10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Mark one)

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

For the fiscal year ended October 31, 2007

OR

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

Commission File No. (0-20820)

SHUFFLE MASTER, INC.

(Exact name of registrant as specified in our charter)

Minnesota	41-1448495
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1106 Palms Airport Drive
Las Vegas, Nevada	89119
(Address of principal executive offices)	(Zip Code)

702-897-7150

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None

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

Common Stock, par value $.01 per share

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

If this report is annual or transition, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Yes o No x

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

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

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

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

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

As of January 11, 2008, 35,247,755 shares of Common Stock of the Registrant were outstanding. The aggregate market value of Common Stock beneficially owned by non-affiliates on that date was $302,073,260 based upon the last reported sale price of the Common Stock on that date by The NASDAQ National Market.

DOCUMENTS INCORPORATED BY REFERENCE

Parts II and III of this Annual Report on Form 10-K incorporate by reference information from the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on March 26, 2008 (“Fiscal 2007 Proxy Statement”) to be filed with the SEC within 120 days of the end of the fiscal year covered by this report.

EXPLANATORY NOTE

Shuffle Master, Inc. (the “Company”) amended its Annual Report on Form 10-K for the fiscal year ended October 31, 2007 (“Form 10-K/A”) that was previously filed with the Securities and Exchange Commission (the “SEC”) on January 18, 2008 (“Original Filing”).  The Form 10-K/A was filed in order to add language in the Reports of Independent Registered Public Accounting Firm (“Auditor’s Opinions”) to indicate that the nature, timing and extent of audit tests were also applied to the financial statement schedule (“Schedule II”) which reference was inadvertently excluded from the Auditor’s Opinions included in the Original Filing.  Schedule II was included in the Original Filing; however, the Auditor’s Opinions omitted a reference to Schedule II. Additionally, the Auditor’s Opinions were revised to refer to the Company’s changed methodology of accounting for share-based compensation to conform to Statement of Financial Accounting Standards No. 123(R), Share-Based Payment in November 2005. No revisions and / or adjustments were made to the audited Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Changes in Shareholders’ Equity and Consolidated Statements of Cash Flows or to Schedule II as part of this amendment.

As a result of the amendment related to the Auditor’s Opinions, the Company also included expanded discussion in Note 7 -Debt and Long-Term Liabilities, Note 14 - Operating Segments and Note 15 – Commitments and Contingencies to the audited consolidated financial statements included in Item 8 in the Form 10-K/A in response to a comment letter received from the SEC in connection with its review of the Original Filing, the Company’s Form 10-Q for the quarter ended January 31, 2008 and the Company’s Definitive Proxy Statement filed on February 15, 2008 (the “Comment Letter”).  In Note 7, we included the debt compliance covenant ratios and respective limitations as defined in our Senior Secured Revolving Credit Facility Agreement.  In Note 14, we added discussion related to unallocated corporate expenses included in segment operating income.  In Note 15, we added clarification language to each of the pending litigation under legal proceedings. The Comment Letter recommended including expanded discussion, where relevant, in any future filings.  This amendment is deemed a future filing.

All information in the amendment is as of January 18, 2008 and does not reflect any subsequent information or events other than the expanded discussion as noted above. In addition, in accordance with Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, as amended, this amendment also includes updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.

SHUFFLE MASTER, INC.

ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED OCTOBER 31, 2007

TABLE OF CONTENTS

		Page
Part II
Item 8.	Financial Statements and Supplementary Data	1
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	38
Item 9B.	Other Information	41
Part IV
Item 15.	Exhibits and Financial Statement Schedules	42

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	2
Consolidated Statements of Income for the years ended October 31, 2007, 2006, and 2005	3
Consolidated Balance Sheets as of October 31, 2007 and 2006	4
Consolidated Statements of Changes in Shareholders’ Equity for the years ended October 31, 2007, 2006, and 2005	5
Consolidated Statements of Cash Flows for the years ended October 31, 2007, 2006, and 2005	6
Notes to consolidated financial statements	8
Quarterly Financial Data (unaudited)	36
Financial Statement Schedule II—Valuation and Qualifying Accounts for the years ended October 31, 2007, 2006 and 2005	37

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Shuffle Master, Inc.

Las Vegas, Nevada

We have audited the accompanying consolidated balance sheets of Shuffle Master, Inc. and subsidiaries (the “Company”) as of October 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended October 31, 2007. Our audits also included financial statement Schedule II – Valuation and Qualifying Accounts for each of the three years in the period ended October 31, 2007.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Shuffle Master, Inc and subsidiaries as of October 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 8 to the consolidated financial statements, on November 1, 2005, the Company changed its method of accounting for share-based compensation to conform to Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of October 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 18, 2007 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Las Vegas, Nevada
January 18, 2008

2

SHUFFLE MASTER, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Year Ended October 31,
	2007			2006			2005
Revenue:
Product leases and royalties	$	56,426		$	49,551		$	48,571
Product sales and service	122,315			113,202			63,997
Other	110			238			292
Total revenue	178,851			162,991			112,860
Costs and expenses:
Cost of leases and royalties	17,221			11,794			9,692
Cost of sales and service	57,764			44,927			19,568
Gross profit	103,866			106,270			83,600
Selling, general and administrative	61,947			51,299			30,559
Research and development	17,337			12,910			7,784
Gain on sale of patent	—			(4,566		)	—
In-process research and development	—			19,145			—
Total costs and expenses	154,269			135,509			67,603
Income from operations	24,582			27,482			45,257
Other expense	(9,974		)	(6,699		)	(657		)
Equity method investment loss	(306		)	(416		)	—
Impairment of investments	—			(1,655		)	(1,000		)
Income from continuing operations before tax	14,302			18,712			43,600
Income tax (benefit) provision	(1,999		)	13,373			14,496
Income from continuing operations	16,301			5,339			29,104
Discontinued operations, net of tax	78			(246		)	76
Net income	$	16,379		$	5,093		$	29,180
Basic earnings per share:
Continuing operations	$	0.47		$	0.15		$	0.83
Discontinued operations	—			—			0.01
Net income	$	0.47		$	0.15		$	0.84
Diluted earnings (loss) per share:
Continuing operations	$	0.46		$	0.15		$	0.80
Discontinued operations	—			(0.01		)	—
Net income	$	0.46		$	0.14		$	0.80
Weighted average shares outstanding:
Basic	34,680			34,585			34,924
Diluted	35,276			36,052			36,378

See notes to consolidated financial statements

3

SHUFFLE MASTER, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	October 31,
	2007		2006
ASSETS
Current assets:
Cash and cash equivalents	$	4,392	$	8,906
Investments	—		11
Accounts receivable, net of allowance for bad debts of $476 and $1,422	35,045		32,662
Investment in sales-type leases and notes receivable, net	9,092		10,064
Inventories	34,081		24,658
Prepaid income taxes	4,110		1,138
Deferred income taxes	7,959		6,785
Other current assets	5,286		5,172
Total current assets	99,965		89,396
Investment in sales-type leases and notes receivable, net	6,124		11,510
Products leased and held for lease, net of current portion	15,886		11,282
Property and equipment, net	11,242		9,779
Intangible assets, net	91,343		77,904
Goodwill	105,354		91,700
Deferred income taxes	14,476		4,294
Other assets	15,377		9,342
Total assets	$	359,767	$	305,207
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,548	$	11,217
Accrued liabilities	15,015		11,326
Customer deposits	2,213		2,017
Deferred revenue	5,489		5,499
Income taxes payable	—		938
Note payable and current portion of long-term liabilities	3,932		77,294
Total current liabilities	38,197		108,291
Long-term liabilities, net of current portion	232,698		158,753
Deferred income taxes	1,238		5,614
Total liabilities	272,133		272,658
Commitments and Contingencies
Shareholders’ equity:
Preferred stock, no par value; 507 shares authorized; none outstanding
Common stock, $0.01 par value; 151,875 shares authorized; 35,198 and 34,895 shares issued and outstanding	352		349
Additional paid-in capital	6,492		717
Retained earnings	38,770		22,391
Accumulated other comprehensive income	42,020		9,092
Total shareholders’ equity	87,634		32,549
Total liabilities and shareholders’ equity	$	359,767	$	305,207

See notes to consolidated financial statements

4

SHUFFLE MASTER, INC.

CONSOLIDATED STATEMENTS CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

	Common Stock					Additional Paid-in			Deferred			Retained			Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount			Capital			Compensation			Earnings			Income			Equity
Balance, November 1, 2004	34,958		$	233		$	9,593		$	(1,765	)	$	698		$	5,970		$	14,729
Comprehensive Income:
Net Income	—		—			—			—			29,180			—			29,180
Currency translation adjustment	—		—			—			—			—			(4,260		)	(4,260		)
Unrealized loss on investments	—		—			—			—			—			(165		)	(165		)
Total comprehensive income																		24,755
Stock repurchased	(1,473	)	(15		)	(26,048		)	—			(12,580		)	—			(38,643		)
Options exercised	851		9			6,283			—			—			—			6,292
Accelerated vesting of options	—		—			60			—			—			—			60
Tax benefit from stock options	—		—			5,287			—			—			—			5,287
FY 2004 tax (true-up)	—		—			229			—			—			—			229
Issuance of restricted stock	193		2			4,781			(4,297		)	—			—			486
Amortization of deferred compensation	—		—			—			274			—			—			274
January 2005 stock split	(2	)	116			(185		)	—			—			—			(69		)
Balance, October 31, 2005	34,527		345			—			(5,788		)	17,298			1,545			13,400
Comprehensive Income:
Net Income	—		—			—			—			5,093			—			5,093
Currency translation	—		—			—			—			—			7,382			7,382
Reclassification of loss on investments	—		—			—			—			—			165			165
Total comprehensive income																		12,640
Reclass deferred compensation to APIC	—		—			(5,788		)	5,788			—			—			—
Stock repurchased	(317	)	(3		)	(8,662		)	—			—			—			(8,665		)
Options exercised	697		7			7,867			—			—			—			7,874
Shares surrendered and retired for stock option exercises	(76	)	(1		)	(2,119		)	—			—			—			(2,120		)
Share-based compensation expense	—		—			5,512			—			—			—			5,512
Tax benefit from stock option exercises	—		—			3,908			—			—			—			3,908
Issuance of restricted stock	64		1			(1		)	—			—			—			—
Balance, October 31, 2006	34,895		349			717			—			22,391			9,092			32,549
Comprehensive Income:
Net Income	—		—			—			—			16,379			—			16,379
Currency translation	—		—			—			—			—			32,850			32,850
Reclassification of loss on investments	—		—			—			—			—			78			78
Total comprehensive income																		49,307
Stock repurchased	(77	)	(1		)	(1,962		)	—			—			—			(1,963		)
Options exercised	229		3			2,544			—			—			—			2,547
Shares surrendered and retired for stock option exercises	(76	)	(1		)	(750		)	—			—			—			(751		)
Share-based compensation expense	—		—			4,812			—			—			—			4,812
Tax benefit from stock option exercises	—		—			1,133			—			—			—			1,133
Issuance of restricted stock	227		2			(2		)	—			—			—			—
Balance, October 31, 2007	35,198		$	352		$	6,492		$	—		$	38,770		$	42,020		$	87,634

See notes to consolidated financial statements

5

SHUFFLE MASTER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended October 31,
	2007			2006			2005
Cash flows from operating activities:
Net income	$	16,379		$	5,093		$	29,180
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	19,421			16,662			11,218
Amortization of debt issuance costs	1,327			1,511			961
Share-based compensation	4,812			5,512			760
In-process research and development	—			19,145			—
Gain on patent sale	—			(4,566		)	—
Equity method investment loss	306			416			—
Provision for bad debts	(406		)	(537		)	229
Write-down for inventory obsolescence	1,415			345			(140		)
Loss on disposal of property	—			—			66
Gain on sale of leased assets	(2,511		)	—			—
Excess tax benefit from stock option exercises	(854		)	(3,682		)	5,287
Tax benefit from stock option exercises	279			226			—
Impairment of investments	—			1,655			1,000
Changes in operating assets and liabilities:
Accounts receivable	1,245			(2,407		)	(6,526		)
Investment in sales-type leases and notes receivable	6,801			(2,459		)	(7,942		)
Inventories	(5,803		)	(4,033		)	(3,483		)
Accounts payable and accrued liabilities	5,505			(2,434		)	2,318
Customer deposits and deferred revenue	(232		)	3,382			(48		)
Income taxes, net of stock option exercises	(20		)	—			—
Deferred income taxes	(8,315		)	(3,042		)	(2,403		)
Prepaid income taxes	(2,690		)	3,232			6,730
Other	(3,611		)	2			(2,699		)
Net cash provided by operating activities	33,048			34,021			34,508
Cash flows from investing activities:
Purchases of investments	—			(32,435		)	(11,847		)
Proceeds from sale and maturities of investments	13			49,232			17,330
Proceeds from sale of leased assets	4,070			1,845			1,632
Payments for products leased and held for lease	(10,085		)	(9,167		)	(9,520		)
Purchases of property and equipment	(2,774		)	(2,196		)	(2,210		)
Purchases of intangible assets	(2,397		)	(4,313		)	(7,239		)
Acquisition of businesses, net of cash acquired	(21,946		)	(114,608		)	(228		)
Net proceeds from patent sale	—			7,500			9,039
Other	—			—			(3,483		)
Net cash used by investing activities	(33,119		)	(104,142		)	(6,526		)
Cash flows from financing activities:
Proceeds from acquisition financing	—			115,000			—
Payments on acquisition financing	(70,000		)	(45,000		)	—
Proceeds from senior secured revolving credit facility	87,680			—			—
Payments on senior secured revolving credit facility	(12,000		)	—			—
Proceeds from other borrowings	1,926			4,153			—
Repurchases of common stock	(1,933		)	(8,665		)	(38,643		)
Proceeds from issuances of common stock, net	2,061			7,874			6,512
Debt issuance costs	(1,722		)	(554		)	—
Excess tax benefit from stock option exercises	854			3,682			—
Payment on notes payable and other liabilities	(10,379		)	(10,567		)	(2,896		)
Net cash provided (used) by financing activities	(3,513		)	65,923			(35,027		)
Effect of exchange rate changes on cash	(930		)	(175		)	(256		)
Net increase (decrease) in cash and cash equivalents	(4,514		)	(4,373		)	(7,301		)
Cash and cash equivalents, beginning of year	8,906			13,279			20,580
Cash and cash equivalents, end of year	$	4,392		$	8,906		$	13,279

See notes to consolidated financial statements

6

Supplemental Disclosures of Cash Flows Information—

	Year Ended October 31,
	2007		2006		2005
Non-cash Investing and Financing transactions:
Mimimum consideration for patent purchase	$	—	$	—	$	9,229
Accrued direct acquisition costs related to acquisitions	792		1,750		—
Note payable and minimum consideration issued in connection with the acquisition of a business or assets	2,922		—		880
Issuance of restricted stock	5,773		2,113		4,781
Recharacterization of prepaid royalty	1,750		—		—
Cash paid for:
Income taxes, net of refunds	$	8,475	$	11,033	$	5,576
Interest	5,844		5,559		1,919

See notes to consolidated financial statements

7

SHUFFLE MASTER, INC.

