<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
______________
COMMISSION FILE NUMBER 000-23401
GAMETECH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0612983
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2209 W. 1ST STREET, TEMPE, ARIZONA 85281
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (602) 804-1101
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 [ ]
On September 10, 1999, the registrant had outstanding 11,410,664 shares
of its Common Stock, par value $.001 per share.
<PAGE>
GAMETECH INTERNATIONAL, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information: Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
July 31, 1999 and October 31, 1998.............................................. 3
Condensed Consolidated Statements of Operations
Three Months Ended July 31, 1999 and 1998 ...................................... 4
Nine Months Ended July 31, 1999 and 1998 ....................................... 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended July 31, 1999 and 1998 ....................................... 5
Notes to Condensed Consolidated Financial Statements ............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .........................................................11
Item 3. Market Risk Disclosure .............................................................15
Part II. Other Information
Item 1. Legal Proceedings ..................................................................17
Item 2. Changes in Securities and Use of Proceeds ..........................................18
Item 6. Exhibits and Reports on Form 8 - K .................................................20
Signatures ..................................................................................21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GAMETECH INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 5,615 $ 21,485
Short-term investments 4,941 4,102
Accounts receivable, net 3,301 1,677
Other current assets 1,674 1,069
--------- ---------
Total current assets 15,531 28,333
Bingo units, furniture and equipment, net 22,508 12,496
Intangible assets related to acquisition, net 18,480 -
Other assets, net 2,483 1,648
--------- ---------
Total assets $ 59,002 $ 42,477
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term borrowings from bank $ 777 $ -
Accounts payable 908 325
Other current liabilities 4,165 410
Current portion of long-term debt 1,338 338
--------- ---------
Total current liabilities $ 7,188 $ 1,073
Non-current accrued liabilities 2,962 -
Long-term debt obligations 3,746 515
Deferred income taxes 567 567
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value: 40,000,000 shares
authorized; 12,185,164 shares issued and outstanding
in 1999 and 10,126,226 in 1998 12 10
Capital in excess of par value 43,310 37,117
Retained earnings 4,085 6,005
Less: Treasury stock, 774,500 shares in 1999 and
755,400 shares in 1998, at cost (2,868) (2,810)
--------- ---------
Total stockholders' equity 44,539 40,322
--------- ---------
Total liabilities and stockholders' equity $ 59,002 $ 42,477
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
3
<PAGE>
GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1999 1998 1999 1998
--------------------------- -----------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 12,747 $ 4,093 $ 28,626 $ 11,948
Operating expenses:
Cost of revenues 3,348 1,353 8,018 3,758
General and administrative 2,578 1,076 5,760 2,651
Sales and marketing 3,466 677 7,710 1,827
Research and development 341 184 826 459
---------------------------- ----------------------------
9,733 3,290 22,314 8,695
---------------------------- ----------------------------
Income from operations 3,014 803 6,312 3,253
Acquisition one-time write-offs - - (7,498) -
Equity in net loss of affiliate - - - (2,000)
Interest income, net 105 390 472 1,015
---------------------------- ----------------------------
Income (loss) before provision for income taxes 3,119 1,193 (714) 2,268
Provision for income taxes 1,375 464 1,206 884
---------------------------- ----------------------------
Net income (loss) $ 1,744 $ 729 $ (1,920) $ 1,384
---------------------------- ----------------------------
---------------------------- ----------------------------
Basic net income (loss) per share $ 0.15 $ 0.07 $ (0.18) $ 0.15
---------------------------- ----------------------------
---------------------------- ----------------------------
Diluted net income (loss) per share $ 0.14 $ 0.07 $ (0.17) $ 0.13
---------------------------- ----------------------------
---------------------------- ----------------------------
Shares used in the calculation of net
income (loss) per share:
Basic 11,381,015 9,901,374 10,624,683 9,332,124
---------------------------- ----------------------------
---------------------------- ----------------------------
Diluted 12,319,433 10,862,281 11,480,274 10,676,523
---------------------------- ----------------------------
---------------------------- ----------------------------
</TABLE>
See notes to financial statements.
4
<PAGE>
GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (1,920) $ 1,384
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,356 1,692
In-process research and development 3,000
Accrued interest payable to officers - 13
Equity in net loss of affiliate - 2,000
Changes in operating assets and liabilities:
Accounts receivable, net (214) (595)
Other current assets (405) (676)
Accounts payable (166) 249
Other current liabilities 1,196 (328)
--------- ---------
Net cash provided by operating activities 5,847 3,739
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in short-term investments (839) (10,766)
Capital expenditures for bingo units, furniture and equipment (6,375) (4,285)
Purchase of common stock of Bingo Technologies, net of cash acquired (9,790) -
Investment in and advances to affiliate - (1,474)
Capitalized software development costs (120) (170)
--------- ---------
Net cash used in investing activities (17,124) (16,695)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings from bank 6,693 -
Payments on short-term notes payable and borrowings from bank (10,634) (550)
Payments on long-term debt (468) (2,866)
Payments for buyout of distributorship agreement (254) (363)
Proceeds from sales of common stock 128 33,363
Payments for repurchase of common stock for treasury (58) (1,291)
--------- ---------
Net cash provided by (used in) financing activities (4,593) 28,293
--------- ---------
Net increase (decrease) in cash and equivalents (15,870) 15,337
Cash and equivalents at beginning of period 21,485 1,020
--------- ---------
Cash and equivalents at end of period $ 5,615 $ 16,357
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
5
<PAGE>
GAMETECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
(UNAUDITED)
1. NOTES TO FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three- and
nine-month periods ended July 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1999. For
further information refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
October 31, 1998.
