<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) February 8, 1999
--------------------------------
GAMETECH INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-23401 33-0612983
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE (IRS EMPLOYER
INCORPORATION) NUMBER) IDENTIFICATION NO.)
2209 W. 1ST STREET, SUITE 113, TEMPE, ARIZONA 85281
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 804-1101
------------------------------
NOT APPLICABLE.
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
Effective February 8, 1999, GameTech International, Inc.
("GameTech" or the "Company") acquired (the "Acquisition") all of the
outstanding capital stock of Bingo Technologies Corporation, a privately held
company specializing in electronic bingo systems ("Bingo Technologies"). The
Acquisition was consummated in accordance with the terms of a Stock Purchase
Agreement among the Company, Bingo Technologies and the stockholders of
Bingo Technologies, dated as of February 8, 1999 (the "Agreement").
The aggregate consideration paid by the Company in
connection with the Acquisition was approximately $19.5 million, comprised of
$8,817,994 cash, 1,866,938 unregistered shares of GameTech Common Stock and
an aggregate of $4,624,333 in unsecured promissory notes. Of these amounts,
$1,952,211 cash and 373,387 shares of GameTech Common Stock were placed in
escrow to secure certain indemnification obligations of the Bingo
Technologies shareholders.
The aggregate consideration paid in the Acquisition was
determined through arm's-length negotiations between representatives of the
Company and Bingo Technologies. Neither GameTech nor, to the knowledge of
GameTech, any affiliate, director or officer of GameTech, had any material
relationship with Bingo Technologies prior to the Acquisition.
In connection with Acquisition, the parties entered into
certain ancillary documents, including, without limitation, executive
employment agreements and noncompetition agreements with Gerald Novotny,
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.
The assets of Bingo Technologies principally consisted of
certain inventories valued by the parties as of January 31, 1999, at
approximately $120,000; trade receivables of $1.3 million; fixed assets net
of accumulated depreciation of $ 6.5 million; and goodwill and intangible
assets of $ 1.5 million. Following the Acquisition, GameTech intends to
continue to operate Bingo Technologies in substantially the same manner as it
was operated prior to the Acquisition.
Related liabilities of Bingo Technologies assumed by
GameTech include $1.1 million of accounts payable and accrued expenses, $4.7
million of short term debt, $800,000 of income taxes payable and $320,000
capital lease obligations.
GameTech funded the $8,817,994 aggregate cash
consideration paid in connection with the Acquisition with available cash and
cash equivalents.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
Pursuant to Item 7 (A) (4) of Form 8-K, all required
historical financial statements of Bingo Technologies and all required pro forma
financial statements are being filed in this Amendment No. 1.
2
<PAGE>
The unaudited pro forma consolidated financial information
of the Company, included in Item 7 (b) of this Form 8-K/A, is based on and
should be read in conjunction with the audited financial statements and notes
thereto appearing in the Company's annual report on Form 10-K for the year
ended October 31, 1998 and the unaudited financial statements and notes
thereto appearing in the Company's Form 10-Q for the three month period
ended January 31, 1999. The unaudited pro forma condensed combining balance
sheet of the Company as of January 31, 1999 reflects the financial position
of the Company after giving effect to the acquisition of the Bingo
Technologies and assumes the acquisition took place on January 31, 1999. The
unaudited pro forma condensed combining statements of operations for the
fiscal year ended October 31, 1998 and the three months ended January 31,
1999 assume that the acquisition occurred on November 1, 1997.
The unaudited pro forma condensed combining financial
statements have been prepared by the Company based upon available information
and certain assumptions that management believes are reasonable in the
circumstances. The unaudited pro forma information presented herein is shown
for illustrative purposes only and is not necessarily indicative of the
future financial position or future results of operations of the Company, or
the financial position or results of operations of the Company that would
have actually occurred had the acquisition been in effect as of the date or
for the periods presented. The Company's financial statements will reflect
the acquisition only from February 8, 1999.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accounts F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Income for the Years Ended
December 31, 1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998 and 1997 F-4
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6-15
</TABLE>
3
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combining Statement of
Income for the Year Ended October 31, 1998 F-16
Unaudited Pro Forma Condensed Combining Statement of
Operations for the Three Months Ended January 31, 1999 F-17
Unaudited Pro Forma Condensed Balance Sheets as of
January 31, 1999 F-18
Notes to Unaudited Pro Forma Condensed Combining
Financial Statements F-19-20
</TABLE>
(c) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
---------- ----------- ----------------
<S> <C> <C>
2 Stock Purchase Agreement, dated February 8, 1999, *
between GameTech, International Bingo
Technologies Corporation and the Stockholders and
Indemnitors named herein
99.1 Registrant's Press Release dated February 8, 1999 *
99.2 Registrant's Press Release dated February 10, 1999 *
</TABLE>
* Previously filed in GameTech's February 23, 1999 8K.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GAMETECH INTERNATIONAL, INC.