Notes to Consolidated Financial Statements

(In thousands, except per share amounts)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business.  We develop, manufacture and market technology and entertainment-based products for the gaming industry for placement on the casino floor. Our products primarily relate to our casino customers’ table game activities and focus on either increasing their profitability, productivity and security or expanding their gaming entertainment offerings. Our business is segregated into the following four product segments: Utility Products, Proprietary Table Games, Electronic Table Systems, and Electronic Gaming Machines.

Our Utility Products include a full line of automatic card shufflers for use with the vast majority of card table games as well as chip sorting machines for use on roulette tables. We also have acquired and/or have developed other products that automatically gather data to enable casinos to track table game play, such as Table iD™ (part of our Intelligent Table System™), currently in development with International Game Technology (“IGT”) and Progressive Gaming International Corporation (“PGIC”).

Our Proprietary Table Games (“PTG”) include our portfolio of live table games including poker, blackjack, baccarat, and pai gow poker-based table games, progressive table games with bonusing options, side bets and proprietary table game licensing for other gaming media, such as legal internet gaming licenses.

Our Electronic Table Systems (“ETS”) include e-Table platforms such as Table Master™, Vegas Star^®, Rapid Table Games^®, as well as our wireless gaming.

Our Electronic Gaming Machines (“EGM”) include our PC-based video slot machines with an extensive selection of video slot titles, which include a range of bonus round options.

We lease, license or sell our products. When we lease or license our products, we generally negotiate a month-to-month operating lease. When we sell our products, we offer our customers a choice between a sale, a longer-term sales-type lease or other long-term financing. We offer our products worldwide in markets that are highly regulated. We manufacture our products at our headquarters and manufacturing facility in Las Vegas, Nevada, as well as at our Australian headquarters in Milperra, New South Wales. In addition, we outsource the manufacturing of certain of our products in the United States, Europe and Asia Pacific.

All of our product lines compete or will compete with other gaming products, such as slot machines, blackjack tables, keno, craps, and roulette, for space on the casino floor.

Principles of consolidation.  Our consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary to fairly present our consolidated results of income, financial position and cash flows for each period presented.

Our consolidated financial statements include the accounts of Shuffle Master, Inc. and our wholly-owned domestic and foreign subsidiaries. All significant inter-company accounts and transactions have been eliminated. We have no unconsolidated subsidiaries.

Investment in Sona and Other Investments.  Our investment in and the operating results of Sona Mobile Holdings Corp. (“Sona”) which is not required to be consolidated in our consolidated financial statements, was previously accounted for in accordance with Accounting Principles Board (“APB”) Opinion No. 18 (“APB 18”), “The Equity Method of Accounting for Investments in Common Stock”, based on our assessment of our relationship with Sona at the time of the investment. In our initial assessment, we concluded that we had the ability to exercise significant influence over Sona due to our President having a seat on the Sona Board of Directors. Due to the resignation of our President from the Sona Board of Directors on June 12, 2007, using the guidance of APB 18, we have now concluded that we no longer have the ability to exercise significant influence over Sona and that the equity method of accounting is no longer appropriate for our investment. As of June 12, 2007, we have accounted for our investment under the cost method of accounting on a prospective basis and

8

as an available for sale marketable security using the guidance of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”.

We review our investments for other than temporary impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. There was no such impairment loss recorded during the year ended October 31, 2007. During fiscal 2006 we recognized pre-tax impairment charges of $1,655 related to our investment in Sona.

As of October 31, 2005, we analyzed our cost method investment using the methodology described above and determined that such investment was impaired. Accordingly, we recorded a $1,000 impairment write-down equal to the full amount of the investment. Such impairment charge is reflected in impairment of investments.

Use of Estimates and Assumptions.  The preparation of our consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but not limited to: (1) allowance for doubtful accounts; (2) asset impairments, including goodwill and indefinite lived trade names; (3) depreciable lives of assets; (4) useful lives of intangible assets; (5) income tax valuation allowances; (6) fair value of stock options; and (7) contingency and litigation reserves. Future events and their effects cannot be predicted with certainty; accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis. Actual results could differ from those estimates.

Inventories.  Inventories are stated at the lower of cost, determined on a first-in-first-out basis, or market. Inventory write-downs totaled $1,415, $345 and ($140) for fiscal years ended 2007, 2006 and 2005.

Revenue recognition.  We recognize revenue when the following criteria are met:

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

·shipment has occurred or services have been rendered,

·the price is fixed or determinable, and

·collectibility is reasonably assured.

We earn our revenue in a variety of ways. We offer our products for lease or sale. We also sell service and warranty contracts for our sold equipment. Proprietary table games are sold under lifetime licensing agreements or licensed on a monthly or daily fee basis. We recognize revenues net of any taxes collected from our customers that are later remitted to governmental authorities.

Product lease and royalties revenue—Lease and royalty revenue is earned from the leasing of our tangible products and the licensing of our intangible products, such as our proprietary table games. We recognize revenue monthly, based on a monthly fixed fee or on participation arrangements, generally through indefinite term operating leases. Lease and royalty revenue commences upon the completed installation of the product. Lease terms are generally cancellable with 30 days notice.

Product sales and service revenue—We generate sales revenue through the sale of equipment in each product segment, including sales revenue from sales-type leases and the sale of lifetime licenses for our proprietary table games. Financing for intangible property and sales-type leases for tangible property have payment terms ranging generally from 30 to 60 months and are interest-bearing at market interest rates. Revenue from the sale of equipment is recorded upon shipment. If a customer purchases existing leased equipment, revenue is recorded on the effective date of the purchase agreement. Revenue on service and warranty contracts is recognized over the terms of the contracts, which are generally one year. Revenue from the sale of lifetime licenses, under which we have no continuing obligations, is recorded on the effective date of the license agreement.

Certain of our products contain software, and as such we have considered the guidance contained in Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition”, as modified by SOP No. 98-9, “Software Revenue

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Recognition, With Respect to Certain Transactions”. Under this guidance when leasing or selling software, we consider whether the software component is incidental to the product as a whole based on the following criteria:

·Whether the software is a significant focus of the marketing effort or is sold separately

·Whether post-contract customer support or PCS (PCS includes the right to receive services or unspecified upgrades/enhancements, or both, offered to users or resellers) is provided

·Whether the development and production costs of the software as a component of the cost of the product is incidental, as defined in SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed”

·Whether an agreement includes service elements (other than PCS related services), such as training or installation, and whether such services are essential to the functionality of the software or whether such software is considered “off-the-shelf” (off-the-shelf software is software that is marketed as a stock item that can be used by customers with little or no customization). Conversely, “core software” requires significant customization of the software in order for the software to be used by the end customer

Some of our revenue arrangements contain multiple deliverables, such as a product sale combined with a service element or the delivery of a future product. If an arrangement requires the delivery or performance of multiple elements, we apply the guidance from SOP 97-2, as amended, Emerging Issues Task Force (“EITF”) 03-05, “Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software and FASB Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables.” Deliverables are divided into separate units of accounting if:

·The delivered items have value to the customer on a stand alone basis

·We have objective and reliable evidence of the fair value of the undelivered item

Delivery of any undelivered item is considered probable and substantially in our control

If these criteria are not met, we do not recognize revenue until all essential elements have been delivered. If the installation of the product is not considered inconsequential and perfunctory, then we defer revenue recognition until installation is complete.

Business combinations.  We account for business combinations in accordance with SFAS No. 141, “Accounting for Business Combinations” (“SFAS 141”) and SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets” (“SFAS 142”), and related interpretations. SFAS 141 requires that we record the net assets of acquired businesses at fair value, and we must make estimates and assumptions to determine the fair value of these acquired assets and assumed liabilities.

During fiscal 2007 and 2006, we acquired PGIC’s Table Game Division (“TGD”) and Stargames Limited (“Stargames”), respectively. As a part of the valuation process, we applied significant judgment and utilized a variety of assumptions in determining the fair value of acquired assets and liabilities assumed, and in-process research and development, including market data, estimated future cash flows, growth rates, current replacement cost for similar capacity for certain fixed assets, market rate assumptions for contractual obligations and settlement plans for contingencies and liabilities.

The PGIC TGD purchase price allocation is preliminary and may be adjusted for up to one year after the acquisition. Changes to the assumptions we used to estimate fair value could impact the recorded amounts for acquired assets and assumed liabilities and significant changes to these balances could have a material impact to our future reported results. For instance, lower or higher fair values assigned to certain amortizable intangible assets could result in lower or higher amounts of income statement charges.

Advertising costs.  We expense advertising and promotional costs as incurred, which totaled approximately $2,353, $2,069, and $576, for the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

Research and development costs.  We incur research and development costs to develop our new and next-generation products. Our products generally reach technological feasibility when we receive gaming regulatory product approval which generally occurs concurrent with our products being made available to our customers. Accordingly, research and development costs are expensed as incurred.

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Concentration of credit risk.  Our financial instruments that have potential concentrations of credit risk include cash and cash equivalents, accounts receivable, investments in sales-type leases and notes receivable. We place our cash and cash equivalents with high credit quality institutions. Accounts receivable, investments in sales-type leases and notes receivable have concentration of credit risk because they all relate to our customers in the gaming industry. From time to time, we make significant sales to customers that exceed 10% of our then-outstanding accounts receivable balance. As of October 31, 2007, no customer balances exceeded 10% of our net trade accounts receivable. No single customer’s balance exceeded 10% of our investment in sales-type leases and notes receivable. For the year ended October 31, 2007, no individual customer accounted for more than 10% of consolidated revenue.

Installation Costs.  Installation costs for leased products are expensed as incurred.

Products leased and held for lease.  Our products are primarily leased to customers pursuant to operating leases. Products leased and held for lease are stated at cost, net of depreciation. Depreciation on leased products is calculated using the straight-line method over the estimated customer life of one to five years. We provide maintenance of our products on lease as part of our normal lease agreements. Leases of shufflers generally require prepayment of two months’ lease payments, which are included in the consolidated balance sheets as customer deposits.

Property and equipment.  Property and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful life of the asset of three to eight years, or lease terms, if shorter, for leasehold improvements.

Goodwill and Other Intangible assets.  We account for goodwill and other intangibles under the guidance of SFAS 141 and SFAS 142.

We review our goodwill for impairment using a two step impairment test. The reviews are performed at the reporting unit level, which we have determined is the equivalent to our reportable segments. In the first step, we estimate the fair value of the reporting unit and compare it to the book value of the reporting unit, including its goodwill. If the fair value is less than the book value, then we would perform a second step to compare the implied fair value of the reporting unit’s goodwill to its book value. The implied fair value of the goodwill is determined based on the estimated fair value of the reporting unit less the fair value of the reporting unit’s identifiable net assets. We would record an impairment charge to the extent that the book value of the reporting unit’s goodwill exceeds its fair value. We are required to test goodwill and other indefinite lived intangibles for impairment at least annually, or upon the occurrence of a triggering event. Absent any impairment indicators, we perform our goodwill impairment testing during October of each year. No goodwill impairments were recorded in any periods presented.

Intangible assets include intellectual property for games, patents, trademarks, copyrights, licenses, developed technology, customer relationships and non-compete agreements that were purchased separately or acquired in connection with a business combination. Except for the trademarks related to the Stargames and Casinos Austria Research & Development GmbH & Co KG (“CARD”) acquisitions, which are not subject to amortization, all of our significant intangible assets are definite lived and, accordingly, amortized over their expected useful lives which range from 1 to 15 years. We amortize substantially all of our intangible assets proportionate to the related projected revenue from the utilization of the intangible asset. We believe this method reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. For certain other intangibles, we use the straight-line amortization method. See Note 6 for more information. We also review these intangible assets for impairment in accordance with SFAS No. 144 whenever events or changes in circumstances indicate that we may not be able to recover the asset’s carrying amount (see below).

Impairment of long-lived assets.  We estimate the useful lives of our long-lived assets, excluding goodwill, based on historical experience, estimates of products’ commercial lives, the likelihood of technological obsolescence and estimates of the duration of commercial viability for patents, licenses and games.

We review our long-lived assets, excluding goodwill, for impairment whenever events or circumstances indicate the carrying value may not be recoverable or warrant a revision to the estimated remaining useful life, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), and SFAS 142. We would record an impairment loss if the carrying amount of the asset or asset group is not recoverable (as determined by undiscounted cash flows) and the carrying amount exceeds its estimated fair value. Fair value is determined based on discounted expected future cash flows. As of October 31, 2007, we did not have any such impairment loss. Impairments were recognized in fiscal years 2006 and 2005 as discussed above.

Deferred revenue.  Deferred revenue consists of amounts collected or billed in excess of recognizable revenue.

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Foreign currency translation.  Our foreign subsidiaries’ asset and liability accounts are translated into U.S. dollar amounts at the exchange rate in effect at the balance sheet date. Foreign exchange translation adjustments are recorded as a separate component of shareholders’ equity. Revenue and expense accounts are translated at the average exchange rates. Transaction gains and losses are included in other expense on our consolidated statements of income.

Earnings per common share.  Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding and issuable during the year. Diluted earnings per share is similar to basic, except that the weighted average number of shares outstanding is increased by the potentially dilutive effect of outstanding stock options, restricted stock and contingent convertible notes, if applicable, during the year, using the treasury stock method.

Recently issued or adopted accounting standards. In August 2007, the Financial Accounting Standards Board (“FASB”) proposed FASB Staff Position (FSP) APB 14-a, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-a”). If approved, FSP APB 14-a will require us to separately account for the liability and equity components of our Notes and recognize additional interest expense at our nonconvertible debt borrowing rate. If the FSP is issued as drafted, it will be effective for fiscal 2009 and will require retrospective application. We are currently evaluating the proposed FSP and it may result in higher interest expense related to our Notes for all periods presented.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This statement also establishes disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and interim periods within those fiscal years. SFAS 141R will become effective for our fiscal year beginning November 1, 2009. We are currently evaluating the effect the adoption of SFAS 141R will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 expands the use of fair value measurement by permitting entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement is effective for us beginning in November 2008. We have not yet determined whether we will elect to measure any items at fair value under SFAS 159.

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

In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes the recognition threshold and measurement criteria for determining the tax benefit amounts to recognize in the financial statements. This interpretation is effective for us beginning in November 2007. We are evaluating the potential impact of adopting this interpretation on our future results of operations, financial position or cash flows. FIN 48 requires that tax positions be assessed using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts, and are classified as current (“Other accrued liabilities”) or long-term (“Other long-term liabilities”) based on the time until expected payment. A cumulative effect adjustment to retained earnings was not required as a result of the implementation of FIN 48. At this time, the Company estimates a range of $1,000 to $3,000 of unrecognized tax liability as a result of the implementation of FIN 48.

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In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). 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 was effective for our fiscal year 2007. The adoption of this statement did not have a material impact on our results of operations, financial position or cash flows.

2. ACQUISITIONS, OTHER SIGNIFICANT TRANSACTIONS AND DISPOSITIONS

PGIC Table Games Division.  On September 26, 2007, we entered into a purchase agreement for the acquisition of PGIC’s Table Games Division (“TGD”) business (“Purchase Agreement”), including certain worldwide rights and lease contracts for all of PGIC’s table game titles including Caribbean Stud^® and Texas Hold’ Em Bonus^®, as well as a software distribution license agreement (“Software Distribution License Agreement”). Further, we also entered into an amended and restated license agreement with PGIC amending the current license agreement originally entered into on September 29, 2006, which granted us certain expanded rights.

