Fortunet, Inc. - Amended Quarterly Report (10-Q/A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

Form 10-Q/A

Amendment No. 1

______________________

(Mark One)

[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

[ ]	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: 000-51703

______________________

FortuNet, Inc.

(Exact name of Registrant as specified in its charter)

______________________

Nevada		88-0252188
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
2950 South Highland Drive, Suite C Las Vegas, Nevada		89109
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code: (702) 796-9090

______________________

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.

[x] Yes [ ] No

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 [ ] Accelerated filer [ ] Non-accelerated filer [ x]

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

As of September 30, 2007, there were 11,351,279 shares of the Registrant’s common stock, $0.001 par value, issued and outstanding.

EXPLANATORY NOTE

This Amendment No. 1 to our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2007 is being filed to reflect a restatement of the condensed consolidated balance sheet and statement of cash flows resulting from a reclassification of certain securities held by FortuNet, Inc. (the “Company”) as marketable securities as opposed to cash and cash equivalents as in our original filing. In addition, Note 1 to the condensed consolidated financial statements in Item 1 of Part I, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I and Quantitative and Qualitative Disclosures About Market Risk in Item 3 of Part I are amended and restated to reflect this reclassification and add certain disclosures regarding marketable securities purchased, sold and held by the Company during the three and nine months ended September 30, 2007. For further discussion regarding the restatement, see Note 1 to our condensed consolidated financial statements. In light of the restatement of our financial statements, our chief executive officer and chief financial officer re-evaluated our disclosure controls and procedures as of September 30, 2007 and concluded that our disclosure controls and procedures were not effective as of such date due to a material weakness in an internal control over financial reporting. Please see Item 4 of Part I for a discussion of our management’s re-evaluation and conclusions.

This Amendment No. 1 did not result in a change in our previously reported revenues, net income, earnings per share, stockholders’ equity, or cash flow from operations shown in our condensed consolidated financial statements. This Amendment No. 1 continues to speak as of the date of the original Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, and we have not updated or amended disclosures contained herein to reflect events that have occurred since filing the original Form 10-Q, or modified or updated those disclosures in any way other than as described in the preceding paragraph. Accordingly, this Amendment No. 1 should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-Q on November 6, 2007.

FORTUNET, INC.

FORM 10-Q/A

QUARTER ENDED September 30, 2007

TABLE OF CONTENTS

I. PART I: FINANCIAL INFORMATION		Page
Item 1:	Unaudited Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2007(as restated), and December 31, 2006(as restated)	3
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007(as restated) and 2006(as restated)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4:	Controls and Procedures	20
II. PART II: OTHER INFORMATION
Item 1:	Legal Proceedings	21
Item 1A:	Risk Factors	21
Item 6:	Exhibits	31
Signatures		33

PART I FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FORTUNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30,		December 31,
	2007		2006
Assets:	(as restated)		(as restated)
Current assets:
Cash and cash equivalents	$	5,728,075	$	3,493,808
Marketable securities		23,150,000		22,975,000
Accounts receivable, net of
allowance for doubtful accounts		1,681,875		1,436,599
Income tax receivable		118,941		--
Inventories		1,434,913		1,333,970
Prepaid expenses		404,110		668,536
Deferred tax asset		170,537		112,716
Total current assets		32,688,451		30,020,629
Property and equipment, net of
accumulated depreciation		4,747,282		4,825,538
Fixed assets in construction		3,041,487		1,816,834
Other assets, net of accumulated amortization		60,308		76,723
Deferred tax asset		811,783		860,711
Total assets	$	41,349,311	$	37,600,435

Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	425,250	$	136,341
Commissions payable		348,402		294,609
Accrued expenses		317,902		231,195
Income taxes payable		102,400		335,208
Total current liabilities		1,193,954		997,353
Stockholders' equity:
Common stock 0.001 par value 150,000,000 shares authorized, 11,341,612 shares issued and outstanding for December 31, 2006, and 11,351,279 shares issued and outstanding for September 30, 2007.		11,351		11,342
Additional paid in capital		29,838,991		29,620,830
Retained earnings		10,305,015		6,970,910
Total stockholders’ equity		40,155,357		36,603,082
Total liabilities and
stockholders' equity	$	41,349,311	$	37,600,435

See notes to condensed consolidated financial statements.

FORTUNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007			2006

Sales Revenue	$	4,273,737	$	4,075,618		$	12,770,294		$	12,048,954
Cost of Revenue		587,391		534,963			1,766,398			1,577,146
Gross Profit		3,686,346		3,540,655			11,003,896			10,471,808
Operating Costs & Expenses
General & Administrative		1,074,328		1,458,483			3,344,880			5,406,522
Sales & Marketing		1,206,978		1,290,877			3,937,602			3,858,730
Research & Development		117,522		122,600			402,342			490,824
Total Operating Expenses		2,398,828		2,871,960			7,684,824			9,756,076

Income from operations		1,287,518		668,695			3,319,072			715,732

Other Income		8,105		---			477,741			---
Investment Income		273,719		252,983			788,412			565,475
Interest Expense		---		(1,859	)		(19,459	)		(12,127	)
Income Before Taxes		1,569,342		919,819			4,565,766			1,269,080
Provision for income taxes		436,422		372,527			1,231,661			513,977
Net Income	$	1,132,920	$	547,292		$	3,334,105		$	755,103

Weighted average shares - basic		11,344,691		10,935,487		$	11,344,691		$	10,935,487
Earnings per share - basic	$	0.10	$	0.05			0.29			0.07
Weighted average shares – diluted		11,348,363		10,974,860			11,348,363			10,974,860
Per share earnings	$	0.10	$	0.05		$	0.29		$	0.07

See notes to condensed consolidated financial statements.

FORTUNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30,
	2007			2006
	(as restated)			(as restated)
Cash flows from operating activities:
Net income	$	3,334,105		$	755,103
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,384,735			1,356,367
Amortization		18,000			340,607
Stock issued for services		152,495			1,099,857
Deferred taxes		(8,893	)		(117,173	)
Change in operating assets and liabilities:
Accounts receivable		(245,276	)		(956	)
Income tax receivable		(118,941	)		--
Inventories		(100,943	)		(226,640	)
Prepaid expenses		264,426			140,965
Other assets		(1,585	)		(2,472	)
Accounts payable		288,909			27,142
Commissions payable		53,793			120,199
Accrued expenses		86,707			116,338
Income tax payable		(232,808	)		69,345
Net cash provided by operating activities		4,874,724			3,678,682

Cash flows from investing activities:
Purchase of equipment and property		(2,465,457	)		(2,670,465	)
Sale of marketable securities		6,900,000			--
Purchase of marketable securities		(7,075,000	)		(12,750,000	)
Net cash used in investing activities		(2,640,457	)		(15,420,465	)

Cash flows from financing activities:
Sale of Stock		--			24,710,625
Cost of issuing stock		--			(295,908	)
Payments on note payable		--			(437,117	)
Net cash provided by financing activities		--			23,977,600

Net increase in cash and cash equivalents		2,234,267			12,235,817

Cash and cash equivalents, beginning		3,493,808			511,517
Cash and cash equivalents, ending	$	5,728,075		$	12,747,334

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,611,197		$	566,547
Cash paid for interest	$	19,459		$	12,126
Non-cash investing and financing activities:
Stock options capitalized	$	65,674		$	43,922

See notes to condensed consolidated financial statements.

FORTUNET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Restatement of Condensed Consolidated Financial Statements

Background Information

In May 1993, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 115 (“SFAS No. 115”) “Accounting for Certain Investments in Debt and Equity Securities.” SFAS No. 115 addresses the accounting and reporting for certain investments in debt and equity securities and categorization of those investments as either: held to maturity securities, trading securities or available for sale securities.

In connection with the preparation of our financial statements for the year ended December 31, 2007, our investments in certain securities were reviewed and determined to be auction rate securities. The investments held at December 31, 2007 were the same type of investments held as of September 30, 2007 and December 31, 2006, and, therefore should have been considered marketable securities “available for sale” in accordance with SFAS No 115. The financial statements contained in the original Form 10-Q filed on November 6, 2007 had classified these investments as cash and cash equivalents because these investments were highly liquid and therefore believed to be cash equivalents.

In March 2008, our management, after consultation with our audit committee and our independent public accounting firm, determined that it was necessary to restate our previously issued condensed consolidated financial statements for the three and nine months ended September 30, 2007 and as of December 31, 2006 in order to properly present cash and cash equivalents and marketable securities within the financial statements.

Restatement

The restatement has been accounted for in accordance with SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3,” as a revision of previously issued financial statements to reflect the correction of an error.

We have determined that $23,150,000 of municipal bonds (that were auction rate securities) that were previously considered to be cash and cash equivalents should be reclassified as marketable securities. This reclassification reduced cash and cash equivalents from $28,878,075, as originally reported, to $5,728,075 as of September 30, 2007.

The reclassification did not result in a change in our previously reported revenues, net income, earnings per share, stockholders’ equity, or cash flow from operations in the condensed consolidated financial statements for and as of the three and nine months ended September 30, 2007 and as of December 31, 2006. Instead, the reclassification only affected the balance of cash and cash equivalents and marketable securities on the condensed consolidated balance sheet and cash flows from investing activities on the condensed consolidated statement of cash flows. Because the fair value of these marketable securities are considered to be equal to par value as of September 30, 2007 and December 31, 2006, we did not record any unrealized gain or loss for any period with respect to these securities in the statement of other comprehensive income.

Condensed Consolidated Balance Sheet Adjustments

The following is a summary of the adjustments to our previously issued unaudited condensed consolidated balance sheet at September 30, 2007.

	September 30, 2007
	as previously reported		adjustments			as restated
Assets:
Current assets:
Cash and cash equivalents	$	28,878,075	$	(23,150,000	)	$	5,728,075
Marketable securities		--		23,150,000			23,150,000
Accounts receivable, net of
allowance for doubtful accounts		1,681,875		--			1,681,875
Income tax receivable		118,941		--			118,941
Inventories		1,434,913		--			1,434,913
Prepaid expenses		404,110		--			404,110
Deferred tax asset		170,537		--			170,537
Total current assets		32,688,451		--			32,688,451
Property and equipment, net of
accumulated depreciation		4,747,282		--			4,747,282
Fixed assets in construction		3,041,487		--			3,041,487
Other assets, net of accumulated amortization		60,308		--			60,308
Deferred tax asset		811,783		--			811,783
Total assets	$	41,349,311	$	---		$	41,349,311

Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	425,250	$	--		$	425,250
Commissions payable		348,402		--			348,402
Accrued expenses		317,902		--			317,902
Income taxes payable		102,400		--			102,400
Total current liabilities		1,193,954		---			1,193,954
Stockholders' equity:
Common stock 0.001 par value 150,000,000 shares authorized, 11,351,279 shares issued and outstanding for September 30, 2007.		11,351		--			11,351
Additional paid in capital		29,838,991		--			29,838,991
Retained earnings		10,305,015		--			10,305,015
Total stockholders’ equity		40,155,357		--			40,155,357
Total liabilities and
stockholders' equity	$	41,349,311	$	--		$	41,349,311

Condensed Consolidated Statement of Cash Flows Adjustments

The following is a summary of the adjustments to our previously issued unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2007.