Date: April 23, 1999 By:
------------------------
John J. Paulson
Chief Financial Officer
5
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Bingo Technologies Corporation
We have audited the accompanying consolidated balance sheet of Bingo
Technologies Corporation (successor to Bingo Card Minder Corporation) as of
December 31, 1998 and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for the years then ended,
respectively. These financial statements are the responsibility of the
management of Bingo Technologies Corporation. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bingo
Technologies Corporation at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Reno, Nevada
March 12, 1999
F-1
<PAGE>
Bingo Technologies Corporation
Consolidated Balance Sheet
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 123,467 $ 129,053
Accounts receivable, net of allowance for doubtful accounts of
$90,000 ($86,000 in 1997) 1,254,808 883,868
Inventories 120,631 126,949
Prepaid and other current assets 36,401 32,678
Deferred income taxes 162,143 96,500
------------------------------------
Total current assets 1,697,450 1,269,048
Bingo units, furniture and equipment, at cost, less accumulated
depreciation and amortization 6,594,113 3,362,983
Excess of purchase price over the net book value of assets
acquired, net of accumulated amortization of $326,000
($163,000 in 1997) (NOTE 5) 162,500 325,000
Investment in assets of Advanced Gaming Technology, net of
accumulated amortization of $314,000 ($0 in 1997) (NOTE 4) 1,399,000 400,000
------------------------------------
Total assets $ 9,853,063 $ 5,357,031
------------------------------------
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to shareholder $ 3,480,014 $ -
Lines of credit 1,100,000 100,000
Accounts payable and accrued liabilities 1,750,521 788,258
Income taxes payable 604,782 385,751
Current obligations under capital leases 118,058 109,869
------------------------------------
Total current liabilities 7,053,375 1,383,878
Notes payable to shareholders - 2,215,000
Deferred income taxes 200,649 135,442
Obligations under capital leases 209,668 222,132
Commitments and contingency (NOTES 9 AND 10)
Shareholders' equity:
Common stock, $.00001 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 10,000 - -
Additional paid-in capital 2,084,313 2,084,313
Retained earnings (accumulated deficit) 305,058 (683,734)
------------------------------------
Total shareholders' equity 2,389,371 1,400,579
------------------------------------
------------------------------------
Total liabilities and shareholders' equity $ 9,853,063 $ 5,357,031
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Bingo Technologies Corporation
Consolidated Statement of Income
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------------------------------------
<S> <C> <C>
Net revenues $ 17,925,036 $ 9,787,722
Cost of revenues, including depreciation 6,115,402 2,863,807
----------------------------------------
Gross margin 11,809,634 6,923,915
Operating expenses:
Selling and distribution 2,665,860 1,398,353
Research and development 849,287 594,596
Legal and compliance 690,881 498,517
General and administrative 4,879,311 2,977,480
Amortization of intangible assets (NOTES 4 AND 5) 476,931 163,000
----------------------------------------
9,562,270 5,631,946
----------------------------------------
Income from operations 2,247,364 1,291,969
Other income (NOTE 3) - 378,000
Interest expense (602,011) (252,275)
----------------------------------------
Income before provision for income taxes 1,645,353 1,417,694
Provision for income taxes 656,561 553,025
----------------------------------------
Net income $ 988,792 $ 864,669
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Bingo Technologies Corporation
Consolidated Statement of Shareholders' Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Retained
-------------------------- Additional Earnings
Paid-In (Accumulated
Shares Amount Capital Deficit) Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 100 $ - $ 1,959,313 $ (1,548,403) $ 410,910
Shares issued in connection with
formation of the Company as
successor to Bingo Card Minder
(NOTE 1) 6,763 - - - -
Shares issued in connection with
acquisition of Opportunity
Software (NOTE 5) 3,137 - 125,000 - 125,000
Net income - - - 864,669 864,669
------------------------------------------------------------------------
Balance at December 31, 1997 10,000 - 2,084,313 (683,734) 1,400,579
NET INCOME - - - 988,792 988,792
------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 10,000 $ - $ 2,084,313 $ 305,058 $ 2,389,371
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Bingo Technologies Corporation
Consolidated Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 988,792 $ 864,669