6
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NOTE B. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, which is effective
for reporting periods ending after December 31, 1997. SFAS No. 128 requires the
restatement of prior periods' earnings per share to conform to the new standard.
Presented below is a reconciliation of net income available to common
shareholders and the differences between actual weighted average shares
outstanding, which are used in computing basic earnings per share and diluted
weighted average shares, which are used in computing diluted earnings per share.
<TABLE>
<CAPTION>
(In thousands, except share and per share amounts)
Three months ended July 31, Nine months ended July 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 1,744 $ 729 $ (1,920) $ 1,389
----------- ----------- ----------- -----------
Numerator for basic earnings per share 1,744 729 (1,920) 1,389
Effect of dilutive securities:
After-tax interest on convertible notes payable - - - 8
----------- ----------- ----------- -----------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions $ 1,744 $ 729 $ (1,920) $ 1,397
----------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings per share -
weighted average shares 11,381,015 9,901,374 10,624,683 9,332,124
Effect of dilutive securities:
Stock options 938,418 960,907 855,591 1,167,645
Convertible preferred stock - - - 43,478
Convertible notes payable - - - 133,275
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 12,319,433 10,862,281 11,480,274 10,676,523
----------- ----------- ----------- -----------
Basic earnings (loss) per share $ 0.15 $ 0.07 $ (0.18) $ 0.15
----------- ----------- ----------- -----------
Diluted earnings (loss) per share $ 0.14 $ 0.07 $ (0.17) $ 0.13
----------- ----------- ----------- -----------
</TABLE>
NOTE C. ACQUISITION OF BINGO TECHNOLOGIES CORPORATION
On February 8, 1999, the Company acquired 100% of the common stock of
Bingo Technologies Corporation. The purchase price of approximately $20.7
million, including transaction costs of $1.2 million, consisted of $9.8 million
of cash, $4.6 million of unsecured promissory notes payable and the issuance of
1,866,938 shares of Common Stock. The acquisition included, among other things,
intangible assets of approximately $19.5 million that the Company expects to
amortize over a twelve-year period. Additionally, the Company recorded a $3.0
million charge to operations as in-process research and development.
7
<PAGE>
The pro forma unaudited results of operations for the three and nine
month periods ended July 31, 1999 and 1998, assuming consummation of the
purchase as of November 1, 1998 and November 1, 1997, respectively, are included
in the tables below. The historical operating results set forth below include
the historical combined results of the Company and Bingo Technologies. The
adjustments made to the combined historical results consist principally of: 1)
additional amortization of the intangible assets associated with the
acquisition, 2) eliminated legal fees incurred by GameTech and BTC relative to
patent infringement litigation against the Company by BTC, 3) reduced
compensation expense resulting from employment agreements signed in conjunction
with the acquisition, 4) reduced interest income with respect to amounts paid in
the acquisition of Bingo Technologies common stock, 5) elimination of
acquisition one-time write-offs and 6) the income tax effect of the above
adjustments.
8
<PAGE>
GAMETECH INTERNATIONAL, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended July 31,
1999 (UNAUDITED) 1998 (UNAUDITED)
-------------------------------------- -------------------------------------
Pro Forma Pro Forma
Historical(1) Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 12,747 $ - $ 12,747 $ 9,736 $ - $ 9,736
Operating expenses:
Cost of revenues 3,348 - 3,348 2,959 - 2,959
General and administrative 2,578 - 2,578 2,661 229 2,890
Sales and marketing 3,466 - 3,466 2,059 - 2,059
Research and development 341 - 341 464 - 464
-------- -------- -------- -------- ------- -------
9,733 9,733 8,143 229 8,372
-------- -------- -------- -------- ------- -------
Income from operations 3,014 - 3,014 1,593 (229) 1,364
Interest income, net 105 - 105 67 63 130
-------- -------- -------- -------- ------- -------
Income before provision for income taxes 3,119 - 3,119 1,660 (166) 1,494
Provision for income taxes 1,375 - 1,375 635 91 726
-------- -------- -------- -------- ------- -------
Net income $ 1,744 $ - $ 1,744 $ 1,025 $ (257) $ 768
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Basic net income per share $ 0.15 $ 0.07
Diluted net income per share $ 0.14 $ 0.06
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1999 (UNAUDITED) 1998 (UNAUDITED)
-------------------------------------- -------------------------------------
Pro Forma Pro Forma
Historical(1) Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 34,739 $ - $ 34,739 $ 24,227 $ - $ 24,227
Operating expenses:
Cost of revenues 9,347 - 9,347 6,714 - 6,714
General and administrative 6,500 (11) 6,489 5,759 520 6,279
Sales and marketing 10,087 - 10,087 5,853 - 5,853
Research and development 1,075 - 1,075 1,082 - 1,082
-------- -------- -------- -------- ------- -------
27,009 (11) 26,998 19,408 520 19,928
-------- -------- -------- -------- ------- -------
Income from operations 7,730 11 7,741 4,819 (520) 4,299
Equity in net loss of affiliate - - - (2,000) - (2,000)
Interest income, net 371 118 489 564 206 770
-------- -------- -------- -------- ------- -------
Income before provision for income taxes 8,101 130 8,231 3,383 (314) 3,069
Provision for income taxes 3,474 207 3,681 1,314 $ 345 1,659
-------- -------- -------- -------- ------- -------
Net income $ 4,627 $ (77) $ 4,550 $ 2,069 $ (659) $ 1,410
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Basic net income per share $ 0.40 $ 0.13
Diluted net income per share $ 0.37 $ 0.11
</TABLE>
(1) Excludes one-time write-offs of $7.5 million directly attributable to
the acquisition of Bingo Technologies Corporation.
