UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(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, 2008

OR

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

For the transition period from to

Commission file number: 0-23588

GAMING PARTNERS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

NEVADA		88-0310433
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)

1700 Industrial Road,		89102
Las Vegas, Nevada		(Zip Code)
(Address of principal executive offices)

(702) 384-2425

(Registrant’s telephone number, including area code)

None

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

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

The number of shares outstanding of each of the registrant’s classes of common stock as of November 10, 2008 was 8,103,401 shares of Common Stock.

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GAMING PARTNERS INTERNATIONAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2008

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PART I. FINANCIAL INFORMATION			1

ITEM 1.		FINANCIAL STATEMENTS	1

Condensed Consolidated Balance Sheets (unaudited)			1
Condensed Consolidated Statements of Operations (unaudited)			2
Condensed Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (unaudited)			3
Condensed Consolidated Statements of Cash Flows (unaudited)			4
Condensed Consolidated Notes to Financial Statements (unaudited)			5

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13

ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20

ITEM 4.		CONTROLS AND PROCEDURES	21

PART II.	OTHER INFORMATION		22

ITEM 1.		LEGAL PROCEEDINGS	22

ITEM 1A.		RISK FACTORS	22

ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22

ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	22

ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22

ITEM 5.		OTHER INFORMATION	22

ITEM 6.		EXHIBITS	22

SIGNATURES			23

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GAMING PARTNERS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share amounts)

	September 30,			December 31,
	2008			2007
ASSETS
Current Assets:
Cash and cash equivalents	$	6,674		$	4,627
Marketable securities	5,500			4,730
Accounts receivable, less allowance for doubtful accounts of $430 and $327, respectively	4,547			5,811
Inventories	11,718			10,093
Prepaid expenses	648			487
Deferred income tax asset	851			893
Other current assets	867			1,459
Total current assets	30,805			28,100
Property and equipment, net	14,592			15,596
Goodwill	1,638			1,680
Other intangibles, net	926			1,023
Deferred income tax asset	1,517			1,514
Long-term investments	715			736
Other assets, net	242			660
Total Assets	$	50,435		$	49,309

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	530		$	689
Accounts payable	2,537			2,964
Accrued liabilities	3,355			4,418
Customer deposits	3,205			2,715
Income taxes payable	341			27
Other current liabilities	575			406
Total current liabilities	10,543			11,219
Long-term debt, less current maturities	1,902			2,273
Deferred income tax liability	—			455
Other liabilities	485			209
Total liabilities	12,930			14,156
Commitments and contingencies - see Note 10
Stockholders’ Equity:
Preferred stock, authorized 10,000,000 shares, $.01 par value, none issued and outstanding	—			—
Common stock, authorized 30,000,000 shares, $.01 par value, 8,103,401 and 8,103,401, respectively, issued and outstanding	81			81
Additional paid-in capital	18,997			18,766
Treasury stock, at cost; 8,061 shares	(196		)	(196		)
Retained earnings	15,509			12,825
Accumulated other comprehensive income	3,114			3,677
Total stockholders’ equity	37,505			35,153
Total Liabilities and Stockholders’ Equity	$	50,435		$	49,309

See notes to unaudited condensed consolidated financial statements.

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GAMING PARTNERS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues	$	13,820		$	15,196		$	44,801		$	38,896
Cost of revenues	9,240			10,374			29,961			27,887
Gross profit	4,580			4,822			14,840			11,009

Product development	80			77			170			217
Marketing and sales	834			1,194			3,147			3,332
General and administrative	2,348			2,593			8,195			8,586
Operating income (loss)	1,318			958			3,328			(1,126		)

Gain (loss) on foreign currency transactions	280			(8		)	12			(87		)
Interest income	61			89			181			250
Interest expense	(30		)	(49		)	(105		)	(147		)
Other income, net	27			26			74			312
Income (loss) before income taxes	1,656			1,016			3,490			(798		)

Income tax expense (benefit)	409			629			806			(136		)

Net income (loss)	$	1,247		$	387		$	2,684		$	(662	)

Earnings (loss) per share:
Basic	$	0.15		$	0.05		$	0.33		$	(0.08	)
Diluted	$	0.15		$	0.05		$	0.33		$	(0.08	)

Weighted average shares of common stock outstanding:
Basic	8,103			8,103			8,103			8,100
Diluted	8,158			8,242			8,186			8,100

See notes to unaudited condensed consolidated financial statements.

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GAMING PARTNERS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

OTHER COMPREHENSIVE INCOME

(unaudited)

(in thousands, except share amounts)

																Accumulated
							Additional									Other
	Comprehensive			Common Stock			Paid-In			Treasury			Retained			Comprehensive
	Income (Loss)			Shares	Amount		Capital			Stock			Earnings			Income			Total
Balance, January 1, 2007				8,090,901	$	81	$	18,429		$	(196	)	$	12,690		$	1,580		$	32,584
Net loss	$	(662	)	—	—		—			—			(662		)	—			(662		)
Cumulative effect of adjustments resulting from the adoption of FIN 48	—			—	—		—			—			(105		)	—			(105		)
Unrealized gain on securities, net of tax	48			—	—		—			—			—			48			48
Common stock options exercised	—			12,500	—		97			—			—			—			97
Stock compensation expense	—			—	—		188			—			—			—			188
Amortization of pension transition asset	(9		)	—	—		—			—			—			(9		)	(9		)
Foreign currency translation adjustment	1,058			—	—		—			—			—			1,058			1,058
Total comprehensive income	$	435
Balance, September 30, 2007				8,103,401	$	81	$	18,714		$	(196	)	$	11,923		$	2,677		$	33,199

Balance, January 1, 2008				8,103,401	$	81	$	18,766		$	(196	)	$	12,825		$	3,677		$	35,153
Net income	$	2,684		—	—		—			—			2,684			—			2,684
Unrealized gain on securities, net of tax	4			—	—		—			—			—			4			4
Stock compensation expense	—			—	—		254			—			—			—			254
Forfeiture of stock options	—			—	—		(23		)	—			—			—			(23		)
Amortization of pension transition asset	(10		)	—	—		—			—			—			(10		)	(10		)
Foreign currency translation adjustment	(557		)	—	—		—			—			—			(557		)	(557		)
Total comprehensive income	$	2,121
Balance, September 30, 2008				8,103,401	$	81	$	18,997		$	(196	)	$	15,509		$	3,114		$	37,505

See notes to unaudited condensed consolidated financial statements.

