover deferred tax assets, we considered available positive and negative evidence giving weight to recent cumulative losses, ability to carryback losses against prior taxable income and to forecasted financial results commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. The valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance. Under current tax laws, this valuation allowance will not limit our ability to utilize Federal and state deferred tax assets provided we can generate sufficient future taxable income.

Net operating losses and related items. At October 30, 2011 the Company had net remaining operating loss carryforwards for federal and state income tax purposes of $9.1 million and $24.2 million. The state carryforwards are available to offset future taxable income, but if not used they will expire between 2016 and 2031. The federal carryforwards are available to offset future taxable income, but if not used they will expire between 2030 and 2031.

Unrecognized tax positions. The Company files numerous consolidated and separate income tax returns in the United States and in many state and foreign jurisdictions. With few exceptions, the Company is no longer subject to United States federal income tax examinations for years before 2006, and is no longer subject to state and local, or foreign income tax examinations for years before 2005.

The Internal Revenue Service (IRS) commenced an examination of the Company’s U.S. income tax returns for the fiscal year ended October 31, 2007 in the first quarter of 2009 that was anticipated to be completed within the following twelve months. As of October 30, 2011, the IRS has proposed certain adjustments to the depreciable life used in calculating federal tax depreciation on the Company’s leased electronic bingo systems. Management does not agree with the proposed adjustment and, if this cannot be resolved at the examination level, intends to file a protest with IRS Appeals. However, if a resolution cannot be reached, it is reasonably possible that an additional payment of approximately $1.3 million may be made by the end of 2012. Therefore, the Company has accrued the $1.3 million as a component of income taxes payable, of which $981 thousand is tax, and $307 thousand is interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2011 and fiscal 2010 is as follows (in thousands):

	2011		2010
Balance at beginning of year	$	981	$	1,165
Changes in tax positions of prior years		-		(184	)
Balance at end of year	$	981	$	981

At October 30, 2011, no material amount of the unrecognized tax benefits would affect the annual effective tax rate if recognized since they pertain only to the timing of recognition of tax allowable deductions.

It is possible that the amount of unrecognized tax benefit will change within the next 12 months; however, an estimate of the range of change cannot be made at this time.

12. Warranty

The Company offers a standard service warranty to customers within the VLT division that covers parts, software, and labor, free of charge, for a standard term of 90 days following the installation of a sold machine. In special circumstances, the warranty may be extended up to 180 days. Management makes estimates on the accrued liability of warranties by calculating the average monthly cost to repair a unit under warranty using average rates from the prior fiscal period’s actual costs. The estimated potential amount of liability is accrued in the warranty liability and is adjusted as existing warranties expire and new machine sales are made.

A reconciliation of the beginning and ending amount of warranty reserves for fiscal 2011 is as follows (in thousands):

	2011

Beginning Balance	$	59
Warranty Services and Repairs Performed		(412	)
Reduction of Previously Accrued Liability		(59	)
Additional Warranty Liabilities		600
Ending Balance	$	188

13. Accrued severance

The Company has incurred expenses connected with severance agreements. Changes in the accrued severance liability, which is included in accrued payroll and related, consisted of the following for fiscal 2011 and fiscal 2010 (in thousands):

	2011			2010
Beginning balance	$	209		$	-
Accrued severance expenses		113			775
Less severance paid		(160	)		(566	)
Ending balance	$	162		$	209

14. Net income (loss) per common share

A reconciliation of the shares used in the basic and fully diluted earnings per share calculations for fiscal 2011 and fiscal 2010 follows (in thousands):

	2011		2010
Basic weighted average shares outstanding		11,837		11,772
Effect of dilutive stock options		109		440
Diluted weighted average shares outstanding		11,946		12,212

Employee stock options to purchase 1,123,997 shares during fiscal 2011 and 947,564 shares during fiscal 2010 were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

15. Related Party Transactions

The Company purchases equipment from Ceronix, Inc., which is controlled by one of our board members. Purchases from Ceronix were $80 thousand and $9 thousand for the 52-week periods ended October 30, 2011 and October 31, 2010. Outstanding payables to Ceronix as of October 30, 2011 and October 31, 2010 were $20 thousand and $5 thousand respectively.