The acquisition grants us all of PGIC’s rights, title, and interest, on a worldwide basis (except for certain defined carved-out customers and of electronic and video rights to the acquired games), in and to all of the assets in or part of the table games division including, without limitation, all intellectual property, hardware, software, existing customer agreements, installed table game base and inventory.

Under the terms of the Purchase Agreement, we paid to PGIC an upfront payment of approximately $19,800. The Purchase Agreement also provides for future earn-out payments, where permitted, beginning in calendar 2008, including $3,500 in total non-interest bearing guaranteed minimum payments over a 4-year period, as follows: For each of 2008 and 2009, the guaranteed minimum amounts are $1,000 each year, paid quarterly; and for 2010 and 2011, are $750 each year, also paid quarterly. The future earn-out payments are based on the growth of the acquired TGD business in excess of annual baseline revenue of approximately $4,800. For 2008 and 2009, the earn-out will be 23% of revenue above the baseline amount; for 2010 and 2011, the earn-out will be 19% of revenue above the baseline; and for 2012 to 2016, 10.75% of revenue above the baseline. Actual earn-out payments are applied against the annual guaranteed minimum amounts. Future earn-out payments in excess of the minimum guaranteed payments will be added to the purchase price in accounting for the business combination. The recurring revenue for the twelve months ended June 30, 2007 of the acquired TGD business totaled approximately $4,800. The acquired installed lease base as of September 1, 2007, totaled approximately 600 tables.

Under the Software Distribution License Agreement, we acquired PGIC’s Game Manager™ software and related table hardware (collectively, the “GMS”). The Software Distribution License Agreement provides a framework for us to further utilize the GMS, as well as use PGIC’s Casinolink^® Jackpot System™ for installations where the GMS cannot handle the total number of tables and/or properties being managed. We paid PGIC a $3,000 advance of royalties due under the Software Distribution License Agreement within 10 days of signing the Purchase Agreement. Once the $3,000 advance is recouped, PGIC will receive recurring quarterly royalty payments for the placement of PGIC’s progressive technology on our proprietary table games, subject to our further recoupment of $1,750 related to an earlier licensing transaction with PGIC. The royalty rate for our proprietary games is 15% of the net incremental revenue attributable to adding the progressive element.

The following table sets forth the determination of the consideration paid for the PGIC TGD at the date of acquisition:

Cash	$	19,755
Minimum future consideration, non-interest bearing	2,922
Direct acquisition costs	1,233
Total purchase price	$	23,910

In accordance with SFAS 141, the transaction was accounted for as a business combination and, accordingly, the preliminary purchase price was allocated to the underlying assets acquired based upon their estimated fair values at the date of the acquisition. No liabilities were assumed in this transaction. We are currently in the process of determining the fair values based on discounted cash flows and estimates. The purchase price allocation is preliminary and may be adjusted for up to one year after the acquisition. The following table sets forth the preliminary allocation of the purchase price:

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Inventory	$	883
Property and equipment	1,101
Customer relationships, average life of 10 years	11,221
Backlog, average life of 1 year	126
Tradenames, trademarks, patents, and copyrights, average life of 10 years	2,999
Covenant not to compete, life of 7 years	207
Goodwill	7,373
	$	23,910

The acquisition of the PGIC TGD enhances the product offering in our PTG segment. These factors result in the recognition of certain intangible assets and goodwill. Backlog and covenant not to compete are being amortized on a straight-line basis over their useful lives. Customer relationships and tradenames, trademarks, patents, and copyrights are being amortized based on their projected revenue streams. Backlog and tradenames, trademarks, patents, and copyrights are charged to cost of leases and royalties, a component of gross margin. Customer relationships and covenant not to compete are reflected in selling, general and administrative expenses in the condensed consolidated statements of income.

3. FINANCIAL INSTRUMENTS

Cash and cash equivalents.  Cash and cash equivalents include short-term investments with maturities of three months or less from their date of purchase. We maintain cash balances that exceed federally insured limits; however, we have incurred no losses on such accounts.

Investments.  We classify all of our securities as available-for-sale. Our investments are recorded at fair market value, which, as of October 31, 2007 and 2006, includes $0 of unrealized gains.

Investments at fair value consisted of the following as of October 31:

	2007		2006
United States government and agency obligations	$	—	$	11

Fair value disclosures of financial instruments.  We estimate that the fair values of accounts receivable, the current portion of investment in sales-type leases and notes receivable, accounts payable and short term borrowings approximate their carrying values due to the relatively short-term nature of the instruments. It is impracticable to estimate the fair value of the long-term portion of our investment in sales-type leases and notes receivable.

We estimate that the fair value of our $150,000 Contingent Convertible Senior Notes (the “Notes”) as of October 31, 2007, was $138,353 based on quoted market prices.

4. RECEIVABLES AND INVESTMENT IN SALES-TYPE LEASES

The following provides additional disclosure for accounts receivable, notes receivable and investment in sales-type leases as of October 31:

	2007			2006
Accounts receivable, net:
Trade receivables	$	35,521		$	34,084
Less: allowance for bad debts	(476		)	(1,422		)
Total	$	35,045		$	32,662

	2007			2006
Investment in sales-type leases and notes receivable, net:
Minimum sales-type lease payments	$	10,715		$	15,314
Notes receivable—table game licenses	7,798			11,395
Sub-total sales-type leases and notes receivable	18,513			26,709
Less: interest sales-type leases	(1,085		)	(1,615		)
Less: deferred service revenue	(1,976		)	(2,839		)
Less: allowance for bad debts	(236		)	(681		)
Investment in sales-type leases and notes receivable, net	15,216			21,574
Less: current portion sales-type leases	(4,266		)	(4,512		)
Less: current portion notes receivable—table game licenses	(4,826		)	(5,552		)
Long-term portion investment in sales-type leases and notes receivable	$	6,124		$	11,510

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We maintain provisions for bad debts for estimated credit losses that result from the inability of our customers to make required payments. The provisions for bad debts are estimated based on historical experience and specific customer collection issues.

Sales-type leases are interest-bearing at fixed market interest rates, require monthly installment payments over periods ranging generally from 30 to 60 months and contain bargain purchase options. Notes receivable includes financing arrangements for sales of our intellectual property products. Amounts are interest-bearing at fixed market interest rates and require monthly installments ranging generally from 30 to 60 months. Future minimum lease payments (principal, deferred revenue and interest) to be received for both sales-type leases and notes receivable are as follows:

	Year Ending October 31,
	2008			2009			2010			2011		Total
Investment in sales-type leases and notes receivable, net:
Future sales-type lease payments	$	6,794		$	3,491		$	430		$	—	$	10,715
Notes receivable—table game licenses	4,587			2,609			594			9		7,799
Sub-total sales-type leases and notes receivable	11,381			6,100			1,024			9		18,514
Less: interest sales-type leases	(788		)	(262		)	(35		)	—		(1,085		)
Less: deferred service revenue	(1,265		)	(641		)	(71		)	—		(1,977		)
Less: allowance for bad debts	(236		)	—			—			—		(236		)
Investment in sales-type leases and notes receivable, net	$	9,092		$	5,197		$	918		$	9	$	15,216

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5. OTHER BALANCE SHEET DATA

The following provides additional disclosure for selected balance sheet accounts as of October 31:

	2007		2006
Inventories:
Raw materials and component parts	$	18,975	$	9,585
Work-in-process	2,141		3,051
Finished goods	12,965		12,022
Total	$	34,081	$	24,658

	2007			2006
Products leased and held for lease:
Utility products	$	29,678		$	21,500
Less: accumulated depreciation	(22,802		)	(13,864		)
Utility Products, net	6,876			7,636
Proprietary Table Games	1,783			845
Less: accumulated depreciation	(703		)	(836		)
Proprietary Table Games, net	1,080			9
Electronic Table Systems	12,076			4,415
Less: accumulated depreciation	(4,146		)	(778		)
Electronic Table Systems, net	7,930			3,637
Electronic Gaming Machines	222			222
Less: accumulated depreciation	(222		)	(222		)
Electronic Gaming Machines, net	—			—
Total, net	$	15,886		$	11,282

	2007			2006
Property and equipment:
Office furniture and computer equipment	$	8,143		$	6,835
Less: accumulated depreciation	(5,273		)	(4,824		)
Property and equipment, net	2,870			2,011
Leasehold Improvements:	5,302			4,673
Less: accumulated depreciation	(3,144		)	(2,702		)
Leasehold Improvements, net	2,158			1,971
Production equipment and other:	11,669			9,672
Less: accumulated depreciation	(5,455		)	(3,875		)
Production equipment and other, net	6,214			5,797
Total, net	$	11,242		$	9,779

	2007		2006
Other long-term assets:
Debt issuance costs, net	$	2,833	$	2,369
Deposits	3,872		3,507
Investment in Sona	1,749		1,931
PGIC TGD prepaid royalty	4,750		—
Other	2,173		1,535
Total	$	15,377	$	9,342

Total debt issuance costs incurred with the issuance of long-term debt are capitalized and amortized as interest expense using the effective interest method over the term of the related debt. Amortization of debt issuance costs were $1,327 and $1,511 for the year ended October 31, 2007 and 2006, respectively. Debt issuance costs related to the $100,000 senior secured revolving credit facility (the “Revolver”) obtained in November 2006 were $1,742.

Deposits are primarily comprised of a $3,000 security deposit related to our patent infringement lawsuit against Elixir Gaming Technologies, Inc., (formerly “VendingData”) and deposits associated with equipment purchases. See Notes 15 and 16 for more information related to the Elixir Gaming Technologies, Inc., (formerly “VendingData”) litigation.

Other long term assets of $2,173 and $1,535, respectively, principally include $1,659 and $1,433, respectively, of prepaid corporate development fees and $512 and $0, respectively, of restricted cash related to the King’s Gaming Inc. contingent consideration related to the purchase of the Play Four Poker™ patent and trademark. See Note 7 for more information.

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We classify our investment in Sona as available-for-sale. Our investment is recorded at fair market value, which, as of October 31, 2007 and October 31, 2006, was $1,749 and $1,931, respectively.

6. INTANGIBLE ASSETS AND GOODWILL

Amortized intangible assets.  All of our recorded intangible assets, excluding goodwill and the Stargames and CARD trademarks, are subject to amortization. Amortization expense was $19,421, $9,045, and $5,954 for each of the years ended October 31, 2007, 2006, and 2005, respectively.

Amortized intangible assets are comprised of the following as of October 31:

	Weighted Avg Useful Life	2007			2006
Amortized intangible assets:
Patents, games and products	10 years	$	62,465		$	53,452
Less: accumulated amortization		(23,945		)	(15,159		)
		38,520			38,293
Customer relationships	10 years	23,537			10,221
Less: accumulated amortization		(2,251		)	(767		)
		21,286			9,454
Licenses and other	6 years	5,136			6,313
Less: accumulated amortization		(1,813		)	(1,661		)
		3,323			4,652
Developed technology	4 years	10,254			8,510
Less: accumulated amortization		(4,486		)	(1,596		)
		5,768			6,914
PGIC Backlog	1 Year	126			—
Less: accumulated amortization		(11		)	—
		115			—
Total		$	69,012		$	59,313

Changes in gross balances relate primarily to foreign currency translation adjustments and the acquisition of PGIC’s TGD.

Estimated amortization expense related to recorded intangible assets, excluding the Stargames and CARD trademarks, is as follows:

Year ending October 31,
2008	$	14,340
2009	13,894
2010	10,191
2011	7,588
2012	5,107
Thereafter	17,892
	$	69,012

Trademarks.  Intangibles with an indefinite life consisting of the Stargames and CARD trademarks are not amortized and were $22,331 and $18,591 as of October 31, 2007 and 2006, respectively.

Goodwill.  Changes in the carrying amount of goodwill for the year ended October 31, 2007, are as follows:

	Utility Products		Proprietary Table Games		Electronic Table Systems			Electronic Gaming Machines			Total
Balance at October 31, 2006	$	38,346	$	—	$	42,043		$	11,311		$	91,700
Foreign currency translation adjustment	5,110		—		8,500			2,288			15,898
Adjustments to Stargames purchase price allocation	—		—		(7,578		)	(2,039		)	(9,617		)
PGIC TGD Acquisition	—		7,373		—			—			7,373
Balance at October 31, 2007	$	43,456	$	7,373	$	42,965		$	11,560		$	105,354

Our goodwill originated from our acquisitions of foreign subsidiaries and the PGIC TGD. For both domestic and foreign income tax purposes, goodwill is amortized using the straight-line method and deducted over its statutory fifteen year life. Goodwill has been assigned to our Utility Products, PTG, ETS and EGM reporting units, as defined under SFAS 142.

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Adjustments to goodwill for the year ended October 31, 2007, related to the final purchase price allocation for the Stargames acquisition as well as an adjustment at Stargames related to the reversal of an approximately $1,550 pre-acquisition liability, included in accrued liabilities, for a potential Australian Goods and Services Tax (“GST”) liability associated with export of sales in the period December 2001 through November 2006. Goodwill was also impacted by approximately $400 of other Stargames tax-related adjustments.

For the fiscal year ended October 31, 2007, a $7,659 decrease to goodwill and corresponding decrease to deferred tax liability was recognized. This adjustment relates to recording additional tax basis for the Stargames PC3 and other non-amortizable identified intangibles acquired in the acquisition. These financial accounting assets had originally been recorded without a corresponding tax asset as the availability of a deduction was dependent on interpretation of newly enacted Australian tax consolidation rules which were unclear. During the fourth quarter, we concluded our Australian consolidation process and performed additional research to confirm whether certain assets would qualify for a tax deduction or amortization. Based on these efforts, we adjusted goodwill to reflect the existence of a tax asset and hence the corresponding reduction in the deferred tax liability originally recorded.

7. DEBT AND LONG-TERM LIABILITIES

Debt and long-term liabilities consisted of the following as of October 31:

	October 31,
	2007			2006
Contingent convertible senior notes (Notes), fixed rate interest at 1.25%, due 2024	$	150,000		$	150,000
Senior secured revolving credit facility (Revolver)	75,680			—
Bridge loan, due November 2006 (Old Credit Agreement)	—			70,000
Stargames credit facility	—			3,872
BTI acquisition contingent consideration	2,434			4,441
ENPAT note payable, non-interest bearing, due in installments through 2007	2,985			5,823
PGIC TGD minimum consideration, non-interest bearing, due in installments through 2011	2,922			—
Kings Gaming Inc. contingent consideration	512			—
Bet the Set “21” contingent consideration	478			526
VIP note payable	—			329
Other	1,619			1,056
	236,630			236,047
Less: current portion	(3,932		)	(77,294		)
	$	232,698		$	158,753

Contingent Convertible Senior Notes.  In April 2004, we issued $150,000 of Notes due 2024 through a private placement under Rule 144A of the Securities Act of 1933. The Notes are unsecured and bear interest at a fixed rate of 1.25% per annum. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, beginning October 15, 2004.