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GAMING PARTNERS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2008			2007

Cash Flows from Operating Activities
Net income (loss)	$	2,684		$	(662	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,703			1,685
Amortization	97			190
Provision for bad debt	110			(116		)
Deferred income taxes	(76		)	41
Share-based compensation expense	254			188
Loss (gain) on sale/disposal of property and equipment	84			(17		)
(Gain) on sale of marketable securities	(63		)	(34		)
Change in operating assets and liabilities:
Accounts receivable	963			584
Inventories	(1,758		)	(2,814		)
Prepaid expenses and other current assets	543			(932		)
Non-current other assets	406			213
Accounts payable	(244		)	347
Customer deposits	465			3,295
Accrued liabilities	(1,035		)	(1,375		)
Income taxes payable	460			(794		)
Other current liabilities	(128		)	193
Net cash provided by (used in) operating activities	4,465			(8		)

Cash Flows from Investing Activities
Purchase of marketable securities and long-term investments	(30,039		)	(13,259		)
Proceeds from sale of marketable securities and long-term investments	29,144			15,992
Acquisition of property and equipment	(905		)	(2,029		)
Proceeds from sale of property and equipment	31			66
Net cash (used in) provided by investing activities	(1,769		)	770

Cash Flows from Financing Activities
Repayment of long-term debt obligations	(580		)	(797		)
Proceeds from exercise of stock options	—			97
Net cash used in financing activities	(580		)	(700		)
Effect of exchange rate changes on cash	(69		)	190
Net increase in cash and cash equivalents	2,047			252
Cash and cash equivalents, beginning of period	4,627			5,888
Cash and cash equivalents, end of period	$	6,674		$	6,140

Supplemental disclosure of cash flow information:
Cash paid for interest	$	105		$	147
Cash paid for income taxes	$	85		$	1,192
Supplemental disclosure of non-cash investing and financing activities
Property and equipment acquired by accrued liabilities/accounts payable	$	39		$	—
Property and equipment acquired by capital lease	$	73		$	—

See notes to unaudited condensed consolidated financial statements.

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GAMING PARTNERS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(unaudited)

Note 1. Nature of Business and Significant Accounting Policies

Organization and Nature of Business

Gaming Partners International Corporation (GPIC), a Nevada corporation, was formerly known as Paul-Son Gaming Corporation and owns, directly or indirectly, three subsidiaries as the result of various combinations and mergers: Gaming Partners International USA, Inc. (GPI USA), Gaming Partners International SAS (GPI SAS), and GPI Mexicana S.A. de C.V. (GPI Mexicana). GPI USA, formerly Paul-Son Gaming Supplies, Inc., was founded in 1963 in Las Vegas by our former Chairman, Paul S. Endy, Jr., and initially manufactured and sold dice to casinos in Las Vegas. The former Bud Jones Company was founded in Las Vegas in 1965 by Bud Jones to manufacture and sell gaming supplies and, after being purchased in 2000 by GPI SAS, eventually merged into GPI USA. GPI SAS, formerly Etablissements Bourgogne et Grasset S.A., was founded in 1923 by Etienne Bourgogne and Claudius Grasset in Beaune, France to produce and sell counterfeit-resistant chips to casinos in Monaco. The Company has established brand names such as Paulson®; Bourgogne et GrassetÒ, or B&G, Bud JonesÒ; and T-K®. GPIC and each of its subsidiaries are sometimes collectively referred to herein as the “Company,” “us,” “we,” or “our.”

We are headquartered in Las Vegas, Nevada and have manufacturing facilities located in Las Vegas, Nevada; San Luis Rio Colorado, Mexico; and Beaune, France. GPI USA has sales offices in Las Vegas, Nevada; Atlantic City, New Jersey; and Gulfport, Mississippi and sells its casino products to licensed casinos primarily in the United States and Canada. GPI SAS has a sales office in Beaune, France and sells its casino products internationally to licensed casinos.

Our business activities include the manufacture and supply of gaming chips, table layouts, playing cards, dice, gaming furniture, roulette wheels and miscellaneous table accessories such as chip trays, drop boxes and dealing shoes, which are used in conjunction with casino table games such as blackjack, poker, baccarat, craps, and roulette.

Basis of Consolidation and Presentation

The condensed consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI SAS, GPI USA, and GPI Mexicana. All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These statements should be read in conjunction with our annual audited consolidated financial statements and related notes included in our Form 10-K for the year ended December 31, 2007.

These unaudited condensed consolidated financial statements, in the opinion of management, reflect only normal and recurring adjustments necessary for a fair presentation of results for such periods. The results of operations for an interim period are not necessarily indicative of the results for the full year.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurement. The provisions of this statement are generally to be applied prospectively in fiscal years beginning after November 15, 2007 and interim periods within that fiscal year. The FASB has issued Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which applies to non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its scope, FSP 157-2 defers the effective date of SFAS 157 until fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157 for its marketable securities and the disclosure requirements are reflected in Note 2 of our condensed consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159 The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (SFAS 159). The new statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is

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effective for fiscal years beginning after November 15, 2007. At this time, the Company has chosen not to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities- an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. This currently has no impact on the Company.

In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3) which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141 (revised 2007), Business Combinations, and other US generally accepted accounting principles (GAAP). In addition, there are additional disclosure requirements for recognized intangible assets that enable users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or the ability to renew or extend the arrangement. FSP 142-3 shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently assessing the impact of FSP 142-3 on its financial statements.

Note 2. Marketable Securities

Available for sale marketable securities consist of investments in securities offered by French banks, primarily bond portfolios (in thousands):

	September 30, 2008						December 31, 2007
	Cost		Gross Unrealized Gain		Fair Value		Cost		Gross Unrealized Gain		Fair Value
Current marketable securities	$	5,493	$	7	$	5,500	$	4,730	$	—	$	4,730
Long-term marketable securities	$	715	$	—	$	715	$	736	$	—	$	736

Long-term marketable securities include 500,000 euros ($715,000 at September 30, 2008), which must be maintained as a minimum balance as security for a loan obtained in June 2006.

Fair Value Measurement

The Company presents its marketable securities at their estimated fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has determined that all of its marketable securities fall into the Level 1 category, which values assets at the quoted prices in active markets for identical assets. For the nine months ended September 30, 2008, the fair value recognized on our marketable securities was $6.2 million, while at the year ended December 31, 2007, the value was $5.5 million. There were no assets or liabilities where Level 2 and 3 valuation techniques were used and there were no assets and liabilities measured at fair value on a non-recurring basis.

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Note 3. Inventories

Inventories consist of the following (in thousands):

	September 30, 2008		December 31, 2007
Raw materials	$	6,760	$	6,550
Work in progress	2,437		1,969
Finished goods	2,521		1,574
Inventories	$	11,718	$	10,093

Note 4. Property and Equipment

Property and equipment consist of the following (in thousands):

	September 30, 2008			December 31, 2007
Land	$	1,810		$	1,818
Buildings and improvements	8,691			8,670
Furniture and equipment	18,375			19,290
Vehicles	703			746
	29,579			30,524
Less accumulated depreciation	(14,987		)	(14,928		)
Property and equipment, net	$	14,592		$	15,596

Depreciation expense for the three months ended September 30, 2008 and 2007 was $563,000 and $578,000, respectively. Depreciation expense for the nine months ended September 30, 2008 and 2007 was $1,703,000 and $1,685,000, respectively.

Note 5. Goodwill and Other Intangible Assets

Goodwill, which has an indefinite useful life, totaled $1,638,000 and $1,680,000 at September 30, 2008 and December 31, 2007, respectively. The amount of goodwill held by GPI SAS at September 30, 2008 and December 31, 2007 was $1,438,000 and $1,480,000, respectively, which includes the net effect of foreign currency exchange of $264,000 and $306,000, respectively.