9
<PAGE>
NOTE D. COMMITMENTS AND CONTINGENCIES
LITIGATION
On February 13, 1998, a purported securities class action complaint,
WEISS V. GAMETECH INTERNATIONAL, INC., No. 98-0268 PHX-ROS, was filed in the
United States District Court for the District of Arizona against the Company and
certain officers and directors alleging that defendants violated Section 11 of
the Securities Act of 1933 (the "Securities Act") by making false misleading
statements and omissions in the Company's Form S-1 Registration Statement in
connection with the Company's public offering on November 25, 1997. Two other
complaints making nearly identical factual allegations have been consolidated
with the WEISS action for all purposes as IN RE GAMETECH, INC. SECURITIES
LITIGATION, Master File No. Civ. 98-0268 PHX-ROS. On July 17, 1998, the Court
appointed "lead plaintiff" and co-lead counsel.
On September 21, 1998, plaintiffs filed a consolidated complaint,
alleging a claim against the Company and the individual defendants under Section
11 of the Securities Act and a claim against the individual defendants under
Section 15 of the Securities Act, based upon the conduct alleged in the original
complaints. Plaintiffs seek an unspecified amount of damages.
On November 5, 1998, defendants moved to dismiss the complaint. On June
3, 1999 Defendants' motion to dismiss was granted in part and denied in part by
the Court. Defendants believe that there is no merit to plaintiffs' allegations
and intend to defend the action vigorously.
On May 28, 1999, the Company and its wholly owned subsidiary Bingo
Technologies Corporation ("BTC"), were sued in the United States Bankruptcy
Court for the District of Nevada (Case No. BK-S-98-27619-RCJ) by Branson
Signatures Resorts, Inc. and its parent company, Advanced Gaming Technology,
Inc. ("AGTI"), both of which are debtors-in-possession in a bankruptcy
proceeding that Branson and AGTI initiated last year. In the suit, AGTI alleges
that, in February and April 1998, AGTI entered into two contracts with BTC under
which AGTI licensed to BTC the right to distribute and lease certain electronic
bingo units. AGTI alleges that BTC and the Company as its parent breached these
agreements and otherwise violated the automatic stay that operated upon the
filing of the AGTI bankruptcy. A stipulation and order dismissing the action
with prejudice was entered by the Court on August 2, 1999.
In January 1995, a purported patent infringement action and demand for
jury trial, FORTUNET INC., V. BINGO CARD MINDER CORP., AND STUART ENTERTAINMENT,
INC., CV-S-95-0008 PMP (RJJ) was filed in the United States District Court,
District of Nevada against the Company's wholly owned subsidiary, Bingo Card
Minder Corporation ("BCMC"), and Stuart Entertainment, Inc. ("Stuart"). The
complaint alleged that BCMC and Stuart, as individual entities, infringed upon
U.S. Patent No. 4,455,025 (the "025 Patent"). On October 22, 1998, the action
was severed and stayed by order of the Court pending completion of reexamination
and any appeals therefrom. On May 19, 1999, Fortunet, Inc. ("Fortunet") appealed
the Patent and Trademark Office's (the "PTO") decision of rejection of the 025
Patent to the United States Court of Appeals for the Federal Circuit.
The action against BCMC involves the BCM-2 device only, of which less
than 2,000 are currently in operation throughout the United States. The Court
has SUA SPONTE ruled that the BCM-2 does not infringe Fortunet's 4,642,462
patent (the "462 Patent"). Fortunet has not plead any specific damages but has
plead punitive damages for willful infringement. In the event the 025 Patent is
reinstated, the Company will vigorously contest the action.
In February 1997, BCMC filed a declaratory relief action for
non-infringement, BINGO CARD MINDER CORP. V. FORTUNET, INC., C 97-00698 CAL in
the United States District Court Northern District of California, against
Fortunet's 025 and 462 Patents relative to BCMC's TED device. No relevant court
dates have been set, and the Court in early 1997 approved a stipulated stay
pending completion of the above case, which is stayed pending completion of the
reexamination of Fortunet's patents. The PTO, on a second request for
reexamination with respect to the 462 patent, recently determined that "a
substantial new question of patentability" existed. As such, the 462 patent will
now undergo renewed reexamination activity with the possible cancellation of
some or all of the claims of the 462 patent. There are no relevant court dates
as the action has been stayed pending reexamination.
10
<PAGE>
In June 1997, a purported patent infringement and demand for jury
trial, FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN A. LARSEN, DBA
OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP., CV-S-97-00778-HDM (LRL), was
commenced in the United States District Court, District of Nevada, against Bingo
Technologies Corporation ("BTC"), John A. Larsen, dba Opportunity Software and
BCMC. As no relevant court dates have been set, and the complaint lacks a
definitive accused device, the Company believes, based upon representation of
opposing counsel that the action involves BTC's sale of the "Max-Plus" units,
alleging infringement of Fortunet's 462 and 025 Patents. Pursuant to
stipulation, the Court has stayed the action pending the outcome of the appeal
from the Patent Office rejection of the 025 patent (see above).
The Company believes that none of its products infringe any valid claim
of either the 025 or 462 Patents and intends to continue to defend against all
actions vigorously. However, there can be no assurance that favorable outcomes
will be obtained or that if the action against the TED product is resolved in
favor of the Plaintiff, such result would not have a material adverse effect on
the Company's business, financial position, or results of operations or cash
flow.