Holders may convert any outstanding Notes into cash and shares of our common stock at an initial conversion price per share of $28.07. This represents a conversion rate of approximately 35.6210 shares of common stock per $1,000 in principal amount of Notes. The value of the cash and shares of our common stock, if any, to be received by a holder converting $1,000 principal amount of the Notes will be determined based on the applicable Conversion Rate, Conversion Value, Principal Return, and other factors, each as defined in the indenture covering these Notes.

The Notes are convertible, at the holders’ option, into cash and shares of our common stock, under any of the following circumstances:

·during any fiscal quarter commencing after the date of original issuance of the Notes, if the closing sale price of our common stock over 20 trading days, during the previous quarter, is more than 120% of the conversion price of the Notes on the last trading day of the previous quarter;

·if we have called the Notes for redemption and the redemption has not yet occurred;

·during the five trading day period immediately after any five consecutive trading day period in which the trading price of the Notes per $1,000 principal amount for each day of such period was less than 95% of the product of the closing sale price of our common stock on such day multiplied by the number of shares of our common stock issuable upon conversion of $1,000 in principal amount of the Notes, provided that, if on the date of any conversion pursuant to this trading price condition, our common stock price on such date is greater

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than the conversion price but less than 120% of the conversion price, then the holder will be entitled to receive Conversion Value (as defined in the indenture covering these Notes) equal to the principal amount of the Notes, plus accrued and unpaid interest including liquidated damages, if any; or

·upon the occurrence of specified corporate transactions.

We may call some or all of the Notes at any time on or after April 21, 2009, at a redemption price, payable in cash, of 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and including liquidated damages, if any, up to but not including the date of redemption. In addition, the holders may require us to repurchase all or a portion of their Notes on April 15, 2009, 2014 and 2019, at 100% of the principal amount of the Notes, plus accrued and unpaid interest and including liquidated damages, if any, up to but not including the date of repurchase, payable in cash. Upon a change in control, as defined in the indenture governing the Notes, holders may require us to repurchase all or a portion of their Notes, payable in cash equal to 100% of the principal amount of the Notes plus accrued and unpaid interest and liquidated damages, if any, up to but not including the date of repurchase.

$100,000 Senior Secured Revolving Credit Facility.  On November 30, 2006, we entered into a $100,000 Revolver with Deutsche Bank Trust Company Americas, as a Lender, and as the Administrative Agent Deutsche Bank Securities Inc. and Wells Fargo Bank, N.A., as Joint Lead Arrangers and Book Managers and Wells Fargo Bank, N.A. as Syndication Agent. We initially drew $71,180 on the bank facility, which was used to repay in its entirety the Old Credit Agreement. We drew an additional $4,500, net of payments, on the Revolver during fiscal 2007, which was used in part to fund the PGIC TGD acquisition. The outstanding balance on the Revolver was $75,680 at October 31, 2007. Our effective interest rate as of October 31, 2007 was 7.5%. Any remaining amount available under the Revolver will be used for working capital, capital expenditures, permitted asset acquisitions, and general corporate purposes, including share repurchases. The Revolver will mature on November 30, 2011.

The interest rate under the Revolver is based on the sum of the relevant Base Rate or Eurodollar Rate plus the Applicable Margin, based on the total leverage ratio as defined, each as in effect from time to time. The obligations under the revolving credit facility are guaranteed by each wholly-owned domestic subsidiary of ours that is not an immaterial subsidiary and each wholly-owned domestic subsidiary that is not an immaterial subsidiary of the Company established, created or acquired after November 30, 2006, if any. The Revolver contains customary affirmative and negative covenants for transactions of this nature, including but not limited to restrictions and limitations on the following:

·Permitted acquisitions;

·Incurrence of indebtedness;

·Granting or incurrence of liens;

·Payment of dividend and other distributions in respect of our equity securities;

·Acquire assets and make investments;

·Sales of assets;

·Transactions with affiliates;

·Mergers;

·Total leverage ratio;

·Interest expense coverage ratio; and

·Agreements to restrict dividends and other payments from subsidiaries.

At October 31, 2007, we had approximately $24,320 of available remaining credit under the Revolver. Further, as of October 31, 2007, we were in compliance with all financial covenants. We have two financial maintenance covenants under our Credit Facility: a Total Leverage Ratio and an Interest Expense Coverage ratio. Our Credit Agreement prohibits us from exceeding a Total Leverage Ratio, as defined therein, of 4.5:1. Our Total Leverage Ratio as of October 31, 2007 was 3.8 to 1.0. Our Credit Agreement requires us to maintain an Interest Coverage Ratio, as defined therein, in excess of 3.0 to 1.0. Our Interest Coverage Ratio as of October 31, 2007 was 8.4 to 1.0.

Stargames credit facility.  Stargames had banking facilities with the Australia and New Zealand Banking Group (“ANZ”). The facilities had a borrowing capacity of AU $12,700, but we elected to pay all amounts outstanding and cancel

19

the Stargames credit facility effective October 31, 2007. The amount outstanding as of October 31, 2006, was $3,872. Interest rates were based on the bank bill swap yield, as defined, plus a margin.

The facilities were secured by a cross guarantee and indemnity between all the operating entities of the Stargames group. The agreements provided for collateralization of all the assets and operations of all members of the Stargames group as well as the operating facilities of Stargames based in Milperra, New South Wales, Australia.

BTI liabilities.  In connection with our acquisition of certain games and related assets of Bet Technology, Inc. (“BTI”) in February 2004, we recorded an initial estimated liability of $7,616 for contingent installment payments computed as the excess fair value of the acquired assets over the fixed installments and other direct costs. The contingent consideration is non-interest bearing. Beginning November 2004, we pay monthly note installments based on a percentage of certain revenue from BTI games for a period of up to ten years, not to exceed $12,000. The balance of this liability as of October 31, 2007 and October 31, 2006, were $2,434 and $4,441, respectively.

ENPAT note payable.  In December 2004, we purchased two RFID technology patents from ENPAT for $12,500. The purchase price was comprised of an initial payment of $2,400 followed by a $1,100 payment in January 2005 and non-interest bearing annual installments through December 2007. The balance as of October 31, 2007 and October 31, 2006, of $2,985 and $5,823, respectively, represents the discounted present value of the future payments, including imputed interest of approximately $146 and $265, respectively. The remaining principal and interest payment of $3,000 was paid in December 2007.

Kings Gaming Inc. contingent consideration.  In April 2007, we purchased the Play Four Poker patent and trademark from Kings Gaming Inc. for a total purchase price of $1,140. Of the total $1,140 purchase price, $500 was deposited into an interest bearing escrow account for Kings Gaming Inc, which shall remain in escrow until September 1, 2012 (“Maturity Date”); consequently the $500 is classified as a restricted asset on our balance sheet in other long term assets. Upon expiration of the escrow period, Kings Gaming Inc. will be entitled to the $500 escrowed amount and interest earned thereon contingent upon no claims being made against the purchased patent and trademark, as outlined in the Intellectual Property Purchase Agreement, dated April 17, 2007 (“Effective Date”). On each anniversary of the Effective Date until the Date of Maturity, Kings Gaming, Inc. shall only be entitled to interest accrued in the interest bearing escrow account. The balance of this liability as of October 31, 2007 was $512. Our effective interest rate as of October 31, 2007 was 5.8%.

Bet the Set “21” contingent consideration.  In connection with our acquisition of Bet the Set “21” in June 2005, we recorded contingent consideration of $560. The contingent consideration is non-interest bearing and consists of quarterly payments of 22.5% of “adjusted gross revenues,” as defined, attributed to the Bet the Set “21” side bet table games up to a maximum of $560. The balance of this liability as of October 31, 2007 and October 31, 2006, was $478 and $526, respectively.

PGIC Table Games Division minimum consideration.  In connection with our acquisition of PGIC’s worldwide TGD on September 26, 2007, we recorded minimum consideration of $3,500 due in non-interest bearing quarterly installments through December 2011. The minimum consideration consists of quarterly payments for each calendar year beginning in 2008 through 2011. The annual minimum consideration amounts to be paid in 2008 and 2009 are $1,000 each year and the annual minimum consideration amounts to be paid in 2010 and 2011 are $750 each year. The balance as of October 31, 2007 of $2,922 represents the discounted present value of the future payments, excluding imputed interest of approximately $578 using an effective interest rate of 7.25%.

Maturities of long-term debt for the five fiscal years ending subsequent to October 31, 2007, are as follows:

Year ending October 31,
2008	$	3,932
2009	151,259
2010	736
2011	1,288
2012	75,947
Thereafter	3,468
Total	$	236,630

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8. SHARE-BASED COMPENSATION

Adoption of SFAS 123R.  Effective November 1, 2005, we account for stock-based compensation in accordance with SFAS No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment”, and SAB No. 107 (“SAB 107”), “Share-Based Payment” requiring the measurement and recognition of all share-based compensation under the fair value method. We previously accounted for stock-based compensation in accordance with APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”, and the FASB’s Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25”, and disclosed supplemental information in accordance with SFAS No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” Under these standards, we did not incur compensation expense for employee stock options when the exercise price was at least 100% of the market value of our common stock on the date of grant. SFAS 123R requires that all stock-based compensation, including shares and share-based awards to employees, be valued at fair value. We measure the fair value of share-based awards using the Black-Scholes model.

Under SFAS 123R, compensation is attributed to the periods of associated service. For awards granted prior to November 1, 2005, such expense is being recognized on an accelerated basis since that is the method that we previously applied in our supplemental disclosures. Beginning with awards granted on November 1, 2005, such expense is being recognized on a straight-line basis over the vesting period of the awards. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures recognized currently to the extent they differ from the estimate.

We adopted SFAS 123R by applying the modified-prospective transition method and reclassified previously recorded deferred compensation to additional paid-in capital (“APIC”). Under this method, we began applying the valuation and other criteria of SFAS 123R on November 1, 2005, and began recognizing expense for the unvested portion of previously issued grants at the same time, based on the valuation and attribution methods originally used to calculate the disclosures.

In addition, SFAS 123R requires the excess tax benefit from stock-option exercises—tax deductions in excess of compensation cost recognized—to be classified as a financing activity. Previously, all tax benefits from stock option exercises were classified as operating activities. We have evaluated the provisions of SFAS 123R-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” and have elected the alternative method for establishing the APIC pool. The $854 and $3,682 of excess tax benefits in fiscal 2007 and 2006, respectively, are classified as operating cash outflows and financing cash inflows.

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Share-based award plans.  In February 2004, our board of directors adopted and, in March 2004, our shareholders approved the Shuffle Master, Inc. 2004 Equity Incentive Plan (the “2004 Plan”) and the Shuffle Master, Inc. 2004 Equity Incentive Plan for Non-Employee Directors (the “2004 Directors’ Plan”). These approved plans replaced our prior plans and no further options may be granted from the prior plans. Both the 2004 Plan and the 2004 Directors’ Plan provide for the grant of stock options, stock appreciation rights (none issued), restricted stock, and restricted stock units, individually or in any combination (collectively referred to as “Awards”). Stock options may not be granted at an exercise price less than the market value of our common stock on the date of grant and may not be subsequently repriced. Equity granted under the 2004 Plan generally vest in equal increments over four years and expire in ten years. Equity granted under the 2004 Directors’ Plan generally vest immediately and expire in ten years, although initial equity grants to directors upon joining the Board can partly vest either immediately and/or partly over one or two years.

The 2004 Plan provides for the grants of Awards to our officers, other employees and contractors. The maximum number of Awards which may be granted is 2,700 of which no more than 1,890 may be granted as restricted stock. The 2004 Directors’ Plan provides for the grants of Awards to our non-employee directors. The maximum number of Awards which may be granted is 1,125 of which no more than 788 may be granted as restricted stock.

As of October 31, 2007, 956 and 867 shares are available for grant under the 2004 Plan and 2004 Directors’ Plan, respectively. A summary of activity under our share-based payment plans for the year ended October 31, 2007 is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at October 31, 2005	3,822		$	17.01	7.0
Granted	142		32.96
Exercised	(697	)	11.30
Forfeited or expired	(136	)	13.55
Outstanding at October 31, 2006	3,131		19.16		7.0
Granted	142		27.23
Exercised	(229	)	11.12
Forfeited or expired	(138	)	29.96
Outstanding at October 31, 2007	2,906		19.68		6.4	2,757
Exercisable at October 31, 2007	2,330		17.71		6.0	2,757
Vested and expected to vest at October 31, 2007	2,757		$	19.68	6.4	2,757

The total intrinsic value of stock options exercised during the year ended October 31, 2007 and 2006 was $4,158 and $13,070, respectively. The total income tax benefits from stock option exercises during the year ended October 31, 2007 and 2006 were $1,133 and $3,908, respectively. As of October 31, 2007, there was a total of $4,045 of unamortized compensation related to stock options, which expense is expected to be recognized over a weighted-average period of 2.1 years. As noted earlier, we are recognizing expense for awards granted prior to November 1, 2005 on an accelerated basis, so a disproportionate amount of unamortized expense will be recognized in the first 12 months of this weighted-average period.

During the years ended October 31, 2007, 2006 and 2005 we issued 227, 64 and 193 shares of restricted stock, respectively, with an aggregate fair value of $5,773, $2,113 and $4,781, respectively. The total value of each restricted stock grant, based on the fair market value of the stock on the date of grant, is amortized to compensation expense over the related vesting period. Net income, as reported, for the year ended October 31, 2007 and 2006, reflects $2,149 and $1,275 respectively, of amortization of restricted stock compensation.

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During the years ended October 31, 2007, 2006 and 2005, we granted 142, 142, and 983 stock options, respectively, with a grant date fair value of $1,467, $1,773 and $4,798, respectively.

A summary of activity related to restricted stock for the year ended October 31, 2007 is presented below:

	Shares		Weighted Average Grant-Date Fair Value
Nonvested at October 31, 2005	276		$	19.11
Granted	64		33.27
Exercised	—		—
Forfeited	—		—
Nonvested at October 31, 2006	340		26.01
Granted	227		25.42
Exercised	(30	)	33.02
Forfeited	(51	)	25.94
Nonvested at October 31, 2007	486		$	26.19

As of October 31, 2007, there was $7,423 of unamortized compensation expense related to restricted stock, which expense is expected to be recognized over a weighted-average period of 2.1 years.

Recognition of compensation expense.  The following table shows information about compensation costs recognized for the years ended October 31:

	2007			2006			2005
Compensation costs:
Stock options	$	1,881		$	3,515		$	60
Restricted stock	2,931			1,997			759
Total compensation cost	4,812			5,512			819
Related tax benefit	$	(1,313	)	$	(1,720	)	$	(300	)

Reported share-based compensation expense was classified as follows for the years ended October 31:

	2007		2006		2005
Cost of sales	$	43	$	102	$	—
Selling, general and administrative	4,391		5,108		819
Research and development	378		302		—
Total share-based compensation	$	4,812	$	5,512	$	819

We estimate the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the weighted-average assumptions noted in the following table (assumptions in 2005 were used to compute the pro forma compensation for disclosure purposes only). Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate. Expected volatility and dividends are based on historical factors related to our common stock. Expected term represents the estimated weighted-average time between grant and employee exercise. Risk free interest rate is based on U.S. Treasury rates appropriate for the expected term.