Trademarks, which also have an indefinite life, totaled $583,000 at September 30, 2008 and December 31, 2007. Other intangible assets consisted of the following (in thousands):

	September 30, 2008							December 31, 2007
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Estimated Useful Life (Years)
Patents	$	1,242	$	(899	)	$	343	$	1,242	$	(825	)	$	417	8 to 18
Customer relationships	432		(432		)	—		432		(409		)	23		7
Total other
intangibles	$	1,674	$	(1,331	)	$	343	$	1,674	$	(1,234	)	$	440

Amortization expense for the three months ended September 30, 2008 and 2007 was $32,000 and $57,000, respectively. Amortization expense for the nine months ended September 30, 2008 and 2007 was $97,000 and $190,000, respectively.

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Note 6. Stock Option Programs and Share-Based Compensation Expense

Stock Option Programs and Warrants

We have stock option programs, which consist of the 1994 Long-Term Incentive Plan (Incentive Plan) and the 1994 Directors’ Stock Option Plan, as amended (Directors’ Plan).

The Incentive Plan provides for the grant of stock options to executive officers, key employees, outside consultants and employee-directors. The Incentive Plan expired on January 30, 2004, except as to the stock options outstanding on that date. All of the outstanding stock options under the Incentive Plan have vested. The options granted under the Incentive Plan expire upon the earlier of ten years after the date of the grant or five years after vesting, subject to earlier termination for death, retirement, or termination of employment and association.

The Directors’ Plan provides that each non-employee director, upon joining the Board of Directors, will receive an option to purchase 6,000 shares of common stock. The initial option grant vests over a three year period, with one-third of the option grant vesting at the end of each year. At the beginning of the fourth year of service on the Board of Directors, and each year thereafter, each non-employee director receives an annual grant to purchase 2,000 shares of common stock. In addition, each year each non-employee director receives an option to purchase 1,500 shares of common stock for serving on certain committees of the Board of Directors. Options granted after the initial option grant vest immediately and are exercisable after six months.

In 2008, the Board of Directors amended and the stockholders subsequently approved an amendment to the Directors’ Plan to: (i) increase the total number of shares of common stock for which options may be granted to 450,000, an increase of 100,000 shares, and (ii) include authorization by the Board of Directors to grant discretionary stock options covering up to 100,000 of the total 450,000 shares to non-employee directors. Discretionary stock options vest immediately and are exercisable after six months. In connection with the amendment to the Directors’ Plan, the Company filed a registration statement on Form S-8 on July 8, 2008, to register the underlying shares.

In the second quarter of 2008, a total of 40,000 discretionary stock options were granted to three directors for board services performed in excess of their normal board responsibilities. The resulting share-based compensation expense was $154,000. All other 2008 grants have been non-discretionary.

The following is a summary of stock option activity for the year-to-date period ended September 30, 2008:

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2007	352,500	$	5.35
Granted	4,500	7.50
Forfeitured	—
Exercised	—
Outstanding at March 31, 2008	357,000	$	5.37
Granted	41,500	6.69
Forfeitured	10,000	18.46
Exercised	—
Outstanding at June 30, 2008	388,500	$	5.18
Granted	6,500	$	4.49
Forfeitured	—
Exercised	—
Outstanding at September 30, 2008	395,000	$	5.17	4.7	yrs	$	639

Exercisable at September 30, 2008	339,000	$	4.72	3.9	yrs	$	630

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Share-Based Compensation Expense

The following table summarizes our share-based compensation expense included in our condensed consolidated statements of operations:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
General & administrative-stock option share-based compensation	$	37		$	54		$	254		$	188
Tax benefit	(13		)	(19		)	(91		)	(67		)
Total share-based compensation, net of tax benefit	$	24		$	35		$	163		$	121

Note 7. Earnings per Share (EPS)

In accordance with SFAS 128, Earnings per Share, basic EPS is calculated by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the effect of potential common stock, which consists primarily of assumed stock options. Potentially dilutive securities are not taken into account when their effect would be antidilutive.

The weighted-average number of common shares outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):

	Three Months ended		Nine Months ended
	September 30,		September 30,
	2008	2007	2008	2007
Weighted average number of common shares outstanding - Basic	8,103	8,103	8,103	8,100
Potential dilution from equity grants	55	139	83	—
Weighted average number of common shares outstanding - Diluted	8,158	8,242	8,186	8,100

For the nine months ended September 30, 2007, the Company was in a loss position and, accordingly, the basic and diluted weighted average shares outstanding were equal because any increase to the basic shares would be antidilutive. Therefore, we did not calculate the dilutive effect of the 350,500 options then outstanding.

Note 8. Geographic and Product Line Information

SFAS 131, Disclosures about Segments of an Enterprise and Related Information, requires public business enterprises to report selected information about operating segments in interim and annual financial reports. We manufacture and sell casino table game equipment and have determined that we operate in one operating segment - casino game equipment products. Although the Company derives its revenues from a number of different product lines, the Company does not allocate resources based on the operating results from the individual product lines nor does it manage each individual product line as a separate business unit.

The following table presents certain data by geographic area (in thousands):

	(unaudited)								(unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2008				2007				2008				2007
Net revenues to external customers United States	$	9,307	67.4	%	$	8,144	53.6	%	$	26,119	58.3	%	$	23,912	61.5	%
Europe (includes Russia)	1,175		8.5	%	1,183		7.8	%	4,347		9.7	%	3,645		9.3	%
Asia	2,190		15.8	%	5,049		33.2	%	10,793		24.1	%	9,394		24.2	%
Other(1)	1,148		8.3	%	820		5.4	%	3,542		7.9	%	1,945		5.0	%
Total	$	13,820	100.0	%	$	15,196	100.0	%	$	44,801	100.0	%	$	38,896	100.0	%

(1) Includes Canada, Africa, Australia, South America, and other countries.

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The following table presents our net sales by product line for the three months and nine months ended September 30, (in thousands):

	(unaudited)								(unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2008				2007				2008				2007
Casino chips:
American-style casino chips	$	6,585	47.7	%	$	8,694	57.2	%	$	22,514	50.3	%	$	19,789	50.9	%
European-style plaques and jetons	1,489		10.8	%	1,305		8.6	%	6,416		14.3	%	3,694		9.5	%
Total casino chips	8,074		58.5	%	9,999		65.8	%	28,930		64.6	%	23,483		60.4	%

Table layouts	1,358		9.8	%	1,310		8.6	%	3,779		8.4	%	3,841		9.9	%
Playing cards	1,028		7.4	%	985		6.5	%	3,026		6.8	%	2,883		7.4	%
Gaming furniture	1,149		8.3	%	761		5.0	%	2,429		5.4	%	2,286		5.9	%
Dice	464		3.4	%	523		3.4	%	1,450		3.2	%	1,602		4.1	%
Table accessories and other products	1,177		8.5	%	1,028		6.8	%	3,624		8.1	%	3,274		8.4	%
Shipping	570		4.1	%	590		3.9	%	1,563		3.5	%	1,527		3.9	%
Total	$	13,820	100.0	%	$	15,196	100.0	%	$	44,801	100.0	%	$	38,896	100.0	%

Sales by GPI USA primarily are to casinos in the United States and Canada and represent our entire product line. Sales generated by GPI SAS are primarily casino chips sold to casinos in Asia and Europe.