	Nine months ended September 30, 2007
	as previously reported			adjustments			as restated
Cash flows from operating activities:
Net income	$	3,334,105		$	--		$	3,334,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,384,735			--			1,384,735
Amortization		18,000			--			18,000
Stock issued for services		152,495			--			152,495
Deferred taxes		(8,893	)		--			(8,893	)
Change in operating assets and liabilities:
Accounts receivable		(245,276	)		--			(245,276	)
Income tax receivable		(118,941	)		--			(118,941	)
Inventories		(100,943	)		--			(100,943	)
Prepaid expenses		264,426			--			264,426
Other assets		(1,585	)		--			(1,585	)
Accounts payable		288,909			--			288,909
Accrued expenses		53,793			--			53,793
Commissions payable		86,707			--			86,707
Income tax payable		(232,808	)		--			(232,808	)
Net cash provided by operating activities		4,874,724			--			4,874,724

Cash flows from investing activities:
Purchase of equipment and property		(2,465,457	)		--			(2,465,457	)
Sale of marketable securities					6,900,000			6,900,000
Purchase of marketable securities					(7,075,000	)		(7,075,000	)
Net cash used in investing activities		(2,465,457	)		(175,000	)		(2,640,457	)

Cash flows from financing activities:
Sale of stock		--			--			--
Cost of issuing stock		--			--			--
Payments on note payable		--			--			--
Net cash provided by financing activities		--			--			--

Net increase in cash and cash equivalents		2,409,267			(175,000	)		2,234,267

Cash and cash equivalents, beginning		26,468,808			(22,975,000	)		3,493,808
Cash and cash equivalents, ending	$	28,878,075		$	(23,150,000	)	$	5,728,075

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,611,197		$	--		$	1,611,197
Cash paid for interest	$	19,459		$	--		$	19,459
Non-cash investing and financing activities:
Stock options capitalized	$	65,674		$	--		$	65,674

Condensed Consolidated Balance Sheet Adjustments

The following is a summary of the adjustments to our previously issued unaudited condensed consolidated balance sheet at December 31, 2006.

	December 31, 2006
	as previously reported		adjustments			as restated
Assets:
Current assets:
Cash and cash equivalents	$	26,468,808	$	(22,975,000	)	$	3,493,808
Marketable securities		--		22,975,000			22,975,000
Accounts receivable, net of
allowance for doubtful accounts		1,436,599		---			1,436,599
Inventories		1,333,970		---			1,333,970
Prepaid expenses		668,536		---			668,536
Deferred tax asset		112,716		---			112,716
Total current assets		30,020,629		---			30,020,629
Property and equipment, net of
accumulated depreciation		4,825,538		---			4,825,538
Fixed assets in construction		1,816,834		---			1,816,834
Other assets, net of accumulated amortization		76,723		---			76,723
Deferred tax asset		860,711		---			860,711
Total assets	$	37,600,435	$	---		$	37,600,435

Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	136,341	$	---		$	136,341
Commissions payable		294,609		---			294,609
Accrued expenses		231,195		---			231,195
Income taxes payable		335,208		---			335,208
Total current liabilities		997,353		---			997,353
Stockholders' equity:
Common stock 0.001 par value 150,000,000 shares authorized, 11,341,612 shares issued and outstanding for December 31, 2006.		11,342		---			11,342
Additional paid in capital		29,620,830		---			29,620,830
Retained earnings		6,970,910		---			6,970,910
Total stockholders' equity		36,603,082		---			36,603,082
Total liabilities and
stockholders' equity	$	37,600,435	$	---		$	37,600,435

Condensed Consolidated Statement of Cash Flows Adjustments

The following is a summary of the adjustments to our previously issued unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2006

	Nine months ended September 30, 2006
	as previously reported			adjustments			as restated
Cash flows from operating activities:
Net Income	$	755,103		$	--		$	755,103
Adjustments to reconcile net income to net cash provided by operating activities:
					--
Depreciation		1,356,367			--			1,356,367
Amortization		340,607						340,607
Stock for services		1,099,857			--			1,099,857
Change in operating assets and liabilities:
Accounts receivable		(956	)		--			(956	)
Inventories		(226,640	)		--			(226,640	)
Prepaid expenses		140,965			--			140,965
Deferred tax		(117,173	)		--			(117,173	)
Other assets		(2,472	)		--			(2,472	)
Accounts payable		27,142			--			27,142
Accrued expenses		116,338			--			116,338
Commissions payable		120,199			--			120,199
Income tax payable		69,345						69,345
Net cash provided by operating activities		3,678,682			--			3,678,682

Cash flows from investing activities:
Purchase of assets		(2,670,465	)					(2,670,465	)
Purchase of marketable securities		--			(12,750,000	)		(12,750,000	)
Net cash used in investing activities		(2,670,465	)		(12,750,000	)		(15,420,465	)

Cash flows from financing activities:
Dividends		--			--			--
Sale of sock		24,414,717			--			24,414,717
Payments on note payable		(437,117	)					(437,117	)
Net cash provided by financing activities		23,977,600			--			23,977,600

Net increase in cash and cash equivalents		24,985,817			(12,750,000	)		12,235,817

Cash and cash equivalents, beginning		511,517						511,517
Cash and cash equivalents, ending	$	25,497,334		$	(12,750,000	)	$	12,747,334

Supplemental disclosure of cash flow information:
Interest	$	12,126		$	--		$	12,126
Cash paid for income taxes	$	566,547		$	--		$	566,547
Non cash investing activity - Stock options associated with capitalized R&D	$	43,922		$	--		$	43,922

Nature of Business and Interim Basis of Presentation:

Nature of business :

FortuNet, Inc. (We, FortuNet or the Company) was incorporated in 1989 in Nevada. FortuNet is engaged primarily in the business of designing, manufacturing and leasing electronic bingo and entertainment systems throughout North America.

FortuNet derives substantially all revenues from the gaming industry in the United States and Canada. Changes in laws and regulations related to gaming in each state or province can affect the Company’s revenues in any given state or province.

Interim Basis of Presentation :

The accounting policies followed in the preparation of the financial information herein are the same as those summarized in the Company’s 2006 Annual Report on Form 10-K. The condensed consolidated balance sheet at December 31, 2006, was derived from audited consolidated financial statements at that date. The interim condensed consolidated financial information is unaudited and should be read in conjunction with the Company’s 2006 Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting of normal and recurring adjustments that are necessary to fairly present the financial condition of the Company as of September 30, 2007, and the results of its operations for the three and nine months ended September 30 ,2007 and its cash flows for the nine months ended September 30, 2007 and 2006, have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year due to seasonality and other factors.

3.	Inventories:

Inventories, consisting primarily of parts and components to be used for manufacturing of products are valued at the lower of cost or market, as determined by the first-in, first-out basis. Also classified as inventories are Work In Process components that are being produced for use in a future period. The following schedule details inventory between raw materials and work in process:

	September 30, 2007		December 31, 2006
Raw materials	$	1,315,605	$	1,222,107
Work in process		119,308		111,863
Total Inventories	$	1,434,913	$	1,333,970

Earnings Per Share:

In accordance with the provisions of SFAS No. 128, Earnings Per Share, basic net income is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing the amount of income available to common shareholders by the number of diluted weighted average shares of common stock outstanding during each period. Potentially dilutive securities include common shares purchasable upon exercise of stock options and any non-vested stock.

The following table sets forth the computations for basic and dilutive earnings per common share:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Net Income	$	1,132,920	$	547,292	$	3,334,105	$	755,103
Weighted average number of shares outstanding		11,344,691		10,935,487		11,344,691		10,935,487
Diluted non-vested stock		2,000		1,372		2,000		1,372

Diluted weighted average number of shares outstanding		11,348,363		10,974,860		11,348,363		10,974,860

Basic Earnings Per Share	$	0.10	$	0.05	$	0.29	$	0.07
Diluted Earnings Per Share	$	0.10	$	0.05	$	0.29	$	0.07

5.	Recently Issued Accounting Pronouncements:

SFAS 159

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective for us beginning in 2008. We are evaluating whether adoption of this statement will result in a change in our measuring methods.

SFAS 158

In February 2007, the FASB issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position. This statement is effective for us beginning in 2007. We do not expect the adoption of this statement to have a material impact on our results of operations, financial position or cash flows.

SFAS 157

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, 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 for us beginning in 2008. We are evaluating whether adoption of this statement will result in a change to our fair value measurements.

6.	Adoption of Recently Issued Accounting Pronouncements:

SAB 108

In September 2006, the SEC issued SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB 108 is effective for our fiscal year 2007 annual financial statements. The adoption of this statement had no material impact on our results of operations, financial position or cash flows.

FIN 48

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48. “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing theminimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. With the adoption of FIN 48 on January 1, 2007, we have an unrecognized tax benefit of $102,400 included in the income tax payable on the balance sheet, which include a penalty and interest provision of 25% or $20,480, for possible state taxes for years 2002 and 2003 associated with our subsidiary Millennium Games, Inc. (“Millennium”), which are still subject to examination by tax authorities. As the result of adopting FIN 48 we recognized no adjustment to the liability for unrecognized tax benefits. The company recognizes interest and penalties with the tax provision expense.

Stock Based Compensation:

On January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payments” (“SFAS No. 123R”), which requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The Company has equity incentive plans that provide for the issuance of stock options, restricted stock and other equity incentives.

On March 6, 2007, the Company issued an aggregate of 10,000 shares of restricted stock to non-employee members of the board of directors. These shares were subject to vesting restrictions based upon the recipients’ continued service on our board of directors. Upon the termination of any recipient’s service on our board of directors, all unvested shares will be forfeited back to the Company.

On May 2, 2007, 3,000 of these shares of restricted stock to non-employee members of the board of directors were forfeited back to the Company upon such persons ceasing to serve as directors. On May 9, 2007, the Company issued 2,667 shares of restricted stock to a new non-employee member of the board of directors. Subject to the recipient’s continued service on our board of directors, 1,667 shares have vested at the end of September 2007, 1,000 shares will vest upon the completion of fourth quarter of 2007, and upon the termination of any recipient’s service on our board of directors, all unvested shares will be forfeited back to the Company.

Compensation cost related to vested restricted stock for the nine months ended September 30, 2007 was $61,123. Costs associated with these expenses are included in general and administrative expenses. A total of $16,730 of unrecognized compensation costs related to nonvested restricted stock is expected to be recognized over future periods.

Commitments and contingencies:

At September 30, 2007, the Company has entered into non-cancelable purchase commitments for certain inventory components used in its normal operations. The purchase commitments covered by these agreements are valid for less than one year and, in the aggregate, amount to approximately $893,700.

9.	Research and development:

Research and development costs are primarily for costs of software and hardware development and continued enhancements for the electronic bingo systems that the Company leases to customers. The total amount of research and development was $117,522 and $402,342 during the three and nine months ended September 30, 2007 and $122,600 and $490,824 during the three and nine months ended September 30, 2006.

10. Litigation:

Currently, the Company is the plaintiff in a civil lawsuit under the federal Racketeer Influenced Corrupt Organization, or RICO, law against GameTech International Incorporated and its wholly owned subsidiary, GameTech Arizona Corporation.

The Company believes that the final resolution of any pending litigation, individually or in the aggregate, is not likely to have a material adverse effect on the Company’s business, cash flow, results of operations or financial position.