	Year Ended October 31,
	2007		2006		2005
Option valuation assumptions:
Expected dividend yield	None		None		None
Expected volatility	39.6	%	37.1	%	49.5	%
Risk-free interest rate	4.6	%	4.7	%	3.4	%
Expected term	4.2 years		4.4 years		5.3 years

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Pro forma disclosures.  Had we accounted for these plans during 2005 under the fair value method allowed by SFAS 123, our net income and earnings per share would have been reduced to recognize the fair value of employee options, as follows for the years ended October 31:

	2005
Net income
As reported	$	29,180
Incremental after-tax pro forma share-based compensation	(10,485		)
Comparative net income (prior year pro forma)	$	18,695
Basic earnings per share
As reported	$	0.84
Pro forma	$	0.54
Diluted earnings per share
As reported	$	0.80
Pro forma	$	0.51

9. EARNINGS PER SHARE

Shares used to compute basic and diluted earnings per share from continuing operations for the years ended October 31 are as follows:

	2007		2006		2005
Income from continuing operations	$	16,301	$	5,339	$	29,104
Basic:
Weighted average shares	34,680		34,585		34,924
Diluted:
Weighted average shares, basic	34,680		34,585		34,924
Dilutive impact of options and restricted stock outstanding	593		1,176		1,343
Dilutive effect of contingent convertible notes	3		291		111
Weighted average shares, diluted	35,276		36,052		36,378
Basic earnings per share	$	0.47	$	0.15	$	0.83
Diluted earnings per share	$	0.46	$	0.15	$	0.80
Weighted average anti-dilutive shares excluded from diluted EPS	6,739		993		1,350

We account for the $150,000 of Notes due 2024 (the “Notes”) in accordance with FASB EITF No. 04-08 (“EITF 04-08”), “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” which requires us to include the dilutive effect of our outstanding Notes shares in our diluted earnings per share calculation, regardless of whether the market price trigger or other contingent conversion feature has been met. Because our Notes include a mandatory cash settlement feature for the principal payment, we applied the treasury stock method. This method results in incremental dilutive shares when the average fair value of our common stock for a reporting period exceeds the initial conversion price per share of $28.07. For certain quarters during the years ended October 31, 2007, 2006, and 2005, the average fair value of our common stock exceeded $28.07, and accordingly, the dilutive effect is included in our diluted shares calculation.

10. SHAREHOLDERS’ EQUITY

Common stock repurchases.  Our board of directors periodically authorizes us to repurchase shares of our common stock. Under our existing board authorization, during the year ended October 31, 2007, we repurchased 77 shares of our common stock for a total of $1,963 at an average price of $25.50. As of October 31, 2007, $28,203 remained outstanding under our board authorization. Under our board authorization, during the years ended October 31, 2006 and 2005, we repurchased 317 and 1,473 shares of our outstanding stock at total costs of $8,665 and $38,643, respectively. We cancel shares that we repurchase.

The timing of our repurchases of our common stock pursuant to our board of directors’ authorization is dependent on future opportunities and on our views, as they may change from time to time, as to the most prudent uses of our capital resources, including cash and borrowing capacity.

Tax benefit from stock option exercises.  During each of the years ended October 31, 2007, 2006 and 2005, we recorded income tax benefits of $1,133, $3,908, and $5,287, respectively, related to deductions for employee stock option exercises. These tax benefits, which reduced income taxes payable and increased additional paid-in capital by an equal amount, had no effect on our provision for income taxes.

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Preferred stock purchase rights.  In February 2005, we amended our Shareholder Rights Agreement, dated June 26, 1998 (the “Rights Agreement”). As more fully described therein, and subject to the terms thereof, the Rights Agreement, as amended, generally gives holders of our common stock rights to acquire shares of our preferred stock upon the occurrence of specified events. The amendment (a) eliminated all requirements in the Rights Agreement that actions, approvals and determinations to be taken or made by our board of directors be taken or made by a majority of the “Continuing Directors,” and (b) reflects the change of the name of our stock transfer agent to Wells Fargo Bank, N.A. The amendment eliminated from the Rights Agreement those provisions commonly referred to as “dead hand” provisions.

The Shareholder Rights Agreement was implemented by distributing one preferred share purchase right (a “Right”) for each outstanding share of our common stock held of record as of July 10, 1998. Additionally, we further authorized and directed the issuance of one Right with respect to each share of our common stock that shall become outstanding thereafter until the Rights become exercisable or they expire as described below. Each Right initially entitles holders of our common stock to buy one one-hundredth of a share of our Preferred Stock at a price of $5.33 (as currently adjusted), subject to adjustment. The Rights will generally become exercisable after a person or group acquires beneficial ownership of 20% or more of our common stock or announces a tender offer upon consummation of which such person or group would own 20% or more of our common stock.

If any person or group becomes the owner of 20% or more of our common stock, then, in lieu of the right to purchase any Preferred Stock, each Right will therefore entitle its holder (other than an acquiring person or member of an acquiring group) to purchase shares of our common stock in an amount equal to the exercise price ($5.33, as currently adjusted) of one one-hundredth share of the preferred stock divided by 50% of the then-current market price of one share of common stock.

In addition, if we are acquired in a merger or other business combination transaction, or sell 20% or more of our assets or earnings power then, in lieu of the right to purchase Preferred Stock, each Right will thereafter generally entitle its holder to purchase common shares of the acquiring company using the same formula as for our common stock.

The Rights expire in June 2008 unless earlier redeemed or terminated. At the option of our board of directors, we generally may amend the Rights or redeem the Rights at $0.01 per Right at any time prior to the time a person or group has acquired 20% of our common stock.

11. EMPLOYEE BENEFIT PLANS

U.S. defined contribution plan.  We sponsor a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code and covers U.S. employees who meet certain age and service requirements. We may make matching contributions to the plan based on a percentage of employee compensation and actual contributions. In the years ended October 31, 2007, 2006 and 2005, we elected to make matching contributions of 50% of employee contributions up to 4% of compensation, totaling $335, $248, and $234, respectively.

Austrian pension commitments.  In April and May 2004, we formalized our defined contribution pension agreements with certain Austrian employees. We pay contributions to an external pension fund administered by ÖPAG Pensionskassen AG. Aggregate pension expense relating to our Austrian agreements in the years ended October 31, 2007, 2006 and 2005 were $102, $53, and $36, respectively.

12. OTHER EXPENSE

Other expense is comprised of the following:

	October 31,
	2007			2006			2005
Interest income	$	1,644		$	1,998		$	2,336
Interest expense	(7,487		)	(6,863		)	(2,302		)
Amortization of debt issue costs	(1,327		)	(1,511		)	(961		)
Foreign currency (loss) gain	(3,109		)	(414		)	215
Other	305			91			55
Total Other expense	$	(9,974	)	$	(6,699	)	$	(657	)

Interest income relates to our investment in sales-type leases and notes receivable portfolio.

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Interest expense for the year ended October 31, 2007 primarily relates to interest on our Notes and Revolver. Interest expense during fiscal 2006 primarily relates to interest on the Notes and on our Old Credit Agreement. Interest expense during fiscal 2005 relates principally to our Notes.

Amortization of debt issue costs for the year ending October 31, 2007 relate to our Notes and the Revolver. For fiscal years presented prior to 2007, amortization of debt issue costs relates primarily to the Notes.

Foreign currency (loss) gain relates to fluctuations of the U.S. dollar, the Euro, the Australian dollar and the Pataca. Our foreign subsidiaries engage in activities with us and certain customers in U.S. dollar denominated contracts. Additionally, we have initiated the settling of certain inter-company balances, which has resulted in the recognition of additional foreign currency fluctuations pursuant to SFAS No. 52, “Foreign Currency Translation” for the year ended October 31, 2007.

13. INCOME TAXES

We record deferred income taxes to reflect the income tax consequences in future years between the financial reporting and income tax bases of assets and liabilities, and future tax benefits such as net operating loss carry forwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to reverse. We provide valuation allowances to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate the likelihood of recovering our deferred tax assets by estimating sources of future taxable income. The provision for income taxes is the sum of the tax currently payable and the change in deferred taxes during the year.

The income tax (benefit) provision attributable to our continuing and discontinued operations was as follows for the years ended October 31:

	2007			2006			2005
Continuing operations	$	(1,999	)	$	13,373		$	14,496
Discontinued operations	46			(90		)	44
Total	$	(1,953	)	$	13,283		$	14,540

The components of the (benefit) provision for income taxes from continuing operations was as follows for the years ended October 31:

	2007			2006			2005
Current:
Federal	$	6,345		$	13,647		$	16,364
State	747			658			1,210
Foreign	64			1,290			(526		)
	7,156			15,595			17,048
Deferred:
Federal	(1,586		)	(1,343		)	(2,980		)
State	(82		)	(60		)	(312		)
Foreign	(7,487		)	(819		)	740
	(9,155		)	(2,222		)	(2,552		)
Total	$	(1,999	)	$	13,373		$	14,496

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Deferred tax assets and liabilities consisted of the following as of October 31:

	2007			2006			2005
Deferred tax assets:
Inventories	$	5,458		$	4,429		$	976
Accounts receivable	236			684			368
Employee benefits	1,157			768			234
Deferred revenue	277			835			44
Investment impairment write-downs	1,236			1,033			376
Other reserves	977			317			415
Stock awards	2,758			2,081			380
Fixed Assets	659			391			87
Foreign net operating loss carryforward	3,666			1,410			407
Contingent consideration on patent purchase	1,095			1,926			2,525
Foreign tax credits / receivables	248			331			—
Intangible assets	6,640			—			—
Other	1,032			304			133
Total gross deferred tax assets	25,439			14,509			5,945
Less: valuation allowance	(1,505		)	(880		)	(363		)
Deferred tax assets	23,934			13,629			5,582
Deferred tax liabilities:
Goodwill	2,478			1,608			908
Intangible assets	—			5,959			273
Other	259			597			164
Total gross deferred tax liabilities	2,737			8,164			1,345
Net deferred tax assets	$	21,197		$	5,465		$	4,237

As of October 31, 2007, we have available $6,781, $3,441, $2,010, and $903 of net operating losses in Australia, Austria, New Zealand and Macau, respectively. These losses can be carried forward indefinitely. We have recorded a deferred tax asset of $3,666 related to these operating losses. We have recorded a valuation allowance of $1,265 to fully offset $2,006 and $2,010 of net operating losses in Australia and New Zealand, respectively. We are providing this valuation allowance due to a history of losses and no identifiable sources of significant future taxable income in those entities. The remaining valuation allowance of $240 relates to Australian capital loss carry forwards which can only be offset by capital gains. We are providing this valuation allowance as there are no current known prospects for capital gain.

We have not provided U.S. Federal income tax on $2,875 of undistributed earnings of our foreign subsidiaries because we intend to permanently reinvest such earnings outside the United States. Upon distribution of these earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes, subject to adjustment for foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

The reconciliation of the federal statutory rate to our effective income tax rate for continuing operations for the years ended October 31 was as follows:

	2007		2006		2005
Federal income tax at the statutory rate	35.0	%	35.0	%	35.0	%
Stargames PC4 software technology	(46.9	)%	0.0	%	0.0	%
In-process research and development	(0.0	)%	35.8	%	0.0	%
Foreign dividend inclusion	0.0	%	9.9	%	0.0	%
Other permanent differences	(7.0	)%	(6.0	)%	(1.9	)%
State income taxes, net of federal benefit	2.1	%	2.5	%	2.1	%
Tax credits	(2.7	)%	(8.4	)%	(1.8	)%
Effect from foreign tax rate differences	2.6	%	1.4	%	0.7	%
Other	2.9	%	1.3	%	(0.8	)%
Effective tax rate	(14.0	)%	71.5	%	33.3	%

For the fiscal year ended October 31, 2007, a $6,707 decrease to income tax expense and corresponding increase to deferred tax assets was recognized. This adjustment relates to recording amortizable tax basis for the Stargames PC4 technology which had previously been written off for financial purposes as IPR&D. At the date of acquisition, the determination of the tax treatment was uncertain, pending interpretation of newly enacted Australian tax consolidation rules which were unclear in their application and for which additional guidance was anticipated. During the tax consolidation process, it was determined that the tax deduction related to IPR&D may be available in the form of software asset amortization for tax purposes. Accordingly, we performed additional research to determine whether the asset would qualify

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for a tax deduction and over what period of time. The research was finalized in the fourth quarter, and confirmed that tax amortization is appropriate for the PC4 technology. As such, we recorded a deferred tax asset for the tax-only amortizable asset and reduced income tax expense.

14. OPERATING SEGMENTS

In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, we report segment information based on the “management approach”. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.

In August 2007, we instituted some organizational changes at our global headquarters in Las Vegas, Nevada to support the implementation of our five-point strategy. Specifically, our Las Vegas-based operations were been divided into two distinct entities: a corporate headquarters group and a new profit center called Shuffle Master—Americas. The organizational changes also included the formation of the Corporate Product Group (“CPG”). The CPG is responsible for overseeing the creation and development of our existing and future product lines. In addition to including key corporate executives responsible for product content and product strategy, the CPG will also oversee our global product research and development.

As part of our reorganization and the continued implementation of our five-point strategy, we reanalyzed our historical reportable segments, the Utility Products and Entertainment Products segments, and determined that it was appropriate to expand our reportable segments to include Utility Products,

Proprietary Table Games, Electronic Table Systems and Electronic Gaming Machines. Prior periods have been reclassified to conform to this presentation. Our reportable segments are our operating segments.

We manage our business primarily on a product division basis. Our reportable segments are comprised of Utility Products, Proprietary Table Games, Electronic Table Systems and Electronic Gaming Machines.

Our Utility Products includes a full line of automatic card shufflers for use with the vast majority of card table games as well as chip sorting machines for use on roulette tables. We also have acquired and/or are developing other products that automatically gather data to enable casinos to track table game play, such as Table iD (part of our ITS), currently in development with IGT and PGIC.

Our PTG includes our portfolio of live table games including poker, blackjack, baccarat, and pai gow poker-based table games, progressive table games with bonusing options, and side bets as well as licenses for legal internet wagering.

Our ETS includes e-Table platforms such as Table Master™, Vegas Star^®, Rapid Table Games^®, as well as our wireless gaming content.

Our EGM includes our PC-based video slot machines with an extensive selection of video slot titles, which include a range of bonus round options.

Each segment’s activities include the design, development, acquisition, manufacture, marketing, distribution, installation and servicing of its product lines. All periods presented have been reclassified to conform to our current reportable segments.

We evaluate the performance of our operating segments based on net revenues, gross margin and operating income. Segment revenues include leasing, licensing, or selling of products within each reportable segment. Segment operating income includes net revenues attributable to third parties and expenses directly and indirectly associated with the product lines included in each segment. Direct expenses primarily include depreciation of leased assets, amortization of intangible assets, cost of products sold, shipping, installation, commissions, product approval costs, research and development and product related litigation. Indirect expenses include an activity-based allocation of other general product-related costs, the most significant of which are service and selling expenses, including stock-based compensation expense, and manufacturing overhead. Capital expenditures include amounts reported in our consolidated statements of cash flows for purchases of leased products, property and equipment, and intangible assets plus the financed or non-cash portion of these purchases which is excluded from cash flows

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Operating income for each segment excludes other income and expense, income taxes and certain expenses that are managed outside of the operating segments. The amounts classified as unallocated corporate expenses consist primarily of costs related to overall corporate management and support functions. These include costs related to executive management, accounting and finance, general sales support, legal and compliance costs, office expenses, and other amounts for which allocation to specific segments is not practicable. Segment assets exclude corporate assets.