In May 1998, FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN A.
LARSEN, DBA OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP., CV-S-98-00777-PMP
(LRL) an action for declaratory relief for non-infringement and counterclaim,
was filed in the United States District Court, District of Nevada, by BTC
against Fortunet alleging that Fortunet's "Bingo Starr" portable hand-held bingo
device infringed upon the claims of BTC's 4,378,940 patent (the "940 Patent"
owned by the Company). On October 27, 1998, the PTO, in a response to a request
for reexamination sponsored by Fortunet, rejected all 12 claims of the 940
patent. BTC contested the Examiner's decision and on March 23, 1999 the Patent
Office reversed its initial rejection. In response, Fortunet, on May 23, 1999,
filed a new request for reexamination and a petition to invoke the
Commissioner's authority to amend the Examiner's decision on reversal due to
"extraordinary circumstances." On August 11, 1999, the commissioner's office
rejected the petition returning it unfiled. On July 24, 1999, the PTO granted a
second request for reexamination. The action is presently stayed. The Company
intends to pursue the case vigorously.
On June 14, 1999, GAMETECH INTERNATIONAL, INC. V. BETTINA CORPORATION,
CV-N-99-00317-(ECR), a patent infringement action, was filed in the United
States District Court, District of Nevada, by the Company against Bettina
Corporation alleging that Bettina Corporation's "Bingo Magic" portable hand held
device infringed upon the claims of the Company's `940 Patent. The Company has
asked the Court for immediate injunctive relief, compensatory and punitive
damages for willful infringement as well as costs and attorney's fees. Bettina
Corporation, in its answer to the complaint, denies all causes of action and has
asked the Court to find the `940 Patent invalid. The Company intends to pursue
the case vigorously.
The Company is involved in various other legal proceedings arising out
of its operations in the ordinary course of its business. The Company does not
believe that any of their proceedings will have a material adverse effect on its
business, financial condition, or result of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Form 10-Q.
RECENT DEVELOPMENTS
On February 8, 1999, GameTech acquired all of the outstanding capital
stock of Bingo Technologies Corporation ("BTC"), a privately-held company
specializing in electronic bingo systems, pursuant to a Stock Purchase Agreement
with the stockholders of Bingo Technologies.
Under terms of the Stock Purchase Agreement, GameTech issued 1,866,938
shares of Common Stock and paid an aggregate of $8,817,994 in cash and
$4,624,333 in unsecured promissory notes as consideration for the purchase of
all the outstanding stock of Bingo Technologies. Of these amounts, $1,952,211
and 373,387 shares were placed into escrow to secure certain indemnification
obligations of the Bingo Technology shareholders. In addition, GameTech entered
into employment agreements and noncompetition agreements with Gerald Novotny,
11
<PAGE>
Keith Novotny and John Larsen, the Chairman and Chief Executive Officer, Chief
Operating Officer and President, respectively, of Bingo Technologies. Gerald
Novotny, Keith Novotny and John Larsen have also joined the Board of Directors
of GameTech.
After the acquisition, the Company had over 32,000 portable units and
5,500 fixed base units generating revenue. GameTech gained access to new markets
as Bingo Technologies had product placed in twelve states in which GameTech had
not previously operated. GameTech's sales network grew by thirty additional
distributors and eleven sales representatives.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
REVENUES. Revenues increased $8.6 million, or 210%, to $12.7 million
for the three months ended July 31, 1999 from $4.1 million for the three months
ended July 31, 1998. This increase is due in part to the acquisition of BTC.
Excluding the revenues resulting from the acquisition of BTC, the revenue
increase was $1.8 million or 43.9%. The number of units installed at July 31,
1999 was approximately 52,000, 16,800 excluding units resulting from the
acquisition of BTC, compared to approximately 11,900 at July 31, 1998.
COST OF REVENUES. Cost of revenues increased $1.9 million, or 136%, to
$3.3 million for the three months ended July 31, 1999 from $1.4 million for the
three months ended July 31, 1998. The increase in cost of revenues was primarily
due to the greater average number of units installed. As a percentage of
revenues, cost of revenues decreased to 26.3% from 33.1% in the prior period.
Depreciation expense as a percent of revenue decreased 5.2% due primarily to the
mix of units acquired in the BTC acquisition, as those units have a lower cost.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $1.5 million, or 136%, to $2.6 million for the three months ended July
31, 1999 from $1.1 million for the three months ended July 31, 1998. Excluding
costs resulting from the acquisition of BTC, including amortization of goodwill
of $400,000, general and administrative costs decreased $82,000 on 7.6%. As a
percentage of revenues, general and administrative expenses decreased to 20.2%
from 26.3% in the prior period.
SALES AND MARKETING. Sales and marketing expenses increased $2.8
million, or 420%, to $3.5 million for the three months ended July 31, 1999 from
$667,000 for the three months ended July 31, 1998. The increase was primarily
due to larger distributor commissions of $2.2 million. This increase in
distributor commissions is due primarily to the distributor network acquired
from BTC.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$157,000, or 85.3%, to $341,000 for the three months ended July 31, 1999 from
$184,000 for the three months ended July 31, 1998. As a percent of revenue,
research and development expenses were 2.7% and 4.4% in the 1999 and 1998
periods, respectively.