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of bingo units, furniture and
equipment 1,207,433 801,467
Amortization of intangible assets 476,931 163,000
Deferred income taxes (436) 76,232
Changes in operating assets and liabilities (net of effects from
acquisition of Opportunity Software in 1997):
Accounts receivable (370,940) (553,521)
Inventories (including $186,569 purchased through investment
in assets of Advanced Gaming Technology in 1998) 192,887 (103,287)
Prepaid and other current assets (3,723) 1,148
Accounts payable and accrued liabilities 962,263 192,583
Income taxes payable 219,031 148,427
------------------------------------
Net cash provided by operating activities 3,672,238 1,590,718
INVESTING ACTIVITIES
Investment in assets of Advanced Gaming Technology (1,500,000) (400,000)
Purchases of bingo units, furniture and equipment (4,303,623) (1,540,450)
Acquisition of Opportunity Software - 66,000
------------------------------------
Net cash used in investing activities (5,803,623) (1,874,450)
FINANCING ACTIVITIES
Net borrowings (payments) on lines of credit 1,000,000 (600,000)
Payments on capital lease obligations (139,215) (145,900)
Net proceeds from borrowings from shareholders 1,265,014 1,044,000
------------------------------------
Net cash provided by financing activities 2,125,799 298,100
------------------------------------
Net increase (decrease) in cash and cash equivalents (5,586) 14,368
Cash and cash equivalents at beginning of year 129,053 114,685
------------------------------------
Cash and cash equivalents at end of year $ 123,467 $ 129,053
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements
Years ended December 31, 1998 and 1997
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
Bingo Technologies Corporation (the "Company") was incorporated in January
1997 as a successor to Bingo Card Minder ("BCM"), and in connection with a
business combination between BCM and Opportunity Software ("Opportunity")
(Note 5). The consolidated financial statements include the accounts of the
Company and BCM, its predecessor and wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated. The Company
manufactures electronic bingo units and designs and develops bingo accounting
software and leases these products primarily under arrangements of one year
or less.
On October 5, 1998, the Company amended their articles of incorporation
whereby authorized shares were increased from 100,000 to 10,000,000, and the
par value was decreased from $.001 to $.00001 per share. The effect of this
change has been reflected for all periods presented.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's
management to make estimates and assumptions that affect the amounts reported
thereon. Actual results could vary from such estimates.
REVENUE RECOGNITION
Revenues are based on either a fixed rate per bingo unit installed, a fixed
rate per bingo unit played, or a percentage of gaming revenues earned per
bingo unit at customer locations. The Company's revenue arrangements, which
are based on negotiations with the customer, consist of written and unwritten
agreements.
F-6
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company has adopted the provisions of the Financial Accounting Standards
Board Statement of Financial Accounting No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). SFAS 121 requires impairment losses to be recognized for
long-lived assets and identifiable intangibles used in operations when
indicators of impairment are present and the estimated undiscounted cash
flows are not sufficient to recover the asset's carrying amount. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount.
SIGNIFICANT CUSTOMER AND CONCENTRATIONS OF CREDIT RISK
One customer (a distributor) accounted for 12% of the Company's net revenues
during the year ended December 31, 1997, while no one customer accounted for
ten percent of the Company's net revenues during the year ended December 31,
1998. Additionally, substantially all of the Company's trade accounts
receivable at December 31, 1998 and 1997 are due from Native American
reservation gaming halls, Nevada casinos and charity bingo operations located
throughout the United States. Non-performance by these parties would result
in losses up to the recorded amount of the related receivable. The Company
performs ongoing credit evaluations of its customers' financial condition,
and generally requires no collateral from its customers. Management believes
that they have adequately provided for uncollectible receivables in the
Company's allowance for doubtful accounts.
INVENTORIES
Inventories are stated at the lower of cost or market with cost being
determined principally by the first-in, first-out method. These costs relate
to parts and supplies for bingo units.