The following provides financial information concerning our reportable segments of our continuing operations for the years ended October 31:

	2007			2006			2005
Revenue:
Utility products	$	78,457		$	86,792		$	67,029
Proprietary Table Games	33,125			38,316			39,517
Electronic Table Systems	27,890			16,555			6,022
Electronic Gaming Machines	39,269			21,090			—
Unallocated Corporate	110			238			292
	$	178,851		$	162,991		$	112,860
Gross profit:
Utility products	$	48,086		$	55,707		$	45,496
Proprietary Table Games	28,154			33,742			36,696
Electronic Table Systems	13,891			9,936			2,154
Electronic Gaming Machines	14,027			7,225			—
Unallocated Corporate	(292		)	(340		)	(746		)
	$	103,866		$	106,270		$	83,600
Operating income:
Utility products	$	33,783		$	42,445		$	32,595
Proprietary Table Games	23,465			30,451			33,732
Electronic Table Systems	6,600			(16,638		)	(203		)
Electronic Gaming Machines	7,390			3,528			—
Unallocated Corporate	(46,656		)	(32,304		)	(20,867		)
	$	24,582		$	27,482		$	45,257
Depreciation and amortization:
Utility products	$	8,634		$	8,535		$	7,186
Proprietary Table Games	2,661			2,214			1,951
Electronic Table Systems	5,305			2,513			413
Electronic Gaming Machines	586			384			—
Unallocated Corporate	3,562			4,527			2,629
	$	20,748		$	18,173		$	12,179
Capital expenditures:
Utility products	$	3,352		$	6,139		$	11,395
Proprietary Table Games	1,969			577			577
Electronic Table Systems	8,004			5,730			4,626
Electronic Gaming Machines	103			500			—
Unallocated Corporate	1,828			2,730			2,371
	$	15,256		$	15,676		$	18,969
Assets, end of year:
Utility products	$	121,822		$	109,689		$	99,265
Proprietary Table Games	53,635			41,956			33,786
Electronic Table Systems	89,259			80,838			7,193
Electronic Gaming Machines	37,495			28,842			—
Unallocated Corporate	57,556			43,882			52,873
	$	359,767		$	305,207		$	193,117

Revenues by geographic area are determined based on the location of our customers. For the years ended October 31, 2007, 2006 and 2005, sales to customers outside the United States accounted for 55%, 44%, and 23% of consolidated revenue, respectively. No individual customer accounted for more than 10% of consolidated revenue.

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The following provides financial information concerning our operations by geographic area for the years ended October 31:

	2007				2006				2005
Revenue:
United States	$	80,331	44.9	%	$	90,569	55.6	%	$	87,250	77.3	%
Canada	7,314		4.1	%	7,103		4.4	%	5,303		4.7	%
Other North America	1,828		1.0	%	2,747		1.7	%	2,214		2.0	%
Europe	9,702		5.4	%	9,920		6.1	%	8,147		7.2	%
Australia	52,417		29.3	%	27,149		16.7	%	2,440		2.2	%
Asia	21,809		12.2	%	24,003		14.7	%	6,631		5.9	%
Other	5,450		3.1	%	1,500		0.8	%	875		0.7	%
	$	178,851	100.0	%	$	162,991	100.0	%	$	112,860	100.0	%
Long-lived assets, end of year:
United States	$	95,193	36.6	%	$	61,152	28.3	%	$	56,143	47.4	%
Austria	56,618		21.8	%	53,667		24.9	%	53,799		45.4	%
Australia	107,691		41.5	%	100,364		46.5	%	6,617		5.6	%
Other	300		0.1	%	628		0.3	%	1,866		1.6	%
	$	259,802	100.0	%	$	215,811	100.0	%	$	118,425	100.0	%

15. COMMITMENTS AND CONTINGENCIES

Operating leases.  We lease office, production, warehouse and service facilities, and service vans under operating leases. The facility leases are for periods ranging from one to ten years, include renewal options, and include an allocation of real estate taxes and other operating expenses. Total rent expense under operating leases was approximately $1,934 $1,560, and $1,116 for the years ended October 31, 2007, 2006, and 2005, respectively.

Estimated future minimum lease payments under operating leases as of October 31, 2007, are as follows:

Year ending October 31,
2008	$	1,483
2009	1,283
2010	1,061
2011	717
2012	545
Thereafter	—
	$	5,089

Purchase commitments.  From time to time, we enter into commitments with our vendors to purchase inventory at fixed prices or in guaranteed quantities. As of October 31, 2007, our significant inventory purchase commitments totaled $14,794 which are generally due within one year, and primarily relate to our one2six shufflers, Easy Chipper C, Table Master, Vegas Star, Rapid Table Games, and our EGMs.

Minimum royalty payments.  We have entered into certain agreements related to the licensing of intellectual property for use in our business which contain annual minimum royalty payments. The aggregate annual minimum royalty payments are approximately $28,081 through 2019. The annual minimum royalty payments under one of these agreements are only required in order for us to preserve our exclusivity rights.

Employment agreements.  We have entered into employment contracts with our corporate officers and certain other key employees with durations ranging from one to three years. Significant contract provisions include minimum annual base salaries, healthcare benefits, bonus compensation if performance measures are achieved and non-compete provisions. These contracts are primarily “at will” employment agreements, under which the employee or we may terminate employment. If we terminate any of these employees without cause, then we are obligated to pay the employee severance benefits as specified in their individual contract. As of October 31, 2007, minimum aggregate severance benefits totaled $5,747.

Tax contingencies.  The Company has open tax years with various significant taxing jurisdictions including the United States, Australia, Austria and Canada. Such open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit period. As of October 31, 2007, the Company has established a liability of $248 for those matters where the amount of loss is probable and reasonably estimable. The amount of the liability is based on management’s best estimate given the Company’s history with similar matters and interpretations of current laws and regulations.

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Legal Proceedings.  In the ordinary course of business, we are involved in various legal proceedings and other matters that are complex in nature and have outcomes that are difficult to predict. In accordance with SFAS 5, “Accounting for Contingencies,” we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by applicable law, statute or regulation.

1.VendingData II—In October 2004, we filed a second patent infringement lawsuit (“VendingData II”) against VendingData Corporation (“VendingData”). We settled our first patent infringement lawsuit against VendingData on July 12, 2005 (“VendingData I”). This second suit alleges that the use, importation and offering for sale of VendingData’s PokerOne™ shuffler infringes another patent owned by us (a different patent than the patents that were the subject of the VendingData I case). VendingData II was filed in the U.S. District Court for the District of Nevada (the “Court”) in Las Vegas, Nevada. The complaint seeks an unspecified amount of damages against VendingData and a preliminary and permanent injunction against VendingData’s infringing conduct. VendingData has denied infringement and has also filed a counterclaim for a declaratory judgment of non-infringement.

On November 29, 2004, the Court granted our motion for a preliminary injunction (the “Injunction”). The Injunction became effective upon our posting of a $3,000 cash security with the Court on November 30, 2004. This security deposit is included in other non-current assets on our consolidated balance sheet, and is available to VendingData to the extent, if any, that VendingData proves and is otherwise legally entitled to any actual damages, if any, which the Injunction caused VendingData if, in fact, it is found that the Injunction was wrongfully issued. On December 17, 2004, the Court denied VendingData’s two emergency motions to modify the Injunction.

In March 2005, the Court of Appeals for the Federal Circuit (the “Federal Circuit”) stayed the Injunction based on a technical defect in the Court’s process in granting the Injunction, and not on its merits. On December 27, 2005, the Federal Circuit vacated the Injunction and ordered the Court to perform a more complete claim construction analysis in order to deal with any future motions on whether or not to reinstate the Injunction. Two of the three judges on the Federal Circuit panel stated that under VendingData’s claim construction the PokerOne likely did not literally infringe. We continue to believe that infringement exists under either our claim construction or VendingData’s claim construction. The Federal Circuit did not rule on which claim construction is the proper one.

In May 2005, the Court held a Markman hearing for construction of the claims. On September 26, 2005, U.S. Magistrate Lawrence R. Leavitt for the District of Nevada issued his Claim Construction Report and Recommendation in the Markman hearing concerning VendingData’s PokerOne™ shuffler. The Magistrate’s findings were limited to his interpretation of certain words in the patent claim asserted by us, and he agreed with the interpretation put forth by VendingData. On February 26, 2007, the Court adopted and accepted, without modification, the Magistrate’s Recommendation. The Magistrate’s Recommendation, as adopted by the Court, is not a determination of whether the PokerOne™ infringes the asserted patent, nor does it speak to the validity of our claims. There can be no guarantee that, upon any further appeal of the Court’s adoption of the Magistrate’s Recommendation, the Federal Circuit will agree with our claim construction.

On April 5, 2007, we filed a motion for release of a $3,000 cash security, which VendingData has opposed. The Court has not yet ruled on that motion.

On April 27, 2007, VendingData filed a motion for summary judgment claiming that the PokerOne™ does not infringe.

On May 23, 2007, the Court entered an order granting VendingData’s motion for a protective order staying all further discovery in the case pending resolution of VendingData’s motion for summary judgment, other than further discovery granted Shuffle Master pursuant to an emergency motion heard on May 10, 2007. On May 31, 2007, Shuffle Master opposed VendingData’s motion for summary judgment of non-infringement, and brought a cross motion for summary judgment that the PokerOne™ does infringe.

We believe the likelihood of some unfavorable outcome in this matter is reasonably possible. We cannot, however, at this time, reasonably estimate an expected loss, if any. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

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2.Awada—On April 25 and April 26, 2005, our rescission trial was held in the District Court in Clark County, Nevada in the case against us and our CEO, Mark Yoseloff, brought by plaintiffs Yehia Awada and Gaming Entertainment, Inc. At the conclusion of the trial, the court granted our rescission motion, ordering that the subject contract, called the “Game Option Agreement”, be rescinded and/or void. On May 18, 2005, the Court entered Findings of Fact/Conclusions of Law confirming the Court’s rescission ruling. Among the findings, the Court found that the actions of the plaintiffs Awada and Gaming Entertainment, Inc. demonstrated that the plaintiffs never had any intention of conveying to us the exclusive license to the 3-Way Action game, as they had agreed and were required to do under the Game Option Agreement. The Court further found that we had established by a preponderance of the evidence that the plaintiffs had materially failed to perform their obligations under the Game Option Agreement and that we were entitled to the remedy of rescission. On May 5, 2005, the Court ruled on the parties’ damages requests in connection with the case and as required under Nevada law. Plaintiffs were seeking approximately $13,000 in damages. The Court ordered that the total damages under Nevada law due to the successful rescission of the Game Option Agreement was $130, including all interest. The damages amount was paid in June 2006.

Plaintiffs have appealed the Court’s order granting the rescission of the “Game Option Agreement” to the Nevada Supreme Court.

We do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

3.GEI—In July 2004, we filed a patent infringement lawsuit against Gaming Entertainment, Inc. and Yehia Awada (“GEI”) in the U.S. District Court for the District of Nevada, in Las Vegas, Nevada. The lawsuit alleges that GEI’s 3-5-7 Poker™ game infringes one of our Three Card Poker^® patents and one of our Let-It-Ride^® patents. We are seeking a permanent injunction and an as yet undetermined amount of damages against GEI. GEI has answered our complaint, denying infringement, and also seeking a ruling that the patents are invalid. Fact and expert discovery is complete. In November 2005, the Court held a Markman hearing for construction of the claims. On September 28, 2007, the Magistrate ruled in our favor in the Markman hearing on claim construction. The defendants have appealed. In March 2006, GEI filed and, we opposed, several summary judgment motions challenging the validity of the Three Card Poker patent involved in this litigation. GEI filed its reply briefs in April 2006, and the summary judgment motions are pending. The case is stayed pending resolution of the summary judgment motions.

On November 16, 2007, the Court adopted the Magistrate’s ruling in our favor on the claims construction and overruled the defendants’ objections to the Magistrate’s ruling. The Court ordered supplemental briefing on the pending summary judgment motions as a result of this ruling. We filed supplemental briefs and the defendants did not. We are still awaiting a ruling on the summary judgment.

4.Awada II—On September 12, 2005, we filed a new lawsuit against defendants Awada and Gaming Entertainment, Inc. The lawsuit alleges that our Four Card Poker game is being infringed and illegally copied by the defendants’ Play Four Poker game. The lawsuit claims that the defendants are violating the federal Lanham Act by infringing the trademark/trade dress of our Four Card Poker game layout, and that the defendants are committing acts of unfair competition, interference with prospective business advantage and conversion. Our action seeks appropriate injunctive relief against defendants’ Play Four Poker game layout, as well as unspecified monetary damages. On September 15, 2005, the U.S. District Court for the District of Nevada issued a temporary restraining order prohibiting the defendants from displaying or advertising the infringing layout.

On or about December 6, 2005, the defendants answered our complaint and denied all liability. They also filed counterclaims for alleged patent misuse, anti-trust violations based on said patent misuse, patent invalidity, unfair competition, unfair trade practices, and other related claims. The counterclaims seek an unspecified amount of damages, disgorgement of our profits as a result of our alleged unfair trade practices, and preliminary and permanent injunctive relief against our alleged unfair trade practices. The defendants filed these counterclaims against both us and our CEO. We completely and uncategorically deny the defendants’ counterclaims, and intend to vigorously oppose them. On January 9, 2006, we filed a motion to dismiss all of defendants’ counterclaims. On January 24, 2006, the defendants filed an opposition to our motion to dismiss. On March 27, 2006, the Court granted our motion for a preliminary injunction and dismissed four of the defendants’ seven counterclaims. On April 19, 2007, the Court granted our summary judgment motions on trade dress infringement and defendants’ counterclaims, and all of those counterclaims were dismissed with prejudice. All other claims were dismissed with prejudice, except our trademark infringement claim that was dismissed without prejudice. A permanent injunction was also entered.

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On May 17, 2007, Awada filed an appeal to the Ninth Circuit Court of Appeals on all issues. On September 18, 2007, the Ninth Circuit Court of Appeals dismissed the appeal of Gaming Entertainment, Inc. for lack of prosecution. The appeal continues with the Appellant Yehia Awada. The appeal is pending. We do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

5.MP Games I—In July 2004, we filed a complaint against MP Games LLC and certain other defendants in the U.S. District Court for the District of Nevada, in Las Vegas, Nevada. The complaint alleges that the defendants’ MP21 System infringes two patents owned by us. The complaint also alleges misappropriation of trade secrets against certain, but not all, of the defendants, and also includes claims for correction of named inventor on certain related patents held in the name of certain of the defendants. We are seeking a permanent injunction and damages against all of the defendants. The defendants have answered our complaint denying infringement and also claiming that the two patents are invalid. The defendants have also counterclaimed against us, claiming that we infringe several of their patents, and that we misappropriated certain of their trade secrets, and are seeking damages against us. We deny any infringement, misappropriation or wrongdoing. In May 2005, the Court dismissed defendants’ breach of contract counterclaim.