INTEREST INCOME. Interest income decreased $285,000 to $105,000 for the
three months ended July 31, 1999 from $390,000 for the three months ended July
31, 1998. The decrease in interest income was due primarily to the use of
approximately $9.8 million of cash in the acquisition of BTC and $5.9 million of
cash to retire debt from BTC.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$911,000 to $1.4 million for the three months ended July 31, 1999 from $464,000
for the three months ended July 31, 1998. The Company's effective income tax
rate was approximately 44% in 1999 and approximately 39% in 1998. The rate
change is due to the non-deductibility of goodwill from the acquisition of BTC.
NET INCOME. As a result of the factors discussed above, net income
increased $1.0 million to $1.7 million for the three months ended July 31, 1999
from $729,000 for the three months ended July 31, 1998.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
12
<PAGE>
REVENUES. Revenues increased $16.7 million, or 140%, to $28.6 million
for the nine months ended July 31, 1999 from $11.9 million for the nine months
ended July 31, 1998. This increase in revenues was primarily due to the increase
in the number of units installed in bingo halls and the acquisition of BTC.
COST OF REVENUES. Cost of revenues increased $4.2 million, or 110%, to
$8.0 million for the nine months ended July 31, 1999, from $3.8 million for the
nine months ended July 31, 1998. The increase in cost of revenues was primarily
due to the greater average number of units installed. As a percentage of
revenues, cost of revenues decreased to 28.0% from 31.5% in the prior period.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $3.1 million, or 115%, to $5.8 million for the nine months ended July
31, 1999 from $2.7million for the nine months ended July 31, 1998. As a
percentage of revenues, general and administrative expenses decreased to 20.1%
from 22.2% in the prior period.
SALES AND MARKETING. Sales and marketing expenses increased $5.9
million, or 328%, to $7.7 million for the nine months ended July 31, 1999 from
$1.8 million for the nine months ended July 31, 1998. The increase was primarily
due to larger distributor commissions of $4.4 million. The distributor
commission increase is primarily attributable to the distributor network
acquired from BTC.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$367,000 or 80.0%, to $826,000 for the nine months ended July 31, 1999 from
$459,000 for the nine months ended July 31, 1998. As a percent of revenue
research and development expenses were 2.9% and 3.8% for 1999 and 1998,
respectively.
ACQUISITION ONE-TIME WRITE-OFFS. One-time write-offs resulting from the
acquisition of BTC were $7.5 million during the three months ended July 31,
1999. They are comprised of approximately $4.5 million of non-recurring expenses
directly resulting from the acquisition and $3.0 million of in-process research
and development acquired from BTC.
EQUITY IN NET LOSS OF AFFILIATE. Equity in net loss of affiliate of
$2.0 million resulted from losses incurred by the TSBN joint venture for the
nine months ended July 31, 1998 and a write off the Company's investment and
advances to the joint venture with the discontinuance of the TSBN operations in
February 1998. Since the Company financed this venture, it recorded 100% of the
losses rather than its 50% ownership percentage.
INTEREST INCOME. Net interest income decreased $543,000 to $472,000 for
the nine months ended July 31, 1999 from $1.0 million for the nine months ended
July 31, 1998. The decrease was due primarily to the use of approximately $9.8
million of cash for the acquisition of BTC and $5.9 million of cash to retire
debt assumed from BTC.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$322,000 to $1.2 million for the nine months ended July 31, 1999 from $884,000
for the nine months ended July 31, 1998. The Company's effective income tax rate
increased due to the non-deductibility of two items: goodwill and the one-time
write-off of $3.0 million of in-process research and development from the
acquisition of BTC.
NET INCOME (LOSS). As a result of the factors discussed above, net
income decreased $3.3 million to a net loss of $1.9 million for the nine months
ended July 31, 1999 from $1.4 million of net income for the nine months ended
July 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company received net proceeds of approximately $32.5 million from
the sale of 3,270,000 shares of its Common Stock in its IPO, which closed on
December 1, 1997. At July 31, 1998, the Company had cash and equivalents and
short-term investments totaling $10.6 million. The Company used approximately
$3.4 million of the net proceeds to pay off long-term debt and short-term
borrowings in December 1997.
The Company used its cash flow to primarily purchase additional bingo
units to install in customers' bingo halls and to meet its ordinary operating
expenses. GameTech currently has a $10.0 million line of credit (the "Revolving
Credit Facility") with Wells Fargo Bank, N. A. ("Wells Fargo"), which has an
interest rate based on the
13
<PAGE>
prime rate or LIBOR plus 2.0%, at the Company's option, on which the
outstanding balance at July 31, 1999 was approximately $777,000.
The Revolving Credit Facility expires on March 31, 2000. Covenants
under this credit facility restrict the Company's payment of cash dividends, as
well as other customary covenants. The Revolving Credit Facility is secured by
substantially all of the Company's assets.
Operating activities provided $5.8 million of cash for the nine months
ended July 31, 1999 compared to $3.7 million for the nine months ended July 31,
1998. The $5.8 million consisted primarily of a $1.9 million net loss, adjusted
for $4.4 million of depreciation and amortization and $3.0 million of in-process
research and development.
Investing activities used $17.1 million in the nine months ended July
31, 1999 compared to $5.9 million in the nine months ended July 31, 1998. The
increase was due primarily to the $9.8 million used in the acquisition of BTC
and increased capital expenditures of $2.0 million.
Financing activities used cash of $4.6 million in the nine months ended
July 31, 1999 compared to providing $29.7 million for the nine months ended July
31, 1998. The $4.6 million used in 1999 is primarily the net reduction on the
Company's short-term debt. The $29.7 in 1998 million represents the net proceeds
from the IPO less the repayment of the Company's debt in December 1997.