DEPRECIATION AND AMORTIZATION
Depreciation of furniture and equipment is computed using the straight-line
method over estimated useful lives ranging from five to seven years (Note 2).
Amortization of property under capital leases is determined using the
straight-line method over the estimated useful life of the related asset or
the lease term, whichever is shorter.
F-7
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the temporary differences are expected to reverse, and
deferred tax assets and liabilities are separated into current and
non-current amounts based on the classification of the related assets and
liabilities for financial reporting purposes.
CONSOLIDATED STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash equivalents include money market
funds with initial maturities of three months or less. The Company maintains
the majority of its cash and cash equivalents in one financial institution.
The Company paid interest of approximately $602,000 and $171,000 and income
taxes of approximately $415,000 and $339,000 during the years ended December
31, 1998 and 1997, respectively. The Company entered into capital lease
obligations for new furniture and equipment amounting to approximately
$135,000 and $136,000 during the years ended December 31, 1998 and 1997,
respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs of approximately $849,000 and $595,000 during
the years ended December 31, 1998 and 1997, respectively, are charged to
operations as incurred.
ADVERTISING COSTS
The Company expenses the costs of all advertising campaigns and promotions as
they are incurred. Total advertising expense for the years ended December 31,
1998 and 1997 amounted to approximately $210,000 and $182,000, respectively,
and is included in selling and distribution expenses on the accompanying
consolidated statement of income.
RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
F-8
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
2. BINGO UNITS, FURNITURE AND EQUIPMENT
Bingo units, furniture and equipment consists of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Installed bingo units $ 5,608,022 $ 2,916,518
Installed all-trak units 912,563 521,019
Installed MAXPlus units 798,719 -
Bingo units on-hand and in-progress 676,519 416,193
Tooling and mold costs 169,431 169,431
Office furniture and equipment 1,177,234 880,764
------------------------------------
9,342,488 4,903,925
Less accumulated depreciation and amortization 2,748,375 1,540,942
------------------------------------
$ 6,594,113 $ 3,362,983
------------------------------------
------------------------------------
</TABLE>
"Bingo units on-hand and in-progress" are transferred to "Installed bingo
units", "Installed all-trak units" and "Installed MAXPlus units" when
installed at a customer location, at which time a provision for depreciation
is applied towards these units over a five year period.
At December 31, 1998 and 1997, the Company had amounts recorded of $64,980
(net of accumulated amortization of $104,451) and $98,856 (net of accumulated
amortization of $70,575), respectively, related to tooling and molding
expenditures for the "TED", the Company's latest model of bingo units
introduced into the market in 1995. These costs are being amortized over a
five year period.
Office furniture and equipment includes assets under capital leases amounting
to $372,000 (net of accumulated amortization of $140,000) and $267,000 (net
of accumulated amortization of $72,000) at December 31, 1998 and 1997,
respectively.
3. SETTLEMENT AGREEMENT
In 1997, the Company entered into a settlement agreement with a defendant in
a patent infringement lawsuit. Under the settlement agreement, the Company
received $378,000, which amount is included in other income on the
accompanying consolidated statement of income during the year ended December
31, 1997.
F-9
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
4. INVESTMENT IN ASSETS OF ADVANCED GAMING TECHNOLOGY
In February 1998, the Company entered into two agreements with Advanced
Gaming Technology, Inc. ("AGTI"). Under the first agreement (the "Asset
Agreement"), the Company purchased AGTI's U.S. MAXPlus and TurboMax customer
accounts and certain related inventory and equipment. In addition, the
Company assumed certain leases relating to facilities and equipment. At
December 31, 1997, the Company had expended $400,000 towards the Asset
Agreement, which amount has been classified as investment in assets of AGTI
on the accompanying consolidated balance sheet.
Under the second agreement (the "Licensing Agreement"), the Company obtained
the rights to serve as a sales, manufacturing, distribution, and marketing
agent for a period of five years for AGTI's MAXPlus and TurboMax products
throughout the U.S. ("Products"), for consideration to be paid by the Company
of $1,500,000. The Company paid this entire amount during 1998, and recorded
the $1,500,000 with the investment in assets of AGTI. This amount will be
amortized over five years on a straight-line basis. During the year ended
December 31, 1998, the Company recorded amortization expense of approximately
$314,000, which amount is included in amortization of intangible assets on
the accompanying consolidated statement of income.