11. Income Taxes:

We recorded our income tax provision at an effective rate of 29.1% for the nine months ended September 30, 2007. This effective tax rate takes into account the tax exempt interest in the amount of $708,305 yielding an effective reduction from the statutory tax rate of approximately 7.4%.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included in this Quarterly Report, other than statements that are purely historical, are forward-looking statements. Words such as “anticipate,” “contemplate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “will continue to be,” or the negative of foregoing and similar expressions regarding beliefs, plans expectations or intentions regarding the future also identify forward-looking statements. Forward-looking statements in this Quarterly Report include, without limitation: (1) our expectation that the effectiveness of SFAS 158 will not have a material impact on our results of operations, financial position or cash flows; (2) our expectation that the effectiveness of SAB 108 will not have a material impact on our results of operations, financial position or cash flows; (3) our expectation with respect to our future recognition ofcompensation costs related to nonvested restricted stock; (4) our belief that the final resolution of pending litigation is not likely to have a material adverse effect on our business, cash flow, results of operations or financial position; (5) our belief that, upon approval of our wireless gaming devices by the Nevada gaming authorities, Nevada casino patrons will be able to play traditional casino games using our wireless player terminals; (6) our intention to continue to introduce other new products for the conventional bingo market segment; (7) our anticipation that we may in the future sell our gaming platforms rather than lease them; (8) our expectation that the development of our product revenue will require us to record costs of products sold (rather than leased) and that we would also see a recurring revenue component generated from software upgrades and/or maintenance; (9) our expectation of similar or increasing levels of litigation and legal expenses in the future; (10) our expectation that we will have costs similar to the costs associated with the stock grants to our directors in the remaining quarter of 2007; (11) our anticipation that our leasing revenue will be sufficient to fund our operating expenses in the short term and that long term cash is expected to be generated from existing operations and the selling or leasing of our products in new markets; (12) our expectation to incur significant additional expenses in connection with the procurement of equipment and components and manufacturing of player and management terminals to take advantage of business opportunities and our anticipation that these expenses will consume a substantial portion, if not all, of our recurring lease revenues; and (13) our belief that our cash flow from operations will be adequate to meet our anticipated future requirements for working capital and capital expenditures for the next 12 months and for the foreseeable future.

Our expectations, beliefs, objectives, anticipations, intentions and strategies regarding the future, including, without limitation, those concerning expected operating results, revenues and earnings are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from results contemplated by the forward-looking statements including, but not limited to: (1) the possibility that we adopt or inherit, through acquisitions, defined benefit postretirement plans in the future; (2) the possibility that in the future we discover misstatements in prior financial statements; (3) the possibility that nonvested restricted stock is forfeited back to us upon termination of the stockholder’s service to us; (4) the inherent uncertainty of the litigation process and our inability to predict the outcome of litigation; (5) our failure to sell or lease our wireless player terminals to casinos; (6) resource limitations or a diversion of our resources and attention to endeavors other than introducing new products for the gaming market; (7) customer resistance to buying our equipment rather than leasing it or our inability to command a purchase price for the sale of our equipment that is more advantageous to us than the lease payments that we would forego; (8) our failure to sell our equipment to customers rather than lease it, or our failure to successfully negotiate sales contracts that generate recurring revenue through software upgrades and/or maintenance; (9) our avoidance of litigation in the future; (10) the forfeiture of unvested stock to us upon the termination of service of our directors; (11) an unexpected loss of customers or reductions in lease payment amounts due to competitive forces and regulatory restrictions, resource limitations or insufficient product interest that precludes us from selling or leasing our products in new markets; (12) insufficient interest from casinos and their patrons for our player and management terminals; and (13) an unexpected loss of customers or unanticipated capital expenses.

We assume no obligation to update any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Readers should also review the cautionary statements and discussion of the risks of our business set forth elsewhere herein under the heading “Risk Factors” under Part II, Item 1A and our other filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K filed on March 21, 2007 and our Current Reports on Form 8-K.

Overview

We are an established and profitable manufacturer of multi-game and multi-player server-based gaming platforms. Our gaming platforms include networks of both wireless and stationary player terminals, cashier-based point-of-sale terminals, self-service point-of-sale kiosks and game file servers that conduct and control bingo games. Our gaming platforms have been adapted to conduct traditional casino games, such as keno, poker and slots, in addition to, and concurrently with, bingo.

We believe that the research and development efforts that we undertook in 2006 have made our field-proven mobile gaming platform compliant with the wireless gaming regulations promulgated by the Nevada Gaming Commission on March 23, 2006 and Mobile Gaming System Policies published by Nevada Gaming Commission on July 21, 2006. On March 23, 2006, the Nevada Gaming Commission adapted technical standards governing mobile gaming systems. Accordingly, we submitted our mobile gaming platform for review by the Nevada gaming authorities in 2006. On July 12, 2007, the Nevada Gaming Commission published a draft of proposed minimum internal control standards, or MICS, applicable specifically to mobile gaming systems. With the publication of the proposed MICS for mobile gaming systems, the Nevada Gaming Commission is now in a position to further its process of reviewing mobile gaming systems. Currently, our gaming platforms enable patrons to play bingo using either our wireless or our stationary player terminals.

We are seeking approval from gaming authorities to enable our gaming platforms to allow patrons to play traditional casino games using our stationary player terminals and our wireless player terminals. We have successfully completed field testing of our wireless player terminals that enabled patrons to play traditional casino games on a limited basis on cruise lines. We submitted certain of our mobile gaming systems to the Nevada Gaming Control Board in 2006 and await the decisions of the Nevada Gaming Commission. In November 2007, we received permission from the Nevada Gaming Control Board to demonstrate the use of certain of our mobile gaming systems at the Red Rock Hotel and Casino in Las Vegas, Nevada during the Global Gaming Exposition trade show from November 13, 2007 through November 15, 2007. While we are encouraged by this action, it provides no assurance or certainty as to the outcome of the currently pending review of certain of our mobile gaming systems by the Nevada Gaming Control Board or other regulatory authorities, our mobile gaming systems have not been approved by the Nevada Gaming Commission for use or play in Nevada.

If our wireless gaming devices are approved by the Nevada gaming authorities, Nevada casino patrons will be able to play traditional casino games using our wireless player terminals. However, there can be no assurance that we will obtain such approval in the foreseeable future or at all.

Since our inception, we have been a technology innovator in the gaming equipment industry. We helped to define the core concepts of modern gaming technologies including server-based networks, concurrent multi-gaming, cashless gaming, downloadable gaming and, notably, mobile gaming. We continue to focus on research and development and have recently upgraded our fourth generation wireless player terminal to serve as a multi-game platform that enables patrons to play traditional casino games in casino public areas in addition to playing bingo. We also recently introduced and started selling new advanced bingo and keno flashboards that utilize long-life color light emitting diodes instead of conventional incandescent lamps. We also recently introduced advanced automatic ball blowers for bingo, keno and lottery applications working in conjunction with our flashboards and player terminals. We intend to continue to introduce other new products for the conventional bingo market segment.

Almost all of our revenues are currently generated by placing electronic bingo systems in bingo halls under contracts based on (a) a fixed fee per use per session, (b) a fixed weekly fee per terminal, or (c) a percentage of the revenue generated by each terminal. Our revenue growth is affected by player acceptance of electronic bingo as an addition or an alternative to paper bingo in our existing customer establishments, our ability to expand operations into new markets and our ability to increase our market share in the existing market. Our stationary bingo player terminals generally generate greater revenue per player terminal than our wireless bingo player terminals, but also typically, require a greater initial capital investment. As our customer base changes from period to period through the addition of new customers or occasional loss of existing customers, we experience an increase in rental revenue due to the addition of customers and a decrease in rental revenue due to the loss of customers. Our rental revenue is also affected from period to period as a consequence of various changes in operations at our existing customer locations that may result from numerous factors which we have little or no control.

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

We anticipate that at some point in time, we may begin selling our gaming platforms for use in conducting traditional casino games, instead of entering into lease contracts as we do now, or pursuant to purchase options that may be contained in lease contracts. At that time, our revenue may include product revenue from sales of equipment, in addition to our leasing revenue. At such time, our product revenue will be determined by the then current price for our products and our unit-volume sales.

We envision that if we develop product sales revenue, we will also see a recurring revenue component generated from software upgrades and/or maintenance of the software components of our sold products.

Our expenses currently consist of:

(a) cost of revenue, depreciation of bingo terminals and other capitalized equipment under lease to customers, maintenance, repair and refurbishment of bingo terminals and related support equipment, and cost of shipping. Installation costs and initial shipment expenses associated with new customer lease contracts are expensed as cost of revenue in the period in which the equipment is deployed. Expenses related to maintenance, repair and refurbishment of our existing equipment that has been deployed at customer locations are expensed as cost of revenue in the period in which the maintenance, repair or refurbishment is performed. These expenses are incurred to, among other things, maintain our existing equipment in working order, provide our customers with updated equipment, fix software bugs, if any, provide new functionality and minimize the number of different installation configurations that we must support. We are not obligated to perform maintenance, repair or refurbishment under the terms of our rental agreements with our customers, but we do so in order to improve the quality and reliability of our products;

(b) general and administrative expenses, including the costs of activities associated with the management of our company and related support, which includes all payroll and benefits other than payroll in connection with research and development activities, travel costs, professional fees, facility lease expenses and bad debt expense reserves;

(c) sales and marketing expenses, consisting primarily of commissions paid to distributors for promoting and supporting our products and related marketing costs; and

(d) costs of research and development activities geared to the further development of our gaming platform, including labor costs and costs of hardware and software testing, prototyping and development tools.

We envision that the development of our product revenue will require us to record costs of products sold (rather than leased) that include materials, labor, and direct and indirect manufacturing costs and associated warranty costs.

Millennium, our wholly owned subsidiary, distributes our bingo products in selected territories in the United States. All of our other operations, including the operation and maintenance of our bingo products in all territories and the exclusive distribution of our bingo products in Nevada, Texas, Washington and Canada, are conducted by FortuNet.

During the three months ended September 30, 2007, we incurred $196,177 in legal expenses primarily due to a civil RICO lawsuit against defendants Game Tech International, Inc. and Game Tech Arizona, Inc. Our legal expenses decreased in comparison to the $289,162 in legal expenses for the three months ended September 30, 2006. This decrease is primarily due to the settlement of the patent infringement lawsuit against Planet Bingo, LLC and its subsidiary, Melange Computer Services, Inc. We expect similar or increasing levels of litigation and other legal expenses in the future.

Deferred taxes are primarily the result of differences in tax and financial amortization lives of other assets and differences of property and equipment depreciation.

Application of Critical Accounting Policies and Estimates

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

There has been no material change in the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements from the critical accounting policies described in our Annual Report on Form 10-K for fiscal year ended December 31, 2006.

Legal Contingencies

We are currently involved in various legal claims and legal proceedings. We have not accrued any liability for estimated losses related to legal contingencies at this time. In management’s opinion, these matters are not expected to have a material effect on our financial position or results of operations. Periodically, we review the status of each legal matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our consolidated results of operations and financial position.

Results of Operations

The following table sets forth our results of operations in dollars and as a percentage of revenue for each of the periods indicated:

Consolidated Income Statement

		Three Months Ending September 30,						Nine Months Ending September 30,
		2007			2006			2007			2006
Revenues
Sales Revenue	$	4,273,737	100.0%	$	4,075,618	100.0%	$	12,770,294	100.0%	$	12,048,954	100.0%
Cost of Revenue		587,391	13.7%		534,963	13.1%		1,766,398	13.8%		1,577,146	13.1%
Gross Profit		3,686,346	86.3%		3,540,655	86.9%		11,003,896	86.2%		10,471,808	86.9%
Operating Costs & Expenses
General & Administrative		1,074,328	25.1%		1,458,483	35.8%		3,344,880	26.2%		5,406,522	44.9%
Sales & Marketing		1,206,978	28.3%		1,290,877	31.7%		3,937,602	30.8%		3,858,730	32.0%
Research & Development		117,522	2.8%		122,600	3.0%		402,342	3.2%		490,824	4.1%
Total Operating Expenses		2,398,828	56.2%		2,871,960	70.5%		7,684,824	60.2%		9,756,076	81.0%

Income from operations		1,287,518	30.1%		668,695	16.4%		3,319,072	26.0%		715,732	5.9%

Other Income		8,105	0.2%		---	---%		477,741	3.7%		---	---%
Investment Income		273,719	6.4%		252,983	6.2%		788,412	6.2%		565,475	4.7%
Interest Expense		---	---%		(1,859)	0.0%		(19,459)	(-0.2)%		(12,127)	(0.1)%
Income Before Taxes		1,569,342	36.7%		919,819	22.6%		4,565,766	35.7%		1,269,080	10.5%
Provision for income taxes		436,422	10.2%		372,527	9.2%		1,231,661	9.6%		513,977	4.2%
Net Income	$	1,132,920	26.5%	$	547,292	13.4%	$	3,334,105	26.1%	$	755,103	6.3%

Three Months and Nine months ended September 30, 2007 and September 30, 2006

Sales revenue. Sales revenue was $4,273,737 for the three months ended September 30, 2007, as compared to $4,075,618 for the three months ended September 30, 2006, an increase of $198,119, or 4.9%. Sales revenue was $12,770,294 for the nine months ended September 30, 2007, as compared to $12,048,954 for the nine months ended September 30, 2006, an increase of $721,340, or 6.0%. This increase was due primarily to the deployment of additional bingo player units.