The Company believes that cash flow from operations and the net
proceeds to the Company from the IPO, together with funds available under the
Revolving Credit Facility, will be sufficient to support its operations and
provide for budgeted capital expenditures and liquidity requirements for the
next twelve months.
YEAR 2000 RISKS
Year 2000 compliance concerns the ability of certain computerized
information systems to properly recognize date-sensitive information involving
dates on and after January 1, 2000. Systems that do not recognize such
information could generate erroneous data or such systems could fail. The
Company is at risk both for its own Year 2000 compliance and for the Year 2000
compliance of other companies with which it does business.
Many of the Company's products contain software and hardware that
perform functions based upon date-related information. The Company has assessed
the Year 2000 readiness of its products, and, where necessary, has identified
and prioritized remedial steps to make those products Year 2000 compliant. The
Company currently anticipates that it will complete its product remediation
during October 1999. The Company will offer to its customers at no charge any
upgrades or modifications necessary to make its products Year 2000 compliant.
The Company does not anticipate the cost of providing any such upgrades or
modifications to its customers will be material to the Company's operations.
However, the inability of the Company to provide on a timely basis any product
upgrades or modifications that may be required could result in a material
adverse effect on the Company, including customer satisfaction issues and
potential litigation.
The Company has assessed its mission critical internal information and
operating systems, its computer hardware, and its facilities for Year 2000
compliance and, where necessary, has identified and prioritized remedial steps
to make these systems Year 2000 compliant. The Company currently anticipates
that it will complete its remediation of all mission control systems by
September 30, 1999.
The Company also continues to evaluate the Year 2000 issue as it
relates to computer systems operated by third parties, including manufacturers,
suppliers, customers, and financial institutions, upon which the Company's
business depends or with which its computer systems interface. The Company is
requesting written certifications from third parties to verify Year 2000
compliance by those companies. The Company or its suppliers procure many of the
components used in manufacturing the Company's products from foreign vendors. As
a result, the Company may be at risk from foreign companies and countries that
are not taking adequate measures to ensure Year 2000 compliance or that may not
be at the same level of preparedness as the United States. Failure of foreign
countries and companies to be Year 2000 compliant could cause interruptions or
shortages of components required to assemble the Company's products. As a
result, the Company may be at risk with respect to suppliers of those
components.
To date, the Company has expended approximately $112,700 in addressing
its Year 2000 issues and estimates that its costs of Year 2000 compliance will
be approximately $380,000. This includes $125,000 which the Company has budgeted
for unforeseen items which may arise in connection with the remediation process.
The Company's total cost estimate reflects assumptions regarding the extent of
the Year 2000 issues embodied in the
14
<PAGE>
Company's operations and facilities, the availability and cost of personnel
trained in this area, the compliance plans of third parties, and similar
uncertainties. However, due to the complexity and pervasiveness of the Year
2000 issue, and in particular, the uncertainty regarding the compliance
programs of third parties, no assurance can be given that these estimates
will be achieved, and actual results could differ materially from those
anticipated. If the Company is unable to address the Year 2000 issues
successfully, or in a timely fashion, the Company may need to devote more
resources to the process and additional costs may be incurred.
The failure of the Company's products or computer system or the
systems of third parties as a result of Year 2000 issues could have a
material adverse effect on the Company's business, financial condition, and
operating results. In the unlikely event of the worst case Year 2000 scenario
occurring, the Company reasonably anticipates that its internal systems,
despite the completion of upgrades, will still fail to be Year 2000
compliant. In addition, it is possible that the Company's products will not
become Year 2000 compliant despite the Company's remediation efforts.
Finally, the Company anticipates the possibility that its customers' and
vendors' systems will not be Year 2000 compliant. In the event that any of
these scenarios materialize, the Company expects that it would experience an
interruption of its business operations.
The Company believes that it is taking appropriate steps to assess and
address its Year 2000 issues and does not expect that its business will be
adversely affected by Year 2000 in any material respect. However, in the event
that the steps being implemented by the Company fail to avoid problems
associated with the Year 2000, the Company is currently developing its
contingency plans. Such plans may include the immediate purchase of replacement
hardware or software at the beginning of the Year 2000, the switching of vendors
who supply goods or services to the Company, or other alternatives. The company
anticipates that its contingency plans will be substantially completed by
September 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's Revolving Credit Facility with Wells Fargo is a $10
million line of credit with an interest rate based on the prime rate or LIBOR
plus 2.0%, at the Company's option. The line of credit expires on March 31,
2000.
Because the interest rate on the Revolving Credit Facility is variable,
the Company's cash flow may be affected by increases in interest rates, in that
the Company would be required to pay more interest in the event that both the
prime and LIBOR interest rates increase. Management does not, however, believe
that any risk inherent in the variable-rate nature of the loan is likely to have
a material effect on the Company's interest or available cash. The Company
currently maintains a zero balance on the Revolving Credit Facility (at July 31,
1999, the outstanding balance was approximately $777,000). Even if the Company
were to draw down on the line prior to its expiration and an unpredicted
increase in both alternate rates occurred, it would not be likely to have a
material effect on the Company's interest expense or available cash.
SENSITIVITY ANALYSIS. Assuming the Company had a $2 million balance
outstanding as of July 31, 1999, the rate of interest calculated using the prime
rate option would be 8.0%. The Company's monthly interest payment, if the rate
stayed constant would be $13,333. If the prime rate rose to 13%, which assumes
an unusually large increase, the Company's monthly payment would be $21,667. A
more likely increase of 1 or 2%, given the recent trend of decreasing and
relatively low interest rates, would result in a monthly payment of $15,000 or
$16,667, respectively. The Company does not believe the risk resulting from such
fluctuations is material nor that the payment required would have a material
effect on cash flow.