In a Two-Party Agreement transaction with IGT, IGT purchased a 50% ownership interest in the two patents which are the subject of this lawsuit, and IGT has been added as a named plaintiff in this lawsuit.

On December 20, 2005, the Court entered its Markman order, construing the disputed claims in the various patents-in-suit. The Court ruled in our favor on a number of disputed terms and in the defendants’ favor on others. Some or all of these rulings may be overturned on appeal.

In August 2006, the Court dismissed all but one of the defendants’ trade secret misappropriation claims. Subsequently, pursuant to a partial settlement agreement, the parties dismissed all of their trade secret claims.

Recently, the defendants filed seven summary judgment motions dealing with various non-infringement and invalidity arguments. We also filed a summary judgment motion seeking to invalidate two of the four patents asserted by the defendants. These motions have been fully briefed.

In light of the Supreme Court’s decision in KSR v. Teleflex, the Court has permitted the parties to submit supplemental expert reports on the issue of obviousness, take supplemental depositions of these experts, and submit supplemental briefing to the Court on the issue of obviousness. Given this additional briefing and expert disclosures, the Court put off the summary judgment hearing until February 6, 2008.

At this time, we do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

6.Class Action Lawsuit—

a.Stocke—On June 1, 2007, a putative class action complaint for violation of the federal securities laws against the Company and our Chief Executive Officer, Mark L. Yoseloff, and former Chief Financial Officer, Richard L. Baldwin, was filed in the U.S. District Court for the District of Nevada on behalf of persons who purportedly purchased our stock between December 22, 2006, and March 12, 2007. The case is entitled Joseph Stocke vs. Shuffle Master, Inc., Mark L. Yoseloff and Richard L. Baldwin. We, as well as, Dr. Yoseloff and Mr. Baldwin, were served with the complaint on June 6, 2007. The complaint asserts claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. These claims allegedly relate to our March 12, 2007, announcement that we would restate our Fiscal Fourth Quarter and full year financial results. The complaint seeks compensatory damages in an unstated amount. On or about August 4, 2007, four plaintiffs moved the Court for appointment as lead plaintiff. No decision has yet been made. On or about September 6, 2007, one of those plaintiffs withdrew its application for appointment. For reasons discussed below, at this time, we have not responded to the complaint.

b.Armistead—On June 12, 2007, a second putative class action complaint for violation of the federal securities laws against the Company and Dr. Yoseloff and Mr. Baldwin was filed in the U.S. District Court for the District of Nevada. The case is entitled Robert Armistead, Jr. vs. Shuffle Master, Inc., Mark L. Yoseloff and Richard L. Baldwin. The Company, Dr. Yoseloff and Mr. Baldwin were served with the complaint on June 12, 2007. This lawsuit effectively mirrors the allegations in the Stocke lawsuit filed against these same defendants on

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June 1, 2007, except that the Armistead complaint was filed on behalf of persons who purchased our stock between March 20, 2006, and March 12, 2007.

c.Tempel—On June 25, 2007, a third putative class action complaint for violation of the federal securities laws against the Company, Dr. Yoseloff and Mr. Baldwin was filed in the U.S. District Court for the District of Nevada. The case is entitled Andrew J. Tempel vs. Shuffle Master, Inc., Mark L. Yoseloff and Richard L. Baldwin. This lawsuit is a “copycat” lawsuit of the Stocke lawsuit filed against these same defendants on June 1, 2007.

On June 22, 2007, a Joint Stipulation was filed in the U.S. District Court for the District of Nevada providing that all presently filed and any subsequently filed related class actions shall be consolidated and captioned In Re Shuffle Master, Inc. Securities Litigation. We are not required to answer, move against or otherwise respond to any class action complaints until a consolidated complaint is filed.

The Company believes that all of the above purported class action suits are without merit and intends to vigorously defend each of these cases. Due to the uncertainty of the ultimate outcome of these matters, the impact on future financial results is not subject to reasonable estimates. However, we have tendered these cases to our Directors and Officers insurance carriers.

At this time, we do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

7.WMS (U.S.)—On August 6, 2007, WMS Gaming Inc. (“WMS”) filed a complaint against Stargames and the Company in the United States District Court for the Northern District of Illinois, Eastern Division alleging breach of contract based upon the alleged failure to make the 2007 minimum royalty payment when due. The Company moved to dismiss on the basis that this complaint was not ripe as it was filed before the 30-day cure period had elapsed, and since the Company had now made the minimum royalty payment that formed the basis for WMS’s complaint, the suit was moot.

On August 22, 2007, WMS filed an amended complaint seeking to enjoin the Australian WMS case discussed below. This amended complaint also included declaratory judgment claims seeking a declaration that WMS did not breach its contract with the Company as alleged in the Australian WMS case as discussed below.

At this time, we do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

8.WMS (Australia)—On August 15, 2007, Stargames, the Company’s affiliate, filed suit in New South Wales, Australia alleging a breach of contract by WMS relating to its failure in 2006 to provide certain software game masters to Stargames in accordance with the terms of the contract and seeking damages related thereto.

On August 23, 2007, the Company sought and obtained an ex parte order enjoining WMS from seeking to enjoin the Australia case. At this time, we do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

9.Shareholder Derivative Suits—

a.Shareholder Derivative Lawsuit I—On September 7, 2007, Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust filed a shareholder derivative complaint in the U.S. District Court for the District of Nevada against our CEO, Mark Yoseloff, our President, Paul Meyer, our former CFO, Richard Baldwin, our General Counsel, Jerome Smith, and the current members of our Board of Directors. The Company was also named as a nominal defendant. On September 24, 2007, plaintiffs voluntarily dismissed Jerome Smith from the case without prejudice. The complaint, on behalf of the Company, alleges breach of fiduciary duty and related causes of action against the defendants. The allegations generally relate to the restatement of the Company’s Fiscal 2006 annual results and our acquisition of Stargames. The complaint seeks an unspecified amount of damages.

34

b.Shareholder Derivative Lawsuit II—On September 17, 2007, Chad Hodgkins filed a shareholder derivative complaint against our CEO, Mark Yoseloff, our former CFO, Richard Baldwin, former Board of Directors member Todd Jordan and current Board of Directors members Mr. Saunders and Mr. Castle. The Company was also named as a nominal defendant. The complaint was filed in the U.S. District Court for the District of Nevada. The complaint, on behalf of the Company alleges breach of fiduciary duty and related causes of action against the defendants. The allegations generally relate to the restatement of the Company’s Fiscal 2006 annual results, and are very similar to the allegations in the three class actions suits described above. The complaint seeks an unspecified amount of damages. We have tendered these cases to our Directors and Officers insurance carriers.

On October 24, 2007, the Court approved a stipulation to transfer the Hodgkins case to Judge Dawson, who had already been assigned the Pirelli case. At this time, we do not believe that we will suffer any loss, but if we did, such loss, at this time, cannot be reasonably estimated. Further, subject to judicial risks beyond our control, we do not believe that the loss, if any, would be material.

See Subsequent Events.

In the ordinary course of conducting our business, we are, from time to time, involved in other litigation, administrative proceedings and regulatory government investigations. Such other matters could have a material impact on our business operations, intellectual property, results of operations or financial position.

16. SUBSEQUENT EVENTS

(The numbered items correspond to the numbered items of the Legal Proceedings):

2.Awada—On December 27, 2007, the Nevada Supreme Court denied the appeal filed by the plaintiffs with regard to the District Court’s rescission judgment and its dismissal of all claims related to the breach of contract issues, and affirmed the District Court’s order granting the rescission of the “Game Option Agreement”. The Supreme Court also remanded to the District Court, on procedural grounds, the remaining non-contract claims. We now intend to seek dismissal of these claims.

3.GEI—On November 16, 2007, the Court adopted the Magistrate’s ruling in our favor on the claims construction and overruled the defendants objections to the Magistrate’s ruling. The Court ordered supplemental briefing on the pending summary judgment motions as a result of this ruling. We filed supplemental briefs and the defendants did not. We are still awaiting a ruling on the summary judgment motions.

5.MP Games I—Due to a scheduling conflict of certain counsel, the Court has moved the summary judgment hearing so that the hearing begins on February 28, 2008.

6.Class Action Lawsuits—On November 30, 2007, the Court appointed the “Shuffle Master Institutional Investor Group,” consisting of the Tulsa Municipal Employees’ Retirement Plan and the Oklahoma Firefighters Pension and Retirement System, as Lead Plaintiff. Grant & Eisenhofer is the Lead Plaintiff’s counsel. The Lead Plaintiff has until mid-January 2008 to file an amended complaint.

7 & 8WMS (U.S.) and WMS (Australia)—On December 19, 2007 both cases were dismissed with prejudice, and the parties reached a confidential settlement agreement, the terms of which are not material to the Company.

9.Shareholder Derivative Suits—On October 24, 2007, the Court approved a stipulation to transfer the Hodgkins case to Judge Dawson, who had already been assigned the Pirelli case. On November 9, 2007, the Court ordered the Hodgkins case to be consolidated into the Pirelli case. Additionally, any future derivative actions alleging similar facts and legal theories will be consolidated into the Pirelli case. The Law Firm of Coughlin Stoia Geller Rudman & Robbins LLP has been appointed lead counsel. A consolidated amended complaint is due to be filed in mid-February 2008.

35

SHUFFLE MASTER, INC.

QUARTERLY FINANCIAL DATA

(Unaudited, in thousands except per share amounts)

	Quarter Ended
	January 31		April 30			July 31		October 31
2007:
Revenue	$	37,341	$	44,644		$	45,135	$	51,731
Gross Profit	23,173		26,675			25,913		28,104
Income from continuing operations	1,951		3,427			2,736		8,187
Net income	2,025		3,440			2,735		8,179
Earnings per share—continuing operations:
Earnings per share, basic	0.06		0.10			0.08		0.24
Earnings per share, diluted	0.05		0.10			0.08		0.23
2006:
Revenue	$	33,318	$	43,303		$	40,737	$	45,633
Gross Profit	23,396		28,849			27,388		26,673
Income (loss) from continuing operations	7,218		(12,632		)	7,443		3,310
Net income (loss)	7,353		(12,720		)	7,269		3,191
Earnings per share—continuing operations:
Earnings (loss) per share, basic	0.21		(0.37		)	0.21		0.09
Earnings (loss) per share, diluted	0.20		(0.37		)	0.20		0.09

36

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Years Ended October 31, 2007, 2006 and 2005

	Column B		Column C			Column D		Column E
	Balance at		Additions
Column A	Beginning of Period		Charged to Expense (a)			Stargames Acquisition		Deductions/ Other			Balance at End of Period
Allowance for bad debts (Accounts receivable):
2007	$	1,422	$	36		$	—	$	982		$	476
2006	$	283	$	(777	)	$	1,907	$	(9	)	$	1,422
2005	$	740	$	(165	)	$	—	$	292		$	283
Allowance for bad debts (Investment in sales-type leases and notes receivable):
2007	$	681	$	(443	)	$	—	$	2		$	236
2006	$	631	$	240		$	—	$	190		$	681
2005	$	491	$	394		$	—	$	254		$	631

(a)For the year ended October 31, 2006, favorable collections efforts, primarily at Stargames, resulted in a credit of ($777) in the provision for bad debts related to accounts receivable.

37

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management’s Assessment of Internal Control over Financial Reporting

We 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 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 disclosure.

As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of October 31, 2007 of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. This evaluation was performed using the Internal Control — Evaluation Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 31, 2007. Therefore, we believe that the consolidated financial statements included in this Annual Report on Form 10-K correctly present our financial condition, results of operations and cash flows for the periods covered thereby in all material respects.

Changes in Internal Control over Financial Reporting during the Quarter Ended October 31, 2007

During the fiscal year ended October 31, 2007, management designed and implemented remediation steps over certain material weaknesses reported in our Annual Report on Form 10-K/A dated April 23, 2007, as described below. These remediation steps were developed following investigation and review of the processes and activities surrounding the material weaknesses and include changes to these processes to prevent or detect similar future occurrences.

Material Weaknesses in Internal Control over Financial Reporting Previously Reported

·Inadequate internal controls over the evaluation and review of non-routine transactions involving judgments and estimates to determine that such transactions are recorded in accordance with generally accepted accounting principles. This weakness in operating effectiveness of internal controls resulted in adjustments to revenue recognized, and the impairment write-down of an equity method investment. The deficiencies were concluded to be a material weakness based on the significance of the potential misstatement of the annual and interim financial statements and the significance of the controls over non-routine transactions and revenue recognition to the preparation of reliable financial statements.

·Inadequate resources in our accounting and finance departments. This condition led to inadequate internal controls over the reconciliation and analysis of the inter-company inventory accounts. The control over the elimination of inter-company profit was not designed to provide reasonable assurance of the completeness of the inventory subject to elimination. Additionally, analytical review procedures did not operate effectively in identifying the error in a timely manner. Certain checklists to ensure the completeness and accuracy of the inter-company elimination process did not exist. This weakness in the design and operating effectiveness of internal controls resulted in a restatement of our consolidated financial statements for the fiscal year ended October 31, 2006. This material weakness was identified in conjunction with the preparation of our quarterly financial statements for the quarter ended January 31, 2007. The identification of this material weakness and related inadvertent error resulted in a restatement and amendment of our annual report on Form 10-K/A for the fiscal year ended October 31, 2006, which was filed on April 23, 2007.

During the fiscal year ended October 31, 2007 we have completed certain remediation initiatives including:

38

Remediation of Material Weakness Relating to Evaluation and Review of Non-routine Transactions involving Judgments and Estimates and Non-Standard Revenue Recognition

·Established procedures related to the evaluation of non-routine events and transactions to ensure appropriate communication of these events and transactions to the subsidiary and corporate accounting and finance departments through executive meetings, accounting staff meetings and close meetings. Established a process to review newly implemented controls relating to non-routine events and transactions.

·Implemented and documented additional accounting policies and key assumptions for the assessment of transactions and events involving judgments and estimates.

·Enhanced current policies, practices and controls related to revenue recognition.

·Recurring training sessions focused on awareness of revenue recognition concepts with emphasis on non-standard contracts have been performed at the corporate office and foreign subsidiaries.

·Increased the depth and breadth of sub-certifiers throughout the organization, including foreign subsidiaries, particularly relating to the disclosure of non-standard contracts.

·Reorganized the Las Vegas based Shuffle Master accounting and finance departments into two distinct departments as part of some broader organizational changes of our global headquarters in Las Vegas. Additional positions and/or changes in responsibilities were created within the newly defined accounting and finance departments that provide additional levels of analysis and review of non-routine transactions, appropriate application of generally accepted accounting principles and proper determination of significant estimates and judgments. All positions were filled at fiscal year end by permanent employees or qualified temporary consultants.

As of October 31, 2007, we are able to conclude that the controls related to the evaluation and review of non-routine transactions involving estimates and judgments were operating effectively and that we have remediated this material weakness.