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

	(unaudited)
	September 30, 2008		December 31, 2007
Property and equipment, net:
United States (1)	$	3,793	$	6,047
France	7,362		8,201
Mexico (1)	3,437		1,348
Total	$	14,592	$	15,596

(1)	In the second quarter of 2008, we moved the production of our injection molded casino chips and the related property and equipment from the United States to Mexico.

The following table represents goodwill and intangibles by geographic area (in thousands):

	(unaudited)
	September 30, 2008		December 31, 2007
Goodwill and intangibles, net:
United States	$	1,126	$	1,223
France	1,438		1,480
Total	$	2,564	$	2,703

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Note 9. Accumulated Other Comprehensive Income

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

	(unaudited)
	September 30, 2008		December 31, 2007
Foreign currency translation	$	3,062	$	3,620
Unrealized gain on securities, net of tax	4		—
Unrecognized pension transition asset, net of tax	48		57
	$	3,114	$	3,677

Note 10. Commitments and Contingencies

Legal Proceedings and Contingencies

Liabilities for material claims against the Company are accrued when a loss is considered probable and can be reasonably estimated. Legal costs associated with claims are expensed as incurred.

On September 6, 2007, The Center for Environmental Health (CEH), a non-profit environmental advocacy group, filed its first amended complaint against Gaming Partners International USA, Inc. (GPI USA) and card rooms (the Card Room Defendants) that purchased gaming chips manufactured by GPI USA. The complaint was filed in the Superior Court of California, County of Alameda, under Case No. RG07336796. CEH had previously served GPI USA and the Card Room Defendants with a 60-day Notice of Violation (NOV), which is a pre-condition to bringing a private action under the California Safe Drinking Water and Toxic Enforcement Act, also known as Proposition 65. Proposition 65 requires that persons in the course of doing business in California provide a clear and reasonable warning before exposing anyone to chemicals known to the State of California to cause cancer and/or reproductive harm.

The CEH action alleged that Paulson® brand gaming chips manufactured by GPI USA and distributed in California contain lead, a Proposition 65 listed chemical, and that GPI USA and the Card Room Defendants failed for a three-year period to provide the required warning in connection with the sale and use of the chips. CEH seeks, and Proposition 65 authorizes, civil penalties and injunctive relief as well as recovery of costs and legal fees. GPI USA received and accepted tenders of defense from twenty-one of the twenty-four Card Room Defendants named in the action, all of whom purchased gaming chips from GPI USA without knowledge that the chips contained lead and may have been subject to Proposition 65 warning requirements.

On August 1, 2008, a consent judgment was entered and approved by the court by which GPI USA reached a $575,000 settlement with CEH on its own behalf as well as on behalf of the owners of the twenty-one Card Room Defendants for whom GPI USA accepted tenders of defense. GPI USA has already complied with all requirements of the consent judgment.

On June 27, 2007, a putative class action complaint alleging violations of federal securities laws based on alleged misstatements and omissions by the Company, entitled Robert J. Kaplan v. Gerard P. Charlier, Paul S. Dennis, Eric P. Endy, Alain Thieffry, Elisabeth Carrette, Robert J. Kelly, Charles R. Henry, Laura McAllister Cox and Gaming Partners International Corporation was filed in the United States District Court for the District of Nevada, under Case No. 2:07-cv-00849-LDG-GWF. Plaintiff Kaplan has been designated by the court as “Lead Plaintiff.” On February 12, 2008, Plaintiff filed an amended complaint, deleting several of the above named defendants, and adding three others. The action is now captioned Robert J. Kaplan v. Gerard P. Charlier, Melody J. Sullivan a/k/a Melody Sullivan Yowell, David Grimes, Charles T. McCullough, Eric P. Endy, Elisabeth Carrette and Gaming Partners International Corporation. The Company has engaged counsel and intends to vigorously defend against the claims presented. Defendants filed a Motion to Dismiss the Complaint on April 16, 2008. The disposition of that motion is fully briefed and, currently, remains pending.

On August 31, 2007, a shareholders derivative complaint alleging breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment, entitled Glenn D. Hutton, derivatively on behalf of Nominal Defendant Gaming Partners International Corp., plaintiff, vs. Gerard P. Charlier, Eric P. Endy, Alain Thieffry, Elisabeth Carrette, Robert J. Kelly, Charles R. Henry and David W. Grimes, defendants, and Gaming Partners International Corp., Nominal Defendant was filed in the United States District Court for the District of Nevada, under Case No., 2:07-cv-01180-JCM-LRL. Defendants filed a motion to dismiss the complaint on June 30, 2008 claiming, among other things, that the complaint should be dismissed for failure to make a demand on the directors. Defendants’ motion was granted after a

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hearing conducted on October 16, 2008. The Judgment and the Court’s Order Granting the Motion to Dismiss the Complaint without prejudice was entered on October 29, 2008.

The French Tax Administration completed an audit of GPI SAS for tax years 2004, 2005, and 2006 and in March 2007 sent a notice seeking additional taxes of 551,000 euros based on their findings. In July 2007, they revised their assessment to 531,000 euros. In June 2008, after a discussion of the merits of the assessment, the French Tax Administration agreed with our position that no additional taxes were due and renounced its claim. Therefore, the Company reversed the accrual of $217,000 that had been made under Financial Accounting Standards Board (FASB) Interpretation 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48). The impact of this reversal was a non-cash income tax benefit of $209,000, and a credit to Accumulated Other Comprehensive Income of $8,000.

We are engaged in disputes and claims in the normal course of business. We believe the ultimate outcome of these proceedings will not have a material adverse impact on the consolidated financial position or results of operations.

Commitments

On October 25, 2001, GPI SAS entered into an exclusive patent license agreement with Enpat, Inc. The subject patents were subsequently sold by Enpat, Inc. to Shuffle Master Inc. in the fourth quarter of 2004. Thereafter, in the second quarter of 2005, Shuffle Master Inc. sold 50% of its rights in the subject patents to International Game Technology and later the other 50% of its rights in the subject patents also to International Game Technology. The agreement grants GPI SAS (and its affiliated GPIC companies) the exclusive rights to manufacture and distribute gaming chips and readers in the United States under the patents for a gaming chip tracking system and method, which utilizes gaming chips with embedded electronic circuits scanned by antennas in gaming chip placement areas (gaming tables and casino cage), or Radio Frequency Identification Devices (RFID) technology. The duration of the exclusive agreement is for the life of the patents, the last of which expire in 2015. Minimum annual royalty payments of $125,000 are required to be made by GPIC over the remaining life of the exclusive patent license agreement.

On November 3, 2005, GPI USA entered into an exclusive purchase agreement with a supplier for particular raw materials used to manufacture finished goods. The supplier agreed to not compete in the sale of these finished goods in the United States during the five-year term of the agreement. GPI USA was required to purchase a minimum amount of raw material totaling $569,000 in the first year and $711,000 per year for years two through five of the agreement. The prices negotiated under this agreement represent prevailing market prices at the time of the agreement. As of September 30, 2008, we had purchased more than the minimum required by the agreement. On June 18, 2008, the agreement was amended to extend the term five years from August 1, 2008 and to expand the territory in which the supplier would not compete to Europe, South America, and all of North America. Our commitment to purchase raw material has increased to $923,000 in the first year of the amended agreement and $952,000 per year for years two through five of the amended agreement.