For the three months ended September 30, 2007, the net change in our revenue as a result of changes in our customer base was an increase in revenue of $103,790 over the same quarter of the prior year and the net change in revenue as a result of changes in operations at our existing customer locations was an increase of revenue of $94,329 over the same quarter of the prior year.

Cost of revenue. Cost of revenue was $587,391 for the three months ended September 30, 2007, as compared to $534,963 for the three months ended September 30, 2006, an increase of $52,428, or 9.8%. Cost of revenue was $1,766,398 for the nine months ended September 30, 2007, as compared to $1,577,146 for the nine months ended September 30, 2006, an increase of $189,252, or 12.0%. The increase in cost of revenue was attributable primarily to the increase in depreciation, installation and maintenance expenses. Specifically, the depreciation cost for the three months ended September 30, 2007 was $450,603 as compared to $445,417 for the three months ended September 30, 2006. Our installation, maintenance and shipping expense also increased to $136,788 for the three months ended September 30, 2007 from $89,546 for the three months ended September 30, 2006. This increase was partially attributable to an increase in the rate of new installations of bingo equipment in the third quarter of 2007 as compared to the third quarter of 2006. As a result of this overall increase in costs, our gross margin decreased slightly to 86.3% for the three months ended September 30, 2007 from 86.9% for the three months ended September 30, 2006.

General and Administrative. General and administrative expenses were $1,074,328, or 25.1% of revenue, for the three months ended September 30, 2007 compared to $1,458,483, or 35.8% of revenue, for the three months ended September 30, 2006, a decrease of $384,155, or 26.3%. General and administrative expenses were $3,344,880, or 26.2% of revenue for the nine months ended September 30, 2007 compared to $5,406,522, or 44.9% of revenue for the nine months ended September 30, 2006, a decrease of $2,061,642, or 38.1%. This significant decrease in general and administrative expenses was achieved primarily due to the cessation of costs associated with the transition of the Company from a privately held entity to a publicly traded corporation in 2006; the latter costs specifically including the consulting services previously provided by Spiegel Partners LLC (with a third quarter 2006 cost of $96,635) and the costs associated with the stock grants to certain of our executives (in the amount of $677,881) and payments to our independent directors (in the amount of $25,230). In the quarter ending September 30, 2007 we had costs associated with stock grants to our directors in the amount of $16,730. We expect to have costs similar to the current costs in connection with the stock grants to our directors in the remaining quarter of 2007. Our litigation and other legal expenses decreased from $289,162 during the three months ended September 30, 2006 to $196,177 during the three months ended September 30, 2007 primarily attributable to reaching a settlement agreement in one of our prior lawsuits.

Sales and marketing. Sales and marketing expenses were $1,206,978, or 28.3% of revenue for the three months ended September 30, 2007 compared to $1,290,877, or 31.7% of revenue for the three months ended September 30, 2006, a decrease of $83,899, or 6.5%. However, the overall sales and marketing expenses for the nine months ended September 30, 2007, were $3,937,602, or 30.8% of revenue, compared to $3,858,730, or 32.0% of revenue, for the nine months ended September 30, 2006, an increase of $78,872, or 2.0%. The decrease for the quarter ended September 30, 2007 was attributable primarily to the reduction of cost associated with sales and marketing efforts in the Nevada market due to the addition of non commissionable customers. In addition, the overall increase for the nine months ended September 30, 2007 was primarily attributable to the expansion of our distribution channel with the deployment of additional player units.

Research and development. Research and development expenses were $117,522, or 2.8% of revenue, for the three months ended September 30, 2007, compared to $122,600, or 3.0% of revenue, for the three months ended September 30, 2006, a decrease of $5,078, or 4.1%. Research and development expenses were $402,342, or 3.2% of revenue, for the nine months ended September 30, 2007, compared to $490,824, or 4.1% of revenue, for the nine months ended September 30, 2006, a decrease of $88,482, or 18.0%. The decrease in research and development cost in the three and nine months ended September 30, 2007 in comparison with the research and development expense for the comparable periods in 2006 was the result of reaching a technological feasibility phase of our mobile gaming platform necessitating a portion of the overall research and development costs totaling $249,094 to be capitalized (in the nine months ended September 30, 2007) in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed .

Other income and investment income. Interest income from investments for the three months ended September 30, 2007 was $273,719 or 6.4% of revenue, compared to $252,983 or 6.2% of revenue, for the three months ended September 30, 2006, an increase of $20,736, or 8.2%, primarily the result of having larger principal amounts under investment during the 2007 periods.

Provision for income taxes. An income tax provision of $436,422 with an effective tax rate of 27.8% was recorded for the three months ended September 30, 2007, as compared to $372,527 with an effective tax rate of 40.5% for the three months ended September 30, 2006, an increase of $63,895, or 17.2%. An income tax provision of $1,231,661 with an effective tax rate of 27.0% was recorded for the nine months ended September 30, 2007 compared to $513,977 income tax provision with an effective tax rate of 40.5% for the nine months ended September 30, 2006, an increase of $717,684, or 139.6%. These increases in tax provisions were primarily due to increases in our taxable income during the three and nine months ended September 30, 2007. The respective decreases in effective tax rates are attributable primarily to the increased investment of available liquid assets into tax exempt instruments.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily with revenue generated from the leasing of our bingo products. In January 2006 we successfully completed our initial public offering of our common stock. As of September 30, 2007, our principal sources of liquidity were cash and cash equivalents and marketable securities of $28,878,075 and accounts receivable (net of allowance for doubtful accounts) of $1,681,875. We anticipate that our leasing revenue, which is our principal source of revenue today, will be sufficient to fund our operating expenses in the short term. Long term cash is expected to be generated from existing operations and also through selling or leasing of our products in new markets.

We expect to incur significant additional expenses in connection with the procurement of equipment and components and the manufacturing of additional stationary and wireless player terminals to take advantage of business opportunities. We anticipate that these expenses will consume a substantial portion, if not all, of our recurring lease revenues. Except to the extent we become obligated under supply contracts that we enter into to procure equipment and components, our fixed payment commitments are limited to our facilities lease.

We believe that our cash flow from operations will be adequate to meet our anticipated future requirements for working capital and capital expenditures for the next 12 months and for the foreseeable future. Although no additional capital raise is currently being contemplated, we may seek, if necessary or otherwise advisable, additional financing through bank borrowings or public or private debt or equity financings. Additional financing, if needed, may not be available to us, or, if available, the financing may not be on terms favorable to us. The terms of any financing that we may obtain in the future could impose additional limitations on our operations and management structure. Our estimates of our anticipated liquidity needs may not be accurate or new business development opportunities or other unforeseen events may occur, resulting in the need to raise additional funds.

Summary of Consolidated Statements of Cash Flow

	Nine Months Ended September 30,
	2007			2006
		(as restated)			(as restated)
Net cash provided by operating activities	$	4,874,724		$	3,678,682
Net cash used in investing activities		(2,640,457	)		(15,420,465	)
Net cash provided by in financing activities		--			23,977,600
Net increase in cash and cash equivalents		2,234,267			12,235,817
Cash and cash equivalents, beginning		3,493,808			511,517
Cash and cash equivalents, ending	$	5,728,075		$	12,747,334

Operating Activities

For the nine months ended September 30, 2007, net cash of $4,874,724 provided by operating activities was primarily due to net income of $3,334,105, depreciation and amortization of $1,402,735, stock issued for services of $152,495 and change in operating assets and liabilities of $(5,718). In comparison, for the nine months ended September 30, 2006, net cash of $3,678,682 provided by operating activities was primarily due to net income of $755,103, depreciation and amortization of $1,696,974, stock issued for services of $1,099,857 and change in operating assets and liabilities of $84,431. The increase in net cash provided by operating activities during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was primarily due to the increase in operating income for the nine months ending September 30, 2007.

Investing Activities (restated)

For the nine months ended September 30, 2007, $2,640,457 of net cash was used for investing activities, with $1,240,804 being used to fund the manufacturing of additional equipment for lease to our customers and $1,224,653 used on other capital expenditures and $175,000 used for additional investment in marketable securities.

In comparison, for the nine months ended September 30, 2006, $15,420,465 of net cash was used for investing activities, with $1,140,195 being used to fund the manufacturing of additional equipment for lease to our customers and 1,530,270 was spent on other capital expenditures and $12,750,000 was invested in marketable securities..

Financing Activities

For the nine months ended September 30, 2007, no net cash was provided by financing activities.

For the nine months ended September 30, 2006, $24,414,717 of net cash was raised through financing activities. $24,710,625 was raised through the sale of our stock in our initial public offering, less costs of issuing stock of in the amount of $295,908.

Off-Balance Sheet Arrangements

As of September 30, 2007, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices, including interest rates, foreign currency exchange rates, credit risk, commodity prices and equity prices. Our primary exposure to market risk is due to the fact that certain parts, components and subassemblies for our products are manufactured outside of the United States, which exposes us to the risk of foreign currency fluctuations, political and economic instability and diluted protection of intellectual property. We are most affected by fluctuations in the value of currencies in southeast Asia. We are also subject to significant credit risk resulting from the fact that a significant portion of our accounts receivable are owed to us by relatively few of our customers. One customer made up 32.4% and 28.7% of rental revenues for the nine months ended September 30, 2007 and 2006, respectively. Furthermore, one other customer made up 12.3% and 8.1% of the accounts receivable balance as of September 30, 2007 and 2006, respectively. If these few customers

fail to perform their obligations to us, we may lose a significant portion of our revenue. We do not require collateral to extend credit to our customers but we do perform ongoing credit evaluations of our customers’ financial condition.

We are also exposed to market risk in our holding of marketable securities. Our primary investment objective is to preserve principal while maximizing yield without significantly increasing our risk. Our investments consist of non taxable auction rate securities, or ARS. Our investments totaled $23,150,000 at September 30, 2007, which were invested in fixed interest securities.

Due to the conservative nature of our short-term fixed interest rate investments, we do not believe that we have a material exposure to interest rate risk.

Our marketable securities, ARS, are classified as available for sale. The ARS that we purchase consist of municipal bonds with maturities greater than five years and have credit ratings of at least AAA, and do not include mortgage-backed instruments. The auction process for ARS is intended, in part, to provide a liquid market for these securities. In the event of an auction failure, the interest rate on the security is reset according to the contractual terms in the underlying indenture. The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges. As of September 30, 2007, we had not experienced failed auctions of our ARS due to lack of investor interest.

Subsequent to the quarter ended September 30, 2007, the auction process for some of our ARS began to deteriorate, and during the first quarter of 2008, we began to reduce the principal amount of ARS in our portfolio. Although we did not suffer any action failures of our ARS during 2007, a few of the ARS we hold experienced auction failures during the first quarter of 2008. As a result, when we attempted to liquidate some of our ARS through auction, we were unable to do so. We believe that the failed auctions that we have experienced during the first quarter of 2008 are not a result of the deterioration of the underlying credit quality of these securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to credit ratings of the securities and/or the underlying assets supporting them, default rates applicable to the underlying assets, underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. We believe that any unrealized gain or loss associated with these securities will be temporary and will be recorded in accumulated other comprehensive income (loss) in our financial statements.