Remediation of Material Weakness Relating to Staffing and the Identification and Proper Elimination of Inter-company Inventory Transactions

·Established the transfer pricing process by creating detailed procedures for the cost accounting role to ensure identification and appropriate elimination of inter-company inventory transactions. Further, management established a process to review these newly implemented procedures relating to the elimination of inter-company inventory.

·Provided additional and on-going training to our finance and accounting staff (including our foreign subsidiaries) on the application of technical accounting pronouncements, policies and procedures, especially in the area of transfer pricing and inter-company inventory transactions.

·Reorganized the Las Vegas based Shuffle Master accounting and finance departments into two distinct departments as part of some broader organizational changes of our global headquarters in Las Vegas. Additional positions and/or changes in responsibilities were created within the newly defined accounting and finance departments that provide additional levels of analysis and review of non-routine transactions, appropriate application of generally accepted accounting principles and proper determination of significant estimates and judgments. All positions were filled at fiscal year end by permanent employees or qualified temporary consultants.

As of October 31, 2007, we are able to conclude that the controls related to the identification and proper elimination of intercompany inventory transactions were operating effectively, that adequate resources had been retained in the finance and accounting department and that we have remediated this material weakness.

39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

 Shuffle Master, Inc.

 Las Vegas, Nevada

We have audited the internal control over financial reporting of Shuffle Master, Inc. subsidiaries (the “Company”) as of October 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements and financial statement schedule as of and for the year ended October 31, 2007 of the Company and our report dated January 18, 2008 expressed an unqualified opinion on those financial statements and financial statement schedule and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment on November 1, 2005.

 Las Vegas, Nevada

 January 18, 2008

40

ITEM 9B. OTHER INFORMATION

None.

41

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	1.	Financial Statements
		See index to consolidated financial statements included as Item 8 to this Annual Report.
	2.	Financial Statement Schedules
		See Item 8 to this Annual Report for applicable financial statement schedules.
	3.	Management Contracts, Compensatory Plans and Arrangements
		Management contracts, compensatory plans and arrangements are listed as exhibits 10.1 through 10.24 included in Item 15(b) of this Annual Report.
(b)	Exhibits
	3.1		Articles of Incorporation of Shuffle Master, Inc. as amended July 15, 1992 (Incorporated by reference to exhibit 3.2 in our Annual Report on Form 10-K for the year ended October 31, 1995).
	3.2		Articles of Amendment to Articles of Incorporation of Shuffle Master, Inc., effective January 14, 2005 (incorporated by reference to exhibit 3.2 to our Annual Report on Form 10-K, filed January 13, 2005).
	3.3		Articles of Correction of Articles of Amendment of Articles of Incorporation of Shuffle Master, Inc., effective March 15, 2005 (incorporated by reference to exhibit 3.1 to our Current Report on Form 8-K, filed March 18, 2005).
	3.4		Bylaws of Shuffle Master, Inc., as amended and restated (Incorporated by reference to exhibit 3.2 in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2002).
	3.5		Amendment to Shuffle Master’s Corporate Bylaws, as adopted by our board of directors on January 11, 2005 (incorporated by reference to exhibit 3.4 to our Annual Report on Form 10-K, filed January 13, 2005).
	4.1		Shareholder Rights Plan dated June 26, 1998 (Incorporated by reference to our Current Report on Form 8-K dated June 26, 1998).
	4.2		Amendment No. 1 to Rights Agreement dated January 25, 2005 (Incorporated by reference to our Current Report on Form 8-K dated February 10, 2005).
	4.3		Registration Rights Agreement dated May 13, 2004, by and between Casinos Austria AG on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to exhibit 10.2 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
	4.4		Agreement and Guaranty dated May 12, 2004, by and between Casinos Austria AG and Cai Casinoinvest Middle East GMBH on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to exhibit 10.3 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
	4.5		Purchase Agreement, dated April 15, 2004, among Shuffle Master, Inc. and Deutsche Bank Securities, Inc. relating to the 1.25% Contingent Convertible Senior Notes due 2024 (Incorporated by reference to exhibit 10.4 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
	4.6		Registration Rights Agreement dated April 21, 2004, among Shuffle Master, Inc. and Deutsche Bank Securities, Inc. and Goldman, Sachs & Co relating to the 1.25% Contingent Convertible Senior Notes due 2024 (Incorporated by reference to exhibit 10.5 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
	4.7		Indenture, dated as of April 21, 2004, between Shuffle Master, Inc. and Wells Fargo Bank, N. A. relating to the 1.25% Contingent Convertible Senior Notes due 2024 (Incorporated by reference to exhibit 10.6 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
	10.1		Shuffle Master, Inc. 2002 Stock Option Plan (Incorporated by reference to Exhibit B in our Proxy Statement dated February 11, 2002).

42

10.2	Amendment to the Shuffle Master, Inc. 2002 Stock Option Plan (Incorporated by reference to exhibit 10.33 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2002).
10.3	Shuffle Master, Inc. Restated Outside Directors’ Option Plan dated January 24, 2002 (Incorporated by reference to exhibit 10.32 in our Annual Report on Form 10-K for the year ended October 31, 2001).
10.4	Shuffle Master, Inc. 2004 Equity Incentive Plan (Incorporated by reference to our Proxy Statement dated February 23, 2004).
10.5	Shuffle Master, Inc. 2004 Equity Incentive Plan for Non-Employee Directors (Incorporated by reference to our Proxy Statement dated February 23, 2004).
10.6	Employment Agreement, by and between Shuffle Master, Inc. and Mark Yoseloff, dated February 23, 2004 (Incorporated by reference to exhibit 10.1 in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2004).
10.7	Covenant Not to Compete by and between Shuffle Master, Inc. and Mark L. Yoseloff, dated February 23, 2004 (Incorporated by reference to exhibit 10.2 in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2004).
10.8	First amendment to Employment Agreement, by and between Shuffle Master, Inc. and Mark L. Yoseloff (Incorporated by reference to exhibit 10.1 in our Current Report on Form 8-K, filed June 8, 2007).
10.9	Employment Agreement, by and between Shuffle Master, Inc. and Brooke Dunn, dated January 9, 2006 (Incorporated by reference to exhibit 10.5 in our Annual Report on Form 10-K for the year ended October 31, 2005).
10.10	Employment Agreement by and between Shuffle Master, Inc. and Paul Meyer dated October 31, 2005 (Incorporated by reference to exhibit 10.1 in our Current Report on Form 8-K, filed on November 4, 2005).
10.11	Patent Purchase Agreement by and between International Game Technology and Shuffle Master, Inc. dated June 13, 2005 (request for confidential treatment filed with SEC) (Incorporated by reference to exhibit 10.1 of our Quarterly Report on Form 10-K, filed September 9, 2005).
10.12	Product Development and Integration Agreement by and among Shuffle Master, Inc., Progressive Gaming International Corporation and International Game Technology dated June 13, 2005 (request for confidential treatment filed with SEC) (Incorporated by reference to exhibit 10.2 of our Quarterly Report filed September 6, 2006 (confidential Treatment requested under 17 C. F. R. Section 240.24b-2).
10.13	Distributorship Agreement by and between Machines Games Automatics, S.A. and Shuffle Master GMBH & CO KG dated May 17, 2005 (request for confidential treatment filed with SEC) (filed as exhibit 10.1 to our Current Report on Form 8-K, filed September 16, 2005)
10.14	Call Option Deed by and between Shuffle Master, Inc. and CVC Limited dated November 15, 2005 (Incorporated by reference to exhibit 10.1 of our Current Report on Form 8-K, filed November 15, 2005).
10.15	Call Option Deed by and between Shuffle Master, Inc. and CVC Communication and Technology Pty Ltd. dated November 15, 2005 (Incorporated by reference to exhibit 10.2 of our Current Report on Form 8-K, filed November 15, 2005).
10.16	Pre-Bid Agreement between Shuffle Master, Inc. and Stargames Corporation Pty Limited dated November 15, 2005 (Incorporated by reference to exhibit 10.3 of our Current Report on Form 8-K, filed November 15, 2005).
10.17	Shuffle Master Australasia Pty Ltd’s Bidder Statement, along with Stargames’ Target Statement, each dated November 15, 2005 (Incorporated by reference to exhibit 10.4 of our Current Report on Form 8-K, filed November 15, 2005).
10.18	Patent Licensing Agreement between Shuffle Master, Inc. and Progressive Gaming International Corporation dated September 29, 2006 (Request for Confidential Treatment filed with SEC).

43

10.19	Credit Agreement, dated November 30, 2006, among Shuffle Master, Inc., Deutsche Bank Trust Company Americas, Deutsche Bank, Deutsche Bank Securities, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to exhibit 10.1 of our Current Report on Form 8-K, filed December 6, 2006).
10.20	Amendment No. 1, dated April 5, 2007 to the Credit Agreement, dated as of November 30, 2006, among Shuffle Master, Inc., Deutsche Bank Trust Company Americas, as Administrative Agent and the lenders party thereto (Incorporated by reference to exhibit 10.1 in our Current Report on Form 8-K, filed April 6, 2007).
10.21	Security Agreement, dated November 30, 2006, between Shuffle Master, Inc. and the guarantors party thereto in favor of Deutche Bank Trust Company Americas (Incorporated by reference to exhibit 10.2 of our Current Report on Form 8-K, filed December 6, 2006).
10.22	Purchase Agreement by and among shuffle Master, Inc., on the one hand, and Progressive Gaming International and Progressive Games, Inc. on the other hand, dated September 26, 2007 (Incorporated by reference to exhibit 10.1 (a) in our Current Report on form 8-K, filed September 28, 2007).
10.23	Amended and Restated License Agreement by and among Shuffle Master, Inc., on the one hand, and Progressive Gaming International on the other hand, dated September 26, 2007 (Incorporated by reference to exhibit 10.1 (b) in our Current Report on Form 8-K, filed September 28, 2007).
10.24	Software Distribution License Agreement by and among Shuffle Master, Inc. and its affiliates, on the one hand, and Progressive Gaming International Corporation and its affiliates, on the other hand, dated September 26, 2007 (Incorporated by reference to exhibit 10.1 in our Current Report on form 8-K, filed October 2, 2007).
10.25	First amendment to Employment Agreement, by and between Shuffle Master, Inc. and Brooke Dunn (Incorporated by reference to exhibit 10.1 in our Current Report on Form 8-K, filed January 11, 2008).
21	Subsidiaries of Registrant
23	Consent of Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Exhibits 32.1 and 32.2 are furnished to accompany this report on Form 10-K but shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise and shall not be deemed incorporated by reference into any registration statements filed under the Securities Act of 1933.

44

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.

	SHUFFLE MASTER, INC.
Dated: July 8, 2008	By:	/s/ MARK L. YOSELOFF
		Chairman and Chief Executive Officer

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

Signature	Title	Date
/s/ MARK L. YOSELOFF	Chairman and Chief Executive Officer	July 8, 2008
Mark L. Yoseloff	(Principal Executive Officer)
/s/ PAUL C. MEYER	President and Chief Operating Officer	July 8, 2008
Paul C. Meyer
/s/ COREEN SAWDON	Senior Vice President, Chief Accounting Officer and Acting Chief	July 8, 2008
Coreen Sawdon	Financial Officer (Principal Accounting Officer)
/s/ LOUIS CASTLE	Director	July 8, 2008
Louis Castle
/s/ PHILLIP C. PECKMAN	Director	July 8, 2008
Phillip C. Peckman
/s/ GARRY W. SAUNDERS	Director	July 8, 2008
Garry W. Saunders

45

EX-21

Exhibit 21

SHUFFLE MASTER, INC.

SUBSIDIARIES OF THE REGISTRANT

Name of  Subsidiary	Jurisdiction of Incorporation
Shuffle Master International, Inc.	Nevada
Shuffle Master Australia Pty Ltd.	Australia
Gaming Products Pty., Ltd.	Australia
VIP Gaming Solutions Pty Limited	Australia
Shuffle Master Australasia Holdings Pty Ltd	Australia
Shuffle Master Australasia Pty Ltd	Australia
Shuffle Master Holding GmbH	Austria
Shuffle Master Management-Services GmbH	Austria
Shuffle Master GmbH	Austria
Shuffle Master Holding GmbH & Co Financing Consulting-KEG	Austria
Shuffle Master GmbH & Co KG (dba CARD)	Austria
Shuffle Up Productions, Inc.	Delaware
CARD Casinos Austria Research and Development Limited	New Zealand
Shuffle Master Asia Limited	Macau
Stargames Pty Ltd (subsidiaries listed below)	Australia
CARD Shuffle Master Investments (Proprietary) Limited	South Africa

Stargames Pty Ltd Subsidiaries

Name of  Subsidiary	Jurisdiction of Incorporation
Stargames Group Management Pty Limited	Australia
Stargames Holdings Pty Limited	Australia
Professional Vending Services Pty Limited	Australia
Stargames Australia Pty Limited	Australia
Stargames Investments Pty Limited	Australia
Stargames Corporation Pty Limited	Australia
Precise Craft Pty Limited	Australia
Stargames Property Pty Limited	Australia
Australasian Gaming Industries Pty Limited	Australia
Advem Pty Limited	Australia
Stargames Assets Pty Limited	Australia
Stargames Corporation (NZ) Pty Limited	New Zealand

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements Nos. 33-88124, 33-88180, 333-09623, 333-39060, 333-39064, 333-39290, 333-61588, 333-101444, 333-100716, 333-104659, 333-117909, and 333-117910 on Form S-8 of our reports dated January 18, 2008 related to the consolidated financial statements and financial statement schedule of Shuffle Master, Inc. and subsidiaries (which report expresses an unqualified opinion on the financial statements and financial statement schedule and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, on November 1, 2005) and the effectiveness of Shuffle Master, Inc.’s and subsidiaries internal controls over financial reporting appearing in this Annual Report on Form 10-K/A for the year ended October 31, 2007.

Las Vegas, Nevada

July 8, 2008

45

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Mark L. Yoseloff, certify that:

1.I have reviewed this Annual Report on Form 10-K/A of Shuffle Master, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 8, 2008

/s/ MARK L. YOSELOFF

Mark L. Yoseloff

Chairman of the Board and Chief Executive Officer

46

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Coreen Sawdon, certify that:

1.I have reviewed this Annual Report on Form 10-K/A of Shuffle Master, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 8, 2008

/s/ COREEN SAWDON

Coreen Sawdon

Senior Vice President, Chief Accounting Officer and Acting Chief Financial Officer

47

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Shuffle Master, Inc. (the “Company”) on Form 10-K/A for the period ended October 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark L. Yoseloff, Chairman of the Board and Chief Executive Officer, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350), that to the best of my knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 8, 2008

/s/ MARK L. YOSELOFF

Mark L. Yoseloff

Chairman of the Board and Chief Executive Officer

48

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Shuffle Master, Inc. (the “Company”) on Form 10-K/A for the period ended October 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Coreen Sawdon, Senior Vice President, Chief Accounting Officer and Acting Chief Financial Officer, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350), that to the best of my knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 8, 2008

/s/ COREEN SAWDON

Coreen Sawdon

Senior Vice President, Chief Accounting Officer and Acting Chief Financial Officer

49