In addition, the Company is required to pay AGTI a monthly royalty equal to
15% of the gross revenues from the sales of the Products, with a minimum
guaranteed royalty fee for calendar year 1998 of $350,000, subject to certain
adjustments, as defined. Per the Asset and Licensing Agreements, the Company
is allowed to set-off its royalty fee against any shortfall in assets
obtained under the Asset Agreement. Additionally, royalties are to be reduced
if customers stop making payments to the Company, upon certain conditions.
The amounts are currently in dispute between the parties, but Company
management believes they have adequately provided for amounts due at December
31, 1998. Future years' annual royalty fees are to be determined on a year to
year basis, with the minimum royalty in subsequent years not to be lower than
the amount negotiated in the preceding year.
F-10
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
5. INVESTMENT IN OPPORTUNITY SOFTWARE
In January 1997, the Company entered into a series of agreements to effect a
business combination between the Company and Opportunity, a sole
proprietorship. All assets and liabilities of Opportunity were transferred to
the Company in exchange for 3,137 shares of the Company's common stock and a
$500,000 cash payment made by BCM in October 1996. This combination was
accounted for as a purchase under generally accepted accounting principles in
the Company's 1997 consolidated financial statements, whereby the results of
operations of Opportunity have been combined with the operating results of
the Company.
In consideration for the guarantee of the Second Line by the Company's
Principal Shareholder (Note 6), the owner of Opportunity agreed to pledge the
3,137 shares of Company common stock to the Principal Shareholder.
The excess of the purchase price over the net book value of the assets of
Opportunity ($488,000) is being amortized over a three-year period, and
during both 1998 and 1997 the Company recorded amortization expense in the
amount of $163,000, which is included in amortization of intangible assets on
the accompanying consolidated statement of income.
6. LINES OF CREDIT
The Company has a revolving line of credit agreement (the "First Line") with
a bank which permits borrowings up to $100,000. Interest is calculated on the
First Line at the bank's reference rate plus 2% (aggregating 9.75% at
December 31, 1998). The Company is required to pay monthly the greater of (a)
2% of the outstanding principal balance plus accrued interest, or (b) $100.
All principal and interest is due and payable in April 1999. The Company had
outstanding borrowings of $100,000 under this First Line at December 31, 1998.
In December 1997, the Company entered into a second revolving line of credit
agreement (the "Second Line") with another bank which permits borrowings up
to $1,000,000. Interest on the Second Line is calculated at the prime rate
plus .5% (aggregating 8.25% at December 31, 1998) with stipulated minimum and
maximum rates of 8.5% and 11%. The Company is required to pay monthly accrued
interest beginning January 15, 1998. All principal and accrued interest is
due and payable on demand or on January 15, 1999. The Second Line is secured
by real property owned by BCM's former president, and general partner of the
limited partnership that owns the Company's shares (the "Principal
Shareholder"). The Company had outstanding borrowings of $1,000,000 under
this Second Line at December 31, 1998.
F-11
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
6. LINES OF CREDIT (CONTINUED)
These Lines impose certain limitations on the use of proceeds. The First Line
also imposes certain limitations of the incurrence of additional debt.
Borrowings under both of these Lines are guaranteed by the Principal
Shareholder of the Company.
7. NOTES PAYABLE TO SHAREHOLDERS
At December 31, 1998, the Company has eight secured promissory notes payable
on demand to the Principal Shareholder in the aggregate amount of $3,480,014,
which bear interest at 15%. One of these demand notes has a specified
maturity date of November 1, 1998.
At December 31, 1997, the Company had two promissory notes payable on demand
to the Principal Shareholder in the amounts of $665,000 and $500,000, which
carried interest at 10% and 15%, respectively. The Company also had a 15%
promissory note payable to the Principal Shareholder due in November 1998,
with outstanding borrowings of $1,000,000 at December 31, 1997. The Principal
Shareholder did not intend to make a demand for repayment in 1998, and
accordingly, the notes were classified as a long-term liability for financial
statement purposes.
The Company had a promissory note payable to the chief operating officer of
the Company which was due on demand and carried interest at 15%, with
outstanding borrowings of $0 and $50,000 at December 31, 1998 and 1997,
respectively.