Line of Credit

In September 2008, GPI SAS secured a one year, 1,000,000 euro line of credit for short term needs. Interest is at a variable rate and based on Euro Interbank Offered Rate plus 0.35%. As of September 30, 2008, this line of credit was fully available.

Note 11. Related Party Transactions

We lease two manufacturing facilities totaling 80,400 square feet located in San Luis Rio Colorado, Mexico from an entity controlled by the family of the General Manager of GPI Mexicana. The lease runs through April 2009 at the monthly rent amount of approximately $0.35 per square foot, or $28,140. If we elect, at our discretion, to use more or less square footage, our rent will be increased or decreased accordingly on a pro rata basis. The 80,400 square feet represents a 14,000 square foot increase effective April 1, 2008, to accommodate the relocation of our Las Vegas-based chip manufacturing operations to Mexico.

The charter of the Audit Committee of the Board of Directors requires the Audit Committee to review and approve related party transactions involving our directors and executive officers. The General Manager of GPI Mexicana is neither a director nor an executive officer.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in the understanding of our results of operations and our present financial condition. The condensed consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material. Statements in this discussion may be forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed. See Item 1A, Risk Factors of the Company’s Form 10-K for the period ended December 31, 2007.

For a Company Overview and information on our products as well as general information, see Part I—Item 1. Business of the Company’s Form 10-K for the period ended December 31, 2007.

Overview of our Business

GPIC manufactures and supplies (under the brand names of Paulson®, Bourgogne et Grasset®, and Bud Jones®) casino chips including low frequency and high frequency RFID casino chips, low frequency and high frequency RFID readers, table layouts, playing cards, dice, gaming furniture, roulette wheels, table accessories, and other products that are used with casino table games such as blackjack, poker, baccarat, craps and roulette. GPIC is headquartered in Las Vegas, Nevada, with offices in Beaune, France; San Luis Rio Colorado, Mexico; Atlantic City, New Jersey; and Gulfport, Mississippi. GPIC sells its casino products directly to licensed casinos throughout the world. We operate in one segment and have two operating subsidiaries, GPI USA and GPI SAS, a French subsidiary. Our subsidiaries have the following product and distribution focus:

·	GPI USA sells primarily in the United States and Canada. GPI USA sells our full product line. Most of the products sold by GPI USA are manufactured in Mexico with the remainder either manufactured in Las Vegas or France.
·	GPI SAS sells internationally, with most sales occurring in Europe and Asia. GPI SAS predominately sells casino chips including both American-style casino chips and European-style casino chips, which are also known as plaques and jetons. Most of the products sold by GPI SAS are manufactured in France.

The Company has historically experienced significant fluctuations in its quarterly operating results and expects such fluctuations to continue in the future. The Company’s operating results fluctuate due to a number of factors, but primarily reflect the opening of new casinos, the expansion of existing casinos, and large replacement orders for casino chips - our primary product line, which typically represents over 60% of revenues. The one-time or non-recurring nature of these events necessarily creates variability in revenue and earnings. Further, the timing of these one-time or non-recurring events is difficult to predict and, largely, beyond our ability to influence. While most large projects are pursued years in advance, both large and small sales opportunities arise with little prior notice. An indicator of future sales is found in our backlog report, which reports signed orders that are planned to be shipped within the remainder of the fiscal year.

Backlog

	GPI USA		GPI SAS		Total
September 30, 2008	$	6.9 million	$	2.5 million	$	9.4 million
September 30, 2007	$	5.5 million	$	9.0 million	$	14.5 million

A significant part of our strategy is to create new demand for casino chips through the use of RFID technology. A passive microchip with a small antenna is embedded in each chip. When chips are placed above a large antenna, which is embedded in a gaming table or cashier’s stand and linked to a reading unit, they receive energy from the reading unit through the large antenna and can communicate with the reading unit. The data collected can allow applications ranging from chip authentication, accounting, tracking and inventory all the way to players’ tracking and table management.

RFID represents a large portion of our consolidated operations. The following table highlights the growing importance of RFID casino chips, which have been sold to over 100 casinos and casino groups in North America, Europe, and Asia. The table shows the percentage by revenue of our casino chips sales that are RFID casino chips for the last five years, with 2008 representing nine months.

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Year

9 Months

2004

2005

2006

2007

2008

RFID casino chip percentage

13%

35%

27%

37%

Overview of our Industry

Much of our growth in recent years has been as a result of the major developments in the gaming industry in Macau. Although the gaming industry has had great success in Macau, we anticipate fewer casino openings. In April 2008, a high-ranking government official in Macau, Edmund Ho, announced a freeze on new development beyond that which was currently underway or in discussion. Asia, primarily Macau, remains an important market and represented 24% of our revenues in the first three quarters of 2008.

The general slow down in the gaming industry, which appears attributable to growing economic problems in the United States and abroad, has negatively impacted our casino customers and therefore may be affecting our sales. To the extent these conditions continue, we anticipate our revenues in future quarters will be adversely affected. In the near term, we would expect any slowing effect to be associated with consumable products such as dice, cards and layouts more than casino chips. In the longer term, as casino openings are delayed or scaled back, we expect our revenues to be adversely affected.

Financial and Operational Highlights

Our net income for the third quarter of 2008 was $1.2 million, an increase of $0.8 million, or 200%, from the third quarter of 2007. Our revenues for the third quarter of 2008 were $13.8 million, a decrease of $1.4 million, or 9%, from the third quarter of 2007. The increase in net income in the third quarter of 2008 compared to the third quarter of 2007 is due to improved operational performance as exhibited by improved gross profit margins and lower selling and administrative expenses, as well as a gain on foreign currency transactions and a lower effective tax rate.

In the second quarter of 2008 we completed the move of plastic injection molding for Bud Jones casinos chips from Las Vegas to our manufacturing facility in Mexico. In the third quarter we began to see the benefits of the move and expect further savings in the future.

GPI SAS uses the euro as its functional currency. As of September 30, 2008 and December 31, 2007 the US dollar to euro exchange rates were 1.4303 and 1.4721, respectively, which was a 2.8% change. The average exchange rates for the nine months ended September 30, 2008 and September 30, 2007 were 1.5219 and 1.3444, which was a 13% change.

In July 2008, GPI SAS was certified ISO 9001 compliant, which provides external validation to our quality control processes.

Other Matters

The Company hired Gregory Gronau in October 2008 as its Executive Vice President and Chief Operating Officer. The appointment of Mr. Gronau is part of a succession plan necessitated by the planned retirement of the Company’s President and Chief Executive Officer, Gerard Charlier, in September 2009. While it is the current intention of the Board of Directors to appoint Mr. Gronau to the positions of President and Chief Executive Officer upon the retirement of Mr. Charlier, no assurance can be given that Mr. Gronau will be appointed to such positions.