The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of instability in these markets and/or deterioration in the ratings of our investments may affect our ability to liquidate these securities, and therefore may affect our financial condition, and cash flows. We believe that based on our cash and cash equivalents balances in the first quarter of 2008, the current lack of liquidity in the credit and capital markets will not have a material impact on our liquidity, cash flows, financial flexibility or ability to fund our obligations.

We continue to monitor the market for our ARS and consider its impact (if any) on the fair market value of our investments. If the market conditions of the first quarter of 2008 continue, in which some auctions for ARS fail, or the anticipated recovery in market values does not occur, we may be required to record unrealized losses or impairment charges in 2008. As auctions have closed successfully in 2008, we have converted our investments in ARS to money market funds. We believe we will have the ability to hold any ARS for which auctions fail until the market recovers. We do not anticipate having to sell these securities in order to operate our business.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We are required to maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As required by Rule 13a-15(b) promulgated under the Securities Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of September 30, 2007, of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act. Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2007, our disclosure controls and procedures were effective at the reasonable assurance level to enable the company to record, process, summarize and report information required under the Securities and Exchange Commission’s rules in a timely fashion.

Subsequently, we determined that it was necessary to restate our condensed consolidated financial statements for the three and nine months ended September 30, 2007 and that the condensed consolidated financial statements for those periods should no longer be relied upon.

These restatements have no impact on our previously reported revenues, net income, earnings per share, stockholders’ equity or cash flows from operations shown in the condensed consolidated financial statements for the three and nine months ended September 30, 2007.

In connection with the restatement for the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2007 because of a material weakness in an internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).

We did not have effective internal control over financial reporting of marketable securities. Because the auction market had successfully provided liquidity with respect to our ARS investments during that period, the investments were perceived to be cash and cash equivalents and not recorded or reported correctly in accordance Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities.”

The Company has remediated this material weakness and prospectively has recorded and reported investments in marketable securities in accordance Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities.”

Changes in Internal Controls

There were no significant changes in the Company’s internal control over financial reporting identified in management’s evaluation during the three months ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Accounting for Income Taxes

In connection with the evaluation of our disclosure controls and procedures at December 31, 2006, our Chief Executive Officer and Chief Financial Officer concluded that there was a significant deficiency in our accounting for income taxes. In preparation of our tax provision for year ended December 31, 2006, we identified certain adjustments to our tax liability account and related income tax provision. All adjustments to correct these matters were reflected in our consolidated financial statements for the year ended December 31, 2006.

The significant deficiency was attributable primarily to the lack of personnel in our accounting department to thoroughly perform the necessary checks and balances for daily and year-end procedures, including the accounting for income taxes. In 2007, we strengthened our accounting procedures and in October 2007, we hired additional accounting personnel to further improve the effectiveness of our accounting procedures.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In March 2006 we commenced a civil action under the federal Racketeer Influenced Corrupt Organization (RICO) law in the United States District Court of Nevada against GameTech International Incorporated and its wholly owned subsidiary, GameTech Arizona Corporation alleging the manufacture and/or sale of gaming products in Nevada without all required regulatory licenses and approvals to do so. In this lawsuit, we are seeking unspecific monetary damages and injunctive relief.

We believe that the final resolution of any pending litigation, individually or in the aggregate, is not likely to have a material adverse effect on our business, cash flow, results of operations or financial position.

We are occasionally threatened with or named as a defendant in lawsuits arising in the ordinary course of business, such as personal injury claims and unemployment-related claims. From time to time, we also prosecute various collection claims against delinquent customers.

ITEM 1A. RISK FACTORS

The risk factors set forth below captioned “ Competition in the market for electronic bingo products specifically and competition for mobile gaming devices generally … ” have been added to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2006.

The risk factors set forth below captioned “ Our failure to obtain approvals under the regulations promulgated under the Nevada Mobile Gaming law ..., ” “ We operate in a highly competitive industry … ,” “ Our failure to extend our contracts with existing

customers and to win new customers ..., ” “ If we are unable to retain our senior employees …, ” “ A material reduction in the yield on our investment of the proceeds of our initial public offering … ,” “ Our patents and proprietary rights may not be enforceable … ” and “ A decline in the popularity of gaming generally … ” have been materially modified from prior versions of these risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2006.

Risks Relating to Our Business

Our failure to obtain approvals under the regulations promulgated under the Nevada Mobile Gaming Law, including the specific approval of the Nevada Gaming Commission of our mobile gaming devices, would negatively impact our growth strategy.

Notwithstanding our receipt of an Operator of Mobile Gaming Systems license issued by the Nevada Gaming Commission, the regulations promulgated under the Nevada Mobile Gaming Law require us to obtain specific approval of our mobile gaming devices for use in Nevada casinos. On July 12, 2007, the Nevada gaming Commission published a draft of proposed minimum internal control standards, or MICS, applicable specifically to mobile gaming systems. Our mobile gaming devices must comply with any formally adopted MICS and any other minimum specifications or requirements promulgated by applicable regulatory authorities. We submitted certain of our mobile gaming systems to the Nevada Gaming Control Board in 2006 and await the decisions of the Nevada Gaming Commission. In November 2007, we received permission from the Nevada Gaming Control Board to demonstrate the use of certain of our mobile gaming systems at the Red Rock Hotel and Casino in Las Vegas, Nevada during the Global Gaming Exposition trade show from November 13, 2007 through November 15, 2007. While we are encouraged by this action, it provides no assurance or certainty as to the outcome of the currently pending review of certain of our mobile gaming systems by the Nevada Gaming Control Board or other regulatory authorities, our mobile gaming systems have not been approved by the Nevada Gaming Commission for use or play in Nevada. If we are unable to obtain or maintain approval of our mobile gaming platform as required by the regulations, we will be unable to manufacture, distribute and operate wireless player terminals that enable casino players to play casino games in public areas of gaming establishments as permitted by the Nevada Mobile Gaming Law.

Our failure to maintain our current licenses and regulatory approvals or failure to maintain or obtain licenses or approvals for our gaming devices in any jurisdiction will prevent us from operating in that jurisdiction and possibly other jurisdictions, leading to reduced overall revenue.

As a manufacturer, distributor and operator of gaming platforms, we currently hold licenses in a number of jurisdictions, including Nevada. Our officers, including our controlling stockholder, Yuri Itkis, are required to obtain and maintain licenses, permits and other forms of approval in certain jurisdictions. We are under continuous scrutiny by the applicable regulatory authorities. Our or our officers’ current regulatory approvals may be revoked, suspended or curtailed at any time. Our or our officers’ failure to obtain or maintain regulatory approval in any jurisdiction may prevent us from obtaining or maintaining regulatory approval in other jurisdictions. The failure to maintain a license in a single jurisdiction or a denial of a license by any new jurisdiction may cause a negative “domino effect” in which the loss of a license in one jurisdiction could lead to regulatory investigation and possible loss of a license in other jurisdictions.

Some jurisdictions also require licenses, permits or other forms of approval for specific gaming devices. If other jurisdictions adopt mobile gaming laws similar to the Nevada Mobile Gaming Law, these approval requirements may vary from jurisdiction to jurisdiction. As a general matter, the regulatory approval of devices involving traditional casino games is more difficult to obtain than those for bingo products. Some jurisdictions require the regulatory approval of entities and individuals before the pursuit of regulatory approval of specific gaming devices, but other jurisdictions allow the pursuit of such regulatory approvals concurrently. Although we and the individuals associated with us may obtain regulatory approval in a particular jurisdiction, we may not be able to manufacture, distribute or operate our mobile gaming platforms in that jurisdiction without separate and specific regulatory approval of our mobile gaming platform. Any failure of our gaming platform to meet the requirements for approval or to obtain the approval in any jurisdiction will cause us to not be able to distribute our gaming platforms in the jurisdiction.

Our inability to comply fully, or at all, with the mobile gaming regulations may result in substantial additional development costs and preclude us from executing our growth strategy.

The regulations require that our mobile gaming systems be approved by the Nevada Gaming Commission before we may distribute these systems to Nevada casinos. We have submitted certain of our mobile gaming systems to the Nevada Gaming Commission and await its decisions. The Nevada Gaming Commission may impose significant requirements on the functionality or design of mobile gaming systems that may be manufactured, distributed or operated in Nevada. To the extent that our existing mobile gaming platform may not comply with such requirements, we would need to undertake additional research and development activities that may be costly, time consuming or require the procurement of components that are scarce in supply. Despite undertaking additional research and development activities, we may not be able to design or develop a mobile gaming platform that complies with the standards adopted by the Nevada Gaming Commission, in which case we would be unable to manufacture, distribute or operate wireless player terminals that enable casino players to play traditional casino games in the public areas of gaming establishments permitted under the Nevada Mobile Gaming Law, and therefore be unable to fully execute our growth strategy.

We operate in a highly competitive industry and expect the market for mobile gaming devices to become increasingly competitive, which may negatively affect our operations and our ability to maintain relationships with gaming establishments.

The market for gaming devices generally is intensely competitive, and we expect competition to increase and intensify as the market for mobile gaming devices develops. We currently compete with other providers of electronic bingo products, such as VKGS, LLC, or Video King, formerly a division of BK Entertainment Corp., GameTech International, Inc., the recently merged Planet Bingo, LLC and Melange Computer Services, Inc., Blue Dog, Inc., Electronic Game Solutions, Inc. and California Concepts, Inc. in the marketing of our BingoStar wireless bingo systems. Although none of our competitors that manufacture mobile bingo devices is currently licensed in Nevada to market or sell bingo products, other than GameTech International, Inc., we may face competition from these providers in the market for mobile gaming devices in the future. Given the market penetration, name recognition, marketing resources and familiarity with the gaming device industry generally, traditional casino game device manufacturers could be a significant competitive threat to us. We expect fierce competition from multiple large competitors dominating their respective markets , such as Aristocrat Leisure, Ltd., International Game Technology, Alliance Gaming Corporation, WMS Gaming Inc., Progressive Gaming Inc. and Shuffle Master, Inc., that may enter the market for mobile gaming devices. In addition, we may in the future face competition from new entrants into the gaming device market, such as Cantor Fitzgerald LP, a large financial services company that already offers wireless sports betting in the United Kingdom, Sona Mobile, Inc. that has recently been granted an Operator of Mobile Gaming Systems license in Nevada, and at least two other gaming technology companies, Chimera Technology Corp. and Diamond I, Inc. Finally, traditional casino operators, most of whom are much larger than us, may attempt to enter the emerging mobile gaming market. Some of our competitors and potential competitors have significant advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential customers, proprietary technology, significantly greater financial, marketing and other resources and more readily available access to capital that could allow them to respond more quickly to new or changing opportunities.

Competition in the market for electronic bingo products specifically and competition for mobile gaming devices generally may result in reductions in the prices at which we provide our products to gaming establishments.

Other providers of electronic bingo products have in the past reduced, and may in the future continue to reduce, the prices of their products to gaming establishments in order to win those gaming establishments as customers and to gain market share. In order to retain existing customers or win new customers, we may be forced to reduce our prices or provide other incentives to gaming establishments. To the extent that competitive pressures force us to reduce our prices or provide other incentives to establish or maintain relationships with gaming establishments, our business and operating results could be adversely affected.

Our failure to extend our contracts with existing customers and to win new customers would negatively impact our operations.