8. INCOME TAXES
The income tax provision consists of the following for the years ended December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
Current (primarily federal) $ 656,997 $ 476,793
Deferred (436) 76,232
---------------------------------------
$ 656,561 $ 553,025
---------------------------------------
---------------------------------------
</TABLE>
Deferred income taxes are provided for the effects of differences in the timing
of income and expenses for financial reporting and income tax purposes. The
primary sources of these differences are depreciation and amortization and bad
debt reserves.
F-12
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The income tax provision for the years ended December 31, 1998 and 1997
differs from that computed by using the statutory federal rate due to the
effect of state income taxes as well as certain expenses which are not
deductible for income tax purposes, offset by utilization of tax credits.
9. COMMITMENTS
LEASING ARRANGEMENTS
CAPITAL LEASES
The Company leases a vehicle and furniture and equipment under leases
classified as capital leases. Future minimum lease payments under these
leases, together with the present value of the minimum lease payments as of
December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 $ 149,204
2000 108,967
2001 93,056
2002 40,897
-------------------
Minimum lease payments 392,124
Less amount representing interest 64,398
-------------------
Present value of minimum lease payments 327,726
Less amount due within one year 118,058
-------------------
Amount due after one year $ 209,668
-------------------
-------------------
</TABLE>
OPERATING LEASES
The Company leases its facilities under noncancelable operating leases with
terms in excess of one year. Certain of these leases contain annual escalation
clauses based on the consumer price index, as defined. Additionally, certain of
these lease obligations are guaranteed by the Principal Shareholder. The
aggregate future minimum annual rental payments under these operating leases as
of December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 $ 461,000
2000 502,000
2001 450,000
2002 123,000
-------------------
$ 1,536,000
-------------------
-------------------
</TABLE>
F-13
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS (CONTINUED)
Total rental expense charged to operations aggregated approximately $352,000
and $162,000 during the years ended December 31, 1998 and 1997, respectively.
Included in the provision are amounts paid to the Principal Shareholder of
the Company for various property leases which amounted to approximately
$137,000 and $120,000 during the years ended December 31, 1998 and 1997,
respectively.
STOCK INCENTIVE PLAN
In February 1998, the Company adopted a stock incentive plan which provided
for selected employees to receive either incentive stock options,
non-qualified stock options (collectively, the "Options"), or stock
appreciation rights (the "SARs"), covering up to an aggregate of 1,000 shares
of Company common stock. Options and SARs granted vested 20% immediately on
the date of grant, and 20% each year thereafter for a period of four years,
and had a term of ten years. The Company was to pay cash to grantees upon
exercise of the SARs equal to the net increase in fair market value, as
defined, of the related shares between the grant date and the exercise date.
Fair market value was defined as equaling the latest audited book value if
the Company's stock is not publicly traded, the initial offering price if the
Company consummates an initial public offering, or the closing market price
if the Company's stock is publicly traded. In the event of an initial public
offering by the Company, any outstanding SARs were to automatically convert
to non-qualified stock options. No SARs were granted as of December 31, 1998.
10. CONTINGENCY
IMPACT OF YEAR 2000 (UNAUDITED)
The Company is in the process of assessing the impact of the year 2000 on its
computer software and hardware systems used in the Company's operating and
accounting functions. Based on the Company's assessment, it will correct or
replace any non-compliant year 2000 software or hardware. The Company will
utilize both internal and external resources to reprogram, or replace, test,
and implement the software and operating equipment for year 2000
modifications. The total cost of the year 2000 project cannot be reasonably
estimated at this time, however the Company does not expect the total costs
to be material to its business, financial condition and operating results. To
date, the Company has not incurred any material costs directly associated
with the year 2000 project, except for compensation expenses associated with
salaried employees.
F-14
<PAGE>
Bingo Technologies Corporation
Notes to Consolidated Financial Statements (continued)
10. CONTINGENCY (CONTINUED)
The Company intends to complete its year 2000 assessments and remediation
program by the fourth calendar quarter of 1999. However, if the Company or
its vendors are unable to resolve the year 2000 issue in a timely manner, or
the Company's assessment of the extent of year 2000 issues surrounding its
information systems, operating assets, or significant vendors or service
providers were to be incorrect, the year 2000 issue could have a material
impact on the operations of the Company. The Company does not presently have
a contingency plan in the event its year 2000 compliance program is
unsuccessful or not completed on a timely basis. As of the date of this
report the Company has not yet completed its assessment.