CRITICAL ACCOUNTING ESTIMATES

Financial statement preparation requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities. The accompanying consolidated financial statements are prepared using the same critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

RESULTS OF OPERATIONS

The following table summarizes selected items from the Company’s Consolidated Statements of Income as a percentage of revenues:

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	(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	66.9	%	68.3	%	66.9	%	71.7	%
Gross Profit	33.1	%	31.7	%	33.1	%	28.3	%

Product development	0.6	%	0.5	%	0.4	%	0.6	%
Marketing and sales	6.0	%	7.9	%	7.0	%	8.6	%
General and administrative	17.0	%	17.1	%	18.3	%	22.1	%
Operating income (loss)	9.5	%	6.2	%	7.4	%	(3.0	)%
Gain (loss) on foreign currency transactions	2.0	%	(0.1	)%	0.0	%	(0.2	)%
Interest income	0.4	%	0.6	%	0.4	%	0.6	%
Interest expense	(0.2	)%	(0.3	)%	(0.2	)%	(0.4	)%
Other income, net	0.2	%	0.2	%	0.2	%	0.8	%
Income (loss) before income taxes	11.9	%	6.6	%	7.8	%	(2.2	)%
Income tax expense (benefit)	3.0	%	4.1	%	1.8	%	(0.3	)%
Net income (loss)	8.9	%	2.5	%	6.0	%	(1.9	)%

The following table presents certain data by geographic area (in thousands):

	(unaudited)								(unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2008				2007				2008				2007
Net revenues to external customers
United States	$	9,307	67.4	%	$	8,144	53.6	%	$	26,119	58.3	%	$	23,912	61.5	%
Europe (includes Russia)	1,175		8.5	%	1,183		7.8	%	4,347		9.7	%	3,645		9.3	%
Asia	2,190		15.8	%	5,049		33.2	%	10,793		24.1	%	9,394		24.2	%
Other(1)	1,148		8.3	%	820		5.4	%	3,542		7.9	%	1,945		5.0	%
Total	$	13,820	100.0	%	$	15,196	100.0	%	$	44,801	100.0	%	$	38,896	100.0	%

(1) Includes Canada, Africa, Australia, South America, and other countries.

The following table details the Company’s revenues by product line (in thousands):

	(unaudited)								(unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2008				2007				2008				2007
Casino chips:
American-style casino chips	$	6,585	47.7	%	$	8,694	57.2	%	$	22,514	50.3	%	$	19,789	50.9	%
European-style plaques and jetons	1,489		10.8	%	1,305		8.6	%	6,416		14.3	%	3,694		9.5	%
Total casino chips	8,074		58.5	%	9,999		65.8	%	28,930		64.6	%	23,483		60.4	%

Table layouts	1,358		9.8	%	1,310		8.6	%	3,779		8.4	%	3,841		9.9	%
Playing cards	1,028		7.4	%	985		6.5	%	3,026		6.8	%	2,883		7.4	%
Gaming furniture	1,149		8.3	%	761		5.0	%	2,429		5.4	%	2,286		5.9	%
Dice	464		3.4	%	523		3.4	%	1,450		3.2	%	1,602		4.1	%
Table accessories and other products	1,177		8.5	%	1,028		6.8	%	3,624		8.1	%	3,274		8.4	%
Shipping	570		4.1	%	590		3.9	%	1,563		3.5	%	1,527		3.9	%
Total	$	13,820	100.0	%	$	15,196	100.0	%	$	44,801	100.0	%	$	38,896	100.0	%

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Revenues For the three months ended September 30, 2008, revenues were $13.8 million, a decrease of $1.4 million, or 9%, compared to revenues of $15.2 million for the three months ended September 30, 2007. In the third quarter of 2008, GPI SAS recorded revenues of $4.0 million, a decrease of $2.6 million, or 39%, compared to $6.6 million in 2007. The decrease was primarily attributable to lower sales of American-style casino chips to casinos in Macau and the decrease would have been larger if the euro had not strengthened against the US dollar by 10% during the third quarter 2008 compared to the third quarter 2007. In the third quarter of 2008, GPI USA recorded revenues of $9.8 million, an increase of $1.2 million, or 14%, as compared to revenues of $8.6 million in 2007. The increase in revenues at GPI USA was primarily attributable to increased sales of American-style casino chips.

For the nine months ended September 30, 2008, revenues were $44.8 million, an increase of $5.9 million, or 15%, compared to revenues of $38.9 million for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, GPI SAS recorded revenues of $16.6 million, an increase of $2.6 million, or 19%, compared to $14.0 million in 2007. The strengthening of the euro against the US dollar caused GPI SAS’ revenues to be 13% higher during the nine months ended September 30, 2008 compared to 2007. The additional increase in GPI SAS’s revenues was attributable to significantly stronger sales of both American-style and European-style casino chips in the first six months of 2008 compared to 2007 partially offset by lower sales of American-style casino chips in the third quarter of 2008 compared to 2007. For the nine months ended September 30, 2008, GPI USA recorded revenues of $28.2 million, an increase of $3.3 million, or 13%, as compared to revenues of $24.9 million in 2007. This increase was due primarily to stronger sales of American-style casino chips in the United States.

Cost of Revenues For the three months ended September 30, 2008, cost of revenues was $9.2 million, a decrease of $1.2 million, or 11%, compared to cost of revenues of $10.4 million for the three months ended September 30, 2007. As a percentage of revenues, the cost of revenues decreased to 66.9% in 2008 from 68.3% in 2007.

For the nine months ended September 30, 2008, cost of revenues was $30.0 million, an increase of $2.1 million, or 7%, compared to cost of revenues of $27.9 million for the nine months ended September 30, 2007. As a percentage of revenues, the cost of revenues decreased to 66.9% for the nine month period ended September 30, 2008 compared to 71.7% for the same period in 2007.

Gross Profit Gross profit for the three months ended September 30, 2008 decreased by $0.2 million, or 5%, compared to 2007. This occurred as a result of the decrease in revenues of $1.4 million and a decrease in cost of revenues of $1.2 million. As a percentage of revenues, our gross margin increased to 33.1% from 31.7%. The gross margin increase was primarily driven by an increase in revenues and associated production at GPI USA and a more favorable product mix due to increased sales of higher margin casino chips.

Gross profit for the nine months ended September 30, 2008 increased by $3.8 million, or 35%, compared to 2007. This occurred as a result of the increase in revenues of $5.9 million and an increase in cost of revenues of $2.1 million. As a percentage of revenues, our gross margin increased to 33.1% from 28.3%. The gross margin increase was primarily driven by 1) the increase in revenues and associated production at both GPI USA and GPI SAS in the three quarters of 2008 compared to 2007, which allowed fixed costs to be allocated over higher production volumes and 2) a more favorable product mix due to increased sales of higher margin casino chips. These favorable factors were partially offset by a $0.2 million charge related to a quality issue with RFID casino chips.