The Company has engaged Richard Fedor Sr., past Chairman of the Board, as a consultant. As of September 14, 2011 he was beneficial owner of approximately 15.0% of the outstanding stock. For the 52 week period ended October 30, 2011 and October 31, 2010, the Company has paid Mr. Fedor $173 thousand and $58 thousand in fees and expenses respectively.

On April 13, 2011, the Company entered into a consulting agreement with Kevin Y. Painter, Director of the Company, to advise the Company in its operations and provide guidance and assistance with contract manufacturers and suppliers. This contract called for monthly payments of $10 thousand plus expenses. For the fiscal year 2011, the Company paid Mr. Painter $57 thousand. In fiscal year 2010 there were no costs paid to Mr. Painter. On May 11, 2011, Mr. Painter was appointed Chairman of the Board of Directors. On June 21, 2011 the Company elected Mr. Painter to serve as the Company’s President and Chief Executive Officer. With the acceptance by Mr. Painter to serve as the Company’s President and Chief Executive Officer on June 21, 2011, the consulting agreement was terminated. Mr. Painter’s employment provides for an annual base salary of $190,000 and he was granted 300,000 stock options at an exercise price of $0.22 per share which vests ratably over a three year period contingent on continued employment with the Company.

16. Business segment information

Management has identified two operating segments without regard to geographic location. Each operating segment is considered a reporting unit, which are described as follows: (1) the design, development, and marketing of interactive electronic bingo systems consisting of portable and fixed-based systems and (2) the design, development, manufacturing and sale of VLT equipment, related products, and proprietary game content.

The Company evaluates the performance of these segments based on many factors including sales, sales trends, margins, and operating performance. The Company allocates certain shared employee costs between the segments based on general estimates of the actual time spent by employees related to each respective segment and other cost sharing metrics. In addition, management has classified administrative overhead departmental costs such as accounting, information technology, and legal as corporate expenses. Other costs such as legal fees, restructuring expenses, sales and marketing and research and development costs not directly attributed to segments are classified as corporate expenses. Selected financial information for the two segments follows:

(In thousands)	October 30, 2011			October 31, 2010

Net revenues
Bingo	$	24,175		$	30,066
VLT		6,692			5,105
	$	30,867		$	35,171
Cost of revenues
Bingo	$	9,844		$	11,825
VLT		5,069			4,352
	$	14,913		$	16,177
Income (loss) from operations
Bingo	$	6,819		$	9,039
VLT		(669	)		(5,564	)
Corporate		(10,813	)		(13,239	)
	$	(4,663	)	$	(9,764	)
Depreciation and amortization
Bingo	$	3,867		$	5,079
VLT		1,309			961
Corporate		205			406
	$	5,381		$	6,446

	October 30, 2011		October 31, 2010
Identifiable assets
Bingo	$	21,684	$	24,387
VLT		4,856		7,220
Corporate		7,393		15,153
	$	33,933	$	46,760

17. Subsequent events

Settlement Agreement - On October 4, 2011, the Company entered into a Settlement Agreement (the “Settlement Agreement”), whereby, in exchange for payment of $500 thousand, the Company agreed to resolve, discharge and settle all claims that were or could have been brought by the Company against Lehman Brothers Holdings Inc. (“LBHI”), Lehman Brothers Inc., and certain individuals, including those claims asserted in the arbitration proceeding captioned GameTech International, Inc. v. Lehman Brothers Inc., et al. (Case No. 08-03389), pending before the Financial Regulatory Authority (“FINRA”) and the cases commenced in the United States Bankruptcy Court for the Southern District of New York, by LBHI and certain of its subsidiaries under Chapter 11 of Title 11 of the United States Code, Case No. 08-13555 (JMP), et seq.