11. SUBSEQUENT EVENT
In February 1999, the Company's shareholders completed a sale of their common
stock in the Company to GameTech International, Inc.
F-15
<PAGE>
GAMETECH INTERNATIONAL, INC. AND BINGO TECHNOLOGIES CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
GameTech Bingo
International, Technologies
Inc. Corporation Adjustments Combined
---------------- --------------- ----------- --------
11/1/97-10/31/98 1/1/98-12/31/98
---------------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 16,177 $ 17,925 $ 34,102
Operating expenses:
Cost of revenues 5,327 4,457 9,784
General and administrative 3,646 4,131 523 (3,4,5) 8,300
Sales and marketing 2,564 6,241 8,805
Research and development 638 849 1,487
-------- -------- ---------
12,175 15,678 523 28,376
-------- -------- ---------- ---------
Income from operations 4,002 2,247 (523) 5,726
Interest income (expense) net 1,368 (602) 766
Equity in net loss of affiliate (2,000) - (2,000)
-------- -------- ---------
Income before provision for income taxes 3,370 1,645 (523) 4,492
Provision for income taxes 1,300 657 402 (6) 2,359
-------- -------- ---------
Net income $ 2,070 988 (925) $ 2,133
-------- -------- ---------- ---------
-------- -------- ---------- ---------
Basic net income per share $ 0.22 $ 0.19
-------- ---------
-------- ---------
Diluted net income per share $ 0.20 $ 0.17
-------- ---------
-------- ---------
Shares used in the calculation of
net income per share:
Basic 9,361 11,228
-------- ---------
-------- ---------
Diluted 10,577 12,444
-------- ---------
-------- ---------
</TABLE>
See notes to unaudited condensed pro forma financial statements.
F-16
<PAGE>
GAMETECH INTERNATIONAL, INC. AND BINGO TECHNOLOGIES CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
GameTech Bingo
International, Technologies
Inc. Corporation Adjustments Combined
---------------- ---------------- ----------- --------
10/31/98-1/31/99 10/1/98-12/31/98
---------------- ----------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 4,534 $ 5,646 $ 10,180
Operating expenses:
Cost of revenues 1,656 1,501 3,157
General and administrative 874 1,023 261 (3,4,5) 2,158
Sales and marketing 838 2,215 3,053
Research and development 211 226 437
---------- --------- -------
3,579 4,965 261 8,805
---------- --------- -------- -------
Income from operations 955 681 (261) 1,375
Interest income (expense) net 308 (151) 157
---------- --------- -------
Income before provision for income taxes 1,263 530 (261) 1,532
Provision for income taxes 493 227 48 768
---------- --------- -------
Net income $ 770 $ 303 $ (309) $ 764
---------- --------- -------- -------
---------- --------- -------- -------
Basic net income per share $ 0.08 $ 0.07
---------- -------
---------- -------
Diluted net income per share $ 0.08 $ 0.06
---------- -------
---------- -------
Shares used in the calculation of
net income per share:
Basic 9,372 11,239
---------- -------
---------- -------
Diluted 10,136 12,003
---------- -------
---------- -------
</TABLE>
See notes to unaudited condensed pro forma financial statements.
F-17
<PAGE>
GAMETECH INTERNATIONAL, INC. AND BINGO TECHNOLOGIES CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
JANUARY 31, 1999
<TABLE>
<CAPTION>
GameTech Bingo
International, Technologies
Inc. Corporation Adjustments Combined
------------- ------------ ----------- -------
1/31/99 12/31/98
------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 12,890 $ 123 $ (10,018)(1,2) $ 2,995
Short-term investments 13,014 - (4,580)(6) 8,434
Accounts receivable, net 1,705 1,255 2,960
Other current assets 1,140 319 1,459
------ -------- --------
Total current assets 28,749 1,697 (14,598) 15,848
Bingo units, furniture and equipment, net 13,048 6,594 19,642
Intangibles and other assets, net 1,807 1,562 18,321 (3) 21,690
------ --------
Total assets $ 43,604 $ 9,853 $ 3,723 $ 57,180
------ -------- --------- --------
------ -------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term debt and current maturities $ 338 $ 4,698 $ (3,655)(1,6) $ 1,381
Accounts payable and accrued liabilities 873 1,750 2,623
Income taxes payable 319 605 924
--------- -------- --------
Total current liabilities 1,530 7,053 (3,655) 4,928
Long-term obligations 430 210 3,699 (1) 4,339
Deferred income taxes 567 201 768
Stockholders' equity:
Common stock 10 - 2 (1) 12
Capital in excess of par value 37,117 2,084 3,982 (1) 43,183
Retained earnings 6,775 305 (305) 6,775
Less: treasury stock (2,825) - (2,825)
--------- -------- --------
Total stockholders' equity 41,077 2,389 3,679 47,145
--------- -------- ------- --------
Total liabilities and stockholders' equity $ 43,604 $ 9,853 $ 3,723 $ 57,180
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
See notes to unaudited condensed pro forma financial statements.