Selling, General, and Administrative Expenses The following table details the selling, general, and administrative expenses for the three months and nine months ended September 30 (in thousands):

	(Unaudited)								(Unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2008		Revenue %		2007		Revenue %		2008		Revenue %		2007		Revenue %

Product development	$	80	0.6	%	$	77	0.5	%	$	170	0.4	%	$	217	0.6	%
Marketing and sales	834		6.0	%	1,194		7.9	%	3,147		7.0	%	3,332		8.6	%
General and administrative	2,348		17.0	%	2,593		17.1	%	8,195		18.3	%	8,586		22.1	%
Total selling, general, and administrative expenses	$	3,262	23.6	%	$	3,864	25.5	%	$	11,512	25.7	%	$	12,135	31.3	%

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Selling, general, and administrative expenses decreased by $0.6 million for the three months ended September 30, 2008 compared to 2007, while decreasing as a percent of revenue from 25.5% in 2007 to 23.6% in 2008. Marketing and sales decreased by $0.4 million due to a reduction in staff and lower commission expense. General and administrative expenses decreased $0.2 million.

Selling, general and administrative expenses decreased $0.6 million for the nine months ended September 30, 2008 compared to September 30, 2007, while decreasing as a percent of revenue from 31.3% in 2007 to 25.7%. Marketing and sales decreased $0.2 million. General and administrative expenses decreased by $0.4 million. Professional fees decreased by $0.6 million. Partially offsetting this decrease was the 13% increase in the value of the euro compared to the US dollar, which makes euro-based expenses at GPI SAS higher when translated into US dollars.

Other Income (Expense) The following table details the Other Income (Expense) items for the three months and nine months ended September 30 (in thousands:)

	(Unaudited)										(Unaudited)
	Three Months Ended										Nine Months Ended
	September 30,										September 30,
	2008			Revenue %		2007			Revenue %		2008			Revenue %		2007			Revenue %

Gain(loss) on foreign currency transactions	$	280		2.0	%	$	(8	)	(0.1	)%	$	12		0.0	%	$	(87	)	(0.2	)%
Interest income	61			0.4	%	89			0.6	%	181			0.4	%	250			0.6	%
Interest expense	(30		)	(0.2	)%	(49		)	(0.3	)%	(105		)	(0.2	)%	(147		)	(0.4	)%
Other income, net	27			0.2	%	26			0.2	%	74			0.2	%	312			0.8	%
Total other income (expense)	$	338		2.4	%	$	58		0.4	%	$	162		0.4	%	$	328		0.8	%

For the three months ended September 30, 2008, other income (expense) increased by $0.3 million compared to the 2007 period due primarily to the decrease in the value of the euro compared to the US dollar during the quarter resulting in a gain on foreign currency transactions.

For the nine months ended September 30, 2008 compared to 2007, other income decreased by $0.2 million due primarily to a refund check from the French Social Security Administration received in 2007.

Income Taxes Our effective income tax rate for the three months ended September 30, 2008 was 25% compared to the effective income tax rate of 62% for the three months ended September 30, 2007. The Company’s effective tax rate for the quarter ended September 30, 2008, was positively impacted by the utilization of foreign tax credits. The effective tax rate for the quarter ended September 30, 2007 differed from the statutory rate as a result of the Company’s repatriation of non-cash dividends from GPI SAS in 2007 and recognition of the difference in the book and tax basis in shares of GPI SAS.

Our effective income tax rate for the nine months ended September 30, 2008 was 23% compared to 17% for the same period of 2007. The Company’s effective tax rate for the nine months ended September 30, 2008 was positively impacted by the utilization of foreign tax credits and the release of a prior year reserve for uncertain tax positions, related to the successful resolution of the GPI SAS tax audit by the French Tax Administration. The Company’s effective tax rate for the nine months ended September 30, 2007 differed from the statutory rate as a result of the Company’s repatriation of non-cash dividends from GPI SAS in 2007 and recognition of the difference in the book and tax basis in shares of GPI SAS.

Our corporate tax rate is calculated on a consolidated basis. Our corporate costs are not allocated to our French subsidiary, GPI SAS.

Income Tax Uncertainties During the year ended December 31, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. Under the requirements of FIN 48, the Company must review all of its tax positions and make a determination as to whether its position is more likely than not to be sustained upon examination by regulatory authorities. The more-likely-than-not recognition threshold must continue to be met in each reporting period to support continued recognition of a benefit. If a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on the cumulative probability analysis of the amount that is more likely than not to be realized upon ultimate settlement or disposition of the underlying issue.

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The French Tax Administration completed an audit of GPI SAS for tax years 2004, 2005, and 2006 and in March 2007, sent a notice seeking additional taxes of 551,000 euros based on their findings. In July 2007, they revised their assessment to 531,000 euros. In June 2008, after a discussion of the merits of the assessment, the French Tax Administration agreed with our position that no additional taxes were due and renounced its claim. Therefore, the Company reversed the accrual of $217,000 that had been made under Financial Accounting Standards Board (FASB) Interpretation 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48). The impact of this reversal was a non-cash income tax benefit of $209,000, and a credit to Accumulated Other Comprehensive Income of $8,000.

After the change described above regarding the resolution of the French Tax Administration audit, there are no unrecognized tax benefits as of September 30, 2008.

Liquidity and Capital Resources

Overview As of September 30, 2008, we had $6.7 million in cash and cash equivalents and $5.5 million in current marketable securities. Of the cash and cash equivalents and marketable securities, $4.2 million is held by GPI USA and $8.0 million is held by GPI SAS. It may be impractical or costly to transfer cash from our French subsidiary to the United States due to unfavorable tax consequences. If our cash needs increase, we will evaluate other cash sources, including lending facilities in the United States and abroad. We believe that the combination of our cash flow from operations and cash on hand will be sufficient to fund expenses from routine operations for a minimum of the next twelve months.

Working Capital Working capital totaled $20.3 million at September 30, 2008 and $16.9 million at December 31, 2007. Working capital increased due to an increase in current assets of $2.7 million and a decrease in current liabilities of $0.7 million. The increase in current assets was due primarily to increases of $2.8 million in cash and marketable securities and $1.6 million in inventories offset by a $1.3 million decrease in accounts receivable. The increase in inventories was due primarily to pending shipments and decrease in accounts receivable is due to lower sales in the third quarter of 2008 compared to the fourth quarter of 2007. The main reason for the decrease in current liabilities was due to a decrease in accrued liabilities of $1.1 million, primarily related to the $0.6 million payment for the Proposition 65 legal settlement.

Cash Flow Overall, our cash balance increased from December 31, 2007 to September 30, 2008 by $2.0 million.

Net cash provided by operating activities was $4.5 million during the nine months ended September 30, 2008 compared to $0.0 million used by operating activities during the same period in 2007. For the period ended September 30, 2008, $4.8 million of cash was provided by net income-related activities and $0.2 million of cash was provided by a decrease in current assets. These increases were offset by a decrease in current liabilities of $0.5 million. In the period ended September 30, 2007, $1.3 million of cash was provided by net income related activities. In 2007, cash was also provided by a decrease in current assets of $3.0 million offset by a $1.7 million increase in current liabilities.

Our investing activities resulted in net cash used of $1.8 million for the nine months ended September 30, 2008 compared to $0.8 million in net cash provided by investing activities for the same period in 2007. This $2.6 million change was largely attributable to a $3.6 million change in marketable securities, with proceeds of $2.7 million in 2007 combined with net purchases of $0.9 million in 2008. The change in marketable securities was offset by a decrease in cash spent on acquisition of property and equipment of $1.1 million.

Net cash flow used in financing activities was $0.6 million for the nine months ended September 30, 2008 and $0.7 million for the nine months ended September 30, 2007.