All of our lease contracts relate to our electronic bingo products. In 2006 we derived 99.7% of our revenues and cash flow from our portfolio of contracts to lease electronic bingo products to gaming establishments, such as casinos, and bingo halls. Our contracts are typically for a term ranging from one to three years in duration and several are on a month-to-month basis. Not all of our contracts preclude our customers from using bingo devices of our competitors. Upon the expiration of one of our contracts, a gaming establishment may award a contract through a competitive procurement process, in which we may be unsuccessful in winning the new contract or forced to reduce the price that we charge the gaming establishment in order to renew our contract. In addition, some of our contracts permit gaming establishments to terminate the contract at any time for our failure to perform and for other specified reasons. The termination of or failure to renew or extend one or more of our contracts, or the renewal or extension of one or more of our contracts on materially altered terms could, depending upon the circumstances, have a material adverse effect on our business, financial condition, results and prospects.

We derive a substantial portion of our revenue from direct sales to our customers, or house accounts, which we service ourselves, without any involvement of outside distributors. Although such accounts typically involve higher profit margins, the competition for these accounts is very keen. We typically negotiate one to three year, automatically renewable leases for our bingo units with our direct customers. The house account contracts tend to be challenging to maintain and enforce, especially those with tribal gaming operators, and therefore, we may not be able to retain lucrative house accounts indefinitely. A loss of any such account may have a severe negative impact on our revenue.

If we are unable to retain our senior employees, or replace them with similarly skilled or experienced replacements, or attract other key personnel, our operations may suffer.

Our future success depends to a significant degree on the skills, experience and efforts of our key personnel. We depend heavily on the ability and experience of a small number of senior executives who have substantial experience with our operations and the electronic gaming device industry, including Yuri Itkis, our founder, Chief Executive Officer and Chairman; William Jacques, our Chief Financial Officer and Controller; Jack Coronel, our Chief Marketing Officer and Director of Compliance and Strategic Development; and Boris Itkis, our Chief Technical Officer and Vice President of Engineering. The loss of any of these senior executives without the corresponding hiring of similarly skilled or experienced replacements or the failure of any of these senior executives to obtain or maintain the requisite regulatory licenses, permits or determination of suitability could have a material adverse effect on our business.

Changes in licensed positions must be reported to the Nevada gaming authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada gaming authorities may disapprove a change in a corporate position, such as a change in job title or substantive job responsibilities. Any such disapproval would prevent us from redeploying our senior executive talent in new functional roles even if management desires to do so.

Our future success depends upon our ability to attract, train and retain key marketing and customer support personnel and key managers as we further develop our products and as we enter new markets and expand in existing markets. In particular in connection with the audit of our financial statements for 2006, our independent registered public accounting firm identified a significant deficiency in our internal control over financial reporting arising from the then current level of staffing in our accounting department; although we have recently hired additional accounting personnel, in the future, we may not be able to augment our current level of staffing with qualified individuals on a timely basis. Due to licensing requirements of these personnel that may be imposed by gaming authorities, our pool of potential employees may be more limited than in other industries. Competition for individuals with the skills required is intense, and we may not be successful in recruiting such personnel. In addition, we may not be able to retain such individuals as they may leave our company and go to work for our competitors. If we are unable to attract or retain key personnel, our business, financial condition and operating results could be materially adversely affected.

If other gaming jurisdictions do not adopt mobile gaming legislation similar to the Nevada Mobile Gaming Law, or on any terms at all, we will be unable to implement our growth strategy outside of Nevada.

Our ability to execute fully our growth strategy in jurisdictions other than Nevada depends upon other gaming jurisdictions adopting mobile gaming legislation involving traditional casino games. Currently, Nevada is the first and the only state to enact legislation authorizing mobile gaming for traditional casino games. Although we are not aware of any tribal gaming authority that has specifically prohibited mobile casino gaming involving traditional casino games, we are also not aware of any that have specifically and formally approved it, even though many tribal gaming authorities in practice allow mobile bingo gaming. The adoption of gaming legislation can be affected by a variety of political, social and public policy forces and gaming jurisdictions other than Nevada may not adopt mobile gaming legislation involving traditional casino games in the foreseeable future. To the extent that other jurisdictions do adopt mobile gaming legislation involving traditional casino games, we may not be able to comply fully with the legislation without incurring substantial additional development costs, or at all. If we are required to modify our mobile gaming platform to comply with such potential legislation, we may suffer the increased costs of maintaining multiple variants of our mobile gaming platform to comply with the differing legislation of different jurisdictions. If other gaming jurisdictions fail to adopt mobile gaming legislation involving traditional casino games or we are unable to comply with such legislation without substantial additional costs, we may be unable to execute our growth strategy.

Our failure to obtain gaming licenses or other regulatory approvals in other jurisdictions would preclude us from expanding our operations into and generating revenue from these jurisdictions.

The manufacture and distribution of gaming devices are subject to extensive federal, state, local and tribal regulation. Some jurisdictions require licenses, permits and other forms of approval for gaming devices. Most jurisdictions require licenses, permits or other forms of approval of the manufacturers, distributors and operators of gaming devices, including evidence of financial stability, and of the suitability of their officers, directors, significant stockholders and key employees. The regulatory agencies conduct in-depth investigations of gaming device manufacturer licensees as well as detailed personal background checks of key employees and major stockholders of the licensees. Obtaining requisite approvals of state and tribal gaming authorities is a time-consuming and costly process. Even after incurring significant time and expense in seeking regulatory approvals, we may not be able to obtain them. Our failure or the failure of our officers, directors, major stockholders or key personnel to obtain regulatory approval in any jurisdiction will prevent us from distributing our products and generating revenue in that jurisdiction.

Our failure to properly manage growth would adversely affect our business operations.

In order to implement our business strategy, we must effectively manage rapid growth in our manufacturing, sales and customer support operations. This rapid growth will strain our existing management, financial and other resources. To manage any future growth effectively, we will have to expand our management team, integrate new personnel and augment our marketing and production capabilities. To rapidly produce large volumes of wireless gaming terminals, we will have to formulate and implement design, production planning, manufacturing and quality assurance plans that are unlike those we have used in the past. These plans may strain our manufacturing and industrial engineering capabilities and resources. Rapid growth would also require us to improve our financial, accounting and operational systems and controls. Expansion into new geographic areas would further strain our limited operational and marketing resources. If we are unable to effectively manage our growth, we may fail to execute our business strategy and our operations and financial results may be adversely affected.

A material reduction in the yield on our investment of the proceeds of our initial public offering and our retained earnings could materially and adversely affect our net income and earnings per share.

Because we have not yet begun full-scale production of mobile gaming devices under the Nevada Mobile Gaming Law, we have invested the bulk of the proceeds of our initial public offering and the bulk of our retained earnings. Our net income and earnings per share for the year ended December 31, 2006 and the quarter ended September 30, 2007 depended substantially on the yield that we achieved on these investments. Approximately 28% of our income before tax during 2006 and 17% of our income before tax during the quarter ended September 30, 2007 resulted from these investments. Although we have invested these proceeds in relatively conservative investments, there can be no assurance that we will continue to enjoy the same yields on these investments as we did during 2006. Moreover, there can be no assurance that these investments will continue to generate a positive yield. Assuming no other changes in our sources of revenues, any decrease in the yield on these investments, and any loss on these investments, would directly reduce our revenues.

Losing any of our small number of independent distributors upon whom we depend for a significant portion of our revenue would negatively impact our operations.

We are dependent upon a small number of independent distributors to market and sell our products to casinos and bingo halls. For the fiscal year ended December 31, 2006, approximately 58.6% of our revenues were derived through nine distributors. During the same period, we derived approximately 32.7% of our revenue from our single largest distributor. Due to our payment of commissions to distributors, our customer contracts derived from distributors generate lower profit margins than our contracts derived from direct sales, or house accounts. Because we do not directly control our distributors or their customer intake practices, contracts with customers derived from distributors may be susceptible to higher default rates and lower profit margins than our house accounts.

Some of our distributors are not contractually prohibited from marketing or selling products of our competitors. Our contracts with our distributors typically cover one to three year terms and are automatically renewed for one year unless terminated upon the expiration of the then current term. Upon the expiration of a contract term, we may not be able to renew any of these contracts on terms that are favorable to us, or at all. Our competitors may provide incentives to our distributors to market and sell their products in addition to or in lieu of ours. The loss of any of our distributors may result in a material reduction in our revenue, resulting in a material adverse effect on our business, financial condition and results of operations.

Difficulties with the limited number of manufacturers and suppliers upon whom we rely for components of our products would negatively impact our production capacity, customer relationships and operations.

We purchase most of the parts, components and subassemblies necessary for the manufacture of our products from outside sources. We assemble these parts, components and subassemblies into finished products in our manufacturing facility. While most of the parts, components and subassemblies are produced by more than one manufacturer and can be purchased through more than one supplier, we currently rely upon approximately 12 vendors from whom we purchase substantially all of our components. We currently obtain the touch screens for our wireless gaming terminals from a single supplier. While changing suppliers for this component is not impossible, doing so would require significant time and effort on the part of our engineering and management teams and may cause us to miss revenue generating opportunities until we are able to obtain touch screen monitors from a new supplier. In addition, the supplies of the central processing units, memory and peripheral drives for our mobile gaming platforms are often uncertain and subject to significant backlogs from time to time due to spikes in general demand for such products. We compete with other companies for the production capacity of third party manufacturers and suppliers of these and other components. Certain of these competing companies have substantially greater financial and other resources than we have and thus we may be at a competitive disadvantage in seeking to procure production capacity.

To procure certain parts, components and subassemblies, we sometimes commit to supply contracts in which we commit to purchase large quantities over extended periods of time. By doing so, we are exposed to a number of risks. If the market prices of these components drop below the prices at which we are committed to purchase them, our purchase commitments may preclude us from taking advantage of reductions in market prices. If the components are surpassed by superior technology that becomes available after we make our purchase commitments, our purchase commitments may preclude us from taking advantage of technological advancements. If a change in the design or specifications of our products results in a substitution or elimination of a component, we may be forced to write off a substantial quantity of obsolete inventory of components or to sell such components in the open market at a loss.

Our inability to contract with third-party manufacturers and suppliers to provide a sufficient supply of our components on acceptable terms and on a timely basis could negatively impact our relationships with customers and materially and adversely harm our business. For those components that we procure under supply contracts, if any of such supply contracts were to be terminated or breached, we may not be able to procure an alternate supply on terms as favorable to us in time, or at all. We may suffer lengthy delays in our manufacturing process while we seek to procure an alternate supply. A delay in our ability to manufacture products may adversely affect our goodwill with customers, expose us to liability to customers and result in the loss of business opportunities. Any alternate supply of parts, components or subassemblies may be more expensive to us or may require us to undertake additional engineering activities to integrate the alternate supply into our products or manufacturing process.

Certain parts, components and subassemblies for our products are manufactured outside of the United States, which exposes us to the risks of foreign currency fluctuations, political and economic instability and limited protection of intellectual property.

If our wireless gaming terminals do not achieve and maintain widespread acceptance by gaming establishments and casino patrons as a means to play traditional casino games, our business operations will not grow.

Our current business depends on the preferences of gaming establishment players that play bingo games, and our growth strategy depends on the preferences of gaming establishment players that play traditional casino games, such as poker, keno and slots. The tastes and preferences of players of bingo and traditional casino games are known to change over time. If the bingo games or traditional casino games that we enable gaming establishment players to play using our wireless gaming terminals do not appeal to players to the degree anticipated, our mobile gaming platforms will not be fully utilized and our business will suffer.

The success of our growth strategy will depend to a large extent on broad market acceptance of our wireless gaming terminals among casinos and their players who play traditional casino games. The only market acceptance that our wireless gaming terminals currently enjoy is as a means to play bingo games electronically. Even if we are successful in deploying mobile gaming platforms that enable casino players to play traditional casino games, gaming establishments and their players may still not use our wireless gaming terminals for a number of reasons, including preference for live dealers, preference to play casino games in a traditional environment using traditional equipment, mistrust of technology and perceived lack of reliability. We believe that the acceptance of our wireless gaming terminals by gaming establishments and their players will depend on our ability to demonstrate the economic and other benefits of our products to gaming establishments, casino players becoming comfortable with using our wireless gaming terminals, the attractiveness of the casino games that players can play using our wireless gaming terminals, ease of use, and the reliability of the hardware and software that comprise our mobile gaming platforms.