The Settlement Agreement provides that payment of the Settlement Amount is subject to the approval of the United States Bankruptcy Court for the Southern District of New York. On November 18, 2011, the United States Bankruptcy Court for the Southern District of New York entered an order in the above mentioned Chapter 11 cases, authorizing relief from the automatic stay, to the extent necessary to allow certain insurers to fund the Settlement Amount which occurred on November 23, 2011. Substantially all of the Settlement Amount was used to reduce outstanding debt.

License Agreement - On October 31, 2011, the Company entered into a License Agreement with AGS, LLC (d/b/a American Gaming Systems) (“AGS”), pursuant to which the Company granted AGS the exclusive right to utilize five (5) game titles from the Company’s library of poker, keno, line-up, and blackjack VLT games (the “VLT Game Titles”), in connection with video gaming machines sold, leased, or otherwise placed by AGS in the state of Illinois. The license includes the intellectual property rights associated with each of the five individual VLT Game Titles selected by AGS, including the game themes, graphical artwork, video images, audio features, math models, methodologies, and all patents, trademarks, logos and other intellectual property associated therewith. The Company retains all right, title and interest to the VLT Game Titles (including the right to sell, lease or license such titles outside Illinois), except as expressly granted to AGS under the License Agreement.

In consideration for the license, AGS agreed to pay the Company a non-refundable license fee of $1.0 million which was paid on November 8, 2011. The License Agreement also includes an option for AGS to license additional games for use in Illinois from the Company and a right of first refusal and option to license newly developed games for the Illinois market, in exchange for $200,000 per game selected. This option and right of first refusal will be available to AGS for a period of three years.

Sale of Corporate Headquarters - On November 2, 2011, the Company entered into a Purchase and Sale Agreement and Joint Escrow Instructions (the “Sale Agreement”) to sell certain real property and improvements and certain other assets including approximately 4.9 acres of land, an industrial facility consisting of approximately 115,000 square feet, and certain other assets related to the property (the “Property”) to Kassbohrer All Terrain Vehicles, Inc. (the “Buyer”) for $6.125 million.

On December 28, 2011, the Company and the Buyer closed the sale of the Property. As required by our Credit Facility, substantially all of the net proceeds from the sale of the Property were used by the Company to reduce the outstanding obligations under its Credit Facility. There are no material relationships between the Buyer and the Company, or any of its affiliates directors, officers, or their associates, other than in respect of the transactions contemplated by the Sale Agreement. Pursuant to the terms of the Sale Agreement, the Company expects to lease a significant portion of the Property from the Buyer for a period of approximately sixteen months from the closing date.

Amendments to Bylaws - On December 7, 2011, the Board of Directors of the Company unanimously approved an amendment and restatement of the Company’s Bylaws effective November 30, 2011. Article II was amended to no longer require that, in order to serve as a director, an individual must (i) have the ability to be present, in person, at all meetings of the Board of Directors, and (ii) have at least five years of gaming industry experience, either as a member of the board of directors or as a senior executive officer of a company that operates within the gaming industry. Article II was further amended to clarify that consent to any action of the Board of Directors, or of any committee thereof, taken without a meeting, may be done by electronic transmission. Certain other immaterial changes were made to conform to the revised nomenclature, move provisions within the Bylaws, and to correct typographical errors.

On December 22, 2011, the company entered into a first amendment to the amended and restated loan agreement - See Note 8.

SIGNATURES

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

	GAMETECH INTERNATIONAL, INC.

	By:	/S/ SCOTT H. SHACKELTON
		Scott H. Shackelton
		Interim President
Dated: May 30, 2012		(Principal Executive Officer)

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

Signature	Title	Date


/S/ SCOTT H. SHACKELTON	Interim President	May 30, 2012
Scott H. Shackelton	(Principal Executive Officer )


/S/ ANDREW ROBINSON	Chief Financial Officer and Treasurer	May 30, 2012
Andrew Robinson	(Principal Financial Officer and Principal Accounting Officer)


/S / EDWARD F. GRAVES	Director	May 30, 2012
Edward F. Graves


/S/ DONALD K. WHITAKER	Director	May 30, 2012
Donald K. Whitaker

GAMETECH INTERNATIONAL INC 10-K/A