15
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document includes various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. Statements
containing expressions such as "believes," "anticipates" or "expects" used in
the Company's press releases and periodic reports on Forms 10-K and 10-Q filed
with the Commission are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties, many of which are
beyond the Company's control. Although the Company believes its expectations are
based upon reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurances that actual results will not
materially differ from expected results. The Company cautions that these and
similar statements included in this report are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements. Such factors could include, without limitation, the
following: increased competition in existing markets; a decline in the public
participation in bingo; the limitation, conditioning or suspension of any of the
Company's bingo permits or licenses; increases in or new taxes imposed on bingo
revenues or bingo devices; a finding of unsuitability by regulatory officers
with respect to the Company's officers, directors or key employees; loss or
retirement of key executives; adverse economic or regulatory conditions in the
Company's key markets; adverse results of significant litigation matters.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 13, 1998, a purported securities class action complaint,
WEISS V. GAMETECH INTERNATIONAL, INC., No. 98-0268 PHX-ROS, was filed in the
United States District Court for the District of Arizona against the Company and
certain officers and directors alleging that defendants violated Section 11 of
the Securities Act of 1933 (the "Securities Act") by making false misleading
statements and omissions in the Company's Form S-1 Registration Statement in
connection with the Company's public offering on November 25, 1997. Two other
complaints making nearly identical factual allegations have been consolidated
with the WEISS action for all purposes as IN RE GAMETECH, INC. SECURITIES
LITIGATION, Master File No. Civ. 98-0268 PHX-ROS. On July 17, 1998, the Court
appointed "lead plaintiff" and co-lead counsel.
On September 21, 1998, plaintiffs filed a consolidated complaint,
alleging a claim against the Company and the individual defendants under Section
11 of the Securities Act and a claim against the individual defendants under
Section 15 of the Securities Act, based upon the conduct alleged in the original
complaints. Plaintiffs seek an unspecified amount of damages.
On November 5, 1998, defendants moved to dismiss the complaint. On June
3, 1999 Defendants' motion to dismiss was granted in part and denied in part by
the Court. Defendants believe that there is no merit to plaintiffs' allegations
and intend to defend the action vigorously.
On May 28, 1999, the Company and its wholly owned subsidiary Bingo
Technologies Corporation ("BTC"), were sued in the United States Bankruptcy
Court for the District of Nevada (Case No. BK-S-98-27619-RCJ) by Branson
Signatures Resorts, Inc. and its parent company, Advanced Gaming Technology,
Inc. ("AGTI"), both of which are debtors-in-possession in a bankruptcy
proceeding that Branson and AGTI initiated last year. In the suit, AGTI alleges
that, in February and April 1998, AGTI entered into two contracts with BTC under
which AGTI licensed to BTC the right to distribute and lease certain electronic
bingo units. AGTI alleges that BTC and the Company as its parent breached these
agreements and otherwise violated the automatic stay that operated upon the
filing of the AGTI bankruptcy. A stipulation and order dismissing the action
with prejudice was entered by the Court on August 2, 1999.
In January 1995, a purported patent infringement action and demand for
jury trial, FORTUNET INC., V. BINGO CARD MINDER CORP., AND STUART ENTERTAINMENT,
INC., CV-S-95-0008 PMP (RJJ) was filed in the United States District Court,
District of Nevada against the Company's wholly owned subsidiary, Bingo Card
Minder Corporation ("BCMC"), and Stuart Entertainment, Inc. ("Stuart"). The
complaint alleged that BCMC and Stuart, as individual entities, infringed upon
U.S. Patent No. 4,455,025 (the "025 Patent"). On October 22, 1998, the action
was severed and stayed by order of the Court pending completion of reexamination
and any appeals therefrom. On May 19, 1999, Fortunet, Inc. ("Fortunet") appealed
the Patent and Trademark Office's (the "PTO") decision of rejection of the 025
Patent to the United States Court of Appeals for the Federal Circuit.
The action against BCMC involves the BCM-2 device only, of which less
than 2,000 are currently in operation throughout the United States. The Court
has SUA SPONTE ruled that the BCM-2 does not infringe Fortunet's 4,642,462
patent (the "462 Patent"). Fortunet has not plead any specific damages but has
plead punitive damages for willful infringement. In the event the 025 Patent is
reinstated, the Company will vigorously contest the action.
In February 1997, BCMC filed a declaratory relief action for
non-infringement, BINGO CARD MINDER CORP. V. FORTUNET, INC., C 97-00698 CAL in
the United States District Court Northern District of California, against
Fortunet's 025 and 462 Patents relative to BCMC's TED device. No relevant court
dates have been set, and the Court in early 1997 approved a stipulated stay
pending completion of the above case, which is stayed pending completion of the
reexamination of Fortunet's patents. The PTO, on a second request for
reexamination with respect to the 462 patent, recently determined that "a
substantial new question of patentability" existed. As such, the 462 patent will
now undergo renewed reexamination activity with the possible cancellation of
some or all of the claims of the 462 patent. There are no relevant court dates
as the action has been stayed pending reexamination.