Initially, we intend to offer our customers equipment lease agreements under which we will lease our wireless gaming terminals and the associated equipment. However, if and when market acceptance of our wireless gaming platforms has been established, we may be required to sell wireless gaming platforms to customers rather than lease them because of the prevailing practices of casino operators to purchase rather than lease equipment. However, if our wireless gaming terminals fail to quickly achieve market acceptance as a means to play traditional casino games, our customers may not renew their leases or may not purchase our mobile gaming platforms, which would have a material adverse effect on our business, financial condition and results of operation.

Any change in our business model from the lease of wireless gaming terminals to the sale of gaming terminals may result in an eventual reduction of our revenues.

We currently derive substantially all of our revenues by leasing our wireless gaming terminals and associated equipment to our gaming establishment customers. If and when market acceptance of our wireless gaming terminals is established, our gaming establishment customers may prefer to purchase our wireless gaming terminals rather than lease them. If we sell our wireless gaming terminals in the future, we must price them in a manner that reflects the ongoing lease revenues that leasing them generates. If we are unable to sell our wireless gaming terminals for a sales price in excess of the lease revenues that we would otherwise receive, our revenues may eventually decline.

Our failure to comply with tribal regulation and tribal laws would preclude us from operating in tribal jurisdictions and deriving revenue from operations in tribal jurisdictions.

We are required to obtain licenses and approvals from tribal authorities in order to operate in tribal jurisdictions. When seeking approvals from or licensing with tribal-owned or tribal-controlled gaming establishments, we become subject to tribal laws and regulations. These laws and regulations may differ materially from the non-tribal laws and regulations under which we generally operate. A change in tribal laws and regulations or our inability to obtain required licenses of our gaming platforms or licenses to operate on tribal lands could have a material adverse effect on our business, financial condition and operating results.

We may not be able to enforce our contractual rights against tribal governments or entities, which may negatively impact our operations.

In addition to tribal gaming regulations that may require us to provide disclosures or obtain licenses or permits to conduct our business on tribal lands, we may also become subject to tribal laws that govern our contracts. These tribal governing laws may not provide us with processes, procedures and remedies that enable us to enforce our rights as effectively and advantageously as the processes, procedures and remedies that would be afforded to us under non-tribal laws, or to enforce our rights at all. Many tribal laws permit redress to a tribal adjudicatory body to resolve disputes; however, such redress is largely untested in our experience and tribal judiciaries are not always independent. We may be precluded from enforcing our rights against a tribal body under the legal doctrine of sovereign immunity. Our inability to enforce our contract rights under tribal law could negatively impact our operations.

Disrupted operation of our server-based gaming systems caused by the network infrastructure of the casinos in which they are installed would cause dissatisfaction among customers and gaming establishments and may harm our operating results.

We expect to enter into agreements with customers that operate casinos and bingo halls in more than one location. In such cases, we anticipate that our agreements with such customers will provide that the customer will be responsible for providing, at its expense, a dedicated high-speed computer network connection between our server-based gaming systems in the various locations operated by the customer to a remote central gaming server supporting such systems. Failures or disruptions of a customer’s dedicated high-speed connection that result in the stoppage of play or in reduced performance of our server-based gaming system could disrupt players’ gaming experience, adversely affect the casinos’ or bingo halls’ satisfaction with our gaming devices, delay market acceptance of our mobile gaming platforms and harm our reputation, business, operating results and financial condition. In addition, our customers have to reserve, for our exclusive use, certain radio frequency, or RF, channels of adequate capacity to accommodate reliable and expedient wireless communication between our wireless player terminals and central game file servers.

We expect to spend substantial amounts on research and development, but these efforts may fail or lead to operational problems that could negatively impact our operations.

In order to compete effectively in an era of technological changes, we must continuously enhance our existing products and develop, introduce and market new products and services. As a result, we expect, as needed, to continue to make a significant investment in product development. Our development of products is dependent on factors such as assessing market trends and demands and obtaining requisite governmental approvals. Although we are pursuing and will continue to pursue product development opportunities, we may fail to develop any new products or services or enhancements to existing products. Even if new products or services are developed, these products or services may not prove to be commercially viable, or we may not be able to obtain the various gaming licenses and approvals necessary to manufacture and distribute these products or provide these services to our customers. We may experience operational problems with such products after commercial introduction that could delay or defeat the ability of such products to generate revenue or operating profits. Future operational problems could increase our costs, delay our plans or adversely affect our reputation or our sales of other products, which, in turn, could materially adversely affect our success. We cannot predict which of the many possible future products will meet evolving industry standards and casino or player demands.

Changes in technology may make our inventory obsolete and cause significant losses.

Future technological advances in the gaming equipment market may result in the availability of new products or increase the efficiency of existing products. We may not be able to adapt to such technological changes. If a technology becomes available that is more cost-effective or creates a superior product, we may be unable to access such technology or its use may involve substantial capital expenditures that we may be unable to finance. Existing, proposed or as yet undeveloped technologies may render our technology less viable, less profitable or obsolete. We may not have available the financial and other resources to compete effectively against companies possessing such technologies. If we were to fail to develop our product and service offerings to take advantage of technological developments, we may fall behind our competitors and our business, financial condition, results and prospects could suffer. If technological advances render our current inventory of products obsolete, we may suffer significant revenue losses and write-downs of our assets.

Defects in, and fraudulent manipulation of, our gaming platforms could reduce our revenue, increase our costs, burden our engineering and marketing resources, involve us in litigation and adversely affect our gaming licenses.

The real and perceived integrity and security of mobile gaming is critical to its ability to attract players. We strive to set exacting standards of system security for the systems that we provide to gaming establishments, and our reputation in this regard is an important factor in our business dealings with our customers and regulators, such as the Nevada Gaming Commission and other governmental agencies. For this reason, an actual or alleged system security defect or failure attributable to us could have a material adverse effect upon our business, financial condition, results and prospects, including our ability to retain existing contracts or obtain new contracts.

Our success will depend on our ability to avoid, detect and correct software and hardware defects and prevent fraudulent manipulation of our mobile gaming platforms. Although our mobile gaming platforms are subject to rigorous internal testing and will be subject to additional testing by regulators in certain gaming jurisdictions, we may not be able to build and maintain products that are free from defects or manipulations and that satisfy these tests. Although we have taken rigorous steps to prevent defects and manipulations, our gaming platforms could suffer from such defects and manipulation after they are put into operation.

Although we do not believe it is likely, it is possible that an individual could breach the security systems of a casino or bingo hall, gain access to the central game file server on which our server-based mobile gaming platform operates and fraudulently manipulate its operations. The occurrence of such fraudulent manipulation or of defects or malfunctions could result in financial losses for our customers and, in turn, termination of leases, cancellation of orders, product returns and diversion of our resources. Even if our customers do not suffer financial losses, casinos and bingo halls may replace our gaming platforms if they do not perform according to expectations. Any of these occurrences could also result in the loss of or delay in market acceptance of our server-based gaming platform and loss of licenses, leases and sales.

In addition, the occurrence of defects in, or fraudulent manipulation of, our gaming platforms may give rise to claims for lost revenue and related litigation by our gaming establishment customers and may subject us to investigation or other disciplinary action by regulatory authorities that could include suspension or revocation of our regulatory approvals.

Improper conduct of our employees could harm our reputation and adversely affect our business operations.

The real and perceived integrity and security of mobile gaming is critical to its ability to attract players. We strive to set exacting standards of personal integrity for our employees and reliable security for the gaming platforms that we provide to our customers, and our reputation in this regard is an important factor in our business dealings with Nevada Gaming Commission and other governmental agencies. For this reason, any allegation or a finding of improper conduct on our part, or on the part of one or more of our employees, or an actual or alleged security defect with our gaming platform or failure attributable to us, could have a material adverse effect upon our business, financial condition, results and prospects, including our ability to retain existing contracts or obtain new or renewal contracts, or the loss of gaming licenses or other regulatory approvals.

Possible future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources.

As part of our business strategy, we may seek to acquire businesses, services and technologies that we believe could complement or expand our business, augment our market coverage, enhance our technical capabilities, provide us with valuable customer contacts or otherwise offer growth opportunities. If we fail to achieve the anticipated benefits of any acquisitions we may complete, our business, operating results, financial condition and prospects may be impaired. Acquisitions and investments involve numerous risks, including:

	●	Difficulties in integrating operations, technologies, services, accounting and personnel;
	●	Difficulties in supporting and transitioning customers of our acquired companies to our technology platforms and business processes;
	●	Diversion of financial and management resources from existing operations;
	●	Potential loss of key employees;
	●	Inability to generate sufficient revenues to offset acquisition or investment costs; and
	●	Potential write-offs of acquired assets.

Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could harm our operating results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted. Such dilution could adversely affect the market price of our stock. It is also possible that at some point in the future we may decide to enter new markets, thus subjecting ourselves to new risks associated with those markets.

Our patents and proprietary rights may not be enforceable, may not be cost effective to enforce or may not provide significant competitive advantage, which could negatively impact our operations.

Our success depends to a significant degree upon protecting our intellectual property rights. We have three United States patents relating to our products and corresponding patents in certain foreign countries. Of the three patents, two expire in 2010 and one expires in 2012. The patents that we own now or in the future may not provide us with significant competitive advantages or may be impaired by challenges to the validity or enforceability of such patents. For example, in the past the validity of one of our patents has been repeatedly challenged. Others may independently develop similar or more advanced technologies or products or design around aspects of our technology that may be patented.

It is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without our authorization or otherwise infringe on our intellectual property rights. We may have to rely on litigation to enforce our intellectual property rights and contractual rights. For example, we have pursued a patent infringement action in the past to discontinue what we believed to be infringement of our rights arising under our patents. If, in the future, we pursue patent infringement actions, the defendants in those actions may counterclaim that our patents are invalid. If these counterclaims are successful, our patents may be invalidated or limited in scope or we may be forced to modify or discontinue our operations or pay substantial damages. If litigation that we initiate is unsuccessful, we may not be able to protect the value of our intellectual property and our business could be adversely affected.

We have patent applications that are currently pending before the United States Patent and Trademark Office. These patent applications may not result in any patents being issued. If these patent applications do not become issued patents, our competitors would not be prevented from using these inventions described in the applications.

In addition, we may face claims of infringement that could interfere with our ability to use technology or other intellectual property rights that are material to our business operations. If a claim of infringement against us is successful, we may be required to pay royalties to use technology or other intellectual property rights that we had been using or we may be required to enter into a license agreement and pay license fees, or we may be required to stop using the technology or other intellectual property rights that we had been using. We may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. Any litigation of this type, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources.

In addition, we may not be able to deter current and former employees, consultants, and other parties from breaching confidentiality agreements with us and misappropriating proprietary information from us. If we are unable to adequately protect our intellectual property, it could have a material adverse effect on the value of our intellectual property, our reputation, our business and our operating results.

We may not be able to obtain additional financing if required, which could harm our operations and ability to generate revenue.

Our ability to manufacture our gaming platforms on a large scale may require us to obtain additional financing necessary for the manufacture of such hardware components and expansion of our inventory. The net proceeds that we have received from the sale of the shares of common stock in our initial public offering together with revenue that we generate from operations may not be sufficient to execute our growth strategy.