Line of Credit In September 2008, GPI SAS secured a one year 1,000,000 euro line of credit for short term needs. Interest is at a variable rate and based on Euro Interbank Offered Rate plus 0.35%. As of September 30, 2008, this line of credit was fully available.

Long-term Debt In February 2001, GPI SAS borrowed 2.6 million euros (approximately $2.4 million in February 2001) from an unaffiliated party. Principal and interest payments were due quarterly until February 2008. The loan was paid off in the first quarter of 2008.

In March 2002, GPI USA entered into a $995,000 loan transaction secured by a Deed of Trust on its Las Vegas building, at an interest rate equal to the greater of (i) 8% per annum, or (ii) 362.5 basis points over the average of the London Interbank Offered Rates (LIBOR) for six-month dollar deposits in the London market based on quotations of major banks,

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but may not exceed 12% per annum. This loan is payable in arrears in equal monthly installments through March 2012, at which time the entire remaining principal balance is due and payable. There is no prepayment penalty.

In May 2004, GPI SAS entered into a 350,000 euro (approximately $423,000 in May 2004) loan transaction with a French bank. The loan has a fixed interest rate of 3.6% per annum, is due in May 2011, and is secured by a mortgage on the building premises.

In June 2006, GPI SAS entered into a 1.5 million euro (approximately $1.9 million in June 2006) loan agreement with a French bank. The loan has a five-year term at a fixed rate of 3.4% per annum. The loan is repayable in fixed quarterly installments. The loan is secured by GPI SAS’ marketable securities at the bank. GPI SAS must maintain a minimum balance of at least 500,000 euros ($715,000 at September 30, 2008). There are no prepayment penalties.

Seasonality We do not typically experience seasonality relative to our revenues; however, operations may be impacted, in the third quarter of each year when GPI SAS is closed for a substantial part of the month of August, due to the traditional French holiday period.

Las Vegas, Nevada Facilities In May 1997, we purchased our current corporate headquarters, an approximately 60,000 square foot building located in Las Vegas that also serves as a manufacturing/warehousing facility and sales office. The Las Vegas headquarters secures the $995,000 loan pursuant to the Deed of Trust. See “Long-term Debt” above.

San Luis Rio Colorado, Mexico Facilities In San Luis, we have a lease until April 2009 for two manufacturing facilities totaling 80,400 square feet. The monthly rent amount of approximately $0.35 per square foot is prorated commensurate with the space that we elect to use. We also own an approximately 66,000 square foot facility adjacent to the leased building.

Beaune, France Facilities In Beaune, we own an approximately 34,000 square foot manufacturing facility and a 15,000 square foot administrative and sales building located nearby.

Capital Expenditures We currently plan to purchase approximately $0.7 million in capital equipment and improvements in the remainder of 2008.

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

Backlog At September 30, 2008, our backlog of orders, which is expected to be filled in 2008, amounted to $9.4 million, consisting of $6.9 million for GPI USA and $2.5 for GPI SAS. At September 30, 2007, our backlog was $14.5 million, consisting of $5.5 million for GPI USA and $9.0 million for GPI SAS.

Contractual Obligations and Commercial Commitments

Recently Issued Accounting Standards

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November 15, 2008. The Company has adopted SFAS 157 for its marketable securities and the disclosure requirements are reflected in Note 2 of our condensed consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (SFAS 159). The new statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. At this time, the Company has chosen not to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities– an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. This currently has no impact on the Company.

In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3) which amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of FSP 142-3 was to improve the consistency between the useful life of a recognized intangible asset under SFAS 142, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141 (revised 2007), Business Combinations, and other US generally accepted accounting principles (GAAP). In addition, there are additional disclosure requirements for recognized intangible assets that enable users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or the ability to renew or extend the arrangement. FSP 142-3 shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently assessing the impact of FSP 142-3 on its financial statements.

Forward-Looking Information Statements and Risk Factors

Throughout this Form 10-Q, we make some forward-looking statements, which do not relate to historical or current facts, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable that, while considered reasonable by us, are inherently subject to significant business, economic, and competitive risks and uncertainties, many of which are beyond our control and are subject to change. The statements also relate to our future prospects and anticipate performance, development, and business strategies. These statements are identified by their use of terms and phrases such as anticipate, believe, could, would, estimate, expect, intend, may, plan, predict, project, pursue, will, continue, feel, or the negative or other variations thereof, and other similar terms and phrases, including references to assumptions.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those expressed or implied. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent known and unknown risks and uncertainties. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect future events or circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for a smaller reporting company.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of September 30, 2008. Based upon this evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer have concluded that, as of September 30, 2008, the end of the period covered by this Form 10-Q, the Company’s disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting:

Management has determined that there was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended September 30, 2008 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our legal proceedings, see Note 10 contained in the “Condensed Consolidated Notes to Financial Statements” of this Quarterly Report on Form 10-Q, which is incorporated by reference in response to this item.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008 except as follows:

The current global financial crisis and economic slowdown may adversely affect our business and financial condition in ways that we cannot predict.

The current global financial crisis and economic slowdown is having a negative effect on the gaming industry and, if these conditions continue, we expect will adversely affect our business and financial condition. We cannot predict the scope or magnitude of the negative effect that such an ongoing global financial crisis and economic slowdown will have on us as it also impacts our customers, vendors, and marketing partners. The gaming industry has proven sensitive to reductions in consumer spending, and several companies have recently reported postponement of scheduled casino openings and expansions, which historically have been a significant source of our revenues. As such, our customers may have less demand for our products, delay payment, or be unable to make payment. Our current vendors may not be able to provide the same supplies or service to which we are accustomed, which may disrupt our operations and require that we find alternative sources. In several cases, we have strategic alliances with third parties to promote each others’ products. Our marketing partners may not be able to devote the same level of effort into the joint promotion of our products which may result in less demand for, and lower sales of, our products.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

Attached as Exhibit 99.1 and incorporated herein by reference is a copy of a press release dated November [13], 2008 reporting the Company’s financial results for the three and nine months ended September 30, 2008. The information set forth under this Item 5 is intended to be furnished under this Item 5 and also “Item 7.01, Regulation FD Disclosure” and “Item 2.02, Results of Operations and Financial Conditions” of Form 8-K. Such information, including Exhibit 99.1 attached to this Form 10-Q, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

ITEM 6. EXHIBITS

10.1	Employment Agreement, dated as of October 28, 2008, between Gaming Partners International Corporation and Gregory S. Gronau, incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K dated and filed with the SEC on October 28, 2008.

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.0	Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

99.1	Press release dated November 13, 2008 reporting financial results for the three and nine months ended September 30, 2008.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GAMING PARTNERS INTERNATIONAL CORPORATION


Date: November 13, 2008	By:	/s/ Gerard P. Charlier
		Gerard P. Charlier,
		President and Chief Executive Officer

Date: November 13, 2008	By:	/s/ David W. Grimes
		David W. Grimes,
		Chief Financial Officer

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Gaming Partners International (GPIC) Inactive 10-Q2008 Q3 Quarterly report

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PART I. FINANCIAL INFORMATION

PART II. OTHER INFORMATION