F-18
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINING
FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements reflect the
acquisition of Bingo Technologies Corporation as a wholly-owned subsidiary of
GameTech International, Inc. and have been prepared under the purchase method
of accounting. The pro forma condensed income statements have been presented
assuming the acquisition was consummated effective November 1, 1997, the
beginning of GameTech's prior fiscal year. The pro forma condensed balance
sheet has been presented assuming the acquisition was consummated January 31,
1999. The adjustments to the historical financial statements are those that
are directly attributable to the acquisition. These presentations are in
accordance with SEC regulations. Bingo Technologies' fiscal year end was
December 31, while the Company's is October 31. Accordingly, the actual
financial statements for Bingo Technologies used in the pro forma financial
statements were the income statements for the year and three months ended
December 31, 1998 and the balance sheet as of December 31, 1998. Adjustments
reflected in these pro forma financial statements include the following:
1. The payment of $8,817,994 cash, the issuance of 1,866,938 share of GameTech
International, Inc. Common Stock and the issuance of an aggregate of
$4,624,333 in unsecured promissory notes payable for all outstanding Bingo
Technologies Corporation Common Stock of which there were 10,000 shares
issued and outstanding.
2. Financial advisory fees, legal and accounting fees and other direct
transaction costs are estimated to be $1.2 million. These amounts will be
included in the total purchase price.
3. The estimated total purchase price, including transaction costs, is $20.7
million assuming the value of GameTech's stock is $3.25 per share. A pro
forma adjustment in the amount of $18.3 million is reflected as a purchase
accounting adjustment to record goodwill representing the excess purchase
price over the fair value of the assets acquired. The amount reflected as a
pro forma adjustment on the Unaudited Pro Forma Combining Statements of
Income as additional general and administrative costs relates to the
amortization of goodwill.
4. General and administrative expenses have been adjusted to eliminate
legal fees incurred by GameTech and Bingo Technologies relative to
patent infringement litigation against GameTech by Bingo Technologies.
This case was dismissed upon the acquisition and accordingly those
legal fees would not have been incurred had the acquisition been
consummated effective November 1, 1997. The expense reduction was
$644,000 for the year ended October 31, 1998 and $86,000 for the three
months ended January 31, 1999.
5. General and administratiave expenses have been adjusted to reflect a
reduction in compensation expense that resulted from employment
agreements signed in conjunction with the acquisition. The expense
reduction was $360,000 for the year ended October 31, 1998 and $35,000
for the three months ended January 31, 1999.
6. An adjustment of $4.6 million has been made to short-term investments
and short-term debt to reflect retirement of the Bingo Technologies
short-term debt.
F-19
<PAGE>
7. The pro forma reduction in interest income from the use of cash and
short-term investments in the acquisition and retirement of short-term
debt, net of the reduction in interest expense from the retirement of
the short-term debt is not material and accordingly no adjustment has
been made to the pro forma income statements.
8. The provision for income taxes was increased by $400,000 for the year
ended October 31, 1998 and $48,000 for the three months ended January
31, 1999. These amounts were calculated applying an effective tax rate
of 40% to the net increase in taxable income resulting from adjustments
4 and 5 discussed above.
9. The unaudited pro forma condensed financial statements have not been
adjusted for any material nonrecurring charges which will result directly
from the acquisition and which will be included in GameTech's financial
statements for the year ending October 31, 1999. The amount of these
charges have not been determined at this time.
10. Certain amounts in the Bingo Technologies financial statements presented in
the pro forma financial statements have been reclassified to conform with
the presentation of GameTech's financial statements.
F-20