If we are unable to generate sufficient revenue or if our working capital and manufacturing capacity is not capable of keeping up with demand, we will need to seek additional equity or debt financing to provide the capital required to maintain or expand our production capabilities. We may not be able to obtain needed additional equity or debt financing on terms that are favorable to us, or at all. If we are able to obtain such financing, existing stockholders may suffer dilution and the equity or debt securities issued to raise such financing may have rights, preferences and privileges senior to those of existing stockholders. If we require, but are unable to obtain, sufficient additional financing in the future we may be unable to implement our business plan, respond to changing business or economic conditions, withstand adverse operating results and compete effectively. More importantly, if we are unable to raise further financing when and if required, our continued operations may have to be scaled down or even ceased and our ability to generate revenues would be materially impaired.

Our inability to lease suitable facilities may harm, delay or prevent our operations.

The long term lease for our Las Vegas, Nevada facility, which is our only facility, expires in December 2010. This facility provides us with a convenient central location from which to service our customers. We may not be able to extend the lease on its current terms or, if required, locate new adequate manufacturing facilities on commercially reasonable terms or at all.

Risks Relating to Our Industry

A decline in the popularity of gaming generally, or a decline in the popularity of bingo or the traditional casino games we intend to offer on our mobile gaming platform specifically, could reduce the demand for our products.

We provide mobile gaming platforms to gaming establishments to enable players to play bingo in several jurisdictions, including Nevada, and traditional casino games on cruise lines. When legally permitted, we intend to provide mobile gaming platforms to enable players to play traditional casino games using our wireless player terminals in Nevada. As a result, our business depends on consumer demand for the games that we enable. Gaming is a discretionary leisure activity, and participation in discretionary leisure activities has in the past, and may in the future, decline during economic downturns because consumers have less disposable income. Therefore, during periods of economic contraction, our revenue may decrease while some of our costs remain fixed, resulting in decreased earnings. Gaming activity may also decline based on changes in consumer confidence related to general economic conditions or outlook, fears of war, future acts of terrorism, or other factors. A reduction in tourism could also result in a decline in gaming activity. Finally, a legislature or regulatory authority may prohibit all or some gaming activities all together in its jurisdiction. A decline in gaming activity as a result of these or any other factors would have a material adverse effect on our business and operating results.

Changes in consumer preferences could also harm our business. Gaming competes with other leisure activities as a form of consumer entertainment, and may lose popularity as new leisure activities arise or as other leisure activities become more popular. In addition, gaming in traditional gaming establishments competes with Internet-based gaming for gaming players, and we do not serve the Internet gaming market. The popularity and acceptance of gaming is also influenced by the prevailing social mores, and changes in social mores could result in reduced acceptance of gaming as a leisure activity. To the extent that the popularity or acceptance of gaming in traditional gaming establishments declines as a result of either of these factors, the demand for our gaming platforms may decline and our business may be adversely affected.

Expansion of the gaming industry faces opposition that could limit our access to some markets and impair our growth.

We expect a substantial portion of our future growth to result from the general expansion of the gaming industry. The expansion of gaming activities in new markets can be very controversial and may depend heavily on the support of national, local and tribal governments. Changes in government leadership, failure to obtain requisite voter support in referenda, failure of legislators to enact enabling legislation and limitations on the volume of gaming activity that is permitted in particular jurisdictions may prevent us from expanding our operations into new markets. A failure by the gaming industry to expand at the rate that we expect could have a material adverse effect on our business, growth rates, financial condition and operating results.

Gaming opponents continue to persist in efforts to curtail the expansion of legalized gaming. Unfavorable public referendums, anti-gaming legislation or unfavorable legislation affecting or directed at manufacturers or operators of gaming products may materially and adversely impair our business and growth prospects. Gaming opponents may be successful in preventing the legalization of mobile gaming in jurisdictions where mobile gaming may be presently prohibited or in limiting the expansion of mobile gaming where it is currently permitted, in either case to the detriment of our business, financial condition, results and prospects.

Future acts of terrorism, as well as other factors affecting discretionary consumer spending and air travel, may impact our industry and may harm our operating results.

Future terrorist attacks similar to those of September 11, 2001, may have a significant impact on the travel and tourism industries upon which the gaming industry, and we in turn, depend. In general, our Nevada-based gaming establishment customers are adversely affected by disruptions in air travel, regardless of cause. Although, our gaming establishment customers in markets outside of Nevada, which are not as dependent on air travel, may not experience as much business disruption, the potential for future terrorist attacks, the national and international responses to terrorist attacks and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations. Future acts of terror in the United States or an outbreak of hostilities involving the United States may reduce players’ willingness to travel, with the result that our operations will suffer. The amounts that our customers pay to us are based on usage of our devices. Accordingly, reduced usage results in reduced payments to us. Although the revenue we generate from our gaming devices may decline as a result of reductions in air travel or consumer

spending, our contracts do not generally provide our customers with the right to terminate their contracts with us as a result of reductions in air travel or consumer spending.

We operate our business in regions subject to natural disasters and other severe catastrophic events, including hurricanes. We have suffered casualty losses as a result of natural disasters (e.g. Hurricane Katrina), and any disruption to our business resulting from natural disasters will adversely affect our revenue and results of operations.

The strength and profitability of our business depends on player demand for our products at gaming establishments. The impact of natural disasters, the outbreak of infectious diseases and other factors affecting discretionary consumer spending could negatively affect gaming activity and consequently, the demand for and use of our products at affected gaming establishments. Disruptions of gaming establishment operations, as a result of natural disasters and other catastrophic events beyond our control, would also reduce the number of gaming establishments that offer our products.

We operate our business primarily through gaming platforms, including wireless and stationary player terminals, cashier-based POS terminals and self-service POS kiosks, used by players at gaming establishments and bingo halls. Accordingly, a substantial portion of our physical assets are in locations beyond our direct control, including areas of Louisiana that sustained major damage as a result of Hurricane Katrina. Generally, our business may also be adversely affected by any damage to or loss of equipment that we install at gaming establishments resulting from theft, vandalism, terrorism, flood, fire or any other natural disaster. Our insurance may not be adequate to recover our losses from these events. The amounts that our customers pay to us are based on usage of our devices. Accordingly, reduced usage results in reduced payments to us. Although the revenue we generate from our gaming devices may decline as a result of a natural disaster, our contracts do not generally provide our customers with the right to terminate their contracts with us as a result of a natural disaster.

Beneficial holders of our securities are subject to regulation by the Nevada gaming authorities, which may result in required applications for license, findings of suitability and mandatory redemption of shares.

Because we are a registered company under the Nevada Gaming Control Act, any person who acquires five percent or more of any class of our voting securities is required to report the acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act requires any person who acquires 10 percent or more of our voting securities to apply to the Nevada Gaming Commission for a finding of suitability within 30 days after the Chairman of the Nevada Gaming Control Board mails a written notice requiring the filing. If such person fails or refuses to apply for a finding of suitability or license within 30 days after being ordered to do so by the Nevada gaming authorities, or if such person refuses or fails to pay the investigative costs incurred by the Nevada gaming authorities in connection with such person’s application, the person may be found unsuitable. The same restrictions apply to the owner of record if the owner of record, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds any voting security may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity interest or to have any other relationship with us, we:

	●		pay that person any dividend upon any voting securities;
	●		allow that person to exercise, directly or indirectly, any voting right relating to us held by the person;
	●		pay remuneration in any form to that person for services rendered or otherwise; or
	●		fail to pursue all lawful efforts to require the unsuitable person to relinquish such person’s voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value.

Our Amended and Restated Articles of Incorporation provide that persons who acquire five percent or more of the beneficial ownership of our outstanding capital stock notify us and consent to any background investigation or other requirements imposed by any gaming authority. Our Amended and Restated Articles of Incorporation also provide for mandatory redemption of its shares if the beneficial owner fails to comply with any applicable gaming law requirements.

Certain Nevada statutes have potential anti-takeover effects that could delay or prevent a change in control of our company and depress the price of our common stock.

Nevada statutes regulating business combinations, takeovers and control share acquisitions may hinder or delay a change in control of our company. In addition, under Nevada law, any change of control of our company must also be approved by the Nevada gaming authorities. Other jurisdictions may have similar requirements. These statutes could limit the price that investors might be willing to pay in the future for shares of our common stock and may limit our stockholders’ ability to receive a premium on their shares by discouraging takeovers and tender offer bids, even if such events could be viewed as beneficial by our stockholders.

ITEM 6. EXHIBITS

See Exhibit Index.

Exhibit Index

Number		Description

3	.1	Amended and Restated Articles of Incorporation of FortuNet, Inc. (2)
3	.2	Amended and Restated Bylaws of FortuNet, Inc. (3)
4	.1	Form of Certificate Representing Common Stock, $.001 Par Value Per Share, of FortuNet, Inc. (2)
10	.1*	Exempt Employment Agreement between FortuNet, Inc. and Jack B. Coronel, dated as of September 9, 2002 (1)
10	.2*	Amendment No. 1 to Exempt Employment Agreement between FortuNet, Inc. and Jack B. Coronel, dated as of September 9, 2002 (1)
10	.3*	Amendment No. 2 to Exempt Employment Agreement between FortuNet, Inc. and Jack B. Coronel, dated as of July 6, 2006 (6)
10	.4*	Amendment No. 3 to Exempt Employment Agreement between FortuNet, Inc. and Jack B. Coronel, dated as of April 1, 2007 (5)
10	.5*	Exempt Employment Agreement between FortuNet, Inc. and William R. Jacques, Jr., dated as of January 10, 2005 (1)
10	.6*	Amendment No. 1 to Exempt Employment Agreement between FortuNet, Inc. and William R. Jacques, Jr., dated as of July 6, 2006 (6)
10	.7*	Amendment No. 2 to Exempt Employment Agreement between FortuNet, Inc. and William R. Jacques, Jr., dated as of April 1, 2007 (5)
10	.8*	FortuNet, Inc. 2005 Stock Incentive Plan (2)
10	.9*	FortuNet, Inc. 2005 Stock Option Plan for Independent Directors (2)
10	.10	Standard Industrial/ Commercial Multi-Tenant Lease between FortuNet, Inc. and FKC Highland LLC, dated as of May 15, 2005 (1)
10	.11	Equipment Lease Agreement between K&B Sales, Inc., d/b/a Goodtime Bingo, and FortuNet, Inc., dated as of January 4, 1999 (1)
10	.12*	Form of Stock Grant – FortuNet, Inc. 2005 Stock Incentive Plan (4)
10	.13*	Form of Stock Grant – FortuNet, Inc. 2005 Stock Incentive Plan for Independent Directors (4)
21	.1	Subsidiaries of FortuNet, Inc. (1)
23	.1	Consent of Schechter Dokken Kanter Andrews & Selcer Ltd.
24	.1	Powers of Attorney (included on signature page hereto)
31	.1	Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
31	.2	Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
32	.1	Chief Exectutive Office Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Management contracts or compensatory plans or arrangements.

(1)	Incorporated by reference to the Company’s Registration Statement filed on Form S-1 (File No. 333-128391) filed with the Commission on September 16, 2005.
(2)	Incorporated by reference to Amendment No.1 of the Company’s Registration Statement filed on Form S-1 (File No. 333-128391) filed with the Commission on October 27, 2005.
(3)	Incorporated by reference to Amendment No.3 of the Company’s Registration Statement filed on Form S-1 (File No. 333-128391) filed with the Commission on November 21, 2005.
(4)	Incorporated by reference to Amendment No.5 of the Company’s Registration Statement filed on Form S-1 (File No. 333-128391) filed with the Commission on January 24, 2006.
(5)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 2, 2007.
(6)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 7, 2006.

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.

	FortuNet, Inc.

	By	/s/ Yuri Itkis
		Yuri Itkis, Chief Executive Officer and
		Chairman of the Board

	By	/s/ Kevin A. Karo
		Kevin A. Karo, Chief Financial Officer

Date: March 25, 2008

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