In June 1997, a purported patent infringement and demand for jury
trial, FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN A. LARSEN, DBA
OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP., CV-S-97-
17
<PAGE>
00778-HDM (LRL), was commenced in the United States District Court, District
of Nevada, against Bingo Technologies Corporation ("BTC"), John A. Larsen,
dba Opportunity Software and BCMC. As no relevant court dates have been set,
and the complaint lacks a definitive accused device, the Company believes,
based upon representation of opposing counsel that the action involves BTC's
sale of the "Max-Plus" units, alleging infringement of Fortunet's 462 and 025
Patents. Pursuant to stipulation, the Court has stayed the action pending the
outcome of the appeal from the Patent Office rejection of the 025 patent (see
above).
The Company believes that none of its products infringe any valid claim
of either the 025 or 462 Patents and intends to continue to defend against all
actions vigorously. However, there can be no assurance that favorable outcomes
will be obtained or that if the action against the TED product is resolved in
favor of the Plaintiff, such result would not have a material adverse effect on
the Company's business, financial position, or results of operations or cash
flow.
In May 1998, FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN A.
LARSEN, DBA OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP., CV-S-98-00777-PMP
(LRL) an action for declaratory relief for non-infringement and counterclaim,
was filed in the United States District Court, District of Nevada, by BTC
against Fortunet alleging that Fortunet's "Bingo Starr" portable hand-held bingo
device infringed upon the claims of BTC's 4,378,940 patent (the "940 Patent"
owned by the Company). On October 27, 1998, the PTO, in a response to a request
for reexamination sponsored by Fortunet, rejected all 12 claims of the 940
patent. BTC contested the Examiner's decision and on March 23, 1999 the Patent
Office reversed its initial rejection. In response, Fortunet, on May 23, 1999,
filed a new request for reexamination and a petition to invoke the
Commissioner's authority to amend the Examiner's decision on reversal due to
"extraordinary circumstances." On August 11, 1999, the commissioner's office
rejected the petition returning it unfiled. On July 24, 1999, the PTO granted a
second request for reexamination. The action is presently stayed. The Company
intends to pursue the case vigorously.
On June 14, 1999, GAMETECH INTERNATIONAL, INC. V. BETTINA CORPORATION,
CV-N-99-00317-(ECR), a patent infringement action, was filed in the United
States District Court, District of Nevada, by the Company against Bettina
Corporation alleging that Bettina Corporation's "Bingo Magic" portable hand held
device infringed upon the claims of the Company's `940 Patent. The Company has
asked the Court for immediate injunctive relief, compensatory and punitive
damages for willful infringement as well as costs and attorney's fees. Bettina
Corporation, in its answer to the complaint, denies all causes of action and has
asked the Court to find the `940 Patent invalid. The Company intends to pursue
the case vigorously.
The Company is involved in various other legal proceedings arising out
of its operations in the ordinary course of its business. The Company does not
believe that any of their proceedings will have a material adverse effect on its
business, financial condition, or result of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
SALES OF UNREGISTERED SECURITIES DURING THE THREE MONTHS ENDED JULY 31,
1999
On various dates during the three months ended July 31, 1999, certain
Company employees exercised stock options granted in partial compensation for
their services, resulting in the issuance of an aggregate of 34,500 shares of
Common Stock for an aggregate consideration of $27,000. Each of these issuances
was deemed to be exempt from registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to the exemption from registration set forth in
Rule 701 promulgated under the Act. All of such offers and sales were made
pursuant to written agreements relating to the compensation of such employees,
copies of which were provided to them. The aggregate amount of shares offered
and sold in reliance on Rule 701 as of September 10, 1999 does not exceed the
thresholds set forth in paragraph (b) (5) thereof.
USE OF PROCEEDS
On November 24, 1997, the Securities and Exchange Commission (the
"Commission") declared the Company's Registration Statement on Form S-1 (the
"Registration Statement") effective. The Commission file number assigned to the
Registration Statement is 333-34967. The Company filed the Registration
Statement in connection with the offering (the "Offering") of 3,710,000 shares
of its Common Stock.
18
<PAGE>
From the effective date of the Registration Statement to the end of
the reporting period, the Company has used none of the net offering proceeds
for construction of plant, building and facilities; for the purchase of real
estate; or for the acquisition of other businesses. The Company has used
approximately $9.8 million in the acquisition of BTC, $5.9 million to retire
short-term debt from BTC, $3.9 million for the repayment of indebtedness and
$2.9 million for the repurchase of stock.
None of these payments have been direct or indirect payments to
directors, officers or other affiliates of the Company.
19
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27.1 Financial Data Schedule
b) Reports on Form 8-K:
There were no reports on Form 8-K during the quarter ended
July 31, 1999.
20
<PAGE>
SIGNATURES
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/ John J. Paulson September 14, 1999
- ---------------------- -------------------
John J. Paulson Chief Financial Officer / Treasurer
(Authorized Officer and Principal Financial Officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF GAME TECH INTERNATIONAL, INC. ("THE COMPANY") AS OF
JULY 31, 1999 AND THE STATEMENTS OF OPERATIONS OF THE COMPANY FOR THE
THREE AND NINE MONTHS ENDED JULY 31, 1999
</LEGEND>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1999
<PERIOD-START> MAY-01-1999 NOV-01-1998
<PERIOD-END> JUL-31-1999 JUL-31-1999
<CASH> 5,615 0
<SECURITIES> 4,941 0
<RECEIVABLES> 3,937 0
<ALLOWANCES> 636 0
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0 0
0 0
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<OTHER-SE> 44,527 0
<TOTAL-LIABILITY-AND-EQUITY> 59,002 0
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<INCOME-PRETAX> 3,119 (714)
<INCOME-TAX> 1,375 1,206
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<NET-INCOME> 1,744 (1,920)
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